Director’s Pension scheme: where the only company contributes

Director’s Pension scheme: where the only company contributes

Zyla Accountants cannot give any advice for investing in any particular pension scheme or plan since we are not authorised to provide Investment advice. Stated below are the tax benefits and advantages in contributing to a pension plan from the company. 

Advantages of setting up pension contributions by the company: 

  • Not taxable on the pension scheme member on their personal tax return
  • Not restricted by the member’s relevant UK earnings in the tax year
  • Counts towards the member’s annual pension allowance of £40k per year but you also have to include all payments (employer and employees) into any other pensions you hold while calculating the total contribution
  • Usually, deductible expenses for the business when calculating its taxable profits, saving 19% corporation tax in 2021-22 on pension contributions
  • There is no Employers National Insurance of 13.8% to pay on pension contributions which have to be paid on salaries. Hence the saving overall is 32.8%. 
  • Contribution to the scheme cannot exceed the earnings of the company in that financial year

A popular pension scheme is SIPP: Self Invested Personal Pension Scheme. Many providers like Aviva, Pension Bee, Hargreaves Lansdown etc offer pension plans. 

The main advantages are you can control the investments, offer you the flexibility to choose the assets the fund invests in and the ability to manage your deductible portfolio if you wish. 

Withdrawing money from pension scheme on reaching age 55:

Most personal pensions set an age when you can start making money from them. It’s not normally before 55. You can take up to 25% of the money built up in your pension as a tax-free lump sum. You’ll then have 6 months to start taking the remaining 75%, which you’ll usually pay tax on.

HMRC link for further information: https://www.gov.uk/personal-pensions-your-rights/how-you-can-take-pension

Tax advantages on pension are shown below as examples with an efficient structure: 

Director Annual 

Salary

Annual Dividend Pension* Combined
£ £ £ £
Annual Income 8,840.00 6,000.00 5,000.00 19,840.00
Employers NI 13.8% 0.00 0.00 0.00 0.00
(No employers NI to £8840)
Employees NI (No EEs NI) 0.00 0.00 0.00 0.00
Tax on salaries 1257L code 0.00 0.00 0.00 0.00
Tax on Dividends – £2k not taxable and balance @7.5% tax                -300 -300
Net to Director 8,840.00 5,700.00 5,000.00 19,540.00
Pension*
£5000 is set as Employer only contribution pension plan where the company contributes. Deductible expense from business income for Corporation Tax.

£[email protected]% = £950.00 tax saving.

There is no tax to pay on Self Assessment on the Pension contributions

 

Useful links:

For more information, contact Zyla Accountants:

[email protected]

+44 7535 6176 81

SMEs’ most prevalent issue is cash flow: How to solve it?

SMEs’ most prevalent issue is cash flow: How to solve it?

Good cash flow management keeps a business above water, whereas poor cash flow can sink it. Cash flow is a big issue among SMBs in the UK. As per a study done by Intuit QuickBooks, Roughly 57% of UK entrepreneurs have encountered issues with cash flow. What’s more, 38% of SMEs have had cash flow issues that have left them incapable of paying their debts.

Cash flow is the amount of money coming and going out of your business. Cash flow is a vital need for the growth of any business and late payment are the principal factor compelling entrepreneurs to not have the option to put resources into their own business. 

Delay in payments can likewise affect the organisation’s financial risk profile, which can influence their potential to get loans from banks and make it harder to persuade investors.

What are the common cash flow issues and how to solve them?

When entrepreneurs need to worry over how they will discover the cash just to keep surviving, it makes it difficult to boost efficiency. Consistent cash flow can ease pressures, and assist with focus on core business exercises. Here we have talked about all such cash flow issues that a business faces and how you can solve them to thrive?

Poorly Managed Accounting Records 

Numerous entrepreneurs put their accounting aside since they’re so occupied with the responsibility of doing core business activities. That is reasonable, however, when books aren’t managed properly, upsetting occasions will undoubtedly arrive. 

At the point when an organisation begins to fall behind with handling its bills, invoices and data entry; they will see their cash running out at a fast pace. 

Leveraging a professional accounting services specialist can help you save time and effort on managing your books with accuracy. The specialist will invest energy reconciling the ignored invoices to appropriately figure out what cash is owed and what is due.

The specialist would then be able to invest energy in helping you install a powerful system, which means a more grounded cash flow. 

For most organisations, the best approach to get the books managed is by utilising bookkeeping software and staying up with the latest. The approach of Making Tax Digital means that firms should use the compliant tools and the specialist can give guidance regarding it. 

Neglected Credit Terms

When the credit terms you have made for your clients are out of sync with the credit terms set by your providers, cold cash flow can develop and affect adversely after some time. For instance, if your clients have 30 days to pay you, however, your providers need to be paid within 14 days, a problem of the cash flow will undoubtedly occur. 

