Allowable expenses for an employee

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Employee Expenses

What counts as a ‘tax-deductible’ expense?

You can only get tax relief for business expenses you’ve paid for and if they were for the cost of:

  • travelling you had to do in doing your job
  • other expenses you had to pay in doing your job – and which related only to doing your job

You can’t ask for tax relief if your employer has already reimbursed you for the expense and has agreed a ‘dispensation’ with HM Revenue & Customs (HMRC).

Key allowances and reliefs

There are several reliefs that you might be able to get to reduce your tax bill. If you think you might be able to get any of the ones listed in this guide you can find out more about them by following the links.

Business mileage or fuel

You may be able to get tax relief for business mileage when you use your own vehicle on business, or for fuel you buy when you use a company car. You can’t claim, though, for your normal commuting costs.

What counts as business mileage?

Business mileage is mileage you travel doing your job. It can include travel to a temporary work place but it doesn’t include:

  • normal travel between home (or anywhere that is not a workplace) and your permanent workplace
  • private travel

Tax relief for business mileage in your own vehicle

You may be able to get tax relief for business mileage if you use your own vehicle for work. It can be a car, van, motorcycle or cycle.

 

You can work out the amount of tax relief – called ‘Mileage Allowance Relief’ – to which you are entitled like this:

 

1. add up your business miles travelled in the tax year
2. multiply your business miles by the approved mileage rate to work out the approved amount – follow the link below for the latest approved mileage rates
3. add up any mileage allowance payments received from your employer
4. compare any mileage allowance payments received with the approved amount

If the approved amount’s more, you’re entitled to Mileage Allowance Relief on the difference.

For example, you use your own car for 850 business miles and your employer pays you 30p per mile. The approved amount is £340 (850 times 40p). The allowance you get from your employer is £255 (850 times 30p). Your Mileage Allowance Relief is £85 (£340 less £255).

You are only entitled to Mileage Allowance Relief if your employer pays you:

  • no mileage allowance
  • less than the approved amount
    If your employer pays you more than the approved amount, you’ll have to pay tax on the extra.

Records you must keep

You need to keep records of dates, mileage and details of all work journeys. Your employer needs this information to make expenses payments to you. You also need them to get any Mileage Allowance Relief.

If you use different vehicles

If you use more than one vehicle of the same kind add all your business miles together in one calculation.

If you use vehicles of different kinds make separate calculations for each one.

If you work for different employers

If you have two or more employers which are independent of each other, you’re due the higher mileage rate for business mileage in each job.

Tax relief for fuel when using a company vehicle

If you pay for fuel when using a company vehicle for business travel you can get tax relief on fuel costs, less any payments repaid by your employer and covered by a ‘dispensation’. You must keep a record of your business mileage to calculate your expenses.

Professional fees and subscriptions

You can ask for tax relief for the cost of fees and subscriptions you pay to some approved organisations – but only if you have to pay them, or if it’s helpful for your work.

When you can get tax relief for professional fees and subscriptions

It may be that in order to do your job you need to have your name included on a professional register or to have a special licence. Or it could be that it’s very helpful to belong to an organisation whose activities are necessary to your work.

 

Either way you’ll pay registration fees or membership subscriptions – usually every year. You may be able to deduct the cost of these from your taxable income and reduce the amount of tax you pay.

You may get tax relief on professional fees and subscriptions if:

  • you have registered, obtained a licence or become a member of the organisation in question because it’s necessary to your work
  • HM Revenue & Customs (HMRC) has approved the organisation you’re a member of

When you are not entitled to tax relief

You can’t get tax relief on any fees and subscriptions that you pay to an organisation that HMRC hasn’t approved.

You won’t be entitled to tax relief:

  • on a life membership subscription
  • if you haven’t paid for the allowable professional fees and subscriptions yourself – for example if your employer has paid them and has agreed a ‘dispensation’ with HMRC

Finding out how much tax relief you can get

When HMRC approves an organisation and adds it to the HMRC list they ask the organisation to let their members know that they might be entitled to tax relief on their fees or subscriptions. Your organisation can tell you how much you are allowed to deduct.

Tools and specialist clothing

If you have to provide small tools or buy specialist clothing for your work – like a uniform or protective clothing – you may be able to get tax relief for the cost of them.

When you can get tax relief for tools and specialist clothing

As a general rule an employee can’t get tax relief for the cost of clothing they wear to work – but there are some exceptions. For example, if you work in a sector like the building trade or the metal working industry you’ll have to wear protective clothing like:

  • overalls
  • gloves
  • boots
  • helmets

If you must pay for the cost of repairing, cleaning or replacing this type of specialist clothing yourself and your employer doesn’t reimburse you, then you are entitled to tax relief. However, you cannot claim for the initial cost of buying this clothing.

You are also entitled to tax relief if you have to buy – out of your own money – the tools you need to be able to do your work. For example, if you’re a hairdresser your employer might require you to provide your own scissors. The tax relief also applies to the cost of maintaining and replacing the tools.

