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Bishop Vesey’s Grammar School (BVGS) Corporate Partnership has continued its recent growth, securing the support of experienced accountants and business advisers Adams Moore.

Adams Moore is one of Bishop Vesey Grammar School's Corporate Partners.

Becoming the partnership’s 33rd member, the Tamworth-based firm, which provides a range of services to companies, sole traders and individuals, including tax returns, payroll and fixed-fee Board Support, brings a forward-thinking attitude and passion for business growth to the initiative.

Having built its reputation for delivering a comprehensive range of accountancy and business advice services on a national scale, Adams Moore will have the opportunity to collaborate with fellow partners while supporting the school moving forward.

Designed to encourage and facilitate local working relationships, the Corporate Partnership boasts a diverse range of organisations, offering members a networking forum to meet and collaborate with other businesses.

Hosting regular high-profile networking events throughout the year, the Bishop Vesey’s Corporate Partnership is one of the fastest growing local initiatives of its kind.

Neil Lancaster, Partner at Adams Moore commented: “Offering support and guidance to local schools and businesses is extremely important to our firm and we’re delighted to achieve this by becoming an official member of the Bishop Vesey’s Corporate Partnership.

“It’s no secret that the initiative has enjoyed substantial growth in recent months which is always a reassuring sign for new businesses who are looking to join.

“Having the opportunity to meet Development Director Brian Davies, I am aware of all the hard work that has gone into developing the initiative and transforming it into a successful networking forum for local businesses.

“We know the partnership has facilitated a number of working relationships between its partners so we’re very much looking forward to meeting the other members, collaborating on ideas and helping local firms achieve their business and financial goals.”

Development Director, Brian Davies said: “Over the past few months we have experienced substantial growth, with a lot of high-profile businesses joining the partnership and showing their support to the school.

“This is testament to the time we have invested arranging insightful networking events that are relevant to all industries and help local businesses to network and secure more work.

“We’re delighted to add Adams Moore to our extensive portfolio of partners, and I’m certain that our other members will benefit from the expertise Neil, Martin and their team have to offer.”

Those people in Tamworth and Birmingham who are self-employed might have been looking forward to the scrapping of Class 2 National Insurance Contributions (NICs). However, the Treasury’s analysis of the Coalition pledge found that around 300,000 people who make profits of less than circa £6,000 a year would be five times worse off with regards to voluntary contributions. The policy should have come in to effect in early 2018, but as a solution to this issue has not been found, the policy will not be put in place at all. Clearly some will be winners and some losers, but is this recent announcement good or bad for you?

What does the government's change on Class 2 NICs mean for the people of Tamworth and Birmingham?

 

What Was The Cut To Class 2 Contributions All About?

> Class 2 NICs were going to be be completely abolished, meaning sole traders that are currently required to pay these by earning up to £8,500 a year would no longer need to make payments in order to receive a state pension. They would therefore have saved them around £150.

> Those who are self-employed, earn less than £6,205 and want to receive a state pension currently must voluntarily pay the Class 2 amount. The change in policy would have meant that these people would have to pay Class 3 contribution amount (for those earning more than £8,424 annually), which is 5 times more.

 

The Ins and Outs

The reversal on the £150-a-year tax cut for self-employed people was announced through a written statement on Thursday. National Insurance Contributions (NICs) would have been no more for over three million workers, but ministers cited concerns about the effect on low earners as the reason why it would not be right for the policy to be effected during this Parliament.

George Osborne announced the cut to Class 2 NICs in his last Budget in 2016, and when the implementation of the policy was delayed last year, the current Chancellor said the government was “committed to abolishing Class 2 NICs to simplify the system”; Hammond, however, has admitted a no-deal Brexit will force government cuts. While the written statement to MPs said – “This change was originally intended to simplify the tax system for the self-employed. We delayed the implementation of this policy in November to consider concerns relating to the impact on self-employed individuals with low profits.” – abandoning the policy will save the government £350 million a year for the next 3 years.

Reading between the lines, the uncertainty of a Brexit economy certainly looks to be an influencing factor and it’s not an insignificant sum to save when the NHS requires an extra £20 billion a year from 2023. The Chancellor will announce how the coffers will be spent in the Autumn budget, on 22 November, and it appears no other plans to implement a cut are in the pipeline.

Not changing the tax system for self employed will save the government £350m

 

On the positive side…

“Having listened to those likely to be affected by this change we have concluded that it would not be right to proceed during this parliament, given the negative impacts it could have on some of the lowest earning in our society.”

Treasury Minister, Robert Jenrick

If you’re one of the circa 300,000 self-employed who are earning less than £6,205 a year and voluntarily paying Class 2 NICs – in order to access a state pension – then this is good for you. The implementation of the new policy would have meant a move to Class 3 contributions (voluntary) for you and your weekly payments would have been increased from £2.95 to £14.65. That’s an extra £608.40 out of your pocket, a whopping 10% of a £6,000 income.

The changes to self employed National Insurance will be a positive for those earning under £6k

 

And the negative…

“The self-employed community has been let down today, missing out on a promise to reduce their tax burden. This raises serious questions once again about the government’s commitment to supporting the self-employed.”

Federation of Small Businesses Chairman, Mike Cherry

Millions of self-employed workers who earn profits of between £6,205 and £8,424 a year would have saved around £150 a year by not having to pay Class 2 National Insurance, at £2.95 a week. Already branded as a ‘stealth tax’, the u-turn is being seen by some as a betrayal on the self-employed, the ‘engine of the economy’, while the corporate giants receive perceived (or otherwise!) tax breaks.

