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Taxation

You need to tell HM Revenue & Customs if you have taxable income, which is not declared. However, you can use our in-house facilities for your bookkeeping, payroll, VAT and others, which might otherwise be time consuming, costly and more complicated. Therefore, we offer a variety of comprehensive and confidential taxation services as a tax advisor to aid in the tax related obligations and so that you may have spare time to concentrate on your core business activities.

We offer for your tax affairs………….

  • Preparing your Corporation Tax Computations and submitting the Tax returns to HM Revenue & Customs
  • Completion and submission of self-assessment tax returns
  • Tax planning for a director
  • Tax computation for the UK property income
  • Preparation of the VAT calculations and it’s submission
  • Records keeping of PAYE and wages and submission to HM Revenue & Customs
  • Work as an umbrella company for your payroll
  • Capital gains tax planning, calculations and summation
  • Inheritance tax planning, computation and the return submissions
  • Dealing with HM Revenue & Customs regarding individuals and company tax affairs
  • HMRC compliance and tax investigations
  • Providing guidance and helping for paying the tax liabilities on time
  • Other tax related services; statutory sick pay, statutory maternity and paternity pay, tax credits, child benefits and more

UK Tax Year 2024/25 – The Key Points to Know

UK Tax Year 2024/25 – The Key Points to Know

In every country, there is a fiscal year (known as “the tax year”) which is 12-month period. In the UK, the tax year starts from 6th April to 5th April. In this article, I will mention the some key points related to individual and companies.

The Key Dates to Note

 
  • 6th April 2024 – The new fiscal year, usually new tax rates and regulations start from this date.
  • 19th April 2024 – The final Full Payment Submission (FPS) of the year tax 2023/24.
  • 30th April 2024 – Annual Tax on Enveloped Dwellings (ATED) return and payment.
  • 31st May 2024 – Deadline for companies to provide P60s (for the tax year ending 05 April 2024) to their employees.
  • 6th July 2024 – The P11D submission deadline for employers to HMRC to report employee benefits and expenses, also known as “benefit in kind” (BIK).
  • 31st July 2024 – Self assessment payment deadline if you are subject to the tax payment on account.
  • 5th October 2024 – Deadline to register for your self assessment tax return (the tax year of 2023/24).
  • 31st January 2025 – Self assessment tax return and payment submission deadline for the tax year ending 05 April 2024.
  • 05 April 2025 – The last day of the current fiscal year (2024/25).

The Key Tax Rates to Note

  • Income tax (individuals) – At three rates; the basic rate (at 20%), the higher rate (at 40%) and the additional rate (at 45%).
  • Personal allowance. This is remained at £12,570 (since 2021/22).
  • NI Contribution: The Class 1 employee NICs will be lowered to 8% from 10% (reduced by 2%) and Class 4 NICs (paid by self-employed) will be reduced by 3% (from 9% to 6%) from 6 April 2024.
  • Dividend allowance: Reduced to £500 from £1,000
  • Capital gains tax: The CGT rates on residential property for the higher taxpayer is reduced to 24% from 28%. The rate is remained the same for the basic taxpayer (at 18%). No changes for other capital gains tax. The annual exemption on CGT is reduced to £3,000 from £6,000.
  • Inheritance tax (IHT): No changes on this tax which is remained the same as the last tax year.
  • Corporation tax: The rates of 19% and 25% are remained the same as the last fiscal year.
  • VAT Registration: VAT registration thresholds is increased to £90,000 from £85,000 and the deregistration to £88,000 from £83,000.
  • Child Benefit Charge: The threshold for the high-income child benefit charge will be raised to £60k (currently £50k) from 6 April 2024 and the tapered charge is between £60k and £80k.

The Key Support from Us?

