Why Should Self-Employed Taxi Drivers Use Our Service?

If you work as a self-employed taxi driver, HMRC require you to file a self assessment tax return each year. This tax return is used to record your earnings and expenses, and to calculate how much tax you should be paying.

If you’re new to being self-employed and haven’t completed a self assessment tax return before, we know it can be daunting knowing what information and deductions to include, and indeed which form to fill out and submit in the first place.

HMRC penalties for filing an incorrect or late set of accounts can be severe, so it’s worth taking the time to understand how the system works.

However, using our handy guide we’ll help guide you through the process of filing your tax return as well as highlighting some of the tax benefits you’re entitled to as a self-employed taxi driver.

 

I’m a taxi driver – which self assessment form do I need?

You are considered a self-employed taxi driver if you work for yourself and set your own hours. Even if you use someone else’s vehicle for your job and use the services of a dispatcher, in the eyes of HRMC you are considered an independent contractor. Because of this, you will need to deduct expenses on your self assessment return, to lower your tax bill.

The two most widely used forms for self-employed taxi drivers are CWF1 which is used for newly self-employed workers, and SA1 which is used if you’re currently filing any other tax returns, such as if you’re a buy to let landlord.

To begin filing your tax return, visit the official GOV.uk website. You will need some basic information to hand – such as your name, address and date of birth – as well as your National Insurance number. You will also be asked about the type of work you’re doing and when you started working for yourself.

Once you’ve registered, HMRC will send you a unique taxpayer’s reference number (UTR) which should be used on all future correspondence related to your self assessment return. Keep this number handy as you’ll need it for any queries you may have about your taxes going forward.

 

When should I submit my tax return?

Your tax return should include your taxable income for the corresponding tax year. The UK tax year begins on 6 April and ends on the 5 April of the following year.

As a self-employed taxi driver, if the end of your business year is not the same as the tax year, you need to work out which accounting period to include on your self assessment tax return. The simplest solution is to align your business year with the tax year. So, if you started working on 1 January 2019, your first accounting period will run until 5 April 2019, before you start from scratch on 6 April for the next tax year.

Any tax you owe to HMRC, must be paid by the 31 January following the end of the tax year – this can be done online or via a Direct Debit.

 

Should I keep my receipts?

Yes, you should always save your receipts. Keeping a well organised record of your taxi fares, tips and other business earnings will make life much easier when filing your self assessment. Every year we deal with a number of drivers who could have benefitted from paying less tax if they’d kept evidence of their expenses.

As a self-employed worker, you should get into the habit of making a note of your business income and expenses. There are a number of apps and software programs on the market that offer an easy and hassle-free way of recording your expenditure, or if you require more personalized advice, get in touch with our experts on 01473 744 700 and we’ll be happy to help.

 

Taxi drivers – allowable expenses

If you’re a self-employed taxi driver, you’re able to claim a number of expenses when submitting your self assessment tax return, including:

  • Fuel costs
  • Repair costs
  • Annual road tax and MOT tests
  • Interest on loans taken out to buy your taxi
  • Washing and cleaning costs
  • License fees
  • Insurance costs
  • Breakdown membership fees
  • Office costs (if applicable)
  • Accountancy fees
  • Radio and communications systems
  • Business telephone costs
  • Parking fees
  • Airport, bridge, tunnel and other toll charges
  • Advertising costs

 

Capital allowances

In addition to the expenses we’ve highlighted above, capital allowance – also known as depreciation allowance – can be claimed for the cost of your vehicle. This rate is currently set at 18% per year. If you’re a Hackney carriage or black cab driver then you are also eligible for an annual investment allowance of 100%. Get in touch with our tax experts today to find out more about what allowances you may be entitled to as a self-employed taxi driver.

 

Fixed scale mileage rate

One alternative to claiming the running costs of your vehicle is to use HMRC’s fixed scale mileage rate which is currently set at 45p for the first 10,000 miles your car, van or minibus travels, and 25p thereafter. Capital allowance (see above) is included, but any interest on a loan made to purchase the vehicle is not, meaning this can be claimed alongside your mileage allowance.

nd that if you use your vehicle for your own personal use alongside its use as a taxi, then this will need to be factored in when you claim any expenses. As an example, if you use your vehicle 50% of the time for running personal errands, then your running expenses would need to be reduced by 50% accordingly.

 

Are you a taxi driver and need help with your self assessment tax return?

An Accounting Gem are here to offer you expert legal advice on how to fill in your self assessment tax return, and let you know about what tax breaks you may be eligible to as a self-employed taxi driver. Get in touch with our friendly team today on 01473 744 700 or via email at contactus@aag-accountants.co.uk

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Changes to VAT for CIS contractors

New VAT rules are about to come into play, which will have an impact on the cash-flow of thousands of small and medium-sized businesses in the UK construction industry, specifically those who are registered with the Construction Industry Scheme (CIS).

If you’re in the construction trade and are unsure about how these new VAT rules could affect your business, read our handy guide below which outlines what the new domestic reverse charge is and how it will be implemented.

 

What is the domestic reverse charge?

Currently, UK companies account directly to HMRC for the VAT they have charged their customers with most using the accumulated VAT as a form of working capital  – but from 1 October 2020, this will no longer universally be the case.

