Tag: tax

What is capital gains tax?

Posted on | by Jade Donno

Capital Gains Tax

Capital Gains Tax (CGT) is a term you might have come across if you’ve sold a house, shares, or other investments in the UK. But what exactly is it, and how does it affect your finances? In this blog, we’ll break down the basics in a way that’s easy to understand.

What is Capital Gains Tax?

CGT is a tax on the profit you make from selling an asset. An asset can be anything from property and stocks to bonds and valuable collectables. The key point here is the “profit” part. You only pay capital gains on the difference between the selling price and the price you originally paid for the asset.

How Does it Work?

  1. Identifying a Capital Gain: When you sell an asset for more than you paid for it, you’ve made a capital gain. For example, if you bought shares for £1,000 and later sold them for £1,500, your capital gain is £500.
  2. Calculating the Gain: The capital gain is calculated by subtracting the original purchase price (plus any associated costs like brokerage fees) from the selling price.
  3. Tax Rates: The tax rate depends on your total taxable income and the type of asset sold. For individuals, the rates are:
    • 10% for basic rate taxpayers (for most assets).
    • 20% for higher and additional rate taxpayers (for most assets).
    • 18% for residential property (basic rate).
    • 24% for residential property (higher and additional rate).

Why Do We Have Capital Gains Tax?

The primary reason is to generate revenue for the government. It also encourages long-term investment over short-term trading, as holding assets longer can sometimes lead to tax advantages.

How to Minimise Capital Gains Tax

  1. Use Your Annual Exempt Amount: Everyone has an annual tax-free allowance for capital gains. For the 2024/25 tax year, this is £3,000. If your gains are below this amount, you won’t pay CGT.
  2. Hold Assets Longer: By holding onto your investments for more than a year, you may find better opportunities to manage your tax efficiently, especially when combined with other tax reliefs.
  3. Use Tax-Advantaged Accounts: Investing through accounts like ISAs (Individual Savings Accounts) can help you avoid capital gains tax on investments held within them.
  4. Offset Gains with Losses: You can use capital losses (losses from selling investments for less than you paid) to offset your capital gains, reducing your taxable gain.
  5. Consider Your Timing: Timing your sales to match years when you have lower income or greater available allowances can help you pay less in capital gains tax.

Common Questions:

1. Do I have to pay capital gains tax on my home?

    • If you sell your main home, you may be eligible for Private Residence Relief, which can exempt you from paying CGT on the sale, provided certain conditions are met.

2. Are there any exceptions?

    • Yes, there are various exemptions and reliefs. For instance, assets such as UK government gilts and certain types of personal belongings (chattels) are usually exempt.

3. How do I report capital gains?

    • For non-property gains, you’ll need to report your capital gains on your self-assessment tax return. If you do not usually file a self-assessment tax return, you can report your gains using the ‘real-time’  service provided by HMRC.
    • For property gains, you’ll need to report the gains within 60 days of sale completion through an HMRC property return form. These will then also be included in your self-assessment tax return.

Conclusion

Understanding CGT is essential for anyone who invests in assets like shares, property, or other assets in the UK. By knowing how it works and how to manage it, you can make informed decisions that can save you money and help you achieve your financial goals. Remember, tax laws can be complex and change frequently, so it’s a good idea to consult with a tax professional for personalised advice.

 

Posted In: Tax | | Tagged
R&D

What are R&D tax credits?

Posted on | by Jade Donno

What are R&D tax credits? 

In today’s competitive market, businesses constantly strive to innovate and stay ahead of the curve. One powerful incentive that can help companies in is the Research and Development (R&D) tax credit. This blog aims to break down what R&D tax credits are, how they work, and why they can be a game-changer for your business.

What Are R&D Tax Credits?

R&D tax credits are government incentives designed to encourage companies to invest in research and development. These credits are available in many countries and are intended to reward businesses that work on innovative projects, develop new products, or improve existing processes and technologies. By reducing the tax liability, tax credits make it financially easier for companies to invest in innovation.