What about uniforms

You can get tax relief on the cost of repairing, cleaning or replacing a uniform if:

  • it’s a recognisable uniform that shows you’ve got a certain sort of job – like a nurse or police uniform
  • your employer requires you to wear it while you’re working
  • you’ve got to pay for it yourself

Flat Rate Expenses

If you have to spend money on tools or specialist clothing for your job you may be entitled to either:

  • tax relief for the actual amounts you spend
  • a ‘flat rate deduction’

Flat rate deductions are amounts that HM Revenue & Customs (HMRC) has agreed nationally – or sometimes locally if conditions are very different – with trade unions or other bodies. The deductions cover what’s typically spent each year by employees in different trades. For example, someone working in the clothing industry can get a deduction of £60 each year. A cabinet maker can get a deduction for £140 while the deduction for a stone mason is £120. You don’t have to be a member of a trade union to get the deduction. You’ll also benefit from less paperwork – you won’t have to keep a record of all the individual amounts you spend. Follow the link below to see a table of agreed flat rate expense deductions.

If your industry is not listed on the table, you can still claim a standard amount of £60 for the laundry costs of uniforms or protective clothing.

How to get tax relief for tools and specialist clothing

To find out how you can get tax relief for tools or specialist clothing and the time limits for getting it, read the guide ‘How to get allowances and reliefs – employees or directors’ by following the link below.

Before you contact HMRC you’ll need to have all the following information to hand:

  • name and address of your employer
  • what expenses you are claiming for, for example the costs of laundering your uniform
  • the industry you work in
  • your occupation or job title
  • details of any laundry or cleaning services provided by your employer
  • details of payment or vouchers provided by your employer to cover laundry or other costs

Capital allowances

If you buy something like a filing cabinet or a desk for your work – called capital expenditure – you might be able to get capital allowances to help with the cost.

Household expenses when working at home

You may be able to get relief for some household expenses and some travelling costs if you work from home. You might also be able to get capital allowances for capital expenditure.

Travel and subsistence costs

You may be able to get relief for the cost of business travel – for example if you need to visit a client or go to a temporary workplace. You can also ask for relief for ‘subsistence’ – the cost of meals and overnight expenses.

Special rules and situations

There are some special rules or arrangements for certain tax allowances and reliefs, for example if you’re:

  • working on board a ship
  • working or living abroad
  • coming to work in the UK

How to get tax relief

You can ask for tax relief for your business expenses on your Self Assessment tax return if you have to fill one in. If you don’t have to, you can use a form P87 Tax Relief for Expenses of Employment to tell HMRC about the expenses you want to ask for relief for or sometimes you can just call them. Follow the link below to find out more about how you can get tax relief.

If you would like any more information, or a FREE consultation, please click on the following link to our contact page

Service charge V Company accounts. Service charge confusion by Graham Knight

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I am continually seeing further confusion from agents, accountants and lessees about what is interpreted as company expenditure and service charge expenditure in block management accounting.

The answer is fairly simple which I illustrate in the example below;

Scenario 1;
There is a block of 20 flats who have enfranchised and purchased the freehold. ALL of the lessees own a share of the company that, in turn, owns the freehold. The collection of ground rent is waived and therefore the company has no income. It also has NO expenditure = Dormant company. Further details can be found on our company administration page by clicking here

Scenario 2;
The same secario as 1 but only 5 of the lessees purhcased the freehold and the other 15 remained as lessees only. The ground rent is £100 per annum for the remaining 15 therefore making the company a trading company.

As you will see, there is no expenditure in these scenarios that allow for Building Insurance, cleaning, repairs and maintenance etc…
Why?
This is because this expenidture is Service charge expenditure and does not relate to the company. Service charge funds are amounts requested and held on trust, it is not company expenditure.

Here is something that I recommend to clients as a general rule of thumb;

Service Charges – Landlord and Tenant Act requirements
Company – Companies Act requirements

To find further information on service charge accounting please click here

I am specialist in this field and if you have concerns over your service charge accounts are compliant with the Landlord and Tenant Act and Companies House (if applicable) please do not hesitate to get in touch either on 01424 425113 or e-mail me directly at graham@knightaccountants.co.uk

Our service charge section of our site has just been dramatically improved so do please visit www.knightaccountants.co.uk for further information

Employers Pension Reforms

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Employers pension reforms

Wide ranging work-based pension reforms will be phased in from October 2012, aimed at encouraging more people to save for their retirement.
All employers need to prepare for their new responsibilities under the legislation which was finalised in Autumn 2011, and should be planning and budgeting at an early stage to prepare for the additional costs – both of any additional employer contributions, and of the additional administrative costs of communicating with staff and dealing with their queries, upgrading payroll systems, collecting and paying over contributions and retaining the required records. Practitioners need to be aware of the reforms as they need to prepare (as employers), and also research shows that their clients will look to them for advice.

The reforms

Overview

The work-based pensions reforms require auto-enrolment into pension schemes. Where there is no existing staff pension, employers will either need to set up a suitable ‘qualifying scheme’ or find one in the marketplace, including NEST, the National Employment Savings Trust, a new trust-based occupational scheme set up by the Personal Accounts Delivery Authority (PADA). The responsibility for enrolling employees into the chosen scheme(s) and collecting and paying over contributions will fall on employers. Employers already providing pension schemes will need to ensure they are ‘qualifying schemes’, which may require changes to their schemes and contributions arrangements.

Detail on the reforms

Phasing in from October 2012, starting with the largest employers (based on size of PAYE group), all employers will be required to:

• provide one or more ‘qualifying schemes’, which can include the National Employment Savings Trust known as ‘NEST’
• provide information to all staff, for example telling ‘eligible jobholders’ that they are being automatically enrolled and have the right to opt out (NB employers cannot encourage staff to opt out or discriminate against potential employees on the grounds that they are likely not to opt out.) Other categories of staff must be told about the chosen scheme and about their right to opt in.
• automatically enroll all ‘eligible jobholders’
• pay a minimum employer contribution on each eligible jobholder’s band of ‘qualifying earnings’ and collect and pay over the employee’s contribution which will also be phased in gradually until it reaches 4% from 2017 (with an additional 1% tax relief making total minimum contributions of 8% as from October 2017)
• register with the Pensions Regulator
• maintain adequate records, and
• repeat this auto-enrolment process every three years, for jobholders who have opted out.