For those in the construction industry, the new reverse charge VAT initiative will change this and is aimed at reducing tax fraud caused when subcontractors disappear before passing on payments to HMRC.

These new rules apply to suppliers of certain services specified under the CIS, and on occasion, certain products too. As a result, thousands of businesses in the construction sector – particularly those who supply services to main contractors – are set to be affected by the domestic reverse charge scheme.

 

How does the UK reverse charge work?

Put simply, after the new rules come into effect, CIS registered suppliers will no longer be required to charge VAT on the invoices they issue to their contractor customers for construction-related services.

Under the new regime contractors themselves will have to account for the VAT that their subcontractors have charged on the services provided to them, and pay the VAT they would ordinarily have paid to them directly to HMRC instead and account for it via their VAT return.

For contractors who are subject to the new reverse charge rules, subcontractors will need to issue them with domestic reverse charge VAT invoices which should include a statement about the new VAT rules and that the invoice has been issued is subject to them.

 

Who is affected by these new arrangements?

For these new rules to apply both customers (or contractors in CIS speak) and suppliers (subcontractors) need to be registered with the CIS, as well as for VAT. In addition, the invoice must be subject to standard or reduced rate VAT and be for construction services and/or materials.

It’s important to note that the new tax changes are not applicable to invoices where the service supplied is in certain excluded construction-related areas, for example, surveying, consultancy work, CCTV and HVAC systems, and supply of building machinery – as long as these services are supplied on their own.

If in doubt about whether these new arrangements affect you, it’s worth checking the HMRC website which provides a comprehensive list of the types of services that are either included or exempt.

As a general rule of thumb, when a supply chain features at least one reverse charge element, the whole supply would be subject to the new reverse VAT charge. As an example, the new rules would not apply for the supply of double glazing units for a development, but they would if the supplier charged for them alongside charging for their installation.

As CIS payments are currently apportioned with zero deductions made on the materials element of the invoice, this new approach represents a change that those affected need to be aware of.

What’s more, providing that the buyer and supplier are in agreement, once the initial supply has been made and is subject to reverse charging, subsequent supplies can have it applied automatically. The ultimate aim of this is to shorten the time it typically takes to work out whether a reverse VAT charge should apply or not.

 

Why are these VAT changes being made for CIS businesses?

One of the easiest ways to eliminate subcontractor VAT fraud is to remove the flow of money by taking away the option to collect or charge VAT from clients.

Due to the fact the reverse charge now makes it the duty of the contractor to account for any VAT, there is, therefore, no way for the suppliers, i.e. the subcontractors, to get away with not paying tax to HMRC.

 

What are the implications for contractors?

Whereas in the past you likely would have paid suppliers for their services with VAT included, these new rules mean that you will now need to pay them exclusive of VAT and record the appropriate amount of VAT that would have been owed under the old rules on your VAT return.

The information required to account for the VAT should be provided on the invoice your subcontractor sends to you, ideally with a reminder that it’s now your obligation to record the VAT using the new reverse charge system.

You account to HMRC for all the reverse charged VAT accumulated during a VAT quarter and pay for it at the same time and in the usual way as you would do for any VAT you have charged under the usual rules.

 

What are the implications for subcontractors?

When working with subcontractors, you will need to establish whether they are VAT registered.

Once you’ve confirmed that they are VAT registered, and what you are supplying or providing is covered by the new legislation, you should send them a reserve charge invoice at the point of billing along with a brief description stating that the invoice is subject to the new UK reverse VAT rules.

You will no longer receive VAT from customers to pass on to HMRC, and the responsibility for charging and accounting for VAT will fall to the contractor receiving your services.

 

What action do I need to take?

As these changes come into effect on 1 October 2020, if you’re working in the construction trade as a buyer or supplier, you should make sure that you’re up to date with the new reverse charge VAT rules and find out how they will impact your businesses’ sales and purchases.

As these changes will undoubtedly create more admin for you in the short-term, it’s important to set some time aside to do this.

Regardless of whether or not you’re at the end of the supply chain, as a CIS business, you should make it a priority to inform your contractors and subcontractors about the implications of the new VAT changes as you may be liable for any charges if the VAT is not accounted for properly.

However, there is no need to panic. HMRC have stated that they will overlook any genuine accounting errors for six months after the new reverse charge rules come into play, providing companies are proactive about following them.

 

Want to find out more?

If you would like any help in deciding if and when these rules apply to your company, then we are here to help. Get in touch with An Accounting Gem Limited on 01473 744 700 or email us on contactus@aag-accountants.co.uk to find out more.

 

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Marginal Gains, What Are They And Why Do They Make Massive Gains On Your Profits?

Marginal gains theory describes the idea that by making a number of small changes to the way you run your business or organisation, you can have a large impact on its overall efficiency which in time will result in a big boost to the bottom line.

The philosophy is that by making incremental improvements to a handful of key areas in your business – for example, sales & marketing, human resources or client retention, that when realised will have the same level of impact than if you’d spent the same amount of time just focusing on one area.

On the face of it, this does sound distinctly underwhelming, until you realise that it is a lot easier to improve many areas of your business by a small amount than it to improve one area by leaps and bounds.

Marginal gains theory was pioneered by Sir David Brailsford, the former British Olympic Cycling coach and performance director of Team Sky, who led his teams on to an unpreceded run of success – including eight gold medals at the previous three Olympic Games and three Tour de France wins – by making a number of small adjustments to the way the organisations were run.