We are Chartered Certified Accountants based on Canary Wharf, London and we can support on your tax matters:

  • Preparation of corporation tax with annual accounts and submissions.
  • Guidance and help in preparing the tax return for the tax year ending 05 April 2024
  • Support in planning for the current fiscal year ending 05 April 2024
  • P11D preparation and submission to HMRC
  • Registration for your self assessment tax matters and guidance on this
  • The Capital Gains Tax preparation and submission with other ad hoc support where relevant
  • PAYE and CIS registration
  • PAYE and CIS tax preparation and submission to HMRC
  • VAT registration and deregistration
  • VAT preparation and return submission with MTD compliance.
  • Inheritance tax (IHT) support

To get support on your accountancy and taxation needs, please get in touch with us here at The Stan Lee. Our initial consultation is completely free without any obligations.

UK Tax Year 2024/25 – The Key Points to Know Read More »

The UK Spring Budget 2024: The Key Points to Know

The UK Spring Budget 2024: The Key Points to Know

On 6 March, the Chancellor of the Exchequer, Jeremy Hunt has delivered his Spring Budget 2024. The government has focused on “Long Term Growth” in this budget by lowering taxes, more investment and better public services.

After the pandemic and then energy crisis caused by war in Ukraine, the UK economy has faced with financial crisis. To bring the inflation down, the higher interest rates are remained in place. The SMEs are suffering from losses due to the increase in costs. The working-class people are struggling to meet their usual living standard.    

On this budget, the Chancellor focuses on reducing taxes so that people may have extra money to support their living costs. Do you think this budget fulfil our expectation? In this article, I will write some key points of the Spring Budget 2024 and this might help to make your plan.   

The Key Points of Spring Budget 2024

 
  • NI Contribution Rates: The Class 1 employee NICs will be lowered to 8% from 10% (2p cut) and Class 4 NICs (paid by self-employed) will be reduced by 3p (from 9% to 6%) from 6 April 2024. These deductions will help individuals to have extra money to support their living costs.
  • Child Benefit Charge: The threshold for the high-income child benefit charge will be raised to £60k (currently £50k) from 6 April 2024 and the tapered charge is between £60k and £80k. This is a good step for high income taxpayers. 
  • Non-domiciled Individuals: The government will be introduced a new residence based regime from 6 April 2025 and this will eliminate the current tax regime for non-UK domiciled individuals. This will help to earn additional revenue for the government. 
  • Capital Gains Tax: The higher rate of CGT rates on residential properties will be reduced to 24% from 28% from 6 April 2024 and the lower rate remain at the current rate of 18%. This looks like a good news, but people are expecting more like increase in annual exempt amount. 
  • Furnished Holiday Lettings: The Furnished Holiday Lettings tax regime will be stopped from April 2025.
  • HMRC Digital Services: The government will improve and simplify HMRC digital services from September 2025 for individual taxpayers seeking to pay tax in instalments.
  • IHT Administrative Reform: From April 2024, The personal representative of estates will no longer need to have commercial loans to pay IHT before applying to obtain a “grant on credit” from HMRC. 
  • VAT Threshold: The VAT registration threshold is increased to £90k from £85k and the deregistration threshold to £88k from 1 April 2024. This change is after 7 years (£85k threshold introduced in April 2017) and this is obviously a good news for micro businesses.  
  • Stamp Duty Land Tax: The multiple dwellings relief will be abolished from 01 June 2024.
  • Regulation of Tax Advisers: A consultation is launched by the government into raising standard in the tax advice market, a fantastic step by the government.

However, I think that the Chancellor could do something more on his budget and some are as follows:

  • A consultation on increasing the personal allowance so that people could have some extra money to support their living costs.
  • Rethinking on dividend tax which was increased in line with the NI raise. However, there are some reductions in NIC but dividend tax is remained the same. Even, the dividend allowance is reducing gradually.
  • There should be a consultation on corporation tax for SMEs and find any possible way to reduce this.
  • The property market is struggling due to the high interest rate and therefore, people are paying extra rent. If there are some schemes for the prospective first-time buyers, it might help. For example, due to the high rent and other day to day expenses, the first-time buyer cannot manage deposit, but their monthly income could support for mortgage eligibility.  

The above is just some key notes of the budget and my thoughts based on my experience. To see the details of the budget, we will recommend looking at the government website. 

We will be happy to help you on accountancy, taxation and business support needs from here at The Stan Lee and please get in touch with us to get our services.

