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Dividend Allowance cut could cost you £1,143. Is it time to restructure?

Adrian Mooy - Tuesday, May 22, 2018


For a while, company directors have been able to make a tax-efficient living by taking a combination of salary and dividends due to the generous Dividend Allowance.


However, changes which took effect from 6 April 2018 have cut the allowance from £5,000 to just £2,000.


The changes are meant to level the playing field between the self-employed, directors, shareholders and employees, but if you’re not careful, you could get left behind.


In real terms, the cut will cost directors anywhere from £225 to £1,143 a year, depending on which tax bracket they fall into. It is therefore recommended that you review how you drawdown income from your company to avoid losing out.


This could become complicated if you receive income from multiple sources, for example, shares and savings.

HMRC takes new steps to tackle online VAT fraud

Adrian Mooy - Monday, April 30, 2018


HM Revenue & Customs (HMRC) has been granted new powers to help combat online VAT fraud conducted on digital marketplaces.


Originally outlined by the Chancellor in the 2017 Autumn Budget, the new powers – known by the term ‘joint-and-several liability’ (JSL) for online marketplaces – strengthen existing arrangements to make online marketplaces accountable for VAT fraud committed by online sellers on their platforms.


In its announcement, HMRC said: “Online marketplaces can help those who sell through their platforms to understand the tax rules and therefore avoid fines from HM Revenue & Customs (HMRC).


“And, indeed, they have the responsibility to make sure that fraud does not happen on their watch.


“This sends a clear message that businesses in the UK and overseas, online and on the high street, must all play by the same rules, protecting traditional high street and legitimate online sellers who pay what they owe.”


Under the JSL powers, sellers based either in the UK or overseas who are not paying the correct VAT when completing sales in the UK must be removed by the marketplace once HMRC issues a notice to them.


If marketplaces do not remove the seller then HMRC will pursue the site for any future unpaid tax by those sellers.


The new rules, which came into force in March, also make marketplaces liable for VAT where they knew, or should have known, that an overseas online seller should have been VAT-registered but was not.


In order to help enforce the rules, marketplaces must now also make sure sellers using their platforms display a valid VAT number on the site if they possess one.


Financial Secretary to the Treasury, Mel Stride, said: “Whilst the honest majority pay what they owe, some businesses that sell goods online to UK shoppers are failing to pay the correct amount of VAT.


“This behaviour unfairly undercuts businesses trading in the UK that play by the rules, abuses the trust of buyers and deprives the government of significant revenue that funds vital public services.


“We are clear that everyone must pay their fair share of tax, and tackling tax evasion in all its forms is a top priority for the government.”


Businesses operating in this sector are also being encouraged to register for the Fulfilment House Due Diligence Scheme, which began on 1 April 2018.


This scheme requires businesses that store imported goods for or on behalf of overseas sellers from outside the EU to keep records and perform checks on the goods they are storing.


It has been estimated that these measures will help to protect around £1 billion of tax revenue by 2023.

Quarterly digital reporting to HM Revenue & Customs opens to self-employed individuals

Adrian Mooy - Thursday, April 26, 2018


Since March this year, self-employed individuals have had the option of reporting their income digitally to HM Revenue & Customs (HMRC) as part of a pilot of the Government’s Making Tax Digital (MTD) programme.


The Government has long had the ambition of taking most taxes including Income Tax, VAT and Corporation Tax onto a system of quarterly reporting using ‘designated software packages’ under the auspices of MTD.


However, the scheme was delayed repeatedly, with the relevant provisions of the Finance Bill being removed ahead of last year’s snap general election to ensure its safe passage through Parliament before voters headed to the polls.


Initial plans to introduce MTD for VAT on a mandatory basis in April of this year were ultimately pushed back to April 2019 and it is not yet known when MTD will become mandatory for other taxes.


HMRC has now opened up a limited test of MTD for Income Tax to all self-employed individuals and it is expected that the trial will be opened to all unincorporated landlords as well at some point this month.


However, with software providers concentrating their efforts on preparing for the start of MTD for VAT next year, there are currently just two packages supporting MTD for Income Tax, something that is likely to put off many self-employed individuals in the short term.


Are you one of the 90 per cent of businesses that are unprepared for GDPR?

Adrian Mooy - Tuesday, April 17, 2018
With less than 60 days left until the deadline for compliance with the General Data Protection Regulation (GDPR), more than 90 per cent of UK small businesses admit they are not yet fully ready.