Definitions

A ‘worker’ is a wider category than just employees and can include some contractors or agency workers. As a general rule, if you have to pay the national minimum wage to someone they are a worker.
An ‘Eligible jobholder’ is a worker:
• earning above a certain amount or ‘trigger’ (currently proposed to be £7,475);
• aged between 22 and state pension age; and
• working, or ordinarily working, in the UK.

A non-eligible jobholder is between 16 and 75 and earning at least £5,715, but less than the £7,475 trigger.
An entitled worker is between 16 and 75 and earning less than the lower contributions limit of £5,715.
Minimum employer contributions will be 1% until all employers are staged in (originally scheduled to be October 2016 but now likely to be 2017 1, when it will increase to 2% and then 3% from 2018 2 – to be confirmed in January 2012). Minimum contributions will be based on a band of gross annual ‘qualifying earnings’, currently £5,715 to £38,185 per annum, which includes salary, commission, bonuses and overtime.
‘Qualifying schemes’ can include Defined Contribution (DC), Defined Benefit (DB), personal pensions and contract-based, work-based personal pensions such as GPPs, provided they satisfy the quality criteria prescribed in the Pensions Act 2008, which set a minimum standard for the level of contributions made or the level of benefit provided.

1 The timetable for implementation has been extended for employers with fewer than 3,000 employees, and minimum contribution rates of 1% are likely to be continued into 2017 – to be confirmed in January 2012. DWP announcement available at: http://www.dwp.gov.uk/newsroom/press-releases/2011/nov-2011/dwp135-11.shtml

2 The timetable will be confirmed in January 2012 – see note 1 above.
It will be an offence for employers to encourage staff to opt out or to discriminate against potential employees on the grounds that they are likely not to opt out.

What should employers be doing to prepare?
• Find out your ‘staging date’ – In November 2011, the Government extended the timetable for automatic enrolment to give small businesses longer to prepare and recover from the current difficult trading conditions. The amendments mean that:

o Businesses with more than 3,000 staff should continue with their preparations unaffected, as their staging date (on or before 1 July 2013) remains unchanged (see tPR’s staging table)
o Businesses with 50-2,999 staff will have a staging date between August 2013 and March 2015. The Government will confirm the exact timetable early in 2012.
o Businesses with 49 staff or fewer will now begin to be staged in from May 2015, instead of the previous timing (which would have started during 2014).
• If your PAYE scheme has fewer than 50 employees then this means that the earliest you will be hit by these reforms is May 2015, and you could be staged in as late as 2017, but you still need to plan and budget for how you will comply with your new duties. Employers that are part of a group should beware, as the whole group will be staged in together, meaning they will be staged in early (at the same time as the largest PAYE group). Any seasonal businesses who are allocated a date during the peak of their activity can bring forward their staging date to avoid dealing with the additional administration and employee communications/queries at their busiest time of year.
• Assess your workforce. Not all employees are covered by the new duties and there are different requirements for different categories of employees, so you should make sure you know which duties you owe to each category of workers (see definitions box above for description of categories). ‘Entitled workers’ will only be entitled to receive information and opt in (with employee contributions only). ‘Non-eligible jobholders’ will be entitled to opt in and get employer contributions. ‘Eligible jobholders’ must be automatically enrolled with employer contributions, and must be told they can opt in during any waiting period, and that they can opt out once they’ve been enrolled. Staff will be categorised as at your staging date, but you should do an initial assessment in advance so that you can prepare – you can carry out a basic assessment of your workforce using TPR’s interactive tool (see link below)’.
• Choose a ‘qualifying scheme(s)’ and/or amend existing arrangements. If you do not already offer a staff pension, you can find one in the market place or use NEST, which has a public interest function and is obliged to accept all employers. If you have existing pension arrangements for some or all staff, you can continue with that provided it is a ‘qualifying scheme’. The scheme must cater for automatic enrolment – which means that employees must be put straight into the scheme and cannot be required to make any choices, fill out any forms or even sign anything in order to join – this is likely to require changes to existing staff pension arrangements. Adjustments to contributions levels (or to pensionable earnings if these are restricted to basic pay rather than ‘qualifying earnings’) may also be needed to ensure the minimum amounts are met, and any existing waiting periods may need to be shortened if they exceed three months, unless additional feeder or foundation schemes are to be used.

• If you need to amend your existing pension arrangements this is likely to require consent from staff and/or trustees (or insurer/provider for contract-based schemes) so these changes will take time and should be begun sooner rather than later.
• Plan communication with your employees. As mentioned above, entitled workers and non-eligible jobholders will be entitled to receive information about opting in, and your eligible jobholders must be told they can opt in during any waiting period, and that they can opt out once they’ve been enrolled. Staff may also need to be informed or consulted about changes to your existing scheme. Some employers may reduce costs by offering more than one scheme, for example, continuing a more generous one for higher earners and setting up a different one for lower earners or part time/temporary employees. However, care will be needed when communicating this to staff as this ‘two tier’ approach could be perceived badly – so communicating choice of scheme itself may need careful consideration and planning.
• Review your business software and payroll system. You will need to pay employer contributions, and deduct employee contributions and also refund contributions to staff who opt out (see below). You are therefore likely to need to invest in new or upgraded payroll systems and software (which will need to cope with refunding contributions to employees who opt out), and this needs to be included in your budget forecasts. You will also need to keep records of staff who opt out, and monitor the ages and/or earnings of jobholders so that you are aware of when they change their category and thus have different entitlements.

