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We offer cloud-based accounting solutions. Using good technology saves time. With the power of cloud accounting in your hands, you can access accurate real-time data on the go, accept instant payments and even automate repetitive tasks like invoicing. Fast, easy, touch-of-a-button software can make a real difference to the way you run your business.
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Welcome to Adrian Mooy & Co Ltd
We offer a personal service and welcome new clients.
We are a firm of Chartered Certified Accountants
and tax advisors in Derby helping businesses
From start-up to exit & everything in-between.
Whether you’re struggling with company formation,
annual accounts and taxation, payroll or VAT you can
count on us at every step of your business’s journey. For
If you are looking for a Derby accountant then please contact us.
If you are starting your own business, running it as a sole trader is the quickest and easiest way to do it. However, you will have unlimited liability which means you are personally responsible for business debts.
Another important aspect is that you are taxed on all the profits with little opportunity for tax planning. This is why most businesses will incorporate as profits increase.
We can support you through business registration and provide advice on all aspects of tax including:
◦ Accounts for HMRC ◦ Self assessment ◦ VAT returns ◦
◦ Payroll services ◦ Tax planning ◦
Partnerships are similar to sole trades, except that they are used when more than one person owns the business.
Each profit share is determined by the partners and best practice is to record this in a partnership agreement.
With partnerships each partner has joint and several liability for the debts of the partnership, so that if one partner cannot pay their share of any business debts, the debt will fall on the other partners.
Setting up a partnership agreement from the outset is essential.
Corporate tax planning can result in significant improvements in your bottom line. Our services will help to minimise your corporate tax exposure.
We are a member firm of the Association of Chartered Certified Accountants.
Self assessment tax returns are becoming increasingly complex and failing to submit your return on time, or correctly, can result in substantial penalties.
We use the latest tax software to ensure that tax returns are completed efficiently, accurately and on-time.
Self assessment: Taking
away the hassles of tax
We provide a comprehensive personal tax compliance service for individuals that includes:
Invoicing your contracting work through a limited company is tax efficient. We will advise you on how to structure your contract to minimise IR35 risk. We will ensure you claim all the expenses that you are entitled to and work out if you can save money by joining the VAT Flat Rate Scheme. We will complete your accounts and tax returns and provide you with clarity over your tax payments.
Included in the service • IRIS KashFlow + Snap • Annual accounts • Corporate tax return • Personal tax return • Payroll • Dividend administration • VAT returns • Contract reviews • Dealing with HMRC
VAT • is one of the most complex tax regimes imposed on business. We provide a cost effective service including assistance with registration & completing your returns.
Payroll • Administering your payroll can be time consuming. We provide a comprehensive payroll service.
Your Payroll Solution
Construction Industry Scheme • CIS returns & payments
Book-keeping • Maintenance of accounting records
Provision of management accounts
For more about these services please contact us.
Keeping the Books
If your business does not require a statutory audit then our Assurance Service will provide reassurance that your accounts stand up to close scrutiny from your bank or other finance providers.
Work is tailored to your specific requirements and the level of confidence that you are looking to achieve and will provide credibility to your accounts by the issuing of an assurance review report.
Adrian Mooy & Co is a registered auditor with the Association of Chartered Certified Accountants.
We strive to provide an auditing service that adds more value than merely the statutory compliance requirement of an audit.
We tailor the audit to meet your circumstances and needs. Using the latest techniques and software we deliver a cost-effective audit that provides real value.
Before starting out you may need help with business planning, cash flow and profit & loss forecasts.
You may also want help identifying the best structure for your business. From sole trades and partnerships to limited companies and limited liability partnerships, we have the experience to advise on the best solution for you both operationally and from a tax point of view.
We also advise on accounting software selection, profit improvement, profit extraction & tax saving.
If you wish to know more about our Business Start-up service please contact us on 01332 202660.
Accountancy and taxation of property is a specialist area. We have the expertise and experience to work effectively with private landlords and property investors. We deal with self-assessment tax, accounts preparation & tax advice for all aspects of property portfolios.
Whether you are a first time buy to let landlord or a long established developer we will discuss and understand your situation in order to advise and recommend the most appropriate medium through which to carry out your property investments. We will guide you through the accounting and tax issues and help you to plan effectively.
We take the time to explain your accounts to you so that you understand what is going on in your business.
Up to date, relevant and quickly produced management information for better control.
As part of our accounts service we prepare your annual accounts and complete yearly personal and business tax returns.
As your year-end approaches we will agree a timetable with you for completion of the accounts that minimises disruption to your business and leaves no late surprises when it comes to your tax liabilities.
We can also prepare management accounts to help you run your business and make effective business decisions. Management accounts are also very useful when approaching lending institutions when no year end accounts are available. We offer:
For a meeting to discuss your requirements please call us on 01332 202660.
We understand the issues facing owner-managed businesses.
We provide advice on personal tax & planning opportunities.
Running a small business places many demands on your time. We can help lift the load with our complete payroll service.
Designed to ease your administrative burden, our service removes what is often a time consuming task, leaving you free to concentrate on managing your business.
We can also prepare your benefits and expenses forms and advise you of any filing requirements and national insurance due. Benefits and expenses can be a complicated area and knowing what to report can be tricky.
We can file all your in-year and year end returns with HMRC and provide you with P60s to distribute to your employees at the year end.
We also offer a solution to meet your auto-enrolment obligations.
Businesses dealing with the requirements of VAT legislation will agree that this is often a complex area.
Our compliance services offer support for all stages of completing your VAT returns, whether you need advice on the treatment of specific transactions or have produced your records and would like verification that they are correct.
We can also advise on the pros and cons of voluntary registration, extracting maximum benefit from the rules on de-registration and the Flat rate VAT scheme.
Our consultancy service guides you through the intricacies of the legislation, pinpointing areas where you may be able to relieve or partly relieve the cost of VAT for your business, for example when purchasing new equipment or undertaking new projects such as property development.
For a meeting to discuss VAT and obtain further advice please call us on 01332 202660.
We can conduct a full tax review of your business and determine the most efficient tax structure for you.
We give personal tax advice to a wide variety of individuals, including higher rate tax payers, company directors & sole traders.
