woman anxious about dividends

Being a director/shareholder and dividends-an essential guide

Let me be blunt with you, I have seen many clients and potential clients try and take dividends here and there without consideration of what dividends actually are, and why that matters. You don’t get dividends from your company because you are a director, you get them if you are a shareholder of the company, which most sole company directors are, but you have to be sure of what you have done.

It is when a company has more than one director that things start getting messy in the dividend department. You might have a 50/50 shareholding, but are trying to take out different amounts of dividends due to your other taxable income. This is often the case when a couple take on a business together. They want to shareholding to be 50/50, but due to other earned income, they want one partner to receive a higher dividend holding. They often do this without thinking, and sometimes it is without even trying to gain a tax advantage (in the case of a recent client which I have spoken to about changing their shares, the wife had 40%, the husband 20% and a friend that they went into business with had 40%. None of them had more other taxable income than the others, but they took the same dividends, which is against the rules unfortunately. There are two ways around this, and both come with issues that need to be considered.

The first is a dividend waiver. This can be used if no, or a lower value of dividends is to be paid to one shareholder with the same shareholding as the other shareholder/s. This is a legal document and needs to be prepared be a legal professional. That isn’t the only issue with dividend waivers. They are more likely to be looked at as manipulating taxable income, and like the other option below, is not allowed unless there would have been sufficient reserves in the company to pay the dividends that have been waived.

The alternate option is different classes of shares, or alphabet shares as they are nicknamed. This is the most popular with accountants and if done properly is potentially a way around the dilemma, but again it isn’t without issues or risk. Different “classes” of shares are set up by the Accountant with companies house (i.e. A class and B class). They specify what voting rights each class has, what dividend rights, and what right to remaining share capital upon winding up of the company. The important part to mention here is to make sure that those who are going to take more dividends still have full voting rights and right to capital upon winding up. There is case law of HMRC questioning these types of arrangements, as is here with a husband and wife. It was decided that because they were husband and wife and the wife (who was receiving higher dividends) still had full voting rights and rights to capital, that it was acceptable. However it was said if she hadn’t had these rights, especially also if they had not been married, HMRC would have seen this as manipulation of income for tax purposes and additional monies would have been owed to HMRC as part of this case. They also again look at whether there would have been enough reserves to pay the additional dividends in the company.

So the answer is, there is no easy answer. The safest bet is to have equal dividends for equal shares, but if you are going to do it a different way, use a professional who knows what they are doing.

Taking on your first member of staff

Taking on an employee for the first time

two business men shaking hands

So you are thinking of taking on an employee for the first time? Well first things first, there are some big considerations that you have to think of. Drawing up a job description before you start recruiting can be a good idea, so that you know exactly what qualities you are looking for when interviewing candidates.

Salary, holiday and other benefits will also be an important consideration to anyone applying for the job, so expect it to come up in the job interview if you haven’t advertised it already.

Obviously the minimum wage is a figure you can get from the Gov.uk website (8.21 per hour for over 25’s at the time of writing) , but minimum wage isn’t always likely to attract the best talent. It can be a good idea to use bench marked data for your industry in order to decided on salary, holiday, sick pay and parental pay (maternity and paternity). People don’t tend to stay with one employer out of loyalty now, due to low job security, so a nice work environment and realising staff achievement is a must. You can even consider things like flexible working or other employee benefits if appropriate.

When it comes to looking at CV’s and interviewing candidates, don’t forget that under the Equality Act 2010, it is illegal discriminate against any employee or prospective employee on the grounds of sex, gender identity, race, disability, religious beliefs, sexual orientation, age, marital status or pregnancy or maternity status.

Once you have selected your new employee it is time to create a contract of employment, and this is a must as it can be used in case of disagreements later on. If you need HR advice in making the contract, I would reccommend HR Department or Peninsula as we have existing clients that use these two companies and are very happy with them.

Contract done, it is time to make sure you are registered as an employer, that you know your duties in regards to pensions under auto enrolment, and you know what software you will use to run payroll. HMRC offer a free software for companies with less than 10 employees, but it has a lot of limitations, and you can not produce payslips with this, so these would have to be done manually. There are a lot of cheap solutions on the market now to run payroll, and many cloud accounting software have their own version. The other alternative is to contract a Bookkeeper or Accountant to run your payroll on your behalf.

