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Small business Q and A
In October’s issue of In Practice we invited small businesses from across the country to submit a question to our specially composed panel of small business experts.
Below is a selection of some of the best questions, with our experts’ answers.
As ACCA members, you always have access to our Technical Advisory Service. Visit our website at www.accaglobal.com/advisory or call 020 7059 5920 with your query.
Q: I have just been told that I am due a significant tax rebate from HMRC – while this is good news, I’m confused about whether interest is paid on my money that the taxman’s held onto for a whole year. This could have been sitting in my relatively high interest account earning me some money. I feel short changed…
A: The www.directgov.uk website has a really good section on tax rebates.
From what you say it sounds like you’ve overpaid tax in the past because you pay up-front on account.
If your income fluctuates, then this paying a portion of next year’s tax liability (payment on account) is an annoying part of the tax system. Sometimes you over pay, sometimes you underpay.
You can of course leave the overpayment sum in what the taxman calls your Self Assessment account – which is in fact the taxman’s account. If you leave it in the taxman's coffers then you can use this money to offset against future tax bills. Or if it’s a significant sum, then you can ask HMRC to pay your refund to you, your agent or nominee or a nominated charity. Interest is usually payable on this rebate. HMRC's interest rates can be found on their website– at the moment, the rate stands at a paltry 0.5 per cent. But at least you have a rebate and not a request to pay more.
Q. As a small business owner, I want to donate some of my profits to charity. How do I go about this and is it tax free?
A: If you're self-employed or a partner in a business, you pay Income Tax as an individual on your business profits. This means that you can take advantage of the tax reliefs on gifts of money to charity that are available to individuals. These donations can then be claimed on your Self Assessment tax return. As an individual and a business always remember to give using the Gift Aid scheme – this allows charities to reclaim the basic rate tax on your gift.
The HMRC website has an excellent section on this.
Q: I’m self employed and have an offshore savings account. I run a small business and feel I pay enough tax as it is. What’s going on with offshore accounts?
A: It’s good that you’ve asked about offshore accounts as you need to act now if you haven’t already.
In a move to crack down on unpaid tax from offshore accounts, HM Revenue & Customs has introduced something called a NDO – a New Disclosure Opportunity - which is simply a chance for offshore account holders to let the taxman know what accounts they hold and where. And for these account holders to pay up.
HMRC is asking for – and already obtaining – details of offshore account holders from hundreds of financial institutions. This NDO has been introduced to offer taxpayers / account holders the final opportunity to pay their tax and to get their affairs up to date with the benefit of a fixed penalty, which in most cases is 10 per cent of the undeclared taxes/duties and National Insurance contributions. Anything under £1000 will not be subject to a penalty charge.
Key dates are:
Notify your intention of disclosure by 30 November 2009.
Submit your disclosure using the paper forms by 31 January 2010.
Submit your disclosure online by 12 March 2010. Make full payment with your disclosure.
HMRC will pursue offshore bank account holders for undeclared tax liabilities. So making a disclosure is a good idea. If you don’t, the penalties could be up to 100% of the tax due. In very exceptional circumstances a criminal investigation may be considered. HMRC has an excellent Q&A.
Q: I would like clarification as to whether I can offset trading losses(sole trader) against tax paid in years prior to the year I have already set losses against ?
Example
I have been in paid employment for several years and following redundancy I set up as a sole trader. In my last year of paid employment I am a higher rate tax payer and set off my first year losses against this tax. In the 2nd year I make another loss. Can I set off the 2nd year loss against the year before I have already set a loss against? Or has the "gate" come down preventing me doing this?
A: Q1 Losses up to £50,000 can be carried back for three years. Prior to the change introduced in the Budget on 22 April 2009 losses could only be carried back a year. Both companies and sole traders like yourself can take advantage of the new relief. More details are available from the Budget Press Release.
Q: Is VAT chargeable on second-hand cars?
A: VAT is chargeable by a vat registered trader on the profit margin of a second hand car i.e. say the profit margin on a second hand car is £1,000 then vat at 15% or £150 is chargeable. The profit margin is the difference between the price at which the car was bought and the price at which it was sold.
Q: The VAT threshold has not been increased in line with inflation, is it not time the Government were encouraged to increase this to at least £200,000.
With VAT due to go back up to 17.5% and a rumour of a further increase, my business will be seriously affected.
A: The VAT exemption threshold is set at an EU level and is revised annually by the EU. The UK limit is then usually increased to that maximum amount in each Budget. The UK has always tended to have the highest exemption limit out of all the EU members.
Q: I send in a paper tax return and am worried that because of the postal stick it will not be received by the 31 October self assessment ‘paper’ filing deadline. What can I do?
A: It would be worthwhile looking at electronic filing of your return. If you do send in a paper return HMRC has published guidance for agents and taxpayers regarding submission of ‘paper’ self-assessment tax returns in light of the industrial action by the Communications Workers Union, in the run-up to the 31 October filing deadline. HMRC has said: "You won't have to pay a penalty if you missed the deadline because of the postal strike - but you'll need to be able to prove that you posted your return before 31 October."
Q: New rules on company administration and meetings were introduced on 1 October. Do I have to make any changes?
A: The changes to the way you company conducts its business is part of the Companies Act 2006 changes. The relaxation of some of the rules do not apply automatically. If your company was formed before October this year you will need to look at the changes. As with any changes it is important that existing companies at 1 October review their articles and carefully consider if they need to make any amendments. Some of the changes introduced by the Act will not be reflected in the existing articles and do not automatically apply. The changes to consider are electronic communication, authorised share capital, objects clauses, meetings, the requirement of a Secretary and directors conduct.
Q: I am a publican. What is the new minimum wage and can I still use tips in the calculation?
A: Both the National Minimum Wage and the treatment of tips changed from October. The changes were:
National Minimum Wage for workers aged 22 or over increases to £5.80 per hour (previously £5.73); for workers aged 18 to 21 there is 6p rise to £4.83 and for workers aged 16 and 17 it rises by 4p from £3.53 to £3.57.
Tips can no longer be included to make up the National Minimum Wage. From 1 October 2009 it is unlawful for employers to use service charges, tips and gratuities to take workers’ pay up to the National Minimum Wage. The payment of tips through an employer’s payroll so that they count towards payment of the National Minimum Wage is also prohibited.
From 1 October 2009 employers need to ensure that, where they have previously relied on tips to make up staff wages to the National Minimum Wage, staff are being paid at least the new minimum hourly rates, exclusive of tips. There are penalties for non-compliance.
Q: If a business is registered for the flat rate VAT scheme, should the income be taken for VAT calculation, as received in the bank for the quarter or as per the invoices raised?
A: The Flat Rate Scheme allows you to apply a single percentage to your turnover to work out your VAT liability. This is one amongst a number of schemes offered by HM Revenue & Customs (HMRC) aimed at easing the administrative burdens small businesses face.
The scheme provides a number of advantages, such as:
- the simplicity of the scheme, removing some administrative burdens
- no partial exempt calculation needs to be performed
- no fuel scale charge needs to be paid for businesses paying road fuel
- HMRC offers a 1% discount for new VAT registered businesses under this scheme (the discount only applies to the first year of registration).
Without confusing matters, your business will have to determine how the turnover is calculated as there are three ways of calculating your turnover:
- basic turnover: mainly for businesses that deal with other VAT registered businesses
- cash-based turnover: similar to the Cash Accounting Scheme, the turnover is on a cash received basis
- retailer’s turnover: similar to the retail scheme, used mainly for businesses that sell goods to the public.