How to reduce tax rates on property gains?
If you have recently sold a residential property, you will likely have made a healthy capital gain and discovered that special higher tax rates apply to this. There may be a way to defer paying this tax and reduce it overall. Here’s how:
- EIS tax reliefs
Investing in a company which qualifies for EIS (Enterprise Investment Scheme) tends to offer a few tax advantages, such as up-front income tax relief, capital gains tax (CGT) free growth on the investment and capital gains tax deferral relief.
CGT deferral relief means you can defer the taxation of any capital gain you made in the previous year or the three years following your EIS investment. When this happens, the gain becomes taxable only when you sell or transfer your EIS investment.
Let’s look at an example to demonstrate this process:
Joe makes capital gains of £100,000 in 2018/19, and makes a qualifying investment of the same amount in an EIS company. He claims CGT deferral relief, meaning he is not required to pay the capital gains tax that would be due on 31st January 2020. Joe then sells his EIS shares in 2025/26, triggering a tax charge on an amount that is equal in value to the deferred gain taxable for that year.
- How does this work for residential property gains?
If you have recently sold a residential property, then you will know that the rules explaining how the deferred gain will be taxed are worded in a very specific way, and you can make the most of this by doing research and using the rules to your advantage.
As of April 2016, rates of tax on capital gains are 10%, as long as your income combined with the gains comes to no more than the income tax basic rate band. If they exceed this, they are then taxed at 20%. However, when the gain concerns residential property (such as houses, flats, apartments, land intent for building, and so on) the rates are 18% and 28% respectively.
- How does EIS deferral relief help you be more tax efficient?
By using EIS deferral relief, you can change the nature of a residential property gain to a non-residential one, and therefore benefit from the lower, normal CGT rates of 10% and 20%. You’re probably wondering why more people don’t do this? Though this tax-saving arrangement is entirely legitimate, HMRC discourages it by making the rules hard to get around (but not impossible).
- How do you overcome HMRC guidelines?
It’s difficult to find information that helps you navigate HMRC guidelines, especially since there are a lot of varying answers online. Some sites will indicate that the previously deferred gain is only liable for CGT at 10% or 20%, and others (more in line with HMRC guidelines) will tell you that the deferred gain retains its original status as a residential property gain. Understanding the legislation is the key to making this distinction, and this is something that Price & Accountants can assist you with.
- HMRC guidelines in layman’s terms
In the Schedule 5B Taxation of Chargeable Gains Act 1992, you will find the EIS deferral relief rules explained in full. This states that the revived gain is “equal to so much of the deferred gain” in proportion to the amount of EIS investment sold.
Here’s a simple example of this to break it down further:
Joe sold 50% of his EIS investment in 2025/26, so the capital gain taxable is an amount “equal to” the same proportion, i.e. 50% of the original gain. As is often the case, minor, seemingly insignificant wording details in tax legislation can completely alter a tax bill. In the case of the EIS deferral relief rules, an EIS investment could potentially reduce your tax rate by almost half, which is an amazing saving.
- When must this be paid?
By making an investment in an EIS company, you make it possible to defer when tax is payable on the gain, and you will only pay this when you sell or transfer the investment. Although HMRC rules disagree, most tax experts will advise you that the gain changes its nature because of the deferral and so special higher rates of tax no longer apply, helping you be significantly more tax efficient.
If you want to find out more about how your residential property sale could be more tax efficient than you think, get in touch with our team at Price & Accountants. We are committed to helping small businesses in London and around the UK with their accounting needs, using Xero online accounting software and our expert team of advisors, all dedicated to helping your business flourish.
Why your company car could be costing you?
A company car scheme is a great incentive for employees, allowing businesses to attract and retain the best talent, but every year the tax and national insurance that goes along with company cars rises, and it could be costing both you and your company more than necessary. If your car is more than a few years old, it may be more tax efficient to transfer ownership to you. Here’s why:
- How does company car tax work?
If you have been driving a company car for a while, you will likely to know that the income tax is primarily calculated on the list price of the car was new and when it was first registered approval on its CO2 emissions. The price of the car when new will remain the same, but the CO2 emissions will inevitably creep up year after year. When this happens, it means that your company car is costing you more in tax, and your company more in NI with each year that passes. Meanwhile, as with any vehicle that is being used day-to-day, the value of the car decreases. This is why it can eventually become much more tax efficient for both parties if your company hands the car over to you instead.
