fpdteam, Author at Bennetts Accountancy

Changing a company’s year end date

24th October 2024 by fpdteam

There are specific rules that restrict changing a company’s year-end date, also known as the "accounting reference date". Initially, this is based on the date of incorporation. Under certain conditions, it’s possible to adjust the accounting year-end, which may offer trading or tax advantages for some businesses.

You can generally change the year-end for the current financial year or the one immediately preceding it. Altering the year-end will also adjust the deadline for filing accounts, except during a new company’s first financial year.

You can shorten the year-end date an unlimited number of times, but you can only extend it once every five years, with a maximum extension of 18 months. Extensions may occur more frequently under specific circumstances, such as if the company is in administration.

To request a change to an accounting reference date, you can use the Companies House online service for a quicker process or submit a postal version of the Change of Accounting Reference Date (AA01) form. Changes cannot be made for periods where accounts are overdue.

While there is no definitive reason to choose one date over another, various factors should be considered. The most common year-end dates are typically 31 December (to align with the calendar year) or 31 March (to align with the tax year).

Additionally, the Companies House rules stipulate that the year-end cannot be changed for any period where the accounts are overdue .

Source:Companies House| 21-10-2024

HMRC shares 5 common reasons for helpline calls

24th October 2024 by fpdteam

There are a little over three months remaining to file your self-assessment tax return online for 2023-24. The deadline is 31 January 2025. As this date approaches, an increasing number of individuals are reaching out to HMRC’s helpline for help.

To help ease the demand, HMRC has shared the top five reasons people are calling the self-assessment helpline and is encouraging everyone to use the online resources for quicker access to information.

The 5 most common reasons for calling the helpline are:

I no longer need to complete a self-assessment tax return.
I need to register for self-assessment.
Can you tell me if I still have to complete a tax return?
What’s happening with my self-assessment registration?
What’s happening with my self-assessment repayment?

Taxpayers may need to complete a tax return, even if they pay taxes through PAYE, for example, if they:

are self-employed and have earned gross income over £1,000;
are self-employed and earned up to £1,000 and wish to pay Class 2 NICs voluntarily to protect their entitlement to State Pension and certain benefits;
are a partner in a business partnership;
had a total taxable income of more than £150,000;
have received any untaxed income including pension income over £2,500;
received income over £1,000 from trading or providing services online;
have to pay the High Income Child Benefit charge;
received interest from banks and building societies or investments (more than £10,000); or
received rental or letting income from UK land and property.

Over 12 million taxpayers need to complete their self-assessment for the 2023-24 tax year and pay any taxes due by the 31 January 2025.

Source:HM Revenue & Customs| 21-10-2024

Recent speculation on forthcoming Budget

21st October 2024 by fpdteam

There is unlikely to be much to celebrate when Rachel Reeves delivers her first Budget on the 30^th of October.

Speculation is rife regarding the likely targets for tax increases. We have listed a few of the more persistent predictions below. But note, these are just predictions and there will no doubt be “surprises” when the Budget details are released.

Personal Taxes and Pensions

Labour has pledged not to increase the main rates of Income Tax, National Insurance (NI), or VAT, but other forms of personal taxation may be impacted. Pensions, in particular, are expected to be a focus. For example:

There are discussions around reducing the tax-free pension lump sum from its current level (£268,275) to a lower amount, which could raise around £2 billion annually.
Flat-rate pension tax relief, replacing the current marginal rate system, may be introduced, which could save the government around £5 billion, but it would negatively affect higher earners.
Employer pension contributions could also face National Insurance charges, which may lead to employers offering less generous pension schemes.

Capital Gains Tax (CGT) and Inheritance Tax (IHT)

CGT rates could be increased, with some speculation suggesting they may be aligned with Income Tax rates, raising the top rate from 20% to as much as 45%. This would significantly impact higher earners and business owners. Another option is introducing a "double death tax," where assets are taxed both via CGT upon death and subsequently through IHT.

Regarding IHT, Labour might increase the tax rate above the current 40% or reduce the £325,000 nil-rate band. Pension pots, currently excluded from IHT, could also be brought into the fold. .

Business Taxes

While Labour has ruled out large hikes in business taxes, some changes are expected. For example:

National Insurance Contributions (NICs): A rise in employer NICs from 13.8% to 14.8% is a possibility, potentially raising £8–9 billion for the Treasury.
Carried Interest and Energy Profits Levy: Reforms to the taxation of carried interest, particularly affecting private equity, and an extension to the Energy Profits Levy are likely to be part of the Budget.

Other Measures

Fuel Duty: For the first time in 13 years, fuel duty may be increased, partly as a move to promote the adoption of electric vehicles.
VAT on Private Schools: Labour has committed to imposing VAT on private school fees starting in January 2025, a measure that could generate additional revenue but has sparked debate.

