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Tax Tip

Higher income child benefit charge (HICB)

If you are receiving child benefit this may be restricted from £50,000 and withdrawn completely from £60,000. With two cliff edges to avoid here are a few things that you can do to legitimately reduce your income.

  1. Pensions. You (or your company) can pay up to £60,000 per year into your pension. This will save tax but can also reduce your income below the relevant limit. The downside is that this money is tied up until retirement.
  2. Charitable donations. Most people give to charity throughout the year but do take care to giftaid it where you can. These donation can save you tax if you are a higher rate taxpayer and also be used to reduce your income below the relevant limit.
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Why it may be best to stay small

Small is beautiful. It’s also less hassle and much more agile.

As the sole director of my business I can hold my board meetings in the shower and, if I come up with a bright idea, I can often have it implemented by evening.

The downside of a small business is reduced cover for holidays and sickness. Especially if your business is just you. On the other hand even the best team will take up your time in managing their time and workload.

Before growing your business beyond you it is worth considering whether this will best suit your personal goals. Instead of taking on more clients and higher overheads you could look at taking on better clients and providing them with more profitable services. Before recruiting staff you could investigate software and other automation.

Bigger isn’t always best.

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Tax Tip

Dividend paperwork is important.

There should be a board minute each time dividends are approved as well as a tax voucher for each shareholder.

In small owner managed businesses it is common to run a DLA (director’s loan account) throughout the year and to clear it with a single large dividend at the end of the year. With MTD coming in this will need to be done quarterly.

Before declaring any dividend the board must ensure that the company will still be solvent after the dividends have been declared. It is hard to do this without some sort of management accounts or financial review so keep a record of these too.

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More than one tool in your toolbox

When it comes to improving your business you need to have more than one tool in your toolbox.

Although we often start with getting the pricing right we also like to look at other things. My books give you some examples of these but they are broadly:

Efficiencies – implement systems, checklists, automation and delegation

People – get the right people in the right place, suitably trained and equipped, and all pulling in the right direction

Marketing – a baseline level of marketing going on at all times so that you have clients/work already lined up for quieter periods

What else do you do to improve your business?

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Tax Tip

Company cars used to be an expensive perk but electric vehicles are now worth considering. For the 2023/24 tax year the P11D benefit in kind is just 2% of the taxable list price.

This means that you will pay tax on just 2% of the list price of the car.

If you have a penchant for expensive, less environmentally friendly, vehicles you might benefit from operating as a sole trader or a partnership.

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5 minutes a day keeps the accountant at bay

I’m starting an initiative for business owners to do their bookkeeping in FIVE MINUTES PER DAY rather than leaving it all to the end of the year.

If you’re on Xero or similar software this would be:

  1. Raise all your sales invoices and quotes. (Don’t forget to add a button to the invoice template if you take card payments. Remember to set up recurring invoices for regular clients. And don’t forget to turn on invoice reminders)
  2. Mark any accepted quotes so that they can be converted into invoices
  3. Forward electronic receipts to your Automated Bill Entry on Xero or Dext
  4. Take photos of any other receipts using Hubdoc or Dext
  5. Reconcile your bank by matching against the sales invoices or purchase bills/receipts. (You can set up recurring transactions for regular bills)

All this can be done through apps on your phone. When bookkeeping is this simple it’s not just kids who will be glued to their phones.

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Do you know your break even point?

Do you know how many units (and the mix of units) that you need to sell in order to cover your costs and break even?

This is an important figure for every business.

Now you can work out how many units you need to sell to make a particular level of profit.

And finally, you can work out your marketing and sales plan to actually sell that number of units. (Okay, there’s a bit more to it than just working out the numbers but at least you know what you’re aiming for)

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Tax Tip

6 July is the deadline for employers (or their accountants) to submit P11D benefit in kind information to HMRC. Unfortunately we’ve spotted some benefits due on company vans that could have been avoided.

The van is exempt if it is only used for business journeys which are trips made as part of work or to a temporary workplace. As a surprisingly generous move ‘insignificant’ private journeys are exempt, for example making a slight detour to pick up a newspaper on the way to work.

What is NOT exempt is journeys between home and a permanent workplace such as a builder’s yard. Vans should be left in the yard overnight to avoid a benefit in kind.

Similarly company vans do not need to be declared if they are pool vans. In order to be classed as a pool van ALL of the following conditions must be met:
• available for use and used by more than 1 employee
• available to each employee because they need it to do their job
• not ordinarily used by 1 employee to the exclusion of others
• not normally kept at or near employees’ homes (this is the one that catches people out)
• used only for business journeys – limited private use is allowed, but only if it’s incidental to a business journey, for example driving home to allow an early start the next morning

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Tax Tip

Entertaining your employees is quite common at Christmas and other times of the year. It’s another tax free benefit for your team provided that certain conditions are met.

• It must be open to all employees
• It must be an annual event, such as a Christmas party or Summer barbecue
• It must cost less than £150 per person. If the cost is over £150 then the FULL AMOUNT becomes taxable and not just the part above £150.
• You can have more than one event per year to make up the £150 as long as the combined cost stays below this limit

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Why is the tax year end 5 April?

This is such an odd date and so here is the story dating back to 1582.

Prior to this time the tax year started on Lady Day, 25 March. Rents etc were all payable on a quarterly basis and some still are (I had to learn them all as part of my chartered accountancy training and I’m still waiting for them to come up in a pub quiz one day).

In 1582 Pope Gregory XIII moved the rest of Europe from the Julian calendar to the Gregorian calendar. However the British decided to do their own thing and stuck with the old calendar which left them 10 days behind the rest of Europe.

By 1752 this difference has increased to 11 days due to a difference in how leap years were recognised. Britain decided to make the change just 170 after their European counterparts. Keeping a 365 day tax year moved the start of the tax year to 6 April so the tax year has ended on 5 April ever since

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