Those self employed people earning between £6-8.5k will now lose out after the policy u-turn

 

Clearly, £150 would be a more modest gain compared to the £600 loss that the lowest earners would suffer, in order to gain access to the state pension. Nevertheless, whether this about turn on NICs has affected you positively or negatively, we don’t anticipate there will be any changes from the current system anytime soon. When the Chancellor dared to raise Class 4 NICs rates for self-employed people who enjoyed more than a £8,424 profit, he was accused of breaking the Party’s manifesto pledge and the angry reaction ensured those plans were ditched. Chancellor’s play a lose / lose game!

If you are self-employed and require advice on your taxes, assistance with your Self Assessment return – next due 31 January 2019 – or strategies to grow and improve your business’ profits, please contact us to book a no obligation, free consultation.

 

The summer of 2018 will be remembered as a time of searing heat, when the country was united over the greatest competition in the world. Eventually, Dani and Jack would go on to lift the Love Island trophy, while England players also managed to restore pride in the national game, even though they couldn’t quite bring football home. But now the summer holidays are over and one thing at the back of many minds, nagging away like a dripping tap, will be the often-painful tax return.

We ask all the people of Birmingham and beyond – are you ready to get stuck in to your accounts?

Don't panic about your tax return, just yet, but September is the time to quickly get prepared.

 

While HM Revenue and Customs (HMRC) reported it surpassed its record of completed tax returns for last year – with 10.7 million submissions in on time – almost 750,000 people missed the deadline, running the risk of a £100 fine. So businesses, sole traders and individuals who are required to complete a self-assessment can avoid any nasty frights down the line by getting their affairs in order now while there are still five whole months to go to the online returns deadline. However, should you use a paper return the deadline for 2017/18 is coming up as early as 31 October, Halloween – scary, right? Furthermore, if you haven’t registered for Self Assessment, you have little over a month. Don’t leave it too late to prepare or file the return – mistakes are made when you rush.

 

Tax Return Deadlines

> The deadline to register for Self Assessment is October 5 2018;

> The paper tax returns deadline is midnight on October 31 2018;

> The deadline for online returns is midnight on January 31 2019.

Electronic tax returns for the 2017/18 year are due on 31 January 2019.

 

Your First Tax Return

If the 2017/18 financial year is the first in which you were trading, and you have never submitted a tax return before, you might be feeling more anxious. You might not even be self-employed, but are required to provide a Self Assessment due to other income. Whatever your situation, Adams Moore can take you through the process, and help you be sure the i’s have been dotted and t’s crossed, but the first thing you must do is register for Self Assessment for 2017/18, by visiting the gov.uk registration page and submitting your details. Once registered, you’ll be given a UTR (unique taxpayer reference), which you will need to fill out and file your tax return. Keep a note of it somewhere safe so you can find it when needed. You will find further information about being prepared for your first tax return, here, in a previous article.

 

What Will you Need to Complete a Tax Return?

To fill out your return, you’ll need to know your earnings for the tax year (from 6 April to 5 April the following year) and details of any expenses you want to deduct. It’s important to keep a record of your income and expenses, to make filling out the return easier when the time comes. There are apps or software that can help with this, such as Xero, which keep digital records, allow your accountant to access the data directly and have other features such as invoicing, purchase order and quotes.

Allowable expenses include staff, office services and equipment and travel costs – including the cost of salaries, stationery, internet, phones, fuel, parking and train or bus fares. Advertising and marketing, such as website costs, are also included, along with anything you buy to sell on, such as raw materials. The cost of your business premises is also an allowable expense, including the heating, lighting and business rates. If you work from home, you can still claim business premises costs, but only a set amount which offsets your mortgage or rent, heating, electricity and council tax.

 

What Should you Quickly Collate?

> Details of your income – which might be your P60, P11D or your payslips;

> Interest statements from banks and building societies, details of pension contributions and any information about student loans or Gift Aid donations. If you need information from banks or building societies, you should contact them straight away;  it may take them time to get it back to you, but most people should be able to access old statements online;

> Other personal financial records to support claims of how much you spent – such as bank statements, cheque stubs or receipts.

Gather all the paperwork required to complete your tax return for maximum efficiency.

 

What Should you Do if you Have Records Missing?

> Try to get as many copies of lost or destroyed documents as soon possible – for example by asking banks or suppliers for duplicate statements or invoices;

> Use ‘provisional’ figures if you can’t recreate all your records, which means you’ll be able to get paperwork to confirm your figures later. You must use the ‘any other information’ box on the tax return to say this is what you are doing;

> Use ‘estimated’ figures if you will not be able to confirm the exact amounts at a later date, and again use the ‘any other information’ box to give details.

 

Who Else Needs to Complete a Tax Return?

Some individuals are required to fill out and file a Self Assessment tax return. You’ll need to complete one if, in the last tax year (6 April 2017 to 5 April 2018):

> You got more than £2,500 from renting out property;

> You got more than £2,500 in other untaxed income, such as tips or commission;

> Your income from savings or investments was £10,000 or more before tax;

> You were a company director – unless it was for a non-profit organisation and you did not get any pay or benefits, like a company car;

> You made profits from selling things like shares or a second home and need to pay Capital Gains Tax;

> Your income (or your partner’s) was more than £50,000 and one of you claimed Child Benefit;

> Your taxable income was over £100,000;

> Your State Pension was more than your Personal Allowance and was your only source of income – unless you started getting your pension on or after 6 April 2016.

 

What Should you Do if you Can’t Pay your Tax Bill?