So that is it, make sure your employee is settled in, they know what they are expected to do, and you know what they expect of you, and that’s it, you are an employer.

The legal bit

Minimum Wage:

 Apprentice* £3.90 p/h

Under 18: £4.35 p/h

18-20: £6.15 p/h

21-24: £7.70 p/h

25+: £8.21 p/h

*Apprentices are entitled to the apprentice rate if they are either under 19, or over 19 and in the first year of their apprenticeship. 

Holiday

Full time employees are entitled to 28 days holiday a year inclusive of UK bank holidays. This is the equivalent to 5.6 weeks. Part time employees are entitled to pro rata of this. For example if they work 3 x 8 hour days a week (24 hours a week) they will be entitled to 134.4 hours holiday per year, or 16.8 days (inclusive of bank holidays).

Sick Pay

Subject to eligibility, once an employee is off for 4 working days, they become eligible for statutory sick pay. The first three days absence is unpaid (these are called waiting days). They are then entitled to £94.25 per week (or pro rata if they have part of a week off) . This continues for 28 weeks.  You used to be able to claim this SSP back from HMRC by deducting it from NI contributions on payroll (in case Jimmy down the pub tells you that you still can), but unfortunately that stopped some years ago now.

Statutory Maternity/adoption/Parental Pay and Leave

Subject to eligibility there is certain leave and pay required to employees on maternity leave. 

Employees are eligible for 26 weeks ordinary maternity leave and 26 weeks additional maternity leave.

Statutory maternity pay is paid for up to 39 weeks and is 90% of their average weekly earning for the first 6 weeks, and £148.68, or 90% of their average weekly earnings (whichever is lower) forthe remaining 33 weeks.

Statutory adoption leave and pay is the same as the above.

If your employee decided to take shared parental leave and pay, they can end their statutory maternity or adoption leave early and switch to this. It is paid at £148.68, or 90% of their average weekly earnings (whichever is lower). Parents can share up to 50 weeks of leave and 37 weeks of pay.

Statutory Paternity Pay

If an employees partner is having a baby or adopting a baby, they may be eligible for statutory paternity pay. This is 1 or 2 weeks paid leave at £148.68, or 90% of their average weekly earnings (whichever is lower).

These payments are reimbursable via your payroll scheme (via national insurance contribution deductions) unlike statutory sick pay above.

Pensions

By law, employers have to find and register for a pension scheme if any of their staff are aged between 22 and state pension age, and any of those employees earn over £10,000 per year. Anyone in the pension has to pay 5% of their pensionable earnings, plus the employers must pay 3% from the company. The duties are different depending on if you also have other staff, but the first thing will be to find and decide on a pension scheme and then declare your compliance to the pension regulator. You can find out more here

payroll software is important

Payroll Software-how to choose?

Payroll software is a hard choice

Like it or hate it, doing Payroll is an essential process in any business that employs people. Whether you pay people weekly, fortnightly or monthly, the right software can be a major part of the equation. We use Brightpay Payroll software for our clients, although other software will do some of the same things. Here we will talk you through how the right software can revolutionise your payroll process. If you have any further queries, then please let us know.

1. The payroll software is flexible

The right payroll software needs to be flexible. You want to be able to process on your terms. Whether it is weekly, fortnightly, monthly, 4 weekly etc. You also need the software to be flexible on the types of additions and deductions that you want to process through the payroll. This may be expenses that you want to track through payroll. It may be you need to make deductions for a loan that you have provided to staff. The right software will include this all for you with ease. From April 2019, travel time will need to be recorded on payslips, and the right payroll software will let you record this easily.

2. Auto Enrolment integration is easy

By January 2017, UK Employers were obligated to set up workplace pensions for all eligible employees under The Pension Act 2008. Starting at a low rate, the rates from April 2019 are going to reach 3% for employers and 5% for employees. Without the right payroll software, this process can be lengthy and cumbersome. Even more so, if you have a large volume of employees. The right payroll software will either integrate into your pension providers portal, or let you export a CSV. You need to assess employees each month when running payroll. Whether employees have become eligible for the pension, and how much the contributions are. When you need to enrol a member of staff into the pension, or assess that they are eligible to opt in, you also need to provide them with a letter advising what is happening. The right software will handle this all for you.

