Mike Tombs's Blog

This blog provides information about tax, accounting and other issues affecting small owner-managed businesses in the UK. It is intended as a general source of information but you should not assume that everything applies to your specific circumstances. We are always happy to discuss providing tailor-made solutions to suit your individul needs. Visit www.tlaservices.co.uk to sign up for our free monthly Tax Tips and News newsletter.

Monthly Archives: September 2016

Accounts and record keeping

Statutory accounts

All companies irrespective of their size must file statutory accounts each year.

They are prepared using the information found in a company’s financial records at the end of each financial year.

All companies in the UK are legally obliged to send copies of their statutory accounts to:

  • their shareholders
  • anyone who can go to their annual general meeting
  • HMRC
  • Companies House (unless they send abbreviated accounts).

All statutory accounts must include a balance sheet that shows the value of everything the company owns, what it owes and how much it is owed.

They should also include:

  • a profit and loss report showing the company’s sales, costs and the profits or losses it has made over the financial year
  • a director’s report
  • notes about the accounts.

Some companies will also have to include an auditor’s report.

Statutory accounts must meet UK GAAP or International Financial Reporting Standards.

Record keeping

It is a legal requirement for a company to keep and maintain accurate financial records.

If a company fails to keep accounting records it can be fined up to £3,000. Any discrepancies which come to light in the event of an inspection might also lead to further investigation by HMRC and Companies House.

The accounting records which a company must keep are as follows:

  • all money spent and received
  • all assets owned by the company
  • debts the company is owed or owes
  • stock owned at year end
  • all goods purchased and sold
  • who goods were purchased from or sold to, unless the business is a retailer.

These records must be kept for a minimum of 6 years (though there are some cases where they will need to be kept for longer).

The company must immediately notify their Corporation Tax Office and try to accurately recreate them if records are destroyed.

Penalties and deadlines

If a private limited company is late filing annual accounts with Companies House it will have to pay a penalty. The penalties are on a sliding scale and are doubled if a company files late 2 years in a row:

Timescale Penalty

 

Up to 1 month £150
1 – 3 months £375
3 – 6 months £750
More than 6 months £1,500

A company can appeal a penalty but must give a credible reason for filing late and prove that circumstances beyond anyone’s control e.g. a fire or flood destroyed them a few days before filing. Companies House will only accept circumstances that are deemed ‘exceptional’ so delays in postal delivery, illness and being unfamiliar with the process will not be considered.

 

EU consultation on ending VAT on eBooks

The future of the chargeable rate of VAT on digital publications and eBooks is under review as the European Commission (EC) has launched a two-month consultation with a view to abolishing the current full rate VAT.

Member States currently have the option to tax printed books, newspapers and publications at a reduced rate (minimum 5%) and some Member States were granted the applications of VAT rates lower than 5% (super-reduced rates) including exemptions with a deductions right of VAT at the preceding stage (so called zero rates) to certain printed publications. Digital publications that are electronically supplied have to be taxed at the standard VAT rate.

Until 2015, there was a need for a harmonization of VAT rates for electronically supplied services and in particular electronically supplied publications, but since 1st January 2015, with the entry into force of new ‘place of supply’ rules, VAT on all telecommunications, broadcasting and electronic services is levied where the customer is based, rather than where the supplier is located. Suppliers can therefore no longer benefit from being located in the Member State with the lowest VAT rates.

While acknowledging the differences between printed and electronically supplied publications with regard to the format, they offer the same reading content for consumers and the VAT system needs to keep pace with the challenges of today’s digital economy.

The objective of the consultation is to seek the views on:

  • the commitment by the Commission in its 2016 Actions Plan on VAT to:
    • allow Member States the application of reduced rates for electronically supplied publications; and
    • allow Member States the application of super-reduced and zero rates for electronically supplied publications;
  • the definition and scope of electronically supplied publications; and
  • the potential impacts of reduced rates for electronically supplied publications.

The consultation period runs from 25 July 2016 to 19 September 2016.

Further information on the consultation can be found here.

Dividend Allowance

Legislation included in Finance Bill 2016 implements the new 0% rate for dividend income, as well as changing the rates of tax for dividend income. Once enacted, the changes will apply from 6 April 2016. Broadly, the new nil rate applies to the first £5,000 of a person’s dividend income and is available annually. From 6 April 2016, UK residents pay tax on any dividends received over the £5,000 allowance at the following rates:

7.5% on dividend income within the basic rate band;

32.5% on dividend income within the higher rate band; and

38.1% on dividend income within the additional rate band.