How Do They Work?

To benefit, a company must engage in qualifying research activities. These activities generally include:

  • Developing New Products: Creating new products or improving existing ones.
  • Technological Advances: Making significant advancements in technology.
  • Process Improvements: Enhancing manufacturing processes, software development, or other operational processes.

For the full list please check out the government website – https://www.gov.uk/government/publications/guidelines-on-the-meaning-of-research-and-development-for-tax-purposes/meaning-of-research-and-development-for-tax-purposes-guidelines

Key Benefits of R&D Tax Credits

  1. Financial Savings: R&D can significantly reduce your tax bill, freeing up funds that can be reinvested into your business.
  2. Encouragement to Innovate: These credits incentivise companies to pursue innovation without the fear of financial strain.
  3. Competitive Edge: Investing in R&D can lead to new products or processes that give your company a competitive advantage.
  4. Increased Investment: The financial relief provided by these credits can encourage further investment in research and development.

Who Can Qualify?

Many businesses across various industries can qualify for R&D. These industries include, but are not limited to:

  • Manufacturing
  • Technology
  • Pharmaceuticals
  • Engineering
  • Agriculture

How to Claim:

Claiming R&D involves a few essential steps:

  1. Identify Qualifying Activities: Determine which of your R&D activities qualify for the tax credit.
  2. Document Your Research: Maintain thorough records of your R&D projects, including the costs associated with each activity.
  3. Calculate the Credit: Calculate the amount of tax credit you are eligible for based on your qualifying expenses.
  4. Submit Your Claim: File your claim with the appropriate tax authorities, providing all necessary documentation and calculations.

Common Misconceptions:

  1. Only Large Companies Qualify: Small and medium-sized businesses can also benefit significantly from R&D tax credits.
  2. R&D Means Lab Work: R&D activities are not limited to lab-based research. They can include software development, engineering improvements, and more.
  3. Too Complicated to Claim: While the process can be detailed, there are many resources and advisors available to help you navigate the claim process.

Conclusion

R&D tax credits are a valuable resource for companies aiming to innovate and grow. By understanding and leveraging these credits, businesses can reduce their tax liabilities, reinvest in their development efforts, and maintain a competitive edge in their industry. If your company is involved in any form of research and development, exploring R&D tax credits could provide substantial financial benefits.

For more detailed information and guidance on claiming R&D tax credits, consider consulting with a tax professional who specialises in this area. Investing time in understanding and applying for these credits can significantly impact your business’s financial health and innovative potential.

Marriage Allowance

Posted on | by Jade Donno

As we are in the middle of wedding season, it’s worth reminding everyone about marriage allowance. This extra bit of tax relief could be especially helpful to people now during the cost of living crisis.

What is marriage allowance?

Marriage allowance lets you transfer 10% of your unused personal tax allowance to your husband, wife, or civil partner. This will then reduce their tax bill by that amount. It could be worth up to £252 a year!

Am I eligible?

To be eligible to marriage allowance you need to be;

  • Married or in a civil partnership
  • one partner earning below the personal tax threshold of £12,570 per year
  • The other partner earning below the higher rate tax threshold of £50,000 per year

Unfortunately you can’t claim marriage allowance if you are only co-habiting and not married or in a civil partnership.

How do I claim marriage allowance?

If you are a client of ours, mention that you would like to apply for marriage allowance when we complete your tax return. We can then help you sort this out.

You can also apply yourself by phoning the income tax helpline on 0300 200 3300 or by applying online. You will need your partner’s national insurance number for the claim.

There are some online firms that will charge you a commission for claiming through them, our advice is to stay away from these and to either claim yourself by contacting HMRC or through your accountant. We do not charge our clients extra for this. This will ensure you get 100% of what you are owed!

Can I backdate my claim?

When applying for marriage allowance you can backdate your claim to 5th April 2018! So if you have been eligible for marriage allowance since then, these tax years will be included in your claim and you could receive more money back.

