Featured Accountancy FAQs

Everyone enjoys receiving gifts; however, employees are unlikely to appreciate gifts if there is a tax charge involved. Fortunately, there is a statutory exemption from income tax and national insurance for employees and employers, if the gift meets the following conditions:

• it cost you £50 (incl. VAT) or less to provide
• it is not cash or a cash voucher
• it is not a reward for their work or performance
• it is not in the terms of their contract 

This is an all or nothing exemption - if the cost of a gift exceeds £50 then the full value is taxable under the usual benefit in kind rules.

Where the benefit is provided to a group of employees and it is impractical to work out the exact cost per individual, then the average cost must come under the £50 limit.

As a general rule, business gifts are not considered tax deductible and HMRC consider these to be entertaining.

However, gifts to customers become tax deductible if:

• the gift is given to the public to advertise your business (for example a free sample), or
• the gift includes a conspicuous advertisement for your business - though this must cost less than £50 (incl. VAT) and not be part of a series of gifts to the same person which come to more than £50 in that accounting period. 

If an employer hosts an annual event that is made available to all employees and the total cost per head of the event is less than £150 (incl. VAT), then the cost of the event is tax deductible.

The £150 is not an annual allowance, if the cost is exceeded then the whole amount will become taxable

HMRC have confirmed that where all normal conditions are met, virtual events can be included when considering the £150 exemption.

Accounts are due for filing 9 months after the company’s financial year end. However, if it is your first financial year the deadline is 21 months after you registered with Companies House .

If you miss your company’s filing deadline you will have to pay penalties, this depends on how late you are at filing your accounts, from £150 for up to 1 month late, up to £1,000 for more than 6 months late.

Your financial year end will be automatically set at 12 months after you register with Companies House (i.e. if you register on 26 May 2020, your financial year end will be 31 May 2021).

Yes, you can shorten your company’s year end as many times as you like. You can also lengthen the financial year end by a maximum of 6 months, however you can only do this once every 5 years.

You cannot change your year-end if the accounts are overdue.

Corporation tax is payable 9 months and 1 day after the end of your accounting period.

If your company is actively registered at Companies House you need to submit accounts whether you are trading or not. If you would like to keep your company open but not trading then you will need to submit dormant company accounts.

You must keep records for six years from the end of the last company financial year they relate to, or longer if:

• they show a transaction that covers more than one of the company’s accounting periods
• the company has bought something that it expects to last more than 6 years, like equipment or machinery
• you sent your Company Tax Return late.

Advice and guidance can vary on a case by case basis so if you would like to obtain further information, including an answer tailored to your specific circumstances, please do get in touch and we would be more than happy to help.

When the accounts are prepared, we will consider the events of the year and how these have impacted the company. If you have taken advantage of government support, such as the Coronavirus Job Retention Scheme or Small Business Grant, or taken out a CBILS or Bounceback loan, these will need to be disclosed correctly in the accounts and we will help you to do this. We will also help you to consider the impact of coronavirus on your business and whether we need to include an extra disclosure note in the accounts to explain what has happened to trade as a result of coronavirus. The note will be specific to your business, to help readers to understand what has happened and any likely future impact. 

The profit and loss summarises revenue and costs for the period in which the financial statements cover, i.e. 12 months to 31 March.

The balance sheet on the other hand will show the value of the company’s assets and liabilities at that specific point, i.e. 31 March. 

Financial statements are prepared under the accruals basis which means that any expenses/income that relate to the period of which the statements are being prepared must be included, even if they have not yet been paid or received.

For example, you may have a 31 March year-end and just before the year-end you have some work completed by a supplier, however they do not invoice for the work until after the year-end. Currently nothing has been recognised in the 31 March year-end accounts due to the supplier invoicing after the year-end, however under the accrual basis, the work needs to be recognised because it relates to work completed before the 31 March year-end. Therefore, the cost is accrued as an overhead and reversed in next year's financial statements once the invoice is included so the cost is not recognised twice.

Although the money in your limited company bank account does not technically belong to you, you do have access to it through a director’s loan.

Essentially, HMRC define a director’s loan as money taken from your company that isn’t either: 

• A salary, dividend or expense repayment
• Money you have previously paid into or loaned the company. 

So, if you take money out for any other reason, the amount must be recorded in your DLA. At the end of your company’s financial year, depending on your activity, you will either owe the company money or the company will owe you money. This will be recorded as an asset or a liability in the balance sheet of your company’s annual accounts.

If your DLA is overdrawn at the date of your company’s year-end, you may need to pay tax.

If you pay back the entire director’s loan within nine months and one day of the company’s year-end, you will not owe any tax. In other words, if your director loan account is overdrawn at your company year end of 31st March 2020, the loan must be paid back in full by 1st January 2021.

Any overdue payment of a director’s loan means your company will pay additional Corporation Tax at the rate of 32.5% on the amount outstanding. This extra 32.5% is repayable to the company by HMRC once the loan has been repaid to the company by the director, though recovering the funds from HMRC is a time-consuming process.

If you owe your company over £10,000 (interest-free) at any given time, the loan is classed as a benefit in kind and you will need to record it on a P11D, as it will be liable to both personal and company tax.

The director will need to declare this benefit on their personal tax return which will be subject to income tax at their applicable tax rate. The company will also need to pay Class 1A National Insurance at the rate of 13.8% on the full loan amount.

An audit of a company’s financial information is an independent examination of the relevant evidence that supports the numbers and disclosures in the statutory accounts and the significant judgements and estimates made by directors in preparing those financial statements. A statutory audit can only be carried out by a firm of Registered Auditors and aims to provide an independent opinion on the truth and fairness of your financial statements.

