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Tax Donut blog

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How your business could save up to £2,000 a year

January 26, 2015 by Fanny Marshall

How your business could save up to £2,000 a year {{}}In April 2014 the Government introduced the National Insurance contributions Employment Allowance. Eligible employers can reduce their National Insurance bill by up to £2,000 a year by claiming Employment Allowance on Class 1 National Insurance contributions, through their payroll software.


NICs employment allowance

Not all employers are eligible, so check your eligibility on the GOV.UK website. If you are eligible, you can claim Employment Allowance through your payroll software. Read more about how to claim on the GOV.UK website.

Further reading

How will VAT rule changes affect your business?

January 12, 2015 by Tax Donut contributor

How will VAT rule changes affect your business?{{}}VAT changed on 1 Jan 2015, so how will it affect your business? Business-to-consumer trades will now be required to charge VAT, at the applicable rate, in the EU country in which the consumer is located, rather than where the seller is located.

The changes have been introduced in an attempt to avoid the distortion of competition and create a level playing field across the EU.

These rules apply to television and radio broadcasting services or other electronically supplied services such as websites and website hosting, downloaded software, downloaded texts, information or images, access to electronic databases, downloaded music, games or films as well as the supply of e-books or electronic publications.

MOSS online service

Ordinarily the rules require a (UK) supplier to register for VAT in each EU country in which it makes the affected supplies. To alleviate this burden, alternatively, the supplier can register for a “Mini One Stop Shop” (MOSS) online service, which will enable the UK supplier to account for VAT due in any other EU country by submitting a single MOSS VAT return and the appropriate payment to HMRC in the UK.

Businesses have been able to register to use the MOSS scheme for VAT returns from October 2014 and the online service has been available to use since 1 January 2015.

The Government has stated that it could see an extra £300m in revenue as a result of the recent tax changes.

Effect on SMEs

Without doubt SMEs will be most affected by this new regulation, not least because they have been obliged to implement many changes in a relatively short space of time. As a result, billing management could become much more complex. In addition, their costs may go up in certain countries.

Businesses will be forced to think carefully about where they carry out their operations. The previous scheme encouraged many firms to be based in countries such as Luxembourg, because it charges a lower rate of tax than the UK. The new scheme will revoke this advantage. This means that business owners can no longer reap the benefits of their current location and may choose to move to areas with lower staff costs, for example.

These new rules may also adversely affect costs, so SME owners will need to ask themselves if they can realistically pass this on to their customers. One way to deal with this may be to make the increase very gradual. In this way you may reduce your profits temporarily but are less likely to lose customers in the short term.

Copyright © 2015 Carol Cheesman of Cheesmans Accountants.

Further reading

Posted in VAT | Tagged VAT, MOSS | 1 comment

What will you need for your first online self-assessment tax return? Join this free webinar and find out

January 08, 2015 by Tax Donut contributor

Self assessment notice{{}}Many small business owners choose to file their own tax return, rather than hiring a book-keeper.

As the deadline approaches, those submitting their self assessment for the first time are likely to be full of questions. While there are plenty of guides to completing HMRC’s online form, many people are left wondering what records they will need in the first place.

To make completing your first tax return light work, accounting tutor and qualified accountant Patricia Barlow will be running a webinar on the 15 January at 2pm, and again on Friday 23 January, also at 2pm, due to high demand. 

She will be covering:

  • self assessment deadlines and penalties
  • what records to keep and how long to keep them
  • what you can claim for tax purposes
  • any questions about completing your tax return

To attend the webinar, simply sign up here:

Babington Group is a training provider offering a range of courses, from accounting qualifications to hairdressing apprenticeships. Follow Babington on Twitter @Babington_Ltd.

Having trouble paying VAT or PAYE?

January 07, 2015 by Tax Donut contributor

Having trouble paying VAT or PAYE?{{}}Every company has a responsibility to pay tax, including VAT, PAYE and National Insurance contributions (NIC). This money belongs to HMRC, so if payments are missed, it won’t be long before it investigates or even takes legal action.

If cashflow is tight, it can be tempting to push aside VAT or PAYE and focus on supplier or marketing costs to boost income. In the past, it was possible to understate PAYE liability with the aim of catching up with payments later on. However, since April 2013, Real Time Information systems (RTI) have changed the way you pay taxes, making it very difficult to pay less than required.

