Apsleys Chartered Accountants have the following fact sheets available. To download a copy, click the Download button. If you would prefer to receive a printed copy of any of the fact sheets, please contact us for more information.
Starting up in businessIt is the ambition of many people to run their own business. Some may have been made redundant and find themselves with free time and financial resources. Others make the decision to start up in business to be more independent and obtain the full financial reward for their efforts. Whatever the reason, a number of dangers exist. Probably the greatest concern is the possibility of business failure. Read on for guidance on some of the factors which need to be considered before trading begins. This factsheet cannot cater for every possibility and any decisions should be supported by professional advice.
Could I really make a go of itMany people wonder deep down if they could really make a go of running their own business. It is not for everyone but the following is a list of attributes that successful business owners have. You do not need all of these characteristics but ‘go-getters’ have the majority of the qualities.
Business structures - which should I useHaving made the decision to be your own boss, it is important to decide the best legal and taxation structure for your enterprise. The most suitable structure for you will depend on your personal situation and your future plans. The decision you make will have repercussions on the way you are taxed, your exposure to creditors and other matters. The possible options you have are as follows.
Business plansEvery new business should have a business plan. It is the key to success. If you need finance, no bank manager will lend money without a considered plan. It is one of the most important aspects of starting a new business. Your plan should provide a thorough examination of the way in which the business will commence and develop. It should describe the business, product or service, market, mode of operation, capital requirements and projected financial results.
Raising financeEvery business from its commencement and through its development and growth will need finance. But what type of finance is best suited to the development of your business, and who should you approach for funding? We provide guidance below on types of finance available and outline the planning required before approaching any lending institution.
Sources of financeThe financing of your business is the most fundamental aspect of its management. Get the financing right and you will have a healthy business, positive cash flows and ultimately a profitable enterprise. The financing can happen at any stage of a business’s development. On commencement of your enterprise you will need finance to start up and, later on, finance to expand. Finance can be obtained from many different sources. Some are more obvious and well-known than others. The following are just some of the means of finance that are open to you and with which we can help.
Insuring your businessWhen starting a new business, you will no doubt recognise the need for insurance. It can provide compensation and peace of mind should things go wrong but can also represent a significant cost. In this factsheet we consider the different types of insurance you need to consider.
Directors' responsibilitiesThe position of director brings both rewards and responsibilities upon an individual. Whether you are appointed to the Board of the company you work for or you are involved in establishing a new business and take on the role of director you will feel a sense of achievement. However the office of director should not be accepted lightly. It carries with it a number of duties and responsibilities. We summarise these complex provisions below.
Register of people with significant controlFrom 6 April 2016 all companies are required to keep a register of people with significant control (PSC register) and, from 30 June 2016, file relevant information at Companies House. This requirement is in addition to those in respect of existing registers. The requirement to keep a PSC register has been introduced with the objective of increasing transparency over control and ownership of UK companies. However, this places additional obligations on companies, their officers and the people with significant control over them.
Preparing for your accountantWhether we are producing your accounts or carrying out your annual audit, being prepared for us will ensure our work is carried out smoothly and efficiently and with the minimum disruption to yourselves. You may also be able to help by preparing some of the routine schedules for us. This will mean our time can be better spent advising you on the running of your business. We highlight below many of the ways in which you can help. It is however important for you to discuss these ideas with us since all of the suggestions may not be applicable.
Company secretarial dutiesCompany legislation provides an opportunity for a business organisation to benefit from the protection of limited liability, separating the legal persona of the organisation from the individuals who own it. In return for this protection a certain amount of information about a company must be publicly available including, for example, the company’s annual accounts, registered office address and details of directors, company secretary (if there is one) and members. Historically, providing and updating this information has been the job of the company secretary.
GrantsEnsuring adequate finance is a fact of life if you run a business. Whether you are looking to expand, undertake a specific project or simply fund your day to day purchases, finance is essential. Obtaining finance is not always easy, especially if yours is a small business and particularly if it is a recent start-up. Borrowing may be difficult due to lack of security. A grant may be the answer.
Valuing your businessThere are many reasons why you may need to calculate the value of your business. Here we consider the range of methods available as well as some of the factors to consider during the process. It is important to remember throughout that valuing a business is something of an art, albeit an art backed by science!
IncorporationThe issue of whether to run your business as a company or a sole trader or partnership is an important decision. In this factsheet, we summarise the relevant tax changes which apply and show the potential tax savings currently available from operating as a company.
FranchisingFranchising is becoming increasingly popular in Britain with an annual turnover of around £15.1 billion, up 10% on the previous survey in 2013. The business community now takes franchising very seriously and it is accepted across a range of sectors. The advantages of owning your own business are obvious but so too are the risks. The franchisee is taking less of a risk than starting his or her own business. Fewer than one in ten franchises fail. This is because they are operating under an established and proven business model and supplying or producing a tested brand name. Franchising is essentially the permission given by one person, the franchisor, to another person, the franchisee, to use the franchisor’s name, trade marks and business system in return for an initial payment and further regular payments. Each business outlet is owned and managed by the franchisee. However, the franchisor retains control over the way in which products and services are marketed and sold, and controls the quality and standards of the business.
