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What should you consider when preparing tax accounts and corporation tax returns under the new rules.

November’s last year the Finance Act introduced two major changes to the use of corporation tax losses both of which were effective from 1 April 2017.

Tax return. HMRC, self employed
Preparing tax accounts and corporations tax returns

A restriction on the amount of brought forward losses which can be offset in any one year

A relaxation allowing carried forward losses to be used more flexibly. The restriction should only impact the largest companies and groups – an annual deduction allowance enables up to £5m of profits per company or group to be offset by brought forward losses each year before any restriction. By contrast, the relaxation applies equally to all sizes of company. This represents a win-win scenario for small companies and groups, who can benefit from increased flexibility as to the use of their losses going forward without suffering from the restriction.

We will look here at some of the practical things to consider when it comes to preparing tax accounts and corporation tax returns under the new rules. It should be noted that the measures set out here apply to corporation tax losses only; there are no corresponding changes to the treatment of income tax losses for the self-employed.

New relaxed carry forward rules

From 1 April 2017:

Trade losses can be carried forward against total profits of the company, and not just profits of the same trade.

Non-trading loan relationship deficits (NTLRDs) can be carried forward against total profits of the company, and not just non-trading profits.

Certain carried forward losses may be available for group relief, including trading losses, non-trading losses on intangible fixed assets, management expenses, NTLRDs and property business losses. There are however some terms and conditions to be aware of. Importantly all of these relaxations only apply to losses arising on or after 1 April 2017 (“post-April 2017 losses”). Losses arising before this date (“pre-April 2017 losses”) continue to be subject to the previous rules for relief. There are a number of conditions which must be met for post-April 2017 trade losses to be set off against total profits, including:

The company must continue to carry on the trade in all subsequent accounting periods up to and including the one in which the losses are offset.

The trade must not have become small or negligible in the loss making period.

The trade must be commercial or carried on for statutory functions (e.g. a marketing board created by statute) in both the loss making period and period of set off. If these conditions are not met, it may still be possible to set the trade losses off against profits of the same trade under the old loss relief rules, or, where the trade has ceased, claim terminal loss relief. There are also a number of terms and conditions around group relief for carried forward losses, including:

A company can only surrender carried forward losses as group relief if they cannot be deducted from its own profits in the accounting period.

A company cannot claim carried forward losses as group relief if it has its own carried forward losses which it could set off. As with any relaxation in tax, the new rules on carried forward losses are accompanied by a host of new and updated anti-avoidance provisions, including:

  • A new Targeted Anti-Avoidance Rule (TAAR).
  • New and strengthened rules to preventloss-buying.

Practical considerations

The application of the new rules is relatively straightforward if a company had no carried forward losses at 31 March 2017. Any losses incurred after this date can potentially be relieved against total profits or group relieved, subject to the restrictions noted above.

However, if a company had losses carried forward at 31 March 2017 these will continue to fall under the old loss relief rules, and will therefore have to be tracked separately to any later losses.

Where a company has an accounting period which straddles 1 April 2017 then the periods falling before and after that date are treated as two separate accounting periods. Special commencement and apportionment rules apply, which are described in detail in HMRC’s draft guidance. There are also changes in the way claims for carried forward losses operate under the new rules, including:

If trade losses are carried forward against profits of the same trade (typically because they are pre-April 2017 losses) then relief is automatic, but a claim can be made to dis-apply this.

Where carried forward losses are set against total profits, the company must make a claim for the relief. It should be noted that, although the restriction on the set off of carried forward losses will only affect the largest companies, new compliance rules require all companies to specify the amount of their annual deduction in their corporation tax return and groups to nominate the member responsible for allocating the deduction. Finally, the new relaxed rules may provide an opportunity for companies to recognise more deferred tax assets. For example, before April 2017, a deferred tax asset may not have been recognised in respect of carried forward trading losses if the company had no prospect of making future trading profits against which it could be utilised. There may now be the potential to recognise a deferred tax asset for post-April 2017 losses if the company has other income or is a member of a group.

If you need help preparing your tax return or corporation tax contact us 01612056655 or send us an email info@stanleycarter.co.uk or check our website for further details www.stanleycarter.co.uk 

 

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What should Accountants expect in 2018

We’re just a matter of days into the New Year and no doubt accountants are already looking ahead at the new challenges and obligations 2018 will bring.

self assessment, tax return, accounts, tax
Preparing self assessment in 2018

Of course, some of the most important deadlines for accountants to meet fall in the first few months of the year, and May 2018 brings a deadline of a different nature – with firms needing to ensure their data is compliant with the new EU-led  General Data Protection Regulation (GDPR).

But what other challenges might accountants be facing this year, and how might they need to prepare to respond to them?

Self-assessment deadline looms large

The first real target to meet for accountants is the annual scramble to ensure clients submit their online tax returns in order to meet the 31 January deadline.