3. It handles statutory pay for payroll with ease

Whether it is statutory sick pay, maternity, paternity or adoption pay, the right software will be able to track these payments easily. There are a number of rules that apply to statutory payments, and the right systems can help you manage them efficiently. The best systems have a calendar system, so you can track dates of leave. This can then seamlessly integrate into that periods payroll for you. With certain statutory payments, you can reclaim the payments via your National Insurance Contributions bill. The right software will assist you with this, and let you know what you can reclaim.

4. Employees have easy access to their payslips

A good payroll software will have the ability to securely provide payslips to your employees electronically. This may be via email or an online portal. Brightpay Payroll software that we use for our clients, offers email payslips with a secure password. They also offer an optional upgrade to their Brightpay Connect service. Brightpay Connect is an online dashboard for employers and employees alike. Employees can easily access all of their payslips, P60’s, P11D’s (and when they leave can also get their P45). Not many systems offer this, however a lot do offer secure, encrypted payslips to be emailed to employees. Many services also offer their own branded stationery, if your employees require postal payslips and forms.

5. Payroll that works well for you

I think the most important thing, as well as any statutory requirements, is that it works well for you and your business. Different software providers offer different things, and it is about working out what is the best for you. Brightpay Connect offers employers the chance to let employees request annual leave via their self service portal. You can then approve or decline this at a touch of a button. As an employer, you can also use it to run simple to read payroll reports and it reminds you of how much is outstanding to HMRC for your PAYE bill. Other software providers may have different things that work well for you (ie a direct link to your accounting software or other features), it is all about working out what you need, and what is the most important.

If you find that you want to outsource your payroll, to concentrate on business growth, or other business activities, then let us know. We offer tiered options including access to Brightpay Connect and Brightpay Contracts (a service which easily helps you create professional and legal employment contracts and employee handbooks). Whatever your needs, we can help. We also offer support to organisations who pay subcontractors and need to use the CIS system.

self-employed woman worrking

10 Expenses You Can Claim Whilst Self-Employed

One of the most important things you want to work out if you become self-employed is what can I claim for? Which expenses will HMRC allow me to claim?  And what is not claimable? Our handy guide will take you through ten common business expenses you can claim, and five that you can not.

The most important thing to see if an expenses is allowed to be deducted against your income is this test. Is it wholly and exclusively for business use. HMRC use a lot of wording when describing this “test” of allowable expenses, but it can be simpler when looking at the expenses incurred.


1. Stock & Materials

If you are a self-employed business that deals in goods or materials then these costs of the sale are definitely allowable business expenses. Basically, without these expenses you would not be able to make any sales to customers.

2. Business Premises

Any rent, repairs/maintenance, insurance or utility bills for the business premises are claimable. If you work from home you would need to either calculate the percentage of time and space you use for home working, or use simplified expenses .

3. Travel

Legitimate business travel costs can be claimed if you are self-employed. For example mileage to see customers or for other business purposes. Things like train, bus and taxi costs can also be claimed.  If you have to stay overnight at a hotel for business purposes, this can also be claimed.

4. Advertisement & Marketing

Any marketing costs that are not client entertainment (see below) are allowable. For example mailshots, advertising online with Google, Facebook and Linked In, business cards, or even just your web hosting. This can all be claimed. For start up businesses and the newly self-employed, we offer a package . This includes hosting with Siteground , or if you are happy how you are, we can just get you set up with them.

5. Office Expenses & Supplies

This covers things like stationery, postage and printing costs. You may also be able to claim larger purchases of office equipment, but these may need to be claimed as Capital Allowances. Contact us if you need more information.

6. Staff Costs

This may seem obvious, but the costs of employing staff including National Insurance and Pension Contributions are expenses that can be claimed. It is not often that a Self-employed person employs others, but it can happen. If you decide to use a freelancer on a sub contract basis, this can also be claimed.

7. Clothing

Any essential work related clothing can be claimed. For example, costumes for actors or protective gear when on a construction site. However the wholly and exclusively for business use would come into play if you tried to claim for daily wear and would most likely be disallowed.

8. Subscriptions

If you are self-employed and a member of a Professional or Trade Organisation, the cost of the subscription to this can be claimed. The same also goes for relevant trade journals you subscribe to.

