Sole trader or limited company? Some points to consider.

Changes in legislation make the choice more complex today, argues Jonathan Wilson, Chartered Tax Adviser at accountancy firm Barnett & Turner. If you’re setting up a business for the first time, one of the key choices you’ll make is over how you choose to structure it. The simplest option is often to become a sole trader or, if there are two or more individuals in business together, a partnership. Many businesses start life in this way.

Alternatively, some might set-up in business as a limited company, appointing themselves as company director. There is no right or wrong answer here, but the way in which a business is structured will probably depend on a number of factors including possibly the business owners’ personal circumstances and the likely profits of the business.

It’s worth remembering that the Taxes Acts and the Companies Act are vast and complex, which means it’s important to get support from those who have knowledge and experience of the rules.

Limited liability

If you are a sole trader, you do not benefit from ‘limited liability’ and as a result are potentially at risk of losing your own personal assets if the business fails. A company is a separate legal entity and therefore it is possible for the business owner(s) to benefit from ‘limited liability’.

 Administration and formalities

If you run an unincorporated business, you prepare annual business accounts and a Self-Assessment tax return. The accounts are not filed at HM Revenue & Customs or Companies House, although some of the information contained within the accounts is declared on the tax return.

If you run a limited company, you are required to prepare accounts in a specific Companies Act format. Company accounts are filed at HM Revenue & Customs and at Companies House. You need to observe certain formalities before taking profits from a company, including the necessary recording of board meetings. It’s possible to pay salaries and bonuses, provided the company operates a payroll scheme.

 Rates of tax and national insurance contributions

As an unincorporated business owner, your tax and national insurance contributions on profit are at rates of 20% (basic rate), 40% (higher rate) and 45% (additional rate).

In addition, class 4 national insurance contributions are due on profits falling between £8,060 and £43,000 at 9% and 2% on profit over £43,000. Class 2 national insurance contributions of £145.60pa are due if profits exceed £5,965.

Regardless of the value of the amount you draw, tax and national insurance contributions are due on the taxable profit of the business.

As a company owner, you are able to control the level of income on which you pay tax by drawing only the level of income required to fund your lifestyle. Depending on circumstances, it is also possible to control the type of income on which you pay tax by voting yourself a tax-efficient remuneration package.

Companies are currently subject to corporation tax at 20%, although this rate is set to reduce slightly in the years ahead.

Should I review my existing business structure?

The Finance Act 2015 introduced major changes to the way in which business owners are taxed on profits extracted from a company - in particular by way of dividend. These included:

• the abolition of the notional 10% tax credit on dividends;
• a new 0% tax rate on the first £5k of dividends;
• and a new rate of taxation on dividends of 7.5% (basic rate taxpayers after the first £5k).

For most small business owners the result of these changes will be an increase in taxation.

In light of the changes introduced in the Finance Act 2015, business owners should consider whether the vehicle through which they trade is still appropriate for them and, if trading as a company, whether they are extracting profits in the most tax efficient manner. That’s why it is always worth having a discussion with your accountant or tax adviser about the most appropriate option for you.

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

Getting the best price for your business takes preparation

Jono Wilson of accountancy firm Barnett & Turner gives his top five tips for selling your company. If you’re thinking of selling your business, it really pays to plan ahead. In my experience, you’ll never get the best price if you’re reactive or rushed. You need to prepare properly as a vendor. Here are my top tips:

SEEK ADVICE

You need a realistic expectation of value, so take the advice of experienced individuals, such as your accountant or corporate finance adviser. If you have a figure in mind, but it turns out to be badly wrong, you’ll have a nasty shock waiting around the corner. Of course, if your advisers tell you that your business is worth less than you expected, you can always take a step back and re-evaluate; you’ll have lost very little in terms of time, effort and money.

DO YOUR HOMEWORK

Use the time prior to starting a sales process to “get your house in order”. You will need financial forecasts demonstrating future growth potential and your historic numbers will be scrutinised in a due-diligence process. If there are issues that need explaining – one-off costs and non-recurring fees, for example – this needn’t be a problem, as long as you are prepared to answer questions and place your business in the best possible light.  Using an advisor in this process can add significant value.

CHANGE THE WAY YOU WORK

In the event of a valuation being lower than your expectations, which doesn’t seem like the right level of recognition for all the years you’ve put into the business, why not spend that little bit longer with the company making some changes? Brainstorm with your accountant particular ways of adding extra value.

