Top tips to prepare for company year end

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At company year end, it’s time for limited companies to file corporate tax returns with HM Revenue & Customs (HMRC) and provide annual accounts to Companies House. Whilst small and micro companies don’t have to provide full accounts reports to Companies House, they are still required to provide simplified accounts reports as a statutory requirement. Since corporation tax is calculated by HMRC based upon the financial position of your company at year end it’s vital to have everything in order. There are steps you can take to make this process as smooth as possible. At HB Accountants, we can provide as much or as little support as you need at year end. Here are our top tips to prepare for company year end.

HB Accountants Top Tips for year end accounts

 

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Keith Grover celebrates his 60th

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The 1st of December is the date when many people decorate their homes with festive decorations, in readiness for Christmas. At HB Accountants it’s a special day for another reason. Our very own Keith Grover turns 60.

Congratulations & Happy 60th Keith!

We’d like to wish him well. To prepare Keith for this milestone birthday we took him out for a special lunchtime celebration a few days ago to mark the occasion. 

60 years ago…

“It’s only make believe” was in the UK charts on this day 60 years ago with singer Conway Twitty; this track has since been covered by the likes of The Hollies and Fiona Apple.

Harold Macmillan was the Prime Minister and held this office from 1957 to 1963.

Musicians Jools Holland, singer Kate Bush and Duran Duran’s lead singer Simon Le Bon were born the same year as Keith, as were 5Live radio presenter Simon Mayo and Wallace and Gromit animator Nick Park.

Highlights: 2018 Autumn Budget

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As the Government’s last Autumn Budget before the UK’s scheduled exit from the EU in March 2019, the Chancellor framed his announcement as reflecting an end to the era of austerity. The budget includes the commitment to provide an additional £20.5bn to the NHS over the next five years, and a variety of measures designed to protect or stimulate business growth. Here we outline the budget highlights and as always there will be winners and losers. We encourage you to discuss the impact of the budget with the team at HB Accountants. If you need an update on current tax rates, allowances and duties please get in touch.

 

Small shops business rates cut by one third

Business rates for small retail properties in England with a rateable value below £51,000 will be cut by a third from April 2019 for two years, which the Treasury estimates will save these businesses a total of £900m altogether.

 

Higher personal allowance & raised higher rate tax threshold

The planned increase in the personal allowance has been brought forward and the threshold for higher rate tax has been raised.

  • The personal allowance, which is the amount someone can earn before they pay any tax, will be increased by £650 from 11,850 currently to 12,500 from 6 April 2019.
  • The threshold for paying higher rate tax at 40% has been increased by £3,650 from £46,350 to £50,000 from 6 April 2019.

From 2021, personal allowance and tax thresholds will rise in line with inflation measured by the Consumer Price Index.

 

£1m Annual Investment Allowance

In a move regarded as an incentive to invest, businesses can claim an Annual Investment Allowance (AIA) for capital expenditure incurred on most plant and machinery items. This allowance currently gives 100% capital allowances on expenditure up to £200,000 a year, in other words the full amount spent can be deducted from profits before tax. The AIA will be increased from £200,000 to £1m for a limited period of two years. This change relates to qualifying expenditure incurred from 1 January 2019 to 31 December 2020.

 

New Digital Services Tax

A new 2% tax will apply to annual ‘UK’ revenues over £25m of specific digital services businesses with global sales of more than £500m per annum, from April 2020. The move is designed to harness tax revenues from the new generation of large, successful digital businesses, such as Google. The tax will apply to profitable businesses involved with online marketplaces, search engines and social media platforms. The tax will be introduced following consultation, with legislation in the Finance Act 2020.

 

Further Stamp Duty concessions

Stamp Duty Land Tax is paid on properties and land in England and Northern Ireland purchased for over £125,000. Since 22 November 2017 first-time homebuyers in England and Northern Ireland qualify for a 100% relief if they buy a property for £300,000 or less, so that they don’t pay Stamp Duty. First time buyers also only start to pay 5% Stamp Duty on residential properties from £300,000 to £500,000, on the price over £300,000. Now first-time buyers’ relief will be extended to qualifying shared ownership purchases of up to £500,000 from 29 October 2018. The change will be backdated to 22 November 2017 to enable taxpayers that haven’t yet claimed first-time buyer’s relief to do so.

 

New non-recycled plastic packaging tax

The Chancellor has announced a new tax on the manufacture and import of plastic packaging which is comprised of under 30% cent recycled plastic. At the same time, a tax on takeaway plastic cups which had been mooted in the media, has been ruled out. The new tax is intended to reduce single use plastics and will be in place from April 2022 following consultation.

