Archive for November, 2014

The value of interim accounts

Thursday, November 27th, 2014

Many business readers of this blog will have their accounting year end set to coincide with the tax year end. For convenience, the end of March. As we approach the end of the calendar year you might want to consider the value of an interim review of your accounts to see what planning strategies are available to you. For example:


  1. Keeping your bank informed: If your business is constantly pushing towards the top end of its overdraft or loan facilities your bank manager will be much more sympathetic to your requests for more support if you can provide up-to-date accounts.
  2. Buying new plant, equipment or vehicles: The tax allowances you can claim for capital purchases can vary significantly. The date on which you buy, the specification of the vehicle or equipment. Well worth taking professional tax advice before you make any significant investment in this area.
  3. Paying yourself: The options you have available to minimise tax and National Insurance on any income you draw from your business depends on the type of business structure you have opted to work with. Self-employed traders will pay tax on their profits regardless of the amount of cash they withdraw for personal needs; directors and shareholders of Limited Companies will pay tax on the amount of salary or dividends they take. Dividends, however, do not attract a National Insurance charge. Each business offers its own opportunities to minimise state deductions and maximise take home pay. You should certainly take advice prior to your year end to make sure you choose the right strategy. Waiting until after the year end will likely close down beneficial options.
  4. Reduced profits reduced tax payments: If you are self employed you will be making tax payments on account for the current tax year in January and July each year. These payments are always estimated and based on the amount of profit you made in the previous tax year. Another reason to estimate your current year’s profits, before the end of your trading year, is that you can elect to have the payments on account reduced if current year’s profit is lower than the previous year.
  5. Dividends and available reserves: When accountants talk about reserves they mean accumulated profits from past and current year’s trading after corporation tax has been paid. When you take a dividend payment you are actually drawing on, and reducing these reserves. It is illegal to take or vote a dividend if you have insufficient reserves to cover it. Keeping an eye on your accounts is therefore essential and at minimum you should be preparing draft or interim accounts at least once before the end of your trading year.


Whether you divert your own time and energy or ask your accountant to do the work for you it is wise to see the financial cost of producing interim accounts as an investment. It should be possible to identify the benefits of the process so that you can make an objective choice. Time will rob you of the planning opportunities discussed in this article, and there are many more. Don’t wait until after your year end to discover what might have been, the horse is still safely locked in the stable…

Update on State Pension changes

Tuesday, November 25th, 2014

The government has launched a public information campaign to ensure everyone knows what the State Pension changes mean for them.

With just over 500 days to go, Work and Pensions Secretary Iain Duncan Smith and Pensions Minister Steve Webb have recently launched a major new drive to help people understand the historic reforms that will introduce a flat-rate State Pension.

According to a recent press release the reforms will tackle inequalities of the past, with women, carers, lower earners and the self-employed to benefit the most.

In the first 10 years, Department for Work and Pensions (DWP) analysis suggests that around 650,000 women are expected to benefit from the transition valuation, receiving on average £8 a week more in State Pension.

Ministers are urging everyone – and the over-55s in particular – to look at what the changes will mean for them and to secure a detailed State Pension statement so that everyone can plan accurately for retirement.

Under the new system, pensioners would in time receive around £150 a week or over if they have 35 years of full-rate National Insurance contributions, but those soon to retire will need to check what it means for them, with transitional arrangements in place as the system switch over.

Some 42% of people yet to retire admit they need to find out more about saving for retirement, while 38% concede they “try to avoid thinking about” what will happen when they stop working. And only 60% of all adults surveyed realise it is possible to take action to increase their State Pension.

Work and Pensions Secretary Iain Duncan Smith MP said:

“The new State Pension is one of this government’s boldest reforms; it will give people clarity over their retirement income, significantly reduce the means testing of pensioners and put right inequalities affecting women, low earners and the self-employed.”

What is the rush

Thursday, November 20th, 2014

Readers who still need to file their 2014 self-assessment tax return may be asking themselves what’s the rush? After all, the deadline for filing the return is not until 31 January 2015: more than two months away.


In fact there are at least two good reasons why you should attend to your filing obligation in the next few weeks.

  1. If part of your earnings comes from self-employment, either as a sole trader or in partnership, your income from this source for the year to 5 April 2014 may create a significant tax payment on 31 January 2015. If your profit was higher in this year (to 5 April 2014) than in previous years, then it is likely that any payments on account you have made for 2013-14 will not be sufficient to cover all the tax that is due. Accordingly, on 31 January 2015 you will have to pay any shortfall together with a possible increased first payment on account for 2014-15.

If you leave your tax return filing until the last minute you will have no time to organise funds to pay tax due. The earlier you file your return after 5 April 2014, the more time you will have to source funding for your tax payment on 31 January next year.