At the same time, it can often be a good idea to separate yourself from the day-to-day running of the business, as if you’re integral to the operation, the buyer may not pay a premium when they know you’ll be gone shortly after a sale. You might want to devolve operational responsibility to second-tier managers. This could involve an up-front cost, but may prove a good investment in the long run.

BE REALISTIC ABOUT TIMESCALES

Six months is often considered as a realistic time for the process from start to finish. There are all the documents and financial information to pull together before the negotiation even gets under way. The process could stretch out for 18 months if you need to make internal changes to the business in advance of the sale.

THINK ABOUT TAX

This is an area all of its own, of course. You need to thinking about this more than a year in an advance, as certain reliefs will only apply if you have been a director or officer of the business in the 12 months prior to the sale. The way you structure the sale needs to be tax efficient, so take professional advice, particularly if you have kids you want to pass benefit to.

In conclusion, selling a business can be a complex process with lots of parties involved. Meanwhile, you still have a business to run. That’s why it’s critical to get the right team of advisers and partners in place to make the sale as successful as possible.

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

Four ways married couples and civil partners can reduce their tax burden

David Wilson of Barnett & Turner mentions four ways married couples and civil partners can reduce their tax burden If you’re married or have entered into a civil partnership, you certainly benefit from tax breaks that other people can’t claim. In this short discussion of family tax planning, we’ll use the word ‘spouse’ as a generic to cover husbands, wives and civil partners.

Essentially you are looking to make sure that you use all available exemptions and allowances and – where appropriate have income or capital gains in the hands of a spouse, where it may be taxed at the lowest possible rate. Some examples might include:

Registering buy-to-let property in the name of the spouse with the lowest income tax rate. Properties may be owned entirely by one spouse, as joint tenants, or as tenants in common in unequal shares. The underlying ownership determines the division of the property income. Property owned as joint tenants is divided equally, whereas property owned in differing shares – as tenants in common – is divided equally (or, upon a specific election submitted to HMRC, in accordance with the underlying ownership). In this way, the property income can be altered to suit the circumstances of the couple.

Transferring ownership of all or part of the property to the other spouse.

While it may be advantageous for one spouse to own a buy-to-let property from the perspective of income tax, it may not be so good from a capital gains tax (CGT) perspective. Prior to the sale of a property at a gain, it may be a smart idea to transfer ownership of all or part of the property to the other spouse where, for example, that spouse has significant capital losses available to offset against the gain, or has an unused CGT exemption. The ability to transfer assets between spouses without incurring any CGT liability is another tax break which is available only to married couples or civil partners.

Paying a salary or gifting shares to a non-working spouse

An individual running a business can save significant income tax by employing their spouse on a salary, or gifting shares upon which a dividend is paid. The salary payment may also possibly enhance the spouse’s state pension entitlement. These arrangements however can come under close scrutiny from HMRC. Any salary paid needs to be commercially justifiable, taking into account the duties of the employment, and must be paid. Any gifts of shares between spouses must constitute more than just an entitlement to income. It’s important to ensure that these arrangements are not open to challenge by the Revenue and are not caught under the settlement rules or even the employment related securities legislation for example, so make sure to talk to your accountant about them.

Putting savings into the name of the spouse with the lowest tax rate

By far the most common example of switching income between spouses is to put savings into the name of the spouse with the lowest tax rate. You can reduce or avoid income tax on any interest generated. With the introduction of the personal savings allowance and the 0% starting rate applicable to interest in certain circumstances, income tax savings on interest received can now be significant.

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

Profit averaging for farmers: harvesting the benefit

Although farming businesses have had a tough time in recent years, there may be some relief in sight, writes Andrew Williams, Tax Manager at Barnett & Turner. Farmers have in the past benefited from two-year averaging of their profits for tax purposes, which may have been helpful to some, but was still fairly restrictive. Many have therefore welcomed the extension of the averaging period to five years.

In the months since the EU referendum, farm gate prices have increased a little, but there are still a number of problems facing the agricultural sector. Subsidies are lower and trading conditions are generally poor. Any relief is therefore quite welcome.

What are the rules?

If your taxable profits after capital allowances in 2012/2013 were higher than in 2016/2017 and you faced significant tax bills, then you may be able to claim relief.

You need to be a sole trader or partnership with a financial year-end which ends in the year to 5^th April 2017.

Annual reviews

It’s important to keep a record of your profit history and review it on an annual basis. The averaging exercise is designed to take out profit previously taxed at higher rates. You may be able to reinstate personal allowances or make use of those that were unused before.