In fact, a poll conducted by the Federation of Small Business (FSB) found that only eight per cent of SMEs have completed their preparations for the new data protection regulations, while a further 35 per cent said preparations are only at an early stage and 33 per cent said they had not even started.
This latter figure is not surprising as the survey also showed that 18 per cent of small business owners were completely unaware of the GDPR; with 34 per cent admitting they had little understanding of its requirements or complexity.
When breaking down the sectors of those asked, arts and entertainment businesses were the least prepared for the regulations followed by the retail and wholesale sector, construction, manufacturing and the scientific professions.
The most prepared were those in the financial services sector, where 82 per cent of respondents said that they had either started or completed their GDPR preparations.
Mike Cherry, National Chairman of the FSB, said: “Many small businesses will be concerned the changes will be too much to handle. It’s clear a large part of the small business community is still unaware of the steps they need to take to comply and may be left playing catch-up.”
UK Information Commissioner, Elizabeth Denham, welcomed the FSB’s campaign. She said: “Research suggests the SME sector is less prepared than others for the changes. We know that many small businesses are keen to get it right, but with so much misinformation out there, it’s difficult for them to know what’s right and what’s not.”


Government extends childcare voucher scheme for additional six months

Adrian Mooy - Thursday, April 12, 2018



Working parents across the UK will be delighted to hear that the Government has agreed to a six-month extension of the childcare voucher scheme.


It has been estimated that around 80 per cent of working parents may be better off using Childcare Vouchers rather than the new tax-free childcare scheme.


The voucher scheme allows employees to gain access to funding for childcare through their employer and, in return, employers can save up to £402 per year in National Insurance Contributions for every employee who signs up.


Following a number of debates in Parliament, the Secretary of State for Education, Damian Hinds, confirmed that the Government has agreed to a six-month extension of the Childcare Voucher scheme. Therefore the scheme will not be closing in April as previously reported.


The Government’s extension to the popular scheme was announced following criticism, which claimed that the tax-free childcare scheme is poorly understood and its rollout has been botched.


The childcare voucher scheme is available to all working parents in the UK and allows parents to take up to £55 each week from their salary before tax and National Insurance, or £243 a month, to spend on childcare no matter how many children they have, as long as the parent is a basic-rate taxpayer.


However, using the alternative tax-free childcare scheme parents have 20 per cent of their childcare costs met by the Government each year, up to a limit of £2,000 a year per child, or £4,000 if a child is disabled.


This scheme is open to self-employed people, who are excluded from the childcare voucher arrangements.


Subject to eligibility, both parents (if they are together) must be working 16 hours a week and paid at least the National Living Wage of £7.83 an hour, if over 25, or £125.28 a week to receive tax-free childcare.


For families within the basic-rate tax bracket who qualify for either scheme, anyone who spends less than £9,336 in total on childcare would likely be better off with vouchers. The same goes for those who pay the higher tax rate and spend less than £6,252 in total.


However, families with a larger number of children are more likely to benefit from tax-free childcare, as the system works on a per-child basis rather than per parent.


Anyone who is claiming tax credits or universal credit or if either parent earns more than £100,000 will not be eligible for tax-free childcare.


The two schemes cannot be used in conjunction with one another, but either can be used alongside the 15 or 30 hours of free childcare offered to children aged three and four.


Tax code changes for 2018/19

Adrian Mooy - Wednesday, April 04, 2018


Tax codes are the lynchpin of the PAYE system – unless the tax code is correct, the PAYE system will not deduct the right amount of tax from an employee’s pay.


The tax code determines how much pay an employee may receive before they pay any tax. The most straightforward scenario is that the person receives the personal allowance for that year. The code is then the personal allowance for the year with the last digit omitted and an `L’ suffix. So, for 2017/18, the personal allowance is £11,500 and the associated tax code is 1150L. This is also the emergency tax code.


Other codes


Employees’ situations vary and consequently different codes are needed to accommodate that. If an employee has more than one job, his or her allowances may be used up in job 1, leaving all the pay for job 2 to taxed. The 0T code – no allowances – accommodates this. A person may also have an 0T code if their personal allowance has been fully abated (at £123,000 for 2017/18 and £123,700 for 2018/19). An employee may have all his or her pay taxed at the basic rate, for which the relevant code is BR, or at the higher rate (code D0), or the additional rate (code D1). Code NT indicates that no tax is to be deducted.


Scottish taxpayers have an S prefix, indicating the Scottish rates of tax should be used.