9. Legal and Financial

If you hire a legal or accounting professional these fees can be claimed. For example a Bookkeeper, Accountant, Surveyor or Solicitor. There is an exclusion when it comes to the cost of someone preparing your Self-employed Self Assessment, but see below for more information. You can also claim the costs of bank, loan and credit card interest and charges.  Please note, if you use cash basis accounting, you can only claim up to £500 per year for Interest and Charges.

10. Business Insurance

Whether it is Public Liability or Professional Indemnity Insurance, any work related Business Insurance expenses are claimable.

And now what you can’t claim. This isn’t an exhaustive list, but the five most common queries

1. Travel from home to work

If you have a regular place that you attend for a contract, you can not claim for the mileage or travel between home and that location.

2. Client Entertainment

Unless your client is coming from outside of the UK, any amounts for hosting them or entertaining them (for example meals or drinks out, their accommodation, lunches etc) are not claimable.

3.  Paying a Professional to do your Self Assessment

The cost of the Bookkeeper or Accountant doing your Business Bookkeeping and Accounts is claimable, as above. However your Self Assessment is a personal tax return, and if any costs are directly attributable to the Self Assessment itself, this is not claimable.

4. Some Subsistence

This can be a grey areas, even within HMRC. The bottom line is that HMRC state you have to eat to live, so unless you are doing something completely outside your normal business pattern (ie staying overnight at a hotel), you may not be able to claim meals whilst out for work.

5. Payments to Charities & Political Parties

Because these are not wholly and exclusively for work, these are not claimable expenses. However you may be able to claim tax relief on your charity donations due to the Gift Aid Scheme.

adult-blur-caucasian

VAT & Making Tax Digital-3 Things You Need To Know

As I introduced in my blog post back in March , VAT preparation and submission is due to go digital in April 2019. But what does that mean in practice, for business owners like yourself? In this post I want to explain the main three things that you should know ahead of the change.

Woman confused about VAT

1. Many business owners don’t know about Making Tax Digital for VAT

Depending on who you ask, the amount of business owners that have not heard about Making Tax Digital varies between 20% and 40%. So, if you are reading this you can take yourself out of the ‘uninformed’ group. Many businesses already use the services of a finance professional such as an Accountant or a Bookkeeper. However these figures surely indicate that some of them aren’t informing their customers about this very significant change. Given that we are now less than a year away, this needs to change, and fast.

All of our existing clients were told with over a year to go. Any new business owners that I talk to get told about it whilst we are chatting. We are also planning on running some workshops for Making Tax Digital for VAT in the Autumn of 2018. This is so that business owners know what will be expected. The workshops will cover what is changing, why and how.

 

VAT Pilot test

2. Digital VAT will be piloted and tested fully before roll out

The VAT Pilot for Making Tax Digital (MTD) is now in full swing. Many small and medium businesses are already submitting their VAT returns this way. Through software such as Quickbooks and Xero they are submitting their figures derived from the sales and purchases of the business. These providers have developed integrations in their software with the HMRC portal. This is totally different to a lot of other HMRC system roll outs of the past. Previously they have been lengthy, expensive and frustrating for businesses.  For those businesses in poor bandwidth areas, HMRC have an answer. Thave stated that only 2MB is required to be able to use the system. The Government is also investing additional funds in improving access to fibre broadband across the country. This can only be a good thing for businesses if they are getting this investment from the government.

 

Happy woman-can submit VAT with ease

3. It may be easier than you think to submit your VAT return.

If you are already using a cloud based (ie. online) accounting system, you are in luck.  These systems will already be ready, or will be before the VAT MTD deadline of 1st April 2019. This includes QuickBooks Online, Xero, Sage Accounts/Financials and Kashflow. You or your agent may already be submitting your VAT returns from the software each quarter. The software provider will provide any necessary updates or patches to the systems if they are required to be fully MTD compliant. If you are using a desktop-based software the likelihood is that you will need to move away from this. This is especially the case if it is a version that is more than a year old.

If you would like more information about your current software and whether it will be compatible, you can speak to us free of charge. There are multiple options available to suit your business and we can help you to decide on the best fit for your business. Even if you want to keep doing your books yourself, we can help you get set up with both your software and your new online account.