 

What are marginal gains?

Brailsford’s idea of marginal gains comes from the notion that if you break down the various factors that go into riding a bicycle, and improve each part by 1%, the rider and their team will benefit significantly when all these parts are put together.

In addition to the physical components of riding a bike such as the mechanics and physical fitness of the athlete riding it, the marginal gains theory also looks at elements such as the implementation of modern technology and the automation of key processes.

 

How do marginal gains work for business?

In a wider sense, the philosophy of marginal gains effectively states that improving 25 factors by 1% offers the same result as improving just one factor by 25%. For this reason, the principle of marginal gains can be applied in many situations, including the running of a business.

Making incremental improvements to your business processes should be the aim of any marginal gains strategy. Using strategic thinking married to achievable goals and the embrace of modern technology – including productivity software, CRM systems, and automated apps – companies can realistically increase their operational efficiency while simultaneously cutting costs.

Cutting the time taken up by inefficient tasks allows companies to spend their time and resources more effectively. The time saved by making marginal gains can be used to nurture new leads and drive more orders to your business, as well as allowing you to review your operational practices and identifying further areas for growth or improvement.

 

Make marginal gains by using modern technology

Using technology, marginal gains can also be made by automating areas of your business that don’t require the human touch. You could consider setting up automatic invoicing, enabling you to create and send invoices to your clients without having to manually type each one, and without you having to pick up the phone to chase late payments.

If your client or employee information is stored in an out of date or even paper-based system, you could also help make your business more streamlined by creating a single, centralised database enabling you to easily input and search for information at a touch of a button, and help eliminate potential human error associated with manual data processing.

By mapping your employees’ tasks and monitoring their workload via a virtual planning tool such as HubSpot or Wunderlist, you can also make efficiency gains by making sure that the correct amount of time is allotted to a certain task, prioritizing jobs, and helping ensure deadlines are met.

 

How do I achieve marginal gains?

Time is money and it can be difficult – and sometimes even overwhelming – to find enough of it to plan efficiency improvements, let alone implement them effectively. However, taking a few moments to think about your business goals has the potential to reap big rewards.

Take a step back and consider where you want your company to be, both now and in the future. Set a number of small achievable goals based upon measurable criteria such as sales figures or the number of clients you have.

Next, analyse the gap between your current performance levels and your goals, and create a way of measuring the improvements you’re about to make using a handful of KPIs. Remember, this is all about achieving marginal gains so aim for a number of small improvements, such as a 1% increase in turnover, or a 1% increase in the number of clicks your email newsletters receive.

If you require inspiration or unsure of how you can achieve these improvement levels, take a look at your successful competitors and find out if they’re doing anything well that you’re not.

So that you can effectively measure your improvement levels on an ongoing basis, compile regular reports and continually refine your work until you move closer to hitting your targets.

Although it may not feel you’re making a lot of gains initially, if you improve each of your KPIs by just 1%, over time you will start seeing tangible results.

 

Are marginal gains worth it?

The benefit of marginal gains can’t be ignored – as we’ve demonstrated, they have the power to make your business more streamlined and efficient, whilst boosting your bottom line. So, what are you waiting for? Get working on your plan for making marginal gains today!

 

Can we help?

An Accounting Gem has a wide array of clients all of whom have at some stage aimed at improving their internal processes to maximise efficiency – which essentially is what the principle of marginal gains is all about. We are all about sharing best practice so, if you are thinking about putting the principles into action and not sure where to start, then why not get in touch to see if we can help point you in the right direction.

Of course, if you have any accountancy or bookkeeping requirements then we would also like to hear from you. Please call An Accounting Gem Limited on 01473 744 700 or email us at contactus@aag-accountants.co.uk to find out more.

 

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Why Use Your Accountant’s Office As Your Registered Address

Whenever we receive a letter from a business or whenever we visit their website, the company’s registered address will be there for us to see. You don’t have to choose your home address or your office address as your registered address – in fact, there are good arguments on why you should select your accountant’s address as your company’s registered address.

In this article, An Accounting Gem considers:

  • what limited company registered addresses are:
  • registered office service providers
  • advantages of using your accountant’s office as your company’s registered address
  • disadvantages of using your home address as your company’s registered address

 

Limited company registered addresses

The registered address of a limited company is, for the Government and for HMRC, a limited company’s official address to which letters and other communications can be received by company officials.

A limited company registered address is required under Section 86 of the Companies Act (2006).

A limited company’s registered address is available for any citizen to inspect via the Companies House WebCheck service.

The registered address should also appear on a company’s website, on its marketing materials, on its invoices and other types of order forms, general stationery, email correspondence, and business letterheads. This requirement only applies to active companies – it does not apply to dormant companies.

Some companies may also use a Single Alternative Inspection Location (SAIL) at which members of the public may inspect a company’s statutory records.

 

Registered office service providers

Although many shareholding directors list their home or office address as their company’s registered office, many others use a registered office service provider.

Many registered office service providers are company formation agents – firms that help directors incorporate their business at Companies House. If you incorporated your company through an agent, you may well have been offered the opportunity to use their registered address as your own.

Companies must have their registered address in the country in which they were incorporated. For example, if your company was incorporated in England and Wales, your registered address must be within England and Wales.

