HMRC has obtained information about those who have bought or sold cryptocurrencies and says it will be writing to them in November 2021.
How should you respond if you receive a letter?
HMRC has said it will send so-called “nudge letters” to anyone for whom it’s been sent information from cryptocurrency brokers. It says the purpose of the letters is to remind taxpayers “to review their transactions to ensure that they are declared correctly”.
Capital Gains Tax (CGT)
If you buy cryptocurrency and then later sell it for more money then this gain is classed as income, it is subject to the capital gains tax rules and should be included in your self-assessment tax return.
Each year you have a CGT allowance and only gains above this level are subject to tax. The current annual allowance is £12,300 and the tax rate is 10% or 20%, depending on whether you are a basic rate of higher rate tax payer in the year of disposal.
Most cryptocurrency brokers provide a portal, which gives reports on your gains or losses, but if you need help working out if you have gains to declare and tax to pay then don’t hesitate to get in touch with the team at a4c.
What do you need to consider when employing staff?
Being an employer means certain legal duties. This guide covers the key areas you need to become familiar with, to ensure you are fully compliant with the law.
It’s important to have a contract in place between you and your employees. This outlines your terms of employment and required notice period etc.
You should also consider any employment related policies that may be required, such as Health & Safety and Data Protection.
You are required by law to operate a workplace pension, many of our clients use Nest as this is a government approved scheme and free to operate.
Your workforce will need to be assessed and any employees that are eligible must be enrolled in your pension scheme.
Those who are eligible will be aged at least 22 but under state pension age and earning more than £10,000 a year from you.
The pension contributions are 3% by the employer and 5% by the employee.
Pension contributions are calculated each time your payroll is run. The payment is collected monthly by Nest using a direct debit mandate.
All employees are entitled to paid leave, this is normally based on 28 days per year (4 weeks off, plus the 8 Bank Holidays).
When an employee is salaried you simply pay the same amount all year and keep a log of days off which are deducted from the holiday pot.
If employees are paid overtime then the holiday calculations can be a little different. We are happy to help you keep track of the available holiday pot, if required.
If your employees are unwell and unable to work then they could qualify for statutory sick pay (SSP).
The current rate is £95.85 per week and is paid by you, as the employer, for up to 28 weeks.
SSP is paid when the employee is sick for at least 4 days in a row (including non-working days). During Covid some of the SSP could be reclaimed from HMRC.
Maternity / Paternity Pay
If your employee has a baby then they could qualify for Statutory Maternity Pay (SMP) or Statutory Paternity Pay (SPP) through the payroll.
The SMP payments are refunded to you from the government, SPP payments are not.
There are certain laws regarding discrimination and health & safety which you should familiarise yourself with.
Of course at a4c we will be preparing the payroll, pension calculations and providing payslips etc, however we are not HR advisors and therefore the advice provided above is to help point you in the right direction so that you can then seek out the necessary support required.
As always feel free to get in touch if you have any further questions.
Simple Guide to VAT and Xero
Following Brexit, the VAT rules for supplying goods and services between the UK and EU member states will become the same as the current rules for supplying from the UK to outside the EU.
Before Brexit there was VAT charged between the UK and the other 27 EU countries. Because we were all part of the same market, if a business was VAT registered, they could reverse charge the transaction with no VAT due. Now that the UK is outside of this single market UK VAT is zero rated but VAT has to be paid locally, as well as customs duty.
If you run a business which imports and exports goods or services then we suggest that you familiarise yourself with the new rules, the Enterprise Nation Brexit Hub is a good reference point, as well as the Gov.uk online pages.
In the meantime, this VAT guide is intended to support you with your Xero reconciliations, which will feed into your quarterly VAT returns.
All VAT-registered businesses must charge VAT on their goods or services and may reclaim any VAT they’ve paid on business-related goods or services.
If you’re a VAT-registered business you must report to HMRC the amount of VAT you’ve charged and the amount of VAT you’ve paid. This is done through your VAT Return, which is usually due every 3 months.
If you’ve charged more VAT than you’ve paid, you have to pay the difference to HMRC. If you’ve paid more VAT than you’ve charged, you can reclaim the difference from HMRC.
There are 3 main different rates of VAT and you must make sure you charge the right amount.