- What makes this more tax efficient?
Let’s look at an example of this in action to explain how it works:
Jane gets a new car from her company, Acorn Ltd., which costs £28,000 as of April 2014. It is estimated that this car will be replaced in April 2021. At the moment, the car is worth £12,000, and has CO2 emissions of 175g/km. Jane will be taxed on £10,360 in the year 2019/20, and also in 2020/21 (total: £20,720) and Acorn will be required to pay Class 1A national insurance on this amount.
If, instead, Acorn gives Jane ownership of her company car on 6th April 2019 (the beginning of the new tax year), they will only need to pay a one-off tax and national insurance charge on £12,000, saving them money in the long run. As a higher rate taxpayer, this transfer will mean Jane saves £3,488 in tax, and Acorn saves £1,203 in national insurance.
- Surely that’s a no-brainer?
For the most part, it is. But while this may seem like a great idea, before you jump ahead and start the process there are a few other things to consider, primarily the cost of running the car as this can affect the cost effectiveness of this plan. If Acorn Ltd. pays the running costs of the vehicle and gets tax relief on these costs, they can continue to do so even after the car has been transferred to Jane. However, this would mean Jane will need to pay tax on these running costs paid by Acorn – why would Jane do this, you ask? Basically, she wouldn’t. To further equalise things and make the transfer fair on both parties, Acorn can pay Jane a mileage allowance for her business journeys, counteracting this tax and making both Jane’s and Acorn’s costs lower overall.
- How can my business pay me a mileage allowance?
Imagine Acorn Ltd. pays the running costs of what is now Jane’s car (let’s say £1,600 in 2019/20 and £1,700 in 2020/21). During this period, Jane drives 9,000 business miles, and because she now owns the car Acorn can pay her up to 45p per mile (tax and NI free) to cover the cost of fuel and any other charges she may incur.
If the cost of fuel comes to, for example, 13p per mile, this leaves an extra 32p per mile that Jane can use to partially pay back Acorn for the £3,400 worth of running costs it pays, leaving a mere £520 liable for tax and national insurance.
This of course means that the saving made by Acorn is reduced by transferring the car to Jane, but overall both parties are still much better off than they were previously.
Remember…
- Look into the tax and national insurance of company cars that are more than a few years old, and identify where there are savings to be made depending on the car’s list price, CO2 emissions, mileage and running costs.
- Make sure your contract is directly with the insurance company or garage, as this will ensure your tax and national insurance are as cost effective as can be when your company pays the running costs of your own car.
- When your company transfers the company car to you, they lose an asset, so in the example above, Acorn lost £12,000 from their balance sheet because the car no longer belongs to them, it belongs to Jane. As long as Jane is the only shareholder in Acorn then this won’t matter, but if other shareholders are involved, then this transfer may need to be compensated.
If you would like further clarification on the above, or want to find out more about becoming even more tax efficient with your company car setup, get in touch with our team at Price & Accountants to discuss how we can help. We are committed to helping small businesses in London and around the UK with their accounting needs, using Xero online accounting software and our expert team of advisors, all dedicated to helping your business flourish.
How to significantly reduce your tax bill by selling shares to your partner
Looking to become more tax efficient this year? Gifting shares of your business to your spouse is often recommended by small business accountants and tax advisors, in order to make use of both you and your partner’s tax-free allowances, and ultimately minimise the tax on dividends the company pays. This is a great move to make, however if you’re looking for ways to save even more and you also happen to have a mortgage, your accounting firm may not have told you to consider selling shares instead of gifting them. Here’s what you need to know:
- Firstly, why is joint ownership best?
Instead of owning your business alone, it is widely considered good practice to own it jointly with your spouse whenever one of you is paying a higher rate of tax than the other. When you both own shares in the company, you are both entitled to use your tax-free allowances, dividend nil rate band, and other rate bands, in order to reduce the tax paid on your company dividends. Owning with your partner is a great way to become more tax efficient.
- Should I have made my spouse a shareholder when I formed the company?
