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Do you use the Employment Status Tool?
Determining whether a worker is Employed or Self Employed isn’t always easy.
HMRC updated and improved their tool in April 2015.
The Employment Status Indicator (ESI) tool enables you to check the employment status of an individual or group of workers – that is whether they are employed or self-employed for tax, National Insurance contributions (NICs) or VAT purposes.
The ESI tool is essential for anyone who takes on workers, such as employers and contractors. (The tool refers to anyone in this position as an engager.) Individual workers can also use the tool to check their own employment status.
The tool cannot, however, be used to check the employment status of certain workers:
- company directors or other individuals who hold office
- agency workers
- anyone providing services through an intermediary (sometimes referred to as IR35 arrangements)
The ESI tool is completely anonymous, so no personal details about the worker or engager are requested.
Click here to use the HMRC Tool
steve@bicknells.net
Have you accrued for Holiday Pay correctly? Section 28 FRS102
Most larger businesses, especially if they are audited probably already accrue for Holiday Pay but not every business has been accruing the cost. FRS102 Section 28.1 will require that holiday pay is accrued. Here is an example from the FRC.
Holiday pay isn’t always easy to calculate for example if you have part time employees or casual workers, Gov.uk have a calculator to help work out the entitlement – GOV.UK Holiday Calculator
The next issue is the rate of pay, for some employees with regular hours its easy but for those with fluctuating rates, bonuses etc a 12 week average is used as explained by ACAS
On 4 November, the Employment Appeal Tribunal (EAT) ruled that holiday pay should reflect non-guaranteed overtime. Non-guaranteed overtime is where there is no obligation by the employer to offer overtime but if they do then the worker is obliged by their contract to work that overtime.
The Government set up a taskforce to consider the possible impact of the EAT’s ruling on holiday pay. Regulations were laid out on 18th December 2014 to limit claims for unlawful deductions from wages to two years. The rules apply to Employment Tribunal claims made on or after 1 July 2015.
Further details at ACAS Calculating Holiday Pay
steve@bicknells.net
When can you make a Prior Year Adjustment?
Until FRS102 basically an error had to be Fundamental for a Prior Year adjustment to be justified
This position is about to change with arrival of FRS 102. Paragraph 10.21 states that ‘an entity shall correct a material prior period error retrospectively in the first financial statements authorised for issue after its discovery’. This means that, on adoption of FRS 102, the threshold for correcting an error by use of a prior period adjustment has reduced from fundamental to material (ICAEW)
Is my Grant Capital or Revenue?
A grant is an amount of money given to an individual or business for a specific project or purpose.
You can apply for a grant from the government, the European Union, local councils and charities.
Advantages include:
- you won’t have to pay a grant back or pay interest on it
- you won’t lose any control over your business
Financial assistance in the form of grants is subject to the normal taxation rules, as supplemented by S105 Income Tax (Trading and Other Income) Act 2005 and S102 Corporation Tax Act 2009 (see BIM40465). Under normal rules the tax treatment of grants will depend on whether they are capital or revenue.
Revenue grants
Grants which meet revenue expenditure, such as interest payable, are normally trading receipts.
See also Smart v Lincolnshire Sugar Co. Ltd [1937] 20TC643 and Burman v Thorn Domestic Appliances (Electrical) Ltd [1981] 55TC493.
Capital grants
Grants which meet capital expenditure are normally not trading receipts.
Grants that may be capital in nature include those paid to acquire capital assets or to facilitate the cessation of a trade or part of a trade.
See The Seaham Harbour Dock Co. v Crook [1931] 16TC333).
A capital grant reduces any qualifying capital expenditure for capital allowance purposes, see CA14100.
See BIM40451 for more details
The Accounting Rules are set out in section 24 of FRS102, neatly explained by Steve Collings in his blog, click here to read it
steve@bicknells.net
Have you reclaimed VAT on old unpaid supplier invoices?
Unless you have opted for Flat Rate or Cash Accounting, VAT is normally reclaimed when you get an invoice from your supplier.
However, some invoices will be disputed and the disputes can drag on for months. Its easy to spot old supplier invoices by looking at your Aged Creditors Report.
