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Guidance on Selling Online and Paying Taxes

If you’ve ever dabbled in selling goods or services through an online marketplace in the UK, this blog is for you. We’ll break down the ins and outs of paying taxes on your online earnings in an easy-to-follow way so you can confidently navigate the tax world.

Understanding the Basics: Are You Trading or Making a Capital Gain?

First things first, when paying taxes on your online sales, you need to determine whether you’re trading or making a capital gain.

  • Selling Unwanted Items: If you’re just clearing out your attic or garage and selling personal possessions you no longer need, you’re probably not considered a trader. For example, if you’re like Sally, who sold some items from her attic for about the same price she bought them, you likely won’t have to pay tax on those sales.
  • Buying for Resale: On the flip side, if you’re actively buying items intending to sell them at a profit, like Josh, who hunts around car boot sales and charity shops, you’re in the trading game, and those profits are taxable.
  • Creating and Expanding: Now, if you’re like Gina, who started by making greeting cards for friends and family but expanded to sell them online with the intent of making a profit, you’re likely considered a trader. Gina’s profits would be subject to tax because she’s running her activities like a business.
  • Collecting with Purpose: Even collectors like David, who buys and sells model cars to complete sets for profitable resale, are often classed as traders because they’re buying and selling for profit.
  • Importing for Profit: If you’re importing goods like Steve and selling them online for a profit, you’re probably trading, too.
  • Offering Services: And then there’s Adam, who offers online language tuition. If you’re promoting and organising your services like a business, it’s likely considered trading, and you’ll need to pay taxes on your earnings.

Trading and Miscellaneous Income Allowance

Now, here’s a little ray of sunshine for those of you with a small online income. If your total earnings from online trading or providing services amount to less than £1,000 (before expenses) in a tax year, you won’t need to inform HMRC or pay any tax on the profits. This is thanks to the Trading and Miscellaneous Income Allowance. So, if you’re just getting started or selling on a smaller scale, you have some breathing room.

The Role of Online Marketplaces

In recent years, tax regulations have evolved to adapt to the digital age. From the 1st of January, 2024, digital platforms, like websites and mobile apps, have been required to collect and report seller information and income to HMRC. They must report this information by January 2025, in line with international agreements.

So, what does this mean for you as a seller? You’ll receive a copy of this information, which can help work out your income and expenses incurred through these platforms. This data can help you calculate whether you owe any tax on your profits.

Registering and Paying Taxes

If you have to pay taxes on your online earnings, you might wonder how to get started. Well, it’s not as daunting as it may seem.

  • Self Assessment Tax Return: For starters, if you’ve never declared income through a Self Assessment tax return, you’ll need to register. Don’t worry; it’s a straightforward process, and you can find all the information you need on the HMRC website.
  • Using the HMRC App: Once registered, you can easily check what you owe and pay your Self Assessment bill using the HMRC App. It’s available for both iOS and Android devices, making it super convenient.

Mastering Online Sales: Navigating Taxes with Confidence

In a nutshell, selling goods or services online can be a great way to earn extra income, but it’s important to be aware of your tax obligations. Whether you’re selling vintage treasures, crafting homemade goods, or providing services, it’s important to understand when you need to pay taxes.

Remember, if you’re selling a few items here and there for a bit of pocket money, you may not need to worry about taxes. But if you’re actively trading and making a profit, it’s time to consider your tax responsibilities.

Stay informed, keep track of your income and expenses, and make good use of the information provided by online marketplaces.  If you’re unsure about your tax situation, it’s a good idea to consult a tax professional who can provide personalised guidance.

Selling online can be rewarding, and with a bit of tax knowledge under your belt, you can navigate this digital marketplace confidently. Happy selling, and remember to pay your taxes on time.

We’re here to help
If you’re ready to take control of your online business taxes, give us a call today on 01603 630882, or take a moment to fill out our online form. Let’s make sure your online ventures are tax-savvy and hassle-free. Your financial peace of mind is just a call or click away.

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Guidance On Claiming Capital Allowances For Business Cars

As a business owner or finance professional, finding out about the facts for capital allowances for business cars is a must if you want to make the most of your company’s tax efficiency. In this blog post, we’re diving into the world of capital allowances, with the spotlight on how they play out when it comes to business vehicles. We’ll be looking at key factors like CO2 emissions, purchase dates, and the various rates of allowances available. Think of this as your trusty GPS for making savvy decisions about car purchases and navigating tax planning.

Capital Allowances 101

First things first, let’s establish a clear understanding of capital allowances. They’re a form of tax relief available to businesses in the UK. They allow you to deduct a portion of the value given to qualifying assets from your profits before tax. This deduction can help reduce your tax bill, making it an important consideration for any business.

Capital Allowances on Cars

Now, let’s shift gears and talk about the specifics of capital allowances for business cars. Your four-wheeled friends have their own set of rules. Here’s what you need to know:

1. Writing Down Allowances (WDAs): WDAs are the most common way to claim capital allowances on cars. The rate you can claim depends on the CO2 emissions of the car:

  • Main rate allowances (18%): Applicable to environmentally friendly cars emitting 50g/km or less.
  • Special rate allowances (6%): Reserved for vehicles with CO2 emissions exceeding 50g/km.