HMRC may offer you extra time to pay your bill if they think you can settle the outstanding amount in the future and they will set up a plan for you to pay in instalments by Direct Debit, on the agreed dates. We would advise you speak to an accountant, business adviser or personal adviser if you find yourself in any financial difficulties; there may be funding or operational changes that you hadn’t considered, which could turn your business round.

If you can't pay your tax bill it would be wise to speak to an accountant to discuss funding.

 

Need Help?

If you need help with Self Assessment, you can appoint someone to fill in and send your tax return, such as an accountant, friend or relative. We offer a free initial consultation if you’d like to discuss your requirements, and don’t forget that accountancy services are tax deductible for businesses and sole traders. Alternatively, you can contact the HMRC helpline on 0300 200 3310.

 

Whether it’s your breakfast paper or the 6 o’clock news, there’s no denying the one subject that won’t budge from the nation’s headlines – despite the EU referendum now having taken place over two years ago. Since the term ‘Brexit’ was so aptly coined, the world has witnessed Donald Trump inaugurated as the President of the United States and the death of David Bowie – yet whether you voted ‘leave’ or ‘remain’, it’s been business as usual for the UK economy.

Our very own Birmingham, regardless of what some may view as tumultuous times ahead, has continued on its journey of regeneration to rival the likes of London by 2027, now less than a decade away. With construction work ever on the horizon, the 2017 Crane Survey also revealed unprecedented levels of expansion. Yet, city-centre developments and high-speed railways aside, can cities like ours hope to flourish should Theresa May’s post-Brexit trade deal spark economic downturn?

Despite what SME owners may come to assume, the future for SMEs doesn’t necessarily mirror that of the UK’s wider economy in a post-Brexit Britain.

 

Survival of the Fittest

Hard Brexit or not, businesses need only look to a multitude of corporations already feeling the pressure this year. BMW, Nissan, Airbus and now JLR of the automotive industry have recently revealed the potential rise in trade tariffs should a ‘harsh’ Brexit ensue, costing JLR an additional £1.2bn per year to keep its plants open. From Solihull to Slovakia, the firm has gone so far as to hint Discovery upheaval to Eastern Europe if access to the Single Market was lost. With JLR supporting some 300,000 jobs via its supply chain, this not only threatens to damage UK production, but for the West Midlands – a huge number of employees.

In the face of a fragile sterling and wavering consumer environment, paired with the inability to compete with online rivals, high street retailers are also poised to do battle against the invisible enemy of an unknown trade deal. From BHS to Toys R Us to House of Fraser, it would seem that even the most regarded of household names are not equipped to compete within a post-Brexit landscape. Though Scottish-established House of Fraser’s journey may not be over yet (courtesy of Sports Direct’s Mike Ashley), the consolidation and closure of other high street gems – including 100 M&S branches – across the nation are a warning to other retailers currently rethinking their strategy to improve profitability should they hope to weather the storm.

 

Small Business, Small Fry?

Despite what small business owners may come to assume, the future for SMEs doesn’t necessarily mirror that of the UK’s wider economy in a post-Brexit Britain. Almost 100% of the private business sector is made up of SMEs, now with 5.7m trading on home soil, with a staggering annual turnover of £1.9 trillion combined in 2017.

A well-oiled machine, it would seem. However, if SMEs really do symbolise the ‘backbone’ of the British economy, how could they hope to remain stable as looming negotiations threaten to damage trade in the UK?

 

With cities like Birmingham that are both business and cultural hotspots, SMEs could look set to benefit from Brexit Britain in a number of ways.

The Post-Brexit Advantage

With cities like Birmingham that are both business and cultural hotspots, SMEs could look set to benefit from Brexit Britain in a number of ways:

> Domestic workers – when we do exit the EU, almost half of the UK’s skilled workforce have expressed plans to leave the country within five years – a cause for concern within any business. While this may not have impact in the short-term, SMEs should view this as an opportunity to grow their offering by upskilling existing employees. Not only would this better fill immediate knowledge gaps with training – and thus improve staff retention – but small businesses could also invest more time and energy into local emerging talent.

> International expansion – at a time like this, overseas expansion may seem more unachievable than ever before. Yet thanks to ever-shifting exchange rates, UK SMEs saw international sales increase by 34% in the six months following the EU referendum. In fact, up to 1 in 4 SMEs continue to bolster their exporting efforts with improved returns, as international buyers are lured not only by world-famous British quality, but the affordability of goods. By evolving an online presence to better serve international customers, the world is an SME’s oyster while the pound remains undervalued.

 

Up to 1 in 4 SMEs continue to bolster their exporting efforts with improved returns, as international buyers are lured by the affordability of goods.

 

> European sales – it may be surprising to hear that Western Europe, as opposed to the US, is favoured by SMEs as the top export market this year. When it comes to trading with our EU neighbours, small businesses are proving bolder, embracing the challenge of what a post-Brexit landscape could look like. With goals closer to home, 45% and 20% seek to export to Western and Eastern Europe respectively, small businesses are less likely to target the US and Commonwealth markets, with ambitions remaining firmly in Europe.

> Inward investment – while small business owners may seek expansion to distant shores, SMEs should also look to invest within. Despite the financial difficulties faced by entrepreneurs when turning to banks for funding, a weaker pound has prompted the backing of private equity firms. It is well recognised that, during times of economic uncertainty, an entrepreneur’s ‘lean’ approach has helped SMEs adapt quickly to unsteady environments that their larger counterparts simply cannot; undoubtedly, this is of huge appeal to investors.