We can assist with:
For a meeting to discuss your requirements please call us on 01332 202660.
Understand your needs
Firstly we listen and gain an understanding of your business and what you are aiming to achieve.
We seek your opinions on the service we provide and respond to feedback in order to upgrade and improve what we do.
Build a relationship
Success in business is based around relationships and trust. Our objective is to develop and build strong relationships with our clients, based on two way trust and respect.
Confirm your expectations
Our aim is to help you maximise your business potential and we tailor our service to meet your requirements and agree a timetable for delivering them.
Communication is important to the success of any commercial venture. It is therefore a vital part of our work with you, sharing the knowledge and ideas that help you to realise your ambitions.
Understand your needs
Confirm your expectations
Build a relationship
Straightforward and easy to deal with Adrian Mooy & Co provide an efficient, friendly and professional service - payroll, tax returns, annual accounts and VAT returns are always done on time. Eddie Morris
Call us on 01332 202660
Getting ready for off-payroll working changes
From 6 April 2020 the off-payroll working rules that have applied since 6 April 2017 where the end client is a public sector body are to be extended to large and medium private sector organisations who engage workers providing their services through an intermediary, such as a personal service company.
There are tax and National Insurance advantages to working ‘off-payroll’ for both the engager and the worker. The typical off-payroll scenario is the worker providing his or her services through an intermediary, such as a personal service company. Providing services via an intermediary is only a problem where the worker would be an employee of the end client if the services were provided directly to that end client. In this situation, the IR35 off-payroll anti-avoidance rules apply and the intermediary (typically a personal service company) should work out the deemed payment arising under the IR35 rules and pay the associated tax and National Insurance over to HMRC.
Compliance with IR35 has always been a problem and it is difficult for HMRC to police. In an attempt to address this, responsibility for deciding whether the rules apply was moved up to the end client where this is a public sector body with effect from 6 April 2017. Where the relationship is such that the worker would be an employee if the services were supplied direct to the public sector body, the fee payer (either the public sector end client or a third party, such as an agency) must deduct tax and National Insurance from payments made to the intermediary.
These rules are to be extended from 6 April 2020 to apply where the end client is a large or medium-sized private sector organisation. This will apply if at least two of the following apply:
Where the end client is ‘small’, the IR35 rules apply as now, with the intermediary remaining responsible for determining whether they apply and working out the deemed payment if they do.
Getting ready for the changes
To prepare for the changes, HMRC recommend that medium and large private sector companies should:
Workers affected by the changes should also consider whether it is worth remaining ‘off-payroll’; providing their services as an employee may be less hassle all round.
From 6 April 2020, there is a change to the off-payroll (IR35) rules.
The new rules will affect you if you work via your own personal service company. Clients are likely to investigate the profile of the contractor workforce more closely than before.
Contracts caught by the rules - The change could impact you if you supply personal services to large and medium organisations in the private and voluntary sector. If the client is a ‘small’ business, the rules are unchanged. A ‘small’ company meets two of these criteria: its annual turnover is not more than £10.2 million: it has not more than £5.1 million on its balance sheet: it has 50 or fewer employees.
Who decides? - Under the new rules, responsibility for making the decision as to whether IR35 rules apply passes to the business you contract for. The key question is whether, if your services were provided directly to that business, you would then be regarded as an employee. If you or your client use CEST, HMRC’s online check employment status for tax tool, HMRC undertakes to stand by the results if information provided is accurate, and given in good faith. In future, your client will have to provide you with the reasons for its status decision in a ‘Status Determination Statement’.
Implications - Significant tax implications arise. If IR35 applies, the business or agency paying you will calculate a ‘deemed payment’ based on the fees charged by your PSC. Broadly, this means you are taxed like an employee, receiving payment after deduction of PAYE and employee National Insurance Contributions. If you operate via a PSC, the PSC will receive the net amount, which you can then receive without further payment of PAYE or NICs.
Review your position - are clients likely to query your employment status? Should you consider restructured work arrangements, or renegotiating fees? If working via a PSC, is it still the best business model?
Electricity for electric cars – a tax-free benefit
The Government is keen to encourage drivers to make environmentally friendly choices when it comes to choosing a car. As far as the company car tax market is concerned, tax policy is used to drive behaviour, rewarding drivers choosing lower emission cars with a lower tax charge, while penalising those whose choices are less green.
The use of the tax system to nudge drivers towards embracing electric cars also applies in relation to the taxation of ‘fuel’. As a result, tax-free benefits on are offer to those drivers who choose to ‘go electric’.
Company car drivers
Electricity is not a ‘fuel’ for the purposes of the fuel benefit charge. This means that where an employee has an electric company car, the employer can meet the cost of all the electricity used in the car, including that for private journeys, without triggering a fuel benefit charge. This can offer significant savings when compared with the tax bill that would arise if the employer pays for the private fuel for a petrol or diesel car. However, it should be noted that a fuel charge may apply in relation to hybrid models.
Maisy has an electric company car with a list price of £20,000. Her employer meets the cost of all electricity used in the car, including that for private motoring. As electricity is not a fuel for these purposes, there is no fuel benefit charge, and Maisy is enabled to enjoy her private motoring tax-free.
By way of comparison, the taxable benefit that would arise if the employer meets the cost of private motoring in a petrol or diesel company car with an appropriate percentage of 22% would be £5,302 (£24,100 @ 22%) for 2019/20. The associated tax bill would be £1,060.40 for a basic rate taxpayer and £2,120.80 for a higher rate taxpayer.
However, the rules do not mean that an employee loses out if they have an electric company car and initially meets the cost of electricity for business journeys and reclaim it from their employer. There is now an advisory fuel rate for electricity which allows employers to reimburse employees meeting the cost of electricity for business journeys at a rate of 4p per mile without triggering a tax bill. However, amounts in excess of 4p per mile will be chargeable.
Employees using their own cars
Currently, there is no separate rate for electric cars under the approved mileage payments scheme. This means that the usual rates apply where an employee uses his or her own electric car for business. Consequently, the employer can pay up to 45p per mile for the first 10,000 business miles in the year and 25p per mile for subsequent business miles tax-free. If the employer pays less than this, the employee can claim a deduction for the shortfall. Payments in excess of the approved amounts are taxable.