2. First-Year Allowances (FYAs): If you’re eyeing low or zero-emission cars, you’re in for a treat as you can claim a 100% FYA, allowing you to offset the entire cost against your taxable profits in the year of purchase. Welcome news for electric car enthusiasts.

3. Exclusions: It’s important to note that cars don’t qualify for the Annual Investment Allowance (AIA), which offers a 100% write-off in the year for other types of assets.

For Sole Traders and Partnerships

If you’re a sole trader or in a partnership, there’s an alternative route: simplified mileage expenses for business vehicles. It’s like taking the fast lane, but remember, you can’t have this and claim capital allowances for the same vehicle.

For Employees

Employees, we haven’t forgotten you. Unfortunately, you can’t claim capital allowances for cars, motorbikes, or bicycles used for work. However, you may still be eligible for reimbursement of your business mileage and fuel costs.

What Counts as a Car?

For capital allowance purposes, a ‘car’ is a vehicle designed for personal use, not primarily intended for transporting goods. This includes motorhomes but excludes the heavyweights – lorries, vans, trucks, and motorcycles (unless purchased before April 6, 2009).

Claiming Rates for Cars

The rate you can claim depends on your car’s CO2 emissions and the purchase date. Here are the key points for different periods:

  • Cars Bought from April 2021 Onwards:
  • New and boasting zero emissions (including electric cars) qualify for 100% first-year allowances.
  • Second-hand electric cars join the main rate allowances club – good for the environment and your finances.
  • If your car’s emissions are ≤ 50g/km, you’re still eligible for main rate allowances.
  • If your car’s emissions are > 50g/km, you’ll fall into the special rate allowances category.
  • Cars Purchased Between April 2018 and April 2021: Similar rules as before, but with adjusted CO2 limits.
  • Purchases Made from April 2015 to April 2018:  Again, the same CO2 rules apply, just tweaked for that timeframe.
  • Cars Acquired Between April 2013 and April 2015: It’s like a rerun of the previous rules, but now tailored to the CO2 emissions during this period.
  • Cars Bought Between April 2009 and April 2013: No surprises here – the CO2 limits stay the same, maintaining consistency for this time period.
  • Cars Purchased Before April 2009: If you own a car that was bought before this date, you’ll have to shift its balance into your main rate allowances pool when you’re working out your claim. 

Using Cars Outside Your Business

If you use your car for business and personal purposes, you must allocate the capital allowance claim based on your business usage.

Providing Cars to Employees

If your business provides a car to an employee or director, you can claim capital allowances based on the full cost. But, if the employee uses the car for personal reasons, you may need to report it as a company benefit to HMRC.

Maximising Your Business Car Tax Perks

Getting the hang of the capital allowances game for business cars might feel complicated, but it’s worth it to supercharge your tax efficiency. Don’t forget to keep a close eye on those CO2 emissions and the purchase date of your vehicle – they’re the factors that can improve the allowances you can get.

And here’s a tip: When in doubt, speak to a tax professional to guide you. They can give you the personalised advice you need to stay on the right track, ensuring you follow the rules and excel in optimal tax planning. 

If you’re ready to make the best use of your tax savings and would like some help, give us a call today on 01603 630882 or complete our online form here

 

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Guidance On Recent Changes In Reporting Self-Employment Income

If you’re self-employed or running a trading partnership, navigating tax regulations can be daunting. The UK’s tax reporting system has had some recent changes, which began with the 2023 to 2024 tax year, so it’s important to stay informed and be prepared. This blog will walk you through these new changes, especially if your business’s financial year doesn’t align with the usual tax year (from the 31st of March to the 5th of April).

This year is a transitional phase. You’ll report profits from just after your last financial year-end in 2022 to 2023, to 5th April 2024. This could mean considering two financial years to figure out your taxable income.

If you end up with profits for more than 12 months, that’s your ‘transition profit’. You can shrink this down with Overlap Relief, and the remaining profit gets spread out until the tax year 2027 to 2028.

Here are the steps you’ll need to take: 

  1. Calculate your overlap relief
  2. Work out your transition profit
  3. Include these figures in your 2023 to 2024 self-assessment tax return

Specific Cases

If your financial year ends close to the tax year, between the 31st of March and the 4th of April, you can treat it as ending on the 5th of April, saving you the hassle of splitting profits for a few days.

Reporting Profits from the 5th of April 2024

From the 2024 to 2025 tax year onwards, your profit reporting will align with the tax year (the 6th of April to the 5th of April the following year). This involves combining profits from the 6th of April up to your financial year-end and the start of your new business year to the 5th of April the following year. In a leap year, count 366 days instead of 365.

Examples of Dividing Up Your Profits

You can split up your profits daily, monthly, or in any way that makes sense. Let’s look at a couple of examples:

  • Daily Splitting: Say your business year is from the 1st of October 2025 to the 30th of September 2026, with a profit of £45,000, and then from the 1st of October 2026 to the 30th of September 2027, making £75,000. For the 2025 to 2026 tax year, you’ll calculate profit from the 1st of October 2025 to the 5th of April 2026, and so on.
  • Monthly Splitting: If your business runs from the 1st of January 2026 to the 31st of December 2026 (making £50,000), and then from the 1st of January 2027 (earning £15,000), you’d divide the profits based on the months in each tax year.

