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Change in Dividend Tax to hit Charity Gift Aid...

With the abolition of the dividend tax credit many small business owners will have a problem with their charitable Gift Aid claim.  Gift aid is dependent upon the taxpayer being “a tax payer”.  If you set up your personal tax affairs to remain below £42,000 with a small salary and a dividend then in essence from 6th April 2016 you will no longer have the dividend tax credit and the only liability you will face will be the 7.5% dividend surcharge which doesn’t count towards the gift aid requirement of being a basic rate tax payer.  So if you sign a gift aid certificate for your charitable giving to enable your charity to get the 20% tax from HMRC, HMRC in their turn will demand that tax from you.  So if you gift £5000 under gift aid you will get the tax demand for £1250.  Gift aid could therefore become taboo for many small company owners but it may not stop there.  Many retired people are the most generous to charities and if all they have is a state pension and a small amount of investment income they too could no longer be paying any basic rate tax.

When do you want to pay your dividend tax?...

As we now all know the dividend tax surcharge of 7.5% will come into effect from 6th April 2016.  But when did you think you would be paying this extra tax? 

Under self-assessment rules you would naturally expect to declare your dividends on your Income Tax Return for year ended 5th April 2017 which you would submit some months later and not pay the tax until the last possible moment i.e. 31 January 2018.

Really?  I can hear the sounds of hysterical laughter from the Treasury….

Did you seriously think HMRC will want to wait until 31 January 2018 before they get their hands on your money?  I think not…

HMRC is already amending notices of coding of small company owners/directors to collect this tax from their payroll from April 2016.  But this can be problematic on a number of fronts. 

Advice for Start-Ups - Part 6: Registering for VAT and Taxable Persons and Supplies...

Welcome to part 6 of our Advice for Start-Ups series.Today we’re concentrating on Value Added Tax or, as most of you will know it, VAT. In particular, how to register, and who and what is taxable.

Before we do that, let’s just recap on the previous sections in case there’s anything you’ve missed so far. Our first instalment Part 1: Taking the Plunge gave a no holds-barred introduction to the harsh realities of starting up a business. If you made it through that, in Part 2: Who Am I? we envisaged your business as a legal entity and how it would be structured.Part 3: What does it take to succeed? examined the traits common to a lot of entrepreneurs, in order to understand why they were important to business. In Part 4: Taking on Tax we delved into the world of tax, giving key information to make sure your business operates legally. Our last section was broken down into two, Part 5a: Accounting for Bookkeeping we discussed the importance of keeping accurate financial records, with a couple of tips included to help with that. Part 5b: What Records Will You Need to Keep? explained exactly what it questioned. It helped devise what you will need to account for to create an effective financial plan.

So, to begin with, VAT is a tax on consumer expenditure. All goods and services are either VAT-rated or VAT-exempt. Within VAT-rated, the standard amount is 20% but there is also a reduced 5% and a zero rate as well.

Making Tax Digital...

HMRC are running events to educate accountants and tax advisers about the inevitable move towards quarterly reporting and equally inevitable quarterly tax payments....

Everyone will eventually have to report quarterly with no exceptions and there is a timetable already set by HMRC as to who will be affected and when quarterly reporting will start.

5th April 2018      Sole traders and partnerships under the VAT threshold and individuals with non PAYE income of more than £10,000 per annum.

5th April 2019      VAT Registered sole traders and partnerships.

1st April 2020      Companies

Two points to note here.  Firstly the smallest and least sophisticated businesses and individuals are being targeted first rather than those with the greatest ability to be able to cope.  Secondly with the new rules for landlords having to declare their rents gross without being able to deduct their interest payments as an expense it would appear that many small landlords will be “early adopters” whether they want to or not.

Advice for Start-Ups-Part 5b: what records will you need to keep?...

Our Advice for Start-ups series has now reached the second part of its accounting and bookkeeping for your business section. In this article we are going to delve into what records your business will need to keep.

We’ve come a long way in this series so far. Way back in Part 1: Taking the Plunge, we discussed the harsh realities behind starting up a business. In Part 2: Who Am I? we looked at what form your business is going to take as a legal entity, before moving into Part 3: What does it take to succeed. In that section we discussed the various characteristics you will need, or have to develop, to make your business a successful one. In Part 4: Taking on Tax we went head to head with some of the nitty gritty behind keeping your business functioning correctly in the eyes of the taxman. Finally, Part 5a which preceded this one, highlighted the importance of keeping accurate accounts, whilst also providing you with some questions to think about when developing an accounting and financial reporting system.

The simplest way for people to create an accounting system is by developing a chart of accounts. This chart takes into consideration how your business operates and what is important to you. Basically, it logs what your business needs and uses. From there an effective accounting system can be thought out.