Corporation Tax

We offer for the Corporation Tax……………

  • Corporation tax computation
  • Claiming available capital allowance and losses that available
  • Preparation the CT600 and submission to HMRC
  • Advice on corporation tax liability and guidance how to pay to HMRC
  • Other ad hoc services related to corporation tax matters

Are loans to directors and employees tax free?

Are loans to directors and employees tax free?

Do you know the rules around director’s loans? If you withdraw money from your company other than for salaries or declared dividends, you should come and talk to us.

If you’re a director then taking out a director’s loan against the cash in your limited company might seem like a sensible thing to do. But the reality is that overdrawn loans to directors can lead to unintended tax consequences if they’re not properly managed.

There are three main impacts:

  1. The loan may result in a taxable benefit-in-kind, if it’s interest-free and greater than £10k – affecting your personal tax payable.
  2. The company may suffer a Section 455 charge if the loan isn’t cleared within 9 months and a day of the year-end.
  3. There’s an income tax (and potentially National Insurance) liability if the loan is written off.

In addition to this, if a company goes into liquidation with a director’s loan due to the company, the liquidators can take action against the director to get the loan repaid. This can include taking bankruptcy proceedings against the director concerned.

So, how do you ensure you’re on safe, tax-effective ground when taking out a director’s loan?

The lowdown on director’s loans

What do we mean by a director’s loan account (DLA)? In essence, this loan can be seen as any payment made to you as a director other than payments in respect of:

  • Business expenses
  • Salary
  • Dividends
  • Repayment of amounts owed by the company to the director.

It also includes similar payments to close family members.

If you owe the company more than £10,000 at any time during the year, even if it’s only for one day, then a taxable benefit potentially arises. However, if you’ve paid interest on all amounts owed at any time, regardless of amount, and have done so at at least the HMRC minimum rate (currently 2.25% p.a.) then this taxable benefit won’t arise. It’s normally better for the company to charge interest of at least that minimum rate to prevent the benefit-in-kind charge arising.

The DLA ideally should not be overdrawn by any amount on the last day of the company’s accounting period. If it is overdrawn, unless it’s cleared within 9 months and 1 day a Section 455 charge of 33.75% of the uncleared amount is payable. If the amount is cleared at a later date, the Section 455 charge is repayable by HMRC 9 months and 1 day after the end of the accounting period in which it’s cleared.

Paying back the loan

As you can see, this all gets relatively complex to manage. So, why not pay the loan back just before the period-end and then take out a fresh advance from the company just after?

Two rules restrict that:A. The £5,000 rule – if a repayment of £5k or more is made AND within 30 days of this further advances are taken, the repayment is then offset against the later advance, not the original loan.B. The £15,000 rule – where the amount outstanding is £15,000 or more, and at the time of repayment there was an intention to draw down further sums, the repayment is applied against the subsequent drawdown – this applies even if this takes place more than 30 days ahead.

Exception to A and B: If the repayment is from a source that’s subject to tax (generally a dividend or bonus) then it can be offset against the older debt. So, it’s common to declare a dividend within 9 months and a day after year-end to clear the opening DLA balance and avoid a Section 455 charge, even if other advances had been made.

There are other considerations to think about too:

  • If instead of being repaid, the loan is written off, that will be taxed in the recipient’s hands as dividend income. And it may also be subject to employee and employer National Insurance as if it was payrolled.
  • Writing off the loan will only be sensible when there aren’t profits available to pay a dividend, or not all shareholders have loans being written off.
  • In some limited circumstances National Insurance may not apply.
  • Where a loan exceeds £10,000 it requires prior shareholder approval.

Talk to us about managing your director’s loans

Managing your director’s loans in the most tax effective way is a challenge. As your adviser, we can advise you on the timing of dividend payments to help you eliminate or reduce Section 455 charges. We’ll also help make sure that your record-keeping for advances to directors is comprehensive enough to withstand HMRC scrutiny – always good practice when entering into a loan of any kind.