Standard Rate 20%
Most goods and services are standard rate. You should charge 20% VAT as the default, unless the goods or services are classed as reduced or zero-rated.
Reduced Rate 5%
This includes children’s car seats, domestic fuel and certain building projects (i.e. installing energy saving products or converting a building from one residential use to another.)
Zero Rate 0%
Zero-rated means that the goods are VAT-taxable but the rate of VAT you must charge your customers is 0%. You still must report them on your VAT Return. Examples include books and newspapers or children’s clothes and shoes, certain food & drink (although this is a complex area).
Most goods you export from the UK to another country are Zero-Rated.
Sales Invoices in Xero
In most cases the invoices you create in Xero should be coded as follows:
Sales to customers in the UK 20% (VAT on Income)
Sales to customers in the EU Zero Rated Income
Sales to customers in the rest of the world Zero Rated Income
This does not mean that the customer has no VAT to pay. Instead they may be charged VAT and customs duty when the goods arrive, this will depend on the country in which they are located.
VAT MOSS is only used where supplies are of digital services to consumers in the EU; it doesn’t apply where the supply is B2B and is instead subject to reverse charge in the business customer hands.
If you sell digital services to consumers in the EU then you will no longer be able to access VAT MOSS via HMRC in the UK and instead you will need to register for VAT in the EU Member State of delivery and then register through that portal for ‘Non-Union MOSS’.
UK businesses are no longer required to complete an EC Sales List when supplying services to businesses located in the EU.
Exempt goods and services
Exempt goods or services are supplies that you cannot charge VAT on.
If you buy or sell an exempt item you should still record the transaction in your general business accounts. Examples of exempt items include:
health services provided by doctors
Out of scope
Some goods and services are outside the VAT tax system so you cannot charge or reclaim the VAT on them. For example, out of scope items include:
statutory fees – like the London Congestion Charge or DVLA costs
donations to a charity – if given without receiving anything in return
staff wages & HMRC tax payments
You can usually reclaim the VAT paid on goods and services purchased for use in your business. You must keep records to support your claim, such as a valid VAT invoice or VAT receipt. You cannot reclaim VAT for:
anything that’s not purely for business (i.e. private use)
business entertainment costs
purchases if you use the VAT Flat Rate Scheme (except some capital assets > 2k)
Purchase VAT tax rates in Xero
Xero VAT Rate
Description and Example Purchases
20% (VAT on Expenses)
Goods & services from UK VAT registered businesses where VAT has been charged at 20%, supported by a VAT receipt
· Telephone Costs
· Accountancy Fees
· Computer equipment
Costs which fall outside the scope for VAT
· Wages / Salaries
· Subcontractors (if not VAT registered)
· Director’s Loan transactions
· Bank transfers
· PAYE & National Insurance payments
· Other purchases from businesses which are not VAT registered (i.e. window cleaner)
· Medical insurance
· Education (although some staff training may be charged at standard rate)
Zero Rated Expenses
· Food & drink (unless standard rate VAT rules apply – check the VAT receipt)
· Goods shipped into the UK from suppliers outside the UK will usually be Zero Rated *
Reverse Charge Expenses (20%)
Purchases from suppliers outside the UK where you pay and reclaim VAT. In most cases the 2 amounts will cancel each other out.
* Import statements with VAT and Customs Duty will need to be dealt with separately using a VAT only invoice.
Postponed VAT Accounting
In broad terms, VAT will be payable upon the goods you import, although the UK government has introduced the postponed VAT payment system to avoid cash flow issues. This lets you account for the VAT on your next VAT return, and means the goods can be released from customs without the need for VAT payment at the border.
You will need to register for and download a monthly customs statement from HMRC, which summaries your imports from the month before, in order to reclaim the VAT. Currently an agent cannot do this for you and therefore you should log in and download this report each month and email a copy to a4c for inclusion in your accounts.
How Xero calculates VAT amounts
The VAT return in Xero uses the detail from the reconciled transactions to calculate the VAT return box amounts. This could be taken from sales invoices, purchase bills or bank reconciled transactions.
Xero uses the VAT tax rate selected for each transaction, this then feeds into the relevant boxes on the VAT return.