 

By taking these opportunities into consideration, regardless of the anxiety felt in the run-up to May’s post-Brexit deal, SMEs across the nation, including those in the Midlands, should remain proactive and reactive in the face of the unknown. Small businesses continue to show resilience against an uncertain economic backdrop, proving that as a nation of shopkeepers, anything is possible.

Depending on the products or services your company offers and the associated production costs, having access to a little bit of cash can make all the difference when you want to create more lines, reach new markets or expand to meet demand. Start-up businesses often face barriers to accessing finance because there is no proof that the model will work and a potential lack of success is a risk big banks might not be willing to take. If your small business loan has been rejected, the bank is legally obligated to refer you to an alternative provider but it is important to understand the reason why you weren’t successful to see if the issue can be addressed.

 

Alternative Lenders

Independent or alternative financing is often more specialised and so there are a wider number of products to choose from, such as VAT loans, equipment loans and franchise loans. As with any form of purchase it is worth shopping around for lower interest rates but be sure of what you are signing up to; it may be secured or unsecured and there may or may not be flexible repayment terms or overpayment penalties. It is also possible to borrow against your company’s assets but we would advise you speak to your accountant prior to applying for any loan so you can be sure your figures are sound and the lending choice will not damage your business. If you are looking to appoint an accountancy firm to assist you with the right financing option, please call us to arrange a free new client consultation.

Peer-to-peer Lending

Individuals and businesses can borrow money via this method, regulated by the Financial Conduct Authority (FCA), which operates very much like a regular bank loan but often interest rates are more favourable. Funding Circle, Folk 2 Folk and Lendinvest are examples in the UK. Each funder has a minimum capital amount set aside and this is available to as many or as few people as they wish to fund, for any amount requested. Those wishing to borrow have to specify how much they would like and for how long, and they are matched to suitable investors to choose from.

Individuals and businesses can borrow money via peer-to-peer lending, which is regulated by the Financial Conduct Authority (FCA).

 

Crowdfunding

This financing method is a sound measure of the market and potentially a more reliable marker of future business success than the thoughts of sector leaders, so you and your ‘amazing’ idea can get a harsh reality check. In some ways, crowdfunding is a natural progression from the group validation which social media brings. The financing method allows for ‘positive feedback loops’ in a similar way social networks do; the start-up receives instant feedback and funds and the funders enjoy the emotional journey that engagement tactics can generate. Momentum can easily build from a small team of passionate advocates, but often you require excellent marketing skills, and ironically funds, to obtain interest in the first place. One option is looking at design, marketing and PR service providers who offer underwriting solutions, whereby they provide support when the business needs it the most in the crowdfunding period and cover the costs.

Bridging Loans

This form of short-term financing has exploded during the current decade, growing from £1 billion in 2011 to £7 million last year. These loans are predominantly used by those looking to buy a property on a tight deadline and don’t need the money for very long, for example to make a purchase while waiting for a sale. Property development companies often opt for bridge finance as monies can be accessible within a couple of weeks, which allows refurbishments to go ahead quickly. If you have equity in an existing mortgage or bridging loan, you utilise this money for your business, whatever its focus. It would be remiss if we didn’t highlight that bridging loans are secured against the value of a property and you run the risk of repossession if repayments aren’t made on time.

Bridging loans and merchant cash advances are a finance option for those wanting to undertake improvement work, and pay back once another property is sold or when seasonal custom returns.

 

Merchant Cash Advances

This funding option is aimed at established businesses and it particularly suits seasonal firms or services, but it can be a sensible option for some fast-growth start-ups. The quiet season provides the opportunity to make improvements, purchases or other changes, but this is when cash flow is usually a problem. The amount you are able to borrow on a MCA is linked to the average amount that you usually take in card payments, there are no restrictions on what the funding can be spent on and then repayments (the total is agreed in advance) are made as a percentage of the future debit and credit card sales. Essentially, until you have money coming in you don’t pay the money back, but the repayment amount increases along with any increase in sales.

Whether you are looking for a reputable accountancy firm to prepare your accounts for a loan application or require business advice for any aspect of your start-up or SME, please contact us to arrange a consultation. While we are based in Tamworth, we service businesses and individuals nationally and offer cloud accountancy software for effortless bookkeeping. 

We were discussing the etymology of phrases in the office the other day and I learned that the phrase “I’ll scratch your back, if you scratch mine” is over 400 years old and refers to giving an offender a light lashing in the English Navy. The person whipping the crew member tied to the ship’s mast would give a gentle punishment, just in case it was the offender was delivering the lashes to them on another occasion. In the media or movies, the phrase is often used in a negative way, but the original meaning also shows a real kindness to others. It got us thinking about building business relationships for the greater good of everyone involved, at the same time as building success.

Looking for opportunities to strategically partner can originate from your company’s books - who can you help and they help you?

 

Looking for opportunities to strategically partner can originate from your company’s books; by concentrating on areas where outgoings start to creep up, you can consider approaching the businesses that have assets or expertise you require and yours are needed by them.

For example, an accountants and solicitors could partner with each other as they will likely require each other’s services, but also clients would also benefit by having additional recommended and trusted expertise in related sector. Having new clients sent your way is one of the simplest forms of an alliance. Furthermore, the two companies could enhance profits by sharing the cost of marketing, advertising, product development and other business functions, or even cross-market or generate connected news stories.

A strategic alliance between two businesses is most often made through a cooperation agreement or other type of contract, but joint ventures can also be formed or each firm can have cross-holdings in the other. Entrepreneurs and inventors, or even those offering very specialised services, may find a successfully mutual partnership with established companies who have client contacts or engineering, manufacturing or development resources to kick-start a new product or service. They offer their technical or creative expertise in return for the capital and necessary means with which to get the idea off the ground.

