survey reveals best and worst banks in great britain; london accountant

The Best and Worst Banks in Great Britain Revealed

30/08/202330/08/2023 by James Browning, posted in Blogs, FAQ, Latest News

BEST AND WORST BANKS IN GREAT BRITAIN

If you’re in the market for a new bank, whether for your personal or business needs, you’ll want to take a close look at the latest rankings. Recently, a comprehensive survey in Great Britain asked current account holders to rate their providers on various metrics, such as online and mobile services, branch and overdraft facilities, and the quality of relationship management for businesses. Read on to find out the top-rated and bottom-rated banks to help you make an informed decision.

Top-Ranked Personal Current Account Providers

1. Monzo

Monzo tops the list for personal current accounts. Known for its excellent mobile banking experience, Monzo offers convenient services and a user-friendly interface.

2. Starling Bank

Following closely behind is Starling Bank. Similar to Monzo, it offers a fantastic online and mobile banking service. Its financial products are designed to be straightforward and easy to use.

3. First Direct

A pioneer in telephone banking, First Direct has successfully transferred its emphasis on customer service to the digital world, earning itself the third spot on the list.

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Bottom-Ranked Personal Current Account Providers

Virgin Money, Royal Bank of Scotland

Tied for the last spot are Virgin Money and the Royal Bank of Scotland. While both banks have a long-standing presence in the UK, they seem to fall short in satisfying the modern consumer’s banking needs.

TSB

TSB comes in just above the last two, facing challenges in areas like online and mobile services, as well as customer satisfaction in general.

Top-Ranked Business Current Account Providers

Monzo, Starling Bank

Monzo and Starling Bank claim the top spots for business accounts as well, indicating a strong performance across both personal and business banking services.

Handelsbanken

Handelsbanken stands out for offering excellent relationship management, which is a crucial aspect for small businesses.

Bottom-Ranked Business Current Account Providers

HSBC UK

HSBC UK finds itself at the bottom of the list, signaling the need for improvement in multiple areas, particularly in relationship management for small businesses.

The Co-operative Bank, Virgin Money

Also struggling in the business banking sector are The Co-operative Bank and Virgin Money, who will need to up their game to compete with the leaders in the field.

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Duty free limits if you are travelling abroad

10/07/202310/07/2023 by cigma, posted in Blogs, FAQ, General

DUTY FREE LIMITS WHEN returning from ABROAD

Looking to understand the ins and outs of UK duty-free allowances? At CIGMA Accounting, we’re committed to delivering the latest, most accurate information to help you enjoy your international travel stress-free.

When returning to Great Britain (England, Wales, Scotland) from abroad, here’s a rundown of what you can bring back duty-free for personal use.

You are permitted to bring back:

200 cigarettes, 100 cigarillos, 50 cigars, 250g of tobacco, or 200 sticks of tobacco for electronic heated tobacco devices. Feel free to divide these allowances; for instance, 100 cigarettes and 25 cigars are perfectly fine.
18 litres of still table wine.
42 litres of beer.
4 litres of spirits or strong liqueurs exceeding 22% volume or 9 litres of fortified wine (like port or sherry), sparkling wine or other alcoholic beverages under 22% volume. A split is possible here as well; for example, 4.5 litres of fortified wine and 2 litres of spirits meet the limit.
Other goods, including perfume and souvenirs, up to the value of £390. For those arriving via a private plane or boat for leisure, the limit is £270 tax-free.

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Returning to northern ireland from the eu

For those returning to Northern Ireland from an EU country, no limits are imposed on tobacco or alcohol, provided you can prove that the goods are for your personal use, and all relevant taxes and duties were paid at purchase. However, HMRC suggests these maximum guidelines:

800 cigarettes
200 cigars
400 cigarillos
1kg of tobacco
110 litres of beer
90 litres of wine
10 litres of spirits
20 litres of fortified wine (like port or sherry)

Exceeding these numbers may trigger additional inquiries from HMRC.

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Understanding UK VAT: A Comprehensive Guide for Business Owners

27/06/202327/06/2023 by , posted in Blogs, FAQ, Value Added Tax

Value Added Tax (VAT) is a tax on goods and services in the UK. If you’re a business owner, it’s important to understand how VAT works and how to comply with the regulations. This guide covers everything you need to know about UK VAT, including registration, rates, and filing requirements.

WHAT IS VAT AND WHO NEEDS TO REGISTER?

