Following a recent legal restructuring eBay business sellers are now liable to pay 20% standard rate VAT on fees to eBay UK rather than eBay Europe S.à r.l, their Luxembourg arm. Those business sellers that are already VAT registered won’t have to worry as they will be able to reclaim this additional cost by using a tax credit. However, it’s those business sellers that aren’t voluntarily VAT registered and fall short of the taxable turnover threshold (currently £85k) that will suffer as a result of this news. Private and individual eBay sellers already incur 20% VAT on fees so this news won’t impact them.
Property investors are often unsure whether their mortgage payment is tax deductible. Firstly, it is only the interest element of the mortgage expense that is an allowable expense against tax, but your client will also need to look at how the money has been used. If your client used the full amount borrowed to buy investment property then interest is tax deductible. However, if they used it for personal reasons too then this element of interest is not deductible.
- Get paid sooner! Encourage your customers to pay more quickly, by giving small discounts or just by chasing them promptly. Send out invoices for completed work as soon as possible, and for long term projects ask for stage payments on account.
- Promote best value products. If you have a range of products or services, look at giving more prominence to the best value items in your marketing.
- Talk to your bank. Keep your bank informed, especially if you are going to have a need to secure extra funding or even renew existing arrangements. If fees are being increased it may pay to shop around for facilities.
- Take advantage of the crunch. If you are cash positive, turn the crunch to your advantage. Some businesses may be keener to make a sale so those with cash to spend may be able to negotiate some great bargains, especially for early payment!
- Staffing needs and working hours. Consider asking staff to change their working hours to part-time or flexi-time, with an appropriate drop in total pay. Or to take their holidays now if business is slow. If a skilled member of staff is about to retire ask them to stay on part time, as this may be cheaper than recruiting a new employee.
- Office rent. Ask your landlord if you can change from a quarterly payment in advance to a monthly payment. Or with improvements in technology perhaps now is the time to consider if you could run your business from home and make use of home workers and lose the office rent altogether!
- Don’t forget the marketing. Whilst cutting back on costs can be necessary in a recession and it may be tempting to cut the marketing budget, it may prove a false economy if sales suffer. Whilst others cut back on their marketing, you may be able to use this to your advantage and keep on marketing to get a larger share of the present market.
- Renegotiate with suppliers. Review the agreements you have with suppliers for continuing services, such as; security, energy, or cleaning. Can you renegotiate any of these contracts to get a better deal?
- Reduce tax payments on account. Review the projected tax payments for your business. Payments on account for unincorporated businesses can be reduced and reclaimed if you are confident of the final taxable profit figure. This is a good reason for getting the accounts completed quickly after the year end.
- Carry back losses. If your business is likely to make a loss for the current year, quantify that loss as soon as possible and submit a claim to carry back the loss to get a refund from HMRC.
HSBC will move its UK retail business to Birmingham in the next four years, restoring the bank’s links to the region which date back to the early 19th century.
Around 1,000 staff will head north from London to Birmingham by 2019, when new rules forcing banks to erect a firewall between their personal and business banking operations, and their investment banks.
The move will see HSBC’s UK retail bank, which is formed largely from the old Midland Bank it acquired in 1992, return to its Birmingham roots. The company was founded on Union Street, Birmingham in 1836 before later moving its headquarters to London.
HSBC said it was in “advanced negotiations” to acquire a lease at Arena Central, a new office block in central Birmingham, and had chosen the city after considering a number of locations. The bank said a review had determined that London was not the best place to headquarter its retail business, given its diverse spread across the UK.
Birmingham is already a major financial services centre. HSBC has around 2,500 staff there and Deutsche Bank set up a trading floor in the city in 2013.
Many small businesses find themselves trading through a limited company, often resulting from the tax advantages of doing so. Incorporating is easy with many reliefs available to ensure there are no adverse tax consequences of doing so. However, going the other way is not quite as simple.
There are still many tax advantages of using a limited company including lower tax rates and avoidance of national insurance by using dividends as well as the benefit of limited liability. However for the very smallest of companies that would prefer the simplicity of a sole trader or partnership set up, the following are just some of the main points needing careful consideration…
- As this is a transaction between connected parties (the company and the individual) any capital assets are transferred at market value for tax purposes and Capital Gains Tax will be applicable to any capital assets including goodwill that have grown in value since incorporation or even prior to that if any gains were deferred when the company was first incorporated. You also need to consider how the assets are transferred. For example, they could be transferred as a dividend which in turn can create another tax charge on any individuals liable to higher rate tax.