Bribery Act 2010The Bribery Act 2010 (the Act) applies across the UK and all businesses need to be aware of its requirements which came into effect on 1 July 2011. The Act introduced a ‘corporate’ offence of ‘failure of commercial organisations to prevent bribery’. The defence against this offence is to ensure that your business has adequate procedures in place to prevent bribery. To help ensure this we recommend that, once you are familiar with the requirements of the Act, you undertake a risk assessment for your own business and establish appropriate compliance procedures.
Securing business successAs many as half of all businesses fail in their first three years of trading. A contributor to ensuring business success and avoiding failure is to know your enemies. Generally the main reason for the high failure rate of small newly established businesses is when the owner lacks experience in managing all aspects of the business. Interestingly, new businesses appear to survive better in economic downturns than older more established businesses. This may be because they are more adaptable to change, or possibly perhaps they were set up in the recession and therefore were not surprised by the sudden weakening in trading conditions. There are many more specific reasons for business failure.
Credit controlObtaining new customers is great for business, unless they fail to pay you. If you fail to check that the customer can support the amount of credit you are granting, then commencing legal action when they do not pay can be a long drawn out and potentially costly process. If payment from the customer is not obtained and the goods or services have been provided, your cash flow is likely to be under pressure. Ensuring that customers pay on time will make managing your business easier. If you fail to pay your suppliers because you have not been paid by your customer then you could also be damaging their business as well. This is not only bad business practice but could be regarded as corporate social irresponsibility. Treat your suppliers as you want your customers to treat you.
Accounting standards changesDue to the introduction of new accounting standards, commonly referred to as ‘New UK GAAP’, the form and content of company accounts are changing. The changes for non-small companies take effect for accounting periods beginning on or after 1st January 2015. In many instances companies will show a different bottom-line profit or loss and a different total for net assets on the balance sheet. These changes could also lead to a higher or lower tax bill. The extent of the change will vary on a company by company basis. It will depend upon the nature of the company’s activities and the types of assets which it has. This factsheet sets out the key changes and their impact and we would be happy to assist you in providing specific advice for your company.
Small company accountingThe required format of statutory accounts that small companies have to prepare and send to Companies House has changed for accounting periods starting on or after 1 January 2016 (or 1 January 2015 if early adopted). In March 2015 the UK Government approved new regulations which have significantly changed the small companies’ regime. The extent of the change will vary on a company by company basis. It will depend upon the nature of the company’s activities and the types of assets which it has. This factsheet sets out the key changes and their impact and we would be happy to assist you in providing specific advice for your company.
IR35 personal service companiesThe ‘IR35’ rules are designed to prevent the avoidance of tax and national insurance contributions (NICs) through the use of personal service companies and partnerships. The rules do not stop individuals selling their services through either their own personal companies or a partnership. However, they do seek to remove any possible tax advantages from doing so.
Corporation tax self assessmentThe key features are: a company is required to pay the tax due in advance of filing a tax return a 'process now, check later' enquiry regime when the tax return is submitted the inclusion in the tax return, and in a single self assessment, of the liabilities of close companies on loans and advances to shareholders and others, and of liabilities under Controlled Foreign Companies legislation the requirement for companies to self assess by reference to transfer pricing legislation.
Corporation tax - quarterly instalment paymentsUnder corporation tax self assessment large companies are required to pay their corporation tax in four quarterly instalment payments. These payments are based on the company’s estimate of its current year tax liability. Note that the overwhelming majority of companies are not within the quarterly payment regime and pay their corporation tax nine months and one day after the end of their accounting period. We highlight below the main areas to consider if your company is affected by the quarterly instalments system.
Companies - tax saving opportunitiesDue to the ever changing tax legislation and commercial factors affecting your company, it is advisable to carry out an annual review of your company's tax position. Pre-year end tax planning is important as the current year's results can normally be predicted with some accuracy and time still exists to carry out any appropriate action. We outline below some of the areas where advance planning may produce tax savings. For further advice please do not hesitate to contact us.
Construction Industry SchemeThe Construction Industry Scheme (CIS) sets out special rules for tax and national insurance (NI) for those working in the construction industry. Businesses in the construction industry are known as ‘contractors’ and ‘subcontractors’. They may be companies, partnerships or self employed individuals. The CIS applies to construction work and also jobs such as alterations, repairs, decorating and demolition.
Capital allowancesThe cost of purchasing capital equipment in a business is not a revenue tax deductible expense. However tax relief is available on certain capital expenditure in the form of capital allowances. The allowances available depend on what you are purchasing. Here is an overview of the types of expenditure which qualify for capital allowances and the amounts available. Capital allowances are not generally affected by the way in which the business pays for the purchase. So where an asset is acquired on hire purchase (HP), allowances are generally given as though there were an outright cash purchase and subsequent instalments of capital are ignored. However finance leases, often considered to be an alternative form of ‘purchase’ and which for accounting purposes are included as assets, are denied capital allowances. Instead the accounts depreciation is usually allowable as a tax deductible expense. Any interest or other finance charges on an overdraft, loan, HP or finance lease agreement to fund the purchase is a revenue tax deductible business expense. It is not part of the capital cost of the asset. If alternatively a business rents capital equipment, often referred to as an operating lease, then as with other rents this is a revenue tax deductible expense so no capital allowances are available.
