Auditing: how we can add value to your business

We’re well into the busy audit season here at Ross Brooke Chartered Accountants Newbury, but as ever our audit teams are working very hard keeping all of our audit clients happy. We are also interviewing for more staff this week to help with our increasing number of satisfied clients.

With the help of some new technology we’re managing to do more audit work in the office this year, taking the hassle and interruption away from our clients, as well as reducing our carbon footprint, and still looking for ways to add value from our audit work.

There are many ways we can add value, such as: reporting on weaknesses in financial controls which could lead to accounting errors, cash losses, or even fraud; finding areas of inefficiency in systems and procedures, and advising on improvements to make; and suggesting tax saving opportunities such as the research & development tax credit.

Simply having your accounts audited adds value to them by reassuring any users that they have been externally examined and tested for errors. This can make it much easier to trade with new suppliers and customers, obtain funding or new investment, and sell part or all of the business.

Our auditors have been trained in various firms including ones from the big 4 and top 60 firms, and we are reviewed every year for quality by the UK200 Group, so you can trust our audit teams to be efficient, reliable, and thorough. However, as a relatively small firm our overheads are low so we can provide these quality services at very competitive prices.

If you would like a free meeting to discuss your audit or any other tax or accounting needs, please contact us or call into our Newbury office during working hours 01635 555666.

Year End Personal Tax Planning Guide – take action before 5th April to save tax

From the Guides section on our website: Ross Brooke Chartered Accountants in Newbury & Swindon. Register for free to see lots of other useful business & tax advice:

Income tax saving for couples

Any personal allowance that is unused at the end of the tax year cannot be carried forward, so it is normal to ensure that so far as possible these allowances are covered by your income.

This is particularly relevant to couples where income taxable on one might be covered by personal allowances if received by the other. However, it is not possible just to ‘gift’ the income in any year to a partner as tax law prevents obvious avoidance of this nature, so here are some practical ideas, with their limitations:

Joint ownership of income generating assets
Couples can own an income-generating asset jointly. The income from the asset will be assumed to be received 50 per cent each, even where that is not the case. If this suits your arrangements you need do nothing at all. If, however, the underlying asset is owned in any other proportion and you would like the same split to apply to income then we can notify HMRC for you and the income will be taxed in the proportion of the underlying capital ownership. It is not possible to use this rule if you are neither married nor civil partners and the asset must be jointly owned for this to work. It is not possible to allocate income in any other way, for example with the husband owning the asset 95 per cent but the wife taking 95 per cent of the income.

Transferring assets
If you want your partner to take all of the income from an asset it is necessary to transfer the asset into their name. Although it is perfectly acceptable to use this technique to transfer income between individuals, do remember that once given to the partner the asset is then owned by them and is theirs to do what they wish with it. It is also important when reallocating assets in this way to be aware of the inheritance tax (IHT) implications. Transfers between spouses and civil partners are tax free for IHT, but it might mean that one partner cannot use all of their nil rate band in their estate. See more about this in Inheritance planning. Couples who are not married can also use this, but the IHT implications must be considered more carefully, and there might be a capital gains tax liability on the transfer.

Jointly owned businesses
Where a couple jointly own a business, either a partnership or limited company, there is anti avoidance legislation designed to prevent very obvious cases of income shifting between the couple. It is not possible to transfer income between spouses by allocating preference shares to one spouse, but if the ordinary share capital is owned in equal shares, then any dividends paid on the shares do not fall foul of the legislation. Generally speaking unmarried couples can use this technique, provided the income passed between them does not benefit the original owner after the transfer or issue of the shares.

Paying your partner a salary
If one partner has a business but does not wish to transfer it into joint names, it might be possible to pay the other a salary from the business and obtain a tax deduction for it against the profits. The salary must be appropriate for the services provided, so should be no more than would be paid to an unconnected person doing the same work, but as well as providing a modest income for the partner it could also protect their state pension rights if they are not working in any other capacity. A salary of £7,000 per annum would cover most of the personal allowance of the recipient but would not attract National Insurance contributions. However, as it exceeds the Lower Earnings Limit for NIC it is reported to HMRC at the end of the year on the annual payroll return (form P35) and qualifies as one year’s credit for state pension – both basic and earnings related elements.

Making pension contributions for your partner
If the employed partner plays an active role in the business it is also possible to make pension contributions on their behalf from the business, which once again would benefit from tax relief. HMRC’s guidance on this area indicates that provided the total remuneration package – that is salary, plus benefits, plus pension contribution – is at a commercial rate, then it will attract a tax deduction against profits. If the employed partner does not wish to draw a high salary because of the liability to National Insurance contributions, they might wish to draw a combination of low salary plus a high pension contribution. Provided the total represents no more than a market rate salary for the role, this will attract a deduction in the business.

