dividend tax, caerphilly accounting, directors, business owner, accountant

Dividend Tax! Owner-directors, are you informed?

If you are an owner director the way in which dividend tax is calculated is changing for the 2016/17 accounting period. If you are an owner director, I strongly recommend that you book a consultation with your accountant or financial advisor to discuss how you will look to remunerate yourself in the forthcoming accounting period.

The reason why it is important to speak with your accountant is because Her Majesty Revenue & Customs (HMRC) are amending Pay-As-You-Earn (PAYE) codes for these changes to take effect from the 6 April 2016. HMRC will be using your previous tax information to set your new P2 PAYE code. Therefore, in order for you as an owner not to incur a large tax bill come Self Assessment you will need to have discussed how you will look to take funds fro your business prior to the 6 April 2016.

The changes mean that the average company director who takes home a modest salary within their personal allowance and the rest of their income through dividends, will pay more tax in the 2016/17 accounting period.

For example,

A company with profits of £60,000.00.

The owner director wishes to receive roughly £43,000.00 for the accounting period 2016/17.

The director takes a modest salary of £8,060.00 and the remainder £34,900.00, as dividends. Under 2015/16 accounting period rules the total dividend tax, National Insurance Contributions (NIC), and PAYE payable is £794.33. (Note: Dividends in 2015/16 accounting period came with a tax credit. If your dividend fell within the standard rate tax band of 20% there was no tax to pay on dividends). From our example, NIC and PAYE are £nil, tax on dividends up to £31,785.00 is nil, because of the tax credit element, as such tax is only changed on the £3,115.00, above the basic rate threshold at 25.5%, less the 10% tax credit totalling 32.5%.

However, with the changes that come into effect on 6 April 2016 the total tax liability due on the same income in 2016/17 is £2967.50 an increase of £2173.18. The increase is a resultant of the rate dividend tax is now charged. There is a 7.5% dividend tax for the basic rate taxpayer, 32.5% for a higher rate taxpayer, and 38.1% for an additional rate taxpayer. There will no longer be a 20% basic tax rate in the 2016/17 accounting period on dividend tax.

How does this work? For dividends of up to £5000 there will be no dividends tax due, however from £5000.00-£32,000.00 the tax rate is 7.5% (£27,000.00 at 7.5% = £2,025.00), from £32,000.00-£150,000.00 the dividend tax rate is 32.5% (£2,900 at 32.5% = £942.50) and for an additional rate dividends taxpayer (£150,000.00, plus) the rate is 38.1%.

If you are an owner director and have concerns about how the changes will affect you. There are strategies available that may help you reduce your tax liability. It is worth taking professional advice sooner rather than later. You do not want a headache come Self Assessment, as a result of ignorance.

making tax digital, hmrc, caerphilly accounting

Making Tax Digital

HMRC has finally released more information about its plans for Making Tax Digital – the commitment to transform the UK tax system and ‘ending the annual tax return’ by 2020.

On 15th August 2016, 6 consultation documents were released, explaining HMRC’s plans for implementing Making Tax Digital over the coming years.

Our software partner, FreeAgent, has created a handy guide so you can find out more about what Making Tax Digital means for you. The guide explains:

  • What Making Tax Digital is?
  • HMRC’s objectives for the initiative
  • How it will affect the way you report information to HMRC in the future
  • The key milestones you should be aware of.
Find out what you need to know and get your Guide to Making Tax Digital.

ir-35, cub contractor, caerphilly accounting, accounting caerphilly, tax returns, accounts preparation, bookkeeping, payroll

IR-35 The Key Points

The right of control is important – even if it’s not exercised
One of the key indicators of IR35 status is the right of control – if a contractor’s client contractually has the right to control how they carry out their work, the contractor may well fall under IR35 legislation. Although control is not a decisive factor it must be considered as part of the overall picture. The important thing to note is that the mere existence of the right of control counts, even if that right is never exercised.