If you withdraw money from your company other than for salaries or declared dividends, please do come and talk to us and let’s find out how we can support you from here at The Stan Lee.

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Back to Tax Basics: How capital allowances reduce your tax bill

Back to Tax Basics: How capital allowances reduce your tax bill

Are you planning to purchase some major fixed assets? Talk to us about the available capital allowances, super-deduction and the potentially positive impact on your cashflow.

Generally speaking, the business expenses you incur are allowable against your profits. But when it comes to fixed asset purchases (things like machinery, equipment or vehicles), these purchases are treated slightly differently.

To reduce your tax bill when purchasing fixed assets, it’s important to know what capital allowances are available and how you can use them to enhance your tax planning.

In the next part of our Back to Tax Basics series, we outline which capital allowances are available and which assets they relate to.

What are capital allowances?

Fixed assets are classed as items of equipment that will be used in the business for more than a year – so, things like office furniture, machinery and company vehicles. For accounting purposes, the cost of these fixed assets is spread over the expected life by calculating a depreciation charge each year – in other words, the value the item will lose over this time.

  • For tax purposes, the depreciation is added back (disallowed) and ‘writing down allowances’ are claimed instead.
  • There is an Annual Investment Allowance (AIA), fixed at £1 million per annum for the forseeable future. Most asset purchases up to that total can be claimed in full in the year of purchase. The main exceptions are cars and items you owned for another reason before putting them into the business.
  • For some assets, 100% First Year Allowances (FYA) are available. These include:
    • New and unused vehicles with Nil CO2 emissions
    • New electric vehicle charging points
    • Plant and machinery for use in a Freeport
  • For everything else you might purchase as a fixed asset, the costs are allocated into various pools depending on the type of asset, and Writing Down Allowances (WDA) calculated on the pool value on a reducing balance basis. These include:
    • Special Rate Pool 6% rate – Cars (new or used) with CO2 emissions > 50 g/km, Integral fittings incorporated into commercial buildings (lifts, electrical and water reticulation, air conditioning, heating equipment), long-life (>25 years when new) items over £100K annual spend. Long-life excludes structures and buildings.
    • Main Rate Pool 18% rate – everything else. Note as specifics this includes cars with CO2 emissions >0 <50 g/km.
    • Structures and Buildings Allowance (SBA) – the SBA offers a 3% flat rate for 33.33 years on non-residential buildings, but not on land.

Talk to us making use of capital allowances

If you’re thinking of purchasing capital equipment, it’s worth knowing that, in many cases, the tax benefit can be claimed in a lump sum, even though the equipment may be in use for several years. This will have a positive short-term impact on both your tax charges and your cashflow.

As your accountant, we can advise you on the tax treatment of different types of assets and, if external funding is required, can help you prepare business plans and finance applications. To find out more about capital allowances from us here at The Stan Lee, please get in touch with us and let find out how we can support you.

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Plain English guide to corporation tax

Plain English guide to corporation tax

If you’re just starting out, you’ll need to register your incorporated business for corporation tax (CT). Check out our Plain English guide to CT and your responsibilities as a business owner.

Getting to grips with the basics of accounting, financial management and business strategy can be a challenge. To make things easier, here is our plain english guide to corporation tax, one of the key business taxes you’ll need to understand as a limited company.

What is corporation tax?

Corporation tax (CT) is a direct business tax that’s levied on your company’s profits.

The CT you pay is based on the company’s taxable profits. This will include revenue from your business activities, investments and capital gains.

As an owner/director, one of your key responsibilities is to make sure the company complies with all CT legislation that’s relevant for your business and pays any tax that’s due.

Here’s a quick overview of the current rates of CT in the UK?:

  • For annual profits under £50,000, you’ll pay CT at the lower rate of 19%
  • For annual profits over £250,000, you’ll pay CT at the standard rate of 25%
  • For annual profits between £50,000 and £250,000, you’ll pay CT at the standard rate, but with Marginal Relief applied at the rate that’s relevant to your type of business. Where there are associated companies, these thresholds are shared equally between them.

