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Key Changes for 2019/20 Tax Year

There are numbers of changes that will affect the personal and business taxes for 2019/20. We have endeavored to highlight some of the key changes coming into effect from 06th April 2019.

Personal Tax

  • Tax-free amount or Personal Allowance will increase from £11,850 to £12,500 in year 2019/20.
  • The higher rate of tax @ 40% will now be paid on income on £50,000 or more rather than current threshold of £46,350.

Dividends Tax

Tax-free Dividend allowance of £2000 has sustained for tax year of 2019/20. Having said this, with higher threshold set for Higher Tax Rate to be applied on income, it will now be possible to take extra dividends before having to pay the dividend tax at higher rate.

Changes in Minimum Wages

From 01st April 2019, hourly national minimum wage for UK adults aged 25 or more will be increased from £7.83 to £8.21. For other changes to national minimum wage, please visit Gov.UK.

Expert Tip* by UGS Accountants!

With above changes in mind, UGS accountants suggest the following tax efficient amounts to be withdrawn by Ltd company directors (for individuals with no other source of income):

Salary: £8,632

Dividends: £41,368

Estimated Tax Liability: £2,662.50

We strongly suggest that you contact UGS accountants for individually tailored advice best suited to your personal and business circumstances before planning your salary and dividends withdrawals.

At UGS Accountants, we offer specialised advice and support to new and developing small businesses. We recognise the importance of how different each business and its needs can be. For this reason, we proactively work with you to make the structuring of business, preparation of your accounts, bookkeeping, VAT and tax return a highly beneficial process, not merely a statutory one.

*Please see HMRC website for Scottish Tax Changes

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Making Tax Digital

Introduction

Making tax digital or MTD is UK government initiative to digitise the way tax is administered by HMRC. MTD aims to bring ease to the process of managing taxes for individuals and businesses. This would not only help businesses to stay on top of their tax affairs but also create a digital link between the transactional processing, recording keeping and tax returns submission to HMRC.

What is Changing?

Currently, businesses can choose to keep their records either manually or digitally and then submit various kinds tax returns using a commercial software or using the HMRC online system. However, from 1 April 2019, this would change. During the first phase of MTD implementation, HMRC would require VAT registered businesses to prepare and submit their VAT returns using a MTD-enabled Software. Legally speaking, HMRC has issued a VAT Notice which makes the 1 April 2019 as official date when MTC comes into effect.

Summary of Key Changes:

Some of the key changes that will come into effect on 1 April 2019 are as below:

  • Businesses with turnover of £85,000 or over – current VAT threshold – will be affected by the initial MTD changes.
  • There will be no immediate requirement for Businesses to keep digital records and file other tax returns such as Corporation Tax return until April 2020. Further details concerning this shall be potentially issued by HMRC in a due course.
  • Some businesses with not-so-straight-forward business affairs  have been given the extra time until October 2019 to join the MTD for VAT filing.

What are the new Requirements under MTD?

Brief summary of the new requirements are as below:

• Businesses will be expected to maintain digital business records

• VAT returns shall be filed using the MTD-enabled software.

  • There is no requirement to keep the digital records in onc centralised digital location.
  • Digital link is mandatory between different digital systems or software used for record keeping and VAT filing.
  • Complying with MTD is a legal requirement and hence businesses don’t have the option of opting out of it.

What records are required to be kept Digitally?

There is nothing significant that is changing in terms of what records shall be kept in our view. It is rather a transition from manual to Digital and from scattered records to a more connected and centralised system of business record keeping.

The following records must be kept digitally via the digital system (if you use one) and MTD-enabled software:

  •  Designatory data:
  •  Business name.
  •  Address of your principle place of business.
  •  VAT registration number.
  •  A record of any VAT accounting schemes used.

When you make Sales:

The time of supply.

The value of the supply (Net excluding VAT).

The rate of VAT charged.

When you make a business Purchase:

The time of supply.

The value of the supply.

The amount of input tax that you will claim.

VAT Return Summary or Filing Data:

  • Total value of output tax due
  • Total value of output tax due on acquisitions from
  • other EU member states.
  • The tax payable on behalf of your supplier under a reverse charge procedure.
  • The tax that needs to be paid following a correction or error adjustment.
  • The input tax claimable from business purchases.
  • The input tax allowable on acquisitions from other EU member states.
  • The tax reclaimable following a correction or error adjustment.
  • Misc. adjustments (VAT related).

How will my business be affected?

There are number of changes that would occur after the implementation of MTD. Most vitally, all businesses within the scope of MTD as of 1 April 2019 should ensure that they are using a MTD-enabled software for digital record keeping and VAT Filing. Any businesses that are currently using manual or excel based accounting system shall review switching over to a digital platform.

HMRC has compiled a list of MTD-enabled software for businesses. You can access it here to check if your existing software is on the list or to choose a suitable solution for your business.

At UGS Accountants, we offer specialised advice and support to new and developing small businesses to meet the new MTD requirements. We have extensive experience in using MTD-enabled software such as Xero, Sage one Cloud and FreeAgent and our advisors can help your business set up your VAT records on MTD-enabled software. We recognise the importance of how different each business and its needs can be. For this reason, we proactively work with you to make the structuring of business, preparation of your accounts, bookkeeping, VAT and tax return a highly beneficial process, not merely a statutory one.

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Corporation Tax – Loss Relief Claim

It is a routine thing for businesses operating in today’s competitive markets to suffer a setback of declining sales or losing customers to a competitor due to varying reasons. The ultimate financial consequence of these setbacks is the loss incurred by the business. Loss relief claim for corporation tax purposes can be real help during a dismayed situation like this.

This relief can be claimed in two ways. One way is to offset the loss amount against the past profit (previous accounting period) made within the same business (not just same trade)*. Another way is to carry it forward to offset it against the future profits. The amount of loss carried back or forward is called the adjusted loss.

Following example demonstrates the way adjusted loss is used for corporation tax relief:

Profit for year ending on 30th Apr 2018£15,000
Corporation tax at 19%£2,850
Lose incurred for the year end on 30th Apr 2019(£2,500)
Carryback of above loss to the year end on 30th Apr 2018(£2,500)
New/amended amount of profit for year-end 30th Apr 201812,500
Corporation tax at 19%2,375
Corporation tax repayment due £475

HMRC sets the time limit to claim the loss relief for corporation tax as 2 years after the end of relevant accounting period unless you are claiming Terminal Loss Relief. Our next blog Corporation Tax – Part 4 will cover the topic of Terminal Loss Relief.

Claim Process 

The process of claim is to either carry it back to April 2018 and offset it against the profits. Alternatively, you can choose to amend the original return and bring back the loss incurred in April 2019.

One vital point to be noted here is about the total amount being claimed under loss relief. In the case where total amount of loss incurred is more than the profits made in prior year, it is possible to claim the part amount and carry the remaining forward to next accounting periods.

*Please note that since 1 April 2017, it is possible to claim loss from one trade and offset it against the profits from another trade, in the same accounting period, carried out under the same limited company. It was not allowed prior to 1 April 2017.

At UGS Accountants, we offer specialised advice and support to new and developing small businesses. We recognise the importance of how different each business and its needs can be. For this reason, we proactively work with you to make the structuring of business, preparation of your accounts, bookkeeping, VAT and tax return a highly beneficial process, not merely a statutory one.

Read more