The other factors besides control that must be looked at, if the worker is an expert
The absence of control may not always be useful in deciding whether a worker is an employee or a contractor. For example, an airline would not instruct a skilled pilot on how to fly a plane. Any of your clients hired as experts in their own fields will need to look at other factors of the contract, besides control, to determine whether or not it is a contract of service.

Mutuality of obligation is key to establishing whether a contract of any kind exists
Mutuality of obligation means that the engager must pay consideration to the contractor and that the contractor must carry out the work offered. Without these two points there cannot be a contract in existence, either a contract of service or a contract for services.

Once the contract is established, HMRC says that the matter of whether the contractor has to accept the work offered, or whether the engager has to offer work once work is being carried out, is irrelevant to the question of whether the contract actually exists.

Occasional delegation is consistent with a contract of service
The question of personal service and the right of delegation often causes difficulties for clients who operate alone. HMRC says that if a worker can occasionally send a substitute in their place, this in itself does not mean that the worker is not an employee.

Mutual intention is only considered if the other factors don’t point one way or the other
There is a common opinion in the accountancy profession that it should be for the contractor and the engager to decide whether they wish the relationship to be employee-employer or contractor-engager. However, HMRC says that mutual intention will only come into play as a deciding factor if the other key factors in the arrangement do not show a clear direction towards employment or contractorship.

HMRC’s consultation response to Making Tax Digital.

In response to the August 2016 6 consultation documents by HMRC on “Making Tax Digital for Business (MTDfB)”, HMRC has provided further clarification on the timescales for the implementation of MTDfB. This will affect accountants and their micro-business clients.

There will be a pilot scheme commencing in April 2017, with the inclusion of entities such as sole traders and landlords, who are not registered for Value Added Tax (VAT), planned for April 2018. April 2019 will see taxpayers who are registered for and are paying VAT, and from April 2020 will include businesses who are registered to pay Corporation Tax.

The stance taken by HMRC towards those businesses, which continue to use spreadsheets for their digital bookkeeping once MTDfB is under way, are as follows:

  • The business’ record-keeping must include a digital functionality
  • They must be able to provide quarterly information updates
  • The record-keeping must support year-end

Whilst HMRC will still accept spreadsheets under MTDfB, for record-keeping, the above points must be adhered to, in order for businesses to comply with the scheme. Consequently, spreadsheets will need to be used in conjunction with software if businesses are to comply with MTDfB. Further details regarding the practicalities of the initiative will be made clear once the pilot scheme is under way.

The year-end deadline for personal tax will continue to be the 31 January. However, it will be up to the client to choose when they intent to share their records with their accountants. Whether on an ongoing basis throughout the year, at year-end or as and when updates are required.

In an effort to support businesses through the process of MTDfB, HMRC will not be charging taxpayers late submission penalties under MTDfB for at least 12 months.

JJBS Bookkeeping Solutions uses HMRC compliant software and are ready to support you and your business in Making Tax Digital. Contact us for more information.

online traders, hmrc, tougher penalties, caerphilly accounting

HMRC tougher penalties hitting small online traders!

Tom Herbert of AccountingWEB’s business editor writes that “HMRC is hitting smaller ‘eBay style’ internet traders who underpay their tax with tougher penalties than larger businesses, according to new figures released by Moore Stephens.”

Figures from the Top Ten firm showed that online retailers fined for unpaid tax under HMRC’s ‘deliberate defaulters’ programme faced average penalties (on top of the underpaid tax) of 59% of the tax owed, compared to the overall average of around 35-50%.

However, AccountingWEB were advised by a spokesperson from HMRC, that the firm had reached this figure by analysing just five cases, says Tom.

Lack of awareness

Many small-scale traders using online outlets such as eBay, Amazon and Alibaba may be unaware they have to pay tax on their activity, or believe their earnings will fly under HMRC’s radar.

From April 2017, online retailers are allowed to earn up to £1,000 annually without being taxed, but many quickly outgrow that exemption.

Moore Stephens partner Dominic Arnold, believes that the Revenue is cracking down on such traders with ‘full force’.