Strategic business partnerships can be a simple gentleman's agreement or more legally, a cooperation agreement.

 

Nonetheless, a strategic partnership doesn’t have to be as grand as either of those examples, it can just come down to practicality, good ethics and a handshake. This is especially true when friends own companies or are sole traders, and when people operate in a close knit community, office building or business park.

The business offerings don’t even have to be related and I call this everyday networking. For certain businesses, dropping by to other local premises to find out what they offer and to explain what you is a sure fire way of picking up an enquiry here and there; similar conversations with friends you don’t usually talk shop with can always turn up surprising results. At the opposite end of the networking spectrum, there are what are sometimes known as corporate partnerships. These are often accessible, by invitation or otherwise, to a number of businesses by a single coordinating body or business to form a group. For example, Local Chambers of Commerce fall into this category where a fee is paid and you gain access to likeminded and local businesses, education, information, networking events and marketing benefits. Adams Moore is not only a member of the Lichfield and Tamworth Chamber of Commerce, but from September we will be a Corporate Partner of Bishop Vesey Grammar School, as we are excited about the benefits.

The state Grammar school in Sutton Coldfield, which is just a short drive from our offices here in Tamworth, recently asked Adams Moore if they would like to join; just one firm from each business sector is invited join the network comprising around 35 firms. As schools now operate as any other business does, especially dealing with the dips in Government funding, searching for creative new revenue streams is crucial to provide the very best experience for the children who attend. Bishop Vesey Grammar School facilitates a forum to exchange ideas and a marketing benefit to the Corporate Partners while enriching the lives of the students. We’re delighted to be helping a local school raise funds, and we can’t wait to begin attending careers fairs, golf days and BBQs.

Networking through a single entity like the Chamber of Commerce is a good way to find strategic alliances.

 

By thinking laterally about the benefits your business could have, whether that’s a conversation with a neighbour or contractually forming an alliance with a company in a closely related sector, it can make a difference to your turnover and bottom line.

If you’re looking for ways to reduce spending, capitalise on strategic partnerships or need advice about joint venture structures, call us to arrange a free consultation.

 

Advice for Individuals and Ltd. Companies

If you don’t own more than one property the changes to the landlord’s tax relief may have completely passed you by, but for those individuals that have just a handful of rental properties, profits are crashing before their eyes. The 2017-18 tax year will be the first in which a change is made to the tax relief system; instead of deducting all mortgage interest payments before calculating the tax, people can now only get tax relief on 75 per cent of that interest. A 20 per cent tax credit for basic rate tax payers will be received on the rest of mortgage payments.

Year-on-year the relief drops to 50, then 25 then zero per cent, meaning property investors are being taxed on their overall turnover and not just the profits. By the time the 31 January 2022 filing deadline comes round, only the tax credit for mortgage interest will be applied. Having an interest only mortgage, which generally increased landlords’ income, is not particularly effective anymore and people who have a small portfolio, who maybe weren’t seeing much profit anyway, are selling up.

The changes to the landlord's tax relief means some are selling as profits crash.

 

Hitting pockets hard

While on the one hand, people have four years to adjust to the new system fully replacing the old one, on the other, some are finding the legislation severe. The tax credit applied will only at the basic rate of tax for basic rate taxpayers and higher-rate taxpayers can only enjoy a credit of approximately half that; currently the basic rate is 20 per cent for earnings above £11,851, 45 per cent above £46,351 and 45 per cent above £150,000. The punishment doesn’t stop there though, as by being forced to declare a higher income, some are pushed into the higher or additional bracket of tax.

Are people still buying for letting purposes?

For many investors, buying properties to rent out has become less gainful and buy-to-let investment fell by 80 per cent between 2015 and 2017 according to the Intermediary Mortgage Lenders Association. However, one could argue the sector is still very much buoyant as those with large portfolios can often make cash purchases. Also, a demographic that could benefit from the changes are the ‘silver landlords’ who buy properties to rent with their pensions while enjoying their later years.

So called 'silver landlords' are using their pensions to purchase buy-to-let properties.

 

There are still profits to be made by purchasing and letting properties, but there are a number of considerations:

> Higher mortgage expenses – potential looming increases in the Bank of England base rate and the closure of the Funding for Lending and Term Funding schemes could mean more expensive mortgages.

> Lending regulations – when looking for a lender to purchase a buy-to-let, people who already have four or more mortgaged properties now face tighter restrictions, as the Bank of England’s Prudential Regulation Authority ordered banks to carry out tougher affordability checks.

> Landlord licensing – some local councils require landlords to hold a licence. East Staffordshire, Coventry and Nottingham are the closest councils to our offices here in Tamworth that have brought in such a scheme. This article from Which details a UK map and more information about the three licence types; mandatory, additional and selective.

> Energy efficiency changes – a minimum EPC rating of E is now required on new tenancies and renewals, and on existing tenancies from 2020. Cumulative fines of up to £5,000 will be handed out upon failure to meet the legislation.

At the start of 2017, a record high of 20 per cent of landlords were limited companies, so this could be right for you.

 

I own and rent properties – what should I do?

If you can see thousands of pounds of potential profits going up in smoke, you may wish to consider setting up a limited company, but it’s not right for everyone’s circumstances and it might only be cost-effective for the medium to long term.

Whether it’s Adams Moore or another firm, do take professional advice from an accountant on whether it’s beneficial for you to set up a limited company for your property rental business.