Estimating Profits

Sometimes, you might not know your exact profit for the entire tax year when you file your return. In that case, use provisional figures and update your return when you get the exact numbers. Doing it this way keeps everything neat and accurate, ensuring your tax records truly mirror what’s happening in your business. 

Keeping Up With the New Tax Year Basis

These changes are fairly big for self-employed individuals and partnerships. It’s crucial to understand them, how they’ll impact your tax returns, and what you need to do. Staying informed and maybe even getting some advice can really help. Preparing for tax changes can make your life easier and avoid unwelcome surprises later on.

If you’d like to prepare for these changes, start now to make your future tax experience smooth sailing. You can call us at 01603 630882 or fill out our online form. Taking steps today will secure your financial future and keep you up-to-date with these evolving tax rules.

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Government Autumn Statement Key Takeaways For SMEs

The UK government’s Autumn Statement brings some long-awaited and welcome news for small and medium-sized enterprises (SMEs). In a bold move aimed at strengthening the economy, the Chancellor unveiled a comprehensive plan prioritising growth, resilience, and productivity. Here’s a breakdown of the key takeaways from the Autumn Statement that SMEs need to know.

Historic Tax Cuts for Business Investment

The standout feature of the statement is the launch of Permanent Full Expensing. This significant policy means that businesses can fully deduct the cost of qualifying investments in plant and machinery from their taxable income. Companies can receive up to 25 pence in tax savings for each pound invested. This policy represents an extraordinary £10 billion annual incentive, marking it the most substantial permanent tax reduction in recent British history. This move sends a positive message about the government’s commitment to encouraging investment and fostering growth within the business sector.

Business Rates Support Package

Recognising the challenges businesses face, especially on high streets, the government has introduced a £4.3 billion business rates support package spread over the next five years. This package includes a continuation of 75% relief for retail, hospitality, and leisure properties and a freeze on the small business multiplier. These measures are expected to benefit around 90% of ratepayers, providing much-needed relief and stability.

Embracing the Green Transition

To align with environmental goals, the Climate Change Agreement Scheme will be extended. This offers approximately £300 million in tax relief annually until 2033 to energy-intensive businesses like steel and ceramics. The aim is to encourage investment in energy efficiency and aid in the transition to Net Zero, an important step towards a sustainable future.

Focused Support for SMEs

The Autumn Statement sets out a series of measures designed to support SMEs. These include extended access to growth funding through the Future Fund: Breakthrough and management training via leading business schools through the Help to Grow scheme. What’s more, the expansion of Made Smarter will aid manufacturing SMEs in adopting advanced digital technologies. These initiatives are aimed at improving productivity and growth potential for SMEs.

The tax rate for unprofitable firms in the merged scheme will drop from 25% to 19%, and the support threshold for R&D-centric, loss-making SMEs will lower to 30%, aiding 5,000 more SMEs. SMEs will also benefit from regulatory changes, including tougher regulations on late payments and improved price transparency for consumers.

Sector-Specific Support

Recognising the importance of strategic sectors, the government has set aside £4.5 billion, including £960 million for clean energy, and a further £10 billion-a-year tax break for companies that invest in equipment and technology. Through the Advanced Manufacturing Plan, more than £2 billion over the next five years has been set aside for the automotive industry. The allocated funding is set to support the UK’s manufacturing industry and its supply chain, particularly focusing on the advancement of zero-emission vehicles. What’s more, two British Business Bank programmes will receive further funding, focusing on long-term investments in the science and technology sectors.

Assistance for Hospitality

In a welcome move for the hospitality sector, alcohol duty will be frozen for six months until August, offering relief to pubs, breweries, and distillers. This temporary measure will support these businesses as they recover from recent challenges.

Extending Freeports Tax Relief

The government has also announced an extension of Freeport tax reliefs in England from five to ten years. This extension until September 2031 is set to provide a more stable investment environment, promoting growth and job creation and contributing to boosting the economy.

Launch of the Growth Fund

A new initiative, the Growth Fund, will be established within the British Business Bank. With a permanent capital base of over £7 billion, this fund aims to attract pension scheme capital into the UK’s most promising businesses. This move could significantly boost investment and growth prospects.

Support for Employees

In a move that will impact many SMEs, the National Living Wage will increase by over a pound an hour from April 2024. This substantial increase, the largest in over a decade, extends eligibility to 21-year-olds for the first time. This hike represents a significant uplift in earnings for many workers and could have broad implications for SMEs in terms of wage bills and employee satisfaction.

Navigating the New Era of Opportunities 

The Autumn Statement presents a mix of ambitious policy shifts and targeted support measures aimed at creating a more resilient and dynamic SME sector. From historic tax cuts to sector-specific support and employee wage increases, these initiatives reflect a coordinated effort to stimulate economic growth and productivity. As we navigate these changes, SMEs stand at the forefront of a new era of opportunity and innovation in the UK economy.