The UK Spring Budget 2024: The Key Points to Know Read More »

Tax planning helps you do more with your money

Tax planning helps you do more with your money

Tax may be boring, but smart use of tax planning is a superb way to help your company do more with your money.

 

Tax planning is a strategic approach to managing your business’ financial affairs, with the aim of legally minimising your tax liability. In other words, you plan ahead to make sure you pay the taxes you should be paying, but not a penny more.

Working with your tax adviser, you can look for deductions, credits, exemptions and tax-saving strategies that will help to optimise your company’s overall tax position.

How does tax planning affect your business?

The primary goal of tax planning is to reduce the amount of taxes your business owes. But it’s also about making sure you stay compliant with all the tax laws and regulations applicable to your business.

But what are the main advantages? Let’s take a look at five of the big benefits of careful, strategic tax planning.

By planning your tax across the year, you can:

  1. Maximise your profits – strategic tax planning helps your company find the best available tax incentives, deductions and credits. This reduces your overall tax liability, cuts your annual tax costs and increases your overall profitability as a business.
  2. Boost your cashflow – tax planning is a great way to open up more liquid cash and achieve a better cashflow position for the business. When you cut down the company’s tax payments, that frees up cash and helps you achieve a positive cashflow position.
  3. Stay compliant and mitigate your risk – being proactive with your tax planning keeps the company compliant with the relevant tax laws and regulations. It’s a sensible way to tick the compliance boxes and reduce the risk of costly penalties and legal issues.
  4. Drive your strategic growth – smart use of tax planning helps you reduce your tax costs and reassign those funds to your strategic business goals. It’s a golden opportunity to invest in areas that promote long-term growth and competitiveness.
  5. Give your business a competitive edge – if managed well, efficient tax planning leads to lower operational costs for the business. This gives you a competitive edge when it comes to pricing, innovation, sales and revenue generation.
  6. Peace of mind – You can reduce unnecessary stress and uncertainty by knowing about what your business’s tax liability will be and do act accordingly so that you can make business decisions from a firm, stable and factual base.
  7. The tax law changes – If any applicable tax rules are changing, you should take it into consideration in your tax planning and act to find the tax savings legitimately. 

How can our firm help you with tax planning?

Getting strategic with your tax planning has many advantages for your financial stability as a business. But to maximise your planning, it’s important to work with an experienced adviser suited to your needs.

As your tax adviser, we’ll help you look ahead across the whole financial year, looking for the opportunities to reduce your tax liability legitimately where possible and find the best tax deductions and incentives.

If you’d like to know more about the impact of tax planning, we’ll be happy to explain.

Get in touch to talk about tax planning and lets find out how we can help from here at The Stan Lee.

Tax planning helps you do more with your money Read More »

Spreading your tax costs with Time To Pay

Spreading your tax costs with Time To Pay

Have you been hit with an unexpectedly large tax bill? One way to manage this is to apply for a Time to Pay arrangement with HMRC. We’ve got the lowdown on how to do this.

 

HM Revenue & Customs (HMRC) expects you to pay your taxes on time. But if you’re finding it difficult to pay in full, HMRC can be approached to allow a Time to Pay arrangement.

A Time to Pay arrangement will allow you to pay your debt off in pre-agreed installments, reducing the impact of a large tax bill – and helping you manage your debt and cashflow.

 

How does Time to Pay work?

If you need to request a Time to Pay arrangement for self-assessment tax, Employer’s PAYE and VAT, these can often be made online using a ‘self-service’ system.

Where you owe other types of tax, or where the conditions for online applications are not met, you’ll need to contact HMRC to discuss your situation.

  • The easiest (although not always the quickest) way to discuss your Time to Pay request is by telephone to 0300 200 3835.
  • HMRC agents will want to know about all taxes you owe, not just the one(s) where you want to spread payment. They will also ask for details of your income and outgoings, and any savings or assets that may be able to be used to reduce the amount owed.
  • Presuming that you agree to a payment plan with HMRC during the call, they will usually want to set up a Direct Debit straight away.