The amount of income you might wish to consider switching will vary according to your personal circumstances.

Here are the basic rules:

  • The personal allowance for 2011/12 is £7,475, so ideally you will wish to ensure that is fully utilised.
  • Remember that tax credits are not repayable on dividends, so dividend income cannot be used to cover personal allowances, although it can be used to transfer income from a higher rate taxpayer (who will bear an extra 25 per cent on it) to a basic rate taxpayer, who will have no extra tax liability.
  • If you are 65 or over your personal allowance is £9,940 (£10,090 for 75 and over). However, this allowance reduces to the normal personal allowance if your income is over £24,000, by withdrawing £1 of additional allowances for each £2 of income over the limit. This means that taxpayers in this position suffer a marginal rate of 30 per cent tax on income between £24,000 and £28,930 (£29,230 for 75 and over). Transferring income to the partner in this band is therefore particularly useful.
  • Taxpayers entitled to age related personal allowances can also reduce their income for the abatement calculation by making donations to charity or making contributions to a pension. Small donations to charity during the year can mount up, and many taxpayers overlook the importance of reporting them on the tax return. Keep a record of all charitable donations you make to ensure that you receive full benefit for them. If paying into a pension, gross contributions of up to £3,600 can be paid in any year in which you have no earnings – £2,880 net. In addition to potentially saving tax at 30 per cent, the pension benefits could be drawn immediately by taking a 25 per cent tax free lump sum.

Children and tax

Children have their own tax allowances and can use these against their own income, but anti avoidance law prevents parents from transferring investments to unmarried children under 18 so that they benefit from the income tax allowances. No more than £100 of income can be transferred in this way.

If children are employed in a business owned by the parent then income can be paid to them as wages. This is an acceptable route to take provided legislation designed to protect children from exploitation is observed. National Insurance contributions will be due on the wages paid that exceed the limit (currently £139 per week) once the child is 16. You must observe normal PAYE obligations when you employ a child, so they should complete form P46 and you should put them on the payroll.

Income paid on a child trust fund investment is not taxable on the child or the parent even where the invested funds come from the parent.

Tax credits

Tax credits are available to those who are working at least 16 hours a week, although if you do not have any children under 16 in the household (or up to 18 if still at school) you will need to be working for 30 hours a week.

For a couple claiming for themselves only, the entitlement to tax credits ends at income of £18,000, but if your income this year has been reduced by either the recession or claims for Annual Investment Allowance, then a single year of very low income could give rise to two years in which tax credits can be claimed.

Tax credit awards cannot be backdated by more than three months so you must claim early in the tax year to get the full entitlement for the year. Once you have started claiming, a renewal pack is sent out at the end of the year. This allows the claim to ‘roll on’ from one year to the next.

Changes in circumstances such as giving up work must be notified within one month. If you are late telling HMRC about a change that adversely affects your entitlement you can incur a significant amount of tax credit debt, which in some cases can be demanded in a single prepayment demand.

If you need advice please contact us for a free initial consultation on 01635 555 666.

25% Off Accountancy Fees – February 2012 Offer

Bring your accounting records to Ross Brooke Chartered Accountants in Newbury by the end of February 2012, and we’ll give you 25% off your accountancy fees for your first year with us.

Peace of mind with:

  • Fixed fees
  • No hidden charges
  • Monthly payment plans
  • 100% guarantee
  • Free initial meeting
  • No obligations to stay with us

Other services provided:

  • Bookkeeping (including online options)
  • VAT
  • Payroll
  • Audit
  • Corporate & Personal Tax
  • Management accounts

Contact Paul Colman ACA or Emily Ness FCCA on 01635 555 666, or drop in during office hours to speak to one of our expert advisers.

Map for Newbury Accountants

pcolman@ross-brooke.co.uk

eness@ross-brooke.co.uk

2 Old Bath Road

Newbury

Berkshire

RG14 1QL

Harry cleared – but be very wary of offshore ‘havens’

There is a fine line between tax evasion (illegal) and tax avoidance (legal), and Harry Redknapp must be delighted he has been cleared of all charges of evading tax through his offshore Rosie47 account.

However, those thinking of using undeclared offshore accounts to stash away money must be aware that it  is a high risk strategy, and one that HMRC are clamping down on, with the help of allegedly obtaining foreign bank data. So if you are in this position it may not be long before HMRC come knocking on your door.

If you are in any doubt about your own circumstances you should speak to your accountant as soon as possible. If there is an issue with tax evasion, there may be a way of making use of amnesties and substantially reducing any tax liabilities that otherwise would be due.

If you have any queries contact Ross Brooke Newbury Accountants.