If you are married and not already taking advantage of the marriage allowance then what are you waiting for! Make sure you apply to receive your tax refund.

Payments on account

Posted on | by Jade Donno

If you complete a tax return you may have to pay your tax twice a year. This sounds like it should be bad, but it can be a helpful way of spreading your payments throughout the year.

What are payments on account?

Payments on account are made twice a year and are payments that you make towards your next tax bill. It is a way of bringing the tax collection closer in line with those who pay their tax monthly through PAYE.

Who has to pay?

If the tax liability on your last submitted tax return was over £1000 then you will automatically be set up for payments on account.

When do I have to pay?

You pay twice a year with payment deadlines on January 31st and July 31st however you can pay before these deadlines.

How is it calculated?

HMRC will use your previous tax bill to estimate how much tax it thinks you will be paying next year. It will then half this amount and charge you this in January and July, so in the following January you only have to pay what is left over, if any, and potentially the next payment on account. If you have overpaid, you will receive a refund, or if completing your tax return close to the deadline it will be deducted from the next payment on account.

Can you reduce how much you pay?

If you think your taxable income will reduce for the following year you are able to apply to reduce your payments on account.  They can be reduced through your tax return or via an HMRC online account by either your agent or yourself.  Payments on account cannot be reduced by too much as if your tax liability is higher than the reduced amounts when your actual tax return for the year is complete HMRC will charge interest for the underpayments and potentially penalties.

If you have collated your information for the year prior to the July second payment on account deadline the filing of the actual tax return can replace the estimated tax due if the tax liability for the year is lower than the prior year.

New to self assessment? – watch out

If you are new to self assessment or have never paid payments on account before it’s worth putting money aside throughout the year so that you don’t get caught out.  This is because the first time you become part of the payment on account regime you could have to pay 150% of the tax liability in January.  This would be 100% of the tax from the prior tax return and 50% again for the following tax return. This first experience can feel like a shock, but it will make the next payment in the following January easier.  This is because you would have already paid 100% of the prior year’s tax to deduct from the total.

How to pay

Simply log in to your government gateway and follow the instructions. Alternatively you can pay by phone, bank transfer or a number of other different way. The details of this will be on the letter you receive from HMRC, or on the HMRC payment guidance online.

We hope this helps clear up some of the questions regarding payments on account. Your government gateway account will always show your upcoming payments so we really do recommend setting one up. If you have any other questions regarding payments on account just give us a call and we will be happy to help.

What is working from home relief?

Posted on | by Jade Donno

Working from home relief = FREE CASH

Due to the current pandemic, many businesses have been working from home this year (ours included). It looks like those who can work from home will be until March 2021 at the earliest.

We have also seen a change in attitude towards flexible working. It has become the ‘new normal’ and many employees may continue working from home in the future.

What many businesses haven’t realised is that they can get free cash from HMRC for working from home. WOW!

So what is working from home relief?

From 6 April 2020 employers have been able to pay employees up to £6 a week tax-free to cover additional costs if they have had to work from home. Employees who have not received the working from home expenses payment direct from their employer can apply to receive tax relief from HMRC.

Find out full details here –  www.gov.uk/government/news/54800-customers-claim-tax-relief-for-working-from-home.

In a very interesting twist Martin Lewis has reported that even if you work from home for just one week, you can still claim a whole years relief. This is a very public statement from Martin Lewis and we are certain that he has proof from HMRC. However there may be a caveat when HMRC realise what they have said.

Read his article here – https://blog.moneysavingexpert.com/2020/04/martin-lewis–working-from-home-due-to-coronavirus–claim-p6-wk-/

Our advice for employees 

If your employer is not paying the allowance, which they are not obliged to, log into the HMRC portal and make your claim. For basic rate tax payers this is worth £62.40 and higher rate tax payers it is worth £124.80. For 10 minutes of your time, it is worth doing!

