Budget Spring 2015

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Budget Spring 2015

We’re all aware that this budget comes very soon before the general election on 7th May 2015. The proposals in this budget may not become law, and anything could be amended. Many of the announcements related to changes we already know about, but there were one or two surprises.

Personal Taxation

Basic Personal Allowance and Transferable Allowance for 2015/16

The personal allowance for those born after 5 April 1938 will be £10,600 for 2015/16. As a corollary, the transferable allowance for married couples and civil partners (10% of the personal allowance) will be £1,060. This is available to certain couples, subject to qualifying criteria.

The higher rate threshold (i.e. the aggregate of the personal allowance and the basic rate limit) will be £42,385.

Personal Savings Allowance

It is proposed that a new Personal Savings Allowance be introduced from 6 April 2016. For a basic rate taxpayer, this will exempt from income tax the first £1,000 of savings income, such as bank and building society interest. For a higher rate taxpayer, only the first £500 will be exempted.

The Personal Savings Allowance will not be available to additional rate taxpayers. At the same time, the deduction of basic rate tax at source from interest paid by banks and building societies will be abolished for all savers.

Online Tax Accounts

Over the last decade or so, we’ve seen a steady decrease in the numbers of paper forms being submitted to all governmental departments, and an increase in online services. The government seems keen to extend the transition by planning to abolish the paper tax return for millions of individuals and small business through the introduction of digital tax accounts. A roadmap setting out the policy and administrative changes will be published later this year.

In addition, the Government will consult on a new payment process to support the use of digital tax accounts that allow tax and National Insurance contributions to be collected outside of PAYE and self-assessment. This will be legislated for in the next Parliament.

How (or if) this will work in practice we have yet to find out.  The principles of NI and taxation are not changing, but the new methods of reporting and paying could be significant changes for self-employed people.

Direct Recovery of Debts due to HMRC from Taxpayers’ Bank Accounts

Again, this is not a new announcement, and the government intends to legislate for it in a firure finance bill. It is something to be aware of if your tax affairs are not up-to-date.  HMRC will be able to collect payment of tax and duties directly from credit balances in debtors’ bank and building society accounts, including ISAs, without first having to apply to the courts. HMRC will only take action against debtors who owe over £1,000 of tax or tax credits. They will always leave a minimum aggregate of £5,000 across debtors’ accounts, and will only put a hold on funds up to the value of the debt. Secondary legislation to be published shortly will set out details of the process and safeguards for taxpayers.

This is intended to be used when taxpayers fail to pay on time, and by the time things reach this stage, any taxpayer should be fully aware of all attempts made by HMRC to recover the debt.

Employment Taxation

Abolition of the £8,500 Threshold for Benefits in Kind

The £8,500 earnings threshold that determines whether employees pay income tax on all of their benefits in kind and expenses, and whether employers pay Class 1A National Insurance contributions (NICs), is to be abolished for 2016/17 onwards.

Currently, an employee whose earnings for the tax year are less than £8,500  pays tax only on certain employee benefits. The abolition of the threshold will mean all employees will be taxed on their benefits and expenses in the same way. The employer’s NICs treatment will follow the income tax treatment.

Statutory Exemption for Trivial Benefits in Kind

A statutory exemption is to be introduced for 2015/16 onwards that will allow employers to identify and treat certain low value benefits provided to employees or former employees as trivial. These benefits will then be exempt from income tax and Class 1A National Insurance contributions and will not need to be reported to HMRC. A benefit will be trivial if it meets all the following conditions:

  • the benefit is not cash or a cash voucher;
  • the cost of providing it does not exceed £50;
  • the benefit is not provided under salary sacrifice arrangements or any other contractual obligation; and
  • it is not provided in recognition of particular services performed, or to be performed, by the employee.

An annual cap of £300 will be introduced for office holders of close companies (broadly those controlled by 5 or fewer people) and employees who are family members of those office holders. Those affected by this cap will be able to receive a maximum of £300 worth of exempt trivial benefits each year.

Employee Expenses: Dispensations

The current system whereby an employer can apply to HMRC for a dispensation to pay expenses free of tax in certain circumstances will be scrapped for 2016/17 onwards. Instead, expenses provided to employees will automatically be exempt in any case where the employee would have been eligible for a deduction had he incurred and paid the equivalent expense himself. The exemption will also allow the employee to be paid a scale rate rather than be reimbursed the actual expense he has incurred. This can either be a rate set by HMRC or a rate that the employer has agreed with HMRC. The exemption will also apply to benefits in kind provided by employers in respect of expenses incurred by their employees It will not apply to expenses/benefits provided as part of a salary sacrifice arrangement or in conjunction with other arrangements that seek to replace salary with expenses. Similar rules will apply for NIC purposes.

