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HMRC to Become Preferential Creditor Again

HMRC as a Preferential Creditor

The UK tax authority (HMRC) is set to become a preferential creditor once more, as proposed in the 2018 Budget that suggests this measure will result in an extra £185 million in taxes being recovered each year.

The HMRC lost preferential creditor status in 2002 under the Enterprise Act when it was demoted to a ranking on par with unsecured creditors, but changes effective from 6 April 2020 will provide for it to become a preferential creditor again.

Chancellor Philip Hammond, speaking in Parliament, said, “We will make HMRC a preferred creditor in business insolvencies…to ensure that tax which has been collected on behalf of HMRC, is actually paid to HMRC.”

HMRC will only become preferential for debts collected by the company on behalf of HMRC, such as VAT, PAYE and employee’s NI contributions. As a “secondary preferential creditor,” HMRC will rank after current preferential creditors, and will remain unsecured for Corporation Tax and employers’ NI contributions.

Further detail announced by HM Treasury states, “Taxes paid by employees and customers do not always go to funding public services if the business temporarily holding them goes into insolvency before passing them on to HMRC. Instead, they often go towards paying off the company’s debts to other creditors. From 6 April 2020, the government will change the rules so that when a business enters insolvency, more of the taxes paid in good faith by its employees and customers but held in trust by the business go to fund public services as intended, rather than being distributed to other creditors such as financial institutions.”

The full release from HM Treasury is available here.

For more on industry news and financial resources, contact us at info@balmerlimited.co.uk or 01280 818 777.

HAVE ANY QUESTIONS?

At Balmer Limited we have a number of staff offering you a wide range of qualifications and skill sets. For more details please contact us or call us on 01280 818777.
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Three Major Changes to Entrepreneurs’ Relief to Note

Entrepreneurs’ Relief is a valuable relief that can mean an individual pays Capital Gains Tax on the disposal of shares in their employer at 10%, instead of the 18% or 28% rate that would otherwise apply. As of October 29th, one of the most frequently asked questions we’ve received is what changes the 2018 Autumn Budget proposes in regards to it.

Below are the three biggest changes to Entrepreneurs’ Relief as provided by Croner Taxwise, and our best suggestions on how to navigate them.

1. Definition of Personal Company

The first major change affects the definition of a personal company, says tax specialist John Riseborough. This will apply where the disposal is of shares in a trading company or the holding company of a trading group. The definition of a personal company will be expanded to add a requirement that the shareholder must have a 5% interest in the distributable profits and net assets of the company for the relief to be available.

This is in addition to the existing requirements that the shareholder holds at least 5% of the share capital and that shareholding entitles them to at least 5% of the voting rights and that the individual is an employee or office holder of the company.

Be aware that this change will apply to disposals on or after 29th October 2018.

2. Qualifying Conditions

The second major change highlighted is that the qualifying conditions in all cases must be met for 2 years to the point of disposal or the cessation of trade. The previous rule allowed a 1-year qualifying period, explains Riseborough.

This is to apply to disposals on or after 6th April 2019. However, an element of protection has been put in place where businesses ceased prior to 29th October 2018.

Make sure to note that the 1-year qualifying period will be preserved.

3. Shareholding Dilution

Lastly, the third change will apply where a shareholding is diluted to fall below 5% where, prior to the dilution, the shareholding was greater than 5%. This will be subject to a genuine commercial reasons test. This would exclude, for example, debt for equity swaps or the exercise of employee share options.

Entrepreneur’s Relief would be retained on the growth in the shares up to the point of dilution. A deemed disposal will arise. However, it will be possible for the shareholder to elect for the notional gain to be deferred until the shares are actually sold.

This will apply in respect of shares held at the time of fundraising events on or after 6th April 2019, highlights Riseborough.

Make sure to stay tuned as we address more Autumn Budget Report frequently asked questions! For specific inquires, contact us at info@balmerlimited.co.uk or 01280 818 777. A special thank you to our friends at Croner Taxwise.