WHY IS VAT CHARGED?

The UK government adds Value Added Tax (VAT) to goods and services as a way to generate revenue for public spending. VAT is a tax on the value added to a product or service at each stage of its production or distribution. It is essentially a consumption tax that is paid by the end consumer.

The VAT system works by businesses charging VAT on the goods and services they sell, and then reclaiming the VAT they have paid on their own purchases. This means that VAT is effectively a tax on the final consumer, as the amount of VAT paid at each stage of production or distribution is passed on to the next buyer until it reaches the end consumer.

Who needs to register for VAT?

If you are a business owner and your annual turnover exceeds the VAT threshold (currently £85,000), you are required to register for VAT with HM Revenue and Customs (HMRC). However, you can also choose to register voluntarily if your turnover is below the threshold. Once registered, you will need to charge VAT on your sales and pay VAT on your purchases, and file regular VAT returns with HMRC.

Different types of VAT rates and when to charge them.

In the UK, there are three main rates of Value Added Tax (VAT) that apply to goods and services, as well as a number of VAT exemptions and reduced rates.

Standard rate

The standard rate of Value Added Tax (VAT) in the UK is currently 20%. This means that for most goods and services sold in the UK, the VAT charged will be 20% of the sale price.

The standard rate of VAT applies to most goods and services, with a few exceptions that are either exempt from VAT or subject to reduced rates. Some examples of goods and services that are subject to the standard rate of VAT include:

Electronic goods such as televisions and computers
Clothing and footwear, except for children’s clothing and footwear which are zero-rated
Vehicles and fuel
Alcohol, tobacco, and soft drinks
Most services, such as legal and accounting services, advertising, and consultancy services

When a business is registered for VAT, they are required to charge VAT on their sales at the appropriate rate, which in most cases will be the standard rate of 20%. The business must then declare the VAT they have charged on their sales to HM Revenue & Customs (HMRC), usually on a quarterly basis.

If the business has incurred VAT on their own purchases, they can reclaim this input tax against the VAT they have charged on their sales. This means that the business effectively only pays VAT on the value they have added to the product or service they are selling.

The standard rate of VAT can have an impact on consumer behaviour, as it increases the cost of goods and services for consumers. Businesses may also need to adjust their pricing to account for the VAT they are charging. The standard rate of VAT is reviewed periodically by the government, and may be adjusted in response to economic conditions or other factors.

Reduced rate

The reduced rate of Value Added Tax (VAT) in the UK is a rate of 5% charged on certain goods and services. This reduced rate is lower than the standard rate of VAT, which is currently set at 20%.

The reduced rate of VAT applies to a specific list of goods and services, which include:

Domestic fuel and power, such as gas and electricity used in a home
Children’s car seats and booster cushions
Mobility aids for the elderly and disabled, such as wheelchairs and stairlifts
Sanitary products, such as tampons and sanitary towels
Energy-saving materials, such as insulation and solar panels
Certain types of renovations and repairs to private residences

Businesses that sell goods or services that are subject to the reduced rate of VAT are still required to register for VAT if their taxable turnover exceeds the VAT registration threshold. This means that they will need to account for the VAT they charge on their sales, but at a lower rate than the standard rate of VAT.

If a business is registered for VAT and they sell goods or services that are subject to the reduced rate of VAT, they can still reclaim the input tax they have paid on their own purchases. This means that they can offset the VAT they have paid against the VAT they have charged, resulting in a lower overall VAT liability.

The reduced rate of VAT can have an impact on consumer behaviour, as it reduces the cost of certain goods and services. For example, the reduced rate of VAT on sanitary products makes these items more affordable for consumers.

It’s important to note that the government can change the goods and services that are subject to the reduced rate of VAT, and that businesses should regularly check whether their products and services still qualify for the reduced rate.

Zero rate

The zero rate of Value Added Tax (VAT) in the UK is a rate of 0% charged on certain goods and services. This means that these goods and services are still subject to VAT, but the rate of VAT charged on them is set at 0%. This differs from exempt goods and services which are not subject to VAT at all.

The zero rate of VAT applies to a range of goods and services, including but not limited to:

Food and drink, including most groceries, milk, bread, and fruit and vegetables.
Books, newspapers, and magazines
Children’s clothing and footwear
Some medical equipment and supplies
Some services related to international travel, such as flights and hotel accommodation

Businesses that sell goods or services that are subject to the zero rate of VAT are still required to register for VAT if their taxable turnover exceeds the VAT registration threshold. This means that they will need to account for the VAT they charge on their sales, even though the rate is 0%.

