Massey Accounting Company

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COVID-19 Job Retention Scheme: Advice for Company Directors

Coronavirus (COVID-19) Job Retention Scheme – Advice for Company Directors

The critera to qualify for the COVID-19 Job Retention Scheme (essentially funding 80% of salaries), is without doubt, stricter and less generous in the case of small company directors. Below I’ll discuss what can be claimed by this group of employees. The full guidance is the same as that for the non-director employees and is found here: https://www.gov.uk/guidance/claim-for-wage-costs-through-the-coronavirus-job-retention-scheme

Job Retention Scheme: How it applies to company directors

  • Directors can be furloughed if they’re an employee on PAYE and on the payroll on 28 February 2020
  • The same restrictions to furloughing apply both to directors and employees. See here for the full list but of particular difficulty for directors is the requirement to perform no work whilst furloughed.
  • In practice, a company may be so badly affected by the crisis that it goes into a ‘COVID-19 hibernation’ meaning that the director would have no day to day employment type duties (especially, income generating activity) but is still on hand to undertake their statutory duties as company director.
  • Other companies might only be partially affected. In such cases, it might be practical to furlough all but one of the directors. This may especially apply to small husband and wife ran companies.

How much is the grant worth to directors?

  • Employers can choose to pay a furlough salary of 80-100% but the government is funding only up to 80% (capped at £2,500). In the case of directors it’s likely that the company will want to continue to pay 100% of the current salary in the knowledge that 80% will be funded by HMRC later.
  • Directors salaries are usually set quite low with the remainder of their remuneration being paid via dividends. Unfortunately HMRC will not be funding anything towards dividends.
  • Presuming therefore that you earn a typical directors salary (often below all tax and NI deductions) of £719 per month. HMRC will fund approx £575 per month.
  • The grant will be received by the company as taxable income and cannot be expected to hit the company before late-June 2020 or later.

Practical tips

  • There’s no need to worry or rush to take action. If work has ground to a halt you will qualify for this scheme. Just apply the rules are best as you can formalise the arrangement later using our template letter to furlough.
  • As for claiming the grant – please don’t contact HMRC. They’re of course extremely busy and are in the process of contacting employers.

My previous COVID-19 posts remain relevant and are:

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Budget 2018 – Small Business Guide & Tax Rates

2017.03 Hammond BudgetHere’s a brief round-up of the main points from the Budget 2018 for you as a small business owner:

Personal tax-free allowance – to increase to £12,500 for 2019/20 (from £11,850)

Marriage Allowance – increase to £1,250 worth a possible tax saving of £250 (from £237)

VAT Threshold – has been frozen at £85,000 for a further two years (until April 2022)

Tax free dividend allowance – to remain at £2,000.

Corporation tax – to remain at the current rate of 19%.

Making Tax Digital – No further announcement meaning that HMRC push ahead with the incoming requirement for VAT registered businesses to maintain digital records from April 2019 – most such business will need to consider using cloud accounting apps.

IR35 – Rules which have seen many public sector contractors become employees are expected to be rolled out to private sector large and medium-sized businesses from April 2020.

National Living Wage – will increase to £8.21 starting April 2019 (from £7.83)

So, at what rate should you set your next year’s director’s salary and dividends? Bespoke advice will be sent to all clients in the coming months. In the meantime we have two downloads available:

Our Guide to the Budget 2018, and our most recent Tax Rates Sheet

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Autumn Budget 2017 – Small Business Guide & Tax Rates

2017.03 Hammond Budget

An uneventful budget, thank you Phillip!
Here’s a brief round-up of the main points for you as a small business owner:

Personal tax free allowance – to increase to £11,850 for 2018/19 (from £11,500)

Marriage Allowance – increase to £1,185 worth a possible tax saving of £237 (from £230)

VAT Threshold – has been frozen at £85,000 for two years (there’s a hint that this could be lowered in line with other EU countries after April 2020)

Tax free dividend allowance – will be reduced to £2,000 (from £5,000) as we already knew from April 2018.

Corporation tax – to remain at the current rate of 19%.