Unlock your SME potential

If you’re inspired to explore how these changes can benefit your business, don’t hesitate to get in touch. Let’s start a conversation and work together to utilise these new opportunities. With our expertise and your vision, we can unlock the full potential of your business in this new economic landscape.

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The Future of UK R&D Funding: Tax Credits and Beyond

The UK government has announced an update on its plans for the largest-ever R&D budget from 2022 to 2025, showing its commitment to fostering innovation and technological advancement. The comprehensive strategy for R&D funding, underpinned by significant budget allocations and tax relief reforms, underscores the UK’s ambition to remain a competitive hub for cutting-edge research. Let’s look in more detail at what this means for the future of R&D funding.

Record Budget Allocation for R&D

The UK government has confirmed its largest-ever R&D budget, totalling £39.8 billion for 2022-2025. This unprecedented level of funding, an increase of £5 billion to £20 billion per annum by 2024-2025, represents a 33% rise over the current parliament. The allocations under this budget are poised to strengthen the UK’s R&D system, with the overarching goal of elevating the country as a global leader in science and innovation​​. 

Strategic Investments

The government’s R&D investments are strategically directed to support the UK’s Innovation Strategy, to increase total R&D investment to 2.4% of GDP by 2027. Key areas of focus include climate change, new technology sectors such as clean tech and AI, and levelling up opportunities across the nation. The UK Space Agency will see its budget grow to over £600 million by 2024-2025, emphasising the economic and strategic importance of the space sector​​.

Regional Development

In line with the Levelling Up White Paper, the government has committed to increasing public R&D investment outside the greater South East by at least a third, ensuring fair regional distribution and economic balance. This approach is expected to bolster confidence in business investment in R&D, leveraging private investment and fostering innovation across the country​​.

Reforming R&D Tax Relief

To complement direct budget allocations, the government has introduced significant reforms to R&D tax reliefs, affecting companies under the Research and Development Expenditure Credit (RDEC), the small or medium enterprises (SME) R&D relief, and those with Patent Box elections​​.

Extending Qualifying Expenditure

From April 2023, the scope of qualifying expenditures for R&D tax relief expanded to include the costs of datasets and cloud computing. These changes aim to incentivise R&D using digital approaches and include previously excluded areas like pure mathematics​​.

Refocusing on UK-Based Innovation

To maximise the benefits of R&D activities within the UK, the government is refocusing relief on domestic activity. Restrictions will apply to subcontracted work and costs of externally provided workers, with certain exemptions for specific international research needs​​.

Improving Compliance and Tackling Abuse

All claims for R&D reliefs must be made digitally, with detailed cost breakdowns and descriptions of the R&D projects. Pre-notification to HMRC is required, along with disclosure of any advising agents, aiming to improve compliance and prevent abuse of the system​​.

Future Outlook and Stakeholder Engagement

The government’s target to raise total investment in R&D to 2.4% of GDP by 2027 is ambitious. The R&D tax reliefs are crucial in reducing innovation costs and encouraging private-sector investment. Following extensive stakeholder consultations, reforms to the R&D tax relief system were announced, ensuring that these reliefs remain competitive and up-to-date, and effectively target taxpayer funds towards meaningful innovation​​​​.

Embracing Feedback for Enhanced Guidance

Before announcing its commitment, HMRC published draft guidance reflecting the upcoming reforms to the R&D tax reliefs, taking into account feedback from stakeholders, including industry groups, businesses, and accountancy professionals. This collaborative approach has been vital in refining the guidance, ensuring it effectively addresses the needs and concerns of those engaging in R&D activities​​.

A Dynamic and Robust Future for Research and Development

The future of UK R&D funding is dynamic and robust, marked by substantial government investment and strategic reforms to tax reliefs. These initiatives aren’t just financial mechanisms but represent a concerted effort to cultivate a fertile environment for innovation and technological progress in the UK. 

The focus on regional development, alongside the emphasis on modernising and securing R&D tax relief systems, sets a precedent for sustainable and inclusive growth in the research and innovation sectors. As these changes unfold, businesses and stakeholders in the R&D world can expect to see a landscape ripe with opportunities, supported by a government keen on nurturing a global science and innovation superpower.

Find out more

Find out more about the recent government announcement here

Read the full policy paper ‘Research and Development Tax Relief Reform’ here 

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Accurate Tax Payments: HMRC’s Compliance Checks Unveiled

HMRC’s compliance checks might sound daunting, but they’re a key part of how the UK tax system stays fair and on track. It’s not just about keeping an eye on things; these checks help make sure everyone’s paying what they should, so it’s fair for all of us. This guide is here to break down what these checks are all about, why they’re important, and give you some handy tips on handling them. Think of it as your go-to resource for navigating these checks with less worry and more confidence.