Imagine you made £115,500 in profit in 2012/2013, £65,000 the next year and £26,000 in 2014/15. And let’s assume that your profitability continued to drop – to, say, £10,000 in 2015/16 and to zero in 2016/17.

In this scenario, you could save £5,800 in tax by electing to average the profits over five years rather than using the previous two-year averaging relief.

Issues to bear in mind

Unfortunately, you can’t five-year average every result. There’s a test for ‘volatility’. In order to make an averaging claim, you’ll need to show either that one or more of the five years shows zero profit or a loss or that the average of the previous four years, when compared to the fifth, is 75% or less than the other.

Losses in a year will be treated as being nil profits for the averaging calculation, so you can still make use of the loss in the normal way.

Only your farming profits count for these purposes, so if you’re renting out cottages or making money from wind turbines, you must exclude this profit from the claim.

Another rule is that if you are in a ‘year of commencement or cessation’, you can’t make a claim. (This includes individual partners joining or leaving a partnership.)

As there are some complexities here, it obviously makes sense to talk to your accountant about the issues if you think you’re going to take advantage of the scheme.

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

Why the year-end chat should start well in advance

Jono Wilson of accountancy firm Barnett & Turner always aims to be proactive in the advice given to clients. That way tax planning becomes so much easier. An important part of my job is to ensure that clients are informed of the tax efficient planning opportunities available to them in advance of the year end date in order to allow them sufficient time to assess each of the options available to them and decide whether these opportunities are right for them. In order to provide clients with enough time to make informed decisions in relation tax planning, these conversations need to start well in advance of the year end date to prevent any last-minute scrambles and pressurised decision making.

When it comes to discussions on efficient tax planning opportunities with clients it pays off to be proactive. Meeting with clients during the final quarter in advance of the year end, provides an excellent opportunity to discuss the business owners aspirations and strategy for the coming twelve months, allowing us to provide tailored tax planning advice which suits the specific needs of each client.

Here are some of the tax planning topics which are frequently raised in advance of the year end:

PROFIT EXTRACTION

First of all, we look at the profits which have been extracted to date, then take into consideration the client’s specific circumstance in order to assess whether there are any additional requirements in the coming 12 months. This may be that the client has a big life event coming up; possibly a family wedding, a house move, maybe even planning a big family holiday or winding down to retirement. It is important to think ahead in order to ensure that the needs of the client can be met and profits can be extracted from the business in a tax efficient way.

There are several ways in which this can be achieved; looking at a combination of salary and dividends (provided the individual is a shareholder), providing a solution which fits the needs of each client while taking advantage of the tax free allowances available. There is also the additional consideration of pension contributions which are an extremely tax efficient method of profit extraction. Given that a pension fund can grow tax free, it’s an efficient way of investing in the future and has the added benefit of allowing the company to access corporation tax relief on contributions made on behalf of employees. If there is a possibility of making a contribution before the year-end date, it’s worth discussing.

BONUSES

Bonuses can be used to reward key members of the team who have contributed to the success of the business, but who are not necessarily shareholders. Depending on the employee’s level of earnings, the marginal rate of tax payable on a bonus may be significant. Perhaps it would be more beneficial to discuss the potential of an additional pension contribution or the provision of other benefits to top up their remuneration package, such as a company car?

CAPITAL ALLOWANCES

Where a company has undertaken significant investment in capital expenditure during a financial year for the purpose of their trade, there can be some very beneficial tax reliefs available in the form of Capital Allowances. It is also possible to claim 100% tax relief on qualifying expenditure by utilising the Annual Investment Allowance (“AIA”) available to businesses, up to a value of £200,000.

When advising clients in the lead up to their year-end date, it is also worthwhile discussing whether they are utilising their AIA in full and whether there is any additional expenditure which is likely to be incurred in advance of the year end.  As the AIA is a use it or lose it allowance it is important to discuss the timing of capital expenditure with clients as it may be worthwhile to defer expenditure into the next year if the AIA has already been fully utilised in the current period.

RESEARCH & DEVELOPMENT (R&D)

Companies involved in a qualifying R&D activity may claim additional tax relief on certain costs incurred directly in the R&D process. The rate at which relief is given is dependent on various factors, however it is possible to access additional relief of up to 130%. Engaging in discussion with clients in advance of the year end can allow you to ascertain whether they have undertaken activities which you think may qualify for R&D tax relief. Small and Medium Enterprises can surrender tax losses generated by R&D tax relief to create a cash repayment, which is another factor which can be useful in discussing tax planning opportunities with clients. .