If a business is registered for VAT and they sell goods or services that are subject to the zero rate of VAT, they can still reclaim the input tax they have paid on their own purchases. This means that they can offset the VAT they have paid against the VAT they have charged, resulting in a lower overall VAT liability.

The zero rate of VAT can have an impact on consumer behavior, as it reduces the cost of certain goods and services. For example, the zero rate of VAT on children’s clothing and footwear makes these items more affordable for families.

It’s important to note that the government can change the goods and services that are subject to the zero rate of VAT, and that businesses should regularly check whether their products and services still qualify for the zero rate.

Which goods and services are exempt from VAT?

The following are examples of VAT exempt items, which do not need to be added to your total VAT taxable turnover:

Financial services, including investments and insurance.
Garages, parking spaces and even houseboat moorings.
Education and training.
Property, land, and buildings.
Healthcare.
Funeral plans.
Charity events.
Antiques.
Gambling.
Sports activities.
Get the full list here.

VAT returns and deadlines for filing: Annual vs. Quarterly

As a VAT-registered business owner in the UK, you are required to file VAT returns with HM Revenue and Customs (HMRC) on a regular basis. The frequency of your VAT returns will depend on the size of your business and the amount of VAT you are liable to pay.

Generally, businesses with a turnover of less than £85,000 can file VAT returns annually, while those with a turnover of more than £85,000 must file returns quarterly. It’s important to keep track of your VAT deadlines and ensure you file your returns on time to avoid penalties and interest charges. The deadline for filing and paying your VAT is usually one month and seven days after the end of your VAT period.

Annual VAT Returns

In the UK, businesses that are registered for Value Added Tax (VAT) are required to submit an Annual VAT Return in addition to their quarterly VAT returns.

The Annual VAT Return is a summary of the business’s VAT records for the entire VAT accounting year, which runs from the start of the business’s VAT registration date to the end of the 12th month. The Annual VAT Return is due within two months and 10 days of the end of the VAT accounting year.

The Annual VAT Return includes the following information:

Total VAT charged on sales made during the VAT accounting year
Total VAT paid on purchases made during the VAT accounting year
Total VAT owed or overpaid for the VAT accounting year
The business’s VAT registration number and the accounting period covered by the return

Quarterly VAT Returns

In the UK, businesses that are registered for Value Added Tax (VAT) are required to submit quarterly VAT returns to HM Revenue & Customs (HMRC).

The VAT quarters run as follows:

1 April to 30 June
1 July to 30 September
1 October to 31 December
1 January to 31 March

The deadline for submitting a VAT return and making a payment to HMRC is one month and seven days after the end of the VAT quarter.

The VAT return must include the same information as an annual return, described above.

How to Complete a VAT Return?

To complete a VAT Return, businesses must calculate the total amount of VAT charged on sales and subtract the total amount of VAT paid on purchases. If the result is a positive figure, the business will owe VAT to HM Revenue & Customs (HMRC). If the result is a negative figure, the business will be due a VAT refund from HMRC.

If a business fails to submit their VAT Return or submit it late, they may be subject to penalties and interest charges. Additionally, if the Annual VAT Return shows that the business owes VAT to HMRC, this must be paid within the payment deadline to avoid further penalties.

It’s important for businesses to keep accurate records of their VAT transactions throughout the year in order to complete their Annual VAT Return correctly and on time. Some businesses may choose to hire an accountant or bookkeeper to help them with this task.

HMRC Penalties Relating to VAT

If a business that is registered for Value Added Tax (VAT) fails to submit their VAT returns or submit them late, they may be subject to penalties and interest charges. The VAT penalties system was updated on 1 January 2023, and is now based on a points system.

For each return you submit late, you’ll receive a penalty point until you reach the penalty point threshold. When you reach the threshold, you’ll receive a £200 penalty. You’ll also receive a further £200 penalty for each subsequent late submission while you’re at the threshold.

The penalty point threshold (PPT) is set by your accounting period. The threshold is the maximum points you can receive. Businesses who submit returns annually have a PPT of 2, those who submit quarterly have 4, and those who submit monthly have 5.

In addition to the penalties, HM Revenue & Customs (HMRC) may charge interest on any late payments of VAT owed.

