Penalties do not just apply for late filing – they also apply to the late payment of tax, amounting to 5% of the unpaid tax,  payable at 30 days, 6 months and 12 months after the due date of 31st Jan 2013.

If you haven’t yet filed your 2011/12 return, please contact the office on 02920 713 800 to see how we can help – in certain circumstances, we may be able to appeal penalties already incurred.

You can download HMRC’s RTI readiness guide here  or for more information on payroll and RTI click here

Individuals

Higher rate taxpayers should maximise tax reliefs which are given in full against income such as loss reliefs (including losses incurred on shares in some private companies), pension contributions (up to £200,00, including any unused relief brought forward) and Gift Aid contributions.

Other sensible tax planning opportunities include tax efficient investments making best use of reliefs which would otherwise be lost (annual limits are refreshed into new tax year) There are many schemes, many of which offer generous relief, including  Enterprise Investment, Seed EIS investment, Venture Capital Trusts and ISAs. For more information on these, read page 7 of the latest issue of iNsight, our practice magazine.

It’s also worth considering deferring income payments such as bonus payments and dividends from companies where possible, especially for those paying a higher rate of tax this year compared to next year (remembering that from 6 April there will be a reduction in the top rate of tax as those with income of more than £150k will see their top rate reducing from 50% to 45%)  This has an added bonus for businesses, as the company can approve bonuses for which it can claim a Corporation Tax relief deduction against current year profits but doesn’t have to pay the PAYE tax and NI contributions on the bonus for up to another 9 months (note the liability is incurred when the bonus is drawn down, so ideally the Directors should defer paying out until the 9^th month after approval)

Companies

Aside from the above sound advice on bonus deferment, there are a number of other ways to reduce your company’s tax and NI at this time of year.

-       Take stock – the lower the value of stock, the less the company’s CT bill will be for the year – so now’s the time to undertake that stock take you’ve been putting off. Remember that if you price an item below cost just to shift it, then you can include it in your stock list at the lower value, not the cost price.

-       Go green –  currently the tax deduction for greener company cars (i.e. those below 160g/km) is 185 but from the new tax year, that rate will only apply for vehicles with even lower emissions (i.e. those below 130g/km) A purchase order for a vehicle below 160g/km signed before 1^st April will still qualify for the higher tax deduction rate, even if you pay for it later)

-       Lose the loan – if a Director or employee owes the company more than £5000 at any point during the tax year, this can give rise to a Benefit In Kind tax charge (if the loan interest rate is below 4% including interest free). To reduce both the individual and company NI bill, pay off a significant amount of the loan before the end of the tax year – you can always reborrow again as soon as the new tax year starts. For specifics on how the BIK arises, contact us. 

This issue, we look at registering as an employer for the first time, tax efficient investing,  the importance of internal communications plus client deal news.

If you would like to feature or advertise in the next issue, which is out in April 2013, please contact the office.

1. Send your invoices pronto– after a project is completed, it’s all too easy to move on to the next one and forget to invoice, but a customer has no obligation to pay until the invoice is received.

2. Spell it out – explain all the elements of the product or service require so the client fully understands what they are paying for and there is less opportunity for payment delaying queries.

3. Split the difference – consider splitting a large bill into a number of smaller invoices – a client with cash flow issues is more likely to perceive a large balance as a problem and therefore sit on it, whereas smaller more manageable amounts are likely to be paid more quickly.

4. Highlight terms – confirm terms upon engagement but also reiterate them on your invoice so that the payment deadline is clear, also pointing out any late payment action such as interest and charges payable.

5. Consider early payment discounts – of course you want to be paid in full for work you have undertaken, but if it comes to the cash being in your pocket rather than the clients, then you may want to offer a 1% discount for payment within 10 days, for example. The earlier you get paid, the less risk of something happening to your customer, plus from a working capital perspective, it lowers your cost of borrowing (important nowadays when business finance is harder to access).

6. Be friendly and polite – if the person paying the bill is not your immediate client, then be sure to build a relationship with them too – plus research has shown that messages such as “thank you for your business” can increase the chances of your invoice being higher on the list of payables.

Did you know…? You can purchase Tax Investigations insurance, sometimes referred to as Professional Expenses Insurance which will cover all fees in the event of an investigation. Premiums are typically around £75 per annum for SMEs. Speak to the iC office for details.

Find out how to account for VAT correctly

The flat rate VAT scheme is an incentive set up by HMRC to help simplify VAT accounting for certain organisations. Essentially, you charge VAT on your invoices at the current rate of 20% but only repay HM Revenue and Customs at an agreed lower rate – rates vary depending on your profession/trade, and there is currently a 1% discount in your first year of VAT registration. As an example, an IT contractor will pay VAT at the rate in the first year of just 13.5% of the gross amount and 14.5% in subsequent years. 

To be eligible, your expected first year ex VAT turnover must not exceed £150k, and once you join the scheme you can remain in it until your total business income is more than £230k. Generally you cannot reclaim any of the VAT that you pay on purchases, although you may be able to claim back the VAT on capital assets worth more than £2k. Visit the VAT section of iC’s website for more.

artwork courtesy of local artist Dean Christopher…

Like mine, I’m sure every child sprints to the windowsill on a frosty morning, hoping to see the blanket of white that signifies no maths lessons today; and likewise every parent dreads checking the school’s website for fear of an impromptu chance to catch up on the ironing. I’m in the fortunate position (I think) of being self-employed and hence answerable only to myself if I can’t manage to meet my deadlines via laptop on the kitchen table (albeit hampered somewhat by cries of “Mum, can I have some more hot chocolate?”)  But it’s a different story for those that are employed – having to make that call to the boss again can’t be enjoyable. But who actually loses out – the employee or the employer? Is the parent expected to take a day’s holiday, or does the company have to suffer the cost of lost working time, thanks to our firm friend, the British weather?

In general, even in very poor weather conditions, the onus is on employees to get to work – unless the employer has a contractual obligation to provide transport for employees to and from the place of work. Some employers may consider allowing employees to request that time off due to adverse weather be paid as annual leave or hours made up within a reasonable timescale but this not a given. However, if the business itself chooses to temporarily close due to snow, this will in effect be a period of lay-off and the business should pay employees their normal wages (unless there is a provision in their contract which allows for unpaid lay-off, or if the employees agree to being laid off without pay) All quite complicated, really – tis snow joke (sorry).

And with that, Toy Story’s now finished. Time to put on the rather more topical “Ice Age” now, I think …!

Lisa