If you’re thinking it’s too late to make your spouse a shareholder in your company, it’s definitely not. Even if your spouse was not made a shareholder in the beginning, HMRC will still allow you to transfer ordinary shares to them as a gift in order to reduce your tax bill. No matter how long ago you formed your business, you can start the process of making your spouse a shareholder at any time.
- How does this help reduce my tax bill?
Here’s an example of this tax-saving plan in action:
Joe started his company (Joe Bloggs Ltd.) over ten years ago. It has grown considerably since then, and is now being valued at around £600,000. Joe Bloggs Ltd. pays Joe £100,000 per year in dividends, of which almost £50,000 is taxed at the higher rate, and naturally, Joe would like to save on tax wherever possible.
Joe’s wife, Jane, brings in less income, and so Joe’s accountant suggests that he gift half of the shares of Joe Bloggs Ltd. to Jane, in order to make the most of her tax-free allowances and basic rate band.
- Tax savings comparison
If you believe you could qualify for tax relief by implementing the plan above, you can discover the savings you could make in your business by getting in touch by emailing us to info@priceandaccountants.com or call us 020 3735 5119 at Price & Accountants to discuss how we can help you save on your tax this year.
We are committed to helping small businesses in London and around the UK with their accounting needs, using Xero online accounting software and our expert team of advisors, all dedicated to helping your business flourish.
7 Key Mistakes SMEs Should Avoid To Improve Business Performance
At Price & Accountants, we have worked to overhaul and streamline the financial direction of many SMEs, and over many years of experience we have identified key mistakes that affect businesses more than they realise. This could have a negative impact further down the line on their businesses. Here are the key things that could be preventing your performance:
1. Lack of planning and analysis
Without a strategy in place and a method of analysing what you have done in the past, you are essentially planning to fail. Having a plan for your financial operations and goals is crucial in order to achieve them, and to avoid later complications.
2. Relying solely on year-end accounts
Many businesses use their year-end accounts only to analyse the historic data, however this can also be one of the most beneficial insights into your business, not only telling you what has occurred, but what you need to do next.
3. Oblivious to the metrics in the business
Most businesses we have come across do not know or understand key metrics within their organisation, such as KPIs and ratios. Understanding how to use these information could be vital to your future success.
4. Lack of a cash flow model
Not having or utilising a cash flow model is one of the biggest mistakes we see SMEs make. If you are experiencing cash flow problems (or think that you could be, but are not sure) then we urge you not only to make this a priority, but to reach out to us for a free consultation.
5. Avoiding cloud-based accounting
This is by far the most efficient way to manage your finances, and without it you are undoubtedly wasting time and money, and will often be left searching for answers.
6. Lack of customer analysis
Knowing your target customer and the key financials surrounding their interactions with your business, is not only advised, but could be the difference between your success or failure further down the line.
7. Poor financial productivity
Productivity and performance improvement applies not only to the everyday running of your business, but is also highly relevant to your financial goals. Many businesses waste money on poor productivity and low performance, and this is an area we have helped many clients refine and streamline.
If you feel that your business is suffering from any of the above, feel free to reach out to Price & Accountants for a free coffee and consultation on how we can help:
Email info@priceandaccountants.com
Call 020 3735 5119
you can download this as a PDF format Click here to Download the file
SELL, DON’T GIFT: HOW TO SIGNIFICANTLY REDUCE YOUR TAX BILL BY SELLING SHARES TO YOUR PARTNER
Looking to become more tax efficient this year? Gifting shares of your business to your
spouse is often recommended by small business accountants and tax advisors. This is to
make use of both yours and your partner’s tax-free allowances, and ultimately minimise the tax
on dividends the company pays. This is a great move to be tax efficient, however if you’re looking for
ways to save even more and you also happen to have a mortgage, your accounting firm may
not have told you to consider selling shares instead of gifting them. Here’s what you need to
know:
- Firstly, why is joint ownership best?
Instead of owning your business alone, it is widely considered good practice to own it jointly
with your spouse whenever one of you is paying a higher rate of tax than the other. When
you both own shares in the company, you are both entitled to use your tax-free allowances,
dividend nil rate band, and other rate bands, in order to reduce the tax paid on your
company dividends. Owning with your partner is a great way to become more tax efficient.
