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What are the tax implications of Bitcoin for businesses?

November 11, 2014 by Tax Donut contributor

What are the tax implications of Bitcoin for businesses?{{}}Faith in the traditional banking system has waned and the doors are opening to new entrants. Anyone can be a banker now. In fact, anyone can be a central banker and create their own money or, rather, mine it, like gold. This is crypto-currency or secret currency, of which Bitcoin is the best-known example.

Reminiscent of the ’49 California gold rush, the giants of Silicon Valley are piling in. What’s not to like? Low transaction fees, no FX, no banker-of-last-resort, no deposit insurance scheme, no Financial Ombudsman.

In fact, it’s not money; it’s a commodity. The US Department of Justice has declared it to be ‘goods’. Paying with Bitcoin is not paying with money. It is barter: offering goods for goods.

But what are the implications?

Should VAT be added to a Bitcoin payment you are making if you are VAT-registered? Since Bitcoin is secret, do you even know who you are trading with, what VAT should be added or what you put in your EU Sales List?

Should payments made with Bitcoin be added to ‘Cost of Goods Sold’ or payments received added to ‘Sales’? What is the treatment if the value of Bitcoin owned rises or falls? Are such profits taxable and any losses tax-deductible?

These are some important questions, but ones that can get lost in the rush to innovation – small businesses really do not want to get caught out. Similarly, why can Bitcoin be termed an ‘investment’ when the exchanges on which it is traded are unregulated and their location, staffing, ownership and accounts may be invisible? Who is the market-maker in the goods and how can you be sure you can get your value out in real money when you want it? Bitcoin may appear attractive when deposit rates are 0% but the business propositions, security and safety nets are very different.

With crypto-currencies it’s as Tina Turner once said in the 1985 film Mad Max 3: Beyond Thunderdome: “I know you won't break the rules, because there aren't any”.

Copyright © 2014 Robert Lyddon. Robert Lyddon is general secretary of international banking network IBOS.

Further reading

Company and individual liquidations continue to fall

November 03, 2014 by Mark Williams

Company and individual liquidations continue to fall{{}}When compared to the corresponding quarter in 2013, the number of company liquidations in England and Wales decreased by 11.7% in July to September 2014, which could be further signs of better times ahead for the UK’s 4.9m businesses.

Compared to Q2 2014, there were 3.2% fewer company liquidations in England and Wales, with figures published by The Insolvency Service on 29 October also showed that in the 12 months leading to September 2014, 1 in 186 companies went into liquidation, compared to 1 in 177 in the 12 months to June 2014.

There were 858 compulsory liquidations, a 12.4% fall on the previous quarter and a 6.8% reduction on the corresponding quarter last year. Although creditors’ voluntary liquidations increased by 0.4% compared to the previous quarter, they are 13.3% down when compared to the same quarter last year. Administrations decreased by 18.8%, with company voluntary arrangements and receiverships also down.

Individual insolvencies

And there was better news about individual insolvencies, too. According to The Insolvency Service the number of people who became insolvent in England and Wales in Q3 this year fell by 4.6% when compared to Q3 2013, the result of decreases in bankruptcy orders (down 18.7%) and individual voluntary arrangements (down 1.9%).

When reporting the news of personal bankruptcies falling to their lowest level since 2006 BBC News said this was because many people were choosing other forms of insolvency. “There has been a rise in the number of people using Individual Voluntary Arrangements or Debt Relief Orders, which can often be cheaper or cause less disruption to their home lives,” it reported.

IVAs and DROs

According to official website Gov.uk: “An Individual Voluntary Arrangement (IVA) is an agreement with your creditors to pay all or part of your debts. You make regular payments to an insolvency practitioner (IP), who will divide this money between your creditors.

“Your IP works out what you can afford to repay and how long the IVA lasts. You’ll have to give details about your financial situation, eg your assets, debts, income and creditors. Your IP will contact your creditors. The IVA will start if the creditors holding 75% of your debts agree to it. It will apply to all your creditors, including any who disagreed to it.”

It adds: “Debt Relief Orders (DROs) are one way to deal with your debts if you owe less than £15,000, have little spare income and don’t own your home. If you get one: your creditors can’t recover their money without the court’s permission; and you’re usually freed (‘discharged’) from your debts after 12 months. You get a DRO from the official receiver, but you must apply through an authorised debt adviser.”