“HMRC has given due warning to online traders that they are in their sights,” said Arnold. “In HMRC’s eyes there can be no excuses for not declaring online businesses. However, many sellers might not consider the fact they should be paying tax and are not even registered with HMRC”.

Recent examples of cases flagged by Moore Stephens included:

  • An online car accessory retailer from Bradford who defaulted on tax worth £71,738 between 2011 and 2014 faced penalties worth £50,217 – 70% of tax owed
  • An online sole trader antique dealer from London who defaulted on tax worth £26,399 and faced penalties of £17,555 – 66% of tax owed
  • An online retailer of mobile phone accessories from Leicester who defaulted on tax worth £31,418 and owed penalties of £20,343 – 65% of tax owed
  • An online retailer from Glasgow whose tax defaults totalled £34,176 and faces penalties of £20,335 – 59% of tax owed
  • An online textile retailer from Manchester that defaulted taxes worth £62,702, faced penalties of £35,113 – 56% of tax owed

Reacting to the figures an HMRC spokesperson said: “We are clear that everyone must play by the same rules, and pay the taxes due under the law. This applies to online trading as to more traditional platforms. When you are selling goods for profit, HMRC must be notified through the trader’s tax return.

“Our penalties are focused on the minority of people who try to get around the rules. Our most recent figures show that last year HMRC brought in a record £26bn in extra tax for our public services, money that would otherwise have gone unpaid.”

Card transaction programme

HMRC opened a new “card transaction programme” disclosure facility this March. The scheme is designed to offer lower penalties to businesses volunteering potential under-payment information.

However, Moore Stephens cautioned that because HMRC extracts data from businesses that process debit and credit card transactions, it remains relatively easy for the Revenue to track down even the smallest of organisations that fails to pay the right amount of tax.


competition after brexit, caerphilly accounting

Is it a case of 'no competition' after Brexit?

Dean Murry a competition partner at the law firm Ward Hadaway, explores the subject of competition after Brexit in the Business Quarter (BQ) Spring 2017 edition. One of the big talking points facing UK companies post Brexit is “what will happen to competition law and how will it affect companies” in the UK?

At present EU competition law greatly influences the competition laws in the UK, so after Brexit what will happen to competition.

Murry asserts that, “the UK’s decision to leave he EU added to the Prime minister’s announcement that the UK does not wish to remain in the Single Market, suggests the possibility of a change in this area of law post-Brexit.  This has the potential to create a marked effect on how companies here do business. Currently, when competing on a European level, British businesses are governed by Articles 101 and 102 of the Treaty on the Functioning of the European Union. These provisions prevent the making of unduly restrictive agreements (including cartels), as well as preventing dominant businesses abusing their market power. These are mirrored on a UK level by the Competition Act 1998, which for the time being must be interpreted in light of European competition case law, although this is likely to cease following Brexit.”

What does this mean?

In the short term, there will be a “significant difference in the UK and European anti-trust policies”, however, “in the long term there is likely to be a more general divergence. As such, there is potential for increased costs and bureaucracy with businesses potentially needing different measures in place for situations where they compete in both the UK and European markets.”

Enforcement of Competition law

“The responsibility for competition law enforcement will also alter. Under the current arrangement where a business’s practices have an ‘effect on trade between Member States’ the European Commission will investigate. Where the anti-competitive activity is limited to the UK, the Competition and Markets Authority (CMA) will consider the matter.

Post-Brexit there will be a real possibility of parallel investigations with both authorities investigating the same matter. This would increase the workload of the CMA, stretching its resources as well as increasing the burden and costs for UK businesses under investigation.”


“At the moment company mergers are dealt with on a ‘one stop shop’ principle, whereby a merger with a ‘Community Dimension’, i.e. affecting other EU member states, is dealt with by the Commission and all others are dealt by the relevant national authority.

However, post-Brexit it is likely that many deals will fall under the remit of both EU and national regimes – meaning purchasers may be obliged to make two merger filings. This is undesirable for a number of reasons including the fact that the UK merger process is lengthier than the EU process, and that the CMA charges a filing fee of £160,000 whereas there is no such fee for reporting mergers to the Commission.