 

VAT threshold unchanged

The threshold for VAT registration remains unchanged at £85,000 until April 2022. The rates of VAT also remain the same with a standard rate of 20% and a reduced rate of 5%.

 

Employment Allowance for smaller businesses only

From April 2020 eligibility for the Employment Allowance will be restricted to employers with National Insurance Contributions NICs) below £100,000 in the previous tax year. This allowance lets employers claim back Class 1 NICs of up to £3,000 each year. The new restriction is aimed at targeting support to smaller employers, with 93% of small businesses still being eligible for the allowance, according to the Treasury.

 

Looking ahead to the Chancellor’s Spring Statement in March 2019, uncertainty over the final Brexit agreement means that the Chancellor has advised this may become a full budget announcement if necessary.

 

Tell me more

For further details of the 2018 Budget just ask us for a copy of our 2018 Budget Report.

Should you want to discuss ways to manage the implications of the budget for your business please get in touch. Contact HB Accountants by calling 01992 444466 or you can email directors@hbaccountants.co.uk

Does my organisation need an audit?

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Businesses and charities must audit their accounts when they have grown above a certain size. The smallest organisations are exempt from this legal requirement. There are also circumstances when you may need or want an audit regardless of the scale of your operations. If you are in any doubt as to whether you need to conduct an audit or not, just contact HB Accountants and we can talk you through the regulations.

 

Exactly what is an audit?

An audit is the systematic examination of an organisation’s accounting records, as well as the physical inspection of its assets. When performed by a qualified accountant, such as HB Accountants, it enables us to verify whether the financial statements have been prepared in line with relevant legislation and accounting standards, and importantly whether they provide a true and fair view of the organisation’s financial position.

When to book an audit – size threshold

When a private limited company hits two of these thresholds, in two out of three years, it’s time to book an audit.

  • annual turnover £10.2m
  • assets worth £5.1m
  • number of employees 50 on average

 

When a charity hits either one of these thresholds it’s time to book an audit.

  • gross annual income above £1m or
  • gross assets of above £3.26m and a gross annual income above £250,000.

 

Where a charity’s income is from £25,000 to £1m, external scrutiny in the form of an independent examination is still required by the Charities Commission. In addition, many charities require regular audits regardless of the size of the organisation, as set out in their constitution or legal instructions from donors or trustees.

Other reasons to book an audit

There are further reasons why organisations must or should complete an audit.

Regulated finance or legal industry sector firm

If you operate a regulated business, then there’s often a legal requirement that you undertake audits. For example, if your run a financial services business, friendly society or legal practice. These organisations operate in a position of trust with customers, and a regular financial audit provides much-needed assurance as well as compliance with the regulations.

 

Subsidiary of a company

If your parent company is legally required to audit its financial statements, then this extends to any subsidiary companies, even if they are individually below the legal threshold size unless the subsidiary exemption criteria has been met.

 

Shareholder makes a section 476 request

Under the Companies Act 2006, section 476, a shareholder can give notice that an audit is required. To be able to do this the shareholder must have at least a 10% stake in a class of the company’s shares or if there are no shares they must represent 10% of the members of the company.

 

Bank or lender audit requirement

In certain circumstances your bank or another lender may need the added assurance of an audit to assess your current financial position, and make decisions about the services it offers, such as a business loan.

 

Preparing for sale of business

It may be advantageous to audit your financial statements when you plan to sell your business to maximise the pay-out shareholders receive and to get the best possible terms.

 

Preference and good practice

Even when an organisation is not compelled to have an auditing regime due to legal regulations, many choose to have regular audits to provide stakeholders with complete confidence in their financial reports.

 

Audit exemptions

Some organisations are exempt from having full audits.

 

Small businesses

Small businesses may be exempt, provided they aren’t required to audit accounts due to being a charity or other regulated business. To be exempt as a small business, at least two of these figures for this year and last year must be below this size threshold:

 

  • Turnover below £10.2 million
  • Total assets below 5.1 million
  • Number of employees below 50

 

Subsidiary exemption

A subsidiary of a larger group may be exempt if the group meets certain criteria and the parent company gives a guarantee of all outstanding liabilities at the end of the financial year.

 

Charity exemption

Charities with a gross income of less than £1m can choose to opt out of a full audit provided that gross assets do not exceed £3.26m and gross income does not exceed £250,000 and provided their constitution does not demand an annual audit. Although if turnover exceeds £25,000 they will still need some form of independent examination.