Business motoring - tax aspectsThis factsheet focuses on the current tax position of business motoring, a core consideration of many businesses. The aim is to provide a clear explanation of the tax deductions available on different types of vehicle expenditure in a variety of business scenarios.
Homeworking costs for the self-employedOver the last ten years technology has advanced massively. It was not so long ago that mobile phones were the size of a brick. Now emails and the internet can be accessed on the move. However, whilst technology has moved on, travelling has become more and more difficult. Homeworking has become the answer for many but how have the tax rules kept up with these changes?
Cash basis for the self-employedWe consider the optional rules which allow small unincorporated businesses to calculate their profits for tax purposes on a cash basis rather than the normal accruals basis.
Research and developmentResearch and development (R&D) by UK companies is being actively encouraged by Government through a range of tax incentives. The government views investment in research and development (‘R&D’) as a key to economic success. It is therefore committed to encouraging more smaller and medium sized (‘SME’) companies to claim R&D tax relief The incentives are only available to companies and include: increased deduction for R&D revenue spending and a payable R&D tax credit for companies not in profit. The government is committed to improving access to R&D highlights the need for more SME companies to understand what relief is available and how the process of claiming tax relief works. Recent changes to R&D scheme rates have increased the relief available so a clear understanding is needed to ensure that companies are aware of how the tax rules work. In the Autumn Statement 2016 the Chancellor highlighted that research and development is a key driver for economic growth and has committed to an extra £2 billion a year of additional funding by 2020/21.The government will also review ways to build on the ‘above the line’ tax credit which is covered in the section on Research and Development Expenditure Credit scheme below.
Seed enterprise investment schemeThe Seed Enterprise Investment Scheme (SEIS) provides tax relief for individuals prepared to invest in new and growing companies. It is the junior version of the Enterprise Investment Scheme (EIS). Investors can obtain generous income tax and capital gains tax (CGT) breaks for their investment and companies can use the relief to attract additional investment to develop their business.
VATVAT registered businesses act as unpaid tax collectors and are required to account both promptly and accurately for all the tax revenue collected by them. The VAT system is policed by HMRC with heavy penalties for breaches of the legislation. Ignorance is not an acceptable excuse for not complying with the rules. We highlight below some of the areas that you need to consider. It is however important for you to seek specific professional advice appropriate to your circumstances.
VAT annual accounting schemeHMRC have introduced a number of VAT schemes over the years designed to reduce the administrative burden on small businesses. One such scheme is the annual accounting scheme.
VAT - cash accountingCash accounting enables a business to account for and pay VAT on the basis of cash received and paid rather than on the basis of invoices issued and received.
VAT flat rate schemeThe flat rate scheme for small businesses was introduced to reduce the administrative burden imposed when operating VAT. Under the scheme a set percentage is applied to the turnover of the business as a one-off calculation instead of having to identify and record the VAT on each sale and purchase you make.
VAT - bad debt reliefIt is quite possible within the VAT system for a business to be in the position of having to pay over VAT to HMRC while not having received payment from their customer. Bad debt relief allows businesses, that have made supplies on which they have accounted for and paid VAT but for which they have not received payment, to claim a refund of the VAT by reference to the outstanding amount.
VAT - matters for the smaller businessThis factsheet focuses on VAT matters of relevance to the smaller business. A primary aim is to highlight common risk areas as a better understanding can contribute to a reduction of errors and help to minimise penalties. Another key ingredient in achieving that aim is good record keeping, otherwise there is an increased risk that the VAT return could be prepared on the basis of incomplete or incorrect information. This aspect is not considered further here but useful guidance can be found on the GOV.UK website keeping-records-for-business-what-you-need-to-know.
Travel and subsidence for directors and employeesTravelling and subsistence expenditure incurred by or on behalf of employees gives rise to many problems. We highlight below the main areas to consider in deciding whether tax relief is available on travel and subsistence.
Employment benefitsToday the remuneration of many directors and employees comprises a package of salary and benefits. Essentially two tests must be applied in determining the tax implications of any benefit. Is the benefit taxable? If the benefit is taxable, what is its taxable value? In this factsheet, we give guidance on some of the main benefit in kind rules and indicate some common types of benefits. It is not intended to be an exhaustive guide and any decisions should be supported by professional advice appropriate to your personal circumstances.
Employer provided carsThe current regime for taxing employer provided cars (commonly referred to as company cars) is intended: to encourage manufacturers to produce cars which are more environmentally friendly and to give employee drivers and their employers a tax incentive to choose more fuel-efficient and environmentally friendly vehicles. We set out below the main areas of importance. Please do not hesitate to contact us if you require further information.
Employee expensesThis factsheet considers the operation and reporting of expenses and benefits. A new exemption regime for such expenses replaces the need to report these items on P11Ds as long as the necessary conditions are met. To meet the conditions the business must satisfy itself that the employee would be entitled to full tax relief on expenses reimbursed to the employee.
National InsuranceNational insurance contributions (NICs) are essentially a tax on earned income. The NICs regime divides income into different classes: Class 1 contributions are payable on earnings from employment, while the profits of the self-employed are liable to Class 2 and 4 contributions. National insurance is often overlooked yet it is the largest source of government revenue after income tax. We highlight below the areas you need to consider and identify some of the potential problems. Please contact us for further specific advice.