If a business is experiencing difficulties with submitting their VAT returns on time or making VAT payments, they should contact HMRC as soon as possible to discuss their situation. HMRC may be able to offer support and advice to help the business get back on track with their VAT obligations.

VAT schemes for small businesses

There are several VAT schemes available for small businesses in the UK, designed to simplify the VAT process and reduce administrative burdens. The most popular scheme is the Flat Rate Scheme, which allows businesses with a turnover of less than £150,000 to pay a fixed percentage of their turnover as VAT, rather than calculating the actual VAT owed on each transaction. This can save time and money for small businesses, as well as providing a predictable VAT liability.

Here are some of the most common VAT schemes for small businesses:

1. Flat Rate Scheme (FRS)

The Flat Rate Scheme allows eligible businesses to pay a fixed rate of VAT to HM Revenue & Customs (HMRC) based on their turnover. The flat rate takes into account the business’s specific industry sector and is usually lower than the standard VAT rate. Businesses using the FRS are not able to reclaim VAT on purchases, except for certain capital assets over £2,000.

2. Annual Accounting Scheme

This scheme allows eligible businesses to make one VAT payment per year, rather than four payments per year. The business must make interim payments throughout the year based on their estimated VAT liability, and then reconcile their account and pay any balance due or claim a refund at the end of the year.

3. Cash Accounting Scheme

This scheme allows eligible businesses to account for VAT on the basis of cash received and paid, rather than on invoices issued and received. This can help businesses to manage their cash flow, as they do not have to pay VAT on sales until they have been paid by their customers.

4. Retail Scheme

This scheme is designed for businesses that sell a high proportion of low-value items to non-VAT registered customers. The scheme allows businesses to calculate their VAT liability based on a percentage of their total retail sales, rather than on each individual sale.

5. Margin Scheme

This scheme is designed for businesses that sell second-hand goods, works of art, antiques, or collectors’ items. It allows businesses to pay VAT on the difference between the purchase price and the selling price of the goods, rather than on the full selling price.

Small businesses should carefully consider which VAT scheme is most appropriate for their business and seek professional advice if necessary.

Common mistakes to avoid when dealing with VAT

Dealing with VAT can be complex and mistakes can be costly. Here are some common mistakes to avoid when dealing with Value Added Tax (VAT) in the UK:

Not registering for VAT on time:
Businesses must register for VAT with HM Revenue & Customs (HMRC) if their taxable turnover exceeds the VAT registration threshold, which is currently £85,000. Failure to register for VAT on time can result in penalties and interest charges.
Not charging the correct rate of VAT:
Businesses must charge the correct rate of VAT on their sales, depending on the type of goods or services being sold. Charging the wrong rate of VAT can result in penalties and interest charges.
Failing to keep accurate records:
Businesses must keep accurate records of their VAT transactions, including sales and purchases, in order to complete their VAT returns correctly. Failure to keep accurate records can result in errors and omissions on VAT returns, which can lead to penalties and interest charges.
Not reclaiming VAT on eligible purchases:
Businesses can reclaim VAT on eligible purchases, such as goods and services used for business purposes. Failure to reclaim VAT on eligible purchases can result in increased costs for the business.
Missing VAT return deadlines:
Businesses must submit their VAT returns and make VAT payments on time to avoid penalties and interest charges. Missing VAT return deadlines can result in penalties and interest charges.
Failing to notify HMRC of changes to business circumstances:
Businesses must notify HMRC of any changes to their business circumstances that may affect their VAT registration or VAT liability. Failure to do so can result in penalties and interest charges.
Not understanding VAT rules and regulations:
VAT can be complex, and it’s important for businesses to have a good understanding of the rules and regulations surrounding VAT. Failure to understand VAT rules and regulations can lead to mistakes and errors on VAT returns, which can result in penalties and interest charges.

It’s important for businesses to take their VAT obligations seriously and to seek professional advice if they are unsure about any aspect of VAT.

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national insurance guide; london accountant; UK national insurance contributions; national insurance rates

Understanding National Insurance: Contributions, rates and employers

27/06/202327/06/2023 by , posted in Blogs, Employment & Payroll, FAQ, National Insurance

National Insurance (NI) is an essential part of the UK’s tax system, but it is often misunderstood. If you are new to the UK or starting your first job, understanding National Insurance contributions can be confusing, and you may be left wondering – how is National Insurance calculated? In this blog post, we will explain what National Insurance contributions are and how they differ from income tax, what services NI payments fund, National Insurance rates, and finding your National Insurance number.