  1. The second reason to file your tax return now is to avoid breaching a further deadline on 30 December 2014. If you file online before this date HMRC will allow you to pay off any arrears of tax for 2013-14 by adjusting your next year’s tax code. There are limits to the amount of unpaid tax you can clear in this way (presently £3,000), and you will need to have a source of income that is subject to PAYE and sufficiently high enough to support increased PAYE deductions to recover any outstanding tax.

Our advice, therefore, is to attend to your tax return filing without delay. 

Seven year ban for inadequate accounting records

Tuesday, November 18th, 2014

It would seem that errant directors are not only being pursued by HMRC for sloppy accounting procedures. The Insolvency Service is now taking a more active interest.

Daniel Mark Holloway, the sole registered director of Holloways Contract Services, based in Romford, Essex, has been disqualified from acting as a company director for 7 years for failing to adequately explain cash withdrawals from the company’s accounts.

Following an investigation by the Insolvency Service into his conduct as director of Holloways Contract Services Limited, Daniel Mark Holloway, 32, has given an undertaking to the Secretary of State for Business, Innovation and Skills not to be a director of a company or be involved in the management of a company in any way for 7 years from 20 October 2014, without leave of the court.

Commenting on the disqualification, Mark Bruce, a Chief Investigator with the Insolvency Service said:

“The undertaking signed by Mr Holloway sends a clear message to other company directors: if you fail to comply with statutory legislation in that company records are not maintained sufficiently enough to explain all transactions especially cash and you have not taken your responsibilities as a director seriously, the Insolvency Service will investigate you and you could be removed from the business environment.

Holloways Contract Services Limited was formed in July 2004 as building contractors in the commercial sector. The company went into liquidation in July 2012 with a deficiency in excess of £1 million.

In giving his undertaking, Mr Holloway did not dispute that the company’s records included certain invoices which did not adequately explain cash withdrawals of £272,345 during the period of 7 October 2011 to 20 December 2011.

A disqualification order has the effect that without specific permission of a court, a person with a disqualification cannot

  • act as a director of a company
  • take part, directly or indirectly, in the promotion, formation or management of a company or limited liability partnership
  • act as an insolvency practitioner
  • be a receiver of a company’s property

Selling personal possessions and capital gains tax

Thursday, November 13th, 2014

There are a number of personal assets that you can sell without a risk that you are creating a CGT liability. They include:

  • your car
  • individual personal possessions worth up to £6,000 each, such as jewellery, paintings or antiques
  • stocks and shares you hold in tax-free investment savings accounts, such as ISAs and PEPs
  • UK Government or 'gilt-edged' securities, for example, National Savings Certificates, Premium Bonds and loan stock issued by the Treasury
  • betting, lottery or pools winnings
  • personal injury compensation
  • foreign currency you bought for your own or your family's personal use outside the UK

Personal possessions that you dispose of for more than £6,000 are potentially subject to CGT unless both of the following apply:

  1. The asset you are selling is a wasting asset – i.e. has a predicted life of 50 years or less, and
  2. The asset has not been used in your business.

Sometimes an asset that would normally be liable to CGT (for example a piece of jewellery worth over £6,000) is lost or destroyed. If you receive an insurance payout or other sum for the item, you're treated as disposing of the asset for CGT purposes.

If you receive more in the insurance payout than the asset's value when you acquired it, the difference between the two may be liable to CGT.

A further complication can arise if you sell a number of personal possessions as a set. Generally, a set is worth more as a set than if the component parts are sold separately.

If you sell or dispose of personal possessions as a set, the £6,000 limit applies to the set as a whole.

If you sell parts of a set to the same person in separate sales, the £6,000 limit still applies to the set as a whole. You cannot apply the limit separately to each sale.

Failure to pay maintenance to affect credit rating

Tuesday, November 11th, 2014

From March 2015 (subject to Parliamentary approval), the Child Maintenance Service and Child Support Agency (CSA) will begin sharing certain information about the payment records of their clients with credit reference agencies.

This means that arrears built up in maintenance payments will have the same effect on people’s credit score as other debts. Having a poor credit rating can cause people to be refused loans, mortgages, credit cards, hire purchase finance arrangements, mobile phone contracts and other forms of financial credit.

Principally, information will be shared about an individual when a liability order is made against them – a measure used as a last resort after other efforts to encourage payment have been exhausted. In the year April 2013 to March 2014, 12,410 liability orders were granted.

But it is also expected that the introduction of the new measure will have a deterrent effect on those who may otherwise choose to evade maintenance payments, so getting more money flowing to the children and families who need it.

Non-resident parents who have a good maintenance payment record will also be able to request that information about them is shared if they feel it may help improve their credit rating.

While the majority of non-resident parents do contribute towards the maintenance they owe – with compliance amongst CSA clients reaching a high of 86.2% in June this year – this new measure is aimed at targeting the minority who fail to pay.

It is just the latest in a catalogue of radical reforms the coalition government has made to Britain’s child maintenance system.

In addition, an online banking-style self-service facility has been launched allowing parents to manage their maintenance arrangements and keep track of payments. And new enforcement charges have been introduced to recoup the costs of pursuing those who continually don’t pay what they owe.