Share ownership for employees - EMIRetaining and motivating staff are key issues for many employers. Research in the UK and USA has shown a clear link between employee share ownership and increases in productivity. The government has therefore introduced two ways in which an employer can provide mechanisms for employees to obtain shares in the employer company without necessarily suffering a large tax bill. The two routes are: Enterprise Management Incentives (EMI) and Share Incentive Plans (SIPs). EMI allows selected employees (often key to the employer) to be given the opportunity to acquire a significant number of shares in their employer through the issue of options. A SIP is designed to allow all employees to participate in their business and to encourage long-term shareholding by them. This factsheet outlines the rules for EMI.
National minimum wageThe National Minimum Wage (NMW) and National Living Wage (NLW) are the legal minimum wage rates that must be paid to employees. Employers are liable to be penalised for not complying with the NMW and NLW rules. HMRC are the agency that ensures enforcement of the NMW and NLW. We highlight below the main principles of the minimum wage regulations. Please contact us for further specific advice.
Dismissal proceduresThere have been many changes to employment law and regulations in the last few years. A key area is the freedom or lack of freedom to dismiss an employee. An employee’s employment can be terminated at any time but unless the dismissal is fair the employer may be found guilty of unfair dismissal by an Employment Tribunal. In November 2011, the qualifying period for unfair dismissal increased from one to two years continuous service. However, there is no length of service requirement in relation to 'automatically unfair grounds'. We set out below the main principles involved concerning the dismissal of employees including some common mistakes that employers make. We have written this factsheet in an accessible and understandable way but some of the issues may be very complicated. Professional advice should be sought before any action is taken.
Recruitment proceduresIn order to avoid the danger of discriminating in some way, particularly unconsciously, employers must take care to develop and use recruitment procedures which will avoid the risk. Using sensible procedures will also inevitably improve recruitment decisions and the quality of the people taken on. Professional advice should be sought before any action is taken.
Redundancy proceduresThere have been many changes to employment law and regulations in the last few years. A key area is the freedom or lack of freedom to make an individual redundant. An employee’s employment can be terminated at any time but unless the redundancy is fair an Employment Tribunal may find the employer guilty of unfair dismissal. We set out below the main principles involved concerning the redundancy of employees. We have written this factsheet in an accessible and understandable way but some of the issues may be very complicated. Professional advice should be sought before any action is taken.
Managing absenceRecent surveys indicate that the adverse impact of absence on business profitability today is significant, with thousands of man hours lost every day. Recent statistics show that an average of 6.6 days are lost each year per employee with a median cost of £609 per employee. Approximately two-thirds of working time lost to absence is accounted for by short-term absences of up to seven days. We consider below the main principles of effective absence management.
Health and safetyIt is very likely that owners and managers of many smaller businesses are not aware of just how demanding health and safety regulations can be. We provide an overview of these below and highlight some practical tips and processes on how your business can remain (or become!) compliant.
Health and safety checklistIf not already in place, the following are practical steps you should take today: UNDERTAKEN BY: ______________________________ DATE: ____/____/____
Legal working in the UKIn line with the Immigration, Asylum and Nationality Act 2006, it is a criminal offence to employ anyone who does not have an entitlement to work in the UK, or undertake the type of work you are offering. Any employer who does not comply with the law may be facing a fine of up to £20,000 per offence. Further, if employers knowingly use illegal migrant labour it could carry a maximum five year prison sentence and/or unlimited fine. In addition, since December 2016, section 38 of the Immigration Act 2016 allows immigration officers to close a business for up to 48 hours if there is a reasonable suspicion that they employ foreign workers illegally and they have previously committed specific offences of illegal working. The closure notice might then be cancelled or an illegal working compliance order could be sought, one result of which could be closure of the premises for up to 12 months. We provide an overview of the documentation required to ensure that your business does not fall foul of the law.
Age discriminationThe Equality Act 2010 replaces all previous equality legislation, including the Employment Equality (Age) Regulations 2006. The Equality Act covers age, disability, gender reassignment, race, religion or belief, sex, sexual orientation, marriage and civil partnership and pregnancy and maternity. These are now called ‘protected characteristics’. The Act protects people of any age, however, different treatment because of age is not unlawful if you can demonstrate that it is a proportionate means of meeting a legitimate aim. Age is the only protected characteristic that allows employers to justify direct discrimination. Employers need to ensure they have the appropriate policies and procedures in place to deal with age discrimination and should raise awareness of it so that acts of discrimination on the grounds of age can be prevented.
Annual leaveUnder the Working Time Regulations 1998 (as amended) workers are entitled to paid statutory annual leave of 5.6 weeks (28 days if the employee works five days a week), this basic entitlement is inclusive of bank holidays. This annual leave entitlement is now closer to that of workers in other European countries, where holiday allowance is typically more generous. Workers in Ireland are entitled to 29 days; the highest minimum entitlement is in Austria at 38 days.
Agency workers regulationsRegulations which took effect from 1 October 2011 mean that workers supplied to a company, or to any other entity, by an agency will become entitled to receive pay and basic working conditions equivalent to any directly employed employees after a 12 week qualifying period.
