Business records if self-employed

Posted on 20th July 2023 by Solutions Accountancy

If you are self-employed as a sole trader or as a partner in a business partnership, then you must keep suitable business records as well as separate personal records of your income.

For tax purposes, the business records must be held for at least 5 years from the 31 January submission deadline for the relevant tax year. For example, for the 2021-22 tax year, when online filing was due by 31 January 2023, you must keep your records until at least the end of January 2028. In certain situations, such as when a return is submitted late, the records must be held for longer.

If you are self-employed, you should also keep a record of:

all sales and income
all business expenses
VAT records if you’re registered for VAT
PAYE records if you employ people
records about your personal income
grant details if you claimed through the Self-Employment Income Support Scheme because of coronavirus.

You don't need to keep the vast majority of your records in their original form. If you prefer, you can keep a copy of most of them in an alternative format as long as they can be recovered in a readable and uncorrupted format. For example, a scanned PDF document.

If your records are no longer available for any reason, you must try and recreate them letting HMRC know if the figures are estimated or provisional. There are penalties for failing to keep proper records or for keeping inaccurate records.

What do we mean by cost of living?

Posted on 19th July 2023 by Solutions Accountancy

A simple dictionary definition of cost of living would probably say something like:

The level of prices relating to a range of everyday items…

The problem is, the price inflation for food, or fuel for your car, or heating costs will vary. Although inflation is quoted as just under 9% in the UK, this disguises the true rate of cost increases in different sectors. For example:

Petrol and diesel prices were much higher in 2022 that currently. In which case prices in this area have reduced.
In the year to May 2023, food and non-alcoholic beverages rose by 18.4%, much higher than the current rate of published inflation.
According to the Office of National Statistics energy prices rose 8.1% in the year to May 2023. However, energy price caps will have artificially held down price increase due to government interventions.

To further complicate the issue, inflation is measured in two ways:

CPI – the Consumer Price Index, and
RPI – the Retail Prices Index

The Retail Prices Index (RPI) is no longer classified as a National Statistic because the way it is calculated does not meet international standards.

In general terms, when the press discuss inflation, the measure they are quoting is the CPI. The CPI inflation rate in May 2023 was 8.7%, the same as in April 2023.

The other factor that is entering the equation on this topic is interest rates. The Bank of England only has one weapon in its armoury to bring down inflation and that is to increase interest rates to dampen demand.

As rates increase, the cost of repaying loans – particularly mortgages – is increasing. Stories abound of monthly repayments doubling in recent weeks.

And so, care should be taken when interpreting price increases. The CPI hides a wealth of price increases and decreases that are no where near 8.7%.

Tax Diary August/September 2023

Posted on 17th July 2023 by Solutions Accountancy

1 August 2023 – Due date for corporation tax due for the year ended 31 October 2022.

19 August 2023 – PAYE and NIC deductions due for month ended 5 August 2023. (If you pay your tax electronically the due date is 22 August 2023)

19 August 2023 – Filing deadline for the CIS300 monthly return for the month ended 5 August 2023.

19 August 2023 – CIS tax deducted for the month ended 5 August 2023 is payable by today.

1 September 2023 – Due date for corporation tax due for the year ended 30 November 2022.

19 September 2023 – PAYE and NIC deductions due for month ended 5 September 2023. (If you pay your tax electronically the due date is 22 September 2023)

19 September 2023 – Filing deadline for the CIS300 monthly return for the month ended 5 September 2023.

19 September 2023 – CIS tax deducted for the month ended 5 September 2023 is payable by today.

Alcohol duty changes

Posted on 13th July 2023 by Solutions Accountancy

Changes in the way alcohol is taxed will come into effect from 1 August 2023. The new system of calculating alcohol duty for all alcoholic drinks will be made using standardised tax bands based on alcohol by volume (ABV). This will replace the current alcohol duty system, which consists of four separate taxes covering beer, cider, spirits, wine and made-wine.

