Massey Accounting Company

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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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Entertaining and Meals Out – What is the correct tax treatment?

Entertaining and Meals Out – What is the correct tax treatment?

Entertaining clients & staffCan your company pay for the occasional meal out? Maybe. You might be surprised at how much entertainment is allowable if you play within the rules.

Let’s have a look at a few scenarios:

Two directors enjoy a meal out to discuss business
Not allowable for corporation tax. In fact if the company does pay for the meal then the benefit should be reported and National Insurance paid on form P11D. To avoid this needless complication either the company should not pay for such meals or they should be posted against the directors’ loan accounts.

A director or employee takes a client out for a meal
Unfortunately, as above, business entertainment is not allowable against taxable profits. HMRC Guidance found here.

Annual staff function (usually annual xmas party)
Annual staff functions are an allowable expense provided the following criteria are met: The cost of the event does not exceed £150 (inc VAT) per head. The function is annual and not a one-off. Such staff entertaining is allowable for corporation tax and no benefit in kind will arise on staff members thanks to the exemption given by Section 264 ITEPA 2003.

Finally, two company directors (husband and wife) enjoy a meal out together which they hold as their annual staff function. The company has no other employees. Is this tax deductible?

Yes, presuming the function costs no more than £150 per head, all staff are invited and the function is held annually.

Nb: This guidance is not to be confused with costs of travel and subsistence (i.e. modest lunches in the normal course of business travel). See my previous post here.

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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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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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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.

 

Enjoy saving tax?

View our video: How to Save Tax YouTube-logo-full_color; and follow our blog on Google+ or click +Follow at the bottom of this page.