The Budget - at a glance

Unless you’ve been hiding from the trick or treaters for the last few days, I suspect you’ve heard about the budget released earlier this week. Now whilst I’m sure most people are fairly happy with what they’ve heard, I think a lot of us out there are reserving judgement until we’ve got to the other side of March 29.

However, just on the off chance we get through the spring statement unscathed I thought it would be useful to highlight some of the points proposed!

• First of all, your personal allowance (the bit you can earn before you pay tax) has gone up to £12,500 (whoop!)

• You’ll have to earn over £50k now before you start paying 40% tax (although this means that you don’t get the lower national insurance rate until then either so you’re not getting quite as much as you think)

• Your dividend allowance is still at £2,000

• Your capital gains allowance is £11,700

If you’re a business there are a few things which you may benefit from

• The ‘Annual Investment Allowance’ (the amount you get as a tax deduction if you make capital purchases) is going up to £1 million from £200k for the next two years. This is interesting to know if you’re planning some major investment in the next couple of years.

• If you contribute to the apprenticeship levy then your contributions will reduce from 10% to 5%

• It’s likely that as a small business you should see a reduction in your business rates over the coming years, although there doesn’t seem to be any reduction targets attached to this particular statement yet!

All in all, not a bad haul for the tax payer but again I’ll be reserving full judgement until we’ve passed the dreaded Brexit deadline. I also suspect this may be buttering us up as I can’t see many significant rises in these standard tax reliefs after April 2019…..

IR35 - Dazed and Confused

If you provide your services to a company through an intermediary then you need to consider whether the IR35 Off Payroll Working legislation applies to you.

 
What’s an intermediary?

An intermediary can be a worker’s own limited company (usually know as a personal service company or PSC), a partnership or another individual. 
There are too many situations to list out here what this actually means, but realistically if a limited company, another subcontractor, an agency or partnership is charging another company for the use of your time and skills then this is something you need to consider. 

How do I know if it applies?

Someone is probably self-employed and shouldn’t be paid through PAYE if most of the following are true:
•    they’re in business for themselves, are responsible for the success or failure of their business and can make a loss or a profit
•    they can decide what work they do and when, where or how to do it
•    they can hire someone else to do the work
•    they’re responsible for fixing any unsatisfactory work in their own time
•    their employer agrees a fixed price for their work - it doesn’t depend on how long the job takes to finish
•    they use their own money to buy business assets, cover running costs, and provide tools and equipment for their work
•    they can work for more than one client

These things can be more difficult to assess when providing services through an intermediary but they give you a good basis to start with.  

What’s the cost to me?

If you find that you can’t meet enough of these criteria then it’s likely you would be considered an employee.  
This means that you will have to pay tax and national insurance on your earnings as if you were an employee, which obviously sort of negates the benefits of being self employed in the first place. 
The good news though is that each of your contracts will be assessed on a contract by contract basis, meaning that some of them may fall out of the scope of IR35.  

The be all and end all

IR35 can be complicated and if you are not sure then HMRC actually have a handy check service which will give you an idea (https://www.gov.uk/guidance/check-employment-status-for-tax).
Your accountant should be able to give you some advice as well and remember if it’s a public service contract then make sure you seek some advice as this area is even more complex now!

The down low on Company Cars

I’ve been asked a few times (per day!)  about how company car tax works and whether it’s better having a company car or using your personal car and claiming mileage.  As always my main response is, it depends. 

What is a company car?

A company car is a car provided by a business for both the personal and business use of an employee.  If your company provides you with a Van instead then under certain circumstances there will be no tax to pay.

How is it taxed?

The personal use of a company car is classed as a Benefit in Kind.  You’ll pay tax on the calculated taxable benefit through your wages.  How the value of the benefit is determined is based on a number of things;

-          The list price of the car

-          It’s CO2 emissions

-          Whether you’ve financially contributed to the vehicle

As an example, let’s say your employer offers you an Audi A3, 1.5l petrol car.

The list price                £28,635

CO2 emissions             118g/kg

Percentage charge      22%

Therefore the taxable benefit value is (£28,635 x 22%) = £6,300

The amount of tax you would pay on this would depend on the tax bracket you are in once the benefit is added to your taxable income. For example if you earn less than £46,350 when your salary and benefits are added together then you would pay 20% tax on £6,300 or £1,260.

This is what you would pay every year, as the company car benefit is based on the list price of the car and not its current value (ouch!).

If you are a director of the company then it’s also worth knowing that the company will owe class 1A national insurance which is currently at 13.8%.  This means that the company will have to pay (£6,300 x 13.8%) £869 for providing the company car.  This has to be filed and paid using the P11D system.

The total that you and the company have to pay for the year for this car is £2,129.

What about if the company provides a fuel card?

If the company pays for your fuel as well then you get taxed additionally on the fuel as a separate benefit. 

The ‘value’ of fuel benefit is prescribed by HMRC and for 2018/19 stands at £23,400.  This value is then multiplied by the emissions percentage used on your company car.  Therefore using the example above, the taxable benefit on the fuel is (£23,400 x 22%) £5,148.  Again, assuming you’re a 20% tax payer this means a cost to you of £1,029.

Again the company has to pay national insurance which is (£5,148 x 13.8%) £710.

Overall for a company car and fuel it costs;

-          the employee: £2,289 in tax payments for the year

-          the employer: £1,579 in tax payments for the year

Where is claiming business mileage a better solution?

Now, your other option is to buy a car personally and reclaim business mileage.  Obviously the higher the mileage, the more you can claim.

The current rate is 45p per mile (or 50p per mile if you’re transporting a colleague). This rate applies to the first 10,000 business miles you do and essentially equates to £4,500 claimed. This is also tax deductible for your employer. 