Making use of the self-serve Time to Pay system

If you don’t have any existing payment plans or debts with HMRC, the ‘self-serve’ system may be more straightforward, provided that the applicable tax returns have already been filed. The conditions and amounts vary depending on the particular tax.

For example:

  • Self-Assessment: You must apply no more than 60 days after the payment deadline, have filed your latest tax return and owe no more than £30,000. HMRC will ask you about your income and spending when you set up your plan.
  • Employer’s PAYE: The amount due must be no more than 5 years old, total no more than £50,000 and all PAYE and CIS returns must be submitted. The maximum period over which the amount due can be spread is twelve months.
  • VAT: For VAT, you need to apply within 28 days of the due date and owe no more than £50,000. You can’t apply for a Time to Pay arrangement through the self-serve scheme if you use either the cash accounting or annual accounting schemes.

The self-serve option for Time to Pay does make the process easier, but remember that HMRC isn’t obliged to offer you the option of settling your taxes owed via installments.

If you fail to pay your taxes, HMRC can take recovery action in the County Court, and apply for the taxpayer to be put into liquidation or made bankrupt where appropriate.

Talk to us about making Time to Pay work for you

One of the best ways to avoid getting into difficulties with your tax liabilities is to work more closely with your accountant. As your tax adviser, we’ll produce regular forecasts so that any financial stresses can be foreseen well in advance.

Where unexpected circumstances do arise, putting a suitable payment plan in place with HMRC is the most sensible way to manage this situation. Ignoring your tax problems won’t make them go away and burying your head in the sand can lead to serious penalties and legal action.

Get in touch with us at The Stan Lee and talk to us about Time to Pay

Spreading your tax costs with Time To Pay Read More »

Charging interest on a Directors’ Loan Account

Charging interest on a Directors’ Loan Account

Charging interest on your Directors’ Loan Accounts (DLA) could be a smart move, helping you become more tax efficient. Dive into our DLA explainer and find out how.

When you’re the director of a business, it’s likely that there will be occasions where you borrow money directly from your company, or inject your own capital into the business.

A Directors’ Loan Account (DLA) keeps track of this money owed between the company and its directors. In many companies, the account is in credit – i.e. the company owes money to the director. This can be due to directors injecting startup capital into the company, not drawing dividends they are owed, or other expenses that have been subsidised by the director.

In these situations, it’s worth considering charging interest on the balance that’s due. But how do you do this? And what impact does charging interest have for the director and company?

Understanding interest on Directors’ Loan Accounts

Let’s take a look at some of the rules around applying interest on DLAs, and the potential benefits this can bring to your company and tax planning.

  • Any interest paid re these DLAs will be deductible when calculating your company’s taxable profits. Because of this, it’s possible to achieve tax savings of up to 25%.
  • For the individual, a basic-rate taxpayer has a Personal Savings Allowance (PSA) of £1,000 and will pay 20% on the excess. So, paying interest is more tax-effective than declaring dividends. The PSA for a higher-rate taxpayer is £500.
  • The interest rate needs to be a commercial rate. In other words, the interest rate used must not exceed the rate you’d expect to see from a third-party lender.
  • Where interest is paid to an individual, basic rate tax needs to be deducted at source from any payment made to the director.
  • This tax is reportable to HM Revenue & Customs (HMRC) on a calendar-quarterly basis, with the amount deducted offset against tax due on the individual’s personal tax return. Where the company accounts are not drawn up to a calendar-quarter end, a fifth return is required up to the balance sheet date.
  • The company can take into account any interest due, but not paid, until up to twelve months later when calculating its own profits. However, the individual will only include as income any interest that’s actually been paid. Note though that ‘paid’ can include crediting to a DLA!. This can give a timing advantage.

Talk to us about maximising the tax benefits of your DLA

Any interest you receive is not subject to National Insurance Contributions (NICs) and is particularly tax effective when shielded by the Personal Savings Allowance (PSA).

The reporting requirements for interest on DLAs are no walk in the park. Because of this, it’s a good idea to talk to your professional advisors, so they can make sure you have a workable system in place prior to making any payments. They can also give an opinion of the acceptability of the proposed rate of interest to pay, and how it measures up against current market rates.

