What’s your status? It may be complicated.

Providing consultancy for a local authority many not be as straightforward as you imagine, writes Jono Wilson of Barnett & Turner. If you’re running a limited company and are offered a contract to provide consultancy to a council, the supply of those services is covered by the ‘intermediaries legislation’ – also known as IR35. This means that if it is decided that you are actually an employee, the company’s income could be taxed as employment income and subject to PAYE and national insurance.

How should you approach the issue?

First of all, you should have a contract with the council about your arrangement to provide services, which records the risks and duties of the engagement and the details of control your customer has over how you carry out the work. This contract and the actual arrangement will be considered in determining your employment status, so make sure you talk about it with your adviser beforehand.

What additional requirements are there?

From April 2017, public-sector bodies had to ensure that contractors providing their services through a limited company are operating under the correct employment status. The body – or agency, if applicable – will decide this using a set of tests, the details of which are yet to be announced. If these tests determine that the contractor should be an employee, then the income will be subject to PAYE and National Insurance. Again, talk to your accountant and ensure that you keep up to date with the latest developments.

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at jwilson@barnettandturner.co.uk

Glimpsing a post-Brexit world of R&D

Jonathan Wilson of Barnett & Turner explains the current system for tax credits and thinks business may benefit eventually from a more relaxed regime. There’s little doubt that Brexit has created a great deal of uncertainty. But whatever your view about the likely impact on business overall, there’s speculation that the decision to leave the EU might be good news from the point of view of R&D tax credits.

Under the state-aid rules drawn up by Europe, there are limits to how far governments can support industries with tax breaks. Some people glimpse a world of greater freedom and generosity once ties with Brussels are cut.

The background here is that over 22,000 companies submitted claims for R&D corporation tax relief in 2014-5, which is a 12% increase on the numbers recorded in the preceding tax year. So the tax break is certainly popular. What’s more, the total value of the expenditure across these companies was a whopping £21.8 billion.

Who can claim this relief?

You might think that it’s the province of, say, big pharmaceutical businesses, but that’s really not the case. Any company has been potentially able to qualify for a 130% extra corporation tax deduction after April 2015 (effectively 230% tax relief on qualifying costs).

To claim the relief you must have a qualifying project, which seeks to:

• Achieve an advance in overall knowledge in a particular field
• Resolve a scientific or technological uncertainty

The systematic approach must be documented by the company and, according to government guidelines, you must prove you are:

• Extending overall knowledge or capability in a field of technology
• Creating a process, material or device, product or service which incorporates or represents an increase in overall knowledge or capability
• Making an appreciable improvement to an existing process, material, device, product or service

 What other criteria apply?

The technical challenges you face must be ones which can only be overcome by bespoke and unique methodologies. If there is already a standard solution in the public domain, then you won’t be able to claim. You also need show that you have taken a systematic, investigative and experimental approach to the problem – drawing on scientific knowledge and practical experience.

This may involve:

• A technical analysis and documentation of the requirements
• The specification of a solution
• Development of the solution against the documented requirements
• Implementation and integration of the solution
• Documentation of trials and tests to record actual behaviour against expected
• Correction of any significant deviations in behaviour

What costs count towards the claim?

Qualifying costs include those of staff, subcontracted staff, consumables and heat and light. You can also count the costs of software used directly in the R&D process. Remember that you will need to apportion staff time between the R&D and regular work.

Capital Expenditure

If you use plant and machinery capital expenditure solely for R&D, you will gain 100% writing down allowances.

How can HCWA help?

Firms in the HCWA association can:

• Ensure that you are maximising your claim
• Advise on the best option available if a choice arises between surrendering a loss or carrying it forward
• Ensure that the claim is valid (there can be particular difficulty in assessing whether consumables’ costs are qualifying expenditure)
• Assisting with the narrative of the accompanying R&D Report

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at jwilson@barnettandturner.co.uk

Has flat rate fallen flat?