Overall, the October 2024 Budget is shaping up to include "painful" decisions as Labour looks to tackle the fiscal deficit, with changes focused on wealth and asset taxes, pensions, and potentially significant tweaks to business taxation policies.

Source:Other| 20-10-2024

Managing business cashflow

21st October 2024 by fpdteam

Cash Flow Forecasting

Creating a cash flow forecast helps you predict your inflows and outflows, allowing you to anticipate any cash shortages. Update it regularly, be conservative in estimates, and account for any seasonal trends. A well-maintained forecast can help you identify potential issues early on and take corrective actions.

Speeding Up Cash Inflows

Encourage customers to pay promptly by offering incentives for early payments or tightening credit terms. Automated invoicing can also speed things up. If you’re struggling with long payment cycles, consider invoice factoring, where you sell invoices to a third party to unlock cash quickly.

Control Cash Outflows

Negotiate extended payment terms with suppliers, and stagger payments throughout the month to maintain cash in your account longer. Review expenses regularly and eliminate unnecessary costs. Using business credit cards for small purchases can help but be cautious about interest rates.

Build Cash Reserves

Aim to have an emergency fund that covers at least three months’ worth of expenses. This will provide a safety net during slow periods. Set aside money for tax obligations, such as VAT and corporation tax, to avoid any last-minute cash crunches when payments are due.

Use Financing Options

If necessary, consider short-term financing options such as overdraft facilities or short-term loans. These can provide relief during a cash crunch but should be used strategically and sparingly to avoid long-term financial strain. Invoice financing is another option if you have cash tied up in outstanding invoices.

Review Your Pricing Strategy

Make sure your prices are in line with your costs, especially if inflation or other market conditions have driven up your expenses. Periodic reviews of your pricing can ensure you’re generating enough revenue to cover costs and build cash reserves. Adjust prices if necessary and consider a value-based pricing model.

Monitor Key Metrics

Keep a close eye on metrics like Days Sales Outstanding (DSO), which tracks how quickly customers are paying. The lower the DSO, the better for your cash flow. Also, monitor your gross profit margin and liquidity ratios, ensuring you have enough cash on hand to cover liabilities.

Plan for Growth

Rapid growth can strain cash flow if you don’t plan for it properly. When expanding, ensure your forecasts account for the additional costs you’ll incur. Where possible, opt for gradual, sustainable growth, and consider pre-selling products or services to raise cash in advance.

Are you using the best VAT scheme?

Consider using the VAT Cash Accounting Scheme if you’re VAT-registered and qualify to use this scheme. It lets you pay VAT only when you’ve been paid by your customers, easing cash flow pressures.

Prepare for Uncertainty

Scenario planning helps you prepare for unexpected cash flow problems. By considering best, worst, and expected cases, you’ll be more prepared for any surprises. Insurance can also help by covering unexpected events that could otherwise create a financial burden.

We can help

If you are experiencing cashflow difficulties and would value advice with implementing any of the above strategies, please call, we can help.

Source:Other| 20-10-2024

Deferring Class 1 NIC contributions

17th October 2024 by fpdteam

Employees with more than one job may be eligible to defer or delay paying Class 1 National Insurance in certain situations. This deferment can be considered if any of the following apply:

You pay Class 1 National Insurance to more than one employer.
You earn £967 or more per week from one job over the tax year.
You earn £1,209 or more per week from two jobs combined over the tax year.

This deferral may allow for reduced NIC deductions of 2% on weekly earnings between £242 and £967 in one of your jobs, instead of the standard 8% rate.

At the end of the tax year, HMRC will review your National Insurance contributions and notify you if you owe NIC arrears.

Most self-employed individuals are also required to pay Class 4 NICs. While it was previously possible to defer these contributions, that option is no longer available. However, you may be able to claim a refund for past tax years.

Source:HM Revenue & Customs| 14-10-2024

Pension fund withdrawal options

17th October 2024 by fpdteam

Most personal pensions set a minimum age at which you can start withdrawing money, typically not before age 55. Some pension benefits can be taken tax-free. Generally, you can withdraw 25% of your pension pot as a tax-free lump sum, with a maximum of £268,275. If you have protected allowances, the amount you can take tax-free, as well as your overall tax-free limit, may be higher.

After making a tax-free withdrawal, you usually have up to 6 months to decide how to take the remaining 75% of your pension fund which will typically be taxed. The options for withdrawing the rest of your pension include:

Taking all or part of it as cash.
Purchasing an annuity for a guaranteed lifetime income.
Investing it for a flexible, adjustable income (known as 'flexi-access drawdown').

It’s important to understand the tax implications of receiving pension income. Aside from the tax-free benefits, pension income is considered earned income and subject to Income Tax under the standard rules. Income tax is also due on the State Pension, employment or self-employment earnings, and any other taxable income.

