Taking money out of your company (with no personal tax bill)

For the 2012-13 tax year we advise director/shareholders to take the following ‘optimum’ monthly amounts out of their personal company:

• Salary £624 a month

• Dividend £2,624 a month or £31,488 a year

This will mean that your company will now save Corporation Tax of £1,497 on the salary.

This gives a total amount of £38,976 from 6 April 2012 and you will pay no personal tax provided you have no other income.

You can of course take more from your company but each additional £1,000 of dividend taken will cost you £250 in personal tax up to the first £59,000 of net dividend. It becomes more complicated once your gross income exceeds £100,000 in a tax year because you start to lose your personal allowances.

Working from Home Allowance increased

In addition, the tax free working from home allowance is increased to £4 per week (from £3 a week in 2011/12). This amount can be paid in addition to the above amounts.

New IR35 myth

There has been some panic in the contractor community about a statement buried deep in the Budget documents about the reform of IR35, which says:

“The Government is bringing forward a package of measures to tighten up on avoidance through the use of personal service companies and to make the existing IR35 legislation easier to understand. This will include … proposals which would require office holders/controlling persons who are integral to the running of an organisation, to have PAYE and NICs deducted at source.”

This does not mean that everyone who is an office holder, (i.e. director or company secretary) of their own personal service company will have to be paid entirely via PAYE.

The proposed law change is aimed at individuals who have controlling roles within large organisations, and those who sit on the boards of such organisations, but who charge a fee for their time through their own personal service company rather than be paid through PAYE by the organisation.

This change in the law should not affect genuine freelance workers, and contractors who do not take up positions on the boards of their customers.

However, non-executive directors may be affected, as they are office holders, although they are not technically employees of the company for which they serve as non-executive directors. The current HM Revenue & Customs advice is that IR35 does not apply to such non-execs, although NIC regs do pull them into the class 1 NIC net. If you hold non-executive director positions, and are paid through their own personal service companies, you need to review these arrangements.

Any change in the law is likely to apply from April 2013, but its well to be prepared in advance.

VAT changes – hairdressers’ chairs

A common arrangement in hairdressers’ is for the shop owner to rent chairs to other hairdressers instead of employing them as stylists.

This rental income had previously been exempt from VAT in certain cases, but from 1 October 2012 it will always be subject to standard rate VAT.

This means the chair rental income will now always be counted as turnover for a hairdressers’ business. They will need to bear this in mind when checking whether they have exceeded the VAT Registration threshold.

VAT changes – caravans

At present, sales of touring caravans, static caravans and holiday lodges are zero-rated for VAT purposes. The only items that are part of their sale that are taxable at the standard rate of VAT are the white good.

This is changing from 1 October. From that date sales of holiday and leisure caravans will be subject to standard rate VAT.

Residential caravans (aka ‘park homes’) designed and constructed for year-round living will continue to be zero-rated for VAT.

If your business sells static caravans the terms of occupancy will now be important when determining the VAT treatment. A static caravan on a holiday park with only 10 months available occupancy will have to be standard rated.

If you sell caravans, whether new or second hand, you should contact us to discuss your pricing structure and available VAT schemes.

VAT changes – hot food

There has been a nonsense in the press about the ‘pasty tax’ proposed in the Budget. This change is clarification of the VAT rules that have been in place since 1984, which impose standard rate VAT on hot take-away food such as fish and chips. If food is sold hot, to be eaten hot, then standard rate VAT should be applied. The clarification is needed because certain retailers have not been applying the VAT rules as Parliament had intended, giving themselves a price advantage (or 1/6 more profit).

If youare in the take-away food sector then you need to understand which of your products carry standard rate VAT, because HM Revenue & Customs will be clamping down in this area. The change in VAT regulations will apply from 1 October 2012, but it would be best to apply the current rules correctly now.

If you are affected please contact us to discuss how the changes will affect your pricing structure, as in all cases the VAT rate increases.

VAT traps – the time of supply

The recent case of Bromley Emergency Training and Developments Ltd (TC1728) highlights how important it is to get the time of supply right for your business.

This company invoiced for training courses in advance. They didn’t do the work at that point though, so they accounted for the supply when the courses took place. HM Revenue & Customs had a different view. They said issuing a VAT invoice was the point of supply.

The result was that by treating the supply as the date payment was received it meant that the effective date for VAT Registration was breached earlier than thought. Penalties soon followed!

With a simple change to the way the company did things this could have been avoided.

If you’re concerned about the timing of transactions for VAT purposes and want to make sure you’re doing things right, then give us a call.

P35s – two traps to watch out for

If you employ people then your 2011/2012 Employer Annual Return, forms P35 and P14, are due to be submitted online to HM Revenue & Customs by May 19.

There are two traps to watch out for this year.

Trap one

The long-standing concession, which meant that no penalty was charged for a late form provided it was received by May 26, no longer applies. If your return is even a day late you will receive a minimum penalty of £100.

Trap Two

Watch out for false notifications. Some employers failed to spot the difference between the test online submission of a P35 and the actual one because the on-screen readouts are almost identical.

This received a lot of coverage last year when employers thought they’d filed on time and only found out they hadn’t when £400 penalty notices turned up in September!

Following criticism at Tax Tribunal, HM Revenue & Customs has warned employers to double check a live submission has been made.

Avoiding the 50% Income Tax charge

The 50% tax bracket for incomes over £150,000 isn’t here for stay. After 5 April 2013 it will be replaced with a 45% bracket.

So what does this mean?

If you might be liable for the 50% tax rate in the current tax year, and can control the timing of your income, then you can avoid paying tax at this rate.

Limited companies

Companies intending to pay bonuses or dividends in 2012/13 for employees or shareholders potentially liable to the 50% rate should consider deferring until after 5 April 2013.

Unincorporated businesses

Owners of unincorporated businesses who are in the 50% tax bracket* should consider shifting profits from 2012/2013 to 2013/2014 by changing their accounting date to one which ends shortly after the start of the next tax year.

* They should also consider incorporating their business or introducing a corporate partner. Give us a call and we can quantify the potential tax savings of either scenario for you.

Accountancy Edge joins the ICPA

Bideford based firm Accountancy Edge has joined the ICPA – Independent Certified Practising Accountants.

Membership of the ICPA compliments our membership of the ICAEW by providing us with access to third party products, training and support at competitive prices. It means that our clients can access additional tools and resources at no extra cost to themselves.

This means that Accountancy Edge will be able to continue providing North Devon businesses with access to industry-leading accountancy software and resources, fee protection and further recognition that the business adheres to a code of ethics and the highest professional standards.

Taking money out of your company (with no personal tax bill)

New IR35 myth

VAT changes – hairdressers’ chairs

VAT changes – caravans

VAT changes – hot food

VAT traps – the time of supply

P35s – two traps to watch out for

Avoiding the 50% Income Tax charge

Accountancy Edge joins the ICPA

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