LOSSES

The current market may result in previously profitable companies making current year tax losses. If a company has been profitable and paid CT in the previous 12 months there is potential to utilise these current year losses against the prior year’s profits and generate a tax repayment. Liaising with your client as early as possible may allow them to access these repayments at an earlier stage. This can be of great benefit to companies where ‘Time-To-Pay’ arrangements are in place for tax liabilities currently overdue and cash flow is tight.

SHAREHOLDING STRUCTURES AND SUCCESSION PLANNING

Many of the clients which I deal with are family owned businesses. It is an important aspect of my role to assist clients not only with potential tax planning opportunities in advance of the company’s year-end date but also to engage in discussions surrounding the future success of the business and the owner’s plans for the future. Commencing discussions of succession strategy and the future strategy for exiting the business allows the management team time to consider how this will be achieved and begin putting the necessary operational frameworks in place to achieve these long term objectives. It is also important to assess how any shareholder who is planning to exit the business can do so in a way which fits with the aspirations of the company, whilst also being achieved in as tax efficient a way as possible for both the company and the individuals involved.

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

Some great ideas to help your grandchildren

There are a number of steps grandparents can take to help their grandchildren financially, argues Jonathan Wilson of Barnett & Turner. In fact, they may be in a stronger position in this respect than the kids’ parents. Everyone wants to do the very best they can for their children. It may be, however, that grandparents are in the strongest position to help when it comes to finances.

Some of the basic options are really simple. Every individual can make a £3,000 gift each year, free from inheritance tax, for instance. This won’t form part of the sums considered for the seven-year exclusion period usually applied to gifts prior to death.

Contributions to Junior ISAs might be something to consider. And pension contributions can be very efficient too. For a £2,880 contribution, the government tops up by 20%, leading to a gross figure of £3,600 – the maximum on which a non-earner can gain relief. And this can be doubled if both grandparents are around.

Understanding Trusts

Discretionary Family Trusts can seem a little more obscure and off-putting, but are well worth discussing with your accountant.

If a parent sets up a trust, it is deemed to be ‘settlor-interested’ and all of the income is treated as belonging to the parents and taxed accordingly. This issue doesn’t arise if we’re talking about grandparents.

Very often, you might choose to help with school fees or create a pot of money that can be used for university. If circumstances allow, each grandparent can transfer in up to £325k in cash or assets not covered by other inheritance tax relief. Anything above this figure is subject to lifetime inheritance tax at 20%.

Company Shares

As discussed above, assets such as cash may be transferred into trust with no immediate tax implications, subject to the £325k per person limit.  If, however, the grandparents hold shares in a trading company, subject to certain conditions such as periods of ownership, the shares are likely to qualify for 100% IHT relief.  Shares of unlimited value may therefore be transferred into Trust with no IHT liability.

Capital Gains Tax may be due on the disposal of shares into the trust, but this can be deferred or “held over” until such time as the shares are sold or passed out to a beneficiary (although again, it may be possible to hold over the liability on such a transfer).

Essentially, the deferral is until such time as there has been a real gain. The tax is levied on the difference in market value at sale and the original base cost of the shares.

If grandparents hold shares in a company, take a dividend and use this to fund, say, school fees, they pay tax at their marginal rate. The net income then goes to the child. If, however, you use a trust instead, you can appoint an interest over the trust assets to the child. Any dividends are treated as the child’s income and when you combine the £5,000 dividend tax-free threshold with the £11,000 personal allowance, the child can benefit from up to £16k tax free.

It is possible to set up trusts for reasons unrelated to tax. Trustees retain control and are responsible for the trust’s day-to-day running. Assets are ring-fenced and they decide who is going to benefit and when. They help their own inheritance tax position without adversely affecting anyone else. What’s more, grandchildren can be protected from the demands of future spouses or creditors.

It’s a complex area, so if you’re interested in finding out more, the first step is to sit down with your accountant and talk through the options. But as a grandparent, you may be in a unique position to help your family.

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

Brexit: What will it mean for UK taxes?