- Should I have made my spouse a shareholder when I formed the company?
If you’re thinking it’s too late to make your spouse a shareholder in your company, it’s
definitely not. Even if your spouse was not made a shareholder in the beginning, HMRC will
still allow you to transfer ordinary shares to them as a gift in order to reduce your tax bill. No
matter how long ago you have incorporated your company, you can still make your spouse
a shareholder at any time.
- How does this help reduce my tax bill?
Here’s an example of this tax-saving plan in action:
Joe started his company (Joe Bloggs Ltd.) over ten years ago. It has grown considerably
since then, and is now being valued at around £600,000. Joe Bloggs Ltd. pays Joe £100,000
per year in dividends, of which almost £50,000 is taxed at the higher rate, and naturally, Joe
would like to save on tax wherever possible.
Joe’s wife, Jane, brings in less income, and so Joe’s accountant suggests that he gift half of
the shares of Joe Bloggs Ltd. to Jane, in order to utilise the most of her tax-free allowances
and basic rate band.
- So why is it better to sell and not gift the shares?
Here’s where it gets interesting. Typically, tax experts will advise you to gift the shares to
your spouse to save, which is acceptable. However, if you are currently paying off a
mortgage on your home, it may be more tax efficient for you to sell the shares to them at a
reduced rate instead. Selling the shares allows you to structure the transaction in such a way
that you receive tax relief on the interest you pay.
- How does this work?
Let’s say Joe and Jane have a mortgage of £200,000 on their home, and the interest they
pay on this loan is around £11,000 each year. Tax relief does not apply to loans used to buy
your home, but it often does when you are buying shares in a company (note: conditions
often apply).
If Joe sells shares to Jane for a discounted rate (we’ll use £100,000 as an example) instead
of gifting them to her, the loan that Jane takes out to make this purchase will then qualify for
tax relief. They can then use this money to pay back £100,000 of their mortgage.
In doing so, Joe and Jane have effectively switched the £100,000 payment to pay towards
their home mortgage instead of the sale of shares in the company. The interest from the
money that goes towards the sale of shares qualifies for tax relief, meaning the interest paid
is around £5,500 per year, and around £1,100 of this gets knocked off their tax bill.
If you believe you could qualify for tax relief by implementing the plan above, you can discover the savings you could make in your business by getting in touch by emailing us to info@priceandaccountants.com or call us 020 3735 5119 at Price & Accountants to discuss how we can help you save on your tax this year.
We are committed to helping small businesses in London and around the UK with their accounting needs, using Xero online accounting software and our expert team of advisors, all dedicated to helping your business flourish.
Access a hassle-free process to resolve accounting issues through using Xero set up
For many businesses, business accounting is a real nightmare when it comes to reconciling all your receipts and expenditures. You cannot deny the fact that business accounting is a domain that can capitalise all the advantages extended by the modern computing technology and access all innovative applications in the cloud. So, if you are an entrepreneur and want to streamline all your business accounting process, Xero setup is the best software application solution to resolve all your accounting issues.
This software has accessed high patronage among many businesses, especially in the small business domain in many countries. One of its main attractions of Xero setup lies in its way to address to the bank transactions. Xero has the capability to integrate and download bank information very easily and it is of a great help to you when it comes to reconciliation of varied transactions against your business records.
So, if you are one of those businesses who are worried about the time that you need to spend learning a new solution, Xero set up is well known for its easy on-ramp and comparatively quick setup routines. Once this software is installed, then you can handle varied situations of the claimed expenses, bank balances and access a clear report of the payments you must make.
Moreover, it is easy to reconcile all your accounts, even if have dearth of knowledge about the accounting procedures. Once your information is reconciled through using this software, you can analyze it with varied stock report formats and print out something as per your own requirements.
Another area in the business process that calls for the services of expert Tax advisor London is filing your tax returns that can review all your tax documents carefully before it is filed. Most people lack the required knowledge in doing their tax filing exercise and that is where tax preparation services come into the picture. Using a tax preparation service from a professional Tax advisor London is the ideal option to get all your tax filing job in a hassle-free manner, especially if you have more complicated tax returns to be filed. The tax preparation service offered by these experts keep abreast of all the developments in taxes domain so that they can deal efficiently with any issues.