Quick VAT return summary:
Box 1 – VAT due this period on sales
Box 4 – VAT reclaimed in this period on purchases
Box 5 – The VAT amount payable to HMRC or due as a refund
Box 6 – Total value of sales excluding VAT
Box 7 – Total value of purchases excluding VAT
VAT can be a very complex area and will vary from client to client, depending on your industry sector and business model.
At a4c we will support you in the preparation of your VAT returns and are on hand to answer any questions you have in relation to VAT or other areas of your accounts.
The cycle-to-work tax break seems to come with a mountain of literature to plough through, but is there a simple option?
The legislation for the cycle-to-work tax break is unusually straightforward. It allows employers to provide a bicycle, with or without safety equipment, as a tax and NI-free benefit in kind.
Three simple conditions must be met:
the employee can’t own the bike etc.,
it is used mainly for qualifying journeys and
you offer the benefit to all your employees.
The trouble is the scheme is widely marketed through employee benefits specialist companies adding layers of complication to the simple tax break.
The government also upped the stakes by making it one of the benefits which still saves tax when used as part of a salary sacrifice arrangement. This gives employers a lot to pick through.
No cycle-to-work scheme required!
At its simplest all you need to do is offer your employees use of a bike and buy as many as you need.
The bikes don’t all have to be the same value; you can give the employees a budget (perhaps linked to their seniority in the business) and let them choose. There’s no limit on the value of bikes that you’re allowed to provide.
After a while the bikes can be offered for sale to the employees at a modest price. HMRC suggests acceptable values: 18% to 25% of cost after a one year, and just between £1 and 2% of cost after five years.
That seems like a pretty cheap way to buy a bike tax efficiently!
Remember that providing the bikes is an extra cost to the business, however it can claim tax relief on their cost.
For further information please don’t hesitate to get in touch .
IR35 | April 2021
Balancing your books and tax records
If, because of the new off-payroll rules, your client will deduct PAYE tax and NI when settling your invoices, you will need to make important changes to your admin and how you draw income from your business.
What steps do you need to take?
The signs are that the new off-payroll ( IR35 ) rules, which apply from April 2021, will result in many more workers having PAYE tax and NI deducted from income. If you’re affected you’ll need to consider how you should deal with this in your business and tax records.
Tip. The new off-payroll rules only apply to contracts where your client is a medium-sized or large business or other organisation (including all public bodies). You can continue to process income from other contracts in the usual way.
VAT – no change
Even where you know your client will deduct tax and NI from payments – in effect treating you as if you were an employee – if you are registered for VAT you must continue to add it to your invoices and account to HMRC for it on your VAT returns in the usual way.
Is essence, as far as VAT is concerned you can ignore the new off-payroll rules.
There are various ways to correctly record income from which tax and NI has been deducted in your business’s books.
Our advice, which we believe more accurately follows generally accepted accounting principles, is to record the full amount that you invoice your client as sales income. You can then record the PAYE tax and NI deducted as an expense, say as a salaries and wages cost.
How much tax and NI?
Where your client decides that the new off-payroll rules apply, they should ask you to complete a “starter checklist”. This allows them to operate the correct tax code.
Having included the sales invoices as income and the PAYE tax and NI as expenses in your business records, the net amount is income for your company. You can either pay this out or retain it in your company.
Our recommendation is that you pay it as salary and credit the amount to your director’s loan account or draw the funds immediately.
HMRC says that the salary payment from your company does not need PAYE tax or NI deducting from it as this has already been done by your client.
Your VAT records and returns are unaffected.
Record invoices for off-payroll work as sales and the PAYE tax and NI deducted as an expense.
The net amount your company receives can be paid to you without accounting for further tax or NI.
To discuss how the IR35 changes will impact you and your business give Esther a call on 01737 652 852.
The tax return filing deadline is 31 January each year where the return is filed electronically. Use this self-assessment tax return checklist to avoid problems with HMRC, or not paying the right amount of tax.
Points to check
Include all income sources
It’s easy to miss off a bank account or dividends from shares etc. on your return, especially if you’re up against the deadline and have several sources of income. Income tends to stay at a similar level year on year, so check the figures against the previous year’s. If there is a difference in any particular area, do some investigating to make sure you’ve picked everything up.