Don\’t look gift aid opportunity in the mouth

Friday, November 7th, 2014

There are precious few opportunities to make an arrangement after the end of a tax year, and carry the benefit back to impact tax liabilities of the previous tax year.

One such opportunity involves gift aid, and has the full blessing of HMRC.

According to HMRC you can:

“… ask for a Gift Aid donations to be treated as being paid in the previous tax year if you paid enough tax that year to cover both any Gift Aid gifts you made that year and the ones you want to backdate.

Your request to carry back the donation must be made before or at the same time as you complete your Self Assessment tax return for the previous year but no later than the filing deadline for the tax return, which is 31 October if you file a paper tax return, or 31 January if you file online. If you don’t complete a tax return you can ask your Tax Office to send you a form P810 Tax Review – you must send this by no later than 31 January after the end of the tax year to which you wish to carry back your gift.”

In non-tax speak, you can basically carry back gift aid payments made during part of a tax year, and help reduce your tax liability for the previous tax year. The two main conditions that you must observe are:

  1. You must have paid enough income tax in both years to cover the donations made, and
  2. You must make the claim to carry back relief before the filing deadline for your self-assessment tax return in the tax year that you make the gift aid payment.

This strategy can be particularly useful if your income marginally exceeds £100,000 as the carry back will not only save you income tax at 20% (40% – the basic rate tax deducted from the payment you make) but also save you the gradual loss of your £10,000 personal allowance.

Incorporated rogues

Wednesday, November 5th, 2014

There is much evidence that dubious characters can masquerade as bona fide business people by calling themselves directors and wrapping themselves in the cloak of incorporation. They use limited liability status to avoid any personal, financial liability.

Stories abound of “directors” who run up debts, place their insolvent businesses into receivership, buy any useful assets from the receiver at a knock down price and start again with a new company and new directorship. Creditors are left carrying the financial responsibility for the directors’ actions.

Which is why it is gratifying to see these rogue “directors” getting their just deserts. Consider a recent case where the directors of Club Media Systems Limited were disqualified for a total of nine and a half years for failing to provide agreed services or paying company paid tax.

Garry Wayne O’Loughlin and Nicola Martin Hobson, directors of Club Media Systems Limited, based in Blackpool, which traded as a provider of digital advertising services, were been disqualified for a total of nine and a half years, for entering into agreements to provide advertising services which it was unable to provide and failing to make sure the company paid tax due to HMRC.

The disqualifications follow an investigation by the Insolvency Service.

The investigation found that Mr O’Loughlin and Ms Hobson, as directors of Club Media systems Limited, entered into agreements with customers for advertising services it was unable to provide, resulting in these customers being owed at least £22,715 at the date of liquidation.

Robert Clarke, Group Leader of Insolvent Investigations North at the Insolvency Service, commenting on the disqualifications, said:

“Companies have limited liability, which is a privilege, not a right. These two directors entered into agreements which they knew the company could not fulfil, to the detriment of its customers, and failed to deal with its tax affairs, resulting in this privilege being withdrawn.”

The company was placed into liquidation on 21 March 2012 with an estimated deficiency of £739,179.

Tax Diary November/December 2014

Monday, November 3rd, 2014

 1 November 2014 – Due date for Corporation Tax due for the year ended 31 January 2014.

 19 November 2014 – PAYE and NIC deductions due for month ended 5 November 2014. (If you pay your tax electronically the due date is 22 November 2014.)

 19 November 2014 – Filing deadline for the CIS300 monthly return for the month ended 5 November 2014.

 19 November 2014 – CIS tax deducted for the month ended 5 November 2014 is payable by today.

 1 December 2014 – Due date for Corporation Tax due for the year ended 28 February 2014.

 19 December 2014 – PAYE and NIC deductions due for month ended 5 December 2014. (If you pay your tax electronically the due date is 22 December 2014)

 19 December 2014 – Filing deadline for the CIS300 monthly return for the month ended 5 December 2014.

 19 December 2014 – CIS tax deducted for the month ended 5 December 2014 is payable by today.

 30 December 2014 – Deadline for filing 2013-14 Self Assessment online to include a claim for under payments (under £3,000) be collected via tax code in 2015-16.

Rent-a-room relief

Monday, November 3rd, 2014

If you let a room or rooms in your main home you will not pay any tax on rents received as long as the gross receipts do not exceed £4,250 in a tax year.

This relief extends to owner occupiers and tenants who receive rent from letting furnished accommodation in their home.

If your gross receipts are more than £4,250 you can choose between paying tax on:

  • Your actual profit – gross rents minus actual expenses and in certain cases capital allowances, or
  • Your gross receipts (and any balancing charges) minus £4,250; with no deduction for actual expenses or capital allowances.

Rent-a-room relief applies to a tax year and the limit of £4,250 is reduced to £2,125 if during the basis period someone else also received income from letting accommodation in the same property.