A company is legally required to have an audit if it exceeds 2 or more of the following thresholds:

• £10.2 million turnover 
• Gross assets of £5.1 million
• 50 employees 

Some companies must have an audit even if they do not meet these criteria, including if:

• it is a charity with turnover over £1 million
• it is a public company (unless it is dormant)
• it is a subsidiary (unless it qualifies for an exception
• it is an authorised insurance company
• it is involved in banking or issuing e-money
• it is regulated by the Financial Conduct Authority
• it is a corporate body and its shares have been traded on a regulated market in a European state
• the shareholders request and audit 

Even if you are not required to have an audit, you may choose to have one as it adds credibility to the company and provides comfort to the stakeholders that the financial statements show a true and fair view of the state of the company.

Yes, any business can have an audit even if it doesn’t need one as a statutory requirement. An audit will provide stakeholders with a level of comfort over the accuracy of the financial statements as they have been subject to an independent examination. An audit can also provide the company with valuable feedback on areas where you could improve processes or record keeping.

Each company is different and the exact work which will be undertaken will depend upon our risk assessment of your business. It is not possible to test every single transaction within the financial records as this would take too long. Instead we consider the materiality of a balance in order to select samples of transactions to test.

There are three key stages to an audit:

Planning

This includes the administration of the audit, undertaking a risk assessment and designing tests to address the key risks identified .

Gathering evidence

This is the actual testing stage where we gather evidence, which could involve some or all of the following:

• Discussions with directors and staff
• Calculating and investigating variances between the current and previous year and between budget and actual results
• Undertaking tests as designed at the planning stage
• Evaluating significant judgements and estimates made by the directors 
• Contacting a sample of your suppliers and customers to confirm the amounts that are owed 
• Reviewing the accounting policies and disclosures within the financial statements 

Any discrepancies which are found will be discussed with the directors to allow them a chance to adjust the financial statements before they are finalised .

Conclusion

This is where we assess the evidence we have gathered and conclude on whether the financial statements are free from material misstatement. Our opinion will hopefully be ‘unqualified’ which means that we are saying that the financial statements are true and fair.

Information is considered to be ‘material’ if its omission or distortion would impact the users understanding of the financial statements. We base our testing on a how material we consider individual balances to be. Materiality is based on the size of the balance, but also takes into account more qualitative considerations as well.

Our audit report states whether or not the financial statements show a true and fair view of the company’s financial position. If so, the audit report will be unqualified. If we cannot conclude that the financial statements show a true and fair view, possibly because you are unable to provide us with the evidence we need to see, then the report may have to be qualified.

Yes this is true, although if the parent company is established in an EEA company and prepares consolidated accounts, it may be possible for the subsidiary to claim exemption from audit if certain criteria are met. 

Yes, we could undertake an assurance review instead. An assurance review doesn’t provide the same level of assurance as an audit, however it is still an independent examination and can provide added credibility to the company’s financial information.

An assurance review provides an additional level of confidence to the users of the financial statements. Following the review, a report can be appended to the financial statements to highlight that a review has been undertaken and that nothing has come to our attention to suggest that the financial statements do not show a true and fair view.

An assurance review is more flexible than an audit and the exact work which we undertake can be tailored to your requirements in order to provide assurance over particular areas of the financial statements.

At the start of our work, we would work with the directors to identify the areas which are most important or highest risk and our work would be directed towards these areas.

The work we undertake is not as comprehensive as for an audit, and as such it will not provide the same level of assurance, however it will provide users of the financial statements with a level of confidence that the key areas reviewed.

This is a difficult question to answer without more information about your company, as the amount of work involved will vary depending on the number and complexity of transactions within the company’s financial records.

Our typical fees to undertake an assurance exercise range from £2,000 - £7,500 and an audit range from £5,000 to £15,000.

Some businesses have been fortunate enough to have been unaffected by coronavirus or even seen sales increase as a result of the pandemic and there are no uncertainties over the company’s ability to trade as a going concern. Other businesses will have been adversely impacted and their trade will have been significantly impacted.

It is our responsibility as auditors to consider whether the company can continue to operate as a going concern for at least 12 months from the date our audit report is signed. As the coronavirus pandemic has caused uncertainty for so many businesses, we may consider it necessary to undertake additional work in order to confirm that there has been no impact on the company. This may include reviewing and testing forecasts and projections and looking at after date results. 

If there is not enough evidence to support the going concern basis, we will discuss with you whether we think it is it necessary to include a specific paragraph in our report which draws attention to this uncertainty. 

Automatic enrolment is a Government initiative to help employees contribute to a pension scheme at work. Automatic enrolment means that all employers will need to enrol all eligible employees into a workplace pension scheme.

Every three years, you’ll need to re-enrol workers who are eligible for Automatic Enrolment but aren’t in a qualifying scheme. This includes workers who have previously:

• stopped making contributions, or 
• opted out, without having opted back into the scheme. 

An eligible jobholder is a worker who is aged at least 22 and under State Pension age and is earning more than the current tax year threshold. The process of re-enrolment is the same as it was for Automatic Enrolment. Once the assessment for re-enrolment has been completed and any eligible jobholders have been identified, they will need to be enrolled into a scheme as a normal new employee.  

Even if you do not have any staff members to put back into the scheme you must complete the re-declaration of compliance to let the Pension Regulator know that you have met your duties. This is a legal obligation and if you do not complete this the company could be fined. 

Your employee can opt out of the scheme within one month of being automatically re-enrolled, they will be treated as if they had never joined the scheme, and any money that they have paid into the scheme will be refunded in full.

Auto enrolment applies to all employees in the UK if they meet the following criteria :

• Work, or ordinarily work, in the UK
• Aged between 22 and State pension age
• Earn above the earnings threshold (currently £10,000)

Automatic enrolment makes it compulsory for employers to automatically enrol their eligible workers into a pension scheme.