The answer in this circumstance would be to reevaluate terms with your clients and additional suppliers. However, it isn’t easy and possible. In cases like these, there are a few things you can do.

  • Factoring – This is the place where a financial institution loans your business transient cash that is gotten against the worth of the invoices you have generated. 
  • Early Settlement Discounts – Provide early settlement discounts on your invoices which will give your clients an incentive to pay you early.

Bad debts

Figures from Bacs, the organisation that runs Direct Debit, show that UK SMEs are confronting a bill of £2.16 billion to pursue late payments. The absolute obligation total debt remains at £14.2 billion and 39% of organisations are going through up to four hours per week pursuing these invoices.

Bad debts can be devastating for a company and can happen easily if an appropriate credit control framework isn’t set up. A credit-control framework is a process a business uses to gather cash owed by its clients. It is fundamental that you set up an exhaustive credit control framework when starting up a business.

Inaccurate cash flow forecasting 

Poor cash management forecasting can leave your business accounts empty and force you to make wrong decisions about whether to cut expenses or not. 

After a proper cash flow forecast, you’ll have the option to see which months you can hope to see a cash deficit, and which months you can anticipate an excess. You’ll likewise have the option to find out how much cash your business will need for the coming year.

Recently, Zyla Accountants partnered with Fluidly to help SMEs solve their cash flow issues and get instant funding anytime. We can pair you with the UK’s top lenders to get you instant funding grants.

How Zyla Accountants can help you?

To guarantee your firm isn’t losing cash and to keep a solid cash flow, approaching a certified expert is an excellent idea. Zyla Accountants have been helping SMEs to understand their cash flow issues and driving solutions to flourish in their industry. 

Contact us today to know more!

+44 7535 6176 81  

[email protected]

 

MTD for ITSA: 10 myths busted

MTD for ITSA: 10 myths busted

Making Tax Digital (MTD) is the HMRC initiative intended to get all organisations, whether small or large and people to begin keeping their bookkeeping and tax records on a computer. The process to get organizations to report everything to do with tax electronically and get everything back the same way is going at a fast pace. 

Fundamentally, this isn’t just about filling in forms. The records that back up VAT and tax returns should be computed through proper accounting software and the tax returns should be reliant on those records.

Recently there was a study conducted by accounting software company FreeAgent, that revealed just 14.6% of bookkeepers and accountants are sure that they know everything about all stages of Making Tax Digital (MTD) and its effect on the UK tax framework.

Everybody knows that in 2023, MTD will be allowed for Income Tax Self Assessment (ITSA) as well and it’s significant to shed some light on myths and bust them so that people would understand the necessity to go electronic. 

Myth #1: MTD for ITSA means 4X workload on accountants & bookkeepers 

While a few bookkeepers and accountants may see MTD for ITSA and the shift from yearly to quarterly recording as an increment to their responsibility, this will not really be the situation. While the work is going to increase undoubtedly, as pursuing clients to go digital with their information and reconciliation. 

With the transition to quarterly digital tax recording, accountants & bookkeepers will actually want to urge their clients to utilize MTD-viable bookkeeping software to handle and even automate a portion of tedious tasks. 

Myth #2: Software companies are leading the initiative 

MTD is a drive that plans to change and digitize the UK’s tax framework. It is HMRC’s vision to make it simpler for entrepreneurs, landowners, individual taxpayers and self-employed individuals, to get their taxes accurate. While software firms are working closely with HMRC to foster software solutions, they’re not leading the initiative. 

Myth#3: MTD can be handled only by accountants and bookkeepers 

Although, it is advisable that with the help of an accounting & bookkeeping services firm, you can get peace of mind as your tax returns and bookkeeping tasks will be handled by certified experts, but it is nowhere mentioned that you need a certified accountant only concerning MTD for ITSA.

Myth #4. Free MTD-compatible software alternatives aren’t available 

It’s just a myth that all MTD-compatible software charge money from their users. 

Did you know, as a feature of their business current account services, Royal Bank of Scotland, Ulster Bank NI and NatWest offer the FreeAgent software (full version) totally free to every business current account holder. 

Myth #5. MTD for ITSA will put a load on my pocket

MTD for ITSA will probably enhance your responsibilities as you invest more energy in communications and encourage them to set up MTD-viable software. 

You may be hesitant to change your pricing model to quote the additional work engaged with the shift to quarterly recording and MTD-related workload. But, it’s completely sensible to add this additional work in your pricing model as it’s probably going to affect how long you’ll pay attention to other client work.