Making Tax Digital – VAT registered businesses will be required to maintain digital records from April 2019 – meaning that most such business will need to consider using cloud accounting apps.

IR35 – Unsurprisingly, it was announced that HMRC will consult on reforms to IR35 for the private sector (public sector having already undergone reforms).

Self-Employed NI – Will delay the abolition of Class 2 NICs by a year until 6 April 2019. Class 4 will remain at 9%.

National Minimum Wage – increase to £7.83 starting April 2018 (from £7.50)

We have two downloads available for our clients:

Our Complete Guide to the Autumn Budget 2017, and our most recent Tax Rates Sheet covering 2016/17, 2017/18 and 2018/19

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Spring Budget 2017 – A Business Owners Guide

2017.03 Hammond BudgetSmall business owners will probably find that yesterday’s budget was not as bad as some of the headlines are making out. Yes national insurance will increase for the self-employed and company shareholders will again see an increase in their personal tax bills but a quick look at the numbers shows that, for now, these increases are likely to be modest.

Mr Hammond suggested that the self-employed earning below £16,250 will actually end up paying less National Insurance – and this seems about right. In fact even if profits were around the £25,000 mark then the increase (which will start from April 2018) will be only around £140.

As for small company owners that pay themselves using a mix of salary and dividends (for the best 2017/18 salary and dividend mix see here) the announcement means a basic rate taxpayer who receives £5,000 in dividends will have to pay an extra £225 tax from April 2018. A higher rate tax payer will pay an extra £975.

On The Bright Side

Very welcome was the postponement to Making Tax Digital for the self-employed which for those under the VAT threshold means that quarterly reporting will not now become mandatory until April 2018 (starting April 2020 for limited companies).

And any firm coming out of Small Business Rate Relief will receive an additional cap next year on increases of no more than £50 a month.

Download our more detailed guide to the budget (including current and newly announced tax rates and thresholds) here.

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Optimal Directors’ Salary and Dividend Mix for 2017-18

Probably the most important post of the year for limited company directors!

Question: What’s the most tax efficient salary and dividend mix for the 2017/18 tax year?

An owner managed limited company will usually pay their directors / shareholders with a mix of salary and dividends.

The level of the director’s salary is usually set in order to avoid any income tax and national insurance. On this basis the recommended remuneration package for 2017/18 is:

Upper limits for 2017/18

Salary – per annum: £8,164 (last year £8,060)
Salary – per month: £680 (last year £671)

Dividend – per annum: £36,836 (last year £34,940)
Dividend – per month: £3,069 (last year £2,911)

It should be noted that since the introduction of the dividend ordinary tax rate of 7.5% on dividends over £5,000 there will be a personal tax bill of £2,138 (last year £2,025) if dividends are paid all the way up to the basic rate limit of £45,000 (last year £43,000).

For those companies that also have non-director employees on the payroll then they will continue to benefit from the Employment Allowance which reduces the company’s Class 1 National Insurance contributions (Employer’s N.I.) by up to £3,000.

In such cases there may be an opportunity for directors to eke out a little more tax savings by paying themselves a salary of £11,500 and dividends up to a maximum of £33,500 (the overall tax saving between the director and the company being around £234).

This second option will not be the best fit for everyone. More that ever, personal circumstances must be carefully considered to give the best results.

Each client of Massey Accounting Company will be receiving a personalised recommendation shortly.


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Optimal Directors’ Salary for 2016-17

Probably the most important post of the year for limited company directors!

If you’re looking for the 2017/18 optimal directors’ salary, check out this year’s post here. Otherwise for our 2016/17 article read on.

An owner managed limited company will usually pay their directors’ / shareholders’ with a small salary + dividends.

The level of the director’s salary is usually set in order to avoid any income tax and national insurance. On this basis the recommended remuneration package for 2016-17 is:

Upper limits for 2016-17

Salary – per annum: £8,040 (last year £8,040)
Salary – per month: £670 (last year £670)

Dividend – per annum: £34,960 (last year £30,891)
Dividend – per month: £2,913 (last year £2,574)

It should be noted that with the introduction of the dividend ordinary tax rate of 7.5% there will be a personal tax bill of £2,025 if dividends are paid all the way up to the maximum basic rate limit of £34,960 (yes, that’s a personal tax bill of up to £2,025 compared to £nil last year!).