Blog written by Tax Donut editor and freelance start up and SME content writer Mark Williams.

Further reading

Preparing your first online tax return? Sign up for the HMRC live online webinar

October 15, 2014 by Fanny Marshall

Free HMRC live webinars on Start-up Saturday, 15th February/HMRC logo{{}}

Submitting your first self-assessment tax return can feel daunting. The deadline for online returns for the tax year 2013-14 is 31 January 2015. This may feel like a long way off but it will roll around sooner than you may think, especially as we approach the busy months in the run up to Christmas. It pays to be well prepared.

HM Revenue & Customs (HMRC) is running a live interactive webinar at 12pm on 24 October 2014 aimed at self-employed people who are submitting their tax return for the first time.

It will demonstrate:

  • how to register for Self Assessment Online
  • tailoring (personalising) your Tax Return so you only see the screens you need to
  • how to complete your Self-employed pages
  • sending your completed Return online

You will also have the opportunity to ask the presenter your own questions.

You can take part in the free live webinar by pre-registering on the HMRC website and submitting questions in advance to be answered on the day. The webinar will last an hour.

Register for the HMRC live webinar self-employment and your online tax return

Record keeping for the self-employed

HMRC is also holding another live interactive webinar on record keeping for the self-employed at 3pm on 20 October 2014.

This webinar is aimed at sole traders and partnerships (but not LLPs) and is intended to give an introduction to the basic principles of keeping good records. It will give you guidance as to what HMRC expects from you and how you can get into good habits from the start.

Again, you can take part in this free live webinar by pre-registering on the HMRC website and submitting questions in advance to be answered on the day. The webinar will last an hour.

Register for the HMRC live webinar record keeping for the self-employed

Further reading

Top tax-efficiency tips for freelances, sole traders, small business owners and the self-employed

September 24, 2014 by Tax Donut contributor

Top tax-efficiency tips for freelances, sole traders, small business owners and the self-employed {{}}One of the main advantages of being self-employed is that you have more control over your finances than you would as an employee, meaning you can use tax-planning techniques to reduce your bill. Here are my top tips about how to be more tax efficient when you’re self-employed or running your own small business.

Business structure

If you are newly registered as self-employed you are probably operating as a sole trader, though as your business grows and generates profits of £25,000 or more each year, it may be more tax-efficient to operate through a limited company. The benefit of working as a limited company director is that you will have greater opportunity for tax planning. 

Expenses

Business costs that you incur solely and exclusively for your business, for example, accommodation, travel and equipment, could be claimed as expenses. Offsetting your business costs as expenses could save you 20% tax (or 40% as a higher earner). Remember that HM Revenue and Customs (HMRC) could ask for proof that the expense was incurred – up to seven years following the claim. Make sure you keep your receipts!

Flat Rate VAT Scheme

Registering for the Flat Rate VAT scheme could save you money, especially if you don’t incur many business costs. In basic terms, through the scheme you would charge your clients 20% VAT on your services, but pay back a lower VAT rate to HMRC. 

Pension Contributions

You could claim tax relief your pension contributions. This means you would pay your pension out of your gross salary, not your net salary, and save 20% tax or 40% if you are a higher earner.

Avoid tax penalties

Missing online tax return deadlines results in a penalty of £100. If your return is more than three months late the penalty will increase by £10 each day up to a maximum of £900 or 90 days. If your return is six months overdue an extra £300 or 5% of the tax due (whichever amount is greater) will be added to your penalty, bringing the total to £1,200. The fine will increase by this amount again if your tax return is 12 months late and then you could potentially incur further penalties depending on your individual circumstances. Employing an accountant will help you keep up-to-date with your bookkeeping and manage these deadlines so you don’t incur any penalties. 

Copyright © 2014 Heather Dore. Heather is regional manager at national firms of accountants, Easy Accountancy. You can follow Easy Accountancy on Twitter.

Further reading

Common tax return mistakes

September 16, 2014 by Tax Donut contributor

Common tax return mistakes {{}}Britain has seen a surge in self-employment over the past 12 months, but becoming your own boss comes with the daunting task of filing tax returns. Some of the most common mistakes to look out for when filing your return yourself are:

1 Missing the deadline

It’s no wonder a lot of self-employed people leave their return until the last minute, thinking about the number crunching, hunting for receipts and statements, and finding the hours to sit down and fill in your return is all time consuming. It can be difficult to find the motivation to file early, but with the late charge rates and the amount of mistakes found in late submissions, is it wise to miss the initial deadline?     

