UNDER REVIEW FOLLOWING THE CHANCELLORS SPRING STATEMENT When you are trading through your own limited company, you can optimise how you pay yourself via salary and dividends to be tax efficient. This is normally achieved by paying a small salary to secure pension entitlement, and taking the remainder via dividends. Preserving pension entitlement One of the main advantages of paying a small salary is to ensure that the year remains a qualifying year for state pension and cont

It is prudent to plan ahead for retirement and tax breaks are available to encourage savings into a registered pension scheme. Contributions into a registered pension scheme attract tax relief as long as the contributions are covered by the available annual allowance and are not more than 100% of earnings (or £3,600 if higher). Tax-relieved lifetime pension savings are capped by the lifetime allowance, currently set at £1,073,100. Annual allowance The annual allowance places

If you operate your business through a personal or family company and extract profits in the form of dividends, it is prudent to review your dividend policy to determine whether it would be beneficial to pay a further dividend before the end of the 2021/22 tax year on 5 April 2022. It should be remembered, however, that dividends can only be paid if you have sufficient retained profits, and where shares of the particular class in respect of which a dividend is being declared

To help meet the costs of health and adult social care, a new levy, the Health and Social Care Levy, is introduced from 6 April 2023. Payment of the levy, which is set at the rate of 1.25% of qualifying earnings, is linked to the payment of National Insurance contributions. Prior to the introduction of the levy and in order to start raising ring-fenced funds for health and adult social care from 6 April 2022 onwards, the rates of ‘qualifying’ National Insurance contributions

All individuals are entitled to an annual exempt amount for capital gains tax purposes. For 2021/22 and 2022/23, the annual exempt amount is set at £12,300. Use it or lose it As with the personal allowance for income tax purposes, the capital gains tax annual exempt amount is lost if it is not fully used in the tax year – it is not possible to carry forward any unused part of the 2021/22 annual exempt amount to 2022/23. As the end of the tax year approaches, it's the time to

Increasing the normal minimum pension age Born on or after 6 April 1973? You may be impacted. The normal minimum pension age (NMPA) is the age at which most pension savers can access their pensions without incurring an unauthorised pension charge (unless they take their pension earlier due to ill-health). Registered pension schemes cannot normally pay any benefits to members until they reach the NMPA (except in the case of ill-health). Registered pension schemes are also not

Are you a company director or shareholder? Do you know how your dividends are taxed? What about the impact of the new health and social care plan? Understanding how dividends are taxed Dividends have their own tax rules and their own rates of tax. The rules and the rates apply in the same way regardless of whether the dividends are paid from your personal or family company as part of a profit extraction strategy, or whether they represent investment income on shares. As par

RTI penalties and period of grace Under real time information (RTI), employers are required to report pay and deductions information to HMRC ‘at or before’ the time that the payment is made to the employee. This is done by means of the full payment submission (FPS). Penalties are charged if the FPS is filed late or if HMRC did not receive the expected number of FPSs or an Employer Payment Summary in a tax month in which no payments were made to employees. However, a penalty i

Childcare is expensive; however, the tax system can provide a helping hand. In recent years, there has been a shift from tax relief for employer-supported childcare and vouchers to a Government top-up scheme. Government scheme The Government operate a tax-free childcare scheme whereby parents deposit money into an account which can be used to meet childcare costs and the Government provide a tax-free top up. To qualify for the scheme, the parent (and their partner if they hav

Although married couples and civil partners are assessed individually for capital gains tax purposes and each has their own annual exempt amount, a special rule allows them to transfer assets between them at a value that gives rise to neither a loss nor a gain. This can be very useful from a tax planning perspective. The special rule applies only where the spouses or civil partners are living together or, where they separate, until the end of the tax year of separation. Opera

Are you a director or shareholder who has loaned money to their company to help keep it afloat? Where a director borrows money in order to lend it to a close company, tax relief may be available 'Close' Companies Family and personal companies are often ‘close’ companies. Broadly, this is one that is controlled by five or fewer shareholders or any number of shareholders all of whom are directors. In a close company, the directors and shareholders may borrow money from the comp

As furlough comes to an end, you may need to consider letting staff go. If this is the case, you will need to budget for the Class 1A liability, as well as the cost of the termination packages. Taxation of termination payments: Recap Where an employee’s employment is terminated, the employee may receive termination payments, such as pay in lieu of notice and ex-gratia lump sums, in additional to normal wages and salary payments. Normal payments from the employment, such as sa

Good monthly processes and some up front preparation are the formula for successful accounts and tax Is your business year end coming up? Get prepared now with this handy checklist. Dates and deadlines Firstly, check you know when your key dates and deadlines are. If you are a company, the accounting year end is the date shown on the Companies House register. Unless it has been changed, this should fall every year at the end of the month in which the company was first regist

If you became self employed in 2020 or 2021, it’s likely that you weren’t eligible for any government grant, probably realised a loss too. If this is the case, you can offset these losses against future income to reduce your tax. Relief for losses in the early years of a trade It is not uncommon to realise a loss in the early years of a trade. However, traders who commenced their self-employment in 2019 or 2020 may also have suffered as a result of the pandemic. Although the

For personal and family companies, a tax efficient strategy for extracting profits is to take a small salary and to extract any further funds needed outside the company in the form of dividends (see https://www.janesaccounting.co.uk/post/tax-optimal-salary-for-2021-22). However, while there are no restrictions on taking a salary if the company is making a loss, the same is not true of dividends. Do you have retained profits? Dividends can only be paid out of retained profits

What is a valid VAT invoice or reciept? Don't get caught out with the wrong paperwork. HMRC will only accept claims for input VAT when accompanied by a valid VAT invoice or reciept. So what does a valid VAT invoice or reciept look like and what does it have to include? What ISN'T a valid VAT invoice? Sorry - none of the following are acceptable for the reclaim of input VAT on your VAT return: E-mail confirmations Delivery notes Order summary Order confirmation Pro-forma invo

Confused on when VAT can be reclaimed for charging an electric car for business purposes? You're not alone. HMRC have recently tried to clarify.... Revenue and Customer Brief 7 (2021) was issued at the end of May. Here are the key points: Supplies of electric vehicle charging through charging points in public places are charged at the standard rate of VAT. There is no exemption or relief that reduces the rate of VAT charged. If you are a Sole Trader, charge your electric v

What should you do if your business doesn’t have enough profits to pay a #Dividend? There are several options available... If you operate through a limited company, for example as a personal or family company, you will need to extract funds from your company in order to use them to meet your personal bills. There are various ways of doing this. However, a popular and tax efficient strategy is to take a small salary which is at least equal to the lower earnings limit (set at £

Did you know that special rules apply to company directors when it comes to calculating their Class 1 National Insurance liabilities? You can also choose how and when they are paid. Why the rules Directors, particularly of personal and family companies, can control how and when they are paid and, in the absence of special rules, would be able to reduce their Class 1 National Insurance liability by manipulating the earnings period rules. The rules protect against this. Annual

5% extended to 30 September, 12.5% from October until 31 March 2022. Does your business benefit? To help the hospitality and leisure industry recover from the impact of the first national lockdown, a reduced rate of VAT of 5% was introduced for a limited period from 15 July 2020. The reduced rate of VAT was originally to apply until 12 January 2021. However, in September last year, the Chancellor announced that it would remain at 5% until 30 March 2021. By the time of the Sp