Archive for month: October, 2015

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Bank reconciliation made easy with Xero and Liric

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 Xero is designed to automatically import your bank, credit card and PayPal transactions using bank feeds to make reconciling your bank accounts faster and easier.

Before now, you had to take your bank statement and manually entered the transactions into your desktop accounting software. Then you needed to perform a reconciliation to make sure the two balances agreed.

Xero has simplified this process. Your bank statement is already in your software. Login and see your imported statement on the left, waiting to match your accounting transactions on the right.

What’s more, should you ever get stuck, you can easily collaborate with your accountant. Xero gives you the option to leave a question for them, which they’ll see the next time they log in.

This video tutorial shows you how easy it is to perform bank reconciliation using Xero accounting software.

http://ow.ly/TOuP3
The Liric team can help you with transferring your accounting system to Xero and provide training. Please contact us to find out more.

 

Auto enrolment exemptions

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Have you received  letters from The Pension Regulator (TPR) telling you to “ACT NOW” to prepare for auto enrolment? An initial letter asks you to nominate a contact to receive communications about auto enrolment, a second one will be asking for details about your chosen scheme.  There will also be threats of fines or prosecution if you don’t take action.

The “staging date” for your business will be stated in the letter which is  the date by which you must have a pension scheme ready for your employees to join.  However, not every business will need a scheme.

A large number of small companies will be exempt from auto enrolment, if they don’t technically have any “workers” at their staging date. A company director is not a “worker” if he or she does not have a contract of employment with the company. A company with no staff other than directors has no obligations under auto enrolment if any of the following apply:

  • It has only one director; or
  • It has a number of directors, but none of those have an employment contract; or
  • It has a number of directors, only one of whom has an employment contract.

TPR doesn’t know which directors in which small companies have employment contracts.

If you are satisfied that your company meets the exemption provisions then The Pension Regulator does need to be advised.  This can be done direct on The Pension Regulator website

http://www.thepensionsregulator.gov.uk/employers/what-if-i-dont-have-any-staff.aspx

You’ll need your letter code , PAYE reference  and Companies House number  You can re-request the letter code if you have lost it by following the link and entering the PAYE  and Accounts office references.

Liric will be contacting all our clients whom we think are eligible for this exemption.

If your company does have staff other than its directors, we should talk about what preparations you need to make to get ready for auto enrolment.

How do new interest rules affect my buy to let property?

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Changes announced in the Summer Budget may  significantly increase your tax liability if you have a property business – including a single buy to let – read on….

Now

At present, full tax relief is available for interest on a loan used in a property business.  The funds may have been used to purchase the let property, to make major repairs, or just to fund the working capital of the property business.

From April 2017

From April 2017, tax relief on interest in property businesses ( including single buy to lets) will be restricted so that by 2020, interest will not be an allowable expense in computing the profit of the business, but instead will attract tax relief at 20%. The change does not affect furnished holiday lettings.  The change will be phased in as follows:

 

2017/18 2018/19 2019/20 2020/21
% of interest allowed as a deduction 75 50 25 0
% of interest given as a relief at 20% 25 50 75 100

A letting activity that has a low level of interest in relation to the borrowings will not be too badly affected, but where there is a higher level of borrowing, individuals will find that the business model has been severely undermined.

So how will this work?

Example 1

Jo is a 40% taxpayer. He has purchased a buy to let property as an investment. Here is the effect of the changes:

 now  2020/21
 Gross rents 7,200 7,200
 Repairs, agents fees and other tax deductible costs 1,000 1,000
 Mortgage interest 2,500
 Net rental profit 3,700 6,200
 Tax at 40% 1,480 2,480
 less interest relief at 20% 500
 Net tax liability on rental income 1,480 1,980
tax increase 500
effective tax rate on “real” rental profit 40.0% 53.5%

   

Example 2

In this case Jo has a bigger mortgage and hence more interest:

 now  2020/21
 Gross rents 7,200 7,200
 Repairs, agents fees and other tax deductible costs 1,000 1,000
 Mortgage interest 5,000
 Net rental profit 1,200 6,200
 Tax at 40% 480 2,480
 less interest relief at 20% 1,000
 Net tax liability on rental income 480 1,480
tax increase 1,000
effective tax rate on “real” rental profit 40.0% 123.5%

 

The tax due is more than the net funds available from the rental surplus by £280.

The new rules may also push a tax payer into the higher rate band, result in reduction of personal allowance or trigger the repayment of child benefit.

What are your options?

  1. Incorporation – has tax and other cost implications and borrowing often not easy
  2. Reduce borrowing so impact is less
  3. Sell property
  4. Accept the increase if expected capital gain on property makes it worthwhile

 

Please contact us to find out how this will impact on you.

01763 – 853633

enquiries@liricaccountants.com

“Reconsider the new Dividend Tax for small businesses”.

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Uproar amongst business owners, the entrepreneurs of now and the future  has resulted in a petition being put to the Government to which there is now an official response :

“The Government is committed to supporting entrepreneurs and a fair tax system. Dividend tax reform allows further cuts in Corporation Tax and reduces the incentives for tax motivated incorporations.

The Government is fully committed to supporting business and entrepreneurship. As set out at the Summer Budget 2015, the Government believes that one of the best ways to support growth and enterprise in the UK is through lower and more competitive Corporation Tax rates.

Owners of small companies will also benefit from a range of other measures announced at the Summer Budget, including an increase in the National Insurance Employment Allowance to £3,000 from April 2016 and a permanent increase to the Annual Investment Allowance to £200,000 from January 2016. They will also pay less tax as a result of the increases to the tax-free Personal Allowance to £11,000 and to the Higher Rate Threshold to £43,000 in April 2016. We also have a commitment to go much further, taking the Personal Allowance to £12,500 and the Higher Rate Threshold to £50,000 by the end of this Parliament.

However, it is not possible to continue to reduce the Corporation Tax rate without looking at the overall balance of the tax system, including taxation of dividends. Lowering the Corporation Tax rate without action elsewhere increases incentives for individuals to set up a company and pay themselves through dividends to reduce their tax bill (also known as tax motivated incorporation). Therefore the Government is reforming dividend taxation. These reforms, which will also simplify the dividend tax system, will significantly reduce the incentives for people to set up a company and pay themselves through dividends rather than wages simply to reduce their tax bill. Taxpayers and the Exchequer will now be £500 million better off as result of reduced incentives for tax motivated incorporation. Those who choose to work through a company continue to pay lower rates of tax than the employed or self-employed. But the reforms move the overall tax rates for the self-employed and those incorporated closer together, making the system fairer overall.

HM Treasury”

Click this link to view the response online and register your name:

https://petition.parliament.uk/petitions/106525?reveal_response=yes

 

The Petitions Committee will take a look at this petition and its response. They can press the government for action and gather evidence. If this petition reaches 100,000 signatures, the Committee will consider it for a debate.