Employees with their own electric cars can also enjoy the benefit of tax-free electricity for private motoring – but only if they charge their car using a charging point provided by their employer at or near their place of work. The exemption also applies to cars in which the employee is a passenger, so would apply, for example, if an employee’s spouse drove the employee to work, charging their car when dropping the employee off or picking the employee up.
Using your car in your property rental business
Landlords will often use their car for the purposes of their property rental business. Where they do so, they are able to claim a deduction for the costs that they incur.
Using mileage rates
Where a landlord uses their car for business purposes, the easiest way to work out the amount that can be deducted is to make use of the simplified expenses system and use the relevant mileage rates to claim a deduction based on the business mileage undertaken.
For cars (and also vans) the rate is set at 45p per mile for the first 10,000 business miles in the tax year and at 25p per mile for any subsequent business mileage.
Karen is an unincorporated landlord and has three properties that she lets out. During the tax year, she undertakes 712 business miles in her own car in respect of her property business.
She claims a deduction of 45p per mile, a total deduction for the year of £320.40.
Deduction based on actual costs
The use of simplified expenses, while generally easier from an administration perspective, is not compulsory. The landlord can instead claim a deduction based on the actual costs. However, in practice this will be time consuming. Further, where the car is used for both business and private travel, a deduction is only permitted for the business element. Separating actual costs between business and private travel can be very time consuming and will only be worthwhile where it gives rise to a significantly higher deduction than that obtained by using the mileage rates.
Capital allowances cannot be claimed where mileage allowances are claimed. Where a deduction is based on actual costs, capital allowances can be claimed in respect of the car. However, the claim must be adjusted to reflect any private use. So, for example, if a car is used for the purposes of the property business 20% of the time and for private use 80% of the claim, any capital allowance claim must be restricted to 20%.
The costs of travel on public transport or by taxi can be deducted in computing the profits of the property rental business to the extent that it constitutes business travel for the purposes of that business.
Making Tax Digital for VAT – what records must be kept digitally
Making Tax Digital (MTD) for VAT starts from 1 April 2019. VAT-registered businesses whose turnover is above the VAT registration threshold of £85,000 will be required to comply with MTD for VAT from the start of their first VAT accounting period to begin on or after 1 April 2019.
Digital record-keeping obligations
Under MTD for VAT, businesses will be required to keep digital records and to file their VAT returns using functional compatible software. The following records must be kept digitally.
Designatory data - Business name - Address of the principal place of business - VAT registration number - A record of any VAT schemes used (such as the flat rate scheme)
Supplies made - for each supply made: - Date of supply - Value of the supply - Rate of VAT charged
Outputs value for the VAT period split between standard rate, reduced rate, zero rate and outside the scope supplies must also be recorded.
Multiple supplies made at the same time do not need to be recorded separately – record the total value of supplies on each invoice that has the same time of supply and rate of VAT charged.
Supplies received - for each supply received: - The date of supply - The value of the supply, including any VAT that cannot be reclaimed - The amount of input VAT to be reclaimed.
If there is more than one supply on the invoice, it is sufficient just to record the invoice totals.
Digital VAT account
The VAT account links the business records and the VAT return. The VAT account must be maintained digitally, and the following information should be recorded digitally:
In addition, to show the link between the input tax recorded in the business' records and that reclaimed on the VAT return, the following must be recorded digitally:
The information held in the Digital VAT account is used to complete the VAT return using `functional compatible software’. This is software, or a set of compatible software programmes, capable of:
Functional compatible software is used to maintain the mandatory digital records, calculate the return and submit it to HMRC via an API.
Getting ready - The clock is ticking and MTD for VAT is now less than a year away.
Joint tenants v tenants in common – Does it matter?
There are two different ways of owning property jointly – as joint tenants or as tenants in common. The way in which the property is owned determines exactly who owns what and also what happens when one of the joint owners dies and how any income is taxed.
Where two or more owners own a property as joint tenants, they jointly own the whole property rather than owning individual shares. Each owner has equal rights to the whole property. When one of the joint owners dies, the remaining joint owners own the whole property. The deceased is not able to pass his or her share on to someone else.
Helen and Harry are married and own their family home as joint tenants. The couple have three children. If, for example, Harry dies first, his share of the property automatically passes to Helen. Harry cannot leave his share of the property to his children.
Where a property that is owned as joint tenants is rented out, the income is treated as arising in equal shares as all owners have an equal stake in the property. For spouses and civil partners this is the default position; however, there is no possibility of making a Form 17 election (see below) as the property owned as joint tenants can only be owned equally.
Tenants in common
Tenants in common own individual shares in the property and have more flexibility than joint tenants as to what they do with their stake in the property. On death, their stake does not automatically go to the other joint owners; rather it will follow the provisions of the will (or, if there is no will, the intestacy provisions).
It will be beneficial to own property as tenants in common if you want to leave your share of the property to someone other than the other joint owner.
Jack and Jane are married. Each have children from previous relationships. They own a holiday cottage as tenants in common. In their wills, they have each made provision for their share to pass to their own children.
Where the property is let out, owing the property as tenants in common provides more flexibility as to how the income is allocated for tax purposes. Where the joint owners are spouses or civil partners, the income is treated as arising equally. However, where the actual beneficial ownership is unequal, they can elect (on Form 17) for the income to be taxed in accordance to their ownership shares where this is beneficial. If the tenants in common are not married or in a civil partnership, the income is taxed by reference to their actual stake in the property.
Changing ownership status
It is relatively easy to change the type of ownership, for example, if the property is owned as joint tenants it may be desirable to own it as tenants in common to enable each owner to leave their share to someone else. A property can also be changed from sole ownership to joint ownership – ether as tenants in common or joint tenants.
Be aware of 60% tax rate risk on bonuses
In the lead up to Christmas and the end of the financial year for many businesses, some directors and employees may be fortunate enough to be thinking of a bonus. If this is the case, it might be worth reviewing things beforehand to see if there is a risk of suffering effective tax rates of up to 60%, and if so, whether this can be avoided.
