Tax Tips for Individuals

In this month’s tax update, we will discuss some tax tips for individuals.

Please note that the rates referred to throughout the blog are noted for the 2017/18 tax year which runs from the 6^th April 2017 – 5^th April 2018.

It will be key to think about any of the options discussed in this blog prior to the end of the current tax year, being 5^th April 2018.

Use of Yearly Allowances

Everyone gets a range of allowances to use each tax year as below:

The Personal Allowance (Income Tax)

Everyone receives a personal allowance for income tax each tax year, the current personal allowance is £11,500. The personal allowance is the level of income an individual can receive before they suffer any income tax and therefore is effectively tax-free income.

Please note that the personal allowance is restricted if you earn over £100,000 during the tax year

The Dividend Allowance

Everyone also receives a £5,000 dividend allowance, dividend income within the dividend allowance is taxed at the dividend nil rate of 0%.

The Personal Savings Allowance

From 2016/17 a savings nil rate (0%) applies to taxable interest income within an individual’s savings allowance, the allowance received depends on that band of taxation that the individual falls into during the tax year as below:

Basic rate: £1,000

Higher rate: £500

Additional rate: nil

Capital Gain Tax Annual Exemption

Everyone gets a tax-free allowance of £11,300 to use against capital gains during the 2017/18 tax year.

Spousal Exemption for CGT purposes

Spouses may make transfers to each other on a ‘No Gain No Loss Basis’, meaning no Capital Gains Tax will be due. This can be an effective tax planning tool when using capital losses or annual exemptions that a spouse has remaining.

It is efficient tax planning to ensure that everyone makes use of the tax free allowances offered to them each tax year.

Tax Reducers

Transferable Personal Allowance/ Marriage Allowance (‘MA’)

The Marriage Allowance allows certain individuals who are married or in a civil partnership to elect to transfer some of their personal allowance to their spouse or civil partner. The election will be of help to couples where one of the spouses either has insufficient income to utilise his or her personal allowance or has income which is taxed at 0%, for example because it falls wholly within the starting rate band for savings income.

The amount of the personal allowance which can be transferred is 10% of the personal allowance. The recipient obtains a reduction in his income tax liability (a tax reducer) equal to 20% of the transferred amount. We therefore reduce the tax liability by £1,150 x 20% = £230. This reducer cannot result in a repayment of tax due.

The following conditions must be met for an individual to qualify:

• Must be married or in a Civil Partnership
• Neither spouse must pay tax at the higher rate (i.e. 40% rate)
• Election must be made within 4 years of the end of the tax year to which it applies

EIS/SEIS Investments

Investing in shares within the EIS and SEIS these schemes can result in a tax reducer as below:

EIS: 30% of the amount invested up to an annual limit of £1,000,000 (max relief £300,000)

SEIS: 50% of the amount invested up to an annual limit of £100,000 (max relief £50,000)

Losses

Rental Losses

Rental losses generated during a tax year can be carried forward against future rental profits.

There are many expenses which individuals do not realise they are able to deduct from rental profits during the tax year i.e. replacement of carpets, decorating expenses etc.

Capital Losses

Capital losses generated from the sale of a capital assets i.e. shares, property etc. can be carried forward to use against future gains arising.

Losses generated must be used against current year gains in priority during the tax year.

Maybe you’ve just set up your own business and are looking for a new accountant. Or perhaps your accountant has just retired and you need to look for a new one. What you need to bear in mind is that hiring the right accountant for your business isn’t a simple process. Who you choose to look after your accounts is crucial, especially if you have plans to expand as you will need to look for someone who will come with you on your journey to success – an accountant who will not just help you with your tax return, but also advise you on your business, and get more involved in the financial side of things the bigger your company gets.

Ask around

Word-of-mouth – sometimes called ‘earned advertising’ for a good reason – remains one of the most powerful marketing tools there is, with around 84% of people relying on it as a trustworthy source of information. So one of the best ways of choosing a new accountant is to ask your business contacts for referrals. If they’re happy with theirs, they’ll be happy to give you a recommendation. If you don’t get any joy from referrals, ask the people you meet at networking groups. Who knows, you may already know someone from an accountancy firm who’s a member of one of your groups – if you already like and trust them, then it’s definitely worth setting up a meeting to talk about how their company can help you.

Look at the website

However glowing the testimonials about possible future accountants are, you must always do your research. Start with the company’s website and look at the accounting services they offer with an eye on what you might need in the future. If you choose an accountancy firm now that doesn’t have the expertise to help you as your business expands, you’ll end up back at square one.

Keep your options open

However good you think one firm is – and you may well end up hiring them – always keep your options open. Choose a shortlist of three or four firms you think are a good fit and arrange face-to-face meetings with all of them.