How does corporation tax affect your business?

Paying CT is a key obligation for most incorporated businesses. But what are the key responsibilities to have on your CT to-do list?

As a company, you’ll need to:

  • Register with HM Revenue and Customs (HMRC) – your company must contact HMRC to register for CT within three months of starting trading as a business.
  • Keep accurate financial records – financial records are essential. You’ll need to keep records of all income, expenses and transactions related to your business activities.
  • Calculate your taxable profits – at year-end, you must calculate the company’s taxable profits by deducting any allowable expenses and reliefs from your total income.
  • Prepare and submit a CT return – every year, the company must prepare and submit a corporation tax return (CT600) to HMRC. This return gives details of the company’s financial activities and tax calculations for the tax year in question.
  • Pay corporation tax – most companies must pay the CT they owe to HMRC within nine months and one day after the end of the accounting period. Companies with an annual profit exceeding £1.5 million have a faster payment schedule, with quarterly payments starting 6 months and 13 days from the beginning of the accounting period.
  • File accounts with Companies House – your company must file its statutory annual accounts with Companies House. These accounts will include financial information related to CT and will be available as public records.
  • Comply with all relevant deadlines – your company must meet the filing and payment deadlines set by HMRC. If you don’t, this could lead to penalties and interest charges.
  • Seek professional advice – the best way to make sure you’re ticking all the correct CT compliance boxes is to work closely with a qualified accountant or tax adviser.

How can our firm help you with your corporation tax?

Keeping on top of your corporation tax responsibilities can be a challenge. As your adviser, we’ll work with you to manage your corporation tax and keep everything as tax efficient as possible.

We’ll help you keep accurate records, file your returns on time and claim all available reliefs. It’s the best way to minimise your tax bill and stay 100% compliant.

If you’d like to know more about the impact of corporation tax, we’ll be happy to explain.

Get in touch to chat about your CT responsibilities and let’s find out how we can help from The Stan Lee.

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Knowing the tax impact of using a company car

Knowing the tax impact of using a company car

Do you know the tax implications of a company car? We can explain the impact of a company car on your benefits in kind (BIK) and company taxable costs.

Having the use of a company car is a great perk. But are you aware of the tax impact of a company car and how having this vehicle may affect your company benefits?

Two of the key tax considerations related to company cars are the benefits in kind (BIK) tax charges incurred by the driver, and the tax deductions which benefit the company. At present, it’s also worth understanding the benefits of running an electric or low-emission vehicle.

Understanding the BIK charges on your company car

The BIK amount you’re taxed on as the driver of a company car is calculated as a percentage of the list price of the vehicle when new. The list price includes delivery charges, optional extras and VAT but not the registration fee or the first year’s vehicle excise duty.

Because it’s based on the original ‘list price when new’ value, any discounts are ignored, and even for used cars, the original value is retained.

The percentage applied depends on CO2 emissions, and for hybrid vehicles the on-electric range, as you can see in the table below:

Screenshot 2023-07-18 at 3.57.51 PM

It’s worth noting that:

  • Diesel vehicles registered before January 2021 that aren’t RDE2-compliant attract a 4% surcharge on their published BIK rate, up to a maximum total of 37%
  • Where fuel is provided by the company for private mileage, the same percentage is applied to a value of £27,800.

Claiming company benefits against the cost of a company car

Although the driver is taxed on the perk of driving a company car, the company can benefit by claiming deductions for the costs involved in running this vehicle.

All expenses in connection with the operation and maintenance of the car are deductible as trading expenses, including things such as insurance, fuel and maintenance. Capital allowances are also available in respect of the purchase price of the vehicle.

Depending on the vehicle, the capital allowances available are:

  • 100% First Year Allowance – this is only for new zero-emission cars.
  • 18% annual allowance on written-down value – this is for second-hand electric vehicles and all vehicles with emissions between 1 and 50 g/km
  • 6% annual allowance on written-down value for all other new and used vehicles.