As from your ‘staging date’…

… you will need to start providing information to staff, auto-enrolling your staff and providing information to each of your chosen pension schemes about those being enrolled into that scheme. You will therefore need to have a procedure in place for auto-enrolling staff and dealing with opt-ins and opt-outs.

Employers are allowed to impose a waiting period of up to three months (both on initial ‘staging in’, and for each employee taken on going forward). This will be useful as it will remove the duty to enrol very short term employees, and will help reduce the administrative burden for employers with a high turnover of staff. It will also enable employers to align enrolment periods with pay periods, so they don’t have to deal with partial contribution periods.

Employees are then auto-enrolled at the end of any such waiting period, and they have about 4-6 weeks within which to opt out. If they do so within this time, they are treated as if they were never a member of the scheme. However, their contributions will likely have already been taken before such opt-out, and therefore refunds will become due and your payroll system will need to cope with this.

Registration with tPR

Employers must register online with the Pensions Regulator within four months of their staging date to confirm they have fulfilled their obligations, giving information about the pension scheme(s) they are using and how many people they have enrolled into it. Employers will be able to use agents for the registration process.

Ongoing obligations

New employees, triennial re-enrolment and record keeping…
Each new employee that you take on must either be auto-enrolled (or told they can opt in, if they are a non-eligible jobholder or entitled worker), and every three years employers must also re-enrol any staff who have opted out. There is a six month window for such re-enrolment. Seasonal businesses that have peaks of activity should consider this when deciding on a re-enrolment date in order to avoid the burden of additional administration during busy periods.

Employers will be required to keep records in respect of those who opt out (records must be kept for at least six years). In addition, employers will also need to monitor employee ages (if under 22) and earnings, because these employees will need to be auto-enrolled and/or provided with relevant information when they turn 22 or if their earnings increase above the earnings thresholds.

Further information

The Pensions Regulator website has information for employers and advisers, including detailed guidance explaining the new auto-enrolment duties. Look out for further information and guidance from the regulator, which can be done by signing up to the regulator’s free news-by-email service.
Interactive tools for employers

The pensions regulator has also launched some interactive tools for employers, which are designed to provide small businesses in particular with a simple and practical way to learn about the new duties, including how to:

• find out their staging date
• understand which staff need to be automatically enrolled into a pension scheme
• understand how to automatically enrol staff
• find out how much they will need to contribute for each eligible worker

Basic records you must keep by Knight Accountants in Hastings and St Leonards

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Basic records you must keep

You must keep records so that you can fill in the return fully and accurately.

Your basic business records must include:

  • a record of all your sales and takings
  • a record of all your purchases and expenses

You or your accountant use these records to create a profit and loss account – which shows the sales income you’ve received and the expenses you’ve paid, and what profit/loss you’ve actually made. The more detailed records you keep, the easier it will be to answer any questions that HMRC have about your tax return.

Other records you may need to keep

All businesses are different and there are many specific types of detailed records that you may need to keep. Some examples of records you may need to keep include:

  • cash book
  • petty cash book
  • sales and purchase ledger
  • wages book
  • invoices and receipts issued and received
  • electronic records of sales or till rolls
  • details of items not rung through the till
  • details of incidental or miscellaneous income – for example rent for accommodation owned by the business
  • hire purchase and leasing details
  • an inventory of stock on hand at the end of your accounting year
  • bank and building society statements, pass books, cheque stubs and paying-in slips which include details of business transactions
  • details of any money taken out of the business for your own or your family’s personal use
  • details of any private money brought into or taken from the business

All this information will be useful for completing your Self Assessment tax return and answering any questions that HMRC may have about it.

 

Records related to both business and personal use

It’s important that you keep your business and personal records separate, so that you can work out exactly what relates to your business.

Sales or income

Mistakes are often made when recording sales if:

  • you take stock for personal or family consumption
  • you supply goods or services to someone else in return for goods or services – barter transactions

Even if you don’t record these transactions through a till you still need to keep a record of them. You should note down the goods or services taken or supplied and their normal retail price, and your business profits must be worked out using this value.

Expenditure or outgoings

If you use assets for both business and personal purposes, for example you live in a flat above shop premises – you must keep enough records so that you can work out which expenditure relates to business use and which is for private use.

 

If you use a vehicle for both business and private purposes, it’s usually enough to keep a record of business and private mileage and to split the vehicle running costs in the same proportions

How long must you keep your records?

You must normally keep your business records for five more years after the normal filing deadline of 31 January. This date applies even if you’ve sent in a paper tax return.

 

For example, for a 2010-11 tax return filed on or before 31 January 2012, you must keep your records until 31 January 2017.

 

But if HMRC sent you – or you sent back – your tax return very late, you may need to keep your records for longer. You need to keep them until the later of:

  • five years after the normal filing deadline
  • fifteen months after the date you sent your tax return

If a check has been started

You may also need to keep your records for longer if a check into your tax return has been started – in this case you’ll need to keep your records until HMRC writes and tells you they’ve finished the check.