Check capital gains
If you dispose of assets for more than you paid for them, you may need to report the details on the capital gains supplementary pages. However, you can ignore this if your total gains don’t exceed the annual exemption for the tax year, and the proceeds don’t exceed four times the annual exemption. If you are selling a property that has been your only or main residence, check the occupancy history. If it was your main residence for only part of the ownership period, the private residence relief exemption might only apply to part of the gain.
If you dispose of assets for less than you sold them a loss arises and no tax is due. You might be tempted to ignore these and not report them. However, if you don’t then you won’t be able to use them to reduce future gains, so always report losses.
You need to report any pension contributions other than those deducted by an employer from your gross pay. Doing so will ensure you receive the full tax relief but watch out! If your total contributions exceed £40,000 in a tax year, you might be liable to the annual allowance charge. If your contributions do exceed £40,000, check your contributions for the previous three years, as you can carry any unused allowance forward.
Donations made to registered charities mean tax relief for higher and additional rate taxpayers. Check your bank statements to ensure you pick everything up. Memberships to organisations like the National Trust or English Heritage count as donations if you’ve gift aided them, as well as one-off entry fees into various zoos, museums and exhibitions around the country.
A common misconception is that the state pension is exempt from tax. This is false, though it isn’t taxed at source. Don’t forget to include the amount you receive if applicable.
Higher income child benefit charge
If you (or your partner) are in receipt of child benefit and either of your incomes exceeds £50,000, you will be subject to the charge. Don’t forget to include the relevant details.
If you are a basic rate taxpayer, and your partner does not fully use their personal allowance, they can elect to transfer up to 10% of it to you. This can reduce your tax bill.
Payments on account
By default, you will be required to make payments on account for the next year’s tax liability. These are calculated at 50% of the previous year’s tax bill and the first of them is payable on 31 January before the tax year starts, i.e. on the same date as the balancing payment for the return you are filing. Payments on account are only due if your tax not collected at source exceeds both £1,000 and 20% of your total tax liability for the year. However, you can claim to reduce them if you know your income will reduce, or if your tax owing at the end of the year will be less next time. Use caution though, if you reduce them too far you will be charged late payment interest. Read more here.
Check that the return files successfully. You should receive a confirmation reference.
If you want HMRC to collect your tax due via a future PAYE code, you need to have your return filed by 30 December. The amount owing cannot exceed £3,000.
Other tax reliefs
Ensure you have claimed any trading or capital losses available from earlier years. If you have made investments under the EIS, VCT or SEIS then you can claim the income tax relief as long as you have been issued with the certificate saying you can do so.
For help with your self-assessment tax return get in touch today.
A business plan is a vital document for any small business owner as it outlines the future of your company, plans for growth and the strategy for how you will get there. If your plans to scale up include hopes for funding from an investor or a loan, it’s imperative that you have a sound business plan in place to show how investing in your company will provide a strong return.
Whether you’re an existing businessowner or just about to start a new venture in self-employment, we’ve put together some of the key reasons why you need a business plan and some top tips on how to create one.
Within this article, you will learn about:
How to set your business objectives
Analysing the market
Creating a basic marketing plan
Putting together a financial plan and budget
What should my business plan include?
What are your business objectives?
It may sound obvious, but the first key section of your business plan should outline your business, its core product or service and an overview of your objectives. Your objectives must be realistic and measurable (we’ve all seen The Apprentice) in order to be achievable and help you understand what you need to do to get there. If you’re struggling to objectify these goals, remember the SMART framework:
A clear objective. What do you want your business to achieve and what will this accomplishment mean?
How will you know when you have reached this milestone? How will you track progress whilst working towards it?
Is the objective attainable? If you cannot outline how the objective will be reached or what you need to do to achieve it, you might need to rethink it.
For an objective to be realistic, you must consider the resources needed to achieve it and whether they are available, as well as who will be involved, whether individuals, teams or additional stakeholders.
Importantly – when do you hope to meet your objective? Having a timeline in place ensures the objective can be measured and tracked against. Additionally, if you’re hoping to attract an investor, it’s no good saying your business will make x amount of money if there is no timeframe in place.
Who is your target market?
How do you know there is interest or demand in your product or service? Now is a good time to demonstrate your understanding of the market in which your organisation sits, where the gaps are and how it has (or will) developed, highlighting any market research that you have carried out or existing market data you have found.