HAVE ANY QUESTIONS?

At Balmer Limited we have a number of staff offering you a wide range of qualifications and skill sets. For more details please contact us or call us on 01280 818777.
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Tax Do’s and Don’ts of Employing Casual Workers

Here’s how to avoid a hefty tax bill when employing casual workers, direct from the HMRC’s tax guide

When you employ casual workers for a short period of time, you need to take special care when agreeing and processing their pay. A mistake could leave you on the wrong end of a tax and NI bill. Here are some do’s and don’ts of PAYE issues surrounding casual labour, helping you prevent problems in the long run.

Do: Use the correct code to operate

When you employ someone for a matter of days or weeks (for example, a student in the holidays), chances are they won’t have a P45 from a previous job. When you pay an employee, temporary or otherwise, who hasn’t given you a P45 or starter checklist, don’t make the common mistake of using the emergency code to work out their tax. You must use code BR, or insufficient tax will be collected and HMRC is likely to ask you to pay the shortfall. BR will mean they pay tax on all of their income at 20%.

Don’t: Disregard new rules and concessions

HMRC used to take a more relaxed approach to casual workers where they were employed for a week or less. However, the only current concession is for short-term harvest workers and beaters for shoots.

Do: Handle full-time and part-time workers the same

Since the introduction of RTI, the golden rule is that, apart from harvest workers/beaters, you should tackle PAYE for casual and short-term employees in the same way as for permanent staff. This includes notifying HMRC of their starting and leaving details on a Full Payment Submission (FPS) and issuing them with a new starter checklist at the start of their first day.

Don’t: Use “cash in hand” payments

Use normal pay arrangements for casual workers to avoid unexpected tax and NI costs. Any cash payment is almost guaranteed to get HMRC’s attention.

With the right preparation, avoiding tax issues with casual employees is a breeze!

These are a few of our top tips, but for more information on tax rates and allowances, check out our resources page.

HAVE ANY QUESTIONS?

At Balmer Limited we have a number of staff offering you a wide range of qualifications and skill sets. For more details please contact us or call us on 01280 818777.
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10 Tips for Avoiding Credit Control Mistakes

Here are ten of our best tips for avoiding easy credit control mistakes

1. Have Clear Payment Terms

Make sure to always include your credit terms when sending an invoice. To avoid a customer missing a payment, display the payment date in a prominent position to let them know exactly when a payment must be received. This will reduce the chance of your customer missing the deadline date.

2. Know Who Handles Payments

When dealing with large companies, the person you are corresponding with is often not the person in charge of sending payments through. Make sure to address invoices to the most relevant person, and ask if you’re unsure, as confusion can lead to delayed payments.

3. Invoice Straight Away

As soon as your goods or services have been supplied, follow up with an invoice. Any delay gives your customer an excuse to stall payment.

4. Implement Strategies for Late Payments

Set out a day-by-day strategy to target late payments. Train staff to appropriately manage outstanding invoices so that the strategy is maintained.

5. Have a Dedicated Credit Controller

Many businesses forgo an in-house credit controller due to lack of capacity or requirement, but that often leaves existing employees to take over where they’re not best trained. In acquiring a dedicated credit controller, no time is taken away from employees’ primary roles, and you can ensure that you’re getting the best results possible.

6. Credit Check New and Existing Customers

Less than 50% of businesses credit check customers, setting them up for business with companies that might not successfully uphold credit agreements. Use credit reports online that allow you to instantly review a company or director’s credit rating online, which will help you make quick, informed decisions with the lowest risk of late payment.

7. Offer a Range of Payment Options

When you give customers a choice of payment type, it makes it easier for them to complete payments and increases chances of them paying on time. Make sure to clearly detail all options on your invoices.

8. Set Credit Limits

To stop customers from purchasing more than they can afford, set credit limits using information gained from credit reports. Offering higher credit late payment carries higher risk for you and your company.