In truth, of course, the majority of accountants will have done the bulk of preparation by now; readying their clients and securing the necessary information for the 2016-17 tax year in the hope of comfortably ensuring submissions are made.

 

However, if you are struggling to extract the last pieces of information from your clients it’s worth sending out one last mail shot as soon as possible, not only to remind them about the deadline but also to ensure they fully realise they are entirely responsible for submitting their returns and thus avoiding triggering the automatic £100 penalty.

You don’t want to be in a position where any client tries to put the blame for any penalty at your door.

HMRC is in the process of reviewing how penalties are applied, with a review suggesting a driving licence-style points system, but for now, the immediate £100 fine remains in place, with further penalties following for clients who continue failing to submit.

New dividend threshold

In terms of new policies coming in place this year, that you may need to direct your clients towards, the first involves the reduction in the tax-free allowance for dividend income.

From the start of the new tax year in April, legislation will come in reducing the band where dividends incur a 0% tax charge from £5,000 to just £2,000. Clearly, this could have an implication for how some clients choose to be remunerated in the future.

Tax relief for finance costs reduced

Also in April, the tax relief available for the finance costs of individual landlords will continue to be hit.

During the current 2017-18 tax year, higher rate tax payers have only been able to claim higher rate tax relief on 75% of the total finance costs deductible from rental income received. The remaining 25% of finance costs incurred only qualify for tax relief at the basic rate. From April 2018, the higher rate relief available will fall to 50%. Ultimately, landlords will only be able to claim basic rate tax relief on finance costs incurred; this process is set to be completed at the start of the 2020-21 tax year.

Making Tax Digital comes ever nearer

Finally, while Making Tax Digital (MTD) will not start to come into force until April 2019, many sole traders, partnerships or limited companies likely to be affected should be advised to consider whether their existing bookkeeping function will meet HMRC’s strict MTD filing requirements. If it doesn’t they will need to invest time and effort into adapting their record keeping to be MTD-compliant. This is not something that can happen overnight. The smooth transition can only be achieved if sufficient time is allowed for planning and evaluation.

While many VAT registered entities are already virtually compliant, for others the process will take a little longer, and it will be prudent to consider software choices a good nine months in advance of any new legislation coming into place. For a number of businesses therefore, the summer of 2018 will be a good opportunity to choose an option that will work best for your needs.

If you need assistance with your self assessment or any other tax matters email us on info@stanleycarter.co.uk or check our website for further details www.stanleycarter.co.uk 

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Managing your finances ready for the New Year!

As the ribbon is cut on 2018, there’s usually a slight pause in business owners calendars which can be used to look back at what your company’s accomplished and how it might be get better.

finances, Self assessment, HMRC, Tax, New year
Getting on top of the finances

 

Managing a small business is a complex endeavour that only passionate people can dare to undertake. A small business owner has to wear many hats, especially in managing sales, customers, workers, partners, and personal life at the same time. Keeping the finances of a small business running efficiently is one task that business owners cannot afford to outsource or delegate completely because finances is the lifeblood of the business.

However, managing the finances of a small business is fundamentally complex because there are so many balls that you must juggle at the same time. Nonetheless, the right tools can help you manage your business finances more efficiently without ignoring other important parts of the business.

Anyone who needs to complete a Self Assessment has the potential to shave hundreds of pounds off their tax bill by getting savvy on which expenses are eligible for relief with HMRC. 

Keeping proper accounts is an important part of managing a small business, but the accounts of a small business can become confusing pretty fast if you don’t have a background in finances. In fact, many small business owners need help knowing where their personal finances end and where their business finances begin.

Once you moved up from being a sole proprietorship to become a small business owner, you’ll start having to manage other people other than yourself alone. However, many small business owners who don’t have a background in HR tend to see payroll management as a time consuming process.

Expenses are an important part of running a small business; you’ll have a number of core operational expenses and an even higher number of non-core but important expenses. You’ll spend money on petrol, meals  coffee with potential clients, and sending holiday gifts. Those seemingly minor expenses can pile up and leave a big hole in your finances.

If you need help organising your finances this new year or to prepare your self assessment send us an email on info@stanleycarter.co.uk or check our website for further details www.stanleycarter.co.uk

 

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Things to consider if you not long wish to use spreadsheet to do your accounts

For many UK contractors and micro-business owners, the process of managing business finances has historically been a solid Excel spreadsheet and a lot of patience.

accounts, spreadsheet, Vat, HMRC, self assessment
Doing accounts using spreadsheet

But with an ever-changing small business landscape and the looming spectre of digital tax on the horizon, more and more people are looking past their spreadsheets and searching out more sophisticated technology to help them with their accounts.

Although technology is becoming increasingly sophisticated, we are not quite at the point where everything can be fully automated and your accounts just take care of themselves. So while software is designed to make the process easier, you still have to do some work too.

