Massey Accounting Company

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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.

Enjoy saving tax?

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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.

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.


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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)

Enjoy saving tax?

We have two videos to help on ourYouTube-logo-full_colorchannel; and for regular tax-tips follow our blog on Google+ or click +Follow at the bottom of this page.