9. Stop Supplying Late Payers

Be sure to catch persistently late payers to establish accountability with their company. Some suggest placing the worst offenders on a ‘stop’ list to ensure their supply of services provided are halted until all outstanding invoices have been settled.

 

 

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10. Review and Update Terms & Conditions

Take the time to regularly review your terms and conditions to ensure that you are keeping up with your business’s constant changes. Make sure they are successful and adjust accordingly to improve your cash position.

 

 

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For more tips and tools of the trade, follow us on Facebook, Twitter and LinkedIn.

 

HAVE ANY QUESTIONS?

At Balmer Limited our staff have a wide range of qualifications and skills. For more details please contact us or call us on 01280 818777.
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The advantages of completing your self-assessment tax return early

Tax Returns can be submitted now.

If you file your tax return early, you do not have to pay any tax due before the normal deadline.
For the 2017-18 tax year any payments due will be payable on or before 31st January 2019, less any payments you have made on account in January and July 2018.

Here are the top advantages of completing your tax return early

1. Tax refunds due

If you’re due a tax refund, you can have it paid to you now rather than waiting until after the Self-Assessment Tax Return deadline 31st January 2019.

2. Better tax planning

Early completion of your tax return lets you know in advance what your tax bill is going to be, you will have more time to set  aside sufficient funds rather than having to find it all at once.

3. Time to gather paperwork

It can take time to get together everything you need to file your self-assessment tax return.  Preparing your tax return early will give you time to request missing information, and it will give you the time you need to do it all correctly and effectively.

4. Avoid penalties

Filing early will give you time to address any problems and avoid HMRC’s late filing penalties.

As you can see there are advantages to completing your tax return early. Why not get in touch with us today and start the process for submitting your self-assessment tax return

HAVE ANY QUESTIONS?

At Balmer Limited our staff have a wide range of qualifications and skills. For more details please contact us or call us on 01280 818777.
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Which Trading Style Is The Right One For You – Sole Trader?

You want to go into business, you have the business idea, you are ready to begin but how do you start? First of all you will need to choose the right business trading style for you; there are four main types to choose from:

  • Sole trader
  • Partnership
  • Limited liability partnership
  • Limited liability company

What are the difference between the four business types and which one is right for you? Read our guide below on Sole trader trading style.

What is a Sole Trader?

A sole trader is an unincorporated business i.e. one not registered with Companies House (who form and regulate companies). It is usually owned and controlled by one person who may employ staff and may be VAT registered.

A sole trader is not a company. Sole traders do not have a separate legal existence from the person who runs the business, as in the case of a Limited Company.  This affects the way in which the business is taxed. Also Because of this the owners are personally liable for the firm’s debts. This is called unlimited liability. The name of the business may be your own or a trading name.

Advantages

Usually becoming a sole trader is straight forward and easier to set up.

Depending on the type of business you may only need a small amount of capital and this will also reduce the initial start-up cost.

You keep overall control, because you have a hands-on approach to running the business and you can make all decisions without consulting anyone else.

Sole traders do not have the formalities and regulations compared to a company.

There is no annual return to complete, no statutory records to maintain, no statutory accounts to prepare and no separate corporation tax return to submit. Each of these can be costly to the business and therefore it’s owner.

Disadvantages

You’re personally responsible for any losses the business makes and all business costs like stock, equipment

Keeping a record of your business sales and expenses

You have nobody to share the responsibility with. This means you would have to deal with every aspect of your company or employ staff to help in other areas of your business.

Usually as a sole trader if you are not working there is no income. This may mean you have to work long hours and it may be difficult to take holidays or find help if you are ill.

Growing the business can be limited by the amount of capital you have to invest and the amount of hours you are able to work.

You also have the risk of unlimited liability; this means the sole trader may be forced to sell personal assets to cover any business debts.

You will have to pay any tax due to HMRC earlier than you would with a company. Your accountant can do this for you.