These changes are expected to make the system fairer and encourage more new products to enter the market. The new system will create six standardised alcohol duty bands across all types of alcoholic products and apply to all individuals and businesses involved in the manufacture, distribution, holding and sale of alcoholic products across the UK.

There will also be more help for the hospitality industry with an increase in the draught relief duty differential. This will reduce alcohol duty on qualifying beer and cider by 9.2%, and by 23% on qualifying wine-based, spirits-based and other fermented products, sold in on-trade premises such as pubs and restaurants. These changes will also take effect from 1 August 2023 and mean that individuals who drink draught products in on-trade venues (such as pubs) will pay less tax than on the equivalent non-draught product in off-trade venues (such as supermarkets).

To support wine producers and importers in moving to the new method of calculating duty on their products, temporary arrangements will be in place for eighteen months from 1 August 2023 until 1 February 2025.

Tax on property you inherit

Posted on 13th July 2023 by Solutions Accountancy

If you inherit property, you are usually not liable to pay tax on the inheritance you receive. This is because any Inheritance Tax (IHT) due should be paid out of the deceased’s estate before any cash or assets are distributed to the estate beneficiaries.

The rate of IHT currently payable is 40% on death and 20% on lifetime gifts. IHT is payable at a reduced rate on some assets if an individual leaves 10% or more of the 'net value' of their estate to a charity.

If you inherit a property, you are generally not liable for Stamp Duty, Income Tax or Capital Gains Tax and HMRC would make contact if you had IHT to pay.

If you receive an inheritance, you will be liable to Income Tax on any profit or gains received or earned after the inheritance. For example, Capital Gains Tax (CGT) on any increase in property value if you dispose of the property after the date of inheritance or tax on any rental income received. If inheriting a property means you then own two properties, you must tell HMRC which property is your main home within two years. There are special rules if the property is held in trust.

Getting a SA302 tax calculation

Posted on 13th July 2023 by Solutions Accountancy

The SA302 tax calculation and tax year overview documents are commonly used as evidence of income for loan or mortgage purposes for the self-employed. The forms have become more widely used since the mortgage rules have required evidence of income for the self-employed. The SA302 provides this evidence for the last four years Self-Assessment tax returns.

The SA302 shows the breakdown of the income returned on the taxpayer’s tax return, including commercial versions. The tax year overview confirms the tax due from the return submitted to HMRC and shows any payments made, cross referencing the Tax Calculation with HMRC records.

Self-Assessment taxpayers can use HMRC’s online service to request an SA302 tax calculation. It takes 72 hours after an online tax return has been submitted before the documents are available to print.

Most lenders will accept a SA302 printed from online accounts or from the commercial software used to submit returns. HMRC has been working with the Council of Mortgage Lenders and their members to increase the number of lenders who will accept self-serve copies.

Pension Credits

Posted on 13th July 2023 by Solutions Accountancy

Pension Credits can provide extra income to those over State Pension age and on a low income. The credits were first introduced in 2003 to help keep retired people out of poverty. There are two main parts to Pension Credit.

The first part is referred to as the ‘Guarantee Credit’.

Pension Credit can top up:

your weekly income to £201.05 if you are single; and
your joint weekly income to £306.85 if you have a partner.

If your income is higher, you might still be eligible for Pension Credit if you have a disability, you care for someone, you have savings or you have housing costs. Not all benefits are counted as income.

The second part of Pension Credit is referred to as the ‘Savings Credit’.

You could get the ‘Savings Credit’ part of Pension Credit if both of the following apply:

you reached State Pension age before 6 April 2016; and
you saved for retirement, for example a personal or workplace pension.

Recipients get up to £15.94 Savings Credit a week if they are single and up to £17.84 a week if they have a partner.

It is possible to qualify for one or both parts of the Pension Credit.

Recipients of Pension Credits will automatically get cold weather payments and are also eligible to apply for a free TV licence if they are aged 75 or over and to assist with NHS costs if they receive the ‘Guarantee Credit’ part of Pension Credit.

Cannot pay your tax on time?

