Pointon Young Blog

The VAT flat rate scheme is an optional simplified accounting scheme for small businesses. The scheme is available to businesses that are eligible to be registered for VAT and whose taxable turnover (excluding VAT) in the next year will be £150,000 or less. Once in the scheme, a business can remain in it as long as its taxable turnover for the current year is not more than £230,000. The flat rate scheme is designed to simplify the recording of sales and purchases. Under the scheme, a business works out the VAT that it is required to pay ove r to HMRC by applying a flat rate percentage to its gross (VAT-inclusive) turnover. The flat rate percentage depends on the type of business. The percentages for each business sector can be found on the gov.uk website at www.gov.uk/vat-flat-rate-scheme/how-much-you-pay . The percentages are all less than the standard rate of VAT of 20%, reflecting the VAT that would be recovered on purchases. Example Jack is registered for the fla...

In his 2016 Budget speech, the Chancellor announced two new allowances would be introduced from April 2017 for money earned from `the sharing economy’. One allowance will be for trading income and the other for property income . Trading income allowance: A new allowance of £1,000 will be available for people who make money from selling goods or providing services. Under current rules, small amounts of trading income, for example from undertaking occasional jobs or selling goods on eBay must be declared to HMRC and, to the extent that the income is not covered by the personal allowance, the income is taxable. However, once the new allowance is introduced from April 2017, income from trading which is covered by the new allowance will not need to be declared to HMRC and can be enjoyed tax-free. Where trading income exceeds £1,000, traders will have the option of working out their taxable profit in the usual way by deducting expenses from income, or instead they can choo...

It is possible for a business to set the full cost of a car against profits in the year of the purchase if the car is a low emissions car that qualifies for the first-year allowance. A 100% first-year allowance is available in respect of cars that meet the definition of a `low emission car’ for capital allowances purposes. To qualify, the expenditure must be incurred before 31 March 2021 – the deadline was recently extended by three years. To be a qualifying low emission car, the car must satisfy certain conditions. A low emission car is one that is either electrically propelled or one in respect of which the CO2 emissions are below the level specified in the legislation. This is set at 75g/km where the expenditure is incurred on or after 1 April 2015 and before 1 April 2018. The threshold is reduced to 50g/km for expenditure incurred on or after 1 April 2018 and before 1 April 2021. Further, first-year allowances are only available for expenditure on new and unuse...

Most benefits in kind are taxable and the employee is taxed on the cash equivalent of the value of that benefit. Where the employee is required to make a payment to the employer in return for the provision of the benefit and actually does so, the cash equivalent of the benefit is reduced by the amount `made good’ by the employee. Making good allows the employee to reduce or eliminate the tax charge. Example Harry’s employer provides private medical insurance for Harry and his family. The cost to the employer is £500 a year. Harry is required to make a contribution of £200, which he does. By `making good’ £200 of the cost, the cash equivalent of the benefit on which tax is charged is reduced from £500 to £300. Where the benefit in question is fuel for a company car, the amount made good by the employee can be computed using the advisory fuel rates. Example Helen has a company car. The car is a petrol car, which for 2016/17 has an appropriate percentage of 22%. ...

Company cars are a popular benefit and are often something of a status symbol. But, they have also been an easy target for the taxman. Where a company car is available for private use, the employee is taxed on the associated benefit that this provides. The amount that is charged to tax – the cash equivalent value – depends on the list price of the car and the appropriate percentage. The list price is essentially the manufacturer’s price when new. This remains the reference point by which the tax charge is calculated – it does not matter how much was actually paid for the car, whether it was bought second-hand or that cars tend to depreciate rapidly. The appropriate percentage – the percentage of the list price charged to tax – depends on the car’s CO2 emissions. Adjustments are made when calculating the cash equivalent to reflect the periods when the car was unavailable, capital contributions and contributions to private use. Appropriate percentage Linking the...

The cash basis is a simpler way for smaller businesses to work out their taxable profit. Under the cash basis, profit is calculated by reference to cash in and cash out, rather than by reference to income earned in the period and expenditure incurred, as is the case under the traditional accruals basis. Prior to 6 April 2017, the cash basis was only open to sole traders and unincorporated businesses with a turnover below the VAT registration threshold (which was set at £83,000 from 1 April 2016 and increased to £85,000 from 1 April 2017). However, in preparation for the introduction of Making Tax Digital, under which businesses will be required to maintain records digitally and to provide digital updates to HMRC quarterly, the cash basis threshold has been increased. Availability of the cash basis is also extended to unincorporated landlords from 2017/18 onwards. New look cash basis From 6 April 2017, the entry threshold for the cash basis is increased to £150,000. Once...