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New Employee Shareholder Status

The Government thinks that employees who own shares in their employing company feel more involved in that business and hence are happy and loyal employees. So it has introduced a new share scheme from 1st September 2013 which allows you, as an employer, to give your employees tax-free shares in your company, but in return the employees must give up some key employment rights.

How does this work?

The employee must sign a fresh employment contract called an ’employee shareholder’ contract, then they must be issued with shares worth at least £2,000 (and up to £50,000) in their employing company. When the individual sells those shares any gain arising on that disposal is completely exempt from capital gains tax. However, any gain up to £10,900 (for 2013/14) would be tax free anyway.

Normally where shares are awarded to an employee their value is treated as taxable income for that employee, unless the shares are issued under an approved share scheme. In this case the first £2,000 worth of shares awarded will be free of income tax and NIC, but not any further shares.

The downside is the employee must surrender all of following rights to take up employee shareholder status and receive the free shares:

  • compensation for unfair dismissal, apart from when this is automatically unfair or relates to anti-discrimination law;
  • request for time off for studying or training;
  • request for flexible working; and
  • statutory redundancy pay.

Also the employee must give 16 weeks’ notice (instead of 8 weeks) when returning from maternity or adoption leave.

This sounds like an attractive deal for an entrepreneur who doesn’t care about his own employment rights. However, any person who holds 25% or more of the company (alone or with associates) can’t take up employee shareholder status and enjoy the tax-free shares. So this share scheme can only be used to give shares to employees who don’t already have a significant share in the company.

Before implementing this scheme you should take employment law advice, and specialist advice on how to value your company’s shares. The employees should also take independent advice before signing away their employment rights, but you, as their employer, can pay for that advice with no tax consequences.

Personal Allowances

Personal Allowances The latest budget has confirmed that the basic personal allowance will be increased from the current £8,105 to £9,440 for 2013/14. The Coalition Government plan to ultimately raise the allowance to £10,000 from 2014/15. The additional tax rate of 50% is reduced to 45% for 2013/14 for taxable income over £150,000.

National Minimum Wage – 1st October 2013

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1st October 2013 National Minimum Wage rates increase on this day:

The adult rate increases by 12p to £6.31 per hour.

The 18-20 year olds rate increases by 5p to £5.03 per hour.

The 16-17 year olds rate increases by 4p to £3.72 per hour.

The apprentice rate will increase by 3p to £2.68 per hour.

New cloud invoicing Software – Banc Pay

BancPay is an intelligent cloud invoicing service that allows all types of companies to create & exchange invoices electronically to improve cash flow & reduce administration costs. BancPay is free during 2013

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What is BancPay?

BancPay is a paperless invoicing system that helps businesses reduce administration costs and manage cash flow by automating the way invoices are handled.

BancPay removes the hassle of dealing with all those different types of invoices you have to send or receive. BancPay handles; paper, PDF, scanned image, web form and electronic invoices.

BancPay operates in the Cloud, offers greater security, drastically reduces paper handling, allows you to know what is happening to your invoices and helps the environment by reducing paper and transport costs.

BancPay supports multiple languages and multiple currencies – so if you have subsidiaries across the globe, or are looking to expand internationally, BancPay is there to support you.

By using Cloud commerce, businesses can send, receive, approve or refer their invoices without the additional costs of printing and posting by mail. BancPay is fast, simple and flexible. So flexible, that every company can create their own business network of suppliers and customers.

We know that running a business is more than just sending and receiving invoices, it’s also about managing your finances. So BancPay allows you to see the status of all your invoices and when they will be paid. This helps you to improve your cash flow and benefit from early payment discount opportunities.

Imagine a paperless invoicing system. Imagine BancPay.

 

When to hire a Bookkeeper

Entrepreneurs thrive on a DIY mentality: Do everything you can yourself and don’t pay for anything new until you have absolutely have to. It’s especially difficult to justify hiring financial help like a bookkeeper.

With user-friendly software available, many business owners feel they should be able to do keep their records on their own, even as they wrestle with finding the time and wonder if they’re doing things correctly.

Entrepreneurs who hire accounting help usually discover they weren’t doing nearly as well on their own as they thought they were.

So what are a small-business owner’s options for professional help with financial tasks? Here is a primer:

Do I Need a Bookkeeper or an Accountant?
Actually it’s a trick question. You may need both.

