There are many reasons why individuals in self employment or partnerships choose to incorporate their business but one cannot fail to notice the financial saving presented by incorporation.

Provided an individual is not caught by IR35 or other complex legislation then taking a low wage with dividends can result in an annual saving of £4,210 in the tax year 2011/12.

The table below illustrates how an income of £46,902 achieves a saving of £4,210 in three stages. Where there is scope to defer or reallocate income the annual financial saving can exceed this amount.

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Further to my earlier article where I considered the combined percentage rate of income tax and national insurance contributions for the tax years 2008/09 and 2009/10, I now include the relevant percentage and income ranges for the tax years 2010/11 and 2011/12.

This is a basic illustration showing the position for those under 65 years old receiving income evenly throughout the year with a basic personal allowance, no employee benefits or pension contributions and no savings or investment income.

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Please note the significant changes to the penalty regime on late filed tax returns for previously the cost of filing a tax return late would be only a couple of hundred pounds. However, from 6th April 2011 the amount of any penalty is no longer reduced by reason of an individual owing no tax or national insurance.

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If you currently pay Class 2 National Insurance Contributions (either monthly, quarterly or by direct debit) then HM Revenue & Customs shall be writing to you shortly to explain that they are aligning the Class 2 NIC payment dates with those of Self Assessment. Consequently, to settle Class 2 NIC for the tax year 2011/12 the payments dates become 31 July 2011 and 31 January 2012.

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With only nine months until the start of mandatory online filing of corporate tax returns (i.e. Forms CT600) it is now time for the smallest of companies and organisation to take stock of the situation. For those companies and organisations retaining the use an accountant very little will change – except that from 1 April 2011 all tax liabilities must be made electronically.

Unfortunately those most likely to be affected by the mandatory online filing are the very smallest of the ‘not for profit’ organisations who will shortly find themselves facing one more hurdle to jump in order to inform HM Revenue & Customs that they have nil tax to pay.

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If you were a multimillion pound international organisation planning to transfer your HQ to Switzerland or Ireland then you will be happy with the reduction in corporation tax rates. However, if you are a medium size company or group then these are uncertain times and you had better get your skates on and accelerate any capital spending.

This article highlights reducing corporate tax rates and explains that this may be to alleviate the cost of new pension rules forcing more employers to divert money into pension savings for employees from 1 October 2012.

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I have just received my first domain name ‘scam email’ and so I thought I would highlight this issue and including details of known HM Revenue & Customs email scams.

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This article highlights the fact that the HM Revenue & Customs’ concession used to inexpensively wind up and strike off a solvent company may only have a remaining 5 month shelf life. For at present government departments are struggling to fit the concession ESC C16 into a legislative compliant ‘straight jacket’ to enable the current simplification to continue in law.

So could the spring 2010 budget be the end of the concession? Well, yes and that would make now about the best time to act as the alternative winding up procedure requires appointing a liquidator and that is not cheap.

In summary, the concession enables the final distribution of accumulated profit in a company to be treated in the hands of the shareholders as capital proceeds, subject to capital gains tax, rather than as a dividend subject to income tax. So who should act now?

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Following on from earlier publications this article covers the common penalties HM Revenue & Customs charge on individual’s failing to pay tax or file personal and partnership tax returns on time.

Please note that it is common for HM Revenue & Customs to issue payslips late and that interest is charged on late payments. Therefore if you find yourself without a payslip then do not delay making payment as their delay is no excuse against incurring penalties – it is a case of one rule for us and another rule for them!

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Six months into the tax year have you thought about the amount of your CIS refund? If so, then my refund estimator for 2009/10 may help.

With the usual health and safety warning applicable, here are the assumptions on which the estimator is based along with an explanation on how to use it.

  • The figures do not reflect a mark up on materials billed to contractors and assumes all labour is charged under the CIS.
  • Trading profit is therefore only derived from the billed labour.
  • I have taken total billed labour as equal to taxable profit, which therefore excludes the effect of tax relief on newly purchased and pre-owned fixed assets.
  • I have included four rates of business cost, being 0%, 10%, 15% and 20% of the billed labour, i.e. business cost of £6,000 are 20% of £30,000 of billed labour.

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This article looks at the dual tax rules that will exist for the next five years on cars held by companies and individuals following the recent alignment of tax rules with car Co2 emissions. It considers the impact on cars held on the balance sheets (i.e. purchased or on HP) and those lease financed, where they remain off the balance sheet, i.e. an operating lease.