Understanding HMRC Compliance Checks

His Majesty’s Revenue and Customs (HMRC) conducts compliance checks to ensure that everyone pays the right amount of tax at the right time, claims the correct allowances and tax reliefs, discourages tax evasion, and maintains tax system fairness. These checks can be triggered by various factors, such as inconsistencies in tax returns or significant changes in your financial situation. You can find out more about what triggers an HMRC compliance check here

The Role of Tax Agents and Advisors

If you have a tax agent or advisor, it’s important to make sure they have formal agent authorisation to handle your compliance checks with HMRC. This authorisation allows them to communicate and deal with HMRC on your behalf. If they don’t have this authorisation, you must arrange temporary authorisation. If you’re an agent yourself, it’s important to apply for formal agent authorisation or arrange temporary authorisation for your clients to manage compliance checks efficiently.

Why Does HMRC Carry Out Checks?

HMRC may initiate a compliance check for reasons such as:

  • Figures entered on a return that appear incorrect.
  • A large VAT refund claim is made when turnover is low.
  • A small amount of tax is declared when turnover is high.

HMRC will contact you and your tax agent (if you have one) to explain what they wish to check and why. If you believe the check is unnecessary, you can communicate this directly with HMRC.

Continuing Your Tax Obligations

Even if a check is underway, it’s important to continue filing tax returns and paying taxes if they’re due. Compliance checks can also extend to tax credit claims to make sure you receive the correct amount.

Cooperation During the Checks

During the checks, HMRC might ask for information or documents, and they may ask to meet with you or visit your business premises. If you don’t think this is necessary or it is unreasonable, you can speak to the officer in charge. If an agreement can’t be reached, HMRC may use legal powers to get the information needed. HMRC does this by sending you an information notice. If you receive this, it is important to give HMRC what they’ve asked for; otherwise, you may be issued a penalty. 

The Importance of Accurate Information

You’re responsible for providing accurate information to HMRC. If you have a tax agent, make sure they’re fully informed about your financial situation. Cooperation can lead to a quicker resolution and potentially reduce any penalties if inconsistencies are found.

Need Help During the Checks?

HMRC understands that dealing with compliance checks can be challenging, especially if you face personal difficulties or health issues. If you communicate these to HMRC, they can work with you to put reasonable adjustments in place. Also, if you need more time for a valid reason, don’t hesitate to request it.

Appointing Someone to Speak on Your Behalf

You can appoint a friend, relative, or adviser to handle communications with HMRC. Just make sure to appoint them officially first.

Seeking Independent Help

There are charities and organisations available to help if you’re struggling with the compliance check process. If the checks are affecting your mental health, speak to your GP, or organisations like TaxAid, Mind, or Samaritans can offer support.

Outcomes of Compliance Checks

If the check finds everything is in order, HMRC will quickly close the case. If you have overpaid tax, you’ll receive a refund with interest. On the other hand, if you’ve underpaid, you’ll need to repay the amount, possibly with interest and penalties.

Dispute Resolution and Appeals

If you disagree with HMRC’s decision, you can appeal. You usually have three options: providing new information, having your case reviewed by an unrelated officer, or arranging for an independent tribunal to hear your appeal.

Penalties and Criminal Investigations

If inconsistencies are found during the check, you may face penalties. However, the extent of your cooperation can influence the penalty amount. HMRC generally handles fraud through civil investigation procedures, reserving criminal investigation for particularly severe cases.

Compliance and Expert Help

Understanding HMRC’s compliance checks is important for every taxpayer. By maintaining accurate records, seeking professional advice, and cooperating with HMRC you can confidently navigate these checks. Remember, these checks are in place to ensure the tax system is fair and efficient for everyone. If you need help or have concerns about a compliance check, don’t hesitate to get in touch.

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What Triggers an HMRC Compliance Check

For the tax affairs of individuals and businesses in the UK, the HM Revenue and Customs (HMRC) is the governing authority that makes sure you’re toeing the line when it comes to tax laws. To maintain the integrity of the system, HMRC conducts compliance checks, also known as tax investigations. These can be daunting for anyone who finds themselves on the receiving end. Understanding what can trigger an HMRC compliance check is crucial for any taxpayer.

Common Triggers for HMRC Compliance Checks

  • Discrepancies in Tax Returns: The most common trigger is a discrepancy or anomaly in the tax return compared to previous years or similar businesses. This could include significant changes in income and expenses or making a large claim for a VAT refund when turnover is low. HMRC uses a sophisticated system to analyse returns, highlighting any that fall outside the norms for further inspection.
  • Late Filings and Payments: Consistently late filings or tax payments can raise red flags. This suggests to HMRC that there may be deeper issues with your financial management or a potential for incomplete or inaccurate reporting.
  • Informant Tips: Yes, HMRC receives tips, sometimes from disgruntled employees or competitors. If someone informs HMRC that a business or individual isn’t complying with tax laws, it may initiate a check.
  • Random Selection: Sometimes, there’s no specific reason; HMRC randomly selects tax profiles for investigation. It’s their way of keeping everyone on their toes and ensuring taxpayers maintain accurate records.
  • Sector-Specific Checks: HMRC periodically targets specific sectors where they believe tax avoidance or evasion is widespread. If your business operates within one of these sectors, your chances of a compliance check might increase during these campaigns.
  • Business Performance Inconsistencies: If your business shows markedly different performance metrics compared to others in your industry, HMRC might investigate to understand why. This doesn’t just apply to underperformance – unusually high success can also trigger a check.
  • International Transactions: With global transactions under increasing scrutiny, those who conduct a high volume of international business might find themselves subject to checks, especially if there are transactions from jurisdictions considered high-risk for tax evasion.

