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:
|Employers NI 13.8%
|(No employers NI to £8840)
|Employees NI (No EEs NI)
|Tax on salaries 1257L code
|Tax on Dividends – £2k not taxable and balance @7.5% tax
|Net to Director
|£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
For more information, contact Zyla Accountants:
+44 7535 6176 81
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.
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
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
Also read: Changes to the furlough scheme from 1 July 2021: What you should know
“ICAS has published its report Tomorrow’s Tax Administration.”
Good tax administration is essential, even though it may not feature at the top of many political wish lists. It has a role to play in fulfilling the UK Government’s ambition for an open, business-friendly economy post-Brexit. If society as a whole does not trust the tax system because it does not function properly, voluntary compliance is undermined and the consequences for government revenues are serious.
The Government needs tax administration to work effectively, to deliver the money it needs to pay for COVID recovery and to fund ambitious initiatives around tackling climate change and levelling up. Based on our Members’ experience – working in business, and in practice as agents – a more effective and taxpayer-friendly tax administration should be an urgent priority for the Government.
HMRC’s functions have expanded beyond ‘pure’ tax in recent years but its resources have not kept pace and are insufficient to cover all its responsibilities adequately, even in ‘normal’ times. Events, such as Brexit or the pandemic, rapidly lead to significant problems with service levels. Funding for the digital systems required to modernise the tax system in a way that works for taxpayers has also been inadequate and needs to be increased.
In 2020, the Government published its 10-year strategy for creating a tax system ‘fit for the challenges and opportunities of the 21st century. ICAS is broadly supportive of the three key strands of work that make up the strategy: the extension of Making Tax Digital, exploring tax payment mechanisms and reform of the tax administration framework. However, timely delivery will be critical; this will require the provision of adequate HMRC resources and the funding to build an integrated digital tax infrastructure.
The 10-year strategy is about the future but there is an immediate need to address the poor service levels, patchy digital systems and problems which cause issues for taxpayers and agents on a day-to-day level. Pushing ahead with major, complex projects, like Making Tax Digital, whilst failing to ensure that basic tax administration works properly for everyone who has to engage with it, is unacceptable and will not deliver what the Government or taxpayers need.
We have called for urgent government action to address problems in ten areas of tax administration that are impeding the smooth running of the tax system.
Tomorrow’s Tax Administration: top ten priority areas for action:
- Powers and safeguards – striking the right balance
- Facilitating the work of agents in supporting their clients
- Supporting high standards for all agents
- Swift access to the right HMRC support and expertise
- Meeting the standards set out in the new HMRC Charter
- Making Tax Digital – making it work for businesses
- Personal income tax – roadmap required
- Support and access for the digitally excluded and digitally challenged
- A user-friendly legislative framework
- Tax Simplification”
For more information, contact us at:
+44 7535 6176 81
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]
The vast majority will agree that kids benefit from having parents around, particularly in their early years. However, with regards to equal parental leave, proof shows fathers might be failing to do so. Moms in the UK can move 37 weeks of parental leave to their spouses. However, they lose this from their own rights meaning the two parents can’t take it together. Now, it becomes a problem.
Equal parental leave helps both parents to bond together with their children and raise them in an ideal way. That is why it’s essential to offer six months of paid parental leave, regardless of somebody’s gender, sexuality or whether they’ve adopted or given birth, to make the policy outstanding in the UK.
How did John Lewis do their part in achieving the goal?
The John Lewis Partnership (JLP) has started offering the same level of parental leave to the workers. It is the most recent British business, and the top retailer to do so.
This company will offer the entirety of its 80,000 labour force a half year’s paid parental leave, in a move invited by equality campaigners who contended the UK government’s present shared poorly crafted parental leave policy.