But having reclaimed the VAT you might not realise that after 6 months the VAT will need to reversed on your next VAT return. The rules are in VAT Notice 700…..
10.6A Repayment of input tax if you do not pay your supplier
For supplies received on or after 1 January 2003 you are required to repay any input tax you have reclaimed if you have not paid your supplier within 6 months of:
(a) the date of supply (usually taken as the invoice date), or if later (b) the due date for payment
Take a look at your Aged Creditors now and if you discover supplier debts older than 6 months provided the net value of errors is less than £10,000 you can simply correct it on your next return, if the error is more than £10,000 you will need to use Form VAT 652
There is a possible alternative, normally the 6 months is counted from the due date not the invoice date, so you could agree new terms on the disputed invoice and extend the due date.
steve@bicknells.net
What is Overlap Profit?
Overlap Profit affects Sole Traders and Partnerships, here are a couple of examples from BIM81080
Example 1 – one overlap period
A business commences on 1 October 2010. The first accounts are made up for the 12 months to 30 September 2011 and show a profit of £45,000.
The basis periods for the first three tax years are:
| 2010-2011 | Year 1 | 1 October 2010 to 5 April 2011 |
| 2011-2012 | Year 2 | 12 months to 30 September 2011 |
| 2012-2013 | Year 3 | 12 months to 30 September 2012 |
The period from 1 October 2010 to 5 April 2011 (187 days) is an `overlap period’.
Example 2 – more than one overlap period
The business in Example 1 continues. In 2015-2016 the accounting date is changed from 30 September to 30 April. The accounts for the 12 months to 30 September 2014 show a profit of £75,000. The relevant conditions for a change of basis period are met (see BIM81045).
The basis periods are:
| 2014-2015 | Year 5 | 12 months to 30 September 2014 |
| 2015-2016 | Year 6 | 12 months to 30 April 2015 |
| 2016-2017 | Year 7 | 12 months to 30 April 2016 |
The period from 1 May 2014 to 30 September 2014 (153 days) is an `overlap period’.
If the taxable profit for 2015-2016 is computed using days, it includes the profits for the `overlap period’ of 153 days (£75,000 x 153/365 = £31,438).
Adding together the overlap profits for the first overlap period of 187 days in Example 1 (£23,054) and the second overlap period of 153 days (£31,438), gives total overlap profits of £54,492 over 340 days.
Tax Cafe point out in their guide ‘Small Business Tax Saving Tactics‘
Why Hasn’t Everyone ‘Cashed In’ Their Overlap Relief Already?
There are two ways to gain access to your overlap relief: cease trading or change your accounting date.
Ceasing to trade is a drastic step: generally not something you are likely to do purely for tax planning purposes. However, it is worth noting that transferring your business to a company is also classed as ‘ceasing to trade’ for these purposes.
Changing your accounting date to access your overlap relief is less drastic, but the downside is that the relief only arises where you are being taxed on more than twelve months’ worth of profit. Despite this, however, there is still generally an overall saving to be made where current profits are at a lower level than the profits arising when the ‘overlap’ first arose. So, with the economy in the state it’s in, now could be a good time to ‘cash in’!
There is also some useful advice in Helpsheet HS222
steve@bicknells.net
Can you save tax by transferring your self employed losses to a company?
If you are self employed and your business makes losses you have the following options to use the losses:
- You can reduce your current year tax bill
- You can offset it against earlier years (up to 3 years)
- You can carry your loss forward
You can’t claim:
- if you use cash basis
- where you don’t run your business commercially for profit
- for part of a loss (you must claim the loss in full) – so it could wipe out your personal allowance
- if you are part of a limited liability partnership
- where your losses are tax-generated
If you transfer your business in exchange for shares to another company, you can use any unused losses against your income from the new company.
Further details in HS227
What this might mean is that as a sole trader you waste your personal allowance because your profits are offset to zero by losses, however, if you had a company that paid you £10,600 you would keep your personal tax free allowance and be able to use the losses against the remaining profit.
The rules for company losses are noted below.