An accountant can analyze the big picture of your financial situation and offer strategic advice. He or she produces key financial documents, such as a profit-and-loss statement, if needed, and files a company’s taxes.

After tax season is over, an accountant can also act as an outsourced chief financial officer, advising an entrepreneur on financial strategies, such as whether to secure a line of credit against receivables when introducing new products.

In contrast, a bookkeeper does the day-to-day hands-on tasks: making sure new employees file all the right paperwork for the company’s payroll, submitting invoices (promptly) and following up on them, and paying the bills. The bookkeeper also tracks company expenses and can assure that every cost has been entered — and recorded correctly — into software like Xero or Sage so that the business is ready for tax time along with filing any other reporting to, say, creditors or investors.

When to Bring in a Bookkeeper

The rates for hiring a bookkeeper on a part-time basis in the U.K are a small price to pay for accuracy, depending on location, the workload and whether work is done at the company’s office or from home.

Most small businesses typically sees his accountant once a year, at tax time. But business owners requiring capital or frequently negotiating credit with a bank are likely to contact their accountants more often.

 

 

Research and Development

Did you know there is a tax relief for companies which invent stuff? The process of inventing and solving the associated problems is called research and development (R&D). Companies can more than double the tax deduction given for the costs of R&D.

The new ‘stuff’ could be a product, a material or a process which has been changed or improved. For example if you find a way of speeding up a production line, or changing the process to cope with a new type of material, the work to achieve that aim is R&D which should qualify for the tax relief.

Many innovative ideas don’t actually work. That doesn’t matter. The costs expended when working on your new idea are tax allowable as R&D, if you can show you were pushing the boundaries of knowledge or capability in the fields of science or technology.

Working on some types of computer programming can count as R&D, particularly where you are making previously unrelated computer systems work together. The key is that no-one else has done what you are trying to, or if they have achieved it, they have kept their discovery to themselves.

Even small costs are worth claiming as there is now no minimum claim for each year.

Self Assesment

Did you know your client could be landed with a penalty if they fail to tell the Taxman when they become liable to pay tax? For example, when your client became self-employed, or made a large capital gain. The deadline for declaring that your client has income tax or capital gains tax (CGT) chargeable relating to the year to 5 April 2013 is 5 October 2013.

If they miss that deadline, the Taxman may send your client a failure to notify penalty, which can be up to 100% of the tax due. However, if your client pays all the tax due on time, which for income tax and CGT relating to the 2012/13 tax year is by 31 January 2014, the penalty can be reduced to nil.

Where your client has already received a self-assessment tax return form to complete for 2012/13 or a notice to file a self-assessment tax return online, your clients obligation to tell the Taxman is satisfied when they submit their tax return on time. But if your client hasn’t got a tax return form, they need to ask the Taxman to set them up in the self-assessment system before 5 October 2013.

Once your client is registered with the Tax Office, they should receive either a Tax Return form or a letter from the Taxman asking them to file a Tax Return online. The form or letter will include your clients Unique Taxpayer Reference number (UTR). If your client submits a Tax Return that does not include their personal UTR number it may be rejected, and any tax payments your client makes will not be promptly matched to their records.

Claim for the business use of your home

pipe-hill-houseTwo potential methods for calculating business use of home

If your business is eligible to use the new simplified accounting method, then as from 6th April 2013 you have two options to work out how much to claim for business use of home.

If your sales are under the VAT threshold, which at the moment is £79,000 a year, and you are a sole trader or in a partnership where all the partners are individuals rather than corporate bodies (so if you are in a partnership and one of the other partners is a limited company, that’s not you), you’re eligible to use the simplified accounting method, and one option this method allows is a flat rate calculation for business use of home.

The flat rate method

This simply asks you to look at how many hours a month you spend running your business at home, on average, and then include a fixed amount in your accounts for business use of home.

The amount varies with the number of hours per month you work at home, as follows:

25-50 hours: £10 per month

51-100 hours: £18 per month

101 hours or more: £26 per month

Using this method will certainly be quicker than working out your actual costs, but the figure might not be as high and so you could save time but pay more tax.

The second method, which is the method you’ll have to use if your business is not eligible to use the simplified accounting method and which is also the method that has to be used for accounts dated up to and including 5th April 2013, works like this.