2 Miscalculations

Maths errors are commonly found on tax returns, as well as miscalculations surrounding taxable income, childcare deductions and tax credits. These inaccuracies can be easily avoided by keeping accurate, up-to-date records, so month on month you are sure your figures are correct. Using free online tax return software is a free and simple way of keeping on top of things.

3 Not double-checking

Double-check to make sure there are no mistakes on your return. Look out for any missed information, for example, empty boxes should alert you to possible mistakes.  Recalculate your sums to check your answers are 100% correct to the best of your knowledge, and if possible have a colleague or family member check for you. If you are unsure of something always get a second opinion or contact the helplines available. It’s always best to get advice rather than shrug it off and hope for the best. 

4 Incorrect payment information

To avoid interest and penalties on repayments ensure your financial account numbers are correct. If they contain a typo or are incorrect, it can cause delayed refunds to yourself or even result in late charges if HMRC can’t collect your tax bill payment in a timely manner.

5 UTR number errors

All self-employed people have a Unique Reference Number usually referred to as a UTR. This is a ten-digit number that identifies you to HMRC. It is most important that you note this down correctly, because it can cause problems if incorrect. In the case of self-employed builders, if your UTR number is incorrect when given to someone you are subcontracting for, it could mean that you have emergency tax deducted at 30% instead of the normal 20%.

Copyright © Celso Pinto 2014. Celso is the founder and CEO of SimpleTax.

Further reading

Two years in jail for tax-dodging eBayer

September 08, 2014 by Elaine Clark
Two years in jail for tax-dodging eBayer{{}}
Copyright: Ingvar Bjork

Last week John Woolfenden was sentenced at Bolton Crown Court to two years imprisonment for cheating the public revenue and or transferring criminal property. John was an eBay trader and over a six year period he had dodged nearly £300,000 in taxes!

Many of us think of eBay as being a place where a few people earn an extra couple of quid by selling unwanted items but it is fast becoming big business; in six years John sold £1.4 million worth of DVDs, games and music. Maybe this was an extreme situation and who knows if we’ll see more of these types of cases in the future. The likelihood is high given the fact that over 3 years ago HMRC announced its intention to target e-tailers, ie those who trade on sites like eBay and Amazon.

With sophisticated technology available such as robots HMRC are able to trawl through on line transactions and see just who is carrying on an online trade – there is no place to hide from the HMRC e-tailers radar.

What is trading?

There are no hard and fast rules on when you are carrying on a trade; HMRC do give some guidance on this – known as the badges or indicators of trading.

The full list of the badges or indicators of trading can be found on the HMRC website.

Some key indicators to be aware of are ...

  • Do you intend to make a profit from your eBay business?
  • Are lots of items being sold?
  • Were the items bought specifically to sell on?
  • Were the items repaired or modified for selling on e.g. doing up shabby chic furniture.

Common sense will often tell if you are trading or not; of course setting up an eBay shop or being a Power Seller on eBay is a HUGE indicator to carrying on a trade.

Don’t kid yourself that you’re not trading when it is clear that you are – living with the stress and worry of wondering if HMRC will come knocking on your door to demand undeclared and unpaid taxes can be a nightmare. Not paying tax on the profit made on your e-tailer business is tax evasion and can result in hefty fines & imprisonment – a high price to pay for not declaring your profits.

If in doubt, declare your business profits by registering as self employed. Remember that you will pay tax on profit, which is income less your costs, so of course you need to keep all of your receipts relating to your eBay trading.

Register as self employed

If you are carrying on a business on eBay, Amazon or the like as an e-tailer, then you need to register as self-employed.

You do this on the GOV.UK web site.

Copyright © 2014 Elaine Clark. Using 20 years’ experience spent working at some of the UK’s leading businesses, award-winning chartered accountant Elaine Clark is the founder and managing director of www.cheapaccounting.co.uk, an online accounting service aimed at small businesses with big ambitions. Follow Elaine on Twitter at @cheapaccounting.

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