In the historic referendum of 23 June 2016, the UK public voted to leave the European Union (EU).  The following period has been filled with political and financial uncertainty, as the country contemplates its future outside the EU.  However, one thing seems to be certain: in the words of our new Prime Minister, Theresa May, “Brexit means Brexit”. The precise impact of the decision on UK taxes will depend on the new terms negotiated with the EU.  The most likely options for a post-Brexit UK, however, appear to include:

• The UK joining the European Free Trade Association and the European Economic Area, and so retaining access to the single market, in the same way as Norway, Iceland and Liechtenstein;
• The UK negotiating a standalone free trade agreement with the EU, as Switzerland does; or
• The UK negotiating an ongoing customs union with the EU, as Turkey does.

The good news is that much of the UK’s tax legislation is independent from EU influence and should therefore be largely unaffected by Brexit.  This includes income tax, capital gains tax and inheritance tax.  However, there are a few notable exceptions:

VAT

UK VAT has been harmonised with the EU since 1977.  Following Brexit, while the UK may no longer be required to give effect to any EU VAT Directives or regulations, it seems likely – in the short term at least – that that the country will maintain its current VAT system.

The most tangible consequence of Brexit is that VAT may need to be charged when goods enter the EU from the UK and when EU goods move in the opposite direction.  The VAT will often be recoverable, but this could still cause unwelcome cash-flow issues for many businesses.

Customs duties

To the extent that the UK ceases to be part of the customs union, then customs procedures would need to be reintroduced for exports between the UK and the EU.

We are unlikely, however, to see the imposition of any significant duties, as this would disadvantage the UK’s exports. Around 50% of UK exports are to the EU.

Corporation tax

Although corporation tax is determined only by the UK government, we have still been required to amend our tax legislation on several occasions, to comply with EU Law.  After Brexit, UK tax legislation should no longer be open to challenge on the basis that it is contrary to EU law.

On a wider scale, Brexit may also accelerate the harmonisation of corporate taxes across the rest of the EU – a move which the UK has historically opposed.

In summary, there remains significant uncertainty around how great an impact Brexit will have on UK taxes.  However it is likely that any changes will be focused on the technical rules, rather than increasing (or decreasing) the overall burden on taxpayers.

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

Tax relief for innovative corporate businesses

Jonathan Wilson of Barnett & Turner reminds company directors to consider whether they are eligible for the R&D Tax Reliefs. Research and Development (R&D) tax relief is a company tax relief which applies to all UK companies and can either reduce a company’s tax bill or – for some small or medium-sized companies – provide a cash sum (tax credits).

In both cases, this comes in the form of an enhanced expenditure relief for R&D expenditure that provides genuine incentives for small and medium sized enterprises (SMEs) to conduct R&D. The 2014 Finance Act increased the tax credit arising on R&D relief to 14% of “the surrenderable loss on qualifying expenditure” from 1 April 2014. Depending on the company’s profitability this can be up to 14% of the qualifying expenditure.

So how does R&D tax-enhanced relief work?

The R&D tax relief works by allowing eligible companies to deduct up to 230% of qualifying expenditure on R&D activities when calculating their profit for tax purposes. If losses are made under the SME scheme, the tax relief can be surrendered to claim payable tax credits in cash from HM Revenue & Customs (HMRC) instead of loss relief, subject to certain limits.

What is R&D for tax purposes?

A qualifying R&D project is one that seeks to:

1. extend overall knowledge or capability in a field of science or technology; or
2. create a process, material, device, product or service which incorporates or represents an increase in overall knowledge or capability in a field of science or technology; or
3. make an appreciable improvement to an existing process, material, device, product or service through scientific or technological changes; or
4. involve the use of science or technology to duplicate the effect of an existing process, material, device, product or service in a new or appreciably improved way. The project must seek to achieve an advance in overall knowledge or capability in a field of science or technology, not just a company’s own state of knowledge or capability alone. An example would be a product which has exactly the same performance characteristics as existing models, but is built in a fundamentally different manner.

What costs qualify for the R&D Tax Enhancement?

Companies can claim R&D tax expenditure enhancement for their revenue expenditure when:

• employing staff directly and actively engaged in carrying out R&D;
• paying a staff provider for the staff provided to the company who are directly and actively engaged in carrying out R&D,
• consumable or transformable materials used directly in carrying out R&D (broadly, physical materials which are consumed in the R&D), and
• power, water, fuel and computer software used directly in carrying out R&D.

If you think your company might have qualifying projects and expenditure, make sure you talk with your accountant to maximise the potential tax advantage to your business.