Recruitment procedures employment lawMost claims for discrimination in recruitment have no maximum limit. Can your business afford compensation of perhaps £20,000 because you made a simple mistake? How do you make sure you don't break the law? We set out below the main principles involved in the recruitment of employees. We have written this factsheet in an accessible and understandable way but some of the issues may be very complicated. Professional advice should be sought before any action is taken.
Payroll - basic proceduresIn order to set up a Pay As You Earn (PAYE) scheme with HMRC it is necessary to contact the New Employer’s Helpline on 0300 200 3211 or register online via the GOV.UK website. As an employer you will be responsible for operating PAYE and calculating National Insurance Contributions (NICs). There are also certain statutory payments you may have to make from time to time which you need to be aware of. These include: statutory sick pay (SSP) statutory maternity pay (SMP) and ordinary statutory paternity pay (OSPP) shared parental pay (ShPP). A vast amount of information is available on the GOV.UK website detailing the operation of PAYE together with online calculators these can be accessed as part of the HMRC Basic PAYE tools at www.gov.uk/business-tax/paye If requested HMRC will send you several booklets and tables to enable you to make the relevant deductions and payments to your employees. However the majority of employers use the HMRC Basic PAYE tools or equivalent software.
Statutory sick, statutory maternity and statutory paternity payStatutory Sick Pay (SSP), Statutory Maternity Pay (SMP) Statutory Paternity Pay (SPP) and Shared Parental Pay (ShPP) are important regulations to understand as they enforce minimum legal requirements on employers. Each operates in a different way. This factsheet sets out the main principles of the regulations and what an employer needs to consider.
Payroll Real Time InformationWe set out below details of how payroll information has to be submitted to HMRC under Real Time Information (RTI).
Pension automatic enrolmentAutomatic enrolment places duties on employers to automatically enrol ‘workers’ into a work based pension scheme. The main duties are: assess the types of workers in the business provide a qualifying automatic enrolment pension scheme for the relevant workers write to most of their workers explaining what automatic enrolment into a workplace pension means for them automatically enrol all ‘eligible jobholders’ into the scheme and pay employer contributions complete the declaration of compliance and keep records.
Taxation of the familyIndividuals are subject to a system of independent taxation so husbands and wives are taxed separately. This can give rise to valuable tax planning opportunities. Furthermore, the tax position of any children is important. Marriage breakdowns can also have a considerable impact for tax purposes. We highlight below the main areas of importance where advance planning can help to minimise overall tax liabilities. It is important that professional advice is sought on specific issues relevant to your personal circumstances.
Charitable givingIf you are thinking of making a gift to charity, this factsheet summarises how to make tax-effective gifts. You can get tax relief on gifts to UK charities if you give: under Gift Aid through a Payroll Giving scheme, run by your employer, or by making a gift of certain shares or land.
Employer supported childcareEmployer supported childcare, commonly by way of childcare voucher, is for many employers and employees a tax and national insurance efficient perk. We consider the implications of this type of benefit on the employer and employee.
Enterprise Investment SchemeThe purpose of the Enterprise Investment Scheme (EIS) is to help certain types of small higher-risk unquoted trading companies to raise capital. It does so by providing income tax and CGT reliefs for investors in qualifying shares in these companies. There are really two separate schemes within EIS: a scheme giving income tax relief on the investment and a CGT exemption on gains made when the shares are disposed of and/or a scheme aimed at providing a CGT deferral. An individual can take advantage of either or both of these schemes.
Venture Capital TrustsVenture Capital Trusts (VCTs) are complementary to the Enterprise Investment Scheme (EIS), in that both are designed to encourage private individuals to invest in smaller high-risk unquoted trading companies affected by the equity gap. While the EIS requires an investment to be made directly into the shares of the company, VCTs operate by indirect investment through a mediated fund. In effect they are very like the investment trusts that are obtainable on the stock exchange, albeit in a high-risk environment.
Individual Savings AccountsSuccessive governments, concerned at the relatively low level of savings in the UK economy have over the years introduced various means by which individuals can save through a tax-free environment.
Personal tax - an introduction to self assessmentUnder the self assessment regime an individual is responsible for ensuring that their tax liability is calculated and any tax owing is paid on time.
Non-domiciled individualsThis factsheet sets out the rules which deal with the taxation in the UK of income arising outside the UK, for non UK domiciled individuals.
Homeworking and tax reliefs for employeesOver the last ten years technology has advanced massively. It was not so long ago that mobile phones were the size of a brick. Now emails and the internet can be accessed on the move. However, whilst technology has moved on, travelling has become more and more difficult. Homeworking has become the answer for many but how have the tax rules kept up with these changes?
Child benefit chargeThe High Income Child Benefit charge applies to a taxpayer who has income over £50,000 in a tax year where either they or their partner, if they have one, are in receipt of Child Benefit for the year. We set out below the main points of the charge and illustrate some of the practical issues.
Fixed rate expensesWe consider an optional system of fixed rate expenses which is available for some businesses. The rules allow the use of a ‘simplified’ fixed rate deduction instead of actual costs paid or incurred. It is optional, but using fixed rates may reduce the need for some of the detailed record keeping and calculations necessary to support tax deductible expenses. The amount of the overall tax allowable deductions could be greater or smaller compared to an actual cost comparison depending on the business circumstances.