Accountant Jonathan Wilson of Barnett & Turner explains why the new flat rate regime may have effectively spelt the end of the flat-rate scheme for many small businesses. For a number of years now, many businesses with a turnover of less than £150k have opted to make use of the flat-rate VAT scheme.  Rather than balance the VAT they charge with the VAT they incur through purchases, they are given a percentage figure to apply to the gross sales over a three-month period. This rate will depend on the industry they are in and can vary quite considerably. In compensation for the beneficial repayment rate, they are not allowed to claim back VAT they have been charged, the only exception being capital items above £2,000.

In December 2016, the government entered into consultation on the flat-rate scheme which makes it much less attractive to many small businesses. Originally, it was effectively possible for small companies to gain from the charging of VAT, by retaining a proportion of the money collected as taxable profit. HMRC seems determined to close off what is now seen as a loophole, but which may have been presented originally as a benefit to encourage registration and growth rather than supressing sales to stay below the VAT threshold.

From 1^st April 2017, a large proportion of businesses on the flat-rate scheme have had to apply the figure of 16.5% to their gross sales. So with £100,000 in sales and £20,000 in VAT on top, charged out to customers, the payback rate becomes £19,800. As a result, many small business owners currently on the flat-rate scheme may have chosen to opt out and record VAT in the traditional way.

There is, however, one way in which you can stay on the flat-rate scheme and retain its more favourable terms. That is if you can prove you are not a ‘limited cost trader’.

The definition of the limited cost status is that your expenditure on goods is less than 2% of your VAT-inclusive turnover. In some circumstances, it may be more than 2% but less than £1,000 per annum.

The issue giving accountants sleepless nights is over the precise definition of goods. We know that it excludes capital expenditure, food and drink and any type of vehicle maintenance or fuel (unless you’re running a taxi service). Where things become more complex would be, for instance, over the purchase of something like a software subscription. It seems that if the software is bespoke to your business, it will probably count as a service not goods.

It’s these kinds of assessments that small businesses will need to make and it’s important to take professional advice, as the situation is still fluid and everyone is racing to interpret what exactly the new regime will mean. HMRC will be writing to all affected companies in due course, but as April has come and gone, it may be worth having another conversation with your accountant if you haven’t already.

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at jwilson@barnettandturner.co.uk

We all gain from thinking before selling shares

Jono Wilson of Barnett & Turner gives some valuable advice if you’re planning on realising the value of your shares. Whenever you sell or dispose of certain types of asset, you may find that you owe Capital Gains Tax (CGT). The tax is based on the ‘chargeable gain’ – or, in simple terms, the difference between your proceeds and the original cost.

CGT is payable on the disposal of property which isn’t your main home. It’s also charged on company shares. You can, however, make a gain of up to £11,100 before you reach the threshold at which you have to pay tax.

• Before the 2016 Budget

Two rates of CGT existed for individuals prior to the 2016 Budget: a standard rate of 18% and a higher rate of 28%.

• After the 2016 Budget

Following the Budget announcement, the two rates were reduced to 10% and 20% respectively, although different figures apply to certain residential properties.

With regard to shares, here are some questions to think about when considering your liability:

How are the shares held?

If they’re held in an Individual Savings Account (ISA), they are exempt from CGT.

What type of shares are they?

Are the shares held in a large PLC or a family-owned trading business? If they are in a trading business in which you work (and hold at least 5% of the shares and voting rights), you may qualify for Entrepreneur’s Relief, which provides for a rate of 10% on the whole gain. If you’re unable to claim Entrepreneur’s Relief, some or all of the gain may be taxed at 20%, depending on the level of your other income.

Are you planning on disposing of a number of assets around the same time?

If you want to take full advantage of your annual allowances, it probably won’t make sense to dispose of a number of assets at a similar time. It’s certainly worth taking professional advice before proceeding.

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at jwilson@barnettandturner.co.uk

Tougher penalties for tax avoiders – summary of the new ‘STAR’ by Jonathan Wilson of Barnett & Turner.