You should look at different schemes before you decide which is suitable for you and your staff.  The following are some examples of schemes open to small employers: 

• The BlueSky Pension Scheme
• National Employment Savings Trust (NEST)
• NOW: Pensions
• The People’s Pension
• Smart pensions 

There are a number of things you should check before you choose a pension scheme. This includes whether it will accept all your staff, how much it will cost, whether it uses the best tax relief method for your staff and whether it will work with your payroll.  

Once an employee is enrolled they have a 30 day opt out period in which they may choose to opt out and get a full refund. If employees wish to leave the scheme after the opt-out period, they can cease active membership. It is illegal for an employer to tell an employee to opt out.

An employer may postpone enrolling employees for a maximum of three months. This gives both the employer and employee chance to ensure both happy with the new role.

Employers are required to continue automatically enrolling eligible workers who’ve opted out, every three years. They are also required to complete a re-declaration of compliance every three years for the pension regulator to guarantee their compliance. If employees opted out three years ago and are still eligible jobholders, they must be re enrolled into an auto enrolment pension scheme.

As part of the ongoing process, aside from making the monthly deductions and process the monthly pension payments. Employers are also responsible for managing opt in and opt out requests, monitoring new and existing employees, keeping records up to date and re-assessing employees every three years.

A budget is an estimate of your income and expenditure over a set period of time which takes into consideration your long-term financial goals and future predicted transactions to allow you to create a plan to spend your money.

The best budgets are both simple and flexible. Things change, that is a certainty. If your budget isn’t simple and flexible, then when change inevitably happens, your budget won’t be able to flex to give you a clear picture of where you now stand. We suggest aligning your budget to your accounting software and/or year end financial statements. This helps to keep things simple and smooth the process of tracking your budget against actual results.

• Provides you visibility on how your business is performing 
• Make sound, thought out business decisions
• Helps shed light on bad spending habits
• Identifies areas for growth and improvement
• Helps you to achieve your financial goals

Not at all! The best budgets are simple and flexible, and they therefore come in all shapes and sizes.

The key is on focusing the budget to your business as this allows you to channel in on what is important to you and what actionable changes you need to make to achieve your financial goals. 

Budgeting is tricky for start-ups - you rarely have an existing model to work from. Do your due diligence by researching industry benchmarks for salaries, rent and marketing costs.

Ask your network what you can expect to pay for professional fees, benefits, and equipment. Set aside a portion of your budget for advisors – that’s accountants, solicitors, that kind of thing. 

Since you don’t have any historic financial data to review, make sure to use projected costs. For example, if you have signed a lease for office space, use the monthly rent you will pay moving forward. 

Putting in the work to create your budget may seem like a hassle, but whilst it will take a bit of time and energy at first, it is worth the extra effort in the long run.

Thorough business budgeting gives you the financial insights you need to make the right decisions for your business to grow, scale, and prosper in the future. 

Your budget is your planned revenue and spending. It allows you to plan for the future and review your excess spending. Consider preparing a budget monthly, quarterly, or annually.

Cashflow forecasts are typically more frequent, often monthly, and focus on the cash ins and outs for your business. A cashflow forecast predicts future trends and gives a realistic idea of when your business is going to require a cash injection to avoid problems. 

Both budgeting and cashflow forecasting are important forecasting tools for business. They can help you keep on top of your bills and can also prove useful if you are trying to get finance (it shows lenders you can pay them back). 

A cashflow forecast is a plan that shows you how much money you expect your business to receive and pay out over a set period of time.

Put simply, a well thought out forecast can:

• Provide you with visibility on how your business is performing
• Give you the tools to make sound, thought out business decisions
• Ensure you don’t commit to spending money that you won’t have
• Ensure you don’t take unnecessary, expensive, short term finance when cash may be freed up in the near future
• Help shed light on bad spending habits
• Identify areas for growth and improvement
• Help you to achieve your goals

• Comprehensive expenditure analysis
• A focus on payment terms, not invoice dates
• Keeping predictions realistic
• Forecasting for various scenarios
• Comparing your forecast to actual results

The best forecasts are comprehensive and realistic.

Forecasting is tricky for start-ups - you rarely have an existing model to work from. Do your due diligence by researching industry benchmarks for salaries, rent and marketing costs.

Ask your network what you can expect to pay for professional fees, benefits, and equipment. Set aside a portion of your forecast for advisors – that’s accountants, solicitors, that kind of thing. 

Since you do not have any historic financial data to review, make sure to use projected costs. For example, if you have signed a lease for office space, use the monthly rent you will pay moving forward. 

Not at all! The best forecasts are simple and flexible, and they therefore come in all shapes and sizes.

The key is on focusing the forecast to your business as this allows you to channel in on what is important to you and what actionable changes you need to make to achieve your financial goals. 

There are numerous pieces of software which are able to perform increasingly complex cashflow forecasts. The best ones will feed directly to and from your existing bookkeeping software (Xero, QuickBooks etc.) to help improve the accuracy of your predictions.

We work closely and regularly with many software providers so please speak with us if you would like any advice on where to get started. 

Your budget is your planned revenue and spending. It allows you to plan for the future and review your excess spending. Consider preparing a budget monthly, quarterly, or annually.

Cashflow forecasts are typically more frequent, often monthly, and focus on the cash ins and outs for your business. A cashflow forecast predicts future trends and gives a realistic idea of when your business is going to require a cash injection to avoid problems. 

Both budgeting and cashflow forecasting are important forecasting tools for business. They can help you keep on top of your bills and can also prove useful if you are trying to get finance (it shows lenders you can pay them back). 