 

In summary, with less than 9 months to go it is something we need to be thinking about now. Not something to be thinking about later. This is why we are running free workshops on the subject from the Autumn.  We also have put a full 10 point guide in our free e-book on the website here .

 

Person doing cloud accounting

Cloud Accounting-Five Reasons to move (now).

So, what is the cloud (in relation to your accounts)? Basically it is an online version of accounts software. The big players (Quickbooks, Xero, Sage and Kashflow) have their own versions, and there are some others out there too. You usually pay a small monthly subscription, rather than pay a large sum for the licence outright.

So, why should you move your Accounts to the Cloud?

1. Instant Access

If you have a bookkeeper or accountant doing your data on a desktop system, or you have your receipts in a box to give to your accountant when you see them you don’t have instant access to your accounts. You can ask the bookkeeper or accountant to send you data over, but it’s no substitute for logging in and just taking a look.

2. Dual Access

Back in the day, sometimes you did your own data. However you then had to send it to the accountant to make adjustments, and you couldn’t do anything until they sent the file back. Now both you and your bookkeeper or accountant can be logged on at any time. You can both enter the data you want when you want.

3. Bank Integration

You can enter your bank login details (very securely) on the accounts software and it pulls the transactions from the bank. It’s no substitute for reconciling the bank account monthly, but it can make adding transactions or matching payments to outstanding invoices a lot quicker.

4. App integration

There are currently over 200 apps that integrate with Quickbooks. I would bet Xero has a very similar number. This means that you can automate the entry of your purchase invoices and receipts, get staff to track their time, manage stock and orders from your online stores, forecast cashflow and much more. There are just too many to discuss here. Maybe I need to do more blogs on these. Ask a Quickbooks Pro Advisor such as our company if you want to know about any specific or types of apps.

5. Real Time data

Once you have the Cloud Accounting software set up and working properly you are ready to go. You or your Bookkeeper/Accountant can manage the finances and potentially integrate some of your other services via Apps. You can get Real Time data and reports at a touch of a button. Your Bookkeeper or Accountant can help guide you on what reports are the best for you and your business.

So that’s it. What are you waiting for? Get onto a Quickbooks Pro Advisor today to help you move to the cloud. Spend less time on managing your accounts data, have more time for you.

If you want to speak to us about this, contact us on vicky@vickysbookkeeping.com or call 07391 760230 to speak to Vicky or Shane.

Bookkeeping in Hertfordshire

Self Assessment doesn’t have to be done in January.

If you leave thinking about your self assessment until autumn/winter, you are not alone.  Many self employed people in the UK leave thinking about their self assessment tax return until the last minute. However, as the bill has to be paid by 31st January, it is cutting it a bit fine. As well as time taken to submit it, it is always a good idea to give yourself time so you can get money aside for paying the bill also.

Some people do their own self assessment tax returns, and that can be ok, however you need to know what you are doing, and what you can and can’t claim for, so you don’t have to end up answering to the tax man.

Here at Vicky’s Bookkeeping we offer 3 levels of Self Assessment Tax Return Service, and the price is then tailored to your individual circumstances. We are also offering 15% off the price of returns for those signing up before 31/7/2018 (6 months before deadline date).

Credit Control Services in Hertfirdshire

VAT (Making Tax Digital)

You may have overheard one or both of these terms and not known what the hell was being talked about, or you may not have heard of either of them.

Basically MTD stands for Making Tax Digital, the process of the HMRC (also known as the tax man) getting businesses to processing their accounts, and in return their tax returns, in a digital format.

You know how now, a VAT registered business (or their accountant) logs into HMRC website , fills in the figures that they have from their accounting software (or their spreadsheet!) , and it tells you how much VAT you have to pay? Well from April 2019, all VAT registered businesses that are over the VAT threshold (£85,000 for the current and next tax year at time of writing) , will no longer be able to log in and do this. They will have to use software to submit it. Most cloud accounting software is currently in the process of getting ready for this, and some (including Quickbooks UK) are already part of this trial. When the figures are produced as part of your VAT report on Quickbooks, at a touch of a button you can submit them to HMRC.

Obviously this could cause concern that businesses may decide to do this themselves and submit information that is wrong, which is why I would always suggest consulting with a qualified professional for VAT matters.

If you are reading this and want to get started with cloud accounting to make your life easier with this change, contact us now.

For more on this, see our second VAT blog here