 

Knight Accountants are a firm of Chartered Certified Accountants and Registered Auditors based in Hastings and St Leonards on Sea, East Sussex.

The big move

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So we have finally moved office!  Since Knight Accountants was formed 5 years ago, we have always dreamt of having our very own premises.  We started out with a desk in the spare room at home, from that we progressed to a desk in the Innovation Centre, and now we are in our very own premises in Theaklen Drive.

The move went fairly smoothly.  GL Property Maintenance came in and decorated the building inside and out. Carpets were purchased and laid; office furniture was bought, and built with our own fair hands.  Cyclops Signs supplied the external signage, and TMS supplied the new headed paper.

 

It hasn’t been without its issues though!  Mainly from the energy companies.  The day we moved in we were in undated with energy companies ringing up saying they could provide the best and cheapest service!  Eventually we chose a supplier, and fingers crossed all is now sorted.

As I am sure you are all aware, Graham and I both work for Knight Accountants. We are both fully qualified ACCA members, and the firm holds an ACCA practicing and audit certificate.  We are also fully insured. This means that you will always have a qualified member of staff working on your accounts from start to finish – which is highly unusual for any other firm around.

We specialise in small business and service charge accounts.  Between us we have over 20 years experience in our specialist fields.

Feel free to contact us.

2012/13 Tax Codes

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2012-13 PAYE Coding Notice – for individuals

Details of the new tax code

During January, February and March HM Revenue & Customs (HMRC) will be sending out new tax codes for 2012-13.

PAYE Coding Notice

During January, February or March you may get a PAYE Coding Notice from HMRC telling you what your new tax code will be for the tax year 2012-13. Your new tax code will be used by your employer or pension provider from the 6 April 2012 to make sure you pay the right amount of tax.

 

Not everyone needs to get a Coding Notice, so don’t worry if you don’t receive one – your employer or pension provider will still be able to update your tax code on the 6 April.

 

Your Coding Notice is for you to keep.

 

HMRC will send your new code to your employer or pension provider.

 

If you have an agent acting for you tell them you have a new tax code – they won’t receive a copy.

What is a tax code?

A tax code is usually made up of several numbers and a letter, for example: 117L or K497.

If your tax code is a number followed by a letter

  • If you multiply the number in your tax code by ten, you will get the total amount of income you can earn in a year before paying tax.
  • The letter shows how the number should be adjusted following any changes to allowances announced by the Chancellor – common tax code letters are explained below.

Common tax code letters and what they mean

Letter Reason for use
L For those eligible for the basic Personal Allowance – 747L for the 2011-12 tax year. It is also used for ‘emergency’ tax codes (read more in the section ‘If you’re on an emergency tax code’)
P For people aged 65 to 74 and eligible for the full Personal Allowance
Y For people aged 75 or over and eligible for the full Personal Allowance
T If there are any other items we need to review in your tax code, for example the income-related reduction to the Personal Allowance (read more in the section ‘Effect on your tax code if your income is above £100,000′).Tax code ’0T’ means your allowances have been used up or reduced to nil and your income is taxed at the relevant tax rates.
K When your total allowances are less than your total ‘deductions’ – read more in the section ‘How the ‘K code’ works’

Other tax codes

If your tax code has two letters but no number, or is the letter ‘D’ followed by a number, it is normally used where you have two or more sources of income and all of your allowances have been applied to the tax code and income from your main job or pension.

Other tax codes and what they mean
Code Reason for use
BR Is used when all your income is taxed at the basic rate – currently 20 per cent (most commonly used for a second job or pension but may also be used if you’ve started a new job, don’t have a form P45 and haven’t completed a form P46 before your first pay day)
D0 Is used when all your income is taxed at the higher rate of tax – currently 40 per cent (most commonly used for a second job or pension)
D1 Is used when all your income is taxed at the additional rate of tax – currently 50 per cent (most commonly used for a second job or pension)
NT Is used when no tax is to be taken from your income or pension

If you have two jobs or pensions, it is likely that all of your second income will be taxed at the basic, higher or additional rate – depending on how much you earn. This is because all of your allowances will have been used against the income from your main job or pension. If you are due to pay tax at the additional rate of 50 per cent, read the section ‘Effect on your tax and tax code – if your income is above £150,000′.

How tax codes are worked out

Step one

Your tax allowances are added up. (In most cases this will just be your Personal Allowance and any Blind Person’s Allowance. However in some cases it may include certain job expenses.)

Step two

Income you’ve not paid tax on (for example untaxed interest or part-time earnings) and any taxable employment benefits are added up.

Step three

The total amount of income you’ve not paid any tax on (called ‘deductions’) is taken away from the total amount of tax allowances. The amount you are left with is the total of tax-free income you are allowed in a tax year.

Step four

Broadly speaking, to arrive at your tax code the amount of tax-free income you are left with is divided by 10 and added to the letter which fits your circumstances.

For example, the tax code 117L means:

  • you are entitled to the basic Personal Allowance
  • £1,170 must be taken away from your total taxable income and you pay tax on what’s left

The tax code spreads your tax-free amount equally over the year so that you get about the same take-home pay or pension each week or month.

How the ‘K code’ works

If your deductions (untaxed income on which tax is still due) are more than your allowances you’ll be given a K code, to ensure you pay tax on the excess. Whereas with other tax codes the number indicates the amount of income you can have tax-free, the number in a K code multiplied by ten broadly indicates how much must be added to your taxable income to take account of the excess untaxed income you received. The tax deducted for each pay period cannot be more than half of your gross pay or pension for that period. If more tax is due you will pay it at a later date.