Posted on 13th July 2023 by Solutions Accountancy

The second payment on account for Self-Assessment taxpayers for the 2022-23 tax year is due on 31 July 2023. Taxpayers are usually required to pay their Income Tax liabilities in three instalments each year. The first payment was due on 31 January 2023. The final balancing payment of tax will be due on 31 January 2024.

If you are having trouble paying your tax on time you may be eligible to receive support with your tax affairs. An online payment plan for Self-Assessment tax bills can be used to set up instalment arrangements for paying tax liabilities up to £30,000.

Taxpayers that want to use the online option must have filed their latest tax return within 60 days of the payment deadline and intend to pay their debt within the following 12 months or less. Taxpayers that qualify for a Time to Pay arrangement using the self-serve Time to Pay facility online, can do so without speaking to an HMRC adviser.

Taxpayers with Self-Assessment tax payments that do not meet the above requirements need to contact HMRC to formally request a Time To Pay arrangement. These arrangements are agreed on a case-by-case basis and are tailored to individual circumstances and liabilities.

HMRC will only offer taxpayers the option of extra time to pay if they think they genuinely cannot pay in full but will be able to pay in the future. If HMRC do not think that more time will help, they can require immediate payment of a tax bill and start enforcement action if no payment is forthcoming.

Updating your tax return

Posted on 13th July 2023 by Solutions Accountancy

There are special rules to follow if you have submitted a Self-Assessment return and subsequently realise you need to change it. For example, tthis can happen if you made a mistake like entering a number incorrectly or missed information from the return.

If you filed your return online, you could amend your return online as follows:

Sign in to your personal tax account using your Government Gateway user ID and password.
From ‘Your tax account’, choose ’Self-Assessment account’ (if you do not see this, skip this step).
Choose ‘More Self-Assessment details’.
Choose ‘At a glance’ from the left-hand menu.
Choose ‘Tax Return options’.
Choose the tax year for the year you want to amend.
Go into the tax return, make the corrections and file it again.

You must wait three days (72 hours) after filing before updating your return. If you opted to file your return on paper, you will need to download a new return and fill in the pages that you wish to change and write ‘amendment’ on each page. You must also include your name and Unique Taxpayer Reference on each page and then send the corrected pages to the address where you sent your original return.

If you used commercial software to submit your Self-Assessment return, then you should contact your software provider in the first instance. If your software provide cannot help, then you should contact HMRC.

The deadline for making changes for the 2021-22 tax year using any of the methods outlined above is 31 January 2024. If you have missed the deadline, you will need to write to HMRC instead. For example, if you found a mistake in your 2020-21 return after 31 January 2023. In the letter, you will need to say which tax year you are correcting, why you think you have paid too much or too little tax and by how much. You can claim a refund up to four years after the end of the tax year it relates to.

Ideas for increasing your cash flow

Posted on 11th July 2023 by Solutions Accountancy

Business owners are not exempt from the effects of inflation, but unlike waged individuals, they may have more options to increase cash flow. Here’s a few ideas you may like to consider:

If you have slow-moving or dormant stock sitting on your storage racks, consider a sale. Anything you can convert into cash will have a positive impact on cashflow.
Are staff fully utilised? If not, could you offer short-term placements via employment agencies? Failing this option, do you need to consider redundancies?
Do you have unused storage or production space that you could rent for short periods?
Are your company vehicles fully utilised? Could they be hired to other firms on short-term hire contracts?

Wage earners will have other options to increase their monthly cash flow. For example:

Taking on a second job, albeit part-time.
Make a list of all those unwanted items languishing, unused, in your loft, outhouse or storage spaces and consider selling on E-Bay or similar platform.
Could you let out your drive 9am to 5pm to workers unable to find regular parking spots in your area?
Do you have underutilised equipment that you could hire out?

And earning £1,000 or under in a tax year from either renting out part of your home or selling/hiring under-utilised assets is tax free.

And finally, if you have spare rooms in your home, you may be able to rent these tax-free as long as annual rents received do not exceed £7,500 and you are resident in the same building.

If you would like to expand on any of these ideas, be happy to discuss your options. Please call.