The risk of paying a high effective tax rate on a bonus stems from the abatement of the personal tax allowance where the individual’s ‘adjusted net income’ is equal to, or above, £100,000 for a particular tax year. The personal tax allowance for 2019/20 is £12,500, but this will be reduced by £1 for every £2 the taxpayer’s income is over that limit. The personal allowance may be reduced to nil from this income limit. Broadly, ‘adjusted net income’ is total taxable income before any personal allowances, less certain tax reliefs (including trading losses, Gift Aid donations, and pension contributions).
As a consequence of the personal allowance abatement rules, a taxpayer with income between £100,000 and approximately £119,000 will suffer marginal tax rates of up to 60% as the personal allowance is withdrawn.
Graham is an employee of a company from which he draws a salary of £100,000 per annum He has no other sources of income. In December 2019 he will be paid a bonus of £7,000. He is entitled to a personal tax allowance of £12,500 in 2019/20, but he loses £3,500 of it (£1 for every £2 earned over £100,000 ((£107,000 – £100,000) /2)), leaving him with an allowance of £9,000. He will pay tax of £2,800 (£7,000 × 40%) on the bonus, plus an extra £1,400 due to lost allowances (£3,500 × 40%). His total tax attributable to the bonus is therefore £4,200. Graham will therefore pay tax on the bonus at an effective rate of 60% (£4,200/£7,000 x 100).
Hannah on the other hand, receives an annual salary of £125,000 from employment. She also has no other sources of income. Hannah is also expecting to receive a bonus of £7,000 in December 2019. She is entitled to a personal tax allowance of £12,500 in 2019-20, but she loses entitlement to all of it because her basic salary exceeds the point at which the allowance is fully withdrawn (£125,000). Receiving the bonus, therefore, results in no further adjustment to her personal allowance. She will simply pay tax of £2,800 (£7,000 × 40%) on the bonus, which means that her effective tax rate on that part of his income is only 40%.
So, what action can be taken to minimise exposure to these marginal rates?
Taxpayers with income slightly exceeding the £100,000 ceiling may avoid losing some or all of their personal allowance by taking steps to reduce ‘adjusted net income’ to below the abatement threshold. Options worth considering may include:
• Increasing pension contributions - for example, a taxpayer with income of £105,000 might consider making a pension contribution of £5,000. They will get 40% tax relief on the contribution, and the full personal allowance will be reinstated.
• Making donations to charity under the Gift Aid scheme. For the charity, the donation is assumed to be made net of basic rate tax, which the charity claims back from HMRC. For the taxpayer, their basic rate tax band is increased by the value of the gross donation, which in turn reduces the amount of income to be taxed at the higher rate.
• Consider transferring income-producing assets to a lower-earning spouse or partner.
As with all tax planning opportunities, the wider picture should be considered before taking any action. In particular, the benefits of any tax saving need to outweigh the cost and administrative inconvenience of the transaction.
Self-employed – How to calculate your payments on account
The deadline for filing the self-assessment tax return for 2018/19 is 31 January 2020. This is also the date by which any outstanding tax for 2018/19 must be paid and, where payments need to be made on account, the date by which the first payment on account of the 2019/20 liability must be made.
What is a payment on account? - As the name suggest, a payment on account is an advance payment towards a taxpayer’s tax and Class 4 National Insurance bill. Where payments on account are due, the tax is payable in two instalments on 1 January in the tax year and on 31 July after the tax year rather than in full in a single instalment of 31 January after the tax year.
As the payments on account are based on the previous year’s liability, it is not an exact science – there may be more tax to pay or the taxpayer may have paid too much. Any balancing payment must be made by 31 January after the end of the tax year. If the taxpayer has paid too much, the excess will normally be set against the next year’s payments on account or refunded if none are due.
When must payments on account be made? - Payments on account must be made where tax and Class 4 National Insurance for the previous tax year was £1,000 or more, unless at least 80% of the tax owed has been deducted at source, for example under PAYE.
Payments on account are not required when tax and Class 4 National Insurance bill for the previous year was less than £1,000.
Calculating the payments on account - Each payment on account is 50% of the previous year’s tax and Class 4 National Insurance liability.
Class 2 National Insurance contributions are not taken into account in calculating the payments on account and must be paid in full by 31 January after the end of the tax year.
Example - Richard is a sole trader. In 2018/19 his profits from self-employment were £30,000. He has no other income.
His income tax liability for 2018/19 is £3,630 (20% (£30,000 - £11,850)) and his Class 4 National Insurance liability is £1,941.84 (9% (£30,000 - £8,424).
His combined tax and Class 4 National Insurance liability is thus £5771.84.
As this is more than £1,000, he must make payments on account of the 2019/20 tax year of £2,785.92 on 1 January 2020 and 31 July 2020. Each payment is 50% of the previous year’s liability of £5771.84. If the liability for 2019/20 is more than £5,771.84, the balance must be paid by 31 January 2021, together with the Class 2 National Insurance for 2019/20.
Beware fluctuating years - Where the tax and Class 4 liability is under £1,000 one year but not the next, the payments can fluctuate widely – this may hit the taxpayer hard.
Example - Tim has a tax and Class 4 National Insurance liability of £900 in 2017/18. As a result, he is not required to make payments on account for 2018/19. However, 2018/19 is a good year and his tax and National Insurance liability is £4,000. As payments on account were not made, the amount is due in full by 31 January 2020. Also, because it is more than £1,000, he must make payments on account for 2019/20.
As a result, he has to pay £6,000 on 31 January 2019 – the full liability for 2018/19 (£4,000) and the first payment on account of £2,000 (50% of £4,000) for 2019/20. The second payment on account for 2019/20 of £2,000 is due by 31 July 2020.
Reduce payments on account - If the taxpayer knows that income in the current year will be less than the previous year, they can ask HMRC to reduce the payments on account. However, interest is charged on the shortfall if the payments are reduced below the level they should be.
Salary v dividend for 2019/20
A popular profits extraction strategy for personal and family companies is to extract a small salary, taking further profits as dividends. Where this strategy is pursued for 2019/20, what level should be the salary be set at to ensure the strategy remain tax efficient?
As well as being tax effective, taking a small salary is also advantageous in that it allows the individual to secure a qualifying year for State Pension and contributory benefits purposes.
