Sunday 12 December 2010

Planning to maximise your tax credits income if you are in business

Did you know you can plan your tax credit income if you are in business in order to minimise the income from year to year?

For example, if you are a sole trader or in a partnership you could make a capital purchase (e.g. a van) just before your accounts/tax year end. This will reduce your taxable income used for tax credits purposes, by the cost of the purchase.

Alternatively you could make a pension contribution. Again this reduces your taxable income by 125% of the actual pension contribution.

Or you could utilise old business tax losses from bad trading years in the past on the same business; also any current year business losses can be used to offset against your other taxable income or even against your partner’s taxable income (unlike for income tax where every person’s income is considered on a stand alone individual basis – for tax credits, joint income is taken).

All of these will impact on your taxable profits on which tax credits will be based. And the lower of last year’s or the current year’s income is used to calculate the tax credits figure (subject to a £25,000 disregard this tax year, £10,000 next tax year), meaning that if you have one particularly low year of taxable income, that could be used for the tax credits income figure for two years, maximising your tax credits income!

We recently helped someone to recover 98% of the full value of their capital purchase of diagnostic equipment for their new car service business; 20% tax refund, the rest, 78% from tax credits, half in the last tax year, the other half in this tax year.

Want to know more? Give us a call to see how we can help and plan to maximise your tax credit income from planning your business affairs. Contact Jan on 07890 239442

Tuesday 5 October 2010

Are you in business and losing out?

Could you be claiming tax credits and you don’t know it?

In my experience many business owners are losing out on tax credits.

Tax credits aren’t only just for people with children, what people know as family tax credits.

Tax credits are also for people on low income without children; these are known as working tax credits and are for people in work.

For example, you could be losing money in your business and therefore have no taxable income for tax credit purposes and possibly therefore be eligible for maximum tax credits or simply have a large drop in profits to a point where you are eligible for some working tax credits. We come across this situation all the time.

Another situation is where you have just started up in business and invested a lot of your own money in the business. This is very likely to be all allowable as a cost for tax credits purposes and is likely to generate a loss and therefore nil income for tax credits purposes.

In both the above cases you could be entitled to maximum tax credits (for a couple this could be nearly £4,800, where your partner has very low income).

Are you losing out? Get in touch if:
  1. You have a very large drop in business income so that you are either making losses or very low profits, or
  2. You have just started up in business and have invested a lot of money in the business

We may be able to help you generate more income for you and your business.

Want to know more?
Contact Jan on 07890 239442

Monday 4 October 2010

A Life Story, inspired by Carl Hopkins, a Secret Millionaire

I was inspired to write this piece when I attended First Friday in Wakefield last week. Carl Hopkins, best known for his appearance on Channel 4’s The Secret Millionaire, was the speaker and he is passionate about inspiring young people to get what they want through education. Carl got no help at school and despite that was a great success. He wants to help other young people to achieve success too.

It was interesting to reflect on my own experiences at school, which I‘m sure aren’t unique.

By the time I was 16 after middling performance at school, I found myself not working at all (I enjoyed going out every night with my mates) and failing nearly all my GCE mock exams. It was massively embarrassing and one of my teachers took me on one side and told me that I was wasting my life. My parents didn’t give me a hard time but from that night I started working really hard and passed all my GCE exams bar one. I started my A levels with top of the class results and went on from there, getting A/B/C/D A Level results (surprising everyone else at my school), a 2:1 in Law (despite my school careers advisor telling me that I wouldn’t be able to do Law), first time passes in the Chartered Accountancy exams (and one of the best performers in the revision class) and more recently a Distinction (first class) in an MBA at Bradford. I also had a long and successful career as a Finance Director before setting up my own business, Sanders Geeson Chartered Accountants. Not bad for a “no hoper” at 16……..

The secret – working hard, doing my own thing and never stopping learning…….as well as lots of support from my wife and parents.

I know many people think I’m mad doing all the courses and exams I do, but learning never ceases to be fun.

I also have a friend who dropped out of University after 3 days, spent 2 years working for the DSS in a basic job, then decided to go back to University. He is now a Professor in Philosophy at Nottingham University, speaking all over the world. Life is full of great positive stories….

Finally, regarding Carl Hopkins, his first assignment for JDA (his first job) was to work on the Falcon by Post (knitting) catalogue. A year later I arrived as Finance Director for the business, my first senior finance job and a big step up for me …….it’s a small world……

Monday 6 September 2010

Research and Development Tax Credits

Following on from my last blog, I didn’t make it clear, but there are accountants who do advise on tax credits – cheers for them! But they are in a minority……


Today I’m wanting to discuss another type of tax credit, Research & Development (R&D) Tax credits.

All too often this is overlooked in preparing a companies tax return.

A tax allowance of 175% (in effect an extra 75% tax deduction) is given to SME’s on their R&D spend in a financial year (£10,000 or more), which works out at a tax saving of 36.75% of the R&D expenditure for companies paying the small companies rate of 21% (usually a company with profits under £300,000). It is even possible to surrender the relief where a trading loss arises for a cash refund, albeit at a lower rate (subject to certain restrictions surrounding the payroll spend).

Staffing costs can be included along with software and consumable items and the expenditure involved must relate to the company’s trade or a trade derived from the expenditure. The company must be a going concern.

Specialist HMRC units handle R&D Tax Credits. What are the tax office looking for?

1. Projects undertaken achieve some sort of advance in science and technology; what is meant by an “advance”? An appreciable improvement in existing technology

2. In making the advance the company must be overcoming technical uncertainties (HMRC are keen on this one)

3. Projects are not readily deducible by a competent professional working in the field – practically a project should last a minimum of 3 months. One week won’t suffice!

Are you missing out on a big tax deduction?

If you wish to know more, please contact Jan on 07890 239442.

Sunday 29 August 2010

Why (other) accountants won't advise on tax credits?

Welcome to my first blog.

I’ll be writing mostly on tax credits, but will cover any general tax matters or specialist tax ideas that I think you would be interested in. I may even mention accountancy matters!

This blog on Tax Credits has a business focus as that is my sole target audience when talking about tax credits. I believe the blog will have a unique angle in that respect.

Why I do I feel it will be unique? Firstly, there doesn’t seem to be much on the internet about business income or profits as they affect tax credits and secondly accountants simply aren’t interested in tax credits as a service. Why is this?

• Accountants feel that they are social benefits and aren’t anything they should be advising on

• They feel they are too complicated particularly administratively

• They can’t make enough money at it!

I feel that is wrong!

As tax credits calculations use the profit/loss figures from the business, ignoring tax credits must mean that there is a major risk of giving bad advice. For example, it might not be in a client’s interest to be paid by way a dividend. Is there another way the client could be paid? Perhaps they have a directors loan account which could be used? This could be the case where the business has been recently incorporated and new goodwill has been created or large funds have been introduced to start up the business or simply the business has a historically large director loan balance brought forward which is never considered in terms of tax planning? It’s easy to recommend paying dividends up to the basic rate tax threshold as it seems that no further tax will be payable.

Is your accountant damaging your wealth?