Our advice for employers

You do not have to pay the allowance. However as we are coming into the festive season, why not incorporate the £6 per week into a Christmas Bonus? There are no PAYE or NIC deductions for the employer or employee making it a great treat for the end of this turbulent year.

No one wants a Tax Investigation.

Posted on | by Jade Donno | Leave a Comment on No one wants a Tax Investigation.

No one wants a Tax Investigation.

It is true that as business owners we don’t want HMRC asking awkward questions and taking up our precious time by visiting us on a routine (or not!) compliance visit.

This week two of our clients have been subject to compliance visits from HMRC, one for PAYE and CIS, and the other for VAT. Understandably, our clients in both cases were worried by a visit from HMRC and needed our support from start to finish.

PAYE Investigation

In the case of the PAYE compliance, which included CIS, we were able to speak to our client before the meeting, attend the meeting along with our client, and reply to HMRC’s request in order to close the enquiry. We dealt with the issues and questions raised in the meeting successfully and HMRC could see that we had a good handle on our client’s business. They have now closed the case without penalty or further tax charge.  Our client was very happy that we were able to attend and support them at the meeting as it gave them extra peace of mind.

VAT Investigation

The VAT visit was very similar. We briefed our client before the meeting and attended the meeting with the VAT officer. One item was picked up by HMRC and a small adjustment will be made on the next return. In this case HMRC were complimentary about our business set up and the service that we provide our client, especially in understanding the business from the client’s point of view. This client is also really pleased with the service and were reassured by the fact that we were able to attend the meeting and deal with any questions that came up.

We have you covered

We insure ALL of our clients to cover our fees for dealing with HMRC from start to finish in these situations.  We often have clients tell us that they are covered by The Chamber of Commerce or The Federation for Small Businesses, however the cover from both organisations does not allow us to deal with any investigation that may occur, and so our support is limited. It is for this reason that we took the decision to fully cover our clients for no additional charge.

We appreciate that no one wants a Tax Investigation, however if a client does have an investigation it is really important that we are there, as we can help the client to deal with HMRC effectively. In both cases this week HMRC didn’t find anything of significance and both of our clients were very happy with our service. They were especially happy that our fees for assisting with the visits are covered by the insurance policy benefit that we have taken on their behalf and that there was no extra cost to them.

2018 tax reuturns

1 Accounts 2018 Tax Returns

Posted on | by Jade Donno

2018 Tax Returns

A note from Paul

This year has been really strange for me in preparing for January and completing over 160 Tax Returns in one month.  A Challenge that I was prepared for and it was 60 less than last year!

Today is 25 January and we have 9 left to do which hopefully will be down to zero by the end of today!

Waking up this morning I thought how on earth did we achieve this and how am I so chilled about it, I have come up with four key reasons that we have achieved our goals.

Building blocks spelling Tax

Practice manager

We employed my daughter Jade as practice manager during this year and next to Jenni, she is probably one of the only people that can sort me out.  Jade said that I was not going to do all the returns on my own this year and that we have to spread them around the team.

Jade has also worked relentlessly on getting our systems into place and her devotion to getting Karbon into a great working tool has been second to none.

Jade split the returns and shared the work load with all of the team.

Jade has seen the stress in past years that I have put myself under and wasn’t going to let it happen this year.  She is also in charge of onboarding and will not let the last minute “don’t want to pay” person take up our time.  Filtering out the clients that just do not work for us has been a real challenge for me to say no, but Jade has done this so well.

Apprentices

Over two years ago we invested our time and faith in the apprentice scheme and  this month I have seen both of our apprentices shine.  They have both gained level 3 of their AAT and have worked hard and learnt a lot this last month.

The rest of our team have all stepped up as well and really worked hard to reach our targets whilst getting on with their normal work load, all managed by Jade using Karbon.

Apprentice Grace
Apprentice James

Systems

For anyone that knows me, whilst I preach about systemising your business and put robust systems in place for our clients, I am the best person to mess my own up and go outside the system.

Karbon has been such a great system for us and we can all see our own progress during the month with regards to our work load and Jade has already planned year end accounts to the end of July!