Assuming the personal allowance has not been used elsewhere and is available to set against the salary, the optimal salary level for 2019/20 depends on whether the employment allowance is available and whether the employee is under the age of 21. The employment allowance is set at £3,000 for 2019/20 but is not available to companies where the sole employee is also a director (meaning that personal companies do not generally benefit).
In the absence of the employment allowance and where the individual is aged 21 or over, the optimal salary for 2019/20 is equal to the primary threshold, i.e. £8,632 a year (equivalent to £719 per month). At this level, no employee’s or employer’s National Insurance or tax is due. The salary is also deductible for corporation tax purposes. A bonus is that a salary at this level means that the year is a qualifying year for state pension and contributory benefits purposes – for zero contribution cost. Beyond this level, it is better to take dividends than pay a higher salary as the combined National Insurance hit (25.8%) is higher than the corporation tax deduction for salary payments.
Where the employment allowance is available, or the employee is under 21, it is tax-efficient to pay a higher salary equal to the personal allowance of £12,500. As long as the personal allowance is available, the salary will be tax free. It will also be free of employer’s National Insurance, either because the liability is offset by the employment allowance or, if the individual is under 21, because earnings are below the upper secondary threshold for under 21s (set at £50,000 for 2019/20). The salary paid in excess of the primary threshold (£3,868) will attract primary contributions of £464.16, but this is outweighed by the corporation tax saving on the additional salary of £734.92 – a net saving of £279.76. Once a salary equal to the personal allowance is reached, the benefit of the corporation tax deduction is lost as any further salary is taxable. It is tax efficient to extract further profits as dividends.
Dividends can only be paid if the company has sufficient retained profits available. Unlike salary payments, dividends are not tax-deductible and are paid out of profits on which corporation tax (at 19%) has already been paid.
However, dividends benefit from their own allowance – set at £2,000 for 2019/20 and payable to all individuals regardless of the rate at which they pay tax – and once the allowance has been used, dividends are taxed at lower rates than salary payments (7.5%, 32.5% and 38.1% rather than 20%, 40% and 45%).
Once the optimal salary has been paid, dividends should be paid to use up the dividend allowance. If further profits are to be extracted, there will be tax to pay, but the combined tax and National Insurance hit for dividends is less than for salary payments, making them the preferred option.
Zero charge for zero emission cars
From 6 April 2020, the way in which carbon dioxide emissions for cars are measured is changing – moving from the New European Driving Cycle (NEDC) (used for cars registered prior to 6 April 2020) to the Worldwide Light Testing Procedure (WLTP) for cars registered on or after 6 April 2020.
For an introductory period, the appropriate percentages for cars registered on or after 6 April 2020 are reduced – being two percentage points lower than cars with the same CO2 emissions registered prior to 6 April 2020 for 2020/21 and one percentage point lower for 2021/22. From 2022/23 the appropriate percentages are aligned regardless of which method is used to determine the emissions.
Zero emission cars
As part of the transition, the appropriate percentage for zero emission cars is reduced to 0% for 2020/21 and to 1% for 2021/22. This applies regardless of when the car was registered.
The charge was originally set at 2% for 2020/21 and 2021/22, and will revert to this level from 2022/23.
Electric company car drivers were already set to enjoy a tax reduction. The appropriate percentage for 2019/20 is 16% and was due to fall to 2% from 6 April 2020. However, the further reduction to 0% means that those who have opted for an electric company car can enjoy the benefit tax-free in 2020/21. Their employers will also be relieved of the associated Class 1A National Insurance charge.
Kim has an electric company car throughout 2019/20, 2020/21 and 2021/22. The car has a list price of £32,000. Kim is a higher rate taxpayer.
In 2019/20, Kim is taxed on 16% of the list price – a taxable benefit of £5,120. As a higher rate taxpayer, the tax hit is £2,048 (40% of £5,120). Her employer must also pay Class 1 National Insurance of 13.8% on the taxable amount (£706.56).
In 2020/21, the appropriate percentage is 0% so there is no tax or Class 1A National Insurance to pay. This is a significant reduction compared to 2019/20.
In 2021/22, the charge is 1% of the list price, equal to £320, on which the tax is £128 (assuming a 40% tax rate) and the Class 1A National Insurance is £44.16.
From 2021/22 the charge is 2% of the list price – equal to £640.
Not quite zero emissions
It is also possible to enjoy a company car tax-free in 2020/21 if it is registered on or after 6 April 2020, has emissions of between 1 and 50g/km (measured under the WLTP) and an electric range of at least 130 miles.
The benefits of choosing electric cars from a tax perspective, as well as from an environmental one, are significant.
Can my company buy me a new bicycle?
The government introduced ‘cycle to work’ back in 1999. Broadly, this is an annual tax exemption that allows a business to loan bicycles and cycle safety equipment to employees as a tax-free benefit. This tax break has had a positive impact on workplace health and employee motivation and has encouraged new groups of people to take up physical activity. But can it work for small companies?
The ‘cycle-to-work’ tax breaks apply equally to directors of one-person limited companies as they do to regular employees of large businesses. This means that the company (the employer) can buy a bike and bike safety equipment and loan it to the director (the employee) for qualifying business journeys. There is no requirement for a formal agreement to be drawn up and no need for prior approval by HMRC.
The company can purchase the bike directly and reclaim VAT, where relevant, on the purchase price. For corporation tax purposes, a deduction may be claimed on the full cost of the bike using the capital allowances annual investment allowance (AIA).
The company can also provide any safety equipment for the cyclist i.e. helmets, high visibility jackets, cycle clips, and so on, and these will be treated as revenue expenditure, eligible for corporation tax relief.
There are a couple of conditions to be met in order to qualify for the deductions:
• ownership of the bike is not transferred to the employee during the loan period – so the bike remains owned by the company; and
• the equipment is used mainly for qualifying journeys. Broadly this means at least 50% business use - i.e. for journeys made between home and the workplace, or part of those journeys (for example, to the station), travel to clients or for journeys between one workplace and another.
Note that travel to work can include a permanent workplace, so the definition of what qualifies as a work journey for providing tax-free bicycles is wider than the normal travel rules.
For the director/employee, there will be no taxable benefit-in-kind arising from the use of the bike and there doesn’t need to be a reduction in salary to offset the cost of the bike. Therefore, the director’s salary summary will remain unaffected.