Countrywide reported that at the start of 2017, a record high of 20 per cent of landlords were limited companies and Kent Reliance saw buy-to-let mortgage applications from firms rise from 45 to 70 per cent between 2016 and the first nine months of 2017. With this increase, likely derived from those seeking to counter changes to landlord’s tax relief, the mortgage market is responding. There are vast amount of mortgage products available to limited companies now, rising from just 17 in April 2013, to 80 in 2016, to 212 the year after and to 235 in April of this year.

There are more mortgage products available to ltd. companies than ever before.

 

While a mortgage’s interest can be still deducted for relief on a company’s corporation tax, there are disadvantages that must be weighed against the potential tax savings:

> higher mortgage rates for limited companies

> new mortgages are required for current portfolio under the limited company’s name

> corporation tax still must be paid on profits

> additional stamp duty surcharges and capital gains tax bills as you essentially must sell the property to the ltd company

> additional 3 per cent stamp duty surcharges on buy-to-let

> associated fees with switching mortgage

> solicitor’s fees

 

If incorporating isn’t the best route for you, there are some other options for you to offset your loss in profits:

> Increase rents, being careful not to price the property out of the market and then lose money holding an empty house

> Look for shorter-term fixed rate mortgage deals for low interest, but these come with greater risk

> Transfer property ownership to your spouse but ensure the income doesn’t push them into the higher rate of tax

 

You may find this recent article about changing from sole trader to a limited company useful, but please contact us if you would like to take advantage of the free consultation we offer to new clients and we’ll get to know more about you and your property business.

If you have run your business as a sole trader with relative ease, you will be understandably cautious about incorporating it due to the extra obligations and associated costs. However, there will be a right time for many people when they can benefit from the tax savings, having limited liability for the business, developing more credibility and the greater potential for borrowing that a limited company offers. Unfortunately there is no magic sales or profit figure that you can hit, which indicates you should make the change, as every business is distinct and each person has a different personal situation. Other income, from property for example, can greatly affect the decision. However, if your sales are over £50,000 and profit is above £20,000, you should have a conversation with your accountant to investigate the advantages.

When is right to change from a sole trader to a limited company when growing?

 

To help you consider the pros and cons of switching from sole trader to limited company we have listed some important factors for you to consider. We also offer free accounting advice as part of our one-hour, new client consultation so there’s nothing to lose in contacting us if you don’t already employ an accountant. It is entirely possible to undertake the incorporation process and subsequent accounts and tax returns yourself, but a little advice could mean more pennies in your pocket and the avoidance of penalties if all the Ts aren’t crossed.

 

Potential Benefits

> Potential to pay a lesser amount of income tax and therefore take home more

> You will no longer be personally responsible for the company and its losses

> Additional tax deductible expenses against corporation tax are allowed

Potential Disadvantages

> More paperwork and returns to Government

> Losses can only be used against the company’s own profits

> You can no longer draw money freely out of your business bank account

 

How You Will Receive Your Income

Instead of all of the company’s money belonging to you and being accessible to you to take at any time, as a company director and shareholder you will instead be paid a salary and dividends; all of the profits belong to the company. You are recompensed for the latter after the year’s corporation tax is paid and be taxed on these amounts; as a sole trader you are personally taxed on all profits, so should you make the move it’s crucial to keep everything separate with personal and company bank accounts. Continuing with a bank account in your name can result in a nasty tax mess and you must notify HMRC that you are no longer operating on a self-employed basis.

When in a growth stage and profits are reaching £20k it is worth considering being a ltd. company

 

Example of a director’s take home pay:

Your salary is £6,000 – this falls within the personal allowance and under the National Insurance range so you pay no Income Tax or NI

Your dividend is £32,000 – the dividend allowance is £2,000, which you can add the remaining £5,000 of your personal allowance to. This means £7,000 of your dividend is tax free.

Your taxable income is £25,000 – your tax bill will be calculated on the basic marginal tax rate of 7.5 per cent because your earnings haven’t exceeded £46,390. You will pay £1,811 Income Tax.

You take home £36,125 – this is out of the total of your £38,000 earnings.

 

Corporation Tax

Limited companies pay corporation tax and no national insurance. In 2018/19 the main rate of tax is 19 per cent (if profits are under £30,000) and in 2020 this will be reduced to 18 per cent. Sole traders can pay a combined 47 per cent Income Tax and National Insurance so there is a marked difference. However, when operating as a limited company you will still personally be liable for personal tax and NI, and you should factor in that corporation tax doesn’t come with a tax free allowance. Furthermore, IR35 is associated legislation that is in place to ensure people aren’t working as contractors using limited companies in order to pay less tax than they would as an employee, so be sure you are compliant.

 

How Will Your Accountancy Requirements Change?

Accountant’s costs for limited companies are more than they are for sole traders, as there are more undertakings. Therefore, freelancers and contractors will likely want to take advantage of online accounting software, which can process invoices, VAT, expenses and much more to help reduce their own and their accountant’s hours on the books. Cloud technologies take away a lot of the strain that comes with running a limited company – you can read more about our Xero Software offering here, but we are also experienced with a number of other providers, so the best option for you can be discussed.

Instead of one self-assessment tax return you will be required to submit a set of accounts, an annual return and a corporation tax return. If it is advantageous to be VAT registered, there will be your VAT return too. As a director you will need to file a self-assessment, as all directors must, and if you take a salary from the business this must be processed correctly through a company payroll.