The Process of a Compliance Check

  • Initial Contact: A compliance check typically starts with HMRC notifying you, either through a letter or phone call. They will inform you of the check and what they need from you.
  • Gathering Information: HMRC will request specific documents, which could include personal or business bank statements, receipts, invoices, and accounting records. They may also want to look at your tax calculations and self-assessment returns in detail.
  • Meeting and Interviews: Sometimes, HMRC will ask to meet you or your accountant, or they may want to interview you to gather more information.
  • Outcome: Once HMRC has reviewed the necessary documentation and information, they will communicate their findings. If they find everything in order, they will close the investigation. If not, they may request additional payment of unpaid taxes, apply penalties, or, in severe cases, pursue criminal prosecution. In general, the more help you give, the lower the penalty will be.

How to Reduce the Risk of a Compliance Check

  • Accurate and Timely Filing: Ensure all tax returns are accurate and filed on time. Use professional accountancy services if you’re unsure about your ability to do this correctly.
  • Consistent Records: Maintain consistent and detailed financial records. This can make a compliance check much smoother and quicker.
  • Seek Professional Advice: If you’re in doubt about your tax affairs, it’s wise to seek advice from a qualified accountant or tax advisor. They can help you avoid pitfalls that might lead to a compliance check.
  • Disclose All Income: Declare all sources of income, including those from overseas. Full disclosure is always your safest bet.
  • Understand the Rules: Have a good understanding of the tax rules applicable to your business. If HMRC updates tax laws or guidance, make sure you’re following the new rules.
  • Report Changes: If there are legitimate reasons for changes in your income or business performance, report these proactively in your tax return.

Navigating Compliance Checks with Confidence

An HMRC compliance check can be a stressful experience, but understanding what can trigger an investigation is your first line of defence. Remember, most checks are initiated by anomalies or suspicions of incorrect tax reporting. By maintaining good records, submitting accurate and timely returns, and seeking professional guidance when necessary, you can minimise the chances of an HMRC compliance check disrupting your business or personal finances. If you need help keeping your records in order, don’t hesitate to reach out and speak to one of our tax return specialists. Our motto is ‘Tax Returns: Stress Deducted’ because we’re here to help keep your taxes on track, headache-free and hassle-free.

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How To Claim Corporation Tax Relief Costs On R&D If You’re An SME

As the UK continues to become a global hub for innovation, the government has implemented a range of financial incentives to encourage businesses to undertake research and development (R&D) activities. For example, the R&D tax credit system is designed specifically for Small and Medium-sized Enterprises (SMEs) and aims to lessen the financial burden of innovation costs. If you’re an SME working on projects in science and technology, it’s wise to take time to explore how to navigate this benefit to maximise your corporation tax relief to ensure you’re not paying more tax than you need to.

What is R&D Corporation Tax Relief for SMEs?

Before diving into the claiming process, it’s important to understand the tax relief itself. 

R&D Corporation Tax Relief allows SMEs to deduct an extra 86% of their qualifying R&D costs from their yearly profit. This is on top of the usual 100% deduction, making a total potential deduction of 186%.

For SMEs operating at a loss, there’s an option to claim a tax credit worth up to 10% of the surrenderable loss. In essence, it can provide a cash injection when the company needs it most.

Do You Qualify?

R&D tax relief is there to support companies working on innovative projects in science and technology. With this in mind, you can’t claim if the advance is in the arts, humanities or social sciences.

To claim R&D tax relief, you must be a UK-based SME with:

  • Fewer than 500 staff.
  • A turnover of under €100m or a balance sheet total under €86m.

What’s more, the R&D project should aim to achieve an advancement in science or technology, and you’ll need to show how a project had to or tried to overcome scientific or technological uncertainty.

Steps to Claim Corporation Tax Relief on R&D for SMEs

  1. Maintain Accurate Records: Ensure you have robust records detailing all R&D activities and associated costs. This will help calculate your R&D expenditure and provide evidence if HMRC ever asks to see it.
  1. Identify Qualifying R&D Activities: This is a nuanced process, and not all activities related to R&D might qualify. Generally, tasks directly contributing to seeking an advancement in science or technology, or supporting such activities, can be included.
  1. Define the Qualifying Expenses: These can include:
    • Staff salaries, wages, and NICs.
    • Certain subcontractor costs.
    • Materials and consumables used up in R&D processes.
    • Some types of software.
    • Data licence costs and cloud computing costs (for accounting periods beginning on or after 1 April 2023)
    • Utilities, like power, water and fuel used in R&D.

Remember, the goal here is to focus on the tax relief and not the expenses per se. Therefore, make sure you’re meticulous in identifying what counts towards the relief. Find out more about which costs qualify here.