Talk to us about the tax implications of company cars

If you’re thinking about investing in a company car, it’s worth considering that there are tax advantages for both the company and the driver in selecting an all-electric vehicle. There are also advantages, to a lesser extent, in opting for a low-emission vehicle.

We can calculate the likely personal BIK tax charge on any vehicle you’re considering buying through your business, as well as advising on the tax and other implications for the company.

Talk to us before purchasing a company car for personal use. The tax charges can be higher than you may expect, so it’s worth considering the BIK impact before you buy.

Get in touch for a chat about your company car plans from us at The Stan Lee.

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Spreading your tax costs with Time To Pay

Have you been hit with an unexpectedly large tax bill? One way to manage this is to apply for a Time to Pay arrangement with HMRC. We’ve got the lowdown on how to do this.

HM Revenue & Customs (HMRC) expects you to pay your taxes on time. But if you’re finding it difficult to pay in full, HMRC can be approached to allow a Time to Pay arrangement.

A Time to Pay arrangement will allow you to pay your debt off in pre-agreed instalments, reducing the impact of a large tax bill – and helping you manage your debt and cashflow.

How does Time to Pay work?

If you need to request a Time to Pay arrangement for self-assessment tax, Employer’s PAYE and VAT, these can often be made online using a ‘self-service’ system.

Where you owe other types of tax, or where the conditions for online applications are not met, you’ll need to contact HMRC to discuss your situation.

  • The easiest (although not always the quickest) way to discuss your Time to Pay request is by telephone to 0300 200 3835.
  • HMRC agents will want to know about all taxes you owe, not just the one(s) where you want to spread payment. They will also ask for details of your income and outgoings, and any savings or assets that may be able to be used to reduce the amount owed.
  • Presuming that you agree to a payment plan with HMRC during the call, they will usually want to set up a Direct Debit straight away.

Making use of the self-serve Time to Pay system

If you don’t have any existing payment plans or debts with HMRC, the ‘self-serve’ system may be more straightforward, provided that the applicable tax returns have already been filed. The conditions and amounts vary depending on the particular tax.

For example:

  • Self-Assessment: You must apply no more than 60 days after the payment deadline and owe no more than £30,000.
  • Employer’s PAYE: You must be within 35 days of the deadline, owe no more than £15,000 and have no outstanding penalties. The maximum period over which the amount due can be spread is six months.
  • VAT: For VAT, you need to apply within 28 days of the due date and owe no more than £20,000. You can’t apply for a Time to Pay arrangement through the self-serve scheme if you use either the cash accounting or annual accounting schemes.

The self-serve option for Time to Pay does make the process easier, but remember that HMRC isn’t obliged to offer you the option of settling your taxes owed via instalments.

If you fail to pay your taxes, HMRC can take recovery action in the County Court, and apply for the taxpayer to be put into liquidation or made bankrupt where appropriate.

Talk to us about making Time to Pay work for you

One of the best ways to avoid getting into difficulties with your tax liabilities is to work more closely with your accountant. As your tax adviser, we’ll produce regular forecasts so that any financial stresses can be foreseen well in advance.

Where unexpected circumstances do arise, putting a suitable payment plan in place with HMRC is the most sensible way to manage this situation. Ignoring your tax problems won’t make them go away and burying your head in the sand can lead to serious penalties and legal action.

Get in touch to talk about Time to Pay and let’s find out how we can help from The Stan Lee.

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What business taxes will your company need to pay?

What business taxes will your company need to pay?

Are you in the dark when it comes to business taxes? We’ve got the lowdown on the key taxes your new business will need to pay – so you’re on top of your tax liabilities.

Once you’ve registered your business as a limited company, you become liable for paying taxes on the profits you make. But what business taxes are there? And how do you know which of these taxes to pay?

