If you have high speed internet access in your hotel
you are no doubt taking out time from the pool to read this
newsletter? To all our clients and prospects we hope your
holiday arrangements progress stress and trouble free. For
those of us who are working through, the newsletter includes
a summary of VAT schemes that can be used by small businesses,
and a few other tax ideas.
Three Ways to make VAT easy for small businesses
Cash Accounting
---------------
If your taxable turnover (excluding VAT) will be £660,000
or less during the coming year, you may be eligible to calculate
your VAT payments using the cash accounting VAT scheme.
The cash accounting scheme is especially useful for businesses
who are owed more, from customers, than they owe their suppliers.
Essentially you pay VAT only when your customers have paid
you, not on submission of a sales invoice.
This may improve cash flow and means you only pay over VAT
that has already been paid to you. BUT please be aware that
you can only claim back VAT on your purchases once you have
paid your suppliers.
Annual Accounting
-----------------
How would you like to minimise the amount of time you spend
completing a quarterly VAT return? A solution may be found
in the Annual Accounting scheme which allows you to calculate
your VAT once a year!
Practically you will need to estimate your VAT for the coming
year and pay in monthly (or longer) instalments. The
balance will become due with the Return, two months after
the end of your accounting year.
A word of caution! If you do use Annual Accounting for VAT,
we suggest that you continue to maintain a monthly bookkeeping
routine. If you leave everything to the end of the year you
will find the filing of your annual return, two months after
your year end, difficult to meet! Penalties, surcharges and
interest may be charged if you are late.
You can join this scheme if you meet the following conditions:
1. If your expected, taxable annual turnover is £660,000
or less, but more than £150,000 and you have been registered
for 12 months already.
2. If your annual taxable turnover is estimated to be under
£150,000.
Flat Rate Scheme
----------------
If your projected, annual, taxable turnover (excluding VAT)
is expected to be less than £150,000, then you could consider
the FLAT RATE SCHEME.
Time is saved with this scheme as record keeping is simple
- you calculate your total turnover (inclusive of VAT) and
apply a flat rate percentage (different rates apply depending
on which business sector you belong to). There is potential
for a 1% reduction in the rate for the first year of registration.
You can then be certain of what your liabilities will be,
although you will not be able to claim back VAT on purchases
unless you buy a capital item over £2,000. You must
apply to be part of this scheme.
Combine the schemes
-------------------
You can also use a combination of the above schemes. In this
way you can maximise all the benefits:
-
VAT due based on cash received
-
One VAT return per annum
-
Regular monthly payments to ease cash flow.
-
Simplify calculation of VAT due by applying the Flat
Rate Percentage.
Call us for advice if you think you could benefit from any
of the above schemes - or all!
Arctic Systems - More on Husband & Wife Companies
At the risk of repeating ourselves, and as an appeal in this
case has now commenced, we need to give thought to what can
be done in the interim to forestall any possible problems
arising from returns made by companies owned jointly by husband
and wife (or those who have entered into a civil partnership).
Things we can do include:-
-
review previous tax returns to see if dividends were
split adequately, taking into account the judgements made
so far in this case.
-
deflecting the Revenue's interest by paying fair market
salaries to each spouse regarding their respective duties.
How this is calculated, however, is a difficult question
which we can discuss with you.
-
adjusting shareholdings to reflect the real input of
each partner, a position much less likely to be challenged
by the Revenue.
If you are worried about your own company's returns, pick
up the phone!
In business at the 5 April 1996 - and still going
strong?
When self assessment was introduced, way back in 1996, the
commencing provisions produced a strange result.
If your year end was set to be any month other than the 31
March or the 5 April, then a proportion of your profits "overlapping"
the tax year end were actually taxed twice. This created a
relief called "overlap relief" which you will be able to claim
when you stop trading.
Two problems may arise!
1. If your profits now are much lower than they were in 1996-97,
or
2. If your profits now are much higher than they were in 1996-97.
Profits are now much higher
---------------------------
If your profits are now higher, when you stop trading the
deduction for overlap relief will have a less than proportionate
affect on your final years tax bill. The outcome may be a
larger than expected payment due to Her Majesty's Revenue
and Customs.
Profits are now much lower
--------------------------
In this case the deduction of overlap relief from your final
years profits may turn your final assessment into a terminal
loss. Looking good as there is no tax to pay.
But what if you can't carry the losses back and use them
to reduce tax in earlier years?
In this case the notional double assessment of profits in
the 1996-97 tax year will become a permanent double taxation
of profits!
Possible solutions.
-------------------
We can help you plan your run down to cessation of trade
and perhaps organise a pre-cessation change of accounting
date, which may mitigate the effects of overlap relief on
close down.
If a higher tax bill looks inevitable, we can help you plan
for the "rainy day" - to save in advance and have enough reserves
to cover the bill.
So if you are thinking of scaling down your business now that
you are getting older, or otherwise contemplating a cessation
of trade, then call us now. The best way to minimise any potential
damage is to plan for the most effective deployment of overlap
relief and maximise any strategic opportunities that you may
still have. Once you have stopped trading planning opportunities
may be lost!
Incorporating your Business - Tax allowances for
plant and machinery
Possible tax advantage can be created if you are using the
Holdover Relief provisions when you incorporate your business.
(Holdover relief is used when your business assets are transferred
partly for shares in the new company but predominately as
a credit to your loan account in the company.)
If this applies then you can elect to sell plant and machinery
to the company for a nominal price. As this nominal price
is likely to be much lower than the tax written down value
of the assets, this can give rise to two significant advantages:
1. A cash flow saving as the resulting balancing allowance
can be used to reduce your final tax bill as an unincorporated
business, and
2. As your marginal rate of tax as an individual is likely
to be higher than corporation tax rates, then you create a
permanent saving in tax.
Tax Diary August/September 2005
1 August 2005 - Due date for corporation
tax for the year ending 31 October 2004.
19 August 2005 - PAYE and NIC deductions
due for month ending 5 August 2005. (If you pay your tax electronically
the due date is 22 August 2005)
1 September 2005 - Due date for corporation
tax for the year ending 30 November 2004.
19 September 2005 - PAYE and NIC deductions
due for month ending 5 September 2005. (If you pay your tax
electronically the due date is 22 September 2005)
Summing Up
HTML Email format/Unsubscribe - If you cannot read the contents
of this email please reply entering the words "please forward
plain text version" in the subject line. We will then arrange
for all future newsletters to be sent in plain text format.
If you would like your email address removed from our subscriber
list please reply to this email with the word "unsubscribe"
in the subject bar.
Summing Up - PLEASE NOTE: The ideas shared with you in this
email are intended to inform rather than advise. Taxpayers
circumstances do vary and if you feel that tax strategies
we have outlined may be beneficial it is important that you
contact us before implementation. If you do or do not take
action as a result of reading this newsletter, before receiving
our written endorsement, we will accept no responsibility
for any financial loss incurred.