Get in touch to talk about interest on your DLA and let’s find how we can help from here at The Stan Lee on your tax affairs.

Charging interest on a Directors’ Loan Account Read More »

Are employee parties tax-free?

Are employee parties tax-free?

Not sure if your annual staff function is tax-deductible? Come and talk to us. We’ll explain the rules and can help you claim against your company party costs.

If the rules around social functions are followed, staff events like your end-of-year party, or your summer barbecue are tax-deductible for you, as the employer, and tax-free for your staff.

This means you can claim back some of the expenses you incur when putting on a social event for your team, while also helping to build better team bonds.

Whether your party is taking place in the office, at a local restaurant or via Zoom for your remote-working teams, you can be confident that you can recoup some of these expenses by making the relevant claim – The HM Revenue & Customs (HMRC) rules apply equally to any online staff events and remote parties.

Meeting the rules for tax-exempt staff functions

The annual function exemption means that your company can deduct costs for tax when holding an eligible annual staff social event. It also means that your employees don’t pay tax or national insurance contributions (NIC) on costs relating to these social events.

This all sounds like good news for the company bank balance, but how does the exemption actually work? And what are the specific rules that you need to know about?

  • How do I know if my event is eligible? – for your event to be eligible, it must be company-wide and meet the requirements of a structured social event; i.e. where food, drink and possibly entertainment are provided. As long as all staff are covered somewhere, there can be separate functions for branches, departments, or other office locations etc.
  • What records do I need to keep? – as a company, you’ll need to keep records of who was invited to the social event, and who actually attended. You’ll also need to record the costs of putting on the event, including all associated travel and accommodation.
  • What’s the expenses limit per person? – there’s a limit per attendee (including partners invited as guests) of £150 including VAT. This total can be split over multiple functions – e.g. over your Christmas party, plus an Easter party and a summer event. NOTE: this can’t be disguised client entertaining. Guests must be employees or their partners and not clients or suppliers etc. Although the £150 includes VAT, the VAT in respect of employees (but not invited partners) is deductible in the same way as any other input tax on business expenses.
  • What happens if this limit is exceeded? – If the total cost per person is exceeded, the costs are still deductible for the company. However, if the cost of one or more individuals exceeds the £150 p/person limit, this would be seen as a taxable benefit for the employee (including the amount for their guests.)
  • How does this work in practice? – if you hold three annual functions costing £70/£60/£40 per head, your choice may be to apply the exemption to the £70 and £60 functions (Total cost of £130 per head). The balance of £20 (from the £150 limit) is lost and the £40 is taxable and NI’able. Functions covered by the £150 exemption do not have to be reported on form P11Ds.

The annual exemption is a great benefit for your company and staff. And it’s worth noting that if you’re a one-person company, that you could equally apply the benefit to taking your spouse out for a social event.

Talk to us about claiming expenses for your staff events

If you’re looking to run a staff function in the near future, talk to us. We can help you ascertain if your planned function meets the annual exemption requirements, and how you can claim back your party costs as a tax-exempt expense.

Get in touch, if you want to discuss this further, or if you want to arrange to cover any tax and NI for your employees through a PAYE settlement agreement.

Are employee parties tax-free? Read More »

Can directors and employees receive gifts from the company tax free?

Can directors and employees receive gifts from the company tax free?

Not sure about the tax implications of giving gifts to your employees? We’ll help you draw up internal guidance to make sure any gifts don’t unintentionally fall outside HMRC’s Trivial Benefits rules. 

Giving gifts to your employees can be a great way to increase engagement and raise the overall morale of your team. But how much can you give before there are tax implications? And how do the rules differ if you’re giving gifts to your directors?

The good news is that you can give gifts that don’t exceed £50 in value to your employees without any tax or National Insurance (NI) charges arising – as long as you follow HMRC’s rules. The cost of this is also tax-deductible by the company.

Making use of the Trivial Benefits scheme

As part of HM Revenue & Customs’ (HMRC’s) Trivial Benefits scheme, you can give gifts to your employees to mark birthdays, weddings or just ‘because’, all without attracting any tax charges. Owners can also benefit from the same Trivial Benefits scheme.