  1. Calculate the Enhanced Expenditure

Once you’ve identified the qualifying activities and expenses, there are a few calculations to do before preparing and submitting your claim, namely:

  1. Reduce any relevant subcontractor or external staff provider payments to 65% of the original cost.
  2. Add all the costs together.
  3. Multiplying the figure by 86%
  4. Add this to the original R&D expenditure figure.
  1. Before Submit a Claim Notification

From the 1st of April 2023, you might need to submit a claim notification form to let HMRC know your claim is coming. This is usually if you’re claiming for the first time or your last claim was made more than three years ago. Find out what you need to provide here.

  1. Submit a Claim Notification

From the 8th of August 2023, you must submit an additional information form to support your claim before you submit your company’s Corporation Tax Return. Failing to do so will result in your claim being removed. Find out more here.

  1. Prepare and Submit Your CT600: Your claim for R&D tax relief is made in your Company Tax Return by:
  • completing the single iXBRL computations file
  • putting an ‘X’ in box 656 to say you’ve submitted the claim notification form
  • putting an ‘X’ in box 657 to say you’ve submitted the additional information form
  • completing the supplementary form CT600L, if you’re claiming a payable tax credit or R&D expenditure credit
  1. Claim within Time Limits: Make your R&D tax relief claim within two years of the end of the accounting period the R&D expenditure was incurred. Also note that if your tax relief claim covers more than 12 months, you must submit a separate claim for each accounting period.

A Few Extra Considerations

When it comes to working out the financials for R&D costs and making a claim, there are a couple more things to consider.

External Investors: If your company has external investors, the staff, turnover, and balance sheets of any linked or partner enterprises may need to be included. Find out more here. 

R&D Tax Relief Advance Assurance: If you’re making your first claim for tax relief as an SME, you may be able to apply for advance assurance for your first three accounting periods. It’s a voluntary scheme to give assurance your claims will be processed without further enquiry from HMRC and is there to help businesses in their early phases of growth. Find out more here.

Final Thoughts

R&D Corporation Tax Relief offers a significant financial benefit to SMEs driving innovation in the UK. However, navigating the relief process can be intricate. By keeping comprehensive records, understanding the specifics of qualifying costs, and seeking expert advice when needed, your company can harness the full power of this incentive.

At Norwich Accountancy, we pride ourselves on guiding SMEs through the complexities of the tax landscape, helping you to capitalise on every available benefit. If you have questions or need assistance with your R&D tax relief claim, don’t hesitate to reach out. 

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What are the benefits of filing your company accounts early?

When it comes to business financial matters, there’s much to be said for getting ahead of the game. Although it’s probably not the most thrilling task on your business agenda, filing your company accounts early can provide huge advantages. 

Most UK businesses are required to prepare and file annual accounts at Companies House. But many leave this task until the last minute, rushing to meet their year-end deadline. However, an early filing strategy offers a range of benefits. Let’s explore some of them.

1. Reduced Stress

The financial year-end can be stressful, with businesses scrambling to get their finances in order and reconcile statements. By filing your accounts early, you eliminate the rush and the stress that goes with it. It ensures your business operates smoothly and efficiently, leaving no room for last-minute mistakes or oversights.

2. Better Planning and Decision Making

An early understanding of your financial position allows you to strategise for the year ahead. Knowing your tax liabilities or seeing areas of growth or potential concern can enable more informed decision-making. It allows you to allocate resources, invest wisely, or even consider business expansions with clarity and confidence.

3. Cash Flow Management

Tax obligations are often a source of worry for many companies. Finalising accounts early gives a clearer picture of any corporation tax due. This advanced knowledge can help with better cash flow management, ensuring you have sufficient funds to meet the tax bill when it’s due.

4. Mitigate Potential Issues

An early start means more time to identify and rectify any discrepancies or mistakes. If any issues need additional attention, such as discrepancies in financial statements or clarification from HMRC, you have ample time to address them without incurring penalties.

5. Enhanced Reputation

Timeliness is seen as a reflection of professionalism. Filing your accounts early can enhance your business’s reputation with stakeholders, including investors, banks, and customers. It signals that your company is well-organised, forward-thinking, and trustworthy.

6. Avoiding Penalties

Though this might seem obvious, it’s worth reiterating. Companies House imposes penalties for late filing. Missing your filing deadline could affect your credit score or access to finance. By ensuring your accounts are filed early, you avoid unnecessary fees and penalties. An early submission ensures you remain compliant and save money.

Why You Should Plan Early

At Norwich Accountancy, we always have our client’s best interests at heart. We recommend that our clients get prepared before the end of their financial year. Here’s why:

  • Personalised Attention

Coming in early allows us to provide a personalised, detailed service. It means we can spend quality time with each client, understanding their business nuances and offering tailored advice.

  • Strategic Tax Planning

We can assess potential tax reliefs, allowances, or even R&D tax credits you might be eligible for.

  • Addressing Concerns

If you have specific concerns or areas you’d like us to focus on, meeting early ensures we have ample time to delve deep. Whether that’s optimising expenses, considering new investments, or restructuring, we have the time to evaluate, suggest, and implement changes.

  • Peace of Mind

Finally, engaging with us early means one less thing on your to-do list as your financial year ends. You can focus on running your business, safe in the knowledge that your accounts are in capable hands.