Four months ago we changed our Tax and accounts software and have really tested this new software to the limits, and it hasn’t let us down.

Some people said why not change this in February when demand is not high, however the decision to really use it in anger during our busiest period has worked very well.  It is amazing how quickly a problem gets sorted out and we move on.

Business Coach

Yes we are business advisors and we do coach our clients as well as make there lives easier with great systems because life is too short to do your books.

In my opinion all businesses need a coach and we are no exception, I will write another Blog on our use of coaches and what to look for later; I did not think we needed our latest coach and she also thought we were well sorted by our very public image in our industry, how wrong we both were!

I use Heather Townsend of Accountants Millionaires (I am not one yet!!) and she has guided me in many ways, that until now (6 months later) I hadn’t really appreciated, sorry Heather.

Heather recommended our change in Tax and Accounts software, huge saving In monthly fees over £800 per month!  Insistence of investing in a practice management solution (Karbon).  Guidance on the issues of employing your daughter who is as strong headed and stubborn as me.

The guidance from her team and the ability to allow me to focus and empower my team is exactly what a coach should do.

Now looking forward to growing the business in 2019 and building on our fantastic dedicated team.

What is MTD?

What Is Making Tax Digital?

Posted on | by Jade Donno

What is MTD?

Fact: 

All of our clients are Making Tax Digital (MTD) compliant because they use the latest online accounting software provided by the market leaders – Sage and Xero.

What is Making Tax Digital (MTD)?

Making Tax Digital (MTD) is a government initiative which aims to transform the administration of tax to create a simpler, more effective and efficient tax regime that makes it easier for taxpayers to get their tax right.  (Let’s not forget to mention the estimated additional revenue of £610 million for HMRC as a result of the reduction in tax errors!)

Businesses that meet the criteria will be required to file their tax online, make online payments and keep digital records.

Quite simply, Making Tax Digital (MTD) is all about managing your accounts online.

Who is affected?

On 1st April 2019, all UK businesses that are VAT registered and operating above the £85,000 VAT threshold will be required to keep their records digitally and to submit VAT returns to HMRC using MTD compliant software.

Other areas of MTD, such as income tax and corporation tax, have been put on hold until 2020, at the earliest.

What do I need to do now?

If you are not VAT registered then you do not need to do anything at the moment. Just keep an eye on your turnover and if you think you are nearing the threshold give us a call on 01440 844 986. You should also be mindful of announcements from HMRC as to when income tax and corporation tax will be covered by MTD.

If you are already using MTD compliant accounting software then you do not need to take any further action.

If you are not using an MTD compliant accounting software, such as Xero or Sage Business Cloud, and you are above the £85,000 VAT threshold it’s time to call 1 Accounts!

Ditch the dinosaurs…

Many “traditional” accountants are panicking because they have not embraced the digital revolution. They have chosen to continue with desktop based systems, time sheets and outdated processes.  With the deadline for MTD looming they are now in danger of extinction!

This is the advice from the ICAEW (Institute of Chartered Accountants in England and Wales) for their members:-

Preparing your practice for MTD

Agents will need to take steps to prepare both their own practices and their clients for the disruption that Making Tax Digital and digitalisation will cause to the market for accounting and tax services.

 

Pick the pioneers…

1 Accounts was established in 2013 with the sole focus of moving businesses from the traditional accountancy model to online accounting with all its time and money saving benefits. The team at 1 Accounts are experts in cloud accounting, they did their learning on the “digitalisation of accounting services” years ago and have the accolades to prove it –  Sage UK’s Top Online Accountants, 2020 Innovation Awards 2016 most ‘Innovative Practice’ and a Xero Gold Champion Partner with a Making Tax Digital Ready classification.

The dinosaurs will be charging their clients for the privilege of learning about the “new ways” and converting clients from desk based systems to online systems. Just think – if they are operating time sheets, every hour has to be accounted for! Do you want to pay for them to catch up?