Source:HM Revenue & Customs| 14-10-2024

Who qualifies for Tax-Free Childcare?

17th October 2024 by fpdteam

The Tax-Free Childcare (TFC) scheme helps working families manage childcare costs by providing support through a wide network of registered providers, including childminders, breakfast and after-school clubs, and approved play schemes across the UK. Parents can also contribute to their TFC account regularly and save their allowances for use during school holidays.

The scheme is available to parents with children up to 11 years old, with eligibility ending on 1 September following the child’s 11th birthday. For children with certain disabilities, the age limit is extended to 1 September after their 16th birthday.

Through the TFC scheme, the government tops up parental contributions by 25%. For every £8 contributed, the government adds £2, up to a maximum of £10,000 per child per year. This offers parents annual savings of up to £2,000 per child (or up to £4,000 for disabled children up to age 17).

The scheme is open to all qualifying parents, including the self-employed and those earning minimum wage. It is also available to parents on paid sick leave, as well as those on paid and unpaid statutory maternity, paternity, and adoption leave. To be eligible, parents must work at least 16 hours per week and earn at least the National Minimum Wage or Living Wage. However, if either parent earns more than £100,000, neither can participate in the scheme.

Source:HM Revenue & Customs| 14-10-2024

Class 4 National Insurance payments

17th October 2024 by fpdteam

Self-employed individuals are usually required to pay Class 4 National Insurance contributions (NICs) if their annual profits exceed £12,570. For the 2024-25 tax year, Class 4 NIC rates are set at 6% (down from 9% in 2023-24) on profits between £12,570 and £50,270, with an additional 2% charged on profits above £50,270.

Certain groups are exempt from paying Class 4 NICs, including:

Individuals under 16 at the start of the tax year.
Individuals over State Pension age at the start of the tax year. If someone reaches State Pension age during the tax year, they remain liable for Class 4 NICs for the entire tax year.
Trustees and guardians of incapacitated individuals are exempt from paying Class 4 NICs on that income.

The Class 4 NIC rate is lower than the corresponding rate for employees, who pay 8% on the same income levels. Both employees and the self-employed contribute 2% on income above the higher rate threshold.

The majority of individuals pay Class 4 National Insurance via self-assessment.

Source:HM Revenue & Customs| 14-10-2024

Payments on account for self-assessment

17th October 2024 by fpdteam

Self-assessment taxpayers typically need to pay their Income Tax liabilities in three instalments each year. The first two payments on account are due by 31 January during the tax year and by the 31 July after the tax year has ended. Each payment on account is based on 50% of the previous year’s net Income Tax liability. Additionally, the third (or balancing) payment is due on 31 January after the tax year ends.

If you expect your income for the following tax year to be lower than the previous year, you can apply to reduce your payments on account. This can be done through HMRC’s online service or by submitting form SA303.

It’s important to note that you do not need to make payments on account if your net Income Tax liability for the previous year is less than £1,000, or if more than 80% of your tax liability was collected at source.

There is no limit on the number of times you can apply to adjust your payments on account. If your liability for 2024-25 is lower than for 2023-24, you can request HMRC to reduce your payments. The deadline to submit a claim to reduce your payments on account for 2024-25 is 31 January 2026.

If your taxable profits have increased, there is no obligation to inform HMRC, but your final balancing payment will usually be higher.

Source:HM Revenue & Customs| 14-10-2024

Boosting your State Pension

17th October 2024 by fpdteam

HMRC has issued a new press release reminding readers of a limited-time opportunity to enhance their State Pension. Currently, there is an opportunity for affected individuals to address gaps in their National Insurance Contributions (NICs) for tax years between April 2006 and April 2018. Originally set to end on 5 April 2023, this deadline has been extended several times and will now close on 5 April 2025. This means there are just under six months left for those who may benefit from this extension to act.

Usually, HMRC allows voluntary NIC contributions for the previous six tax years, with the deadline being 5 April each year. You can check your State Pension forecast and any gaps in your NICs by using the "Check Your State Pension" service on GOV.UK: https://www.gov.uk/check-state-pension. Since launching the service in April 2024, HMRC reports that over 10,000 payments totalling £12.5 million have been made through the digital service to help people boost their State Pension.

You might consider making voluntary NICs if:

You are close to State Pension age and do not have enough qualifying years to get the full State Pension.
You know you will not be able to get the qualifying years you need to get the full State Pension during the remainder of your working life.
You are self-employed and do not have to pay Class 2 National Insurance contributions because they have low profits.
You live outside the UK but want to qualify for some benefits.

If you fall into any of these categories, it may be worthwhile to apply for a State Pension forecast and assess whether making voluntary NICs to fill in any gaps would be beneficial. Keep in mind that not everyone will benefit, as this will depend on factors such as your age and NIC contribution history.

Source:Department for Work & Pensions| 14-10-2024