 

Advantages of using your accountant’s office as your company’s registered address

A company’s registered addresses can be different from its trading address. If you wish to trade from home but you don’t want official documents or visitors to your home, you may wish to choose your accountant’s address as your registered address.

You may prefer this if you don’t want your home address to be searchable on Companies House. Likewise, with your home address for the details about you as a director on Companies House – you can also choose to make your accountant’s office address your director’s service address.

Many of the documents sent to your registered address from HMRC and Companies House will be official documents like your annual confirmation statement (this tells Companies House who your directors are, what shareholdings in your company they have, and so on).

For HMRC, your registered address will be the address to which they send references, tax codes, penalties, and so on so it would be quicker and easier for you to let your accountant deal with the communication from HMRC on your behalf to save an interruption to the day to day running of your company.

Don’t forget to ask your accountants to register as your “agent” for personal and corporate tax purposes so that your accountant receives direct correspondence about you or your company which they can deal with immediately.

SAIL records can also be kept at your accountant’s address in case a member of the public or a representative of another company or an official agency wishes to inspect your company’s statutory records.

 

Disadvantages of using your home address as your company’s registered address

In our opinion, there are major and distinct disadvantages to using your home address as your company’s registered address.

Perhaps the most important disadvantage is that, when official documents from HMRC and Companies House arrive, you will have to post them onto or drop them off at your accountant’s so that they can deal with them on your behalf. HMRC and Companies House do send a lot of correspondence so this is a trip you might often be making.

If you have a SAIL registered at your home address too, then others are perfectly within their rights to demand the opportunity to inspect your company’s statutory records within your property.

Another consideration is the image your company will project if it is a home-based business. There is nothing wrong with having a home-based business however some potential clients may worry that your company might not have the ability or the capacity to handle an order they would have considered placing with you.

All that a potential client has to do to discover whether your registered address is a residential address is to copy and paste it into Google. If they do, they will see how much you bought your property for, crime statistics in the local area, and, if they click on the Maps button, they’ll be able to take a virtual walk around your street.

 

Using Accounting Gem’s office as your limited company’s registered address

To talk with one of our team about whether it’s better for business to use our office as your limited company’s registered address, please get in touch with us on 01473 744 700 or email us on contactus@aag-accountants.co.uk.

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VAT Cash Accounting Versus Standard VAT Accounting

For the vast majority of goods and services we buy for ourselves or for our businesses, one-sixth of the value of each of our purchases will be for Value Added Tax.

In this article, An Accounting Gem

  • describes what VAT is and when you need to register for it
  • the different VAT schemes you can apply to join and under what circumstances
  • a comparison of cash accounting VAT with accrual (or standard) VAT

What is VAT?

When a business’s turnover exceeds £85,000 per year (or it looks likely to exceed £85,000 per year) on the sale of goods and services which are not VAT-exempt, its owners must register the company for Value Added Tax (VAT).

You can choose to register for VAT if your turnover is below that level if you choose. There may be advantages to doing so if you sell primarily to VAT-registered businesses, however, if you sell a relatively high gross margin product or service to consumers, registering for VAT may put your company at a competitive disadvantage.

When registered for VAT, you must charge your clients VAT on all of your invoices – the VAT you charge is your “output VAT”.

At the same time, when your VAT-registered suppliers send you an invoice on which VAT is payable, this is called your “input VAT”.

The VAT you pay to HMRC (or they pay to you) is the total value of the output VAT you’ve charged over a given period of time minus the total value of the input VAT you’ve paid. The normal period of time between VAT bills is three months.

 

Which VAT schemes are there?

There are multiple VAT schemes available for small-to-medium-sized businesses to choose from and An Accounting Gem will help you select the correct scheme for you.

  • VAT cash accounting is best for businesses which invoice over 30 days or longer and which turn over more than £150,000 and less than £1.35m a year
  • VAT accrual accounting is best for businesses which invoice over very short periods or take the money at the point of sale and turn over more than £150,000 and less than £1.35m a year
  • Flat rate VAT is a simpler form of VAT for companies turning over £150,000 or less
  • VAT retail scheme is a special retail-focused version of the flat rate VAT scheme offering greater flexibility for shops selling tangible consumer products like clothing, white goods, and more.
  • VAT margin scheme is the best choice for companies dealing in second-hand goods, antiques, art, and collectors’ items
  • VAT annual accounting scheme is a cash flow friendly version of VAT where you know the entire amount of VAT in advance payable for the following year, the dates (either monthly or quarterly) you make your VAT payment, and how much each payment will cost.

Your business needs change as time goes on and as your company experiences periods of growth and expansion. An Accounting Gem will advise you if your circumstances have changed justifying registration onto a different VAT scheme.

 

Accrual (standard) VAT versus cash accounting VAT

With standard accrual accounting, invoices issued within your company’s VAT quarter must be included within your VAT calculation. The amount of VAT you pay (or you are refunded on) depends on the total value of the output VAT on all invoices issued minus the total amount of input VAT on all invoices received.

For businesses operating on a longer client payment cycle (30 or 60 days after invoice issuance, for example), you will need to make sure that you have the cleared funds in the bank required to settle your VAT liability in full and on time.

All businesses with a turnover in excess of £1.35m per annum must operate the accrual system of VAT reporting and payment.