For those companies that also have non-director employees on the payroll then they will continue to benefit from the Employment Allowance which reduces the company’s Class 1 National Insurance contributions (Employers N.I.) by up to £3,000 (last year £2,000).

In such cases there may be an opportunity for directors to eke out a little more tax savings by paying themselves a salary of £11,000 and slightly lower dividends of £32,000 (the overall tax saving between the director and the company being around £237 (last year £203)).

This second option will not be the best fit for everyone. This year, more that ever, personal circumstances must be carefully considered to give the best results.

Each client of Massey Accounting Company will be receiving a personalised recommendation shortly.


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Check out our new whiteboard animation

Please check out our newly created 2 min. whiteboard animation. Comments and feed-back are welcome! Please feel free to share.

 

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Thank you John Oldham Plastering

Thank you John Oldham Plastering for your testimonial. We’re proud to be working with local businesses like yours.

Read John Oldham’s testimonial. Visit John’s website: www.plastererhighpeak.co.uk

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Travel – no longer a tax deductible expense for contractors

Are you a contractor working through your own limited company? Then the government are about to drastically reduce your tax deductible expenses!

Essentially, contractors will no longer be able to claim for their cost of home-to-work travel and subsistence.

The detail
At Budget 2015 the government announced its intention to consult on proposals that will restrict tax relief for the cost of home-to-work commuting for those employed through an employment intermediary and working under the supervision, direction or control of any person.

The widely criticised consultation has now closed and it is expected that from 6 April 2016 the government will remove the ability of contractors to claim tax free travel and subsistence costs when all of the following apply:
A. The contractor works through an employment intermediary whose business is substantially the supply of labour;
B. The contractor can be subject to (or the right to) supervision, direction or control in their work by any person;
C. The contract is performed within the UK – tax relief for the costs of travelling to workplaces situated overseas is not affected.

It is now highly likely that these proposals will be included in the Finance Bill 2016.

There is no getting around the fact that this is very bad news for limited company contractors that can now expect significantly higher corporation tax bills. Some contractor may be able to re-arrange their affairs to reduce their exposure to the new rules. All of our contractor clients will shortly receive personalised guidance.

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National Minimum Wage Rise from 1 October 2015

National Minimum Wage (NMW) rates rise from 1 October 2015. For an employee 21 years old+ the NMW is now £6.70 ph. Also of note is a significant increase in the apprentice rate to £3.30 ph (from £2.73). Ensure your payroll procedures are up to date. For further details and more rates visit gov.uk

Our client’s will shortly be receiving personalised guidance.

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DON’T Go Paperless

It feels like almost every time you login into your online banking you’re asked to turn off paper bank statements. My strong advice is don’t!

As some of you will know I run a near-paperless office. I’m not against environmental, cost and space savings where they can be made but consider the following:

1. As a self-employed person or company director you’re required by law to retain your financial records for the past 6 years + the current year. Yet, banks, mobile phone companies, utility providers etc aren’t worried about that. Online documents are stored for anything between 6 months and 6 years. Further if you close your account you probably will not be able to access these online records.

2. The bank statements of your business and even your personal bank account will be amongst the first records requested during a HMRC tax investigation. Don’t have them? Or your banks online format not acceptable? Then I’ve known banks charge hundreds of pounds for supplying 6 years’ worth of paper bank statements – statements which you should have already received!

3. Finally, paper statements are primary records of your business. They provide a valuable visual reminder and control of what’s going on financially.

Switch on and keep turned on your paper bank and credit card statements. When you receive them in the post file them in number or date order and store them away for 6 years + the current year.

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Summer Budget 2015 – How Much Will It Cost You?

Summer Budget 2015 – How Much Will It Cost You?

The Summer Budget of 8 July 2015 was reportedly an expensive one for the owners of small limited companies. Let’s take a look at the most noteworthy measure – the new dividend tax. How much will it cost you?