You might see a K code used if you have:

  • Company benefits
  • state benefits
  • tax to pay back from an earlier tax year

When a K code is operated, your tax deduction for each pay period cannot be more than half of your gross pay or pension. Your employer or pension provider restricts the amount of tax deducted using a K code to make sure that you retain a certain amount of take home pay or pension. If more tax is due it will be collected at a later date.

K code example

K497 means:

  • your untaxed income was approximately £4,970 greater than your taxable income
  • as a result, approximately £4,970 must be added to your total taxable income to ensure the right amount of tax is collected
    (The actual calculation is more complex and of course precise – and ensures that the exactly right amount is added to your taxable income.)
  • If you’re on an emergency tax code
  • Sometimes your employer or pension provider will have to use an ‘emergency’ or ‘special basis’ code until HMRC has worked out what your tax code should be. This can happen if you start a new job and don’t have a P45 for example. While you’re on an emergency code you’ll get the basic Personal Allowance – this may or may not be right for you. Once HMRC has details of your previous income and tax for the tax year, they’ll send your employer (and you) your correct tax code. Your employer will deduct the right amount of tax in future and pay you any refund you are due.

Where to find your tax code

If you’re employed or between jobs

You’ll find your tax code on your P45 (given to you by your employer when you stop working for them). This is why it’s very important to give this to your new employer when you change jobs.

If you’ve lost your P45 and want to find out your tax code contact HMRC and give them your National Insurance number and tax reference number.

You’ll also find your tax code on your ‘PAYE Coding Notice’ sent to you by HMRC usually before the start of each tax year. (It may also be sent to you at other times if something has changed – for example, if you’ve started receiving a new source of income or a new company benefit or your entitlement to age-related or other allowances has changed.)

If you’re starting your first job

If you’re starting your first job and therefore don’t have a P45 your employer will give you a P46 to fill in or ask you for the information they need to allocate a tax code and work out the tax due on your first pay day. HMRC will then process your P46 or the information passed on from your employer and, where necessary, revise your tax code.

If you’ve paid too much tax, your employer will make the necessary refund. (If the tax year has ended before this is worked out, then HMRC will make the refund.) If you haven’t paid enough tax, your tax code can be amended to collect the underpaid tax. This will happen in the current tax year, if there’s enough time for your employer or pension payer to apply the revised code or, if not, in a later tax year.

If you get a company or personal pension

You’ll find your tax code on your PAYE Coding Notice sent to you by HMRC usually before the start of each tax year. It may also be sent to you at other times if something has changed – for example, if you’ve started receiving a new source of income or a new company benefit. You’ll also find your tax code on notices and pay slips from your pension provider.

If you’re enrolled for Self Assessment Online

If you’re an employee or get a company or personal pension and are enrolled for Self Assessment Online, you can view PAYE Coding Notices issued on or after 11 October 2011 online.

Changes that might affect your tax code

You must keep HMRC informed of any change in your circumstances, for example if:

  • you get married, form a civil partnership, or separate and either of you were born before 6 April 1935
  • you start to receive a second (or third or more) income
  • the amount of untaxed income you get increases or reduces

If you don’t let them know you could end up paying the wrong amount of tax.

If HMRC change your tax code, you should receive a PAYE Coding Notice from them. Keep all notice of coding letters for reference in case you have any questions or need to check you are paying the right amount of tax.

 

Stress and Worry

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Do you worry too much?  Does Stress affect your business?  Read the tips below to see if you can make a few minor changes and as a result, help your business.

Tips for managing worry

  • Learn to distinguish between positive stress and toxic worry. Positive stress can give you the energy you need to get the job done. Toxic worry only drags you down, making it hard to achieve even small tasks.
  • Do a reality check. Find out if your worry has any basis in fact. Toxic worry can distort the real situation. Check to make sure that things are really as bad as they seem. Even when there is an actual problem, it may be easier to solve than you think.
  • Talk with friends or colleagues you trust. They can help you see things differently. Connect with those you know will reassure you, not those who might exaggerate your concerns.
  • Take positive action to correct the problem. Don’t be a victim of worry and stress. Brooding about the problem gets you nowhere. Fix the problem if you can! If not, then make the problem more manageable by making small corrective changes.
  • Get help from the right sources—people who have the information you need. Often you don’t have the information or tools necessary to attack a problem. Instead of worrying, take control by getting the help you need. Find out who the authority is and where you should look for answers.
  • Take care of your body. Exercise daily, eat healthy foods, and get enough sleep. Worry and stress put a heavy strain on your body. Taking good care of yourself physically not only reduces the level of tension your body is coping with, but it gives you more energy to deal with the problem itself!
  • Relax whenever and wherever you can. Practice relaxation techniques whenever you start to feel the first signs of tension, worry, or stress. While quick exercises that you can do almost anywhere are helpful, find the time and space for longer, more meditative relaxation—these exercises are more beneficial in the long run.
  • Let worries go. If there’s nothing you can do about a problem (or nothing more, if you already worked on it)—if it’s simply out of your control—then you have to let the worry go. Blow it away, and start a new project, read a different book, walk another path.