Collection of Tax on Benefits and Expenses through Voluntary Payrolling

Legislation is to be introduced to allow HMRC to make changes to the PAYE Regulations to provide for voluntary payrolling of certain benefits in kind. The intention is that employers will be able to opt to payroll benefits for cars, car fuel, medical insurance and gym membership for 2016/17 onwards. Where employers do so, they will not have to make a return on Form P11D for these benefits. Instead, they will report the value of the benefits through Real Time Information, and that value will count as PAYE income liable to deduction using the PAYE Tax Tables. The amended Regulations will determine the value to be placed on the benefit for this purpose.

Van Benefit Charge for Zero Emission Vans

The van benefit charge for zero emission vans will increase from £nil, beginning in 2015/16. The van benefit charge for such vans will be 20% of the van benefit charge for vans which emit CO2 in 2015/16, 40% in 2016/17, 60% in 2017/18, 80% in 2018/19 and 90% in 2019/20. From 2020/21, the van benefit charge for zero emission vans will be the same as the van benefit charge for vans which emit CO2.

National Insurance Contributions

NICs for the Self-Employed

Class 2 contributions will be abolished in the next Parliament. Class 4 contributions will be reformed to introduce a new contributory benefit test. The Government intends to consult on the proposals later in 2015.

Business Taxation

Research and Development

Legislation will be introduced to restrict qualifying expenditure for research and development (R&D) tax credits so that the cost of consumable items incorporated in products that are sold in the normal course of a company’s business are not eligible for R&D relief, with effect from 1 April 2015. Qualifying expenditure on consumable items will be limited to the cost of only those items fully used up or expended by the R&D activity itself which do not go on to be sold as part of a commercial product. This restriction will not apply where the product of the R&D is transferred as waste, or where it is transferred but no consideration is given.

In addition, from 1 April 2015, the rate of the above the line credit for large companies will increase from 10% to 11% and the rate of the relief for the SME scheme will increase from 225% to 230%.

 VAT

VAT Registration Thresholds

With effect from 1 April 2015, the VAT registration threshold will be increased from £81,000 to £82,000. The deregistration threshold will be increased from £79,000 to £80,000. The registration and deregistration thresholds for acquisitions from other EU member states will be increased from £81,000 to £82,000.

This is a summary of announcements most likely to affect owners of small UK businesses.  Things could change after the general election but in the meantime if you’d like more information on how the changes may affect you please get in touch.

Business mileage expenses – why, what, how?

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Business mileage expenses explained

It’s very simple to record, can save you tax, and contributes to an accurate set of accounts and tax return.  So why do I meet so many people who don’t do it?

What is business mileage?

Any journey you make solely for the purpose of business. Examples include travelling to visit customers, suppliers, to attend work-related training events and business banking.   It does not include commuting to your normal place of work.  If you drop off the business post on the way home from your office, you can’t count that as a business trip.

Why record business mileage?

Keeping sufficient financial records is a legal obligation. The benefit to you is in claiming this tax free expense.  Say you travel an average of 20 business miles per day, 4 days per week, 48 weeks per year.  At 45p per mile that could save you £345 per year in tax at the current basic rate.  So what’s stopping you?

It’s a choreBusiness mileage

Well, I can’t argue with that.  It’s not much fun, but it really doesn’t take long and quickly becomes a habit you’ll barely notice.  All you need to do is keep a notebook and pen in the vehicle you use for business, or use your smartphone.

I haven’t got time

10 seconds spent jotting down the details at the end of the trip and it’s done.  You can link several business trips together. So if you start at your business premises one day and travel to a customer’s premises, then go to a 2nd customer, then onto the stationers to pick up some flyers you’ve had printed, and drop off the flyers at the distribution company, that can all be recorded as one trip.

I forget

I believe you.  I also know you’re doing your best to run a successful business, often under very difficult circumstances.  So find a way to integrate the recording of business mileage into your daily or weekly routine.

Give me an easy solution

There are 2 options for tracking mileage.  You can use the old paper and pen method, or use one of the many apps that are available now.

For each trip your paper record needs to show:

  • The date

    business mileage
    Mileage record made simple
  • details of where you’re going to and from
  • the reason for the trip and
  • the business mileage.

There are mobile apps which are appropriate for UK taxpayers Most will deal with more than just mileage. Try Concur,  Eclipsecs, Webexpenses or search for an app that will record mileage.

A note on the value of your business mileage expense claims: there is more than one method of calculating mileage expenses, although there are certain restrictions.  Have a chat with your accountant or contact us to find out which is best for you.