Myth #6: It’ll damage relationships with Clients 

When you’ll move towards annual to quarterly, it’ll take time to adjust from the client’s side. You need to tell them about all the advantages and disadvantages that will accompany the new process. When there’ll be open and unbiased communication, the chances of harming relationships will get less. 

Myth #7: Not much difference between spreadsheets and a bookkeeping software

When your SMB clients utilise spreadsheets to deal with their records, they could be investing undeniably more energy and time than they need to on their everyday tasks. Clients who keep up digital records can achieve efficiency in their cycles and also get a clear view of their business finances and transactions. 

Myth #8: It’s absolutely impossible to share information among the various software needed to agree with MTD for ITSA

Software firms are working closely with HMRC to make sure that information can flow easily without any hindrances between systems and make working effortless for clients with different sources of income. 

Myth #9: MTD for ITSA isn’t that beneficial for clients

While MTD for ITSA will bring a change to how you work with your clients, there are still a number of benefits for them. For example, by keeping their accounting records in order throughout the tax year, your clients can avoid the sudden rush to meet their filing deadlines.

How easily clients will adapt to this new way of working may depend on the software they’ll use. MTD-compatible software can provide your clients with a clearer picture of their business finances without any confusing jargon. 

Myth #10: It’s not possible to get ready on time

Getting your team ready for MTD for ITSA as quickly as possible will place you in an advantageous position in the market before April 2023. This may feel like a test, especially in the case when you have a huge client base.

To sum up:

MTD for ITSA will be perhaps the greatest change to the UK tax framework, influencing both practice and their clients. It’s advisable if you start doing your research and begin preparing for this in advance. 

Zyla Accountants continue to build on excellent reliability for giving top Accountancy & Taxation Advice. Get in touch with our certified experts!

 +44 7535 6176 81

[email protected]

Also read: Changes to the furlough scheme from 1 July 2021: What you should know

 

Changes to the furlough scheme from 1 July 2021: What you should know

Changes to the furlough scheme from 1 July 2021: What you should know

The Coronavirus Job Retention Scheme is due to end on 30 September 2021. In order to phase out the scheme as we approach the end of September, the level of government grant will reduce and the amount employers need to contribute towards the cost of furloughed employees’ wages, will increase in stages.  

From 1 July 2021, the level of grant will be reduced and employers will be asked to contribute towards the cost of the furloughed employees’ wages.

To be eligible for the grant employers must continue to pay their furloughed employees 80% of their wages, up to a cap of £2,500 per month for the time they spend on furlough.

The table below shows the level of government contribution available in the coming months, the required employer contribution and the amount that the employee receives per month where the employee is furloughed 100% of the time.

Wage caps are proportional to the hours not worked.

Employers can continue to choose to top up employees’ wages above the 80% total and £2,500 cap for the hours not worked at their own expense. 

For more information, contact Zyla Accountants:

+44 7535 6176 81 or

Email us: [email protected]

 

Personal and Business Tax changes that might affect you in the Tax year 2021-22

Personal and Business Tax changes that might affect you in the Tax year 2021-22

The 2021/22 tax year began on 6th April 2021. This blog has been written to highlight the main changes affecting individuals and businesses. 

Personal Tax and allowances

The amount you can earn before paying any Income Tax –  increases to £12,570 for the 2021-22 tax year (up from £12,500 in 2020-21) though only a small increase of £70 for the year. Anyone individual earning anything below £12,570 is not liable to pay any tax for 2021-22.

The threshold for paying the Higher Rate of income tax (which is 40%) also increases to £50,270 (from £50,000 in 2020-21). Both of these thresholds will then be frozen to 2026. The Personal Allowance is reduced by £1 for every £2 earned over £100,000.

The above are for the whole of the UK – except Scotland where the thresholds are slightly different. 

Dividend Allowance

There is no change to dividend tax rates or to the Dividend Tax Allowance for dividend income in the 2021-22 tax year. They remain the same as for the 2020-21 tax year. 

  • The tax-free dividend allowance is £2,000 – 0% tax 
  • Basic-rate taxpayers pay 7.5% on dividends
  • Higher-rate taxpayers pay 32.5% on dividends
  • Additional-rate taxpayers pay 38.1% on dividends.

Student Loans

From 6 April 2021

  • repayment threshold for pre-2012 (Plan 1) loans will rise to £19,895
  • repayment threshold for post-2012 (plan 2) loans will rise to £27,295 
  • repayment threshold for Postgraduate loans continues to be £21,000

Workplace pensions (auto-enrolment)

There are no changes to the minimum amount paid into an employee’s auto-enrolment workplace pension. Employee’s minimum contribution stays at 5% and the Employer’s at 3%. This means the total amount of employer and employee contributions remains a minimum of 8% of employee’s qualifying earnings.

