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Welcome...
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We warned you previously about the new real time information (RTI) process. Now the Taxman is writing to all employers who are not already part of an RTI pilot, to tell them how to prepare for RTI.
To recap: RTI is a new way of submitting payroll data to the Tax Office. Instead of sending PAYE information to HMRC once after the end of the tax year, employers must submit their payroll data online on every occasion their employees are paid.
If you run a computerised payroll, your payroll software should be updated to cope with RTI. However, do check with your software provider, as some payroll packages are not going to be revised for RTI. In which case you need to find new payroll software, or use the free software provided by HMRC (for up to 9 employees), or ask us help you process your payroll each month.
All small and medium sized employers will be expected to start using RTI to submit payroll data from April 2013, unless they have agreed a different start date with the Tax Office. Once you receive an 'invitation' from the Taxman to use RTI, you must join the RTI system from the date directed.
You will need to collect some new data items under RTI which are not currently required for PAYE, such as:
- Hours worked per week for each employee based on one of four bands;
- Details of those earning less than the lower earnings limit (£107 per week);
- Which employees are paid irregularly, perhaps only once per year; and
- Passport numbers for employees who do not have NI numbers.
In addition you will need to have the correct NI number (where this exists), date of birth, gender, full name and address for each employee.
We can help you with the transition to RTI, but please start thinking about what help you might need sooner rather than later.
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If the previous business was VAT registered it can pass its VAT number on to the new company under the transfer of going concern rules (TOGC). However, this is not always advisable as the VAT number will carry with it all the 'history' of the old business, including defaults for late payment and error records. If the owners of the new company are not exactly the same people as those who owned the old business, the new owners may not want to take on the VAT 'sins' of the old business.
In this case the new company will have to apply for a new VAT number. This is the same procedure as a new VAT registration, and penalties will apply if it is not done on time.
If you want the new company to adopt the VAT number of the unincorporated business you must inform the Tax Office of the change in structure of the business within 30 days. If this deadline is not met the Taxman will impose a 'failure to notify' penalty which could be up to 100% of the VAT due, even where all the VAT due has been paid on time.
Please ask one of our VAT experts for advice on dealing with VAT on incorporation.
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| Goodwill on Incorporation |
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Trading as a company is generally more tax efficient for profitable businesses; the tax rates are lower and many tax reliefs are only available to companies. Certain professions which were previously prevented from operating as a company, such as solicitors, can now incorporate.
If your business is loss making it may be better to remain as a sole-trader or partnership until those losses are fully relieved.
When incorporating a business, great care should be taken over the value of assets which are transferred to the new company, including the business goodwill. It is generally fairly easy to value fixed assets such as buildings or equipment, but goodwill of the business will depend on a number of factors and may not exist at all for some businesses. Examples of factors to consider include:
- Reputation of the business;
- Ability to generate future sales or fees;
- Customer & staff loyalty; and
- Location of the business.
A common approach is to estimate the capitalised value of the future profits of the unincorporated business and adjust for non-recurring items of income or expenditure. Adjustments will also be required for differences between the structure of the old partnership and the new company. The directors will be paid a salary, whereas the former partners took a profit share. Interest on borrowings will be paid by the company instead of by the partners.
Once a goodwill figure is established it can be included as part of the price to be paid under a sale agreement that transfers the business to the company. It is a good idea to include a price adjuster clause in this sale document, so if the Taxman challenges the value of the goodwill any outstanding amount of sale proceeds due to the former owners can be adjusted.
Where the former owners become directors of the new company, it is common practice to leave part of the sale proceeds owing to those individuals as loan accounts within the company. These loan balances can then be drawn down gradually from the company with no tax to pay. However, the former owners may have to pay capital gains tax on the transfer of the business to the company.
If you are thinking of incorporating your business, please talk to us first, as there are lots of details to hammer out which will be specific to your business.
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| October Question and Answer Section |
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Q. I am employed by a charity that provides me with a Skoda Yeti car as my work involves transporting disabled people. I pay for all the petrol, but the charity reimburses me for work-related journeys at 15p per mile. This rate has not changed since June 2011, although the price of petrol has increased. Can I claim back any more of my petrol costs for work journeys from the Tax Office?
A. Unfortunately not. The advisory fuel rate for cars with petrol engines of up to 1400cc is 15p per mile and it hasn't changed since 1 June 2011. The rates for LPG cars and diesels have moved slightly over that period but not much. You could ask your employer to pay more per mile, but you will then be taxed on the excess above 15p per mile, unless you can show your car is particularly fuel-hungry, which is unlikely for a Skoda.
Q. I'm a painter and decorator, working mainly for individual householders. I only give out an invoice for work done if my customer asks for one. Is this acceptable to the Taxman? I'm not VAT registered.
A. As you are not VAT registered there is no legal requirement to issue invoices for every sale, but it is good business practice. If you accurately record the money you receive from customers, and those amounts can be tied up to the cash and cheques you bank, the Taxman should not have a problem with your business records. However, if the Taxman suspects that you have been under-recording your sales, because you receive many payments in cash which are not immediately banked, you may have a problem. We can help you set up a system which will accurately record your sales, and keep the Taxman happy.
Q. My office junior is paid exactly the national minimum wage (NMW). Do I have to put his wages up from 1 October 2012?
A. It depends how old your employee is. From 1 October 2012 the NMW rate for those aged 21 and over rises from £6.08 to £6.19 per hour, and the apprentice rate is increased to £2.65 per hour. However the rates for 16 to 20 year olds have not been increased.
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| October Key Tax Dates |
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1 - Due date for payment of Corporation Tax for the year ended 31 December 2011
5 - If a Tax Return has not been received, individuals and trustees must notify HMRC of new sources of income and chargeability in 2011/12
14 - Return and payment of CT61 tax due for quarter to 30 September 2012
19 - Tax and Class 1B NI due on PAYE settlements for 2011/12
19/22 - PAYE/NIC and CIS deductions due for month to 5/10/2012 or quarter 2 of 2012/13 for small employers
31 - Deadline for 2011/12 self assessment paper returns to be filed for HMRC to do the tax calculation. If a paper return is being filed also the deadline for tax underpaid to be collected by adjustment to your 2013/14 PAYE code (for underpayments of up to £3000 only)
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Please contact us if we can help you with these or any other tax or accounts matters.
In addition, if there's anyone else who you think would benefit from the newsletter, please forward the email to them or ask them to contact us to be added to the newsletter list.
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If you are not already a client and are interested in becoming one, we would love to come to meet with you to discuss how we can help and provide you with a competitive quote for our services.
All new client consultations are provided free of charge and without obligation.
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TWR Accountants are based in Brandon near Thetford, offering local business owners and individuals a wide range of services to small and medium sized businesses.
All clients receive fixed fees, work delivered on time and free unlimited phone support. Visit our website http://www.twraccounts.co.uk for more information.
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