From March 2015, HMRC will be issuing penalties for late payments through RTI, therefore it is important for businesses to address potential VAT or PAYE issues now before it’s too late to prevent fines or legal actions.

What should we do?

If your business can’t make payments when due, you need to act quickly to avoid legal action. HMRC has its very own department to help businesses in this situation and has dealt with a large number of businesses. They will know all the excuses. Sometimes, however, it may be necessary to look at other turnaround methods if there are ongoing financial problems.

Time to Pay

If you need more time to pay off debt, your business may be able to enter a Time to Pay arrangement (TTP) with HMRC. This is an informal debt repayment scheme that allows you pay off debt over a year to 18 months. You can contact the Business Payment Support Service to arrange a TTP or instruct a turnaround professional to do so on your behalf. Depending on the situation, HMRC may refuse, so be prepared for a plan B.

Company Voluntary Arrangement (CVA)

This is a formal restructuring deal between the company and its creditors. A proportion of debt can be paid back over three to five years (with the rest written off). This allows the company to continue trading while creditors receive £X amount in the pound, paid from future profits. 

A CVA is a powerful turnaround solution that helps to cut costs, improve cashflow and bring the business back to profit. If Time to Pay (plan A) doesn’t work, it’s worth looking into plan B!

Seek insolvency and legal advice if your company is struggling financially to avoid putting the company in a worse position. Other options, such as administration or liquidation (CVL) may be more suitable than a TTP or CVA, however, it is best to talk through all options with a professional before going ahead with any restructuring plan.

Copyright © 2014 Keith Steven of KSA Group Ltd. He has been rescuing and turning around companies since 1994 and is the author of leading insolvency and turnaround website Follow @KSAGroup on Twitter.

Further reading

Four easy steps to web-based accounting

December 30, 2014 by Tax Donut contributor

Four easy steps to web-based accounting{{}}

Keeping an up-to-date record of your financial activities is an essential part of running a business. Web-based accounting systems can offer useful features for small business owners – and more and more are choosing to take their accounting online.

The main advantages of online accounting are immediacy and convenience. With a web-based system, business owners can manage any aspect of their accounts – all from anywhere they have Internet access. If you’re thinking of setting up your bookkeeping online or migrating from an existing system to an online system, following these four steps will make the process easier.

1 Chose it

Take time to find the right online accounting software for your needs and seek expert advice. What makes it right for you? First, a good interface. If you find it intuitive to browse and can quickly find the features you need you’ll have a much easier time when using the system.

Second, does it offer multi-currencies? If your business requires you to have multi-currency accounts, this is a deal-breaker.

Third, VAT. If your business is subject to slightly complicated VAT rules, find out if the software helps. Also, not all software implement reverse charge calculations automatically – so you may wind up making mistakes on your VAT Returns. 

Fourth, does it offer a good journals module? Your Accountant may need to post a number of journals especially if you want your accounts to match the final accounts, but some software systems have a poorly designed module to enter Journals.

Finally, what kind of reporting is available? You may require comprehensive reports at the month-end, for example, and some may not offer project-based recording or retrospective reports for analysis, etc.

2 Process it

Allow for some time and cost during the migration process. Set a start date for the transition. Check the last submitted final accounts to get the opening balance figures, the trial balance and the balance sheet.

The exact steps will depend on your business type, but you can expect to do the following: reconcile the data, the bank, aged debtors and creditors; set all required nominal codes and project codes; set accounting periods, VAT periods and VAT schemes; confirm the right depreciation rates for the asset register; and customise the sales invoice template with your logo and design.

Hiring someone to help you can be really beneficial – be sure to allow a reasonable amount of time and budget. Based on size, this can be from £500 and a couple of days, to £3,000+ and a couple of weeks.

3 Test it

Test the migration by checking the balances. If migration is done in the accounting year April to March 2014, you should have balance sheets for March 2013 statutory accounts matched with opening balances on your new system now. Compare sample information from your previous system: for example main supplier’s statement, main customer’s statement, bank balances, etc.