When approaching accounting software for the first time, the most important thing is to ensure that the information you are entering into it is correct. This includes everything from inputting accurate bank data (if you’re manually entering transactions rather than using a direct bank feed), and categorising your expenses correctly, right through to simply making sure your company start and year-end dates are correct. By doing this, you will avoid making simple mistakes that could cause you a headache with your finances down the line.

Bookkeeping is not the most exciting task when it comes to running your business, and it’s easy to let it slip down your priority list, especially if you’re facing the prospect of using a new method after years of your reliable spreadsheet. But the less disciplined you are, the more difficult it will become.

Take out a dedicated time each week to do your basic admin (such as inputting expenses, chasing invoices and reconciling bank transactions) and stick to it. By making bookkeeping a regular habit, you will keep on top of your finances more easily while getting better acquainted with your software much faster.

Perhaps the biggest obstacle that puts people off stepping away from spreadsheets and giving accounting software a try is the issue of data security. It’s certainly not a mistake to be concerned about this; data security is absolutely vital and any accounting software provider worth its salt will take it very seriously. These providers should be completely transparent about what they do with your data and how they store it, so take the time to do some research and put your mind at rest.

But if you are looking for new accountant that you can trust and give you impartial advice please send us an email on info@stanleycarter.co.uk or check our website for further details www.stanleycarter.co.uk

 

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Your accountant role can be an asset to your business

Retail spending in the UK fell in October 2017 at the fastest pace for any October since 2008. This has been attributed by some to consumers curbing purchases of non-food goods in the face of rising inflation. In addition, there remains the prospect of a 4% business rate rise next year being confirmed in the Budget, which many have predicted could have serious consequences for investment and confidence. Either way, for many small businesses, and particularly smaller retail businesses, the outlook is uncertain and challenging.

At times like this, though, small business owners often look for those best positioned to provide business as well as financial advice. In the past, this may have been the bank manager or their local Business Link when was still operating, but times are, perhaps, beginning to change. In a recent online focus group with small business owners from around the country, when we asked who they would turn to for help and advice about running their business, more than half of our participants cited a small business organisation or network, but nearly a third also mentioned their accountant.

First and foremost your accountant’s role should be to keep your business meeting its financial obligations, whether that is paying appropriate income tax and National Insurance, ensuring you register for and keep track of VAT and paying corporation tax as a limited company, all of which can become increasingly complex and time consuming as your business grows unless managed efficiently. This process, for example, will likely include improving your record keeping so, for example, you can legitimately claim business expenses that can be used to reduce your profits and your tax liability.  Having some form of accounting software or some form of mechanism to keep up to date records of your financial affairs is a major step towards avoiding those sorts of issues. Your accountant will help you with this.  As your business grows and you become an employer, your accountant can look after payroll and even more advanced financial reporting whilst you focus on further growth.

This recognition that an accountant can be valuable for more than just the figures, though, is an interesting development. It points to the genuine contribution that an accountant can make in providing sound support, including general as well as financial guidance, that frees you up to concentrate on your core activity. The accountant’s position as a critical friend can be more than helpful. Moreover, with many small businesses likely to be using a small practice or an individual accountant, each of which is likely to be a small business themselves, owners seem to recognise that their accountant is likely to identify with many of the challenges they are facing or will have experienced them vicariously through the raft of other companies with which they work.

Whatever view you have of how the next few years will play out, one thing is certain and that is that nothing is certain! Now might be the time to find an accountant with whom you feel you can build a relationship and ask them discuss your short, medium and longer term hopes and plans. Ask them to explain how they could support you through the next phase in your business journey.

For for further information you can contact us on info@stanleycarter.co.uk or check our website www.stanleycarter.co.uk

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Self employed tax

Self-employed professionals and business owners (there are currently 4.7 million in the UK, according to the Office for National Statistic) may be tempted to spend freely and take as many deductions as possible in any given year, yet there are circumstances where it makes more sense to be more economical or defer deductions.

It’s important for the self-employed to know the rules.  Businesses must report all earned income and expenses. There are cases where businesses claim items that aren’t actually legitimately deductible.

Not only does that cause a problem if they’re audited by the tax man, it could also hurt their business when it comes to a sale, qualifying for a loan or making a retirement contribution based on taxable income. However, there are times where it makes sense to defer making purchases.

When you sell your business, you’ll likely be asked to give the potential buyer at least three years of tax returns. Many buyers rely on these net income numbers more than your accounting books, because so many expenses can be claimed in a sole proprietor business when you’re doing your end-of-year accounting. Loan companies will also look to your tax returns to assess your ability to repay a loan.

Small-business owners should be concern of their personal finances. Deductions lower business income, but that also hurts a business owner’s ability to qualify for other financial needs like a mortgage or a loan for new equipment or a van.

You may want defer expenses to the next reporting period because you are anticipating a large income item which will come in. The important thing when it comes to all tax decisions and opportunities is keeping good records.

But for further information about tax or self employment please contact us on info@stanleycarter.co.uk or check our website www.stanleycarter.co.uk