Tag: tax tip

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Tax Tip

Don’t forget that corporation tax rates increased to 25% from 1 April this year for business profits over £250,000. If your profits are below £50,000 then you still pay tax at 19%. If your profits lie between £50,000 and 250,000 then you pay a marginal rate of 26.5%.

So how does this work if your year end isn’t April?

Say you have profits of £300,000 for the year ended 30 September 2023. 6/12 of your profit will be taxed at the old rate of 19% and 6/12 will be taxed at the new rate of 25%.

Although we have software that works this out for us we still do a quick calculation to double check that we have input everything correctly.

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Tax Tip 

When we complete annual accounts here at Minerva we carry out a simple tax review for all our business clients. We can then contact them if we think they’re not taking advantage of all the obvious reliefs: 

  1. Would they be better off (financially) as a limited company or a sole trader/partnership? 
  1. Do they need to register for VAT? Would there be any benefit to registering voluntarily? 
  1. Does their spouse or child work in the business or could they be a shareholder? 
  1. Salary, dividend, pension? Are they taking £ out of their business in the most tax efficient way possible? 
  1. Are they approaching the £50-60k band for repaying child benefit? 
  1. Do they need to be saving for a pension? (Our All In Place review goes into this in more detail) 
  1. Should they receive interest on money that they have loaned to the business? 
  1. Are they claiming for use of their own home for business purposes? 
  1. Are research and development tax credits applicable? 
  1. Could they register for EIS/SEIS to encourage investors? 
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Tax Tip

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. 

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Tax Tip 

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.

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Tax Tip

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)

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Tax Tip

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. 

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Tax tip

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

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Tax Tip

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.

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Tax Tip 

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: 

  • Review of management accounts and forecast to demonstrate that their will be sufficient funds left in the business to cover future debts (HMRC are particularly keep on this!) otherwise the dividends are illegal 
  • Sufficient post-tax profit to cover the dividends (another reason they may be illegal) 
  • A minute of the board meeting voting for the dividend 
  • A tax voucher for each shareholder. 

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. 

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