Statutory residency testThe concept of residence in the United Kingdom is fundamental to the determination of UK tax liability for any individual. The Statutory Residence Test (SRT) provides, through a series of tests, a definitive process to determine the UK residence status of any individual. That status applies for income tax, capital gains tax and inheritance tax purposes. Once that status has been established then other rules determine the extent of an individual's liability to UK taxes. These other rules may include not just UK statute but also double tax treaties with other countries. These rules are not covered in this factsheet.
When is income tax and capital gains tax payableUnder the self assessment regime an individual is responsible for ensuring that their tax liability is calculated and any tax owing is paid on time.
Personal tax dividends and interestDividend and savings allowances are available. We consider the opportunities and pitfalls of the personal tax rules.
TrustsTrusts are a long established mechanism which allow individuals to benefit from the assets whilst others (the trustees) have the legal ownership and day to day control over the assets. A trust can be extremely flexible and have an existence totally independent of the person who established it and those who benefit from it. A person who transfers property into a trust is called a settlor. Persons who enjoy income or capital from a trust are called beneficiaries. Trusts are separate persons for UK tax purposes and have specific rules for all the main taxes. There are also a range of anti-avoidance measures aimed at preventing exploitation of potential tax benefits.
Capital gains taxA capital gain arises when certain capital (or 'chargeable') assets are sold at a profit. The gain is the sale proceeds (net of selling costs) less the purchase price (including acquisition costs).
Inheritance taxInheritance tax (IHT) is levied on a person’s estate when they die, and certain gifts made during an individual’s lifetime. Gifts between UK-domiciled spouses during their lifetime or on death are exempt from IHT. In this factsheet spouse includes married couples and registered civil partners. Most gifts made more than seven years before death will escape tax. Therefore, if you plan in advance, gifts can be made tax-free and result in a substantial tax saving. We give guidance below on some of the main opportunities for minimising the impact of the tax. It is however important for you to seek specific professional advice appropriate to your personal circumstances.
Inheritance tax avoidance - pre-owned assetsInheritance tax (IHT) was introduced approximately 30 years ago and broadly charges to tax certain lifetime gifts of capital and estates on death. With IHT came the concept of ‘potentially exempt transfers’ (PETs): make a lifetime gift of capital to an individual and, so long as you live for seven years from making the gift, there can be no possible IHT charge on it whatever the value of the gift. The rules create uncertainty until the seven year period has elapsed but, at the same time, opportunity to pass significant capital value down the generations without an IHT charge. Of course this is to over simplify the position and potentially ignore a whole host of other factors, both tax and non-tax, that may be relevant. However many people are simply not in a position to make significant lifetime gifts of capital. There are a number of reasons for this, the most obvious being that their capital is tied up in assets such as the family home and business interests and/or it produces income they need to live on.
Capital gains tax and the family homeThe capital gains tax (CGT) exemption for gains made on the sale of your home is one of the most valuable reliefs from which many people benefit during their lifetime. The relief is well known: CGT exemption whatever the level of the capital gain on the sale of any property that has been your main residence. In this factsheet we look at the operation of the relief and consider factors that may cause it to be restricted.
Land and buildings transaction taxLand and Buildings Transaction Tax (LBTT) is payable by the purchaser in a land transaction which occurs in Scotland. These types of transaction would include a simple conveyance of land such as buying a house but also creating a lease or assigning a lease.
Occupational pension schemes - trustee's responsibilitiesMany employers offer their staff an opportunity to save for their retirement through an occupational (or company) pension scheme. Those employees who join the scheme need to have confidence that the scheme is being well run. The role of pension scheme trustees is very important in ensuring that the scheme is run honestly and efficiently and in the best interests of the members. We outline in this factsheet the main responsibilities of occupational pension scheme trustees.
Pension tax reliefsThere are two broad types of pension schemes from which an individual may eventually be in receipt of a pension: Workplace pension schemes Personal Pension schemes. A Workplace pension scheme may either be a defined benefit scheme or a money purchase scheme. A defined benefit scheme pays a retirement income related to the amount of your earnings, while a money purchase scheme instead reflects the amount invested and the underlying investment fund performance. The number of defined benefit pension schemes has declined in recent years in part due to the regulations imposed upon the schemes and the cost of such schemes to the employer. All employers will soon need to provide a workplace pension scheme due to auto-enrolment legislation and these are likely to be money purchase schemes. A Personal Pension scheme is a privately funded pension plan but can also be funded by an employer. These are also money purchase schemes. Self-employed individuals can have a Personal Pension. We set out below the tax reliefs available to members of a money purchase Workplace scheme or a Personal Pension scheme. It is important that professional advice is sought on pension issues relevant to your personal circumstances.
Pensions tax treatment on deathAlongside the changes from April 2015 to the access of pension funds, significant changes were made to the tax treatment of pension funds on death. This factsheet summarises the rules which may allow a pension fund to pass free of all taxes on the estate of the deceased and free of all taxes on the beneficiaries of the pension fund.
Property investment - tax aspectsInvestment in property has been and continues to be a popular form of investment by many people. It is seen as a route by which: relatively secure capital gains can be made on eventual sale income returns can be generated throughout the period of ownership mortgage finance is covered in repayment terms by the security of the eventual sale of the property and in interest terms by the rental income. Of course, the net returns in capital and income will depend on a host of factors. But on the basis that the investment appears to make commercial sense what tax factors should you take into account?