What you’re looking for is a company that is a good fit for your business, so go armed with lots of questions. In addition to the fees, you need to find out about the services they provide, as well as their customer services. Ask questions about their turnaround time on jobs in order to get a feel for how they process and prioritise their work, and how they are likely to treat you as a client.

In addition to questions about fees and service levels, it’s important to ask questions about the qualifications and experience of the people who would be dealing with your accounts. When you reach the stage where you need extra help from the firm, who will you be dealing with? You need to know that you could work with them, always trust that they are on your side and are constantly looking for ways of adding financial value to your company.

If you have a growing business, you may well have taken on a bookkeeper to help you do the accounts. But grow the business a bit further and you will need to supplement the bookkeeping role with the services of an accountant.

The problem is that there is an in-between time when you need a management accountant, but cannot afford to employ someone on a full-time basis. This is when you need the services of a virtual financial director – a qualified accountant who will spend as much time and energy on your business as you need, but who will work only for the amount of time you need them.

Your virtual financial director is integral to your company’s growth

Even though they’re not directly employed by you, your virtual FD will have your business’s interests at heart. They will work on your behalf as though they are a valuable and trusted member of staff – it’s their job to help you increase sales and improve turnover and profitability, but they will also have an objective overview of the business, helping you to spot trends and new opportunities you may not previously have been aware of.

They will give you financial guidance and strategic advice, prepare your management accounts and forecasts, and attend meetings on your behalf wherever necessary, but without the expense of having to employ a full-time FD.

The additional benefit of a virtual financial director above is that they will help you with strategic planning to help you achieve your goals in the short- and long-term. You can also use them as a sounding board to discuss ideas to make sure you’re going in the right direction.

Having a virtual FD on board will also improve your credibility and raise the confidence of stakeholders and financial institutions. If there are any regulatory changes you need to be aware of, they will update you.  

Where to find a virtual FD

You’re most likely to source your virtual FD from your current accountancy firm – if you factored your business growth into the equation when choosing your accountant, you will hopefully have someone who can seamlessly take over because you’ve already got a good working relationship with the company.

Otherwise, look for a reputable accountancy firm that offers management accounting, advice and consultancy services.

If you run a charity, you’ll know that when it comes to doing the accounts, there are more complications than a ‘for profit’ business. Charity Accountants do understand these complications and the most effective ways to address these without any interruption to your operation. 

The accounting requirements for charities are onerous and apply to even the smallest charity. Visit the Charity Commission for England and Wales’ website for the rules around reporting, accounting and audits depending on the size and type of charity.

When it comes to finances, there is a basic requirement to submit accounts and returns to the Charity Commission, as well as a trustees’ annual report, a set of accounts and an annual tax return. The accounting process needed also depends on the type of charity, whether it’s a Trust, a Charity Incorporated Organisation (CIO) or a charitable company limited by guarantee.

Charity Accounting Specialists

Keith Grover, Director at HB Accountants, specialises in accounting for charities and understands the complexities and challenges this involves.

“All charities need proper disclosure in all areas, but, in the case of the smallest ones, their expertise tends to be limited. The rules are not easy to get your head around and lots of the smallest charities muddle along simply hoping that they get it right. When a charity’s income rises above £25k, the statutory requirements it has to follow in terms of accounting are huge. The main problem is that every charity, even the smallest, has to have a Trustees Report as part of its financial statement, yet the report is a very wordy document with prescribed formats. This is usually when charities turn to us for our specialist accounting services.”

If you would like certainty about financial reporting requirements as set out in charity law, as well as help with accounting systems and procedures, VAT management and operational advice, contact us to make an appointment to talk to one of our charity and not-for-profit accounting specialists.

As you drive across the border into the county of Hertfordshire, you’re greeted by a road sign which says “Hertfordshire. County of Opportunity”.

When Hertfordshire County Council (HCC) published its Corporate Plan for 2013-17, they explained why they came up with this slogan: “We want Hertfordshire to remain a county where people have the opportunity to live healthy, fulfilling lives in thriving, prosperous communities”.

In terms of prosperity, HCC stated it was working towards a “business-friendly environment where initiative is encouraged and celebrated” in order to create a strong, resilient and successful economy.

But the Corporate Plan went further than just making Hertfordshire a great place to do business, it also encompassed the community as a whole. The plan focused on giving residents the opportunity to maximise their potential by supporting those in difficulties, giving them a clean and green environment to live in, and tackling the overall health and wellbeing of everyone living in the county.

The current situation

According to the Council’s latest Annual Report, HCC is doing very well. According to its latest survey, 74% of residents were satisfied or very satisfied with the way HCC runs things and the Council has been shortlisted by the Local Government Chronicle for the “Best Council of the last 20 Years” Award.