Trading losses that you’ve not used in any other way will be offset against profits from the same trade in future accounting periods. You don’t have to make any claim for this to happen. It’s done automatically if you fill in your Company Tax Return.
Corporation Tax Act 2010, Section 45
Carry forward of trade loss against subsequent trade profits
(1)This section applies if, in an accounting period, a company carrying on a trade makes a loss in the trade.
(2)Relief for the loss is given to the company under this section.
(3)The relief is given for that part of the loss for which no relief is given under section 37 or 42 (“the unrelieved loss”).
(4)For this purpose—
(a)the unrelieved loss is carried forward to subsequent accounting periods (so long as the company continues to carry on the trade), and
(b)the profits of the trade of any such period are reduced by the unrelieved loss so far as that loss cannot be used under this paragraph to reduce the profits of an earlier period.
(5)In this section and section 46 references to profits of the trade are references to profits of the trade chargeable to corporation tax.
(6)Relief under this section is subject to restriction or modification in accordance with provisions of the Corporation Tax Acts.
steve@bicknells.net
Would a Partial Capital Allowance Claim reduce your tax bill?
It is not necessary to claim the maximum capital allowances available or even claim them at all, crazy as it might sound there are situations when not claiming capital allowances can reduce your tax bill!
Sole Trader Example
The personal tax allowance is currently £10,600 (2015/16)
Lets assume profits are £15,000 and Capital Allowances available are £5,000, so that would reduce taxable profits to £10,000 which would waste £600 of the personal tax allowance.
It would therefore be better to only claim £4,400 in capital allowances and claim the remaining £600 in the following year.
Company Example
Companies within a Group can only offset losses in corresponding tax periods, so if the the capital allowances increase the loss in one part of the group beyond the profits of the rest of the group then there would be no benefit to claiming them in that period.
Companies can claim capital allowances in any of the following 3 tax years.
There is an excellent example of this in the following blog http://taxnotes.co.uk/a-basic-introduction-to-capital-allowances/
steve@bicknells.net
Putting your accounts on Debitoor
I have just signed up to the Premium Pro Debitoor Account, I wanted to have online access and did a comparison to Xero, Sage, Kashflow and Free Agent. I thought Debitoor was excellent value for money (£9/mth for Premium Pro) and I have long been a fan of their online invoicing.
Debitoor is an easy-to-use invoicing and accounting software which helps freelancers and small businesses produce nice-looking, professional invoices in a matter of seconds and assists them in their accounting.
Debitoor is designed for straight forward businesses so if your business is complicated then its probably not the best option for you.
So this is how you get started:
- Create your contacts – Clients and Suppliers
- Create your Products
- Enter the opening balances on the balance sheet (reports) – Debitoor currently only works in calendar years (Jan to Dec) so if like me your year end falls on a different date you will need to enter the balances in the previous year, in my case my year end is March so I entered the balances in 2014 I will then do a year end and they will become the 2015 opening balances and I started entering invoices and expenses in April. I know that’s not ideal and Debitoor are constantly working on improvements, so its compromise for now.
- I then created multiple bank accounts – Lloyds, Directors, PayPal
- For expenses that I had invoices and I uploaded the PDFs of the expenses
- I then uploaded the bank statements for Lloyds and PayPal and reconciled and posted them
steve@bicknells.net
New Company Reporting Thresholds now in place
The new regulations came into force on 6th April 2015 setting the following thresholds for small companies
| Turnover | £10,200,000 | |
| Total assets | £5,100,000 | |
| Average no. of employees | 50 |
Medium Company thresholds will now be
| Turnover | £36,000,000 | |
| Total assets | £18,000,000 | |
| Average no. of employees | 250 |
Micro Entities thresholds are unchanged
| Turnover | £316,000 | |
| Total assets | £632,000 | |
| Average no. of employees | 10 |
As before its a 2 out of 3 test. The Audit thresholds are unchanged.
Micro entities are no longer required to produce a directors report.
The new thresholds will apply to financial years beginning on or after 1 January 2016. However, early adoption is permitted.
Further details in SI2015/980
steve@bicknells.net
Business Accountant 