The Construction Industry Scheme (CIS) is a scheme designed by HMRC to minimise tax evasion within the construction industry. Tax is deducted at source from the subcontractor by the contractor and then paid over to HMRC on their behalf. CIS rules apply to all payments made by a contractor to a subcontractor for construction work as defined by HMRC.

A contractor is a business (limited company, partnership or self-employed individual) that pays subcontractors for construction work. Private householders are not counted as contractors so are not covered by the scheme.

A subcontractor is a business (limited company, partnership or self-employed individual) that carries out construction work for a contractor.

Contractor:

• Verify subcontractors
• Make deductions
• Submit CIS returns
• Make payments
• Send deduction statements

Subcontractors:

• Verify with the contractor
• Invoice the contractor
• Claim deductions

For a detailed explanation of the responsibilities of contractors and subcontractor download our guide.

Contractor:

You must register as an employer, before any payments to subcontractors. Please be aware it can take up to 20 working days to receive an employer PAYE reference number. To register online, please click here.

Subcontractor:

To register online please click here. You can also ring the HMRC CIS helpline to register or receive help with the online application: 0300 200 3210.

• Construction
• Alteration
• Repair
• Extension
• Dismantling & demolition
• Work forming part of the land
• Installation of systems
• Internal & external cleaning
• Painting & decorating
• Integral works
• Preparatory works
• Finishing activities

An explanation of each type of construction work is given in more detail within our guide.

The aim of the DRC is to reduce fraud within the construction industry; VAT will no longer be paid to the business/individual undertaking the construction service (e.g. subcontractor) and instead it will become the responsibility of the contractor to account for the VAT. 

The Domestic Reverse Charge (DRC) will come into effect from 1 March 2021.

A VAT registered customer who is not intending to undertake further on-going construction services. The Domestic Reverse Charge does not apply for End Users.

VAT and Construction Industry Scheme registered businesses that are connected or linked to end users. If intermediary suppliers buy construction services and re-supply them to a connected or linked end user, without making material alterations to the work, they are also treated as an end user and the Domestic Reverse Charge does not apply.

Corporation tax is payable 9 months and 1 day after the end of your accounting period.

12 months after the end of your company's financial year.

It currently stands at 19% and this has been confirmed for the next financial year.

This is a 10-digit number designated to each company for HMRC’s records and can be found on any correspondence from HMRC as well as the corporation tax return.

0300 200 3410

You will also need to quote your company’s UTR to discuss any affairs with HMRC.

When your company is incorporated, Companies House will inform HMRC directly so there is no need to do anything. They will set up a record for your company and issue the UTR to your company’s registered office.

Unless you agree a payment date with your customer, they must pay you within 30 days of getting your invoice or the goods or service.

Setting up your own payment terms, such as discounts for early payment or upfront payment can help if you have any cashflow problems.

The best solution to debt collection is to be proactive. It is all too easy for a customer to ignore emails, so in cases where this is happening, pick up the phone and give them a call. It is much harder to avoid a topic of conversation on a call than it is an email and once you raise with the customer, you may well find they are more than happy to settle shortly after.

If you continue to have issues, don’t be afraid to reduce the payment terms or request payments upfront for future products/services. It shows you aren’t willing to continue with the payment relationship as it is and helps reduce your exposure to risk, should that customer become a bad debt in the future.

There are two primary ways to reduce time spent on your billing process:

1) Technology – Cloud software can save you plenty of time if used effectively, e.g. repetitive fees can be automatically raised and emailed on a periodic basis. Spending a little time to set them up now can save significantly more time down the line.

2) Process – If the process feels too cumbersome, then it probably is. Go through the process and critically view each step and it’s importance to identify which areas aren’t necessary and better yet, which tasks can be better managed through use of cloud technology platform and automation.

EIS is designed to help your company raise money to help with business growth. It does this by offering tax relief to individual investors who buy new shares in your company.

SEIS is designed to help your company raise money when it is starting to trade. It does this by offering tax relief to individual investors who buy new shares in your company.

SEIS focuses on smaller businesses in their first two years of trading, whereas EIS is aimed at helping businesses to grow who have been trading between two to seven years.

Each scheme has different qualifying criteria and the tax incentives are also slightly different for investors.

Your company can use the scheme if it:

• has a permanent establishment in the UK
• is not trading on a recognised stock exchange at the time of the share issue and does not plan to do so
• does not control another company other than qualifying subsidiaries
• is not controlled by another company, or does not have more than 50% of its shares owned by another company
• does not expect to close after completing a project or series of projects. 

Your company and any qualifying subsidiaries must:

• not have gross assets worth more than £15 million before any shares are issued, and not more than £16 million immediately afterwards
• have less than 250 full-time equivalent employees at the time the shares are issued
• your company must carry out a qualifying trade. If you are part of a group, the majority of the group’s activities must be qualifying trades. 

Your company can use the scheme if it:

• carries out a new qualifying trade
• is established in the UK
• is not trading on a recognised stock exchange at the time of the share issue
• has no arrangements to become a quoted company or a subsidiary of one at the time of the share issue
• does not control another company unless that company is a qualifying subsidiary
• has not been controlled by another company since the date of your company being incorporated. 

Your company and any qualifying subsidiaries must:

• not have gross assets over £200,000 when the shares are issued
• not be a member of a partnership
• have less than 25 full-time equivalent employees in total when the shares are issued. 

If you have received investment through the Enterprise Investment Scheme (EIS) or from a venture capital trust, you cannot use SEIS.

You must use the investment for a qualifying trade.

Most trades will qualify, including any research and development which will lead to a qualifying trade.