At present a company pays 20% corporation tax on its profits after which dividends are paid out effectively tax free to basic-rate taxpayers.

Starting 6 April 2016 all taxpayers will be able to receive £5,000 of dividends tax free but will then pay 7.5% Income Tax until they reach the higher rate tax band on income over £43,000 after which they will pay 32.5% Income Tax on remaining dividends.

Let’s take a look at some common scenarios:

Typical husband and wife company with profits of £20,000 after directors salaries
Husband and wife can continue to receive a salary of around £8,000 each + dividends of £8,000 each all tax free.

In this case the husband and wife will receive £32,000 from the company and will not incur any additional personal Income Tax under the new rules. In fact their company will eventually benefit from a cut to corporation tax from 20% to 18% by 2020 and save, in the above scenario, £400+ per annum.

Typical husband and wife company with profits of £30,000 after directors salaries
Again the company would continue to pay the usual £8,000’ish salaries and in this case could afford to pay £12,000 dividends each.

Together the husband and wife receive £40,000 but would have a personal Income Tax bill of around £300 each. Yet in this case also the company will eventually benefit from the planned cut to corporation tax and save around £600+ per annum. No overall tax increase.

True, there are those at the top end of the scale that will pay as much as £1,700 more Income Tax for the year 2016/17 but it seems that even that increase will eventually be neutralised by the corporation tax saving.

The new dividend tax has reduced the attraction for new businesses to immediately incorporate but it doesn’t offer an incentive for dis-incorporation either. A limited company continues to be the most tax efficient trading vehicle for most small businesses.

For a more detailed analysis of the March and July 2015 Budgets please download our Full Guide to the Budgets of 2015.

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Do Charitable Donations Attract Tax Relief?

 

Yes, charitable donations given via Gift Aid do attract tax relief. If you compelte an Income Tax Return it’s worth understanding the basics so that you don’t miss out on additional tax relief or fall foul of one of the hidden traps of Gift Aid.

Regular donations supported by a Gift Aid Declaration
This is a very effective way to make your donations. You must first complete a Gift Aid declaration form provided by the charity to which you wish to contribute. You may then, for example, choose to set-up a monthly standing order using your assigned Gift Aid reference. Provided you are a taxpayer the charity will then claim an extra 25p for every £1 you donate. Brilliant! In fact, higher rate taxpayers will later go on to claim additional tax relief as long as they declare these donations on their Income Tax Return or let HMRC know to include them in your Tax Code.

This arrangement usually works fine, but the self-employed or small limited company director should beware – It is possible that this arrangement could cause a tax liability to arise upon completion of your Income Tax Return.

Gift Aid – the hidden trap
Taxpayers benefit from Gift Aid, non-taxpayers don’t. Strictly speaking your donations will qualify as long as they’re not more than 4 times what you have paid in tax in that tax year. The problem arises because the self-employed person might be a taxpayer one year but not the next. Small limited company directors sometimes pay no personal income tax, especially if their dividends are under the Dividend Allowance.

If you cease to be or are not expecting to be a taxpayer in the current year you should tell the charity and cancel any existing Gift Aid arrangements. Failure to do so will mean that when you complete your Income Tax Return you’ll be required to repay the tax that the charity has reclaimed.

Of course, you can continue to make your regular monthly standing order / direct debit payment to the charity but if you’re not a taxpayer for any given year you’ll be better off cancelling your Gift Aid arrangement.

Finally, for those that like to squeeze a little more out of the tax man
Let’s presume you’re a small limited company director earning under the higher rate tax threshold and only in receipt of your company salary and modest dividends. In that case you might not be a taxpayer. However, there is a way that your donations can continue to attract tax relief for your chosen charity under the Gift Aid small donations scheme:

Charities can claim an additional 25% on cash donations of £20 or less, even if you don’t have a Gift Aid declaration. So, if the small company director is able to physically contribute cash each month the charity will benefit from Gift Aid regardless of his status as a taxpayer!

(Article last updated February 2018)

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Optimal Director’s Salary for 2015-16

Probably the most important post of the year for company directors!

Wage riseThe small owner managed limited company will usually pay their directors / shareholders with a small salary + dividends.