 

It’s easy to be more audit savvy

These are broad guidelines about which organisations must audit their accounting records. If it’s obvious that you need an audit, then get in touch and we can explain the benefits of our audit service. If it’s not obvious whether you need an audit, then do talk to us to discuss your organisation’s circumstances. We can help you to identify if an audit is a legal requirement, or if it simply makes good sense, or if an audit is not required at all. We are always ready to answer questions and provide advice. Just call 01992 444466 or email directors@hbaccountants.co.uk

Working from home expenses

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When you’re working from home, your bills are bound to rise. You’ll be using electricity, your own broadband and phone line, as well as making more use of your electricity, water and heating (especially in the winter).

If you are self-employed

The Government has published detailed guidelines for business people working from home. The trickiest element of this is that most things will be used for both business and personal use.

HMRC guidance is that you can claim for the cost of business calls made on a private telephone line and also an appropriate proportion of the line rental. You may, therefore, need to provide an explanation for the proportion of the total telephone bill you are claiming. This will also apply to broadband.

You can also claim for other costs of using a room at your home for business purposes (typically for office work). The sort of costs involved could include council tax, rent or mortgage interest, heat, light, water, insurance and cleaning. These can be apportioned on the basis of floor area, usage or time, or a combination of these. Typically, you will use one room as a part-time office (using it full-time is not recommended as this would cause capital gains tax problems on a sale of the property). If this is one of (say) six available usable rooms (excluding common areas, toilets, bathrooms etc), your starting point will be to claim one-sixth of the overall costs. You then need to consider the proportion of business use of that room to private use and reduce the claim accordingly.

If you are an employee

There are allowances you can claim if you’re an employee of a company, but these are dependent on whether or not this is specified as part of your job, or whether you’re doing it voluntarily. If it is your choice to work at home, you will not be eligible to claim any expenses at all.

However, if your employer has specified that you work from home as part of your job, or you have a homeworking agreement, your company can contribute £4 a week, tax-free, to help towards your extra costs.

The allowance only applies for regular working hours – you cannot claim if you occasionally work from home, or do work in the evenings or at weekends.

As an employee, you also have to show that the expense was necessary, and this is a very difficult obligation. If you decide to make this claim it will be restricted to the extra cost of heat, light etc and no claim will be available for council tax, mortgage interest or rent, insurance, or the cost of broadband or telephone lines. That is because those expenses would have been incurred anyway in your private capacity as a homeowner.

If you are a director

If you own your own company, you can set up an agreement between you and that company requiring you to work from home for certain periods of time; you can also set up a licence agreement under which the company will pay you a rent for use of your room as an office. This would enable you to make a claim which is closer to the self-employed rules. You will need to include the rental income on your personal tax return and claim the expenses against that rental. In practice, you will set the rent amount to more or less cover the claimable expenses, because if you set the rent too high you may end up paying personal tax (perhaps at 40%) and only getting corporation tax relief (at 19%)!

If you would like help working out what expenses you are entitled to when working from home, contact us to arrange an appointment.

When is the right time to hire an accountant?

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Small business owners and entrepreneurs spend their time learning new skills. Whilst people generally set up their own company in order to concentrate on doing what they love, they also have to diversify their talents in order to do other tasks, from networking to cleaning, posting online content to submitting tax returns.

But unless your specialism is accounting, how do you know you’re getting your accounts right? It comes down to the fact that you don’t know what you don’t know. Whilst you may think you’ve got a handle on things, you may not realise that hiring an accountant could bring you business benefits you haven’t thought of. In terms of tax savings, growth plans and avoiding errors the money you save by hiring an accountant may well end up being more than the cost of the accountant themselves.

Here’s our guide to knowing when it’s time to hire expert help?

Growth

You’ve done brilliantly and people love your products and services. So much so that you can’t keep up with demand and need to take on staff, move to bigger premises and keep a close eye on your spending and future plans. But if you’re nervous about spending the money, think of it in terms of your own time. Work out how much per hour your time is worth, then multiply that by the amount of time you spend doing the accounts – including all that head scratching, crossings out and lying awake at night wondering if you’ve got it right.

Writing a business plan

An accountant will help you create financial projections on which to base a realistic business plan that’s more likely to benefit your company in the long run.

You need investment

You’ve got some great opportunities on the horizon, but in order to make the most of them, you’ll need to secure financial investment. An accountant can point you in the right direction.

Legal structure

You might be a sole trader now, but as you grow your company, there’ll come a time at which you’ll need to decide whether to make it limited or an LLP.

If you’ve reached the point where you need to hire an accountant, please feel free to contact us to talk about the services we offer and how we can help you take your company forward.