If appointing a new accountancy firm at the point of switching company structure, you should be sure to ask about how their charging works. For example, are advice phone calls, communication with HMRC and Companies House or using their address for registration purposes billed for on an hourly basis? When moving to a limited set-up it’s likely that you won’t require full service support, but when your turnover is reaching circa one million pounds our fixed-fee accountancy package, Board Support, is a cost effective option.

You can claim for food, drink, travel and employee entertainment when operating as a ltd. company.

 

Tax Free Expenses

Limited companies can put subsistence claims through their books, so employees, including you as a director, can purchase food and drink at the expense of the company when out on business as well as the travel costs. Entertaining employees is also an allowable expense of up to £150 per employee per year with a limited company, whereas sole traders are restricted in what costs they can claim for.

 

A More Attractive Proposition

Wrongly or rightly, clients, customers and investors often see limited companies as more professional and able to undertake larger orders or contracts. When looking to proactively grow through investment, incorporation can be a big advantage, as you can easily sell shares in exchange for capital.

 

Legalities of a Director

If the business is sued, the directors of a limited company are not liable, unless they have been named as a personal guarantor. However, we would advise you speak to your insurance company when changing from being a sole trader to a limited company, and consider additional cover to include costs of defending the directors and officers of a company if personal allegations are made. In comparison, sole traders can find themselves in problematic financial situations as they and the company are legally the same entity; the personal assets of a self-employed person, such as a house or car, can be seized to pay debt.

Nevertheless, directors do have other legal duties, including acting responsibly, ceasing to trade if the business is failing and protecting assets. Directors can be fined or imprisoned if they are found to have not upheld their responsibilities.

If there will be other directors apart from yourself you must agree and record who has responsibility for different areas of the company. Also document what will happen if one of you wants to leave, how the company will be split during a sale and what profits each director can expect to receive.

Adams Moore accountants and business advisers in Tamworth can help sole traders make the switch to being a limited company.

 

We hope that our overview has given you a few things to think about, but as each situation is different, we would like to assure you that if you have the right accountant you should never have to get involved with the calculations. At Adams Moore we will help you make all major decisions on changing the structure of your business from sole trader to limited company status; if you’re looking for financial security, separating your personal finances from your business as well as saving money, please call us to arrange a free consultation.

Starting a new business or sole trader venture can be stressful, worrying and confusing, and then someone mentions being ready for year end, accounts or filing your tax return – these feeling are likely to multiply and questions flood into your brain about where to start. HMRC also requires some employed people to file a self-assessment too, as it is the system used to collect tax on all income. Often is it deducted from savings and pensions, as well as wages, but people who rent out properties and some who are in receipt of child benefit will need to declare this revenue and pay back the appropriate amount of benefit or tax.

Your first tax return can be stressful, so be organised in good time.

Accountancy fees are not tax deductible in certain circumstances and some people may not feel ready to utilise an accountant like Adams Moore in their first year of business. Therefore, we have written this advice to stand everybody in good stead for the 2017/18 financial year. As that year ended on 31 March, now is the time to organise your tax return. With five days to go before the deadline in January 2018, over 25% of people hadn’t sent it – don’t get caught out and prepare early.

First things first…

Do you need to file a self-assessment tax return? If you’re self-employed and are a sole trader, a partner in a business, a company director (unless it’s an unpaid position for a not-for-profit organisation) or are self-employed as well as hold an employed position you must send a self-assessment. As already mentioned above, self-employment includes income generated from property. If you aren’t sure, visit this page on the Government website to see the full list of those with an obligation.

The first job to do is to register with HMRC, and it can take up to 20 days to receive your activation code. The code must be used within 28 days or it will expire and you will have to re-apply for one. Another task that may take a little time is gathering information from third parties, which could include the interest gained from bank accounts, savings and investments. You should know how much you have contributed to pensions, income from property and all financial information relating to your sole trader earnings and outlay.

Register with HMRC and keep records of everything throughout the year on a weekly basis


Keep neat and tidy records of all financials

Good bookkeeping practice is essential, which simply means carefully recording all your business outgoings and income. If you have been piling receipts into a box, all isn’t lost, but we would suggest you choose a specific time to look after your finances each week, starting this week! Some people choose to employ a bookkeeper, but when starting out this can be an unwarranted expense. ‘Doing the books’ daily may sound like a sure fire way to keep things up to date, but for many it is less efficient than carving out a space in your weekly schedule where you can concentrate for a longer period of time. Keep a place where you can file any hard copy receipts during the week, use a similar system for digital invoices you receive and a have a log of any invoices that need to be raised. Stock taking and creating purchase orders go hand in hand with these tasks, so we suggest this is undertaken weekly, fortnightly or monthly on your ‘finance day’. Really, when you break it down, best practice comes with a routine so items don’t get forgotten, paperwork doesn’t get lost and books don’t get messy – you’ll soon regret the lack of habitual practice when it’s time to collate details for year end.


Great advice, but how do I record the details?

Whether you’re a spreadsheet aficionado or not, using a programme such as Windows Excel is all you need, and create the following column headings on one sheet to record purchases:

> Date, Company, Item, Category, Capital Expense (property, plant or equipment), Total Amount, VAT (if you are VAT registered), Amount Minus VAT.

On another sheet you should detail your income:

> Date, Company/individual, (some won’t have this information), Services/Products, Additional Service/Product Categories, Amount Minus VAT, VAT, Total Amount.

Sole traders must keep records safe for five years after the first 31 January deadline so it’s important to back up in case your computer breaks down.

Keep all information digitally if possible, for example, scan reciepts or use accountancy software


Should you be thinking digitally?