Dividends received on shares held in an Individual Savings Account (ISA) continue to be tax free.

Individuals in receipt of dividend income who will fall into the self-assessment regime for the first time, will need to notify HMRC accordingly. Self-Assessment returns for the 2016-17 tax year need to be submitted by 31 January 2018.

The introduction of the new allowance is designed to help the Government with its plan to reduce the rate of corporation tax in the coming years – as announced at Budget 2016, the main rate of corporation tax is expected to be reduced from its current rate of 20% to 17% by 2020. The overall policy objective is that only those with significant dividend income, or those who are able to pay themselves dividends in place of wages, will pay more tax. It is estimated that around one million individuals will pay less tax on their dividend income due to the new dividend allowance.

The dividend allowance will apply to dividends received from UK resident and non-UK resident companies. Dividend income that is within the dividend allowance (and savings income within the new savings allowance) will still count towards an individual’s basic or higher rate limits – and may therefore affect the level of savings allowance that they are entitled to, and the rate of tax that is due on any dividend income in excess of this allowance.

In calculating into which tax band any dividend income over the £5,000 allowance falls, savings and dividend income are treated as the highest part of an individual’s income. Where an individual has both savings and dividend income, the dividend income is treated as the top slice.

September 2016 Q&A

Q. I have recently changed jobs and need to use my car to make business journeys. Will I have to pay tax on the mileage expenses my employer reimburses me for these trips?

A. Employers can pay employees a tax-free and national insurance-free amount for every mile they drive on business duties, currently:

  • 45p per mile for the first 10,000 miles
  • 25p per mile for each subsequent mile
  • 24p per mile for motorcycles
  • 20p per mile for bicycles
  • 5p per mile extra for each passenger carried on work-related journeys

If your employer reimburses your mileage at less than these rates, you can claim the balance (but not the 5p per mile passenger extra) against your taxable income. For instance, if your employer gives you 30p per mile for 1,000 miles, you have a 15p per mile shortfall and can claim £150 against your taxable income. The big exception to business mileage is the daily commute from home to work and back again.

Q. When do I need to register for VAT?

A. Changes have been made to the April 2010 edition of VAT Notice 700/1: Should I be registered for VAT? to reflect:

  • the introduction of a new online system for registering for VAT; and
  • the removal of the VAT registration threshold for non-established taxable persons

Very broadly, you need to register for VAT if your annual turnover reaches the current annual registration threshold limit (£83,000 for 2016/17). This threshold operates on a month-by-month basis, so you need to check at the end of each month to make sure that you haven’t gone over the limit in the previous 12 months. You also need to think about whether you’re going to go over that limit in the following 12 months. If you think you may, you probably need to register.

You can register for VAT even if your turnover is below the threshold and you may actually save tax by doing so, particularly if your main clients or customers are organisations that can reclaim VAT themselves.

You must register with HMRC within 30 days of being aware that you’re going to exceed the threshold. See the gov.uk website athttps://www.gov.uk/vat-registration for further information on registration.

Q. How can I make a complaint about a recent HMRC PAYE compliance check at my business premises?

A. Most PAYE compliance reviews are settled by agreement. However, if an amount cannot be agreed upon, HMRC may make a formal determination for the tax underpaid, student loan deductions, and penalties. A notice of decision will be issued for outstanding NICs and statutory payments.

An employer can appeal to the tribunal against any determination or notice of decision within 30 days of issue.

There is a set procedure for dealing with complaints concerning the way an investigation has been conducted. Full details are set out in the HMRC Factsheet entitled Putting things right: how to complain. Broadly, the steps are as follows:

(1) The HMRC officer dealing with the investigation should be contacted in the first instance, or their line manager or the person in charge of the HMRC office.

(2) If the matter cannot be settled, contact the Director with overall responsibility for the office dealing with the investigation. The Director will review the complaint objectively.

(3) Where matters are still not resolved, contact the Adjudicator (www.adjudicatorsoffice.gov.uk). The Adjudicator acts as an unbiased and independent referee. The Adjudicator can be contacted at: The Adjudicator’s Office PO Box 10280 Nottingham NG2 9PF. Telephone: 0300 057 1111/Fax: 0300 059 4513

(4) If at any time a person is not satisfied with the service they are receiving from HMRC or the Adjudicator, they should contact their MP and ask for the case to be referred to the Parliamentary Ombudsman. The Ombudsman accepts referrals from any MP, but the local MP should be contacted in the first instance.

(5) Allegations of very serious misconduct by HMRC staff, such as assault or corruption, are dealt with by the Independent Police Complaints Commission (IPCC).