What is National Insurance and how is it different from income tax?

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What services do National Insurance CONTRIBUTIONS fund?

National Insurance contributions go towards a range of services and benefits provided by the UK government. The main services and benefits that NI payments fund are:

The State Pension.
Jobseeker’s Allowance.
Employment and Support Allowance.
Maternity Allowance
Widowed Parent’s Allowance.
Bereavement Support Payment.
The National Health Service (NHS).
Personal Independence Payment (PIP).

Who pays for National Insurance and what are National Insurance rates?

If you are employed, you and your employer will both have to pay National Insurance contributions. The amount you pay will depend on how much you earn. The current rate for employees is 12% on earnings between £242 and £967 per week, and 2% on earnings above £967 per week. Your employer will also pay 13.8% of your earnings above £175 per week.

If you are self-employed, you will need to pay Class 2 and Class 4 National Insurance contributions. Class 2 contributions are a fixed weekly amount of £3.45, and Class 4 contributions are based on your profits. The current rate for Class 4 contributions is 9% on profits between £12,570 and £50,270 and 2% on profits over £50,270.

For those working abroad, you can read our blog post on overseas NI contributions.

What are the benefits of paying National Insurance contributions?

Paying National Insurance contributions can provide you with access to a range of state benefits, including the State Pension, maternity and paternity pay, and sick pay. It can also help you to qualify for contributions-based Jobseeker’s Allowance and Employment and Support Allowance if you are unable to work due to illness or disability.

In addition to providing you with access to state benefits, paying National Insurance contributions can also help you to build up a National Insurance record, which is used to calculate your State Pension entitlement. To qualify for the full State Pension, you will need to have paid or been credited with enough National Insurance contributions.

Can I make voluntary NI contributions?

If you are not employed or self-employed, you may still be able to make voluntary National Insurance contributions. This can be beneficial if you have gaps in your National Insurance record, for example, if you have taken time out of work to care for children or have lived abroad.

Voluntary contributions can help you to build up your National Insurance record and may help you to qualify for certain state benefits, including the State Pension. The amount you pay and the benefits you receive will depend on the type of voluntary contributions you make.

There are two types of voluntary NI contributions:

Class 3 contributions:
These are voluntary contributions that you can make to fill gaps in your National Insurance record. The current rate for Class 3 contributions is £15.40 per week. You can make Class 3 contributions for any tax year in which you have a gap in your National Insurance record.

Class 2 contributions:
These are voluntary contributions that you can make if you are self-employed but have not earned enough to be required to pay Class 2 contributions. The current rate for Class 2 contributions is £3.05 per week. Paying Class 2 contributions voluntarily can help you to build up your National Insurance record and qualify for state benefits.

It is worth noting that voluntary contributions may not always be the best option for everyone. Before making any voluntary contributions, you should speak to a financial advisor or contact HM Revenue and Customs (HMRC) for advice on your individual circumstances.

How to find your National Insurance Number

Your National Insurance Number (NIN) is a unique identifier used by HM Revenue and Customs (HMRC) to track your National Insurance contributions and ensure that you are paying the correct amount. If you are unsure of your NIN, there are several ways to find it:

Check your payslip – Your NIN should be printed on your payslip. If you are employed, your employer should have your NIN on file and include it on your payslip.

Check official documents – Your NIN may be listed on official documents such as your P60, tax return, or any correspondence you have received from HMRC.

Contact HMRC – If you are unable to find your NIN, you can contact HMRC and request that they send you a letter confirming your NIN. You will need to provide personal information such as your name, date of birth, and address to verify your identity.

Use the government’s online service – You can use the government’s online service to find your NIN if you have a UK passport or a UK driving licence. You will need to create an account and provide personal information to verify your identity.

It’s important to keep your NIN safe and secure, as it is a valuable piece of personal information that can be used to steal your identity. Never share your NIN with anyone unless you are sure that it is necessary, and always keep it private.

Need Assistance from an Accountant?

National Insurance contributions are an important part of the UK’s tax system, and they fund a range of state benefits and services. Understanding National Insurance can be confusing, but it is essential to ensure that you are paying the correct amount and have access to the state benefits that you are entitled to.

If you are unsure about your National Insurance contributions or entitlement to state benefits, you should speak to a financial advisor. Our CIMA-registered accountants at CIGMA Accounting would be happy to assist with any of your personal or business accounting needs. Contact us via the form below for a free quote.