  • Trivial benefits can be provided to employees without any adverse tax or NI implications, and with no need to report them on a P11D form – the HMRC form used to report any ‘benefits in kind’ that you’ve provided to an employee.
  • To qualify, gifts can’t be a reward for services, can’t be cash or a cash voucher, can’t be contractual, and the cost mustn’t exceed £50 per gift.
  • For directors of close companies, the total can’t exceed £300 in any year. Although not limited for other employees, if it was a regular gift then it’s likely to be treated as a reward for services – which would then have tax implications.
  • If over the course of a year, a director awarded themselves 6 x £50 gift cards (maxing out the £300 cap) as a higher-rate taxpayer they could save around £126 in tax and NI compared with a £300 salary. The company would also save about £41 in NI.
  • Gift cards are fine as long as they aren’t pre-loaded debit cards that can be used to withdraw cash – remember you can’t give cash as a gift.

Let’s look at an example of these rules in practice:

If an employee is given a bottle of wine for hitting a sales target, that would be taxable. If they were given the wine because it’s their birthday, as long as it was below £50 it would be within the exemption. It could also be given just because you’re in a good mood and feeling generous – it just can’t be anything related to company or individual performance.

Talk to us about meeting the rules around employee gifts

It’s important that you stick to HMRC’s rules around employee gifts and don’t end up unintentionally creating a negative tax impact for people on your team, or for the business.

As your adviser, we’ll help you draw up clear, well-explained internal guidance to make sure any gifts don’t unintentionally fall outside of the rules. Get in touch with us for your tax free gift matters.

Can directors and employees receive gifts from the company tax free? Read More »

What home-office expenses are deductible for your business?

What home-office expenses are deductible for your business?

With greater use of home-working now the norm for many UK businesses, it’s important to think about the deductible expenses that you may be able to claim when working from a home office.

Working from home results in us using more power, more broadband and more heating than when working from an office space, or from a coworking space outside the home. But which elements of your home expenses can you claim back? And how does the process work?

Which of the four home-working categories applies for you?

To be able to claim back your home-working expenses, your home office must be your main place of business. If you generally work away from home and just use the dining-room table to complete the occasional bit of paperwork, that won’t count.

There are four groupings into which your business must fall when it comes to claiming back home-office expenses: Limited Company or Unincorporated, with each claiming at either a flat rate or a higher amount.

  1. Limited Company & Flat Rate: a flat rate of £6 per week can be claimed against your home expenses.
  2. Unincorporated & Flat Rate: this is intended for unincorporated businesses (sole traders etc.) who work from home, and is broken down into three scaled categories
    • If you work at home 25-50 hours/month, you can claim £10/month,
    • If you work 51-100 hours/month, you can claim £18/month,
    • If you work 101+ hours/month, you can claim £26/month.
  3. Limited Company & Higher Amount: If you want to claim more than the scale rate, it’s preferable to have a rental agreement between you and your company to avoid the charges being treated as salary. The rent should be market-related – which can be difficult to establish. Because of this, the rental price is often worked out as the share of mortgage interest or rent, council tax, utilities and buildings insurance. If there are six rooms in the house (ignore halls, kitchens and bathrooms) and one is used for the business, then you claim 1/6th of those costs. It would be unusual for more than one room to be used for business, but could be the case if, for example, you’re a photographer with a studio and a separate office in the house.
    • Note re repairs: repairs for your ‘home office’ room can be claimed back in full, and repairs for other rooms can’t be reclaimed at all. General repairs to the house (e.g. re-tiling the roof) can be claimed proportionally, so 1/6th in the example we’ve given.
  4. Unincorporated & Higher Amount: An unincorporated business can’t charge rent as such, so no formal agreement is needed. But you can claim back an amount against tax, calculated in exactly the same way as for a limited company.

Important points to be aware of

The claimable expenses may sound reasonably simple to calculate, but there are some other important factors to take into consideration.