However, your company may not qualify if more than 20% of your trade includes things like:

• coal or steel production
• farming or market gardening
• leasing activities
• legal or financial services
• property development
• running a hotel
• generation of energy, such as electricity and heat
• production of gas or other fuel
• banking, insurance, debt or financing services. 

Find a full list and more information about non-qualifying trades click here.

If your company owns or controls any other companies, they must be ‘qualifying subsidiaries’.

This means:

• your company must own more than 50% of the subsidiary’s shares
• no one other than your company or one of its other qualifying subsidiaries can control this subsidiary
• there cannot be any arrangements which would put someone else in control of this subsidiary. 

The subsidiary must be at least 90% owned by your company where either the:

• business activity you are going to spend the investment on is to be carried out by the qualifying subsidiary
• subsidiary’s business is mainly property or land management. 

Under the EIS scheme investors could claim back up to 30% of the value of their investment in form of income tax relief.

Under the SEIS scheme investors could claim back up to 50% of the value of their investment in form of income tax relief.

The money raised by the new share issue must be used for a qualifying business activity, which is either:

• a qualifying trade
• preparing to carry out a qualifying trade (which must start within 2 years of the investment)
• research and development that is expected to lead to a qualifying trade. 

The money raised by the new share issue must:

• be spent within 2 years of the investment, or if later, the date you started trading
• not be used to buy all or part of another business
• pose a risk of loss to capital for the investor
• be used to grow or develop your business. 

The money you raise from the investment must be spent within 3 years of the share issue. You must spend the

money on either:

• a qualifying trade
• preparing to carry out a qualifying trade
• research and development that is expected to lead to a qualifying trade. 

You cannot use the investment to buy shares, unless the shares are in a qualifying 90% subsidiary that uses the money for a qualifying business activity.

The investment in your company must meet the risk to capital condition, which means:

• your company must use the money for growth and development
• the investment should be a risk to the investor’s capital. 

You can receive investment under EIS if it is within 7 years of your company’s first commercial sale, or if part of a group, the group’s earliest commercial sale.

If you received investment in this period under EIS, SEIS, SITR, VCT or other state aid, you can use EIS to raise money for the same activity as long as you showed you were planning to do so in your original business plan.

If you did not receive investment within the first 7 years, or now want to raise money for a different activity from a previous investment, you will have to show that the money:

• is required to enter a completely new product market or a new geographic market
• you are seeking is at least 50% of your company’s average annual turnover for the last 5 years. 

From 1st April 2019, HMRC introduced a digital service for VAT records and return submission.  VAT registered businesses with a taxable turnover of more than £85,000 must follow the rules for ‘Making Tax Digital for VAT’ by keeping some records digitally. From 1 April 2022 all VAT registered businesses must sign up, whatever they earn.

Several accounting software have integrated MTD systems for example Xero, QuickBooks and Sage Accounting.

The MTD service makes submitting VAT Returns quick and easy. Incorporating the system into your current accounting software means you can see your VAT situation in real time.

Businesses who use spreadsheets for their VAT records can use a form of bridging software so submit VAT Returns through the MTD service. Many of these are free for smaller businesses.

MTD will be mandatory if you are registered for VAT and your taxable turnover is about the VAT registration threshold (currently £85,000).  From 1 April 2022 all VAT registered businesses must sign up, whatever they earn.

MTD does not require you to keep additional records for VAT, but to record them digitally. These should include for each supply, the time of supply (tax point), the value of the supply and the rate of VAT charged. They should also include information about your business, including business name and principle business address, as well as your VAT registration number and details of any VAT accounting schemes you use. 

This is HMRC’s description of the digital tool that can take information from other applications, for example, a spreadsheet or an in-house record keeping system, and lets the user send the required information digitally to HMRC in the correct format.

Yes you can still sign up for MTD, HMRC is encouraging business below to sign up, so they can also benefit from MTD. 

The government’s current plans are to introduce MTD for income tax from April 2023 and this will see a requirement for quarterly reporting of income. Whilst people can voluntarily follow the rules now, you must follow the rules for your next accounting period that starts on or after 6 April 2023, if your taxable turnover from your self-employed business or income from property is above £10,000. You’ll need to keep digital records of all your business income and expenses - this includes income from self employment or property.

If a new employee does not have a P45 containing details of previous gross pay and income tax deducted in the tax year, the employee will need to complete a new starter checklist

On a starter checklist, an employee is asked which statement applies to them:

• A This is their first job since last 6 April and they have not been receiving taxable Jobseeker's Allowance, Employment and Support Allowance, taxable Incapacity Benefit, state pension or occupational pension.
• B This is now their only job, but since last 6 April they have had another job, or have received taxable jobseeker's allowance, employment and support allowance or taxable incapacity benefit.
• C They have another job or receive a state or occupational pension.  

Depending on which statement is picked, they will be allocated a tax code which will allow you to work out the tax due on their first payday.

All expenses and benefits paid to an employee or director must be reported on form P11D (one for each employee or director) for each tax year (ending on 5 April)

There are only four exceptions to this rule:

1. Where the expense is a genuine business expense
2. Where the expense or benefit is ‘exempt’ (or covered by an HMRC concession)
3. Where the employer:
   1. Makes a PAYE Settlement Agreement (PSA) with HMRC or
   2. Enters a Taxed Award Scheme with HMRC
4. Where the benefit is taxed through the payroll 
5. 5. The amount reported on Form P11D is the ‘cash equivalent’ of the benefit. 

A P11D(b) form is also required to report any employer Class 1A NIC due on the expenses and benefits – calculated at 13.8% of the P11D value of relevant amount. Any Class1A NIC must be paid 19th or 22nd electronically following the end of the tax year.  

The deadline for submitting form P11D and P11D (b) is 6 July the following tax year. The P11D information must be given to the employees and there are penalties for submitting late, or fraudulently or negligently incorrect information. 