Dame Sharon White (Chair of the John Lewis Partnership), “We want to be there for our partners to support them in important life moments, whether that’s stepping into the world of work for the first time, or becoming a parent,”
Beginning from this Autumn, newly become parents who have worked with the organisation for over a year will get 26 weeks paid leave, with the initial 14 weeks at full salary and the following 12 at half pay.
Adrienne Burgess (Joint chief executive of the Fatherhood Institute) said: “It’s great to see John Lewis joining the ranks of top employers giving each new mother and father individual entitlement to well-paid leave for parenting. Top employers like John Lewis are leapfrogging the government’s failing shared parental leave system to give families what they really want and need.”
What can small businesses do?
Employees should enjoy coming to work every day and not be too worried over their responsibility or deadlines they need to meet.
We firmly believe that an equivalent paternity leave strategy will permit them to feel satisfied and ensure they positively deal with the physical and mental health of both themselves and their families. It helps in enhancing work-life balance and improves the productivity of your employees.
Time given to work is just about as significant as the time given to family, which is the reason we need the dads and moms to have the chance to bond and invest satisfactory energy with the kids, particularly when they are babies.
Accomplishing gender balance
In order to achieve gender equality, we should initially allow and uphold men to co-parent and offer childcare duty. A study done by Jobbio shows that 84% of new dads accept there isn’t sufficient training around paternity leave while just 49% of fathers took their assigned paternity leave in 2017.
Offering equivalent parental leave to all parents permits to get better gender equality in the work environment while additionally helping make it the standard for fathers and mothers to get a more dynamic part in their child’s lives. Moreover, it additionally permits moms to be liberated from that traditional job and stereotype within the society.
Firms must make sure that their workers are aware of their benefits and know that leveraging these benefits won’t hurt their career growth inside the firm. Employers must talk about the leaves to bond with new children and guarantee they have all the help they need while doing as such.
Zyla Accountants feels immensely proud to offer equal parental leave to both parents. We understand the availability of both parents in a newborn’s life.
For more information, contact us at:
+44 7535 6176 81
Also read: Zyla Accountants partnered with Fluidly
We’re excited to be partnering with Fluidly to help you obtain the business funding you need. Zyla Accountants and Fluidly will work together and help organisations of all shapes and sizes with one objective: to help entrepreneurs take responsibility for their financial future to stress less and work better.
We will help make cash flow forecasting less complex and work with organizations to get the cash they need. We will pair you with the UK’s top lenders to get you pre-qualified funding grants in merely 30 seconds.
What is Fluidly and how cash flow forecasting helps businesses?
Fluidly is a multi-award-winning firm established in 2017 by businessman Caroline Plumb OBE, who wanted to give a solution for an issue all entrepreneurs know well: cash flow management. From being named Xero’s application of the year to various listings in the FinTech 50. Fluidly has been granted a £5m BCR award for their innovation, and have raised over £12m investment.
Fluidly has partnered with 500+ accounting firms (including top 100 practices) and over 30,000 companies to help make cash flow forecasting more manageable.
They help you manage the money in business with comfort, so you can easily understand your cash position and get access to the finance you require instantly.
Why is cash flow forecasting important?
Cashflow management is an integral function for sustaining a business. However, in the middle of the daily work of maintaining a smooth business workflow, your cash circumstance can go ignored, particularly when you’re feeling an overload of work. In tough times, key regions which can cause cash to plunge include:
- Late payments
- less demand of your product or services
- The fluctuating expense of materials
- Bad tax planning
- An excess of stock
You can utilise a cash flow forecast to anticipate when your business could run out of cash; so you can decide in advance, such as reducing expenses or applying for a loan. A forecast permits you to make the right decisions at the right time and ensure the cash you are supposed to get and payout within the specific time period.
How this partnership benefits the end client?
Zyla Accountants put stock in delivering reliable and personalised accounting & bookkeeping services that positively affect your business. They’re not only here to ensure you’re fulfilling your accounting deadlines – they likewise assist you with working your funds in a more proficient manner, so you can develop your business certainly and sustainably. The flexible and modern accounting approach makes Zyla Accountants a dream to work with. They approach each accounting task in detail and expect to answer all queries within 24 hours, so your work never stops.