  • Capital gains tax on a property sale: The sale of a residential property isn’t normally subject to capital gains tax (CGT). But if you use one room exclusively for business, then the proceeds of the sale of that room are potentially liable for CGT. Simplistically, for example, if you have a home office that takes up 10% of the total area of the house, and the house is sold producing a capital gain of £100,000, 10% of that gain would be subject to CGT. However, if a spare bedroom with a desk is temporarily used as a workspace while the employer’s office is not accessible, this would not give rise to any capital gains tax issues.
  • Use of the room: If possible, try not to use any room exclusively for business. Put an exercise bike in your office room for workouts, so it’s only available for the business 90% of the time! The ‘1/6th’ in the earlier section then gets reduced by 10% and the rental agreement specifies that the room isn’t available for business use between specified hours, or on specified days.
  • Phone and broadband expenses: Your home telephone expenses only cover the cost of itemised business calls, not the whole bill. Your internet provider costs are not allowable as dual usage (personal and business) unless you have a separate connection for your business. Your mobile phone bill is fully allowable (so personal use is ignored) but if you’re claiming as a limited company then the mobile contract MUST be in your company name.

Talk to us about claiming your home expenses

With more and more of us now working from home, it’s important to know what expenses you can claim for, and how much you can claim back against these home-working overheads.

Talk to us and we’ll help you calculate what can (and can’t) be claimed, and what the impact will be on your annual tax bill.

Get in touch to talk through your home expenses and let’s find how we can help from here at The Stan Lee.

What home-office expenses are deductible for your business? Read More »

Are loans to directors and employees tax free?

Are loans to directors and employees tax free?

Do you know the rules around director’s loans? If you withdraw money from your company other than for salaries or declared dividends, you should come and talk to us.

If you’re a director then taking out a director’s loan against the cash in your limited company might seem like a sensible thing to do. But the reality is that overdrawn loans to directors can lead to unintended tax consequences if they’re not properly managed.

There are three main impacts:

  1. The loan may result in a taxable benefit-in-kind, if it’s interest-free and greater than £10k – affecting your personal tax payable.
  2. The company may suffer a Section 455 charge if the loan isn’t cleared within 9 months and a day of the year-end.
  3. There’s an income tax (and potentially National Insurance) liability if the loan is written off.

In addition to this, if a company goes into liquidation with a director’s loan due to the company, the liquidators can take action against the director to get the loan repaid. This can include taking bankruptcy proceedings against the director concerned.

So, how do you ensure you’re on safe, tax-effective ground when taking out a director’s loan?

The lowdown on director’s loans

What do we mean by a director’s loan account (DLA)? In essence, this loan can be seen as any payment made to you as a director other than payments in respect of:

  • Business expenses
  • Salary
  • Dividends
  • Repayment of amounts owed by the company to the director.

It also includes similar payments to close family members.

If you owe the company more than £10,000 at any time during the year, even if it’s only for one day, then a taxable benefit potentially arises. However, if you’ve paid interest on all amounts owed at any time, regardless of amount, and have done so at at least the HMRC minimum rate (currently 2.25% p.a.) then this taxable benefit won’t arise. It’s normally better for the company to charge interest of at least that minimum rate to prevent the benefit-in-kind charge arising.

The DLA ideally should not be overdrawn by any amount on the last day of the company’s accounting period. If it is overdrawn, unless it’s cleared within 9 months and 1 day a Section 455 charge of 33.75% of the uncleared amount is payable. If the amount is cleared at a later date, the Section 455 charge is repayable by HMRC 9 months and 1 day after the end of the accounting period in which it’s cleared.

Paying back the loan

As you can see, this all gets relatively complex to manage. So, why not pay the loan back just before the period-end and then take out a fresh advance from the company just after?

Two rules restrict that:A. The £5,000 rule – if a repayment of £5k or more is made AND within 30 days of this further advances are taken, the repayment is then offset against the later advance, not the original loan.B. The £15,000 rule – where the amount outstanding is £15,000 or more, and at the time of repayment there was an intention to draw down further sums, the repayment is applied against the subsequent drawdown – this applies even if this takes place more than 30 days ahead.