For companies with a turnover of £1.35m or less, their owners can choose to use the standard system or to use the cash accounting system instead.

With the cash accounting system, VAT is factored into your calculation based upon whether the invoices you have raised have been paid during the applicable VAT quarter.

For example, if your VAT quarter ends on the 28th of February and you issue an invoice on the 1st of January with 30-day terms which is not paid until 1st March, you do not have to include it in your VAT submission for 1st December to the 28th February. However, if your client pays you on the 28th February, the last day of that VAT quarter, then it must be included in the calculation for that quarter.

The cash accounting system is easier for cash flow management and it is relatively easy to calculate.

Let’s try a worked example to see how cash accounting might be more beneficial if you issue invoices with 30 or more days for your client to pay.

Let’s say that your business sells £20,000 a month worth of goods and services on which you charge VAT at 20%. Let’s also say that your average client takes around 60 days to settle their invoices.

At the end of a VAT quarter, you will have issued £60,000 worth of invoices generating £12,000 worth of output VAT. But because your customers are taking 60 days to pay you, you’re only actually banking £20,000 + VAT (£24,000) in cash although you have actually issued three times that cash amount in invoices.

On your first VAT bill after registering, you will pay VAT to the sum of £12,000 minus your input VAT if you are on accrual accounting. However, if you were on cash accounting VAT, your VAT liability would be the sum of £4,000 (the VAT on the invoices you’ve actually received money for) minus your input VAT.

For businesses new to VAT registration, more attention must be paid by directors to cashflow because, unlike prior to registration, there is now a sizable “cash event” every quarter for which you need to find the money. In nearly all cases, we would recommend that businesses registering for VAT whose turnover is less than £1.35m select cash accounting VAT if their customers take more than 30 days to pay them.

 

Want to find out if this will work for you?

An Accounting Gem is here to help you to decide whether the VAT cash accounting scheme would be better for you rather than the standard accrual VAT scheme. Get in touch with us on 01473 744 700 or email us on contactus@aag-accountants.co.uk.

 

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Helping Charities and Sports Clubs – Are there Tax Implications?

Philanthropy in business is always a good thing with many small and medium enterprises viewing charity donations and sponsorship as a way of giving back to the people and the areas in which they are based.

There are always benefits for the small business owner. For example, helping out charities and sports clubs helps to raise the profile of the business, providing marketing opportunities, as well as enhancing the reputation of the company.  Often the benefits will outweigh the actual costs and the status of the company (and its owner) is elevated in the eyes of the local community.

There are however some financial paybacks that companies can claim back as tax incentives for their support of charities and other kinds of clubs.

 

Cash Donations for Charities and Sports Teams

As a business owner you are able to offset any cash donation that you give to a charity or a Community Amateur Sports Club (CASC) against your corporation tax.  This means that you can deduct the total of moneys given before calculating your corporate tax obligations.   For instance, if your gross annual profits are £50,000 and you have donated £10,000 to a local sports team for equipment, you will pay corporation tax on £40,000 and not on the total amount.

There are some specific rules that you must follow, for example the cash cannot be a ‘loan’ or given in exchange for company services.  HMRC is also specific about the value of what can be received in return for cash donations.  Freebies such as tickets for events are only allowed in exchange for the cash, as long as they fall below the value amounts set out below:

 

Donation amount Maximum value of benefit
Up to £100 25% of the donation
£101 – £1,000 £25
£1,001 and over 5% of the donation (up to a maximum of £2,500)

 

It is important to point out that you will need evidence to prove that the donation has actually been made.  With no receipt or acknowledgement, HMRC are likely to question any claims that are made in respect of corporate donations. Asking for a receipt can be a little awkward after the fact, so make sure you are clear in the first instance about the terms and conditions that you agree with the recipient.

 

Equipment Donations and Capital Allowances

Small Businesses can donate items such as furniture, IT equipment, or even vehicles to charity and use them as part of their capital allowance.  If the items are brand new, then the company can claim the full cost of the item as purchased.

If the items are second hand and used, then you can claim the full market value back.  The key is knowing how much the items would be worth on the open market and providing evidence to HMRC to prove that you would have been able to get that price had you chosen to sell them.

 

Land, Property and Share Donations

There are tax implications associated with charity donations of land, property, or shares that you may own.  Firstly, when you donate assets, you are not making any profits from the transaction which makes you exempt from capital gains tax.  Secondly you can deduct the value of the gift to a charity from your overall tax burden, resulting in a tax reduction for that particular year.

The rules are slightly different when it comes to sports clubs.  You can donate or sell assets to a CASC without paying capital gains tax, although you won’t be able to offset the value of the land against your corporate tax burden.  You should also be aware that shares in your own business are exempted under these rules.

 

Staff Volunteering and Charity Work

Many companies see benefits from allowing their staff to undertake charity or voluntary work as part of a ‘wellbeing’ strategy or as a way to give back to the community.  Not every small business owner realises that there are certain situations in which that benefit in kind can translate into a benefit in tax for their business.

If a member of staff is seconded to a charity for part or all of the period of their contract, the business is able to deduct the cost of wages and business expenses from their taxable profits.  This includes the costs associated with any employee who undertakes ‘volunteering’ activities during their working hours. Many companies now offer paid volunteering opportunities for their staff.

