Payments on account can add a large chunk onto the amount of tax that you have to pay. If your income is likely to be lower next year than this year then it may be worth reducing your payments on account and we sometimes do this for clients who are winding up their sole trader business or who are going through a hard time. But BEWARE! If you reduce your payments too low and the final tax bill comes out higher then you will have to pay interest on the shortfall. This is to discourage people from reducing their payments too far.
Tax Tip
Till systems have changed since I had a little cash register as a child. These days they usually run on a tablet. They may include an integral card payment system or have a small palm sized device attached. The local Clover salesman did a good job in the area and we help clients to keep their VAT and stock records using the software. It integrates into Xero and other bookkeeping apps to save time and minimise errors by typing numbers from one system into another.
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.
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:
- Would they be better off (financially) as a limited company or a sole trader/partnership?
- Do they need to register for VAT? Would there be any benefit to registering voluntarily?
- Does their spouse or child work in the business or could they be a shareholder?
- Salary, dividend, pension? Are they taking £ out of their business in the most tax efficient way possible?
- Are they approaching the £50-60k band for repaying child benefit?
- Do they need to be saving for a pension? (Our All In Place review goes into this in more detail)
- Should they receive interest on money that they have loaned to the business?
- Are they claiming for use of their own home for business purposes?
- Are research and development tax credits applicable?
- Could they register for EIS/SEIS to encourage investors?
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.
Tax Tip
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.
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.
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)
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.
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