Minerva Accountants Bristol and Somerset
Fully digital Xero accountants taking the hassle out of your business
EIS/SEIS refer to the (Small) Enterprise Investment Scheme. This can be a tax efficient way to invest in a small business or for other people to invest in your business. The idea is to help early stage start ups to raise capital.
Individuals can invest up to £100k per year in qualifying companies and receive up to 50% back in tax relief. There are also benefits for capital gains and inheritance tax relief.
You can save a great deal of tax by avoiding an overdrawn director’s loan account (DLA). In other words don’t take more money out of the company than the dividends and expenses that have been allowed (see previous tips).
If your DLA is overdrawn at the end of the year and not repaid within 9 months of the year end the company will have to pay S455 tax at 33.75%. This can be reclaimed on the next tax return if the loan has been repaid (but you can’t repay it then taken out again!)
If your DLA is more than £10k overdrawn at any time in the year you will incur a personal benefit in kind (unless you pay the company interest on the loan). The company will also pay class 1A national insurance on the notional interest. The rate of interest is set by HMRC each year.
We want you to pay the right amount of tax and not waste your hard earned money on unnecessary penalty taxes like these. Regular, up to date bookkeeping will ensure that you keep track of your DLA.
Don’t forget to claim the VAT on business mileage.
You can’t claim VAT on the full 45p but you can claim on the fuel element. You can find out the current fuel element Advisory fuel rates – GOV.UK (www.gov.uk)
For instance my care has a fuel rate of 14p. This means that, for every mile, I can claim 14p *20/120 = 2.33p in VAT. There is no VAT on the remaining 31p as that is deemed to be for insurance, maintenance, wear and tear etc.
All you need to do is to keep a VAT invoice* (not a credit card receipt please!) for fuel around the date of the journey ie when you you fill up before or after the trip.
*If you’re interested then it’s because the 45p is an allowance and EU/UK law states that you can’t claim VAT on allowances. The EU did one of their usual accommodating moves and agreed that, as long as there was a valid VAT invoice for fuel around the same date (eg filling up before or after the mileage) then the company could claim VAT on the fuel element of the 45p.
We’ve been busy doing Clarity Business Reviews for new clients. But what is a Clarity review?
Clarity is software that will connect directly to Xero or Quickbooks (or we can enter figures manually from other software). We can then look at 7 key indicators that reflect the profitability, value, and efficiency of your business. And how we can improve those 7 figures and your business as a whole.
Over zoom we discuss your business and identify actions within 5 areas so that you go away with an action plan.
The whole thing takes about an hour.
Then there are three options:
-Work through the actions on your own
-Join our Minerva Mastermind group on Facebook and a monthly Zoom call to check in on how you’re doing and maybe book an annual Clarity review
-Book monthly or quarterly coaching to help you to work through your action plan (Della is a qualified business coach and mentor as well as a chartered accountant)
Why we love Xero (Quickbooks online and Freeagent are quite good too)
Xero is user friendly (according to our clients) software for small businesses. It sits in the cloud rather than on a single PC so that it can be accessed at any time by the business owner (that’s you) looking for management information, the bookkeeper (that may be you, Minerva, or somebody else) to input data, and your accountant (that’s us) to prepare your accounts or to give advice at any time.
You can put the Xero app on your phone to raise quotes and invoices on site. You can buy a small card payment machine such as Square or Zettle for around £20 and, with the app on your phone, you can take payment on site.
You can include a Stripe payment button on your invoices (although bank transfer is the cheapest method) to make it easy for customers to pay you by card.
You can forward electronic invoices directly to Xero (or to Dext if you have the app) or upload them manually to attach to your transactions. Once you have attached a digital copy you can get rid of your paper copies although we recommend that you keep them somewhere until we have completed the year end. If you ever need to check an invoice it is easy to search the supplier in Xero to find it.
Xero multi-currency version handles all your foreign currency purchases automatically.
As long as your Xero is up to date we can estimate how much tax you will expect to pay at any time.
Paperwork (or the digital equivalent) is important
If you are running a limited company it is important that you don’t take any money out of the business without the correct paper trail. The company is a separate legal entity from the director/shareholder. It’s a bit like taking money out of your mother’s purse without permission.
The sort of paperwork you would need is:
– Salary needs a payslip
– Dividends need a minute and a tax voucher (contact us if you need a template)
– Interest payments (if appropriate) need a form CT61 filed with HMRC
– Expenses should be accompanied by receipts and a mileage log
– Pension payments should be paid directly to the pension provider
How to take dividends – tip 2
It’s not unusual for a married couple to hold shares in a company and each of them is entitled to receive dividends on those shares. But it is important that dividends are paid to the correct shareholder.
Whilst dividends can be paid into a joint account, they should NOT be paid into an account that does not belong to the shareholder. In other words, H’s shares must be paid into H’s bank account or H+W’s bank account and W’s shares must be paid into W’s bank account or H+W’s bank account.
How to take dividends
I see too many directors helping themselves to company cash and calling it ‘dividends’. But every payment out of the business should be accompanied by some sort of paperwork (or digital equivalent). For dividends you will need:
We have templates for the last two and we can advise you on whether your bookkeeping is good enough for the first. Hint: if it’s not up to date then it can’t possibly be adequate.
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.
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.