4 Use it

Start using it – practice makes perfect! A learning curve is involved. Do not assume everything will go as easily as the advertisement states. There will be several ways of working within the system you have chosen, so find by trial what works best for you, and when in doubt – seek advice.

By making the transition to online accounting software you can save yourself considerable time, keep your records up-to-date wherever you are and ensure you have all the correct information recorded – both for your own use and for filing VAT returns and company accounts.

Copyright © 2104 Riz Wasti from 2E Accountants.

Further reading

Ten things you could have learned from our blog in 2014

December 22, 2014 by Mark Williams

10 things you could have learned from our blog in 2014{{}}1 “Being able to share data and work on accounts at the same time as your accountant can lead to better communication and improved business decisions.” 

From Reasons to adopt cloud accounting in 2014 by Sage

2 “Any benefits of voluntarily registering will depend on your circumstances. It is also possible to reclaim the VAT paid for goods or services up to four years before registration, which may mean that you can claim back VAT paid when starting your business. There are specific criteria that must be met before any VAT can be reclaimed from HMRC.”

From How voluntary VAT registration could benefit your business by The Accountancy Partnership

3 “The Seed Enterprise Investment Scheme (SEIS) has so far helped more than 1,000 businesses to raise finance. According to government figures published in 2013, private investors have so far invested more than £82m through the scheme.”

From How the Seed Enterprise Investment Scheme could help your small business by Carol Cheesman 

4 “As at the beginning of November 2013, HMRC had 56 taskforces in operation in their crackdown on tax evaders.”

From 20 hidden pitfalls of self-assessment by Elaine Clark

5 “A company must retain all PAYE records for three years plus the current year. An employer must record details of all employee information, along with all payments and deductions. Failure to maintain accurate payroll records could result in a penalty charge of up to £3,000. Making late payments to HMRC or making inaccurate payments of income tax or NIC could also result in a penalty.”

From An overview of payroll tasks by The Accountancy Partnership

6 “If an HMRC officer requests information and you are unsure of the reason why, you can ask for an explanation. If you are unhappy with the reason given and believe the information to be irrelevant to the investigation, you can say so and refuse to provide the data to officers.”

From What to expect if HMRC decides to investigate your business by Karl Bilby

7 “37% of small firms trust their staff to ‘do the right thing’ – compared to 66% of micro businesses. One third of micro businesses don’t have a code of ethics, compared to 19% of SMEs. And 37% of micro businesses don’t look into the ethical behaviour of their suppliers, whereas only 23% of SMEs do.”

From How important are ethics in tax affairs and business? by Mark Williams

8 “HMRC isn’t immune to human error. Occasionally mistakes are made, leaving businesses to pay more or less tax than necessary. If you are uncertain about a tax bill or your tax code, double check with your tax office or contact an accountant to verify the facts. Don’t be afraid to take action.”

From Four common misconceptions small businesses have about accounting and tax by Wisteria Chartered Accountants

9 “The Home Office, HMRC or any other government agency will never ask you for money via email, over the phone or even in person. Run as far as you can if you’re asked to give out money, especially if it’s cash or by using unsecured payment methods such as Paysafecard.”

From How to avoid online tax scammers by John Dunn

10 “There is a tax exemption for employee entertaining. But before you deck the halls with abandon, take note: HMRC stipulates that this relief applies only to one or more annual parties available to all employees, where the total cost of said parties does not exceed £150 per head (for all attendees – including clients and guests of employees). It's worth sticking closely to the Christmas party budget, because going over this amount by even a fiver makes the whole cost of the event taxable as a benefit in kind.

From What are the tax rules regarding staff bonuses and gifts at Christmas? By Riz Wasti

Thank you to our site sponsors for their support in 2014. Many thanks also to the experts who shared their knowledge to ensure this blog remains a popular source of information and advice. A massive ‘Thank You’ to all our readers, too, of course. Whatever your need, we hope you found what you were looking for when visiting this site this year. Happy Christmas – here's to a fantastic 2015…

Further reading

Ten things you could have learned from the Start Up Donut blog in 2014

IT Donut: best of 2014

Ten things we learned from the Marketing Donut in 2014

Ten things you could have learned from the Law Donut blog in 2014

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