Buy to let propertiesIn recent years, the stock market has had its ups and downs. Add to this the serious loss of public confidence in pension funds as a means of saving for the future and it is not surprising that investors have looked elsewhere. The UK property market, whilst cyclical, has proved over the long-term to be a very successful investment. This has resulted in a massive expansion in the buy to let sector. Buy to let involves investing in property with the expectation of capital growth with the rental income from tenants covering the mortgage costs and any outgoings. However, the gross return from buy to let properties - ie the rent received less costs such as letting fees, maintenance, service charges and insurance - is no longer as attractive as it once was. Investors need to take a view on the likelihood of capital appreciation exceeding inflation.
Stamp Duty Land TaxSDLT is payable by the purchaser in a land transaction England, Wales and Northern Ireland.
Internet and email policyIn order to protect the firm, its employees, customers and suppliers, all members of staff should be given a copy of the firm’s policy regarding acceptable use of IT resources – particularly internet, email access, and data protection policies. It may also be necessary to have a separate Bring Your Own Device (BYOD) policy covering the use of personal devices and to what extent (if any) these are permitted to connect to corporate information systems. Any such policies should form part of the contract of employment - to the extent that any breaches of the policy could result in disciplinary action, and in some cases even dismissal. Having an acceptable use policy not only helps protect the organisation’s exposure to rogue software, legal action, and loss of corporate/personal data but can also help in disputes with employees.
Accounting packages - choosing the right oneSelecting the right accounting package can be difficult, particularly as there are so many options on the market. Price and functionality vary so widely as to make objective comparisons very difficult without spending a number of days on the selection process. The explosion of internet (cloud-based) accounting solutions has complicated the selection process as there are now many more different options. We have set out below some areas you should consider when making your selection:
Data security and data protectionMany businesses are totally reliant on the data stored on their PCs, laptops, networks, mobile devices and in the cloud. Some of this data is likely to contain either personal information and/or confidential company information. Here we look at some of the key compliance issues surrounding data protection and the Data Protection Act 1998 (the Act). Most businesses process personal data to a greater or lesser degree. If this is the case, compliance with the Act is required unless one of the exemptions applies (see below). Complying with the Act includes a notification process, handling data according to the principles of data protection and dealing with subject access requests. In the UK, the Information Commissioner (ICO) is responsible for the public Data Protection Register and for enforcing the Data Protection Act.
Data security - data loss risk reductionMany companies are now completely reliant on the data stored on their network servers, PCs, laptops, mobile devices or in the cloud. Some of this data is likely to contain either personal information and/or confidential company information. Here we look at some of the issues to consider when reviewing the security of your computer systems, and how to minimise the risks of data loss. We have a related factsheet which covers some additional considerations for those with data in the cloud, or use some form of outsourcing. There have been many high profile incidents of data loss where large volumes of personal information have found their way into the public domain. Examples of this sort of information have included health records, financial records and employee details. A commercial organisation also faces the additional risk of data being lost to a competitor. Obviously, the larger data losses from government departments and corporations have hit the headlines. However, any company, no matter how large or small can suffer data loss unless sensible precautions are taken. In the past year alone, according to research commissioned by the Department for Business Innovation and Skills (BIS) some 74% of small businesses have experienced some sort of security breach. The survey results can be found here https://dm.pwc.com/HMG2015BreachesSurvey/ The full report can be found here http://www.pwc.co.uk/audit-assurance/publications/2015-information-security-breaches-survey.jhtml Small businesses were commonly subject to system failures and data corruption caused by viruses or malicious software. Incidents and attacks by both members of staff and by unauthorized outsiders were the second and third most common types of security breach. 15% of organisations also reported that Smartphones and tablets were responsible for some sort of breach in security. Firms may want to think about introducing a BYOD (Bring Your Own Device) policy if one is not already in place.
Data security cloud and outsourcingMany companies are now completely reliant on the data stored on their network servers, PCs, laptops, mobile devices or in the cloud. Some of this data is likely to contain either personal information and/or confidential company information. We have a related factsheet which covers the conventional data security considerations. Here we look at some of the issues to consider when reviewing the security of your computer systems, and how to minimise the risks of data loss within the cloud and where some or all services are outsourced. Whilst cloud data storage and outsourcing can often be more secure than using internal resources, there are some additional things to bear in mind when some, or all, of your data is not held on-site.
E-commerce - a guide to trading onlineAccording to the latest UK statistics, total weekly UK online retail sales currently exceed £7bn. As well as the domestic market, the internet provides a gateway to the international market place. Furthermore, it can be used to develop relationships with suppliers and other trading partners. It is therefore vital that your business has an online presence. This can be anything from a one page ‘shop-front’, to a complex product catalogue with online ordering and multi-currency payment systems linked to a back-end stock control and accounting system.
Bring your own device (byod)Some employees will often prefer to use their own personal mobile devices to access company networks/systems. However, this is potentially a security loophole which places the organisation at risk from reputational damage and legal proceedings. Firms need to have a formal policy with regard to the use of personal devices at work. Bring Your Own Device refers to this type of policy - which defines what mobile devices (if any), employees can use to access company networks/systems. We consider how to structure such a policy, and what it may contain.