Whether you’re searching for invoice finance or a government-backed Recovery Loan, Fluidly and Zyla’s specialists will work alongside you to ensure you receive the finance you lack at the right time for your business.
Fluidly has a goal to help companies work better by eliminating their cash flow stresses, and this partnership will give thousands of organisations access to the right funding to help them thrive.
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.
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.
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
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.
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
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]
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.
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]
The coronavirus pandemic has shaken and changed a large number of our centre beliefs. Previously, working from home was not common practice for small businesses. However nowadays, having a solid wifi connection and a fast operating laptop, an employee could be sitting on the opposite side of the world and be as productive as in the office pre-pandemic.
Working from home has its own multiple benefits. Staying away from the daily drive sets aside your employees time and cash and gives them greater adaptability to plan their work in their own style. The efficiency benefits are incredible for accountants too as long as the wifi connection is uninterrupted!
Another great idea for Directors of limited companies is to charge rent to the business as the cost of working from home in order to save on Corporation Tax.
How does it work?
Those who run their own limited company know the difficulties they face related to various overhead costs. Charging your business rent won’t add to the costs further but help you save money while filing taxes.
In case you’re a limited firm, you’ll save corporation tax at 19% (current rate) and have the option to pull out this money tax-free from the firm. Indeed, there are a few things you need to do to set up this. You need to set up a contract between you (the property holder) and your limited firm. This commercial contract must justify all the amounts included.
How to calculate the rent?
When you utilize your home in a significant manner to do your work, you can charge for any costs brought about. Nonetheless, you should have the option to prove every claim. Dissimilar to the rules which exist for sole traders, you can just claim the additional costs brought about because of remote working.
Remember, any costs you would have borne in any case by the actual idea of running a house can’t be claimed. Just like those expenses which have both individual and business use; however, can’t be isolated.
You can work this out by determining the expense of suitable costs, for instance – gas, power and water; as per the number of rooms you have on your property and the time you spend working in them. As a limited company director, you can’t claim for any fixed expenses because HMRC says that you would have needed to pay for these at any rate; like Rent, Mortgage Interest and Council Tax.
You can just claim for the expense of broadband and phone bills if the bills are under your company’s name. If your bills can show specific sums were caused absolutely by the business, you can claim them effortlessly.
A formal contract with your own company
Alternatively, you may opt for a third option – drawing up a rental licence between you and your own limited company.
This must be a commercial agreement, based on your real working arrangements, and ‘market rent’ must be paid. With this in mind, it may be worth your while asking a local estate agent to provide you with a formal rent valuation.
You should take care when drafting such an agreement (clearly we recommend you seek the help of a professional), and be able to justify the amounts involved.
Although your company will receive tax relief on the rental payments, you will incur personal tax on the rent received when you fill in your annual self-assessment return. If you co-own your home, then when it comes to tax return time, the rent must be split according to the proportion of your home each person owns.
Costs that don’t need justifications
Assuming you just work remotely sometimes, HMRC permits your company to pay you nominal costs to take care of the overall costs you may cause. Your limited company must compensate you (the worker) £6 each week or £26 each month to take care of ‘use of home’ costs. This pre-concurred total doesn’t need to be approved.
You know, this may appear to be a small amount but when you charge this each month, it becomes £312 each year. A total which usually would be dependent upon Corporation Tax, and afterwards personal taxes whenever taken some other way.
To sum up:
Please talk to an accountant before doing all that as it can be a mind-boggling task for you.
Try not to utilize any room in your home all the time for business work as this could lead to capital gains tax issues. Also, ensure if running a business from home goes against your home insurance policy or not.
Also, compare the sum you are charging your business with local market rates for similar office space; it will guarantee you are not essentially charging more from your business.