To increase the opportunities available to businesses, HCC is currently working to improve transport links which will have a direct effect on local businesses. It has given the go-ahead to the Croxley Rail Link that will bring the London Underground system into Watford, making commuting more attractive at the same time as taking the strain off road links.

HCC is an active member of the London Stansted Cambridge Consortium (LSCC) which aims to promote the economic potential of the London to Cambridge corridor. The Consortium’s Growth Commission described the corridor as sharing “a set of advanced industries characterised by rapid growth and high productivity, supported by a global centre for business and financial services. Productivity is 16 per cent higher than the national average, and growing”. HCC is supporting the LSCC’s economic vision for 2036 with ambitious targets to create 400,000 new jobs – half of which will be tech, life sciences and knowledge-based – as well as growth in productivity and the creation of 10 new companies each worth in excess of £1bn. Business growth will be backed up by an education and skills system that provides a skilled, qualified workforce, as well as high quality housing and diverse and vibrant communities.

HCC is also a member of the West Anglia Taskforce which is recommending that the Government brings forward the four tracking of the West Anglia Mainline to Broxbourne as part of a strategy to bring Crossrail 2 into Hertfordshire.

If you would like to explore the opportunities offered for your business, we offer full accountancy services for companies of all sizes. Contact us to find out more or to make an appointment.

With effect from 1 April 2017:

The National Living Wage for those aged 25 and over will increase from £7.20 to £7.50 per hour.

The National Minimum Wage will also increase as follows:

Apprentices aged 16-18 or over 18 in their first year:             from £3.40 to £3.50 per hour

16-17 year olds:                                                                               from £4.00 to £4.05 per hour

18-20 year olds:                                                                              from £5.55 to £5.60 per hour

21-24 year olds:                                                                              from £6.95 to £7.05 per hour

With effect from 6 April 2017 a new Apprenticeship Levy is being introduced.  This will be charged at 0.5% of the employer’s total pay bill but there will be an offset of £15,000 so only employers with an annual pay bill in excess of £3 million will need to pay anything.  There are the usual rules for connected companies and the levy will be collected on a monthly basis through PAYE.  This will cause problems if bonuses are paid early in the tax year.  For example, if the total pay bill in month 1 is (say) £300,000 (because of bonus payments), a levy of £250 will be payable.  If the total pay bill for month 2 drops back to £200,000 or less, the £250 will be repaid in month 2!

Our previous update on this topic was on 30 August 2016 following the publication of consultation documents by HMRC.  There was a very significant response to these, most of which was unfavourable.

The House of Commons Treasury Committee has considered the HMRC proposals and published a report on 17 January 2017 which has identified a number of serious shortcomings with the HMRC proposals.

The Committee highlighted the additional costs and administrative burdens for very small businesses which they felt might either drive them out of business or into the “hidden economy”.  They also felt that the proposed changes were being introduced too quickly.  Both of these issues could adversely affect millions of taxpayers and their relationship with HMRC.

The original proposal was for all businesses with a turnover in excess of £10,000 per annum to be in MTD, with a requirement to make four quarterly reports every year and a final “sweep up” report after the end of the year.  The Committee considers that turnover threshold to be much too low and proposes instead the VAT threshold, which is currently £83,000 per annum.

The original timetable was for the changes to be introduced from April 2018, but the Committee suggests these should be delayed until April 2019, and possibly later.

The Committee also suggests that there should be proper pilot schemes evaluated before the proposals are implemented.  HMRC have apparently run some pilots on an invitational basis but the Committee has pointed out that the people who are most likely to be adversely affected are also those who are most likely to have declined any invitation to take part in the pilot!  The suggested pilot schemes will need to cover the full reporting cycle of four quarterly reports and the end of year update.

The provision of appropriate software is also an issue.  The Committee points out that there will need to be adequate free software available for smaller and less complex businesses, but the Government has yet to set out how this may be accomplished.

The Government will consider the Committee’s report and respond in due course.

HB Accountants are so pleased to be attending the FSB Hertfordshire Awards 2016 as finalists in categories Best Customer Service, Training & Development and Apprentice of the Year! As this is our first year of entering awards we are overwhelmed that we have been shortlisted amongst some fantastic businesses.

The team at HB Accountants work extremely hard in providing a high standard service and being nominated for the Best Customer Service award fills us with pride. As a training firm, our apprentices play a big role in the company. With 5 current apprentices at HB Accountants we are thrilled to have been shortlisted for both Training & Development and Apprentice of the Year.

We are looking forward to a fantastic night and wish all finalists the best of luck.

Date: Thursday 23^rd June 7pm
Venue: Manor of Groves Hotel, High Wych, Sawbridgeworth, Herts, CM21 0JU