Marriage allowance


Where one partner in a marriage or civil partnership is unable to use their personal allowance, they can transfer 10% of their personal allowance to their spouse or civil partner, as long as the recipient is not a higher or additional rate taxpayer. The person surrendering 10% of their allowance has a code with a `N’ suffix, whereas the recipient has an `M’ suffix’.




Tax underpayments or the tax due on benefits in kind may be collected through the PAYE system. The tax code is based on the net amount of the allowances less deductions. So, for example, if in 2017/18 a person had a personal allowance of £11,850 and a company car with a cash equivalent of £5,000, the net allowance due is £6,500 and the associated tax code would be 650L.


Where deductions exceed allowances, a person has a K prefix code – in this scenario, they do not have any free pay and are treated as if they have received additional taxable pay.


2018/19 updating


Tax codes need to be updated each year to reflect changes in allowances. The personal allowance is increased to £11,850. Where the employer does not receive a form P9(T) or an electronic notice of coding for an employee, the following changes should be made to update an employee’s tax code for the 2018/19 tax year:


 - add 35 to any code ending in L, so 11500L becomes 1185L


 - add 39 to any code ending in M; and


 - add 31 to any code ending in N.


Any week one or month one markings should not be carried forward.


Codes BR, SBR, D0, SD0, D1, SD1 and NT can be carried forward to 2018/19.


The emergency code for 2018/19 is 1185L.


If a new code has been notified on form P9(T) or electronically, that should be used instead.


The updated codes should be used from 6 April 2018 onwards.

Tips to improve your payroll

Adrian Mooy - Tuesday, March 27, 2018


1. How often are you paying employees?


Employees and contractors can be paid daily, weekly, monthly, or sometimes even quarterly. If you’re currently paying different employees at different times of the month, it may be worth streamlining this process so that they are all paid at the same time, be that on a weekly or monthly basis. That way, you will stay organised and have only one set of payments to handle each month. This can work vice versa. If you’re struggling to pay all of your employees in one go (usually due to cashflow difficulties) you can try spreading the payments out over the course of a month.


2. Keep track of important changes


It sounds simple, but when you’re juggling running a business between everything else, it’s easy to miss an important change – such as an increase in the National Minimum Wage or workplace pension contributions. You can save yourself a lot of stress if you’ve kept a diary and are aware what to do well in advance. We’ve listed a few of the major changes below: National Minimum Wage As planned, the National Minimum Wage (NMW) will increase again in April. You can find all the new rates below.


Age Group National Minimum Wage Rate
25 + (National Living Wage) £7.83 per hour
21 – 24 £7.38 per hour
18 – 20 £5.90 per hour
Under 18 (but above compulsory school leaving age) £4.20 per hour
Apprentices Under 19 £3.70 per hour
Apprentices aged 19+ (in first year of apprenticeship) £3.70 per hour

Statutory Payments


Employers are legally obliged to pay employees the statutory rate if they fall ill or have a child. It’s important you keep an open channel of communication about these payments and who is entitled to them. Find the new rates below.


Statutory Payment Type Payment Amount
SMP (Statutory Maternity Pay) First 6 weeks at 90% of Average Weekly Earnings (AWE) Thereafter £145.18 per week (or 90% of AWE, whichever is lower)
SPP (Statutory Paternity Pay) £145.18 per week (or 90% of AWE, whichever is lower)
SAP (Statutory Adoption Pay  First 6 weeks @ 90% of Average Weekly Earnings (AWE) Thereafter £145.18 per week (or 90% of AWE, whichever is lower )
SSP (Statutory Sick Pay) £92.05 per week

Pension Increases


The minimum amounts you and your staff must pay into your workplace pension scheme will be increasing as of the 6 April 2018. The total contribution will rise from 2 per cent to 5 per cent. Please refer to the table below to see the minimum contributions:


Date Effective Employer Minimum Contribution Staff Contribution Total Minimum Contribution
Currently until 5 April 2018 1% 1% 2%
6 April 2018 – 5 April 2019 2% 3% 5%
6 April 2019 onwards 3% 5% 8%

3. Monitor employees’ circumstances


Under automatic enrolment legislation, it’s important you monitor employees so you can ensure they are enrolled when they need to be. This could be a change in age or salary which would push them into the ‘automatic’ threshold. Employees currently earning more than £10,000 and are between the age of 22 and the state pension age must be enrolled automatically.