Tips for setting stress-reducing goals

  • Choose a goal you value. A stress-reducing goal should be one you care about, something you want to achieve; otherwise, you won’t work for it. If your main source of stress is from work overload, then your stress-reducing goal might be to start setting limits to work assignments.
  • Make a formal declaration of your long-term goal. Write your goal down and post it where you’ll see it every day. The formal declaration gives the goal the importance it deserves, and you’ll be more likely to stick with it.
  • Start with short-term goals. Long-term goals, such as becoming organized or maintaining a healthy exercise routine, take time to achieve. Short-term goals are steps on the path to that end goal. For example, if your long-term goal is to become organized, start with a short-term goal of making a to-do list as soon as you get to the office each day.
  • Set specific and achievable short-term goals. Don’t make your goals so vague that even you don’t know when you’ve reached them. If you’re trying to get organized, one specific short-term goal could be making file folders for important projects.
  • Set reasonable time frames for your goals.
  • Reward yourself for each achievement—large or small. Be kind to yourself! Don’t focus on the times you forgot to set a limit on a work assignment; instead, give yourself a pat on the back each time you cross an item off your list.

Tips for coping with difficult coworkers

  • Look for good models for dealing with them. Watch how other people interact with the difficult coworkers. See if you can pick up some techniques for working effectively with them.
  • Find something good about the difficult person. When you focus on finding good qualities about the person, you may discover they outweigh the annoying features. And you may find it easier to get along with them.
  • Recognize your own annoying habits. You may discover that you do some things that bother other people in the office. If so, perhaps you could try to change some of your ways.
  • Talk with your supervisor confidentially. Let your supervisor know what the problem is. She may be able to help mediate between you and the difficult colleague or provide some other form of support.
  • Try to work the problem(s) out. Sit down and have a talk with your colleague. If you can work out the problems with this one person, then everyone in the office will benefit. It’s worth the effort.
  • If you can’t work things out, then it’s time to set limits. Give the person feedback; let her know what the boundaries are for her behavior. Ask politely first, but make sure you are clear about your request for quiet, space, or whatever the issue may be.
  • Don’t gossip about the person with other coworkers. It’s certainly important to notify your supervisor about your concerns or try to talk directly to the difficult person, but gossiping about it with others in the office only creates negative feelings and deeper rifts.
  • If all else fails, stay away from them, if possible. The easiest way (and sometimes the only way) to deal with difficult colleagues is simply to avoid them!

Tips for listening effectively to a worried colleague

  • Pay full attention to the speaker. Don’t try to perform other tasks such as answering the phone or filing papers. Listen carefully to what is being said.
  • Use body language to show your concern—a person under stress wants to be heard on all levels. Make eye contact with and lean toward the speaker. Nod your head to show you understand. Use facial expressions to indicate feelings.
  • Respond every now and then with a verbal acknowledgement such as, “I understand,” or “I see what’s happening.”
  • Restate the speaker’s point in your own words to make sure you understand what they are trying to convey.
  • Comment only on what the speaker is describing. Don’t try to solve the problem; just try to understand it.
  • Acknowledge the feelings behind the words. You can even identify them by saying, “It sounds as though you’re feeling very hurt (or angry or frustrated).”

 

Guide to starting your own business

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If you are considering starting up a new business, you need to consider a number of factors to ensure the best chance of success.

As well as your product or service, you will need to think about what you will call your business, what sort of structure it will have and how you are going to run it. You should also think about how you are going to attract customers and where the money will come from for setting up while the business finds its feet.

You will need to research and develop your basic business idea, and work out what you are going to call your business and what form it will take. You should also think carefully about the product or service that you want to sell, the audience you’re selling to and what you have that makes you stand out from the crowd.

You must also think about how you are going to finance the start-up and what effect it will have on your personal finances while you wait for profits to show.

When considering starting a business, you should think about the different options available to you. You might want to start your business full-time or part-time, or even in your spare time. You could choose to work from home or separate premises, to buy an existing business or to invest in a franchise, depending on your experience, lifestyle and resources.

You should also think about assessing your own skills and where you might need some extra development or support – for example, looking after the business’ finances.

When you start up your new business or become self employed, you will need to have a clear understanding of what an ideal or typical customer looks like. You will also require a way of identifying groups of customers with a similar profile.

Understanding target customers and their needs is a key aspect of your market research. Developing a marketing and sales plan is an important next step in planning how you will reach these customers through promotional activities while also enabling you to budget for the cost.

Once you have gained new customers it is vital that you build a long-term relationship with them so that you can enjoy their repeat business. It is significantly easier and cheaper to do business with existing profitable customers than to find new ones.

Retaining valuable customers also requires you to understand in detail the effectiveness of your customer service as seen from the customer’s point of view. This customer feedback on your performance will help you to make informed decisions when making adjustments to your offer. It also increases the likelihood that your customers will talk about you positively to others and make referrals.

When you start up in business or self employment you will need money to get under way and to keep the business going until you get paid by your customers. You will also need to cover your personal expenses until the business can support you.

There are many different sources of funding for start-ups including personal savings, money from family and friends, bank loans, grants and equity funding from private investors. Creative thinking and planning your cashflow might save you money and make it less costly than you think to start your own business.

Once you have decided to start a new business, you need to make sure that you have all of the legal formalities in place. This includes choosing the right legal structure to suit your particular circumstances and ambitions as well as registering with HM Revenue and Customs. Should you choose the limited company route you will also need to register with Companies House.

Depending on your business idea, you may need to seek specialist advice on Intellectual Property Rights (IPR) protection, whether this is to cover copyright, trade marking, design registration or patenting.