To answer this, we’ve created a short ‘Back to Tax Basics’ email series, to give you the full lowdown on your tax responsibilities as a company director.

Understanding the main business taxes

Despite HMRC’s motto of ‘tax doesn’t have to be taxing’, the UK tax code can be a complex thing to get your head around.

If you’re not a trained accountant and have limited experience in financial management, understanding the rules around business taxes can be confusing. So, to start with, let’s look at the main business taxes you’re likely to register for.

Key business taxes include:

  • Corporation tax (CT) – corporation tax is a tax that’s levied on your profits as a limited company. At the end of your accounting period, you must submit a corporation tax return, and pay the CT that’s due. The rate from 1st April 2023 will be up to 25%, although companies with profits not exceeding £50,000 will pay 19%, with the full 25% rate applying to companies earning over £250,000.
  • Value-added tax (VAT) – VAT is a consumption tax that’s levied on goods that have had value added at each stage of the supply chain. When you buy these goods, you’ll pay VAT. And when you sell these goods, you will collect VAT. At the end of each quarter, the VAT funds that you’ve collected must be paid to HMRC. You can also claim back the VAT you’ve spent on certain qualifying goods and services too. The standard rate of VAT is 20%, the reduced rate is 5% and certain goods can also be zero-rated.
  • Pay-as-you-earn (PAYE) – PAYE is a way to collect income tax and National Insurance Contributions (NICs) from your employees. If you have employees and run a payroll, then you’ll need to collect the required amounts of income tax and NICs from your employees’ wages as part of your payroll process. Then you must report on these deductions and pay the tax and NICs to HMRC, either monthly or quarterly after the pay period, depending on the amount involved. In addition to the income tax and NICs you deduct from your employees, the company may also have to pay Employer’s NICs as a business expense.

Learn more about the basics of business tax

So, there you have it. That’s the basics of the key business taxes you’ll need to think about as a new business owner. In the next part of this series, we’ll look at the taxes you’ll be liable for as a director, and how these personal taxes tie in with the profits you take out of your business.

Get in touch if you have any questions about tax and let’s find out how we can help from The Stan Lee.

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The Autumn Budget 2022 at a Glance

The Autumn Budget 2022 has a significant to you and your business as it has huge number of changes on tax matters once the Mini Budget 2022 became questionable. While people are suffering from living costs, the Government takes many steps in this budget. In this article, the writer will note the summary of key tax matters relevant to you and your business.

Income Tax Allowance and Rates for Individuals

  • The basic, higher, and additional income tax rates will remain at 20%, 40% and 45% respectively for 2023/24 tax year
  • The basic and higher rate thresholds remain at the current level of £12,570 and £50,270. However, the additional income rate thresholds will reduce from £150,000 to £125,140 from April 2023
  • The personal allowance will remain frozen at £12,570 until 6 April 2028

 National insurance (NI) Contributions

  • The employment allowance is set at the current level of £5,000
  • The Health and Social Care Levy is no longer going ahead and the temporary NIC increase of 1.25% has been removed from 6 November 2022
  • The national insurance thresholds for all classes will be maintained at the current level until April 2028

National Minimum Wage

  • From April 2023, the hourly national minimum will increase to £10.42 (aged 23 or over), £10.18 (aged between 21 and 22), £7.49 (aged from 18 to 29), £5.28 (16-17 years old) and £5.28 (apprentice rate)   

Dividend Allowance and Tax Rates

  • The annual dividend allowance for individual will reduce from £2,000 to £1,000 from April 2023 and a further reduction to £500 from April 2024
  • The dividend tax rate will remain at the current level of £8.75%, 33.75% and 39.35% respectively for the basic, higher, and additional taxpayers

Corporation Tax

  • From April 2023, the companies with profits over £250,000 will pay tax at 25% and small companies with profits up to £50,000 will pay tax at the current rate of 19%
  • Companies with profits between £50,000 and £250,000 will pay tax the main rate reduced by a marginal relief providing gradual increase in the effective corporate tax rate