HMRC will send out a P800 tax calculation form after the tax year ends on 5 April, which your employee should receive by the end of November. This will show how much tax is due to be refunded, or is owed from previous years.

If they haven’t paid enough tax through PAYE, HMRC will collect the tax they owe in instalments over the next year. This will happen automatically if they:

• pay Income Tax through an employer or pension provider 
• earn enough income over their Personal Allowance to cover the underpayment
• owe less than £3,000. 

HMRC will write to them about how they can pay if they cannot collect the money this way. Your employee's P800 will usually state that they can pay the tax they owe online.

If they have paid too much tax, their P800 will tell them if they can claim a refund online, or if HMRC are sending them a cheque. If they claim online they’ll be sent the money within 5 working days. If HMRC state that they are sending a cheque, they do not need to make a claim, the cheque will automatically be sent to them and they should receive this payment by the September after the end of the tax year.

If they do not claim an online refund within 42 days, HMRC will send them a cheque automatically. They should get this within 60 days of the date on their P800.

It can be possible to payroll the benefit. This will be collected through the PAYE system and the benefit will not need to be reported on form P11D.

An employer can register with HMRC to include taxable benefits (other than accommodation and beneficial loans) in the payroll. The company must notify HMRC before the beginning of the tax year. This must also be discussed with the employees as it is added to the gross pay of the employee and income tax, but not Class 1NIC, is deducted through PAYE.  

It does not matter whether the benefits are included in payroll or reported on Form P11D Class 1A NIC still applied. Payroll benefit still need to submit a P11D (b) 

Where an employer has included a benefit in payroll it should not be reported on Form P11D. The company must notify their employees of the following information not later than 31 May in the year following the end of the tax year:  

• Details of benefits that have been payrolled 
• The cash equivalent of each payrolled benefit 
• Separate details of all benefits not payrolled 

Any UK limited company that is subject to corporation tax and has;

• Carried out qualifying R&D activities.
• Spent money on qualifying R&D costs.

Research and development (R&D) tax credits are a government incentive designed to reward UK companies for investing in innovation. They are a valuable source of cash for businesses to use to invest and ultimately continue growing.

Companies that spend money on qualifying R&D activities can make a R&D tax credit claim to receive either a cash payment and/or Corporation Tax reduction. If you’re making a claim for the first time, you can typically claim R&D tax relief for your last two completed accounting periods.

• Creating new products, processes or services.
• Changing or modifying an existing product, process or services.

• Staff costs including Employers Class 1 NIC contributions.
• Subcontractor costs.
• Testing costs.
• Cost of materials.
• Water, fuel or power consumed in the R&D process.
• Training costs.
• Types of software capital costs.

There are two tax credit schemes; SME R&D tax credit and R&D Expenditure Credit (RDEC). Which scheme you use to make an R&D tax credit claim will largely depend on whether you are an SME or a large company. Please see contact us for more information.

Fewer than 500 staff and either not more than €100 million turnover or €86 million gross assets. Most companies, including start-ups, fall into this category.

500 staff or more and either more than €100 million turnover or €86 million gross assets.

SMEs are able to claim up to 33p for every £1 spent on qualifying R&D costs. Large companies are able to claim up to 10p for every £1 spent on qualifying R&D costs.

Both schemes, like R&D tax relief for SMEs, have been confirmed as Notified State Aid and State Aid rules prevent using more than one form of Notified State Aid on the same project, even if they’re used at different times, and even if you pay the money back. This means:

• If you’ve been claiming SME R&D tax credits, you won’t be allowed to use CBILS/BBLS finance to support any project that has received SME R&D tax relief.
• If you haven’t been claiming for SME R&D tax credits yet, any project that you support using CBILS/BBLS won’t be eligible for SME R&D tax credits, either now or at any point in the future.

The effect of using Notified State Aid on an R&D project is to push the entire project’s expenditure out of the SME scheme and into the RDEC scheme, which gives a return of about 13p per £1 (before tax) rather than the 25-33p per £1 of the SME scheme.

The key points to remember therefore are: 

• If you can, allocate the CBILS or BBLS loan funds as much as possible to non-R&D activities
• Document the decision, such as via board minutes, on what the funds will be used for (such as general business operation and not for R&D)

The government have confirmed that all the COVID Government Grants will be taxable as income. This includes the Small Business Grant Fund (SBGF), the Retail, Hospitality and Leisure Grant (RHLS) and the Self-Employed Support Scheme (SESS).

However, businesses can claim tax relief on any business related expenditure which is incurred and financed by the grant.

A director’s loan is money a director withdraws from the company that cannot be classed as salary, dividends, or business expenses. It is money that a director borrows from the company and will eventually have to repay.

It is also possible to unintentionally take out a director’s loan, by withdrawing an illegal dividend if the director is also a shareholder. Dividends can only be paid from company profits, so if the company has not made a profit, then legally no dividends can be withdrawn, and the illegal dividend will be recognised as a director’s loan. 

There is no legal limit to how much a director can borrow from the company, however, you should carefully consider how much the company can realistically loan without resulting in cashflow problems.

Any loan of £10,000 or more must have interest charged at HMRC’s official interest rate or more, otherwise the discount granted will automatically be treated as a ‘benefit in kind’ and there will be tax implications for both the company and the director.

Although the money in your limited company bank account does not technically belong to you, you do have access to it through a director’s loan.

Essentially, HMRC define a director’s loan as money taken from your company that isn’t either: 

• A salary, dividend or expense repayment
• Money you have previously paid into or loaned the company. 