In the 2016 Budget, the then Chancellor, George Osborne, signalled an intention to introduce harsher penalties for those who take part in tax avoidance schemes. As part of this the Government confirmed that clarification would be given on the definition of ‘reasonable care’ in relation to the penalty provisions where a person uses tax avoidance arrangements which HMRC later defeats. The Finance Act 2016 introduced a new ‘Serial Tax Avoidance Regime’ (STAR). Whilst the legislation uses the word ‘serial’, it is not only aimed at frequent users of avoidance schemes, but also includes any taxpayer who has used any scheme which is later defeated by HMRC.

STAR will apply to any tax avoidance schemes entered into after 15 September 2016, as well as any schemes entered into before that date which HMRC defeats on or after 6 April 2017. HMRC have, however, confirmed that the regime should not apply to schemes entered into before 15 September where either:

• the taxpayer advises HMRC before 6 April 2017 of their firm intention to relinquish their position and settle their case; or
• where ‘full disclosure’ has been made before 5 April 2017.

The schemes or arrangements caught under this regime include those:

• disclosed or disclosable under Disclosure of tax avoidance schemes (DOTAS) or VAT Avoidance Disclosure Regime (VADR);
• arrangements for which HMRC have given a follower notice to the taxpayer;
• arrangements counteracted under the General Anti-Abuse Rule (GAAR).

 Following the first defeat, HMRC will issue the taxpayer with a warning notice saying that if the taxpayer participates in any further tax avoidance schemes within the next five years, which are defeated by HMRC, any penalties levied will be at a higher rate and the warning period will be extended.

During the warning period, the taxpayer will also be required to send details to HMRC about any tax avoidance schemes entered into.

If HMRC defeat three tax avoidance schemes while the taxpayer is on warning, the taxpayer’s names and other details will be published.

In addition to the above measures, HMRC released a consultation document in August 2016 called ‘Strengthening tax avoidance sanctions and deterrents’.

The Government’s proposals set out in this document were to:

• introduce penalties for those who design, market or facilitate the use of tax avoidance arrangements which are defeated by HMRC; and
• to look at modifying the way the penalty regime works for those whose tax returns are found to be ‘inaccurate’ as a result of using such arrangements, by defining what does not constitute the taking of ‘reasonable care’ and placing the requirement to prove ‘reasonable care’ on to the taxpayer.

The legislation, included in the 2017 Finance Bill, introduces a penalty for those who design, market or facilitate the use of tax avoidance arrangements which are defeated by HMRC, and focuses on abusive schemes rather than reasonable commercial arrangements.

By introducing these measures, the Government is sending a clear message of much tougher sanctions to not only those who get involved in such schemes, but also to those who promote the arrangements.

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at jwilson@barnettandturner.co.uk

A streamlined new system for employee benefits

Tracy Henson of Barnett & Turner explains how the world of taxable benefits has changed since April 2016. As accountants & tax advisers, one of our many jobs is to prepare P11D forms on behalf of clients. It’s the way in which we inform HMRC about the taxable benefits to employees that go beyond their salary.

At the start of the 2016-17 tax year, a number of changes came into force, which in theory make the process a little more streamlined.

First, the distinction between the P90 form and the P11D has been removed. The P90 existed for lower-paid employees, but it’s been decided that two systems running alongside each other is rather inefficient.

The second change is that the P11D was always compulsory if you were paying expenses related to employment. You’d show any payment on the form and then it could be reclaimed on a tax return. There’s now, however, an exemption for certain expenses – predominantly related to travel. (It’s important to note that you still need to keep full records though, as you must be able to provide proper documentation if HMRC raise a query.)

Third on the list of new rules is the option to pay tax through the payroll, where a P11D would previously have been used. This relates to all benefits not covered by the exemptions discussed above, with the exception of accommodation, loans, credit tokens and vouchers.

Finally, there is now an exemption for trivial benefits. If the cost doesn’t exceed £50 – and the employee isn’t receiving cash or cash vouchers – there’s no requirement for it to be filed in the P11D.  The exemption is capped at a total of £300 a year and includes any member of an employee’s family or household.