Annual Investment Allowance

  • Annual Investment Allowance (AIA) has been confirmed at a permanent rate of £1 million from April 2023

Annual Exemption Reduction of Capital Gains Tax (CGT)

  • The annual exemption of capital gains tax for individuals will reduce from £12,300 to £6,000 from April 2023 and then further to £3,000 from April 2024

Inheritance Tax (IHT)

  • The thresholds will remain at the current level (until April 2028) for Inheritance tax nil-rate band (£325,000) and residence nil-rate band (75,000)
  • Without IHT liability, qualifying estates can continue to pass on up to £500,000 and qualifying estate of a surviving spouse or civil partner can continue up to £1m

Stamp Duty Land Tax (SDLT)

  • The cut of Stamp Duty Land Tax (SDLT) will remain in place until 31 March 2025. On 23 September 2022, the government increased the nil-rate threshold of SDLT from £125,000 to £250,000 for all purchasers of residential property in England and Northern Ireland and increased the nil-rate threshold paid by first-time buyers from £300,000 to £425,000
  • The maximum purchase price for which First Time Buyers’ Relief can be claimed was increased from £500,000 to £625,000. This will now be a temporary SDLT reduction which will remain in place until 31 March 2025

Disclaimer: The above information is just as a general information that might help you. However, we highly recommend having expert advice suited for your circumstances. The Stan Lee and its author are not liable if you rely on this and have any consequences.

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Mini-Budget 2022

Mini-Budget 2022

How Does It Impact on You and Your Business?

The mini-budget 2022 by Kwasi Kwarteng has enormous changes for individuals and businesses here in the UK. However, the budget becomes questionable, though the Prime Minster and Chancellor are confidence for the economic growth. In this article, we will note the key aspects of the budget.

Key Aspects of The Mini-Budget 2022: –

  • The corporation tax will remain at 19% and the planned increase to 25% from April 2023 bas been withdrawn. This is good news for small businesses as they are struggling since the COVID-19 pandemic.
  • The 1.25% increase in dividend tax will be abolished from April 2023 which came into effect from this year (April 2022).
  • From April 2023, the income tax will be cut from 20% to 19% for basic rate taxpayers. In addition, the additional rate (45%) of income tax will also be abolished and only the higher rate of income tax at 40%. It looks like huge incentive for enterprise and hard-working people.
  • The rise of 1.25% in National Insurance (NI contributions) from 06 July 2022 will be reversed from 6 November 2022. As a result, you have “better take home” from your employment income.
  • In the past few years, the off-payroll working has been incredibly debatable. Good news! the controversial IR35 has been eliminated and this is a great move for the entire contracting industry.       
  • With the aim of high growth and low tax, the government cuts Stamp Duty Land Tax by doubling the level (from £125,000 to £250,000) for purchasing a residential property. Moreover, the SDLT is nil (level increase from £300,000 to £425,000) for the first-time buyers when the property price is less than £625,000 (rather than the current £500,000). This is really a great news for the property industry when the interest rate is rising sharply.
  • The Annual Investment Allowance (AIA) will remain at £1m and the planned fall to £200,000 from April 2023 has been removed.
  • To encourage investment in the small businesses, the investors can invest annually up to £200,000, which is double of the current limit. In addition, the company can raise up to £250,000 rather than the current limit of £150,000.
  • No major changes announced in the mini-budget regarding VAT, only VAT free shopping for overseas visitors. This will be replaced the old paper-based system with the digital one. It could encourage more visitors here in the UK that leads to the economic growth.

The mini-budget has huge tax cuts with the aim of economic growth and the question is whether this is sustainable as the government has huge debt because of the COVID-19 support made and the current war in Ukraine.

Disclaimer: The above information is just as a general information that might help you. However, we highly recommend having expert advice suited for your circumstances. The Stan Lee and its author are not liable if you rely on this and have any consequences.

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