In highlighting your knowledge of the market, here you should provide a competitor analysis. This doesn’t have to be incredibly in-depth but should identify the competitors that you are aware of in your field, the threats they pose to you as a competing business, their strengths and weaknesses and, from this, the opportunities for you as a new entrant to the market.
Next, you should identify your target audience, how you plan to identify them and what you know about them i.e. demographics, behavioural factors (what motivates them to purchase?).
Your sales and marketing plan
You don’t need to be a marketing expert to have a basic marketing plan in place. It’s essentially a plan within a plan in that, using the objectives and market analysis you’ve already outlined, this section details the business’ positioning within the market and how you plan to get your message in front of your target audience to trigger a response.
State your company’s positioning – how will you have a competitive edge over other businesses in the market?
i.e. The Shoe Emporium will be the first-choice shoe retailer for young people in their early – mid-twenties in the UK by offering the best price in the market.
How will you reach the target audience and communicate your message?
i.e. Based on existing data on our target market’s usage of the channel, we will target our audience through organic and paid Instagram posts.
Day-to-day business operations
The operational section of a business plan concerns details relating to the day to day running of your company, such as trading location(s), employees or forecasted/future staffing requirements and any equipment or materials required to operate effectively. This would be a good place to list any details for suppliers you may be working with.
An important part of your operations should include a general risk assessment and a contingency for unexpected challenges and how you plan to overcome them.
Outlining your financial plan
Finally, the part that many businessowners find themselves fretting over. If your business is a start-up, the plan should include an idea of your start-up costs, acknowledging that you understand the initial requirements and where additional capital may need to be raised.
Your financial plan should include a cash flow forecast, detailing where any borrowed capital is coming from, predicted revenue and projected expenditure. If your business is already in operation, you should find this simpler to put together as you can forecast based on previous revenue and expenditure.
A balance sheet provides a snapshot of your business accounts for a specific period of time, encompassing the business’ current assets and liabilities, assets or liabilities over a longer period of time and shareholder capital. If you plan to pitch your existing business plan to investors or to secure a loan, you will often be asked to provide around six consecutive months of balance sheets.
How a budget can help with business planning
A lot of small business owners make the oversight of neglecting to budget when business planning due as it takes time. So why should you include one?
Having a realistic budget in place and sticking to it allows you to keep an eye on the bigger picture of your company’s growth and future, particularly in the earlier stages of business, whilst managing your cashflow efficiently. It allows better control over areas of the business where money is spent and will help identify which areas you may need to reallocate resources to or if additional funds are needed.
You may find that, as your business grows, you need to create budgets for multiple departments or areas. These can also be incredibly useful for measuring overall business or individual department performance and assist with attributing revenue back to particular activity.
If you’re reading this and still feeling stuck about financial plans and budgets, or how they work together, get in touch to see how we can help. At accounting4contractors we regularly work with small business owners, self-employed people and contractors to help simplify the process of budgeting and accounting.
So, you’ve decided you’re going to take the plunge and go self-employed. But how do you know what National Insurance you’ll need to pay? When you become self-employed, you become responsible for paying your NI and tax on your income, so you’ll need to be organised and maintain all of your records to ensure you know what you will need to pay. Unfortunately, this isn’t always straightforward as it can vary based on the industry of your employment and whether you are both employed and self-employed. So, we’ve outlined some of the key considerations for working out your National Insurance.
National Insurance Classes explained
When you are self-employed, there are two Classes of National Insurance that may apply to you.
Class 2 NICS
If your profits are £6,205 or more in the 2018/19 tax year, you will be required to pay Class 2 NICS of £2.95 a week.
Class 4 NICS
If your profits exceed £8,424 (up to £46,350), you will need to pay Class 4 NCIS which is 9% of your profits in the 2018/19 tax year.
For profits exceeding £46,350, you will be required to pay an additional 2% on the excess.
Paying voluntary National Insurance for state benefits
Exemptions and gaps within your National Insurance record
Some people within specific jobs may not be required to pay Class 2 NICS – notably those who run businesses in the land or property sectors. Alternatively, you may have what are known as gaps within your record of paying National Insurance – meaning you will not have made enough contributions over your working lifetime to qualify for a full State Pension. This could be for several reasons, such as having received low earnings from previous employment, made a small profit whilst self-employed or if you were unemployed without claiming benefits for a time.