 

Sponsorship of Events, Teams, and Activities

Sponsorship can be viewed as a legitimate business expense while offering businesses the opportunity to help out their local charities.

HMRC carries guidance on what can be considered as business sponsorship.  You need to be clear about the purpose and benefit of your sponsorship activity if you intend to claim any tax benefits. Sometimes the lines between donation and sponsorship get a little blurred so it is important to know the difference.

Ask yourself the following questions before you start and if the answer is ‘yes’ to all of them, you are likely to be able to offset the total cost against your corporation tax.

  • Is your sponsorship being used to promote the business?
  • Is the purpose of the sponsorship purely for business?
  • Are the benefits purely for business purposes?

Sponsorship is considered to be just another form of marketing that can be used to benefit both your company and the event/activity/club that you are sponsoring.

Be wary when ‘sponsoring’ individuals or teams with whom you have a direct connection (family members in particular can be problematic in terms of tax).   HMRC can reject this kind of sponsorship if they feel is not a legitimate use of corporate finances.  We would always advise any business owner to take professional advice about what is and isn’t allowed.

Wrapping up

Remember that given to charity is good for the soul and should never be seen as a simple business transaction.  If you are looking to get something back, you should keep detailed records of all your activities and get agreements in writing between all the parties concerned about exactly what is expected in exchange.

The “small text” in tax law regarding corporate philanthropy is a little involved so it is best to tread carefully and get professional advice well before hand. Call us on 01473 744 700 or email us at contactus@aag-accountants.co.uk and we can advise you on this – as well as any other accountancy issues or requirements you may have .

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Tax planning for the self employed

 

If you have recently started working as a self employed person, one of the most intimidating things you have to deal with is paying your own tax. Whilst as an employed person this is all dealt with by your employer, and comes straight out of your pay without you having to do anything, as a self-employed person it is up to you to work out your tax, take off expenses and then pay it before the deadline each year.

 

Here’s how.

First, work out your employment status

Before you can work out how much tax and National Insurance you need to pay, you first need to work out what your employment status is. This is not always as simple as employed or self employed, as you could well be employed by one job, and self employed in another.

The easiest way for you to find out your status is to use the HMRC website, on which you will find a tool called the Employment Status Indicator. This will ask you a few basic questions about your employment, and then tell you what your employment status is based on this.

Register as self employed

If you do find that you are self employed, then you need to register as such so that HMRC knows that you need to file a self employment tax return. The very latest you can register as self employed is the 5 October after the end of the tax year in which you became self employed.

Tax years run from 6 April one year to 5 April the next. So, if you became self employed in May 2018, you will need to register as self employed by 5 October 2019, or face penalties.

Registering is easy, you can do so online at the HMRC website, or over the phone. Once you are registered then you will be able to start filing tax returns.

Work out your personal allowance

Everyone in the UK is entitled to a tax-free personal allowance, whether they are employed or self employed. This is the same amount for everyone and, for the 2019/20 tax year, works out to £12,500 for the standard personal allowance. So, you will not pay income tax on the first £12,500 that you earn.

If you work for more than one job and only one is self-employed, you need to take into account that your personal allowance counts for only one job, the one which HMRC sees as your main employment. This will usually be the job which pays you the most.

Income tax if you are self employed

As a self employed person you pay tax on your profits, not on your total income.

To work out your business profits you simply deduct your business expenses from your total income, and this is the amount that you need to pay tax on.

Tax bands are the same for self employed and employed people, meaning that:

  • You pay no tax on the first £12,500 (your personal allowance)
  • You pay 20% (basic rate) on income up to £50,000
  • You pay 40% (higher rate) on income of more than £50,000
  • You pay a 45% rate of tax for income over £150,000

National Insurance Contributions

Both employed and self employed people in the UK need to pay National Insurance Contributions (NICs), which go towards paying for certain state benefits.

If your profits are at least £6,365 (for the 2019/20 tax year, then you will be eligible to pay Class 2 NICs of £156 for the year (around £3 per week). If your profits are more than £8,623 then you will also pay Class 4 NICs, which is a 9% tax on profits between £8,623 and £50,000. For anything above £50,000 you will pay 2% more.

How to pay

Your Self Assessment tax return needs to be completed each year for the previous tax year. The deadlines for the 2018/19 tax year are:

  • 31 October 2019 for paper forms
  • 31 January 2020 for online returns

As part of the “Making Tax Digital” initiative, the government is phasing out paper returns, so it makes sense to make yourself aware of and comfortable with the digital system as early as possible.

On your tax return you will need to declare your entire income as well as any expenses. You will then be told how much tax and National Insurance you owe and must pay this by 31 January.

How can you save on tax?

 

Claim your expenses

Making sure that you have listed and claimed for all of the allowable expenses you can is key to bringing down your tax bill. A lot of people don’t realise all of the expenses that they are able to claim for as a self employed person, and are missing out on huge savings because of this.

Some of the things that you can claim for include:

  • Office equipment
  • Utility bills (such as electricity)
  • Legal costs
  • Business insurance
  • Travel payments
  • Uniform

Pension contributions

For those who are self employed and paying the higher rate of tax (40%), you can get tax relief by topping up your pension, as long as you declare all of these contributions on your tax return. You will be able to claim 20% back on contributions of up to £40,000 every year, and this can also be backdated for up to three years’ worth of contributions.