This arrangement could also lead to a situation also lead to situations where the two authorities reach a different conclusion as to the permissibility of a proposed acquisition. Therefore, companies should be sure to reconsider their existing merger filing approaches as well as reviewing the commerciality of proposed deals more generally.”

State Aid

Competition law also encompasses State Aid. “Currently, it is dealt with solely on a European level and there are no equivalent provisions under UK law. State Aid requirements are also only applicable to Member States, meaning that, post-Brexit, the UK will be allowed to provide aid to businesses without fear of European action. However, the UK will be bound by the World Trade Organisation Agreement on Subsidies and Countervailing Measures, which controls a country’s use of financial subsidies in addition to providing remedies to counter any adverse effects. Nonetheless, the effects of this are less stringent than the current European requirements.”

Could the loss of these restrictions be an advantage?

Murry explains that “the loss of such restrictions does not mean the Government will automatically look to exploit its new-found freedom. Further, it is possible the Government will seek to impose new national laws to restrict the ability of other state bodies to assist businesses.

State aid provisions have helped the UK by curtailing the financial support grant to businesses in other Member States. Such influence will be lost following Brexit, resulting in the potential for European growth that may be undesirable for UK business.

Whilst much of the rhetoric surrounding the EU referendum was about lightening the regulatory load, the burden when it comes to competition issues could actually become greater for UK business post-Brexit.

This is perhaps another illustration that the most significant legal issue in the context of Brexit is the application of the law of unintended consequences.”

autumn budget, caerphilly accounting

Is it business as usual for small businesses following the 2017 Autumn Budget

Emily Coltman FCA, chief accountant at FreeAgent, summeries the most notable changes in the Chancellor’s Autumn Budget and what effect they will have on small businesses.

She explains that “The biggest change that the Autumn Budget 2017 presented for small business owners was simply that a Budget happened in the autumn as well as the spring!” The budget announced no significant changes for freelancers, contractors or small business owners.

No change to the VAT registration threshold for two years

Since the Office of Tax Simplification published its report on VAT in November 2017, there has been speculation as to whether the Chancellor would change the threshold for VAT registration in the Autumn Budget. The Chancellor opted to freeze the VAT registration threshold at its current level of £85,000 for two more years from April 2018. In real terms, this could be considered a reduction, since usually the threshold rises every year.

Potential reduction in rates

Clients who run their businesses from rateable premises will find their rates rising by the lower Consumer Prices Index as opposed to the Retail Prices Index. And if they were affected by the so-called “staircase tax”, which meant that businesses using office spaces separated by communal stairs, lifts or hallways were charged higher rates, they will be able to apply to have that rate assessment lowered.

Making Tax Digital (MTD) plans unchanged

The Chancellor didn’t mention MTD at all in his announcement and, digging deeper into the full Budget report, it’s apparent that the plans for rolling out the initiative haven’t changed. MTD will not become compulsory until April 2019 and then only for VAT and for businesses with annual sales over the VAT threshold.

Diesel tax increases to affect cars only

From April 2018, any new diesel cars that do not meet the “clean diesel” criteria will be subject to increased car tax. This will apply only to cars, not to vans, so clients who own and use a van in their business will not have to pay additional tax on it.

Corporation Tax indexation allowance frozen

January 2018 will see the freezing of the Corporation Tax indexation allowance for chargeable gains made by companies. It remains to be seen whether this will be replaced by a taper relief similar to that available for individuals.

Anti-avoidance and the Employment Allowance

The budget report claims that the government has “found evidence” that employers are claiming the Employment Allowance when they are not entitled to do so, “often by using offshore arrangements”. From 2018, HMRC will “require upfront security” from employers who have used the Employment Allowance in this way to avoid paying National Insurance in the past.

In summary, while there were a few points of interest for small business owners, this Budget can be described very simply as “business as usual, no major changes”.