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.

If you’re setting up a small business from scratch, you know that money is going to be tight. That’s why most entrepreneurs begin by trying to do everything themselves in order to keep costs down. But there are some compelling reasons to seek professional help from an accountant from the very beginning, which may end up saving you a lot of money in the long run.

Firstly, an accountant can help you get the structure right, especially when it comes to tax. For instance, often when a couple set up a business together, one of them will continue working in a full-time job until the business takes off. An accountant will help you set up an equal shareholding which will help keep finances ‘in the family’ when it comes to dividends. This can be especially helpful in cases where doing this can keep you under the 40% tax threshold.

Secondly, an accountant can help out with HMRC-related matters, helping you with VAT registration, setting up your payroll, registering for Corporation Tax etc. You can rest assured that your accounts would be set up accurately – it is not uncommon for people doing it themselves to make mistakes which can be costly to put right. And an accountant can also help you out with company registration.

The future isn’t necessarily bright

It is quite common for two or more friends or acquaintances to go into business together. Sometimes this doesn’t end well and the business suffers when friendships end and one of the partners wants out. To prevent a lot of grief and expense in such an event, it is recommended that all partners draw up a Shareholders’ Agreement before the launch of the business. A good accountant will be able to recommend a solicitor who specialises in these agreements.

Advice

Accountants are always happy to help give clients advice which points them in the right direction. They can put you in touch with bookkeepers, and can also recommend the right bank to have your company account with – the bank that is right for your personal account isn’t necessarily the right bank for your business.

It is always a good idea to keep in touch with your accountant and recommend touching base every three months to make sure everything’s running smoothly? This is especially important if you’re doing your own bookkeeping, as you need to make sure it’s up-to-date and being completed properly – if not, there will be plenty of time to fix any errors.

Our approach

From time-to-time, all small business clients have little questions that will only take a couple of minutes to answer, but they are reluctant to get in touch with their accountant about it. We don’t have a problem with our clients calling us with such questions and are happy to answer them free of charge. That way small issues can be dealt with before they can escalate.

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.

Welcome to HB Accountants Monthly Tax Update for July 2017.  In this month’s update, we will be outlining the Common Reporting Standard (‘CRS’) and what it means for our clients and contacts.

What is the CRS?

The Common Reporting Standard, generally known as the Global FATCA, is a regulation initiated by the OECD, aiming at preventing tax evasion and leading to a global automatic exchange of information between CRS-participating jurisdictions.

Which countries will be adopting the CRS?

The governments of over 100 countries have so far committed to the automatic exchange of information and the list is still growing.

The UK has committed to commence automatic information exchange, along with 56 other jurisdictions, by September 2017.

Which financial institutions are required to report?

Financial institutions that may have a duty to report include:

• Banks (including local banks)
• Custodial institutions
• Trust companies
• Brokers
• Insurance companies
• Collective investment vehicles
• Investment managers and funds.

Which accounts are reportable?

The accounts that are reportable under the CRS include accounts held by individuals and entities i.e. trusts and foundations.

Details and information to be reported

The following information will be reported  

• Personal information: Name, address, taxpayer identification number (e.g. UTR number in the UK), date of birth and place of birth of account holder
• Country of residence of the account holder
• For entities – the above for each controlling person
• The account details
• The financial institution’s details

The following financial information will be reported:

• The account balance
• Interest, dividends, and sales proceeds from financial assets
• The applicable currency of the account

How will the CRS affect me?  

Financial institutions will be required to identify customers who are tax resident in one country but have financial accounts held in another for reporting purposes. To do this they will need to collect and report certain information on the ‘reportable person’ and their financial accounts to the local tax authorities.

The above means that HM Revenue & Customs (HMRC) and other tax authorities around the world will now have access to a vast amount of data, so it is becoming progressively more important for account holders to regularise their tax affairs at the earliest opportunity, as the penalty and disclosure regime will become much less favourable following the implementation of the CRS.

How can I bring my tax affairs up to date prior to the implementation of the CRS?

The Worldwide Disclosure Facility (‘WDF’) opened on 5^th September 2016, this facility allows anyone to disclose a UK tax liability relating either wholly or partly to an offshore issue to HMRC.

Why Should I use the WDF?

HMRC has stated that the WDF is the final chance to put things right for those individuals with outstanding UK tax liabilities on undeclared offshore money or assets.

This last chance comes before HMRC starts to receive an unprecedented amount of data on offshore accounts held by individuals with a footprint in the UK.

Sanctions facing those who have not come forward already or use the WDF will be far tougher in the future, with the potential prospect of minimum penalties of 100% of the tax due and an increased chance of criminal prosecution.

How can HB Accountants help?

The HB Accountants tax team have experience in making disclosures to HMRC including via the WDF. HB accountants can assist you with computing any liabilities due under the WDF and assist you with approaching HMRC to ensure you minimise your financial exposure.

If you would like any further information regarding the above, or have any queries, please do not hesitate to contact John Neighbour (Tax Director), Amy Armitage (Tax Manager) or any other member of the HB Accountants team on 01992 444466.

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.

In its 2017 annual Audit Quality Thematic Review, the Financial Reporting Council found nearly a third of audits carried out “required more than just limited improvements”. In reporting about the review, the Financial Times pointed out that recent high-profile accounting scandals “raise questions about whether auditors are being appropriately sceptical when they scrutinise company accounts”, quoting a £4m fine the FRC had charged Deloitte for its audits of Aero, and a £3m fine against PwC for its audits of Yorkshire-based sub-prime lender Cattles.

Relationship-building with clients

We understand that as the majority of companies start out small – many as sole traders – directors prefer to use the services of a sole practitioner accountant or a small accountancy practice. It’s understandable that the accountant and the client will build a very good relationship with each other, with a lot of trust and loyalty on both sides.

As a business expands, it is inevitable that the director will want that relationship with the accountant to continue – and so it should. The problem for the accountant is that if the company is ever in a position to need auditing, it could become problematic if they don’t have the training and experience to undertake the task.

Many accountants in this situation are hugely reluctant to introduce their client to another accountancy firm as there is a risk that their client could be poached by a larger company. Quite often they muddle through with their own audit – but without the specialist training, experience and accountability, it could leave them vulnerable.

Outsourcing

The best compromise for sole practitioner accountants, or those in firms too small to have trained auditors, is to outsource the task to a registered auditor.

We are Registered Auditors with the Institute of Chartered Accountants in England & Wales and specialise in audits for businesses requiring FCA compliance, charities, pensions and solicitors.

At HB Accountants, we pride ourselves on our ethical stance and would never approach your client.

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.