Capital Gains Tax

The Capital Gains Tax annual exempt amount for individuals remains at £12,300 for the 2021/22 tax year and will be frozen at this level until 2025-26

Corporation Tax

Tax payable on company profits remains at 19% for the 2021-22 tax year, but at the March 2021 budget, the Chancellor has announced plans for a rise in the rate of Corporation Tax to 25% from April 2023. 

From April 2023 there will be a new small profits rate of 19% for companies with profits of less than £50,000 with a tapered increase to the rate as profits increase. 

Businesses earning profits over £250,000 will pay the main rate of 25% from April 2023.

VAT thresholds

Registration limit for Businesses exceeding the VAT taxable turnover is £85,000 and remains unchanged in 2021-22. Above this limit VAT registration is compulsory. These tax thresholds operate on a rolling 12-month period

  • 20% Standard rate applies to all VATable supplies 
  • 5% reduced rate : From 15th July 2020 to 30th September 2021, a reduced rate of 5% VAT will apply to supplies of food and non-alcoholic drinks from restaurants, pubs, bars, cafes to support the pandemic impact. 

From 1st October 2021 to 31st March 2022 rate increases to 12.5%.

  • 0% rate: Applied to some goods and services, such as food or children’s clothing

Personal pensions

The tax-free amount you can pay into a personal pension remains at £40,000 for the 2021-22 tax year. Lifetime allowance for pension savings also remains at £1,073,100 and will be frozen until the year 2026. The lifetime allowance is the maximum amount of tax relieved pension savings that an individual can build up over their lifetime. 

The maximum tax-free lump sum that an individual can normally have is 25% of their pension rights subject to an overall maximum of 25% of the standard lifetime allowance

Hope this gave you some insight and for further queries please contact [email protected]

Making Tax Digital (MTD) for VAT Returns: Getting started with XERO

Making Tax Digital (MTD) for VAT Returns: Getting started with XERO

MTD is an HMRC service that needs companies to have digital records and ask for VAT returns filing by utilising proper software. Making Tax Digital is an incredible help for businesses to move digital. It is obligatory for most organizations with an available turnover over the £85k VAT limit however discretionary for those beneath the threshold. This is a huge chance to move the accounting work of your business to cloud-based accounting tools. 

You should know that from April 2022, every single VAT-registered company will have to follow the MTD for VAT returns. Moreover, HMRC also declared that from April 2023, self-assessment taxpayers will be responsible to strictly adhere to Making Tax Digital guidelines for Income Tax. 

Advantages of Making Tax Digital

There are multiple advantages of HMRC’s MTD on XERO software, some of them are: 

  • Expanded business efficiency: As per the Lloyds Bank UK Consumer Digital Index 2019, going digital could save one day of the seven days of business organization 
  • Less desk work 
  • Options to divert staff to other business work.
  • Option to see tax information even on cell phones
  • Decreased pressure and stress with regards to documenting tax returns 
  • More prominent precision and fewer blunders when submitting tax returns 

How to set up for MTD on XERO?

Here we have talked about the stages to set up MTD in the XERO accounting software. 

#Stage 1: Sign Up for MTD with HMRC for VAT returns 

You will have to apply with the HMRC, this is done on their page online and normally takes between 48-72 hours to get finished. You’ll get an email from the HMRC to tell you that everything has been set up effectively. Try not to file your VAT return until you have that affirmation.

When your annual income for any one-year time frame hits over £85,000, you need to enrol for VAT or the HMRC may automatically enlist you. Ensure you’ve got the complete details of the business you are enrolling for and the Government Gateway ID and Password. 

#Stage 2: Integrate your software with HMRC for VAT 

When you start configuring XERO with HMRC for your VAT returns, ensure you have the below-mentioned things in your hands:

  • The affirmation email from HMRC saying that you have been moved over to the MTD. 
  • The Government Gateway ID and Password 
  • Verify whether your VAT number in your Xero Financial Settings is right. 

Now, you’re prepared to arrange MTD in Xero. Just Log in to your XERO accounts and choose the VAT return and set it up. Also, don’t forget to connect it with HMRC and grant authority. 

Stage 3: Checking MTD for VAT Returns in the software 

Now that you’ve set up everything. Just go through your dashboard once, it will be your XERO homepage dashboard. Check all the VAT Returns and which ones are due. You will get notifications on your mobile phones and emails from XERO regarding your deadlines and other things. 

Closing Note: 

As we have also said above, you can save money related to MTD because of the decreased measure of time needed to plan manual tax returns and less paperwork. Indeed, there are some extra costs that MTD may force on firms, including the expense of viable software, like-  XERO (for record-keeping) but that is not a big amount.

Get in touch if you need help setting up! 

Call us on +44 7535 6176 81 or email us at [email protected]

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