Cash payments plunge as digital payments become the default

Adrian Mooy - Monday, March 26, 2018



New research from finance and banking trade body, UK Finance, has found that debit card transactions will overtake those made with cash this year.


Meanwhile, ATM usage peaked several years ago, with more than 2.9 billion transactions taking place in 2012, falling to 2.7 billion in 2016, which amounted to £6 billion less than in the previous year.


Underscoring the scale of the change, figures from the Bank of England show that the volume of cash in circulation is increasing at its slowest rate in 46 years.


An important driver of the trend towards digital payments is likely to be the rise of contactless debit and credit cards, as well as mobile phone payments.


Figures from UK Finance show that the number of contactless payments has increased from 17.8 million in March 2014 to 469.6 million in June 2017 (the most recent month for which figures are available). This is equivalent to a 2,500 per cent increase over a three-year period.


Over the same period, the value of contactless transactions has increased from £116 million to £4.3 billion.


This trend is echoed by statistics from the industry body, showing a dramatic fall in the proportion of payments made using cash from 62 per cent in 2006, to 40 per cent in 2016.


Cash payments are expected to continue to fall into the next decade, dropping to 21 per cent by 2026.


However, while this might be welcome news for some, questions have been raised about the impact on cash-reliant businesses and vulnerable individuals.


Speaking to the Guardian Lady Tyler, Chair of the House of Lords Select Committee on Financial Exclusion, said: “I’m really concerned about this move toward a mainly cashless way of doing things. These changes might suit people who are very digitally competent, they might suit banks who can reduce their costs, [but] I really don’t think they are thinking about more vulnerable groups.”



Chancellor calls for Inheritance Tax review.

Adrian Mooy - Monday, March 26, 2018


The Chancellor, Philip Hammond, has asked the Office of Tax Simplification (OTS) to undertake a review of the Inheritance Tax (IHT) system to ensure that it meets the needs of modern households.


In a letter to the OTS, an independent branch of the Treasury, Mr Hammond said that the current system is “particularly complex” and that he wants the OTS to find new ways of simplifying it.


He wants the review to look at the technical and administrative issues that make IHT so complex and wants the OTS to see if changes can be made to the process of submitting returns and paying any tax due to aid estate planning and disclosure.


Mr Hammond said: “I would be most interested to hear any proposals you may have for simplification, to ensure that the system is fit for purpose and makes the experience of those who interact with it as smooth as possible.”


The Chancellor’s letter also singled out the current gifting rules and how they relate to the wider IHT system. In the 2016/17 tax year, HM Revenue and Customs received £4.84 billion in IHT. In recent years its take of IHT has grown as property prices have risen, but in 2017 new rules –  the Residence Nil-Rate Band – were introduced to allow a larger proportion of property wealth to be passed on to direct descendants.


Some experts are concerned that unless the Government reduces the amount it collects in IHT – which they feel is unlikely – they may instead make certain allowances/exemptions less generous under the guise of simplification.

Does your accounts system comply with MTD for VAT?

Adrian Mooy - Friday, March 02, 2018
Making Tax Digital (MTD) for VAT is scheduled to start in April 2019 which means that your VAT information needs to be submitted to HMRC digitally.


On 18 December 2017, HMRC published draft legislation together with examples of how the business account records might link with the HMRC computer in order to comply with MTD for VAT. T


he legislation specifies that “functional compatible software” must be used to record and preserve prescribed VAT related data. 


What are Digital records? “Functional compatible software” must be used to calculate the VAT due, report the VAT figures (as per the current VAT return) to HMRC, and to receive information back from HMRC. 


VAT related data for each sale and purchase made by the business includes the time of the supply, the value and the rate of VAT charged, or in the case of purchases, the amount of input VAT allowed. 


There is no requirement in the draft regulations that the electronic recording of this data must be done at the time the supply is made, or when the purchase is received.


As long as the data is recorded electronically by the earlier of the date that the VAT return must be submitted, or is actually submitted. 


Digital Links in the Trail The business can use more than one piece of software to keep its digital records, but those separate software programmes must be “digitally linked”. HMRC provides examples of what it means by digitally linked in the draft notice. 


One example is a business which uses one piece of accounting software to record all sales and purchases, this software then calculates the return and submits it to HMRC.


As well as the records in the accounting software the business uses a spreadsheet to keep track of a fleet of cars and work out its road fuel scale charges.


The draft guidance suggests that the business can type the adjustment into its accounting software. 
 Note that MTD for VAT will not be mandatory where turnover is below the VAT registration limit, currently £85,000 per annum.