The director potentially saves on income tax, because the bike is being funded with gross fee income and not personal income. This could save between 20% - 25%, in comparison with the bike being purchased personally, depending on the director’s earnings.
If the bike is transferred into the director’s personal ownership at a future date a taxable benefit charge will arise based on the market value of the bike at that date. This contrasts slightly with the normal rule that specifies that a taxable benefit charge arises in the value of the bike at the time it was first provided to the employee. Where the bike is transferred, the company will pay corporation tax on the market price, but the director will have potentially gained significant tax relief on the bike’s purchase.
Note that the company owns the bike, the cost of any repairs will remain a cost to the company.
Mileage allowances - Along similar lines to claiming mileage for using a private motor vehicle for business journeys, it is also possible to claim mileage for bikes owned personally and used for journeys to and from a temporary workplace. HMRC allow cyclists to claim 20p per mile for business journeys.
On average, a person who cycles an additional five miles to work and back each week will burn up around 4,500 extra calories and reduce their carbon footprint by around 45kg CO2. With such positive health benefits to be gained, coupled with the current generous tax breaks on offer, swapping car journeys for pedal-power should be well worth considering.
Relief for trading losses
In the event that a loss arises in a trade or profession, consideration should be given as how best to obtain relief for that loss. As with many things, there is no ‘one size fits all’ and the best option will depend on the trader’s particular circumstances.
Option 1 – Relief against general income
If the trader has other income, one of the easiest (and quickest) ways to obtain relief for the loss is to set against general income. However, this option is only available where accounts are prepared using the traditional accruals basis; traders using the cash basis cannot relieve a trading loss in this way.
A claim can be made to relieve the loss against:
• Income of the same tax year;
• Income of the previous tax year;
• Income of both the current and the previous tax years.
If the trader wishes to relieve the loss against the income of the current and the previous tax year, they must choose which year has priority. The income of the priority year must be completely extinguished before the balance of the loss can be set against the other year; it is not possible to make a partial the claim and tailor the relief, for example, to preserve personal allowances.
If the individual does not have sufficient income in the current or previous tax year, but has a capital gain, the relief can be set extended to capital gains (net of capital losses but before the annual exempt amount).
When choosing whether to relieve the loss in this way, consideration should be given to preserving personal allowances. If other income in the year is sheltered by personal allowances, there is little benefit in making a claim against general income.
Option 2 – Against later profits of the same trade
A loss arising in a trade or profession can be carried forward and set against future profits of the same trade. However, the loss must be set against the first tax year in which a profit arises – again it is not possible to tailor claims to preserve personal allowances. If the loss is not fully utilised against the first year in which a profit arises, the unused balance must be set against the next tax year in which a profit arises.
Option 3 – Relieving an early year loss
If the trade is relatively new, the trader may be able to benefit from a special relief that applies to losses made in the early years of the trade. Under this relief, a loss that is made in the year that the trader starts to trade or any of the three subsequent years (i.e. the first four years of the trade) can be carried back and set against total income of the three years before the tax year in which the loss was made, with earlier years taken in priority to later years.
This option is not available where accounts are prepared using the cash basis.
Option 4 – Terminal loss relief
In the event that a loss is made in the final 12 months of trading, relief can be claimed under the terminal loss relief provisions against the profits from the same trade taxed in the four years to cessation.
The best option will depend on the trader’s personal circumstances. Consideration should, however, be given to preserving personal allowances, obtaining relief at the highest possible rate and obtaining relief as early as possible.
Buying a property to let – the importance of keeping records
For tax purposes, good record keeping is essential. Without complete and accurate records, it will not be possible to provide correct details of taxable income or to benefit from allowable deductions. Aside from the risk of paying more tax than is necessary, landlords who fail to take their record keeping obligations seriously may also find that they are on the receiving end of a penalty from HMRC.
Recording expenses - A deduction is available for expenses that are incurred wholly and exclusively for the purposes of the rental business. A deduction is available for qualifying revenue expenses regardless of whether the accounts are prepared on the cash basis or under the traditional accruals basis.
Revenue expenses are varied and are those expenses incurred in the day to day running of the property rental business. They include:
• office expenses • phone calls • cost of advertising for tenants • fees paid to a managing agent • cleaning costs • insurance • general maintenance and repairs
A record should be kept of all revenue expenses, supported by invoices, receipts and suchlike.
The treatment of capital expenditure depends on whether the cash or the accruals basis is used. For most smaller landlords, the cash basis is now the default basis.
Under the cash basis, capital expenditure can be deducted unless the disallowance is specifically prohibited (as in the case in relation to cars and land and property). Under the accruals basis, a deduction is not given for capital expenditure, although in limited cases capital allowances may be available. Capital expenditure would include improvements to the property and new furniture or equipment which does not replace old items.
Records should identify whether expenditure is capital or revenue and also whether it relates to private expenditure so that it can be excluded.
Records should also be kept of replacement domestic items and the nature of those items. A deduction is available on a like-for-like basis.
Start date - Although the property rental business does not start until the property is first let, records should start as soon as expenditure is incurred in preparation for the letting.
As well as allowing relief for expenses incurred while the property is let, relief is also available for expenses which are related to the property rental business and which are incurred in the seven years prior to the start of the business. Relief is given on the same basis as for expenses incurred after the start of the property rental business; expenses can be deducted as long as they are incurred wholly and exclusively for the purposes of the property rental business. Capital expenditure is treated in accordance with rules applying to the chosen basis of accounts preparation.
Relief is available under the pre-trading rules, as long as:
• the expenditure is incurred within a period of seven years before the date on which the rental business started
• the expenditure is not otherwise allowable as a deduction for tax purposes
• the expenditure would have been allowed as a deduction has it been incurred after the rental business had started
Relief is given by treating the expenses as if they were incurred on the first day of the property rental business.
Expenses incurred in getting a property ready to let can be significant. It is important that accurate records are kept of all expenditure incurred wholly and exclusively for the purposes of the let from the outset so that valuable deductions are not overlooked.