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

Invest some time to understand tax changes

Jono Wilson of Barnett & Turner Chartered Accountants and Chartered Tax Advisers examines recent changes to the treatment of investment income. “I have investment income. I am aware things have changed. I am just not sure what has changed and how it affects me…”

Tax legislation is increasingly complex and features many ‘moving targets’, so here is a brief summary of recent changes which may affect you. Some of these points may be things that are worth discussing with your tax advisor:

Dividend Allowance

From 6 April 2016, the first £5,000 of your annual dividend income is tax free. This allowance applies irrespective of your level of income and the rate at which you pay tax.

Talk to your accountant if:  you are married and you or your spouse has annual dividend income in excess of £5,000, whilst the other spouse has less than £5,000. There may be scope to transfer some investments, without incurring a tax charge, to achieve greater income tax efficiency.

New Dividend Tax Rates

For annual dividend income in excess of £5,000 new rates of tax apply.

Talk to your accountant if: you anticipate annual dividend income in excess of £5,000 for 2016/17 and you would like an estimate of the impact on your annual tax payments.

Personal Savings Allowance and the 0% Starting Rate on Savings Income

You may have noticed that, since 6 April 2016, banks and other institutions have stopped deducting tax of 20% from interest they pay to you. This doesn’t necessarily mean, however, that you no longer need to pay tax on interest and other savings income.

Basic rate taxpayers can now receive up to £1,000 in savings income tax-free, whilst higher rate taxpayers will be able to receive up to £500 (with any excess taxable via your self-assessment tax return at 20% or 40%). This new personal savings allowance is on top of the 0% starting income tax rate introduced last year. This rate applies on up to £5,000 of annual interest income for savers with relatively low employment and pension income.

Talk to your accountant if:  if you want to know how far you can benefit from the dividend and personal savings allowances, with a view to structuring your investments to offer the maximum tax- free annual income.

Marriage Allowance

This measure (introduced on 6 April 2015) allows you to transfer up to £1,050 (£1,100 since 6 April 2016) of unused annual tax-free personal allowance from a non-taxpayer to their spouse, who pays tax at basic rate. 

Talk to your accountant if: you are married and your circumstances are such that you may be able to benefit from this allowance.

Charitable Donations - Watch Out if You Tick the Gift Aid Box!

If you are in the habit of making donations to charities, you probably tick the ‘Gift Aid’ box to identify yourself as a UK tax payer. That way, your chosen charities can claim some extra income from the government. Please be aware that the extra amount claimed by the charities must be covered by the amount of tax you paid in the tax year of the donations.

If you no longer have a UK tax liability, then you should be cautious about ticking the Gift Aid box and consider withdrawing existing declarations for ongoing donations. Any shortfall between your annual tax liability and the amount claimed by the charities must be met by you personally.

Talk to your accountant if:  you make, or are planning to make, charitable donations and believe that the new rules may have reduced your tax liability.

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

Are we ready for tax to go digital?

A digital tax revolution is on its way, writes Jono Wilson of Barnett & Turner. But what will the impact be on small businesses? The way in which everyone files tax returns is set to change dramatically and it’s going to have a massive impact on businesses – particularly the smallest ones.

The Government has stated its intention to move over to a completely digital system and quarterly reporting of tax to HMRC. There’s a consultation under way on the scope of digital reporting, but right now there’s very little detail of how everything will actually work in practice.

So what impact can we anticipate? Well, the first thing to say is that everyone will have to use digital tools such as recognised accounting software or digital products provided by HMRC. The days of keeping records simply via a cashbook in Microsoft Excel are sadly over.

The cost of a cloud-based package is probably going to be at least £10 per month. And that’s if you’re comfortable that you have the time and necessary skills to use the software. If not, you may well end up paying your accountant to do the work for you. (Many accountants, however, may be wondering exactly how they can provide the right kind of service in a way which remains cost effective to their clients.)

Of course, there are potential benefits to the idea of regular tax filing. No one likes it when a large annual bill comes around and has to be paid retrospectively. But in many businesses – particularly seasonal ones such as to agriculture, fishing and tourism – it’s very difficult to generate a steady, quarterly stream of income. As a result, paying tax quarterly could be a challenge, although this is what the new system is geared towards encouraging.

There’s another issue which needs to be considered too. Broadband connectivity in some more rural parts of the UK is still limited. Although there are promises to roll out high-speed internet links, the targets set in some places will still leave a significant proportion of the population without access. In a number of locations, even 3G is unavailable. And those reliant on satellite broadband have to be very careful with their usage, because of spiralling costs.

There may also be people – because of their age, a disability or some other reason – who find it difficult to cope with the technological innovation. What protection are we going to be offering to them?

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