If this is the case, all is not lost and you may still qualify for a State Pension by paying voluntary National Insurance. However, it’s best to seek professional advice as not everyone will benefit from voluntary contributions; we can provide you with the advice you need around the benefits of paying voluntary contributions.
How do I pay National Insurance?
The key difference in paying National Insurance when you’re self-employed is that you are now responsible for paying this yourself, rather than paying it automatically every month. To do this, you’ll need to complete a tax return (Self Assessment) at the end of the financial year.
We know that this can be daunting for many and deadlines aren’t everyone’s strong point – but don’t worry! That’s why we’re here; we can provide tax and accounting services to help see you through the whole year, not just around tax year end.
If you still feel confused after reading this, don’t worry. At accounting4contractors, we’re here to simplify these processes for you and allow you to focus on the everyday running of your business. If you’d like to discuss taxes or National Insurance with experts who understand the challenges of small businesses, get in touch with us today.
So you’re thinking of giving up the day job to become self-employed?
It’s a big and scary decision, but one that will have you buzzing with excitement. You’ll be planning your logo and business stationery, mapping your website and dreaming up entertaining social media posts, but you also need to spend time on the structure of your business and knowing where to start in relation to accounts and tax can be daunting.
We’ve put together a step-by-step guide for those starting out as self-employed.
Step 1: What kind of business are you starting?
You are likely to be familiar with the terms ‘limited company’ and ‘sole trader’, but it’s important to know the difference and how it will affect your business structure.
Quite simply, a sole trader is a self-employed business owner who is the sole owner of the company. It’s a simpler way to start in business. You need to keep a record of your income and expenditure and at year-end you declare your profits and pay tax and NI to HMRC under self-assessment.
A limited company will be registered with its own legal identity, that is separate to you, the owner, and any other stakeholders. You can be the sole owner of a business and still register as a limited company, this offers advantages such as protecting your personal assets, but does require greater compliance in relation to your accounting and tax affairs.
Are you going self-employed, but still working for a company part-time?
It’s important to note that if you are registering as self-employed, but still working part-time for an employer, you will need to pay tax through both PAYE (the standard when in employment) and self-assessment.
Step 2: Registering your business
Registering as a sole trader
If you’re setting up as a sole trader, you will need to register for Self Assessment with HMRC and file your tax return. It’s best to do this as soon as you can, as fines can apply if you fail to register your business within its second tax year. You can register yourself online, or appoint an agent, such as a4c, to register on your behalf.
Registering as a limited company
Setting up a private limited company will require you to have the following:
Your company name
An address for the company
At least one director
Details of the company’s shares, shareholders and any people with significant control over your company
During the registration process, you will also need a legal statement, signed by all shareholders, that agrees to the formation of the business, as well as written rules of the company that have been agreed.
Step 3: Starting up your business
Once you’ve informed HMRC that you’re self-employed, we would recommend that you set up a business bank account to ensure you manage business assets separately from personal affairs. You’ll also need to start keeping a record of your business expenses, income, outgoings and therefore your profits.
Whilst some business owners are confident in managing this themselves, some do not feel they can manage this independently, whilst others simply may not have the time. We can help! We provide a range of accountancy services to help you focus on running your business, from the day to day accounting support to supporting you with tax.
Step 4: Growth and compliance
You might need to pay VAT
Depending on your annual turnover, you will also need to determine whether you need to register for VAT. The threshold for VAT is £85,000 so, if you think your turnover will exceed this you must register.
There can be benefits to registering for VAT before you reach the registration threshold, such as the ability to reclaim VAT you’ve paid on your purchases, it can also help your new business to appear more established and perhaps more professional.
Get it covered!
You may be required by law to have certain insurance policies in place as a business owner, but having insurance policies in place will also provide you with peace of mind that you and your business are protected against unexpected issues such as damage or accidents.
The ins and outs of going self-employed can be difficult to get to grips with. At accounting4contractors, we help a variety of business owners just like you. From starting out, to tax planning and helping with the recording of income and expenses.
If you’d like to speak with experts in all things accounting, tax and expenses, contact us today to see how we can help you establish your business.