Starting a Business as a Sole Trader

You must register with HM Revenue and Customs for Self-Assessment and Class 2 National Insurance if you earn more than £1,000 from self-employed income. You should register as soon as possible.  If you start your business in the tax year 2017 to 2018 you must register before 5th October 2018.  Failure to do so may result in a penalty.

VAT registration will become mandatory once the turnover reaches the VAT threshold (currently £85,000).

As a sole trader you must submit a Self-Assessment tax return every year.  You will have to pay Tax on the profits your business makes and usually pay two forms of National Insurance.

Be The Best You Can!

Whatever trading style you choose, enjoy what you do and we hope this will be the start of your very successful business!

HAVE ANY QUESTIONS?

At Balmer Limited we have a number of staff offering you a wide range of qualifications and skill sets. For more details please contact us or call us on 01280 818777.
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9 Common Tax Return Mistakes and How to Avoid Them

As the deadline for online returns gets even closer we have created a roundup of the 9 most common tax return mistakes that people make and how you can avoid them in the future, hopefully in time for this year but if not definitely for next.

Attempting to claim invalid expenses

HMRC have clear rules that outline what expenses you can deduct and straying from this can occur penalties. Make sure you are certain that any expenses you are planning to deduct are valid, and if you are in any doubt check with an accountant.

National Insurance Number and Unique Taxpayer Reference errors

Make sure you have entered these correctly to avoid any further issues with your tax return.

Incorrect figures

One of the most common mistakes on a tax return is incorrect figures being included in the return, make sure you double check all of your calculations before you file your return to make sure that you are paying the correct amount of tax.

Signature and date

Another one of the most common errors on a paper tax return is not signing or dating it correctly. It is such a simple mistake, but all too common.

Not declaring all income

You have to make sure that you declare all types of income including:

  • Income from employment
  • Benefits including maternity/paternity pay, statutory sick pay, job seekers allowance,
  • Pension income
  • Interest, dividends from savings, bank accounts, building societies investments or Trusts etc.
  • Property income
  • Foreign income including evidence of tax already paid abroad
  • Capital gains
  • Employee share schemes
  • Dividends

If you do not declare any of these that are applicable you can receive a severe penalty and if HMRC deem it to be a deliberate error you could face prosecution.

Poor record keeping

Make sure that all of your records are up to date and complete. Ensure that you have the following in order to complete your tax return:

  • P60, P45 and P11D
  • Bank statements
  • Capital gains
  • Student loan payments
  • Expense records
  • Benefits including maternity/paternity pay, statutory sick pay, job seekers allowance
  • Pension records
  • Property income
  • Any foreign income including evidence of tax already paid abroad
  • Employee share schemes

For anyone who is self employed make sure you have up to date records of:

  • Bank statements
  • Receipts
  • Cash books
  • Invoices
  • Mileage records
  • Records of all sales, purchases and expenses
  • Money taken out of business for personal use (if applicable)
  • Personal money put in to the business (if applicable)

Missing supplementary pages

If you are including additional income that isn’t covered by your main tax return, make sure you include the supplementary pages so that HRMC can see additional information on:

  • stock dividends
  • income from property
  • employment deductions
  • share scheme income
  • life insurance gains

Missing the deadline

The deadline for paper returns is the 31st October following the end of the tax year, for electronic returns it is the 31st January after the end of the tax year. If you miss these deadlines you will have to pay penalties which increase the longer you leave it.

Trigger happy box ticking

Again, it sounds silly to even mention it, but take care when ticking boxes on your form whether in the paper or electronic format as simple errors can cause big problems.

As you can see there are several mistakes that people make when completing their tax returns, some easily avoidable. However, one way you can avoid any stress related to completing your tax return is by getting support from a qualified accountant who will have years of experience in completing tax returns effectively and efficiently.

HAVE ANY QUESTIONS?

At Balmer Limited we have a number of staff offering you a wide range of qualifications and skill sets. For more details please contact us or call us on 01280 818777.
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