Tax relief on business-related loans
Subject to certain conditions and restrictions, tax relief will generally be available for interest paid on loans to, or overdrafts of, a business in the form of a deductible expense. Different rules for loan interest relief apply to smaller businesses using HMRC’s cash basis for income tax purposes (see below).
One of the main qualifying conditions for the deduction is that the interest must be paid wholly and exclusively for the purposes of the business and at a reasonable rate of interest. Tax relief is only available on interest payments - the repayment of the capital element of a loan is never tax-deductible.
Where only part of a loan satisfies the conditions for interest relief, only a proportion of the interest will be eligible, for example, interest payable in respect of, say, a car used partly for business and partly for private purposes will be apportioned accordingly. Note, however, that tax relief is not available for an employee using a privately-owned car for the purposes of his or her employment, although tax-free business mileage payments may usually be claimed.
A deduction cannot be claimed for notional interest that might have been obtained if money had been invested rather than spent on (for example) repairs.
In addition, a deduction will not be allowed if a loan effectively funds a business owner’s overdrawn current/capital account.
Anti-avoidance rules exist to prevent tax relief on loan interest paid where the sole or main benefit to the payer from the transaction is to obtain a tax advantage.
In addition to loan interest relief, the incidental costs of obtaining loan finance, such as fees, commissions, advertising and printing, will also be deductible in most cases. The deduction for incidental costs is given at the same time as any other deduction in computing profits for income tax purposes.
From 2013/14 onwards, eligible unincorporated small businesses may choose to use the cash basis when calculating taxable income, and all unincorporated businesses have the option to use certain flat-rate expenses when calculating taxable income.
The general rule for businesses that have chosen to use the cash basis is that no deduction is allowed for the interest paid on a loan. This is however, subject to a specific exception. Where the deduction for loan interest would be disallowed under this general rule or because (and only because) it is not an expense wholly and exclusively for the trade, a deduction is allowed of up to £500.
This £500 limit does not apply to payments of interest on purchases, provided the purchase itself is an allowable expense, as this is not cash borrowing. However, if the item purchased is used for both business and non-business purposes, only the proportion of interest related to the business usage is allowable.
If a deduction is also claimed for the incidental costs of obtaining finance, the maximum deduction for both these expenses together is £500.
If a business has interest and finance costs of less than £500 then the split between business costs and any personal interest charges does not have to be calculated.
Businesses should review annual business interest costs - if it is anticipated that these costs will be more than £500, it may be more appropriate for the business to opt out of the cash basis and obtain tax relief for all the business-related financing costs.
Party time for small companies
Although there is no specific allowance for a Christmas party, or any other employer-provided social function, HMRC do allow limited tax relief against the cost of holding an ‘annual event’ for employees, providing certain conditions are met.
Broadly, the cost of staff events is tax deductible for the business. Specifically, the legislation includes a let-out clause, which means that entertaining staff is not treated for tax in the same way as customer entertaining. The expenses will be shown separately in the business accounts – usually as ‘staff welfare’ costs or similar.
There is no monetary limit on the amount that an employer can spend on an annual function. If a staff party costs more than £150 per head (see below regarding this threshold), the cost will still be an allowable deduction, but the employees will have a liability to pay tax and National Insurance Contributions (NICs) arising on the benefit-in-kind.
The employer may agree to settle any tax charge arising on behalf of the employees. This may be done using a HMRC PAYE Settlement Agreement (PSA), which means that the benefits do not need to be taxed under PAYE, or included on the employees’ forms P11D. The employer’s tax liability under the PSA must be paid to HMRC by 19 October following the end of the tax year to which the payment relates.
The full cost of staff parties and/or events will be disallowed for tax if it is found that the entertainment of staff is in fact incidental to that of entertaining customers.
VAT-registered businesses can claim back input VAT on the costs, but this may be restricted where this includes entertaining customers.
The employee’s position - A staff event will qualify as a tax-free benefit if the following conditions are satisfied:
• the total cost must not exceed £150 per head, per year
• the event must be primarily for entertaining staff
• the event must be open to employees generally, or to those at a particular location, if the employer has numerous branches or departments
The ‘cost per head’ of an event is the total cost (including VAT) of providing:
a) the event, and
b) any transport or accommodation incidentally provided for persons attending (whether or not they are the employer's employees),
divided by the number of those persons.
Provided the £150 limit is not exceeded, any number of parties or events may be held during the tax year, for example, there could be three parties held at various times, each costing £50 per head.
The £150 is a limit, not an allowance - if the limit is exceeded by just £1, the whole amount must be reported to HMRC.
The £150 exemption is mirrored for Class 1 NIC purposes, (so that if the limit is not exceeded, no liability arises for the employees), but Class 1B NICs at the current rate of 13.8%, will be payable by the employer on benefits-in-kind which are subject to a PSA.
If there are two parties, for example, where the combined cost of each exceeds £150, the £150 limit is offset against the most expensive one, leaving the other one as a fully taxable benefit.
Example - Generous Ltd pays for a Christmas party for its employees, which costs £150 per head and a further social event in the same tax year costing £45 per head. The Christmas party will be covered by the exemption, but employees will be taxed on subsequent social event costs as a benefit-in-kind.
Directors’ loans – Beware of ‘bed and breakfasting’
It can make sense financially for directors of personal and family companies to borrow money from the company rather than from a commercial lender. Depending on when in the financial year the loan is taken out, it is possible to borrow up to £10,000 for up to 21 months without any tax consequences. However, if the loan remains outstanding beyond a certain point, tax charges will apply.
Company tax charge - In the event that a loan made to a director of a close company in an accounting period remains outstanding on the date when the corporation tax for that period is due, the company must pay a tax charge (‘section 455 tax’) on the outstanding value of the loan. The trigger date for the charge is the corporation tax due date of nine months and one day after the end of the accounting period. The amount of section 455 tax is 32.5% of loan remaining outstanding on the trigger date.
Traps to avoid - In days of old, it was relatively simple to prevent a section 455 charge from applying by clearing the loan balance just before the trigger date and, if the director still needed the loan, re-borrowing the funds shortly after the trigger date (bed and breakfasting). However, anti-avoidance provisions mean that as a strategy this is no longer effective.