Buying equipment in the next few months? – Don’t lose £19,000 by timing it wrong

From April 2012 capital allowances will be reduced. Both the Writing Down Allowances (WDA) and the Annual Investment Allowances (AIA) are affected. If you’re planning significant purchases of equipment in the next few months, you could save thousands of pounds by either advancing or delaying the purchase.

The changes apply on 1st April 2012 for companies and 6th April 2012 for unincorporated businesses, herein ‘the date’

Reduction in AIA

AIA gives a 100% deduction against taxable profits for expenditure on qualifying equipment. The limit for AIA reduces from £100,000 to £25,000 from the date, which may still sound a lot for some businesses, but in reality the allowance could be a lot less because of the transitional arrangements.

30th September 2012 Example

The limits are pro-rated if the accounting period straddles the date. So if an accounting year ends on 30th September 2012, the AIA limit for that whole year is £62,500, which is 6 months (half) of the old limit plus 6 months (half) of the new limit. That may still sound a lot, but…

There is an added restriction for the smaller period after the date, in that a business is restricted to the pro-rated limit for that smaller period. Using the above example, this makes the limit £12,500 for the six month period from the date to 30th September 2012.

30th April 2012 Example

Let’s take another example: a 30th April 2012 year end would have a total limit for the year of £93,750, and just £2,083 (1/12th of £25,000) for the month after the date.

Let’s say they were planning on buying a new machine for £93,000, and had not purchased any other equipment that year. If they receive delivery of it in March 2012 they would get 100% allowance for it (being less than the whole year limit of £93,750), potentially saving them £24,180 in corporation tax at 26%.

However, if they delayed until April, only £2,083 would qualify for AIA, the remaining £90,917 goes into the ‘general pool’ of assets and would only be relieved against taxable profits at 18% per annum (see WDAs below), together saving just £4,796 tax at 26%, a difference of £19,384!

Delaying purchases may also be best

However, in other circumstances it will be better to delay purchasing equipment, so always ask your accountant for advice.

Reduction in WDAs

WDAs are an allowance against taxable profits for capital expenditure not already relieved (e.g. by AIAs). It is calculated at a percentage of the written down value of the capital expenditure. From the date, the WDA percentages are reduced by 2%. So the main pool rate reduces from 20% to 18%, and the special rate pool from 10% to 8%. A hybrid rate is used for periods straddling the date.

Ask us for advice

If you have any queries, or need advice please contact Ross Brooke Chartered Accountants in Newbury & Swindon for a free consultation, or call into the Newbury office at any time during office hours and one of our expert advisers will see you.

Taking a risk with unqualified advisers?

Why your accountant should be qualified and how to recognise if they are.

Anyone can call themselves an accountant, even if they have no qualifications, training or experience!

Qualified accountants have the following attributes:

  • Trained for at least 3 years
  • Gained practical experience for at least 3 years
  • Passed rigorous exams set by their professional body
  • Required to keep their knowledge up to date by attending regular courses
  • Bound by ethical rules, ensuring professionalism and responsibility at all times
  • Required to hold professional indemnity insurance
  • Reviewed regularly by their professional body
  • The only accountants who can be authorised to do audits

You can easily tell whether an accountant is qualified if the firm’s name includes ‘Chartered’ or ‘Certified’ Accountants, and most qualified individuals use the following initials after their names:

  • ACA – member of the ICAEW
  • FCA – fellow of ICAEW (after 10 years membership)
  • ACCA – member of the ACCA
  • FCCA – fellow of ACCA (after 5 years membership)

So if an accountant isn’t qualified, how do you know they are giving you the correct advice, and that you are protected if they don’t?

Ross Brooke Chartered Accountants in Newbury and Swindon have a team of qualified accountants available to give professional and guaranteed expert advice. Contact us on 01635 555666 or call into the Newbury office anytime during office hours.

Busy month of accounts and an extra 2 days for tax returns, but marketing for more!

I’m sorry to say it’s been over a month since I updated my blog, but better late than never!

I’ve had a busy month reviewing urgent jobs for tax returns, and reviewing some large audit jobs. The tax department seem to be on top of everything once again this year, but there are always the last minute clients who we usually manage to get done on time without any penalties. The extra 2 days added to the tax return deadline is always welcome.

I’ve also been busy meeting new people at various networking events, including the Newbury Business Improvement District meeting, and a marketing course. As part of the marketing we will be looking at ways to improve our website: Ross Brooke Newbury Accountants thanks to Melissa at Newbury Creative and our hosts PracticeWeb.

We have our annual quality assessment coming up. The UK200 Group will be checking our files to make sure we meet up to their high standards, which we always do, but it’s always good to get some feedback.

Following the marketing course, I will be keeping my blog updated more regularly, with tips and advice, rather than just what I’ve been up to.

That’s all for now, but if anyone would like to meet for a coffee and a catchup, do let me know.

Regards

Paul Colman