Incorporate your business

For those just starting out, there is often no real benefit to setting themselves up as a limited company, as it can be too complicated and stressful when you need to be focusing on bringing in new business. However, as your business grows it may well be worth looking into incorporating your business, as it can offer the opportunity to save on tax.

Directors of limited companies are able to withdraw some of their earnings as dividends, which are subject to lower tax rates (7.5% for basic rate taxpayers).  Expert advice is recommended if you are exploring this option, as the calculations can get very complicated, and any errors could cost you thousands.

Conclusion

If you are starting up your own business and going down the self employed route, then please accept our congratulations! We wish you and your business well and hope you achieve the success you dream of.

The last thing you want to get tied up in is paperwork and bothersome HMRC submissions, so if you want to just get on with your business and let us handle all the accounts and tax matters then please get in touch on 01473 744 700 or email us on contactus@aag-accountants.co.uk.

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Benefits of taking on an apprentice

An apprenticeship is where you as a business owner will take on one or more trainees to work under you in paid training, combining studying at an educational institution with learning on the job to train them up to a more skilled level. If you are taking on an apprentice, the assumed goal is that you would want this person to eventually be able to succeed in a full time position in the company.

 

Apprentices can be new or current employees, and their wages are primarily determined by their age. The younger the apprentice the lower the minimum hourly amount of pay is. You will also be able to apply for funding from the government to cover some of the cost of training an apprentice.

 

To qualify as an apprentice, your trainee will have to:

  • Learn job-specific skills and knowledge
  • Train under experienced staff members
  • Study as well as work, during the typical working week (attending college, for example)

 

Apprenticeships are a popular option for businesses in England, with 814,800 people participating in an apprenticeship in 2017/18 alone.

 

Benefits of taking on an apprentice

 

Meeting social responsibilities

 

Although not a prerequisite for a successful business, many companies find that they gain better traction in their local community if they are seen to be giving back. Apprenticeships are a great way to do this for several reasons, including:

  • Offering jobs to young people in the community
  • Tackling unemployment in the local area
  • Demonstrating social responsibility
  • Offering a better career path to young people who otherwise might not get that opportunity.

 

Promoting productivity

 

Research has shown that companies who employ apprentices enjoy boosted productivity. The Centre for Economics and Business Research (CERB) found that each apprentice trained by a company brings, on average, a £10,000 gain in productivity for that employer.

Some research has also demonstrated that apprenticeships help to make a company more competitive in their industry, which is something else which helps to boost productivity and overall success. In a recent survey 8 out of 10 customers stated that they will choose a company which employs apprentices over others.

 

Promoting loyalty

 

Apprentices tend to be more loyal to companies, thanks to being invested in the company all the way from their earliest training, to moving their way up through the company. A loyal employee is worth a lot to a business, as it is someone that you can rely on to stick with you through bad times as well as good, and to do their utmost to ensure that their job is done properly.

Apprentices have also been found to stay in the businesses that trained them for far longer than other employees.

 

Bringing in new business

 

Whilst hiring an apprentice is good for business in that it offers you a dedicated and devoted employee pool to work with, it is also good for business in that it actually brings in new customers. Many employers who hire apprentices use this as part of their pitch when trying to attract new business, and the majority of these say that this is a major selling point for potential customers.

Research has found that a third of the employers surveyed said that they would be more likely to choose a supplier or partner if they offered apprenticeships.

 

Hiring your apprentice

 

If you have decided that your business is ready to start taking on apprentices, there are several steps to the process that you will want to get right, so that you optimise the chances of success for your prospective apprentice:

 

  1. Do your research and find out what apprenticeship frameworks and types of apprenticeships are available within your industry. Knowing the standard for an apprenticeship in your general area will help you to decide what you should go for.

 

  1. Choose an organisation who can provide the correct sort of training for the type of apprenticeship you have chosen.

 

  1. Find out about funding. There are various funding options available for businesses looking to take on apprentices and you may be entitled to one or more of them in order to lessen the financial burden on your company.

 

  1. Advertise for an apprentice. You may do this through the training organisation or institution.

 

  1. Choose your apprentice and work with them to put together an apprenticeship agreement statement and a commitment statement.

 

Tips for working with an apprentice

 

Create a welcoming environment

 

Let your existing staff know about the apprenticeship in advance, be prepared to listen to questions and concerns and be absolutely open and honest with your staff about what this means. It is important that your apprentice feels comfortable and welcomed in your business so that they want to stay.

Appoint your apprentice a mentor within the company who can be their first point of contact, answer their questions and help them to feel secure and comfortable. This is better off being someone closer to their level than a top ranking manager so that they can integrate more easily.

 

Give them adequate supervision

 

Make sure that your apprentice is supervised closely and have lots of meetings and reviews to ensure that they are on the right track. During these meetings you can set goals and objectives so that their path is very clear week by week, and they are able to set themselves achievable goals over time.

 

Teach them about your business

 

It is not enough for your apprentice to know what your business does, they need to understand why you do what you do, and what your long term goals are. An apprentice is someone you want to stick with the business in the long term, and provide a fresh insight into your business that helps you to grow. Add this information into their training and allow them some input when it comes to business decisions from an early point.