Exception to A and B: If the repayment is from a source that’s subject to tax (generally a dividend or bonus) then it can be offset against the older debt. So, it’s common to declare a dividend within 9 months and a day after year-end to clear the opening DLA balance and avoid a Section 455 charge, even if other advances had been made.

There are other considerations to think about too:

  • If instead of being repaid, the loan is written off, that will be taxed in the recipient’s hands as dividend income. And it may also be subject to employee and employer National Insurance as if it was payrolled.
  • Writing off the loan will only be sensible when there aren’t profits available to pay a dividend, or not all shareholders have loans being written off.
  • In some limited circumstances National Insurance may not apply.
  • Where a loan exceeds £10,000 it requires prior shareholder approval.

Talk to us about managing your director’s loans

Managing your director’s loans in the most tax effective way is a challenge. As your adviser, we can advise you on the timing of dividend payments to help you eliminate or reduce Section 455 charges. We’ll also help make sure that your record-keeping for advances to directors is comprehensive enough to withstand HMRC scrutiny – always good practice when entering into a loan of any kind.

If you withdraw money from your company other than for salaries or declared dividends, please do come and talk to us and let’s find out how we can support you from here at The Stan Lee.

Are loans to directors and employees tax free? Read More »

Back to Tax Basics: How capital allowances reduce your tax bill

Back to Tax Basics: How capital allowances reduce your tax bill

Are you planning to purchase some major fixed assets? Talk to us about the available capital allowances, super-deduction and the potentially positive impact on your cashflow.

Generally speaking, the business expenses you incur are allowable against your profits. But when it comes to fixed asset purchases (things like machinery, equipment or vehicles), these purchases are treated slightly differently.

To reduce your tax bill when purchasing fixed assets, it’s important to know what capital allowances are available and how you can use them to enhance your tax planning.

In the next part of our Back to Tax Basics series, we outline which capital allowances are available and which assets they relate to.

What are capital allowances?

Fixed assets are classed as items of equipment that will be used in the business for more than a year – so, things like office furniture, machinery and company vehicles. For accounting purposes, the cost of these fixed assets is spread over the expected life by calculating a depreciation charge each year – in other words, the value the item will lose over this time.

  • For tax purposes, the depreciation is added back (disallowed) and ‘writing down allowances’ are claimed instead.
  • There is an Annual Investment Allowance (AIA), fixed at £1 million per annum for the forseeable future. Most asset purchases up to that total can be claimed in full in the year of purchase. The main exceptions are cars and items you owned for another reason before putting them into the business.
  • For some assets, 100% First Year Allowances (FYA) are available. These include:
    • New and unused vehicles with Nil CO2 emissions
    • New electric vehicle charging points
    • Plant and machinery for use in a Freeport
  • For everything else you might purchase as a fixed asset, the costs are allocated into various pools depending on the type of asset, and Writing Down Allowances (WDA) calculated on the pool value on a reducing balance basis. These include:
    • Special Rate Pool 6% rate – Cars (new or used) with CO2 emissions > 50 g/km, Integral fittings incorporated into commercial buildings (lifts, electrical and water reticulation, air conditioning, heating equipment), long-life (>25 years when new) items over £100K annual spend. Long-life excludes structures and buildings.
    • Main Rate Pool 18% rate – everything else. Note as specifics this includes cars with CO2 emissions >0 <50 g/km.
    • Structures and Buildings Allowance (SBA) – the SBA offers a 3% flat rate for 33.33 years on non-residential buildings, but not on land.

Talk to us making use of capital allowances

If you’re thinking of purchasing capital equipment, it’s worth knowing that, in many cases, the tax benefit can be claimed in a lump sum, even though the equipment may be in use for several years. This will have a positive short-term impact on both your tax charges and your cashflow.

As your accountant, we can advise you on the tax treatment of different types of assets and, if external funding is required, can help you prepare business plans and finance applications. To find out more about capital allowances from us here at The Stan Lee, please get in touch with us and let find out how we can support you.

Back to Tax Basics: How capital allowances reduce your tax bill Read More »

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