The FreeAgent Blog

The Chancellor didn’t start talking about useful measures for small businesses until almost the end of his Budget statement.

As ever, the devil is in the detail, and the full Budget report contained a lot of potentially useful points - and also some that could be bad news.  This is what I’ve picked out as the key issues.

Employment Allowance

Towards the end of his speech the Chancellor announced a new Employment Allowance, which will be introduced in April 2014 and will cover the first £2,000 of employer’s National Insurance for all businesses. This could mean that many of our customers no longer have to pay employer’s NI.

The detailed documentation promises that the operation of this will be simple, “employers will only need to confirm their eligibility through their regular payroll processes,” and the £2,000 will be deducted from payments of PAYE over the course of the year.

Partnerships: simplification or restriction?

The detailed report promised a review into how the taxation of partnerships could be simplified, but also highlighted planned consultation into removal of the “presumption of self-employment for LLP partners to tackle the disguising of employment relationships through LLPs”. This could mean that LLP partners would be taxed as employees rather than as self-employed individuals.

Another proposed consultation was to “counter the artificial allocation of profits to partners to achieve a tax advantage”.

This is one space I will be watching closely.

Growth Vouchers programme in England

£30million has been pledged to a Growth Vouchers scheme for small firms in England: “this programme will test a variety of innovative approaches to helping SMEs overcome barriers to achieving growth, such as limited use of external advice. It will target a number of specific areas of advice such as making a successful loan application to a bank or taking on an employee."

Again I’ll be keeping my eye on this to see how it will work, whether funding will be given to existing services such as ICAEW’s Business Advice Service, or whether this will be part of a new national incentive.

Cut that Red Tape

A second phase of the Red Tape Challenge will be launched this summer.

There is also a consultation planned for a process to allow Class 2 National Insurance to be collected in the same payment as income tax and Class 4 National Insurance for the self-employed. This would be a useful simplification but a small one, and combining the two self-employed National Insurance rates would have been more useful still.

Borrowing cash from a close company

If you’re the director of a limited company, your accountant might warn you that your “director’s loan account is overdrawn”. This means that you owe the company money, which can mean there’s extra tax to pay.

In Finance Bill 2014, which isn’t expected to become law until 2015, the level at which loans by a company to its staff become taxable benefits will be raised from £5,000 to £10,000.

But that doesn’t remove all the risk of extra tax - if you are a shareholder in a close company, then any money that you owe to the company can incur extra tax. The best way forward is to speak to your accountant and make sure that you don’t take out more than you put in!

The detailed report of this year’s Budget promised consultation to “make the rules fairer and simpler” when money is borrowed from companies by their owners, but also said:

“The Government will close three loopholes used to attempt to avoid the tax charge on loans from close companies to individuals with a share or interest in the company. This measure will have effect from 20 March 2013.”

That’s today.

And they haven’t said in the detailed report what those loopholes are!

One-line nuggets

Quicker credit and debit card payments: I quote, "The Government has secured a commitment from the payment card industry to reduce the time it takes for credit and debit card payments to reach SMEs' bank accounts by up to three days, by using the Faster Payments System". This is very good news for small business cashflow.

SEIS: Companies bought from an agent “off the shelf” will also be eligible for SEIS relief from 6th April 2013.

Low-emission cars: Capital allowances of 100% of the value of a low-emission car will still be available until 31st March 2015, but from April 2013 the limit for a “low-emission car” will fall from 110g/km to 95g/km. Using Ford cars as an example, that rules out all but a couple of Fiesta models - even Kas’ emissions are over 95g/km. Leased cars will also no longer be eligible for the 100% allowance.

Disincorporation relief: For five years from April 2013, goodwill in a limited company, and an interest in land, can be transferred to shareholders without a corporation tax charge arising on the transfer. This will be available for businesses with “total qualifying assets” of £100,000 or less. The document didn’t explain what “qualifying assets” are, unfortunately.

VAT threshold increase: From 1st April 2013 the threshold to register for VAT goes up from £77,000 taxable sales in a year to £79,000.

VAT mini one-stop shop: The government plans, from 1st January 2015, to make it possible for UK-based businesses making sales in the wider EU to only have to register for VAT in the UK, and account in a single VAT return for VAT due anywhere in the EU.

Cash accounting: The proposed cash accounting scheme for small businesses will go ahead but it will be open to businesses with receipts up to £79,000 a year. This threshold has been raised in line with the VAT threshold. Once on the scheme a business will be able to stay part of it until its receipts reach £158,000 a year.

IR35: The only mention of IR35 was a short and unclear sentence, “The Government will make a small amendment to the existing IR35 provisions to equalise the tax and NICs treatment of office holders, and put beyond doubt that the legislation applies to office holders for tax purposes." I’m still waiting to find out what this actually means.

So, some good news such as the Employment Allowance, some not so good such as the fact that IR35 is still with us, and plenty to watch in the coming months.

We’ve been talking about this for a while now, and the time has finally come to lift the lid on our new 2013/14 Payroll engine.

If you’ve used FreeAgent's payroll in the past then a number of things have changed for 2013/14, the most significant of which is a new workflow designed to support real time (RTI) filing of PAYE data to HMRC.