 

 

 

Bookkeeping Terms and Definitions

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Bookkeeping terms and definitions can be confusing.  Especially the debits and credits.  Accountants and bookkeepers, like many tradespeople and professionals use jargon. Sometimes we get so used to it that, again like other business people, we forget it’s jargon.  So if you’re wondering what it all means, maybe this will help.

Bookkeeping is done (or should be) by any type of business, charity, company and organisation. The words organisation, company and business are used interchangeably in this post, just because I get bored typing the same word repeatedly.

List of Bookkeeping Terms

Amortisation Similar to depreciation, but applied to intangible assets
Balance Sheet A financial snapshot of your organisation’s assets (things you own and money owed to you)and liabilities (money you owe to others), at a   particular date, prepared under UK accounting rules.
Bookkeeping recording, organising and filing financial documents. Does not include preparing accounts, tax computations or tax returns.
Capital This can have several meanings. Capital expenditure is money spent on fixed assets. Capital introduced is money input to a business by owners, investors, or shareholders etc. Working capital is the excess of current assets minus   current liabilities, or the amount of cash available to run your business.
Credit A credit is the opposite of a debit.
Creditors People and organisations you need to pay in the future.
Current Assets Stock, bank balances, amounts due to your company within one year. Assets  that are not long-term features of your business, and can be coverted to cash relatively quickly.
Debit A debit decreases your profit/surplus, or increases the assets on your balance sheet (statement of financial position).
Debits and credits The 2 sides of double-entry bookkeeping.  In   your accounts, think of it as the opposite of what you see on your bank  statement (ie. A credit in your bank account, will be a debit in your accounts). This is because the bank statement shows debits and credits from the bank’s point of view, not yours.
Debtors People and organisations that owe your company money. These are assets to your company.
Depreciation A proportion of the cost of a tangible asset, deducted from profit over a  number of years. The idea is to spread the cost of the asset over the period that it is used in running the business. Eg. A machine expected to last 5 years would be recorded as an asset, then written off to the P& account (deducted from profit) over 5 years.
Double-entry bookkeeping Recording the full nature of a transaction. For example, if you buy pens   for £5.00 cash, the first bookkeeping entry is to increase your costs by £5.00 (the debit entry), the second is to decrease your petty cash balance by £5.00 (the credit entry).
Fixed Assets Tangible or intangible property belonging to the business, and used to run the business activities.
Goods Items bought and sold.
Goodwill A value in incorporated companies that represents the value of the   company over and above the net value of assets minus liabilites, ususally   arising when a company is bought by another.
Income statement Equivalent to a P&L account, but compiled under different accounting   rules.
Intangible asset Something the organisation owns, but is not a physical item eg. A patent,   goodwill.
Liabilities Amounts owing to third parties, current liabilities are due within 12   months of the balance sheet date.
National Insurance Let’s face it, it’s just another tax.
Profit and loss account AKA P&L account. A statement of your income (sales, grants received   etc.), less costs and expenses, showing your profit for a particular period of time. Prepared under UK accounting rules.
Statement of Financial Position Equivalent to a balance sheet, but compiled under different accounting   rules.
Stock Items bought for resale, but not yet sold.
Tangible asset An asset with physical substance, eg. Stock for resale, money in a bank   account, buildings, machinery, equipment etc.
Tax Money you, and/or your company, have to pay even though you don’t want to.
Third party A person or organisation not connected to your own organisation.
Transaction An exchange of goods, services, money etc. with a third party, eg selling   a chair for cash is one transaction, selling a chair on credit is one   transaction, receiving a cheque for the credit sale is another transaction.
UTR Unique taxpayer reference.  A 10   figure number used by HM Revenue and Customs to identify the tax record of an individual (self-assessment tax system) or business.
Working capital The amount of money available to your business. Current assets less   current liabilities.
Written off Deducted from profit

 

Easy Business Record Keeping

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Easy business record keeping.  Possible, or an oxymoron?  Are you running a business on the go?   If you’re using a smartpone, iPod Touch or iPad, there could be an easy way to record your business expenses.

Several companies have recognised that keeping paper records is a chore you don’t want to face at the end of a busy day, and developed apps to help.  Some of these have been around for a while, some are free, and some are simpler than others. You can choose which is best for you.

So, if your business is not VAT registered and you want a simple solution for recording income and expenses, why not try them out?

HMRC lists a few on their website here:  http://www.hmrc.gov.uk/softwaredevelopers/mobile-apps/record-keeping.htm

There are many others including https://www.expensify.com/, which can be used by employees to record expenses and submit claims.

Whichever you use, remember to download, back-up or save your data regularly.