The net result of the changes is that we’re now in a rather simpler and more straightforward environment. But it’s certainly worth talking to your accountant about your own specific circumstances and the impact the new rules will have.

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at jwilson@barnettandturner.co.uk

Island life beckons if you’re an entrepreneur or investor...

Are you a non-EU resident? If so, it may be that you haven’t previously considered the option of moving to the Isle of Man. PHAEDRA BIRD of Barnett & Turner’s Associates, Crowe Clarke Whitehill reveals the ‘Enterprise Isle’ initiatives that are designed to boost inward investment. Have you ever considered becoming a resident in the Isle of Man? New tax incentives and changes in financial regulation certainly make it an attractive option. But what practicalities are involved?

There are two types of residence visas you can potentially obtain from outside the EU.

The first is the Tier 1 Entrepreneur Visa, which you can obtain for three years and four months initially by investing £200,000 in a new or existing business. The company needs to be registered, pay tax and have a bank account in the Isle of Man.

You also have to meet certain other criteria, such as proving you haven’t been absent from the IOM for more than 180 days in any 12-month period.  (The Isle is, however, inside the Common Travel Area which includes the UK, Ireland and the Channel Islands, and if you spend time in this zone, that doesn’t count as an absence. So if you wanted to visit London for the weekend, for instance, it wouldn’t set the clock running on the 180-day limit.)

You can make an application to extend the visa for another two years, provided you remain engaged in the business and have created at least two full-time jobs lasting more than 12 months.

After five years, you can apply for Indefinite Leave to Remain in the IOM and this process can be accelerated if the business expands or more jobs are created.

The other option is a Tier 1 Investor Visa by making a qualifying investment of £2 million in the IOM within three months of arrival. Again, the initial visa is for three years and four months and the same absence criteria apply.  If the money remains invested throughout the period, then you can apply to extend the visa by another two years. And, once again, application for Indefinite Leave to Remain can be made after five years, with the possibility of speeding up the process by increasing the level of funds.

So, what about dependants?

Well, a spouse and children under the age of 18 can accompany the holder of either type of visa.

As an additional incentive to Tier 1 applicants, the IOM Government is also considering exempting people who come to the Island under the visa arrangements from the requirements to obtain the work permits that are generally required for all non-IOM workers.

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at jwilson@barnettandturner.co.uk

Insight into the inside threat

The biggest threat to your IT may actually come from within, argues Debbie Birkett – Office Manager at accountancy firm Barnett & Turner, so it’s time to think about security measures. Although we’re often hearing about the threat of cyber crime and the risk posed by external hackers, we sometimes neglect the danger that can lie within.

We’re living in a climate in which more and more business is done in the cloud. This means that people will not only have their username and password they use internally, but have at least another log-in as well. Multiple sets of credentials rather than one.

If you choose to make use of Office 365, it can be connected to Active Directory Federation Services, which allows you to have full control of user security. A security token is passed to the ADFS server and when it’s confirmed, it’s passed back to Office 365. There’s one log-in for users and if someone’s account needs to be made inactive, it can happen instantly.

Cloud systems aren’t just related to ID management. They can also help with disaster recovery. Once an encrypted link has been established from an office site to a data centre, virtual machines can take over.

In the future, workplace ID security is likely to become even more impressive and mirror the kind of environments created for online banking and e-commerce. Two-factor authentication means you must have an additional form of ID. Perhaps a code sent by email or direct to your smartphone. In due course, photo recognition may become the norm.

For the moment, it’s worth giving thought to just how secure your systems are. And then taking whatever steps you can to ensure that you guard against internal risk, as well as external attack.