Data security accessMany businesses are now completely reliant on the data stored on their Network Servers, PCs, laptops, mobile devices and cloud service providers or internet service providers. Some of this data is likely to contain either personal information and/or confidential company information. Here we look at some of the issues to consider when reviewing the security of your computer systems with respect to access controls, and to ensure compliance with Principle 7 of the Data Protection Act. This states that - Appropriate technical and organisational measures shall be taken against unauthorised or unlawful processing of personal data and against accidental loss or destruction of, or damage to, personal data.
Data security backupMany companies are now completely reliant on the data stored on their network servers, PCs, laptops, mobile devices and in the cloud. Some of this data is likely to contain either personal information and/or confidential company information. Here we look at some of the issues to consider when reviewing the security of your computer systems and data. Data backup is an essential security procedure and needs to be undertaken on a regular basis. A business should view regular backups as a form of insurance policy. There are a number of points to consider.
Charities - trustee's responsibilitiesIt is often considered an honour to act as a trustee for a charity and an opportunity to give something back to the community. However, becoming a trustee involves a certain commitment and level of responsibility which should not be underestimated. Whether you are already a trustee for a charity, be it a local project or a household name, or are thinking of becoming involved, there are a number of responsibilities that being a trustee places upon you. We outline the main responsibilities below, with a particular emphasis on accounting and audit requirements.
Charities in Scotland trustees responsibilitiesIt is often considered an honour to act as a trustee for a charity and an opportunity to give something back to the community. However, becoming a trustee involves a certain commitment and level of responsibility which should not be underestimated. Whether you are already a trustee for a charity, be it a local project or a household name, or are thinking of becoming involved, there are a number of responsibilities that being a trustee places upon you. We outline the main responsibilities below, with a particular emphasis on accounting and audit requirements for Scottish charities.
Money laundering and the proceeds of crimeThere are tough rules to crack down on money laundering and the proceeds of crime. These rules affect a wide range of people and we consider how your organisation may be affected.
High value dealersThe Money Laundering Regulations 2007 (the Regulations) apply to a number of different businesses which include (amongst others) accountants and auditors, tax advisers and dealers in high value goods. The Regulations contain detailed procedural anti-money laundering requirements for those affected. HMRC have been given the responsibility for supervising High Value Dealers. We outline below the main requirements of the Regulations and the registration process.
Limited liability partnershipsThe key advantage of a LLP compared with a traditional partnership is that the members of the LLP (it is very important that they should not be called partners but members) are able to limit their personal liability if something goes wrong with the business, in much the same way as shareholders in a company have always been able to do. Of course anyone lending money to the LLP such as a bank may still require personal guarantees from the members, as they frequently do with directors/shareholders in a company. Where business owners have wanted to limit their personal liability in the past, they have normally set up companies and any profits made by those companies are subject to corporation tax. Dividends paid by the companies can then be taken as income of the shareholders. LLPs are taxed quite differently in that the profits are treated as the personal income of the members as if they had run their business as a partnership. The taxation of companies and partnerships is very different but taxation should not be the main consideration in choosing a business vehicle. The Government has introduced new rules which will change the tax status of some LLP members (see Changes ahead for some LLP members). We would be very pleased to discuss the impact of this in any particular case. LLPs must produce and publish financial accounts with a similar level of detail to a similar sized limited company. In 2016 new legislation has been passed which allows LLPs to qualify as a micro entity which can be used for accounting periods beginning on or after 1 January 2016 with early adoption permissible for accounting periods beginning on or after 1 January 2015. LLPs must submit accounts and an annual return to the Registrar of Companies each year. This publication requirement is far more demanding than the position for non-incorporated partnerships and specific accounting rules may lead to different profits from those of a normal partnership. The filing deadline is nine months after the period end.
Community amateur sports clubsLocal amateur sports clubs may wish to register with HMRC as Community Amateur Sports Clubs (CASCs) and benefit from a range of tax reliefs including Gift Aid. This factsheet considers the tax benefits and the registration requirements that clubs have to satisfy.
Fraud and how to spot itMajor corporate frauds and collapses hit the headlines from time to time and many of these were high profile and the amounts involved quite spectacular. With the current pressures we are still facing from the economic slowdown, difficulties in renewing finance, the challenge of achieving targets, even simply paying suppliers bills and it becomes easy to see that the risk of fraud for all sizes of businesses has increased significantly. The issues associated with well publicised frauds may seem far removed from your business but the simple truth is that fraud can affect businesses of all sizes. Whether you employ a small team or a significant workforce, this factsheet considers how you can increase your awareness of the factors that indicate fraud. It also sets out the defences that you can implement to minimise the risk within your business.
Social enterprise entity structuresA social enterprise entity is a business with primarily social objectives. Any surpluses made are reinvested into the main principle of that entity (or into the community) rather than maximising profit for shareholders. Examples of types of objectives are regeneration of the local environmental area, promoting climate change awareness and training for disadvantaged people. There are various legal forms that should be considered when setting up this type of entity. Which one you choose will depend upon what the social enterprise actually does and the style of management of those running it. The possible options available are as follows: Limited company Trust Unincorporated association Community interest company (CIC) Charitable incorporated organisation (CIO) Co-operative or community benefit society