This month’s newsletter includes: an article that sets out some of the benefits of preparing management accounts; news that Companies House will be making more of their data available at no charge; information about investment and tax relief; and finally, details on combining certain VAT schemes to ease the burden of compliance and your cash flow.
Management accounts, produced on a regular basis, will give you and your professional advisor the information you need to manage your business and keep your planned profit growth on-track. They also provide the basic data that you will need to minimise your tax payments and keep your business on track to produce sustainable profits. Additionally, management accounts can be used to:
Keep 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 regular up-to-date accounts.
Plan the purchase of new plant, equipment or vehicles
The tax allowances you can claim for capital purchases can vary significantly. In particular the date on which you buy and the specification of the vehicle or equipment will need to be taken into account. Well worth taking professional tax advice before you make any significant investment in this area.
Plan how you pay 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 may close down beneficial options.
In an effort to increase corporate transparency Companies House is to make all of its digital data available free of charge. This will make the UK the first country to establish a truly open register of business information.
As a result, it will be easier for businesses and members of the public to research and scrutinise the activities and ownership of companies and connected individuals. Last year (2013/14), customers searching the Companies House website spent £8.7 million accessing company information on the register.
The change will come into effect from the second quarter of 2015 (April – June).
Business Secretary Vince Cable said:
“The Government firmly believes that the best way to maximise the value to the UK economy of the information which Companies House holds, is for it to be available as open data. By making its data freely available and free of charge, Companies House is making the UK a more transparent, efficient and effective place to do business.”
It will be interesting to see how enterprising individuals and companies use the data for business development purposes.
From April 2014 a new investment relief has been created, the Social Investment Tax Relief (SITR). Investments must be in a social enterprise, which means a community interest company, a community benefit society, or a charity. The money raised must be used for the enterprise’s chosen trade or charitable purpose.
In many ways SITR shares characteristics with the SEIS (Seed Enterprise Investment Scheme) and the EIS (Enterprise Investment Scheme). There are, however, some differences in the Income Tax, Capital Gains Tax and investment limits for each scheme.
Another important distinction is that SITR is the only scheme that can apply to certain debt instruments as well as shares.
A summary of the present tax reliefs available under the three schemes are set out below:
SITR – 30%, SEIS – 50%, and EIS -30%.
Capital Gains Tax
All three schemes provide potential CGT free gains on the growth in investments, if achieved, provided they are held for the minimum holding period.
Additionally, gains on the disposal of any asset can be deferred into SITR and EIS (but not SEIS) investments.
In place of the full deferral relief, investors in SEIS can claim a 50% exemption of the gains reinvested.
At present the maximum amount that an individual can invest in SITR investments is £1m annually. The equivalent maximum amounts for SEIS are £100,000, and EIS £1m.
Further, the maximum amounts that the entity can raise are: SITR Euros 200,000 over 3 years (including any other de minimis state aid received), SEIS £150,000 over 3 years, and EIS £5m in any 12 month period.
Investors considering their investment options should seek professional advice as it may not be immediately clear which would be the best scheme to support their investment needs.
There are a number of VAT schemes that benefit registered businesses. For example:
If you are eligible and the scheme is suitable for your business, then using the cash accounting scheme enables you to pay VAT when your invoice is paid and not when you issue the invoice to your customers. You are also restricted when claiming back input VAT on purchases and expenses to the date you pay the bill, not the date you receive the invoice from your supplier.
You can use cash accounting if your estimated VAT taxable turnover during the next tax year is not more than £1.35 million and you can continue to use cash accounting until your VAT taxable turnover exceeds £1.6 million.
Annual accounting allows you to send in just one return a year. This offers some relief from the chore of submitting quarterly returns. Using the Annual Accounting Scheme, you make either nine interim payments at monthly intervals, or three quarterly interim payments, throughout the year. You only need to complete one return at the end of each year. At that point you must pay any outstanding amount or, if you have overpaid, you will receive a refund.
You can use the Annual Accounting Scheme if your estimated VAT taxable turnover for the coming year is not more than £1.35 million. Your VAT taxable turnover includes any standard, reduced and zero-rated sales and other VAT taxable supplies, but excludes the VAT itself, VAT-exempt supplies and capital asset sales.
Once you are using annual accounting you can continue to do so as long as your estimated VAT taxable turnover remains below £1.6 million.
You can also combine these two schemes. In this way you can have the cash flow benefits of using cash accounting and some relief from the administrative chores by submitting one return a year.
Before making a decision you will need to take advice as not all businesses will benefit.
1 August 2014 – Due date for Corporation Tax due for the year ended 31 October 2013.
19 August 2014 – PAYE and NIC deductions due for month ended 5 August 2014. (If you pay your tax electronically the due date is 22 August 2014.)
19 August 2014 – Filing deadline for the CIS300 monthly return for the month ended 5 August 2014.
19 August 2014 – CIS tax deducted for the month ended 5 August 2014 is payable by today.
1 September 2014 – Due date for Corporation Tax due for the year ended 30 November 2013.
19 September 2014 – PAYE and NIC deductions due for month ended 5 September 2014. (If you pay your tax electronically the due date is 22 September 2014.)
19 September 2014 – Filing deadline for the CIS300 monthly return for the month ended 5 September 2014.
19 September 2014 – CIS tax deducted for the month ended 5 September 2014 is payable by today.