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at jwilson@barnettandturner.co.uk

Avoiding costly mistakes in social media

What are the most common mistakes businesses make on social media? Web specialist CHLOE WILSON (via Barnett and Turner Accountants) explores the pitfalls that can hold you back when promoting your company on LinkedIn, Facebook and other platforms. Although more and more businesses have embraced social media as a way of communicating with customers and promoting their products, it’s possible to fall into a number of traps. Here are five of the most common errors that you can potentially make:

YOU SPREAD YOUR EFFORT TOO THINLY

It’s a mistake to take on too many social media platforms at once, as it can quickly feel overwhelming to post content regularly and interact with followers every day. Instead focus your time and efforts on just one platform at a time. Build up your presence on Twitter, for instance, over a six-month period. Really get the hang of it. Discover what works and then you can add another platform and repeat.

YOU TRY TO MANAGE EVERYTHING IN REAL TIME

Clearly social media operates 24 hours a day, but it may be that you can’t be monitoring it around the clock. Set aside 5-10 minutes a couple of times in the day to review and respond to other people’s posts. And when it comes to your own content, you might consider using a free tool such Buffer.com to schedule and pre-plan your posts in advance. You could, for instance, spend an hour every Monday morning setting up all your posts for the week ahead, to take the pressure off each day.

YOU’RE INCONSISTENT

Many people end up posting on an ad-hoc basis. Five times in one day, perhaps, and then nothing for a whole week. The best advice is to spread your posts out. If you only have time for one post a day that’s fine, but do it consistently and when your target audience is most likely to be online. If it’s mums, for instance, you could send them a message that coincides with their wait outside the school gates every afternoon.

YOU GO FOR HARD SELL

Try to avoid selling constantly, as people tend to switch off. They use social media to connect with their friends and find out information they value. Aim to post useful or topical articles that add value or share ‘behind-the-scenes’ insights into your business in between your promotional posts. And consider using social media as a vehicle for market research. Share two pictures of a product in development, for instance. Which does your target audience prefer?

YOU OBSESS OVER THE NUMBER OF PEOPLE FOLLOWING YOU

Don’t become too fixated by your numbers of followers or friends. It’s more important for a small business to have 100 interested supporters who like and share your content than to have 1,000 followers who don’t engage or buy from you at all. Aim for quality, not quantity.

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at jwilson@barnettandturner.co.uk

Linking price to value

How much do your customers value what your business has to offer? Jono Wilson of Mansfield-based accountancy firm Barnett & Turner talks us through the process of pricing. Putting a price on what you sell can be one of the biggest challenges for any business. It’s not only going to play a critical role in your marketing strategy, but also potentially determine the viability and profitability of your company.

The first thing to establish is whether your product or service is considered a commodity. If it’s, say, a mobile phone or even a driving lesson, the band in which you’re operating is going to be pretty narrow and largely outside your own control.

Many businesses do, however, have greater flexibility. You need to understand the perceived value of what you have to offer and work how to quantify it to a customer. Clearly, if something costs you £12 to produce, but its perceived value is only £10, you have an insurmountable obstacle in front of you. If, on the other hand, its perceived value is £100, you’ll see a lucrative market opening up.

Don’t feel you should give away years of experience or know-how for free too often. Be confident in the value you’re able to provide and communicate this clearly to your customer. Remember, you are selling benefits, rather than just features. (Parking sensors on a vehicle are merely a feature. It’s the way they help you avoid bumping your car when parking that’s the actual benefit.)

It’s worth bearing in mind that once you have invested work or effort in creating a product or service, it may be that it becomes more valuable to you. That’s because the next time you sell it, you’ve already done the groundwork.

Here are five additional tips, which you may want to apply:

• Break down the cost of any project work. If you give each component a separate price, it helps with recognition of the overall value.

• Agree price and performance criteria up front. You don’t want to be negotiating at a later stage and will also have some benchmarks in place if you need to increase the price at any point.

• Bill in a timely fashion. You want your customer to value and remember the work that you have done, so invoice when the project is fresh in their mind.

• Avoid adding bells and whistles the client doesn’t want or need. You don’t want your profit margin eroded by setting a five-foot high jump for a three-foot price.

Speak to your client about price. If circumstances have changed and your cost of delivery has increased, be frank and speak to the customer at the earliest possible stage.

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at jwilson@barnettandturner.co.uk