Trap 1 – The 30-day rule - The 30-day rule comes into play where, within a period of 30 days of making a repayment of £5,000 or more, the director re-borrows money from the company. The rule effectively renders the repayment in-effective up to the level of the funds that are re-borrowed. Section 455 tax is charged on the lower of the amount repaid and the funds borrowed within a 30-day window.
Example - John is a director of his personal company J Ltd. The company prepares accounts to 31 January each year. In May 2018, John borrowed £8,000 from the company. On 28 October 2019, he repays the loan with money lent to him by his wife. On 7 November 2019, he re-borrows £7,000 from the company to enable him to pay his wife back. He does not make any further borrowings in November 2019.
Corporation tax for the year to 31 January 2019 is due on 1 November 2019. Although the director’s loan is not outstanding on that date, the 30-day rule bites and only £1,000 of the repayment made on 28 October 2019 is effective -- £7,000 of the £8,000 paid back is re-borrowed within 30 days. Consequently, the section 455 charge applies to £7,000 – the lower of the repayment and the funds borrowed within 30-days of the repayment – and the company must pay section 455 tax of £2,275 (32.5% of £7,000).
Avoiding the trap - The 30-day rule can be avoided if the company pays the director a dividend, bonus or any other payment that’s taxable and this is used to repay part or all of a loan. In this situation, it’s OK to take another loan from the company within 30 days without the anti-avoidance rule being triggered. Keeping repayments and re-borrowings below £5,000 will also prevent the 30-day rule from biting.
Trap 2 – Intentions and arrangements rule - The ‘intention and arrangements’ rule applies where the balance of the loan outstanding immediately before the repayment is at least £15,000, and at the time a loan repayment is made there are arrangements, or an intention, to subsequently borrow £5,000.
This rule applies even where the new borrowing is outside 30 days. The rule bites if the repayment is made with the intention of redrawing at least £5,000 of the payment, irrespective of when this is done. Again, the rule does not apply to funds extracted by way of a dividend or bonus as these are within the charge to income tax.
Plan repayments carefully - Where looking to repay loans to prevent a section 455 charge from arising, these should be planned carefully to avoid falling foul of the traps.
Help employees beat the post-Christmas bulge
Promoting employee health and wellbeing is increasingly seen as a vital part of a successful business. According to government figures, in 2016/17, 1.3 million workers suffered from work-related ill-health, which equated to 25.7 million working days lost. This has been estimated to cost £522 per employee, and up to £32 billion per year for UK business. There are several areas where employers can use tax breaks and exemptions to help promote health and fitness at work.
Sporting facilities - Larger organisations are often able to offer gym or leisure facilities for staff in the workplace (or at a location convenient to work) run either by the organisation directly, or by a third-party provider. The facilities can be offered to employees to access for free or on a paid-for basis.
In-house gym facilities may be provided tax and NIC free if the following conditions are satisfied:
• the facilities must be available for use by all employees, but not to the general public;
• they must be used mainly by employees, former employees or members of employees’ families and households (employees of any companies grouped together with to provide the facilities also count);
• the facilities must not be located in a private home, holiday or other overnight accommodation (including any associated sporting facilities); and
• they must not involve use of a mechanically propelled vehicle (including road vehicles, boats and aircraft).
Where an employer is unable to provide in-house gym facilities, it may be possible to negotiate favourable membership rates with a local gym or leisure centre. Whilst this may lead to a tax liability for employees, the preferential rate can often be up to 20% - 30% cheaper than the normal price, so this is still an attractive offer for employees. Depending on how the cost of the gym membership is funded, the fees will either be taxed as earnings or as a taxable benefit-in-kind. So, for example, if an employer gives the employee additional salary to pay for their gym membership, the money is taxed as earnings through PAYE. If the employer pays the gym membership direct, a taxable benefit-in-kind arises on the employee and should be reported to HMRC on form P11D
Tax-breaks to promote good health - It’s a well-established fact that a healthier workforce is a more productive workforce. The government recognises these benefits too and has introduced several tax breaks to promote good health.
A tax and NIC-free exemption allows employers to fund one health-screening assessment and/or one medical check-up per year per employee. Subject to an annual cap of £500 per employee, employer expenditure on medical treatments recommended by employer-arranged occupational health services may be exempt for tax and employee NICs. ‘Medical treatment’ means all procedures for diagnosing or treating any physical or mental illness, infirmity or defect. Broadly, in order for the exemption to apply, the employee must have either:
• been assessed by a health care professional as unfit for work (or will be unfit for work) because of injury or ill health for at least 28 consecutive days;
• been absent from work because of injury or ill health for at least 28 consecutive days.
Employer-funded eye, eyesight test, and ‘special corrective appliances’ (i.e. glasses or contact lenses) may also be exempt for tax and NICs, providing certain conditions are satisfied.
Fitness and health issues inevitably become more popular following several weeks of seasonal festivities and the dreaded over-indulgences. Anything an employer can do to help employees beat the post-Christmas bulge is likely to be most welcome.
Gains from off-plan homes
If you bought your home brand new and 'off-plan' you may realise a significant capital gain when you sell that property.
This is not a problem if you occupied the property as your main home for your entire period of ownership. In that case principal private residence relief should cover the whole of the capital gain and there will be no tax to pay on the disposal. However, an issue arises if there was a delay between the date you acquired the property and the date you moved in.
For newly built properties there can be a considerable delay between exchanging contracts to purchase (generally regarded as the acquisition date for any property) and the completion date when you move in. As HMRC have insisted that any gain is apportioned equally to every day of ownership, even when the property is not finished, the taxable gain attributed to the period when the building was incomplete can be considerable.
Fortunately, this problem has been resolved by the Court of Appeal which has ruled that the ownership period starts when the purchaser acquires full legal rights to occupy the property. This means the period from signing a contract to buy (the contract exchange date) to the date the owner is given the keys is not subject to tax.
If you have already paid capital gains tax as HMRC argued the gain on your half-built new home was taxable, you may be able to claim a refund of that tax.
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Adrian Mooy & Co Ltd - 61 Friar Gate Derby DE1 1DJ -
Adrian Mooy & Co is the trading name of Adrian Mooy & Co Ltd. Registered in England No. 05770414.
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Registered office: 61 Friar Gate, Derby, Derbyshire, DE1 1DJ
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