After the first 10,000 miles you are able to claim 25p per mile (30p per mile if you’ve a colleague on board!)

So, if you’re doing a lot of miles in a year then potentially having a private vehicle and claiming the mileage would be better for both you and your employer.  But before you get excited remember that doing this means you also have to pay for the wear and tear on your vehicle whereas this would be paid by the company if you had a company car. 

The verdict?

Again, I go back to my favourite two words, it depends.  You need to work out what is going to work best for you and your business.  If you like having a nice car (therefore higher taxable value) then it might be best to privately own.  If you want a low emission car then company car might be best for you.  Don’t forget to take in to account the miles you do as well. 

Hopefully the examples used here help but give us a call if you’d like to talk about it some more.

Limited Company or Sole Trader – what’s best for you?

There are somewhere north of 6 million small businesses in operation in the UK with more and more people making that leap every day.  There are many challenges you will face when starting out on your own, regardless of the type of business you want to create.  Be it around how to market your company, do you need a website, who will create it for you, what insurances or qualifications do you need, how do you price your product or service, the list is endless.

A question I get asked a lot is, should I be a limited company?   The answer I usually give everyone in the first instance is, it depends!

I don’t really think there’s a lot of help out there for you guys who’ve started out and haven’t yet had a chat with an accountant, it can be all very confusing so, hopefully this might help some of you get off on your best foot.

What is a Sole Trader

A sole trader is someone who is running a business that is not incorporated.  This is often how most businesses start out and means that you will have to register with HMRC for self assessment as you will be self employed.

You can register for VAT as a sole trader and you can employ people as a sole trader, you just need to register for these things with HMRC and then make sure you submit all necessary returns on time.

There seems to be a common misconception floating around that it’s better to be a limited company in order to employ people, this is not the case, an employer is an employer and they have the same requirements regardless of whether there is a Limited after your business name.

From an accountants’ perspective the administrative burden on a sole trader is fairly low.  Yes, they have to keep books and records of their income and expenses just like everyone else BUT they only have to submit one self assessment tax return (and pay any tax due!), and they don’t have to file anything with Companies House, so no statutory accounts each year.

What are the downsides to this, I hear you cry, why isn’t everyone a sole trader?!

Well, with a sole trader the business and the person are seen as one legal entity.  This basically means that were the business to get in to debt or start struggling financially, then the sole trader would be liable for those debts and her or his personal assets would be potentially up for grabs as well.  There are other, less dramatic downsides, such as sometimes it can be difficult for non-incorporated businesses to raise finance for expansion or development and generally if you are approved, the amount of finance is often lower than for a limited company.

Pro’s

-          Less regulation

-          Easier and faster to set up

-          Usually lower accountancy fees

Cons

-          No limit on liability, you and the business are one in the same

-          Raising finance can be tricky

-          Could end up paying more tax

Limited Companies – worth the hassle?

Building on the above, there are still plenty of reasons to incorporate your fledgling business, even if you don’t use it straight away.   If you love your company name and don’t want anyone else to use it, you can register with Companies House for £12, if an incorporation service or an accountant does this for you then it’ll probably cost a bit more.  Although you’ve registered it, you don’t actually have to trade out of it if you don’t want to and can continue on as a sole trader for now.  All you need to do is make sure the company is dormant, submit dormant accounts each year and submit a confirmation statement annually which will cost you £13.

This sounds scary, but there is plenty of online help on Companies House for you to do this yourself, or you can ask your accountant to do it for you.

If you are trading out of your limited company then you need to bear in mind that you need to make sure you keep books and records as you would with a sole trader, you need to submit statutory annual accounts for the company each year, you will need to complete the confirmation statement each year and you will need to complete a company tax return each year.  As a Director in a company you will also need to submit a self assessment tax return each year.

You’ll more likely than not incur a higher level of accountancy fees with a limited company, however your accountant should also be providing advice on the most efficient way of extracting an income from your company which is where the value really lies.

Pro’s

-          The company is a separate legal entity so personal liability is limited

-          Potentially better access to finance and funding

-          Preserve a trading / company name

-          Potentially more tax efficient

Cons

-          Increased administration and regulation

-          Higher professional fees

Everyone’s circumstances are different, so it stands to reason that one solution doesn’t fit all. I hope this has helped clear up some of the confusion around the two options and helped you make a more informed decision.  You can always contact us directly if you’ve got any questions, we’re happy to help!

The dawn of ‘The Alternative Accountants’

So, as I’m sure some of you are aware, we’ve just gone through a re-brand. Complete with shiny new logo and website and most importantly, a name change (eek scary!) I’ve spent the last two years lovingly building up LLP Finance Services, only to realise that the name doesn’t reflect who I am or what I’ve been trying to achieve.

Therefore, drum role please ladies and gentlemen...

I would like to officially welcome you all to The Alternative Accountants! 

From speaking with a lot of my clients, it seems the impression of Chartered Accountants is still that of stuffy old dudes in suits.  Translated, this seems to mean that business owners, start up or existing, seem to find accountants unapproachable and difficult to talk to.  That’s not how I want to do things, I want my clients to feel comfortable enough to call me if they need something and to get a response that they can understand.  To get a service that is all year round and works for your business.

One of the single most important things you can do when starting with any new venture is speak to an accountant, and so many people don’t.  We can help you in so many ways which, if done right, will actually give you a better chance at succeeding.

That’s really what I want to achieve with the alternative accountants, some one who will make a positive impact on your business and doesn’t just go through the motions each year.  

Welcome everyone to an alternative way of doing things!

Now, go and have a look around the shiny new website, with the shiny new logo and let me know what you think!