Moreover, these tax preparation specialists are licensed by the federal government and more importantly, they can also represent you, in case there is a problem with your tax return. It is the ideal choice for filing intricate tax returns. All tax preparation professionals should be able to offer references for you to check. From these references, you can confirm the speed of response that are bestowed to their past clients.
Limited companies filing deadline
Limited companies filing deadlines.
Limited companies have filing deadlines for accounts and tax returns.
Penalties (for private limited companies) for late filing with HMRC are summarised below:
ACTION DEADLINE
- First accounts with Companies House 21 months after date incorporated
- Annual accounts with Companies House 9 months after year end date
- File company tax return with HMRC 12 months after end of accounting
Period
- Pay Corporation Tax or 9 months and 1 day after Corporation
- Tell HMRC that no corp tax is payable Tax accounting period ends
The penalties (for private limited companies) for late filing of limited company accounts with Companies House are summarised as follows:
TIME AFTER DEADLINE PENALTY
- Up to 1 month £150
- 1 to 3 months £375
- 3 to 6 months £750
- More than six months £1,500
The penalty is doubled if annual accounts are late two years in a row.
Limited companies are required to file a confirmation statement (previously an annual return) with Companies House once a year. The company should receive an email alert or a reminder letter when the confirmation statement is due. The due date is usually a year after either:
- the date the company was incorporated
- the date the company filed its previous annual return of confirmation statement.
The company can file the confirmation statement up to 14 days after the due date, with no penalty.
It can be very difficult for a small business owner to understand several deadlines, Price & Accountants can help you to understand of these deadlines. Feel free to book an appointment with us today by completing contact us form or email: info@priceandaccountants.com or call 020 3735 5119
Autumn Budget 2017
What is the big picture?
- Economic Forecast
- Brexit
- Technology
- Productivity
Brexit, most challenging time for small businesses in UK right now, uncertainty is not good for our economy which can also affect small businesses in short and long term. However it will also bring opportunities for smaller businesses therefore get ready.
Government is ready to invest into the Technology, there is £2.5 billion Investment Fund for innovative SMEs. There is also an Investment incentive available for artificial intelligence.
The big headline: Stamp Duty Limits
Up to £125,000: Current Standard rate 0% Rate for first-time buyers 0%
Over £125,000 and up to £250,000 Current Standard rate 2% Rate for first-time buyers 0%
Over £250,000 and up to £300,000 Current Standard rate 5% Rate for first-time buyers 0%
Over £300,000 and up to £500,000 Current Standard rate 5% Rate for first-time buyers 5%
- You will not pay Stamp duty on the first £300,000 on property purchase (first time buyer)
- Between £300,001 and £500,000 the standard 5% will apply
- If your property is over £500,000 this exemption will not apply and will pay standard rates
Personal Tax and National Insurance overview
Personal allowance £11,500 (Now) £11,850 (Next Year)
Basic rate threshold £33,500 (Now) £34,500 (Next Year)
Tax free dividend £5,000 (Now) £2,000 (Next Year)
Dividend Tax! basic rate will be increased to £34,500 which will be taxed at 7.50% savings of £189 (including savings from personal allowances) in the next financial year compared to current year. There would be an additional tax on reduced tax free dividend which will result to an increase in dividend tax of £225. Overall there are no satisfactory tax saving for small business owners in 2018/2019.
Corporation Tax overview
- Main rate of corporation tax remains at 19%, falling to 17% from 1 April 2020
- Freezing of corporate indexation allowance from 1 January 2018
- R&D tax credit increased from 11% to 12%
UK will be very competitive jurisdiction when corporation tax is reduced to 17% (from 2020). Good news for R&D.
Finance for long-term innovation
New £2.5 billion Investment Fund for innovative scale-up SMEs
Double annual allowance for EIS investments in knowledge-intensive companies
Transport Taxes
- £220 million new Clean Air Fund for local authorities in England
- Vehicle Excise Duty (VED) supplement for new diesel cars from 1st April 2018
- Rise in Company Car Tax diesel supplement from 3% to 4%
- No benefit-in-kind charge for electric vehicles for employees
- Freeze on fuel duty