Getting started

It all sounds a bit scary but we’ve tried to make the whole process as simple as possible. It goes like this:

1. Start by creating Payroll Profiles for staff on your payroll
2. Run Payroll once a month to create payslips
3. Submit PAYE information in real time (RTI) to HMRC

So instead of creating a year’s worth of payslips at the start of the year, you’ll now run the Payroll every month, submitting PAYE information to HMRC at that time.

Take a look at the Knowledge Base for our guide on setting up 2013/14 Payroll.

The ins and outs

In addition to supporting RTI filing, we’ve overhauled our payroll engine including properly supporting student loans.

For a full rundown of what the new Payroll system supports see this article.

Preparing for RTI

From today you can update employee information and start creating payslips for April 2013 in FreeAgent. You'll notice that your payslips will be marked as Unfiled until you are able to submit the data to HMRC.

From April 6th you’ll be able to complete the Payroll and submit this information through to HMRC in real-time. We'll provide another update when this goes live, and it'll be backed up by help on our Knowledge Base as usual. You can also contact our Support Team if you need any help.

In the mean time, download our free Getting ready for RTI guide so you're fully prepared for the big switchover.

Until then,
Roan and the team at FreeAgent

When you’re running a business, it’s easy to get caught up in the here and now rather than looking to the future. But what things should you be looking to do with your business now, in order to benefit in the future? Here’s a few useful business acorns that you may want to consider planting now - they could grow into mighty oaks!

Think there’s some tips we’ve missed? Or do you have an example of how you successfully sowed some seeds for your own business? Hit us up on twitter or leave a comment and let us know. Have an awesome weekend!

It's now less than a month to the end of the tax year (5th April). As a sole trader and/or individual taxpayer, what could you do between now and then to make the most of this tax year?

Check the timing of planned asset purchases

Are you planning to buy a new large piece of equipment for your business, such as a computer?

Check how much you’ve already spent on large items of equipment thus far in the tax year, assuming you prepare your accounts to 5th April each year. The annual investment allowance, which lets you claim tax relief of 100% of the cost of qualifying assets, went up to £250,000 from 1st January 2013, but you have to pro-rata it depending on what date you use for your accounts year end.

So because the allowance was £25,000 before that date, if you prepare your accounts to 5th April each year, you can claim tax relief of up to £81,250 on qualifying assets you bought that year (£81,250 = (£25,000 x 9/12) + (£250,000 x 3/12)).

That’s not an allowance you can carry forward, so use it or lose it!

Remember, though, that not all assets qualify for this allowance. For example, cars don’t.

Plan your disposals, too

Conversely though, if you're planning to sell an asset that would give rise to capital gains tax, you could be advised to wait until after the end of the tax year, so 6th April 2013 or later, if you can. Then you'll pay the capital gains tax a year later!

But it might not be the best idea to wait if you're planning to sell a lot more assets next year. This is because each year, every individual gets an annual exemption that we can set against capital gains. This was £10,600 for 2011/12. The figure for the tax year to 5th April 2013 hasn’t been announced yet, but it’s likely to be that or higher.

This exemption can't be carried forward to the next tax year if you don't use it. It’s another case of use it or lose it!

So if you're going to be selling a lot of assets that give rise to capital gains tax in the near future, you may opt to spread the sales between two tax years instead (for example, sell some in March and some in May), to make best use of your annual exemptions.

Although you may pay tax sooner, you'll pay less tax overall if you do that.

Time your costs...

You might also be able to bring forward tax relief if you have genuine business costs coming up soon. Incur them in March rather than in April, and you could get the tax relief on those costs a year earlier.

If, for example, you've been thinking, "I really must get some new business cards printed", and your business's year end coincides with the tax year - then grab your logo file and get down to the printer's before 5th April!

Remember, expenses go into your business accounts when they're incurred, not when you pay for them - so even if you don't pay the printer till 6th April, so long as (s)he did the work before 5th April and you have an invoice, you should be OK to put that expense into your accounts.

...and your income

It's tempting to wait until 6th April to invoice your customer for some work done, so that this income goes into your next tax year and you pay tax on it a year later.

HMRC know that trick, though!

If you do the work before the end of the tax year, you need to accrue that income, i.e. count it as income of the tax year in which you did the work.

Make use of government-backed schemes

Mr Osborne does (sometimes) hand out tax relief on a plate.

• If you're looking to put some money aside, consider investing what you can of this year's allowance in an ISA, because this year's allowance will be lost on 5th April**.
• Alternatively, if you're aged between 16 and 74, you can invest up to £25 a month in tax-exempt savings policies issued by friendly societies.
• Consider putting money into a pension, to get tax relief. Speak to your accountant and your financial adviser if you want to do this, because there are rules around tax avoidance in this area.
• If you want to invest in someone else's business, consider investing in shares under the new Seed Enterprise Investment Scheme.

** That's £11,280 (of which £5,640 can be in a cash ISA).

Tax is never simple at the best of times, but by timing your sales and purchases carefully you can stay within the rules and yet make sure that you don’t pay too much tax.