Analysing the costs method

If you want to claim part of the actual running costs of your home in your business accounts, then how much you can claim depends on the type of business you have and what work you actually do at home.

For example, if you’re a freelance decorator you might spend an hour or two a week writing up your books at home, but spend the rest of your working life at your customers’ properties. But if you’re a self-employed PR consultant or web designer, you may well do the vast majority of your work at home and only occasionally visit clients.

HMRC say that you need to apportion the running costs of your home on a “fair and reasonable” basis between the private element of that cost – the part that relates to you actually living there – and the business element. But how do you do this?

One method is to work out how many rooms you have in your home, and identify how many of those rooms you use for business – and also calculate how much time you actually use these rooms for business.

Just remember that it’s not a good idea to use any part of your home solely for business activities all the time and never use it for any private activities, because capital gains tax will then be due on the part you use just for business if, and when, you sell your home. Instead, try to make sure that your work space serves a dual purpose – for example, my own office at home is also my music room, and I could easily prove that to a visiting HM Revenue inspector because there’s a piano in there.

So, say there are 10 rooms in my home. I only use one for business, and 90% of the use of that room is for business. So I would add up all the costs I can claim, and multiply that by 1/10 and then by 90%, to get my accounts figure for the business use of my home.

But what running costs in my home can I actually include in my accounts?

Costs you can claim

Here are some of the costs you might incur to run a home, which you may then be able to claim part of in your business accounts:

Mortgage

If you’re buying your home through a mortgage, you can claim a proportion of the interest only – not the capital repayment.

Rent

You can’t charge your business rent when you’re self-employed, because legally you are the business. But if you’re renting your home from a landlord, then you can claim a proportion of the rent for your business.

Council tax

You can claim a proportion of your council tax cost. However, depending on how much you use your home for business, you may have to pay business rates rather than council tax.

Light and heat

You can claim the business proportion of your gas and electricity costs for lighting and heating in the room(s) you use for business.

Telephone and broadband

Remember that what you can claim for your telephone and broadband is not apportioned on the basis of the number of rooms in your home, but on what your actual usage of the line is.

You can claim the full cost of all your business use of the line, and a percentage of the line rental, based on how much you use it for business purposes and how much is for personal use.

Property repairs

If a property repair relates solely to the part that’s used for business, you would include this cost in your accounts in full, subject to the business use of that room.

So for example, if the ceiling in my office/music room was repaired and that cost £200, I wouldn’t need to divide that by 10 because the repair was only for that room – I would just multiply by 90%, and include £180 in my accounts.

If the repair is to the whole house, for example a repair to the roof, you can include that in the same proportion as you would the rent or council tax – so in the example of my 10-room house, the repair cost x 1/10 x 90%.

But if the repair is just for a part of the house that’s not used for business – such as replastering of a kitchen – then you can’t claim any part of that repair in your business accounts.

Water

If you use a lot of your home water supply for business – for example if you run a car valeting service – then you would need to apply to the water company for this to be separately charged, and you could claim the full cost.

But if your water use for your work is only minor, you can’t claim any of the cost for your business.

 

Claiming costs of working at home is not as simple as it initially sounds. If you’re in any doubt as to what you can claim, you should seek further advice from an accountant.

Leaving It To Charity

If you haven’t made a Will, you should do so without delay. If you don’t have any relatives you want to leave your estate to, consider making a Will that leaves most of your assets to specified charities. This avoids the potential problem of intestacy (dying without a Will), and saves tax as gifts to charities are free of inheritance tax. However, there are two traps to avoid:

Identifying the charity

Many charities have merged or changed their names in the recent past, so when it comes to distributing the estate according to the Will, it may be difficult to work out exactly which charity you intended the funds to go to. To avoid this problem make sure your Will states the charity’s registered office and charity number. You can also include a clause in your Will specifying that the gift should be directed to any organisation that amalgamates with the original charity.

Residue of the estate

The second problem can occur where the charity has been left an undefined amount in your Will, such as the residue of your estate. This can lead the charity’s officers hassling the executors, querying deductions such as legal fees and in extreme cases challenging the distribution of your estate in Court. To avoid this problem leave specified amounts of cash or assets to your chosen charities rather than the amount left over after other gifts have been made and any tax paid.

IAB 40 years old

The International Association of Bookkeepers is celebrating its 40 year anniversary

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