Keeping and maintaining accurate records as well as ensuring that you pay tax and National Insurance are essential requirements when you set up in business or go self employed.

Planning and thinking about your business is a necessary process to undertake before, during and after you start. The headings in a business plan can be simply thought of as a checklist of questions you need to ask to reassure yourself that your venture will work. Writing the plan down is just as important because it helps to clarify your thinking and demonstrates your commitment to move forward. It also identifies where you intend to get to and how you intend to get there.

Other benefits include the chance for you to focus your mind on how you intend to run your business and to identify early on any areas or issues that you may have missed. You will also be able to review your progress against your forecast and make any necessary adjustments to get you back on track. Having a clearly presented document will also make it easier for any specialist you may use to provide support. In the case of raising funds from a bank or investor a business plan will be a necessary requirement.

Although the structure of business plans do vary, they will typically include an overview, a short description of the business idea and opportunity, what makes it different, who will be involved in the business, how you will provide your product or service, your marketing and sales strategy, and financial forecasts that will show the expected profitability.

If you are thinking about starting up in business, please contact us,  for a free initial consultation.

Why do I need a Business Plan?

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Why bother to write a business plan when you run a small business since you have access to all that is going on and control everything. The simple answer is that it gives you focus and enables you to step back and look at your business objectively.

In my experience the main reason why small businesses are forced to write a business plan is to secure some funding. However in my time spent advising businesses, what has been clear, is that those who write a business plan for themselves tend to do much better in business. The reason for this is that it provides measurable time-related goals upon which you can gauge the performance of your business.

A more important factor that I have experienced is that having identified in a plan, where your business is today and where you want the business to be in, say two years time, it stipulates creativity. By creativity, I mean the ability to think outside the box, to overcome hurdles and your business brain is always working to see how you can achieve the goals set. If the business plan achieves this much it becomes an invaluable tool.
So, if having a business plan is an important factor in the success of a business, why do so many small businesses fail to prepare one? The easiest answer is that most either think it is a waste of time (pandering to number crunchers) or find it difficult to write one. For those who are in the waste of time camp, ask yourself why a business plan is so important to lenders and financial backers.

I accept that writing a good plan is not easy if you have not prepared one before and unfortunately with so many books and information on the internet it can become confusing and at worse template driven. The impression created by many is that the only thing standing in the way of spectacular success is a glossy plan with meticulous looking spreadsheets and projections. Nothing could be further from the truth. The biggest problem with most business plans is that they concentrate too much on the figures and very little on the business.

My advice on anyone thinking of writing a business plan is to start with your dreams and aspirations, looking at your business on how it can deliver this. This will involve asking hard questions to identifying key areas that you need to perform well to arrive at your destination. The figures (or projections) come afterwards fitting into this model and tells the story of the journey.
How should you then start writing your business plan? Firstly make the commitment to write one within a specific time frame. Secondly set aside some time during the day or week where you can concentrate on writing key headings that you believe are important to the success of your business. Thirdly start writing the areas that you find the simplest to write first. This will boost your confidence and should be the catalyst to finishing the project. If you feel that you are struggling with certain elements, enlist the help of your accountant who should know your business well.
Finally a word of warning, a business plan should not be set in stone but rather treated as a work in progress. You should come to it on a regular basis to amend certain elements, if events have not turned out to be as expected or new opportunities arise, these should be reflected in the business plan.

VAT rule breakers

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VAT rule-breakers have until 31 December to complete the VAT registration process under a time-limited HM Revenue & Customs (HMRC) campaign.

In July this year, HMRC launched its VAT Initiative in which rule-breakers were offered a special plan to put right their tax affairs. The chance to participate, and be guaranteed the conditions contained in the plan, ended on 30 September.

 Since the opportunity ended, HMRC has been identifying those who did not come forward. Substantially higher penalties and even criminal prosecution could follow.

 The VAT Initiative campaign focuses on businesses trading above the VAT registration threshold – for this year, an annual turnover of more than £73,000 – but who have not registered for VAT with HMRC. The trades affected include construction, business services, hair and beauty, hotels and catering, retail distribution, recreational services, motor vehicle distribution and repair, sanitary and domestic services, agriculture and horticulture, property and road haulage.

 Under the terms of the VAT Initiative, those who have notified their intention to take part must register for VAT by 31 December 2011. They will then receive their VAT registration number and instructions on how to complete their first VAT return. Once this has been submitted most will face a lower penalty rate of 10 per cent on the VAT that has been paid late.

 Marian Wilson, HMRC’s Head of Campaigns, said:

 “Those who have told us of their intention to disclose now have until the end of December to register for VAT. They must then submit their first VAT return and make arrangements to pay.

 “We are determined to ensure everyone pays their fair share and, since September, have begun identifying people and companies who we believe are trading above the VAT threshold but have not come forward. We will be targeting these groups early in the New Year.

 “I urge anyone with unpaid tax to use it to come forward and avoid potentially lengthy and costly investigations. The penalty they will pay will still be lower than when HMRC catches up with them.”

 You can let HMRC know of your intention to make a tax disclosure by contacting the department on 0845 600 5217, where a dedicated team is available to provide information and advice.

 Those coming forward are also invited to disclose any other tax arrears. Where they have to pay a penalty on undeclared tax other than VAT, this will be lower than the usual penalty of up to 100 per cent of the tax owed charged on those who fall outside this opportunity.