 

Set a good example

 

Make sure that you, any other staff members overseeing your apprentice, and the rest of your workforce stick closely to the rules that you’ve set out for them. It is critical that your apprentice sees a unified workforce who all work together to meet the business goals and objectives that you’ve explained to them, so that they can place real value in these over time.

 

Wrapping up

 

Our clients tell us that finding and keeping a good apprentice is not only a very rewarding experience for the company, it makes them feel they are playing a greater part in their local community by giving a young person a fresh chance to create a successful career. Here at Accounting Gem we love to hear these success stories, so if you have one then please let us know about it.

The process is a little involved to start with, but don’t let that put you off.  If you need any help with this or have any other issues or requirements, then please get in touch on 01473 744 700 or email us on contactus@aag-accountants.co.uk.

 

 

 

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Benefits of advertising on social media

As accountants we regularly field questions from our clients on a vast range of topics. We are always gratified that they place their trust in us to advise them in a sensible and straight forward way about the myriad of topics faced by business today.

A common question is “how do we get more business?”. The internet is by far the biggest publishing platform on the planet, so we regularly recommend that companies utilise it to drive more sales. The most accessible way to do this is via social media.

Social media is one of the most beneficial marketing tools on the internet at the moment, offering business owners a way to reach and interact with their target audience in a way which feels organic and authentic. Social media also allows your fans and followers to do the work for you by commenting on and sharing your posts, meaning that it is an easy, cost effective way to build a following.

Recent studies have tipped social media as a major resource for advertisers, and social media has been found to be the most relevant advertising channel for 50% of Gen Z and 42% of millennials.

What are the benefits of advertising on social media?

 

It improves your search engine rankings

A study by Social Media Examiner found that more than 58% of marketers using social media for one year or longer saw a trend of improved search engine rankings even after a significant time period.

Social media offers you a place where you can post regularly to keep your page relevant, and where user likes and comments work towards your rankings alongside any original content that you post. You can keep your page interesting and encourage people to follow, like or share your content by posting information not only about your company and products or services, but also about your industry and employees. This has the effect of making your company feel more interesting and gives it personality as well.

Your pages can integrate your targeted keywords when posting blogs and articles, so that it ranks higher on search engines, as well as mentioning keywords in posts and updates. A great social media page might even attract the attention of influencers in your industry, who can write about your business and link back to your channels.

Social media helps to increase brand awareness

A 2018 study by Global WebIndex found that 54% of social media browsers use these platforms to research products, meaning that this is a great way to attract the attention of potential customers.

One of the best things about using social media for advertising is that the platform itself puts in a lot of the work, with algorithms showing users the pages that their friends are interested in. This means that just by grabbing the attention of one user, you have the potential to advertise to their entire extended network as well.

The research backs this up. More than 91% of marketers surveyed have said that spending a few hours per week on social media has greatly increased their overall exposure.

It makes customers feel more comfortable

Being able to directly interact with a brand helps customers and potential customers to feel secure in trusting the company. In fact, 71% of consumers who have had a positive experience with a brand on social media say that they would recommend the brand to their friends and family (Lyfemarketing, 2018). You can use social media platforms as a place to publicly demonstrate the high value you place in your customer service and interactions.

Social media pages are a more informal place to give your brand a real personality. In 2019, people no longer want to feel separate from faceless corporations, they want to feel part of a family when they buy into a brand. Social media pages give you the opportunity to have some fun and humanise your company for your customers.

Social media saves money

You can sign up for most social media platforms for free, and begin advertising right away with your interesting, original content. In fact, the thing that social media marketing requires above anything else is your time.

Even if you do decide to go for a paid advertising option with any social network, most small businesses will agree that it is best to spend less and devote more energy to write great content and keep your accounts interesting rather than to spend more money showing bland content to potential customers.

When using paid advertising, it is best to start small and keep an eye on how well your strategy is working before spending any more on bought likes and sponsored posts.

Use your social media channels to set yourself up as a brand authority

Simply having customers mention you on social media aids brand recognition. But whether it be via a review, sharing your posts or simply talking about their experience with their friends, having people talk about you shows value and brand authority to the uninitiated. Advertising, when done by real people is strikingly effective, and offers improved brand loyalty in existing customers.

If you can attract the attention of influencers and get them to write or film a review of one of your products, this is one of the most effective ways to draw people that may not have heard of your brand over to your page.

Brands with social media have better conversion rates

Studies show that social media advertising campaigns have a 100% higher lead-to-close rate than outbound marketing, and are responsible for 31% of all referral traffic to websites. As mentioned above, much of this has to do with the fact that social media humanises your brand, and people prefer to do business with people rather than companies.

Social media taps into the ‘mere-exposure effect’, a term coined by psychologists, which describes the phenomenon in which the more we are exposed to something the more we notice and trust it. Posts are rarely only shared one time on social media, and are often seen again and again by people within the same network. A study by Buzzsumo analysed more than 100 million articles and found that resharing content boosts engagement by almost 700%. This is worth taking advantage of by resharing key posts and ideas, or encouraging fans to do so for an incentive.

Talk to us

Want to engage with us? As well as our help and advice on topics such as this, we offer all our clients the full range of accountancy and book keeping services. So why not call us on 01473 744 700 or email us on contactus@accountinggem.co.uk to see how we can be of service to you.

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