So, if you take money out for any other reason, the amount must be recorded in your DLA. At the end of your company’s financial year, depending on your activity, you will either owe the company money or the company will owe you money. This will be recorded as an asset or a liability in the balance sheet of your company’s annual accounts.

If your DLA is overdrawn at the date of your company’s year-end, you may need to pay tax.

If you pay back the entire director’s loan within nine months and one day of the company’s year-end, you will not owe any tax. In other words, if your director loan account is overdrawn at your company year end of 31st March 2020, the loan must be paid back in full by 1st January 2021.

Any overdue payment of a director’s loan means your company will pay additional Corporation Tax at the rate of 32.5% on the amount outstanding. This extra 32.5% is repayable to the company by HMRC once the loan has been repaid to the company by the director, though recovering the funds from HMRC is a time-consuming process.

If you owe your company over £10,000 (interest-free) at any given time, the loan is classed as a benefit in kind and you will need to record it on a P11D, as it will be liable to both personal and company tax.

The director will need to declare this benefit on their personal tax return which will be subject to income tax at their applicable tax rate. The company will also need to pay Class 1A National Insurance at the rate of 13.8% on the full loan amount.

If you already own a property, then the purchase of a second property will be subject to a Stamp Duty Land Tax rate increase of 3% on the residential rates.  

Any rental income received will need to be declared on a self-assessment tax return on a tax year basis, with relevant expenditure offset against this to calculate the taxable profits. Any costs incurred to make the property habitable will not be allowable as a tax deduction.

Relief for mortgage interest incurred has been fully restricted from the 2020/21 tax year, with relief only being given at the basic rate to all taxpayers.

Capital Gains Tax on disposal of a residential rental property is taxed at 18% for gains up to the basic rate threshold and 28% for amounts above this.

Rental income paid to non-resident landlords is required to be paid net of 20% tax at source. This amount should be deducted by your letting agent or the tenant if there is not an agent in place.

An NRL1 form can be completed in order to request clearance from HMRC for your rental income to be paid gross of tax.

The income generated and tax deducted at source needs to be declared on a UK self assessment tax return.

Gains on residential property disposals must now be declared on HMRC’s online CGT disposal return (and the tax paid) using the Capital Gains Tax UK property disposal service within 30 days of the completion of the sale of the property. You will need to have or set up a Government Gateway account to allow you to meet your reporting obligations.

If the 30-day deadline is missed, late filing penalties will apply. Interest will always apply on any tax paid after the 30-day deadline.

Under the rules of self assessment you are required to make tax payments in advance, if the tax due for the previous year was over £1,000 or less than 80% of your tax has already been collected at source. The amount you have to pay for each payment on account is half of your previous year's tax bill. So if your tax bill for this tax year is £2,000, then you would also have to make two payments on account totalling £2,000 towards next year's bill. If however you are not making as much money, we can apply to HMRC for the payments to be reduced explaining why you expect your income to be lower this year.

If you are unable to pay your tax bill you may be able to set up a payment plan with HMRC if:

• you owe £30,000 or less 
• you do not have any other payment plans or debts with HMRC
• your tax returns are up to date
• it’s less than 60 days after the payment deadline 

You can do this online however you will need to have set up a personal government gateway account first - https://www.gov.uk/difficulties-paying-hmrc. Alternatively you can call the Self Assessment helpline if you’re not eligible for a payment plan or cannot use the online service for any reason – 0300 200 3822.

Everyone enjoys receiving gifts; however, employees are unlikely to appreciate gifts if there is a tax charge involved. Fortunately, there is a statutory exemption from income tax and national insurance for employees and employers, if the gift meets the following conditions:

• it cost you £50 (incl. VAT) or less to provide
• it is not cash or a cash voucher
• it is not a reward for their work or performance
• it is not in the terms of their contract 

This is an all or nothing exemption - if the cost of a gift exceeds £50 then the full value is taxable under the usual benefit in kind rules.

Where the benefit is provided to a group of employees and it is impractical to work out the exact cost per individual, then the average cost must come under the £50 limit.

As a general rule, business gifts are not considered tax deductible and HMRC consider these to be entertaining.

However, gifts to customers become tax deductible if:

• the gift is given to the public to advertise your business (for example a free sample), or
• the gift includes a conspicuous advertisement for your business - though this must cost less than £50 (incl. VAT) and not be part of a series of gifts to the same person which come to more than £50 in that accounting period. 

If an employer hosts an annual event that is made available to all employees and the total cost per head of the event is less than £150 (incl. VAT), then the cost of the event is tax deductible.

The £150 is not an annual allowance, if the cost is exceeded then the whole amount will become taxable

HMRC have confirmed that where all normal conditions are met, virtual events can be included when considering the £150 exemption.

Zero-emissions company cars will qualify for a 100% first year capital allowance, so for a £50,000 vehicle you would receive corporate tax relief of £9,500.

A benefit-in-kind (BIK) is any non-cash benefit of monetary value that you provide for your employee. The benefits have monetary value, so they must be treated as taxable income. National insurance is not usually taxed on BiKs.

For zero emission vehicles registered after 6 April 2020, a 0% Benefit-in-Kind (BiK) charge will apply. This is expected to increase to 1% in 2021/22 and 2% in 2022/23 (e.g., based on a car list price of £50,000 a benefit charge of £500 would apply in 2021/22 – this would then be taxed on your employee at their personal tax rate and on the business at 13.8%). The BiK percentage charge is expected to increase year on year.

Where you pay for the cost of charging the company-provided electric vehicle there is no taxable fuel benefit for the driver, as electricity is not classified as a fuel under car or van benefit regulations.

Where the driver (employee) of the electric vehicle pays for the electricity to power it, either from their domestic supply or by charging at a roadside station, you may reimburse the employee for that cost. You can pay the employee 4p per mile, to reimburse them for the cost of the electricity used for business journeys, with no tax implications. 