- Any losses that are in the company cannot be carried forward to set off against future profits, only set-off against profits of the same previous 3 years.
- Any accumulated profits remaining in the company have to be passed to the individual. This could be by dividend or by capital distribution and the most tax efficient method will vary dependent on your circumstances.
- A formal liquidation process can be used to wind up the company but it can be expensive and a far simpler method is to get the Registrar to use S652 of the Companies Act 1985 to strike off the company. This just involves an application fee although there are various requirements to be met.
- Payment of tax will be brought forward as on the transfer of trade the year end of the company is brought forward to that date.
- Values for transfer of stock and fixed assets will need consideration and there may be a balancing adjustment for capital allowances purposes.
- Now that the shares in the company are worthless, the shareholders may be able to make a claim for a capital loss on the shares using a negligible value claim or for any loans the directors/shareholders have made to the company that are being written off. Additionally, if the shares were subscribed for in the first place a claim for an income tax loss is possible.
Hiring an apprentice can help you:
- Improve your bottom line: 72% of businesses report improved productivity as a result of employing an apprentice. Apprentices can be more cost effective and can lead to lower overall training and recruitment costs
- Create a motivated workforce: Apprentices tend to be eager, flexible, and loyal. Apprentices deliver skills designed around your business needs
- Claim your grant: You may be eligible for a £1,500 grant if you’re a small business
- Design your own traineeship: Find out about the benefits of offering work experience to help young people become work ready.
The National Apprenticeship Service supports the delivery of apprenticeships and traineeships in England and offers impartial advice and support to employers looking to recruit for the first time or expand their programme.
Visit our website to find out more.
Apart from remembering not to embarrass yourself, HM Revenue and Customs also need businesses to follow a few rules when enjoying the annual Christmas party.
HMRC allow a business to spend £150 tax-free on each employee at the Christmas party.
HMRC Rules for eligibility:
- Any money the company spends by inviting partners or spouses of employees is eligible for tax. This is providing the total expenditure for the party, including the non-employee guests, amounts to £150 or less per employee attending.
- As a small company, you are still able to claim up to £150 per employee for any Christmas celebration, even if just two or three employees attend.
- Any money spent on non-employees is viewed as entertainment that means the VAT on that proportion of expenditure cannot be claimed back, so you will need to show the split between employees and their non-employee guests.
- If the entertainment is only for the partners or directors of the business then the VAT incurred is not input tax and cannot be recovered. But, if they attend a party with regular employees, then the tax is seen as input tax and is recoverable.
- Do not exceed the £150 per person limit as this will mean the entire amount is disallowed, not just the excess over £150.
A gift to a client
HMRC allows gifts worth up to £50 to a client in each tax year.
HMRC Rules for eligibility:
- It must be business related; it cannot be alcoholic, food, tobacco or vouchers that can be exchanged for those things.
- The gift must also carry a clear advertisement for your business; otherwise it would be classed as entertainment expenses.
- The £50 budget includes the gift-wrapping so go easy on the wrapping paper. If you do go over the limit the gift will be disallowed and liable for tax.
A gift to staff
It’s worth remembering that all Christmas gifts to staff are classed as taxable benefits, except if they’re deemed trivial. Only then are they exempt from tax.
HMRC Rules for eligibility:
- A bottle of wine or a small box of chocolates are examples of a trivial gift. However, a box of wine or a food hamper are seen as a decent present and therefore, not trivial and completely taxable.
- All gifts of money (apart from Suggestion Scheme awards, see below) such as bonuses must be put through the payroll system and are subject to tax the same as wages.
Suggestion Scheme awards
A business can reward an employee for making a suggestion that shows special effort on the employees’ part. These are also known Encouragement Awards and are exempt from income tax, but only up to a limit of £25.
Another strand of the Suggestion Scheme awards are the Financial Benefits awards. These are also exempt from tax and can rise to an overall tax-free limit of £5,000. To qualify for one of these the suggestion must meet the conditions below.
HMRC Rules for eligibility:
- It relates to an improvement in efficiency or effectiveness
- You must have decided to adopt the suggestion
- You must reasonably expect the suggestion’s implementation to lead to a financial benefit
- 10 per cent of the financial benefit you reasonably expect in the first five years following adoption.
A food gift
- A business can provide their employee(s) with free food and no VAT will be due on the supply
- If they take a member of staff out for a meal as a reward, as there is a supply of goods made by the restaurant direct to their employee, no input tax is deductible by the business