Yes! With the Government’s ‘Making Tax Digital’ initiative it is wise to scan receipts and hold all information digitally. This can be done by yourself or there are a wide number of choices when it comes to software, held locally or on the cloud. Adams Moore uses Xero accounting software, which you can read more about here; it allows you to keep on top of your books on the go and we can access all your records. The days of people making a trip to their accountant with a file full of paperwork and receipts are over.

When filing your tax return, you simply fill in sections that apply to you and the online system reacts to your answers meaning you only complete the necessary information. You can save as you go and send when you’re happy. Should you have got into financial difficulties and anticipate not being able to pay your tax bill by 31 January you should call the Business Payment Support Service and discuss the possible deferral options.

If you are considering hiring an accountant to assist with your bookkeeping and tax return, please contact us and book your free accountant consultation appointment to discuss your requirements.

HMRC employs the equivalent of 56,000 full time workers and is responsible for income tax, corporation tax, capital taxes, National Insurance contributions and the climate change levy… to name but a few. While it is therefore understandable that the Government department changes its priorities and regulations, often it leave individuals and business frustrated. One advantage of using an accountancy and business advice firm like Adams Moore is that we can alert you when your personal or business affairs are affected, present the options and help modify processes or complete paperwork accordingly.

We have created a round-up of the most recent changes your business may not be aware of. Should you require any assistance on these HRMC updates, please get in touch and arrange a free consultation about your needs.

 

Brexit Forces Prioritisation Reshuffle

HMRC’s priorities have been influenced by Brexit, and on 30 April the Chief Executive, Jon Thomson, outlined the findings of a work programme review to a Public Accounts Committee. The reprioritisation has resulted in some parts of the Making Tax Digital (MTD) initiative being delayed; the deferrals may be troublesome for some, but savings for the department likely make financial sense while HMRC deals with the challenge of leaving the EU – and as accountants, we support intelligent financial decisions!

Some Making Tax Digital (MTD) plans have been deprioritised due to Brexit preparations.

Single Digital Accounts

An ultimate aim of HRMC, creating single digital accounts for businesses, now has a decelerated programme, but it will apparently not impact the delivery of MTD. The prioritisation shake-up has meant the convergence of business taxes from the current range of IT systems onto a single system will now happen at a gentler pace. This will therefore slow the creation of the single account for all business customers and it was announced no further MTD for Business changes will be directed for implementation before 2020.

MTD Services for Individuals

Most individuals should not need to deal with any changes in the near future as no additional requirements will be made on people, unless HMRC deems it will result in a reduction in phone or post contact, or ‘significant savings’. Along with this news, work on the simple assessment and real-time tax code changes is being frozen for the time being. Other delays concerning individuals are PAYE Settlement Agreements, Inheritance Tax payments and Tax Advantaged Venture Capital Schemes applications.

Making Tax Digital for VAT

The mandatory MTD for VAT, due to be introduced from April 2019 is one element that has not changed, but we thought it important to highlight. Small companies that are not currently VAT registered, but are continually growing, may not be aware of the turnover threshold of £85,000 which is the point when businesses must register for VAT. Forecasting is key so that payments can be planned and saved for. While we’ll return to digital VAT a little later in the year in more depth, businesses must be prepared to keep digital records (for VAT purposes only) and provide VAT returns through the MTD software from next April, and a pilot system is now live for simple returns.

Employees will not be taxed on the benefit of electricity for cars at workplace charging facilities.

Rewarding Green-thinking Employees – Have Your Say

In the autumn of last year, the budget summarised the implementation of a new tax exemption; for the benefit of electricity provided at a place of work, by the employer, to charge a car or van. Currently companies who offer charging points for electric or hybrid vehicles must tax individuals for the usage of this gainful facility, in the same way as a company car would be taxed. The technical consultation that closes on 5 July 2018 seeks comments on the provision of workplace charging facilities, which vehicles the exemption covers and the qualifying conditions of the exemption. It is expected legislation will be included in the Finance Bill later this year and its effect will be made retrospective to 6 April 2018.

VAT Scale Charges Change from May

It happens every year for businesses using the VAT scale charge, and 2018 is no different – the road fuel scale charges have been updated, and you can find them here. The scale is used to calculate the amount of VAT that is payable to HMRC on road fuel, without having to split mileage between business and private use; this method adds a fixed amount to account for the private usage, based on CO2 emissions, and therefore must be for each car, not a fleet of vehicles and vans are not eligible. Companies should apply the new scale from the first new accounting period after 1 May, but what are the alternatives?

If the private mileage is very low the scale may not be cost effective and instead the exact business mileage can be used within accounts. Otherwise, a mileage allowance can be paid by the business and VAT can be reclaimed on this, or in the event of business mileage being very low and private mileage is high, a business can choose not to reclaim VAT on fuel costs. Contact us if you would like to discuss the most beneficial option for your company’s cars and financials.

Deadline for P11D Form On 6 July 2018

Benefits and some expenses provided to employees and directors for the financial year ending 5 April 2018 must be reported using the form P11D, through self-assessment or via a PAYE coding notice adjustment, and the deadline for filing the 2017/18 P11D is 6 July 2018. Additionally, if the benefits are being reported via P11D or payroll the company employing the person must pay Class 1A National Insurance Contributions (13.8%) on the majority of the benefits. The P11D(b) form calculates the liability and this payment, which is due for 2017/18 on 19 July.

The deadlines are on the horizon and ensuring the details are gathered and reported correctly may take time. If you require any assistance with this process, calculations or the form completion please get in touch.