Many schools are registered charities, either registered with the Charity Commission or with HMRC. If your school is, you can make either regular or one-off gift aid payments to them.

This will mean your donation is treated as being made net of basic rate tax (at 20%) and the charity claims the tax back from the government. For example, if you make a donation of £100 under the Gift Aid scheme and you're a basic rate taxpayer, the charity is able to claim back tax of £25 from the government, which means the charity receives £125, but it costs you £100. If you are a higher rate taxpayer you can claim 20% (the difference between the higher rate of tax at 40% and the basic rate of tax at 20%) as a tax deduction on the total value to the charity of the donation. So, on a gift of £100, a higher rate taxpayer can reclaim £25 (20% of the gross donation of £125). The claim is usually made via your self-assessment tax return.

It is an insurance backed service which protects you from accountancy fees associated in dealing with any HMRC enquiry or dispute.

There is no definitive answer as to why, but there are a lot of possibilities; filing a late return, errors that require correction, dealing with cash, HMRC receive a tip off, working in a targeted business sector, to name a few.

The revenue’s ‘snooper computer’ collates data from banks, Land Registry records, Visa and MasterCard transactions, DVLA, council tax, VAT registration documents, Airbnb, and believe it or not even your social media profiles.

A common misconception is that a mistake has been made but that is rarely the case. Random enquiries can and do happen.

The cost of an enquiry will depend on the nature of the enquiry and the level of staff and time required to deal with the work. We would typically expect fees starting at £1,500+VAT to deal with a relatively simple enquiry but for more complex cases the fees could be upwards of £10,000+VAT.

Caldwell Penn is now insured with Croner-i Taxwise-protect in respect of fees up to £100,000 incurred representing you in the event of any compliance check, visit or investigation started by HMRC regarding compliance with:

• Corporation Tax Self-Assessment
• Income Tax Self-Assessment
• PAYE and P11D
• Capital Gains Tax
• National Insurance
• Construction Industry Scheme
• IR35
• Inheritance Tax
• VAT
• National Minimum Wage
• Gift Aid Legislation and Regulations
• Stamp Duty (including Land Tax)

The policy does not include any invesitgations relating to:

• Fraud
• Deliberate Omissions
• Criminal Prosecutions
• Tax, fines, penalties & interest due
• Tax Avoidance Schemes
• Enquiries commencing outside of the Period of Service
• Any tax matters for which Caldwell Penn does not act as your appointed tax agent

Yes, if Caldwell Penn are the appointed personal tax agent for shareholders, directors and partners, the business fee protection insurance policy will also cover these individuals.

You must register for VAT if: You expect your VAT taxable turnover to be more than £85,000 in the next 30-day period, or your business had a VAT taxable turnover of more than £85,000 over the last 12 months. 

Taxable supplies or turnover includes standard-rated (20%) lower rated and zero-rated income. It does not include exempt income.

Most business can register online – including partnerships and a group of companies registering under one VAT number. 

If you register late, you must pay what you owe from when you should have registered. 

Yes, if the business makes taxable supplies.

This confirms your VAT number, when to submit your first VAT Return and payment, your effective date of registration – this depends on the date you went over the threshold, or is the date you asked to register if this was voluntary.

There is a time limit for backdating claims for VAT paid before registration. From your date of registration the time limit is: 4 years for goods you still have, or that were used to make other goods you still have and 6 months for services. 

Within 30 days of ceasing to make taxable supplies.

Less than £83,000 taxable turnover.

The cash scheme means the business only pays or reclaims VAT when the invoice has been paid. The invoice scheme means that the VAT is paid or reclaimed based on the date of the invoice, regardless of whether it has been paid or not.

The standard scheme requires a VAT Return to be submit every quarter (3 months) however some businesses may be suitable for the monthly or annual schemes.

The deadline to submit and pay a quarterly VAT Return is usually 1 month and seven days after the quarter end e.g. the return for the quarter ending 31st December will have a deadline of 7th February.

The total amount of VAT reclaimed on purchases is subtracted from the total amount charged to customers. This net figure is either paid to HMRC or reclaimed.

If a business makes a mixture of taxable and exempt supplies, partial exemption calculations must be completed. This means that only the input VAT relating to the taxable supplies can be reclaimed. However, if certain de minimis tests are met, all the input VAT can be recovered.

HMRC states that all VAT records must be kept for a minimum of six years. At any time, HMRC are entitled to inspect these records.

Yes you can, payment will be collected 3 working days after the payment deadline on your VAT Return. 

You can pay HMRC by faster payments, CHAPs of Bacs. You will need your 9-Digit VAT Registration number to make the payment. 

If your bank feed is connected, the transactions will be waiting to be reconciled. You can then match the transaction to a relevant invoice, create a new transaction or record a bank transfer. To create a new transaction simply enter the relevant ‘Who, What, Why,’ details and click OK to reconcile. 

Bank rules can be set up on Xero to categorise regular transactions, therefore saving time in the reconciling process. Instead of manually entering the transaction details, Xero suggests a transaction, using the conditions you have set in the bank rule.

To meet new EU standards relating to open banking, most bank feeds must be renewed every three months for security purposes. On Xero, this usually takes less than 5 minutes.

If you have multiple sales or purchase invoices you want to raise on Xero, you can import them into the software using a template provide on Xero.

This gives you access to articles and discussions to help you to use your Xero. 

On Xero you can edit the existing sales invoice template to show your company details, you can also create your own custom branding theme.  

Xero allows you to download a template and import the transactions. They can then be posted reconciled with the relevant details.

Yes, you can add a contact email to your Xero client and email the sales invoice directly to them through Xero.