The level of the director’s salary is usually set in order to avoid any income tax and national insurance. On this basis the recommended remuneration package would be:

Upper limits for 2015-16

Salary – per annum: £8,060 (last year £7,956)
Salary – per month: £671 (last year £663)

Dividend – per annum: £30,891 (last year £30,518)
Dividend – per month: £2,574 (last year £2,543)

However, since the introduction of Employment Allowance some company directors will be better off paying themselves a £10,600 salary and slightly lower dividends (up to £28,606).

Employment Allowance means that most employers will be able to reduce their Class 1 National Insurance contributions (Employers NI) by up to £2,000.

So, increasing your salary and yet not having to pay the Employers NI will save the company £203 per director / shareholder.

Not everyone will benefit. Generally if you have other income you’d be better sticking with the above “usual” remuneration package.

Each client of Massey Accounting Company will be receiving a personalised recommendation shortly.

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Payroll clients beware!

Starting 6 March 2015 HMRC will issue penalties for late payroll submissions.

This means that payroll data needs processing and submitting to HMRC on or before the date your employees are paid.

Penalties are charged for more than one late submission in the tax year as follows: 1-9 Employees – £100 per month; 10-49 Employees – £200 per month.

Whist this is strict I don’t think we’ve had one late filing this year. However, the real trap may be when it comes to leavers:

Leavers (and their P45) should be processed and notified to HMRC on or before the day they leave or on the day of their last payment. Failure to report on time will trigger a late filing penalty.

Please keep this in mind and keep us informed as soon as you know when an employee is starting and leaving.

Source material: https://www.gov.uk/what-happens-if-you-dont-report-payroll-information-on-time

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Which Accountant Would You Choose?

Not what you would call an accountant?
Check out this brief but insightful article:

Which Accountant Would You Choose?

 

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Are gifts to customers allowable against tax?

As a general rule gifts to customers are not allowable against your taxable profits.

However, follow this guidance and you can afford to be a little more generous with your customers this year:

Small gifts which carry a conspicuous advertisement for the trader are an allowable expense. Common examples include: branded diaries, pens and mouse mats. The advertisement must be on the gift, not just the wrapping.

Unfortunately the expenditure of the following kind is specifically excluded (even if it incorporates your advertisement): Food, drink, tobacco, gift vouchers and gifts exceeding £50 per recipient.

Source material: http://www.hmrc.gov.uk/manuals/bimmanual/BIM45070.htm

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National Minimum Wage Rise from 1 October 2014

National Minimum Wage (NMW) rates rise from 1 October 2014. For an employee 21 years old+ the NMW is now £6.50. Ensure your payroll procedures are up to date. For further details visit gov.uk

Our client’s will shortly be receiving personalised guidance.

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Invoice on the go

Invoices by WaveMy favourite (and free) cloud bookkeeping system just got better – the new Invoice by Wave app allows on-the-go invoicing. Download it from the App Store.

As I’ve said before, I’m not an affiliate, just a fan of this cool bookkeeping system that’s already helping many of my clients.

 

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Can the Cycle to Work Scheme Work for You?

Tour de France

Feeling inspired by le Tour de France? As a business owner perhaps you’re wondering if the Cycle to Work Scheme could be of some benefit.

Probably not, BUT…
The government have done it again – generally small owner managed businesses have found that the costs and hassle of operating the scheme outweigh the benefits.

For example – you could use a third party provider to set-up the scheme (usually a larger bike shop) but even then there’s salary sacrifice arrangements, benefits in kind, VAT claimed (then paid later!) and terms of employment to be updated. Forget it!

REAL WORLD SCENARIO
If you’re planning to use your bike for mostly business (including your commute) then your company can buy you a bike + safety equipment. The limited company will attract 20% corporation tax relief and be able to reclaim the VAT. Simples! A greater saving with much less trouble.

Nb: Of note is that the company will always own the bike or must resell to a third party / scrap.

Source info: https://www.gov.uk/government/publications/cycle-to-work-scheme-implementation-guidance http://www.legislation.gov.uk/ukpga/2003/1/section/244?view=plain

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