It Pays to Stay Ahead

In business, as in life, it pays to have your proverbial ducks in a row. Filing your company accounts earlier than required isn’t just about compliance; it’s about harnessing the benefits that proactive financial management can bring. 

As qualified accountants and tax advisors, we’re here to guide, advise, and ensure your business financials are not just in order but optimised for growth and success. So, why wait? Let’s get a jumpstart on your accounts today.

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Our Guide to UK Corporation Tax

Navigating the world of UK business taxes can sometimes feel like wandering through a dense forest without a map. Whether you’re a business owner or just curious about how the tax works, you’ve landed at the right place. Let’s unravel the mysteries of UK Corporation Tax in this easy-to-follow guide.

What is Corporation Tax?

At its core, Corporation Tax is a bit like income tax but for companies. Every year, companies need to pay a portion of their profits to the government, and that’s what we call Corporation Tax.

Being a yearly tax on the profits generated by limited businesses and incorporated bodies it’s calculated based on the company’s accounting period, which is usually due for payment every 12 months, or 9 months in the year from 31st March depending on when your annual accounting period ends. 

Who pays Corporation Tax?

If you run a limited company in the UK – whether that’s a small business, a start-up, or a large enterprise, you’ll need to pay Corporation Tax on all your profits. This includes companies that are incorporated in the UK, as well as companies that are incorporated overseas, and have a permanent establishment in the UK.

You must pay Corporation Tax on profits from doing business as:

  • a limited company
  • any foreign company with a UK branch or office
  • a club, co-operative or other unincorporated association, for example, a community group or sports club

How much is it?

The rate you pay differs depending on the amount of profit you make.

  • If you made company profits of more than £250,000, you’ll pay the ‘main rate’ or Corporation tax, which is currently 25%.*
  • If your company made a profit between £50,000* and £250,000* you may be entitled to Marginal Relief which provides a gradual increase between the small and main rate. Find out if you are eligible here.
  • If you made a £50,000* or less profit, you’ll pay the ‘small profits rate’ which is 19%*

How is corporation tax calculated?

The formula is simple:

Corporation Tax = Taxable Profits x Corporation Tax Rate

The tricky part is figuring out what counts as taxable profits, which can include:

  • Trading profits
  • Investments
  • Selling assets (like business property or shares)

Remember, costs like salaries, business expenses, and certain allowances can reduce your taxable profits.

It’s calculated on the profits generated during a company’s accounting period after expenses, such as the cost of goods sold, salaries and rent, have been deducted. 

Deductions and Reliefs

If you’re worried about how much corporation tax you’ll have to pay, the good news is that there are a few reliefs and allowances you can use to claim against your profits like research and development allowances, relief for creative industries and capital allowances.

Find out all the allowances and reliefs here

How and when to pay?

You don’t get a bill for Corporation Tax. Instead, there are specific things you need to work out, pay and report.

To pay, you’ll need to:

  1. Register for Corporation Tax 
  2. Keep accounting records 
  3. Calculate your Corporation Tax (or hire an accountant to do it!)
  4. Pay HMRC – you can do this by Faster Payments, CHAPS or Bacs or over the phone. You’ll need to report if you have nothing to pay by your deadline. This is usually 9 months and 1 day after the end of your accounting period, which is typically the end of your financial year. 
  5. File your Company Tax Return by your deadline – usually 12 months after the end of your accounting period.

What are the penalties for not paying corporation tax?

On a more serious note, companies that don’t pay their corporation tax on time are liable to incur penalties applied by HM Revenue & Customs (HMRC). The penalties can be significant but may also lead to criminal prosecution. They also increase the longer you leave it to pay.

Current penalties are: 

  • 1 day: £100*
  • 3 months: £200*
  • 6 months: HM Revenue and Customs (HMRC) will estimate your Corporation Tax bill and add a penalty of 10%* the unpaid tax.
  • 12 months: Another 10%* of any unpaid tax.
  • If your tax return is late 3 times in a row, the £100 penalties are increased to £500* each.

If you have a reasonable excuse, you can appeal by writing to your company’s Corporation Tax office.

What if I make a mistake?

Mistakes happen. If you realise you’ve made an error on your tax return after it’s been submitted, you can amend it within 12 months. If you’re unsure, it’s always best to get advice from an accountant. To make changes you can:

  • Use commercial software
  • Send a paper return or write to your company’s Corporation Tax office.

Keeping Records

The UK law mandates that you keep records of your company’s income, costs, and other financial transactions for at least 6 years. This helps in case HMRC wants to review your tax calculation or if you need to revisit any data.

How can I find out more about corporation tax?

The government website has a lot of information about corporation tax, including the current rates of tax, how to calculate it on your profits and the penalties incurred for non-payment. 

Find out detailed information here.

Understanding Corporation Tax doesn’t need to be daunting. While there are intricacies to the process, a bit of knowledge and the help of a good accountant can make it all manageable. If you ever feel lost, remember: Your business is our business and we’re always here to lend a friendly ear and a helping hand. 

*All figures are correct at September 2023 and subject to change