The relevant date of commencement of the new rules is 1 April 2009 for companies and 6 April 2009 for individuals (i.e. the start of the 2009/10 tax year). The term “grandfathering” is tax speak for allowing the old ‘list price’ rules to continue to apply to cars held at and beyond the date of transition.

Welcome to another green stealth tax!

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There is always considerable discussion on the merit of paying dividends or bonuses in family or sole proprietor owned director/shareholder companies.

Typically, articles highlight the factors to be considered and the risks but then poorly illustrate the tax savings. So, I have done just the opposite.

I have taken just one scenario, illustrating the £695 saving available on a £10,000 bonus or dividend payment to a higher rate tax payer (basic rate tax payers save £1,783).

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To combat what is perceived as ‘false self employment’ in the construction industry the government is consulting on proposed changes to the CIS rules in an attempt to recover an estimated annual loss of £350 million in tax and national insurance contributions.

With a due consultation date of 12 October 2009, it remains unclear whether the proposal could become legislation in time for the start of the tax year 20010/11 – but this is still an unknown.

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There are hundreds of different rules governing tax and national insurance contributions and even I find it a struggle to remember the changes year on year.

Given that individual circumstances can be just as complicated it is difficult to illustrate how the combined tax and NIC rules reduce gross income. But below, I have illustrated the simplest situation for the self employed and employee in 2008/09 and 2009/10.

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It is a fact that government policy is forcing businesses to provide an ever increasing list of information online but to combat the disproportionate impact on small businesses, free software is occasionally made available to help.

As I pointed out in More electronic filing, anyone? employers with fewer than 50 employees will have to file their 2009/10 PAYE ‘end of year’ forms P14 and P35 online. While in the following year most ‘in year’ forms must to be filed online as well.

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If the summer of 2007 was the high point of UK prosperity then financial results for the tax year 2007/08 may not have been too bad. But the following year may tell a different tale and this article explains what can be done with a 2008/09 tax loss.

This article does not cover the nuances of loss relief or explain how a trading period is tagged to a tax year. The emphasis is on examining which tax years can be adjusted with a 2008/09 loss.

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In the process of writing tax articles I have taken to using keypad shortcuts (or ‘hotkeys’) to reduce the risk of repetitive strain.

Expanded my short cut use beyond copy (Ctrl+C) and paste (Ctrl+V) has proved invaluable and therefore I include a list of my favourite short cuts along with a few web-browser and program short cuts.

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I pose this question because it is relevant for any company with falling profitability followed by losses.
By way of illustration I include an example using quarterly results for 30 months trading and I have for simplicity taken the taxable profit (per the tax return) to be the same as the accounting profit (per the accounts).

It is, however, important to acknowledge that the benefit of extending an accounting period depends entirely on the facts and that it will not work for a significant number of companies or groups of companies. Also if a company has extended its accounting period within the previous five years then it is prevented by Companies House from making an immediate and second extension. But after the expiry of five years a further extension can be made.

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I read recently that in the current economic climate more people will be looking (or be forced) into becoming self employed and that as a result there will be an increase of franchise sales.

To those looking to buy a franchise I want to prove one point and to do this I have searched Google using various word strings

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This article considers three things to note about the new Companies House penalty and filing rules changes.

Penalties

Relatively recently Companies House decided that their penalty regime had not kept pace with inflation therefore from 1 February 2009 all late filing penalties have been increased.

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This article considers future e-filing changes in the UK tax system with a guess at the shape of things to come.

At present if you have the time to break down the door of the ‘IT barrier’ then you can voluntarily file most returns online – PAYE, VAT, corporation tax and personal tax Self Assessment – but not everyone has the time or inclination. If you suffer from IT-phobia then the list of enforced e-filing changes in the coming years will not be welcome news.

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If you are self employed and work from home then this article may be of interest as it considers the household costs that can be claimed and the method of calculating a business deduction.

Before I start however, if monitoring household bills is not your thing and you do more than just ‘hobby trading’ then consider using a round sum claim of £2 a week, for which household bills do not need to be retained. Beware, however, for if you work only 40 weeks a year, the claim is 40 x 2 = £80.

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This article considers the common penalties that businesses and employers may face in connection with subcontracting and payroll operations.

In some instances, there are grounds for reduced penalties on the basis of ‘reasonable excuse’ but this is complex and beyond the scope of this article.

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This article considers the common penalties that businesses and employers may face in connection with subcontracting and payroll operations.

In some instances, there are grounds for reduced penalties on the basis of ‘reasonable excuse’ but this is complex and beyond the scope of this article.

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