Wimbledon Accountant

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Do You Need to Register Trusts with HMRC? Find out today

27/06/202327/06/2023 by , posted in Blogs, FAQ

If you’re considering setting up a trust or have already established one, you might be wondering whether or not you need to register trusts with HM Revenue and Customs (HMRC). In this blog post, we’ll answer that question and provide you with all the information you need to know, including when and how to register trusts.

What is a trust?

A trust is a legal arrangement where assets are managed by one person (the trustee) for the benefit of another (the beneficiary). Trusts are commonly used for estate planning purposes, as they can provide a way to pass on assets to future generations while minimising tax liabilities and protecting assets from creditors.

You can also read our full post about legal trusts.

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Why would someone want to register trusts?

There are a number of reasons why someone might want to establish a trust, including:

To protect assets from creditors or legal action.
To minimise inheritance tax liabilities.
To provide for a vulnerable beneficiary.
To pass on assets to future generations.
To manage assets on behalf of someone who is unable to manage them themselves (such as a child or vulnerable adult).

Do you need to register trusts with HMRC?

The short answer is: it depends. If your trust generates income or capital gains, then you will need to register it with HMRC. This is because trusts are subject to the same tax rules as individuals, and any income or gains generated by the trust may be subject to tax. Registering trusts is also important for anti-money laundering efforts.

You must register a trust if it becomes liable for any of the following taxes:

Capital Gains Tax.
Income Tax.
Inheritance Tax.
Stamp Duty Land Tax.
Stamp Duty Reserve Tax.
Land and Buildings Transaction Tax (in Scotland).
Land Transaction Tax (in Wales).

If your trust is any of the following and does not have any tax to pay, it is classed as Schedule 3A and does not need to register with HMRC:

A statutory trust by a court order or by law — for example, a trust created by a court when a couple cannot agree how to split assets during a divorce.
Used to hold money or assets of a UK registered pension scheme — like an occupational pension scheme.
Holding life insurance policies that only pay out on death, illness, or disability.
A trust for a registered UK charity (or a charity not required to register with the Charity Commission under the Charities Act 2011).
Set up to open a bank account for a child.
Set up on death that takes assets from the estate and is closed within 2 years of death (also called a ‘will trust’).
A trust with less than £100 and set up before 6 October 2020 (also called a ‘pilot trust’).
A co-ownership trust set up to hold shares of property or other assets jointly owned by 2 or more people as ‘tenants in common’
A trust relating to financial markets — including those created by default arrangements of a designated system or of the default rules of a recognised body.
Created to hold money for people other than the trustee — or those relating to professional services
Holding client money, securities and other assets — this must be incidental to the carrying on of business by a relevant supervised person
A trust for capital markets and similar items.
Created to enable commercial transactions.
A trust relating to registration of assets — for example, trusts created to hold the legal title of an asset for the person to whom the transfer or disposal is being made.
A trust relating to legislative requirements — for example trusts set up to hold property, money from compensation for a personal injury or set up for a vulnerable beneficiary such as a disabled person.
Set up by government or other UK public authority.

How do you register trusts in the uk?

You will need to complete the Trust Registration Service (TRS) online. The TRS is a self-assessment process that allows you to register your trust, provide details of the trustees and beneficiaries, and declare any income or gains generated by the trust. You can access the TRS through the government’s website, and you will need to have your trust’s Unique Taxpayer Reference (UTR) to hand.

For most trusts, you will have to register with HMRC within 90 days of it being created or becoming liable for tax, or on or before 1 September of the financial year in which it was established (whichever is later).

For the full list of details needed to register a trust, have a look at HMRC’s website.

GET EXPERT ASSISTANCE

If you have set up a trust, it’s important to understand whether or not you need to register it with HMRC. If your trust generates income or capital gains, then you will need to register it, and you can do so through the Trust Registration Service online. It’s always a good idea to seek professional advice when setting up a trust, to ensure that you’re meeting all your legal obligations and maximising the benefits of the trust for you and your beneficiaries.

Our CIMA-registered professionals at CIGMA accounting would be happy assist you or your business with any accounting needs. Contact us via phone or through the form below for a free quote.

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Private Residence Relief: minimise tax when selling your home

27/06/202327/06/2023 by cigma, posted in Blogs, Capital Gains Tax, FAQ

Private Residence Relief: minimising tax when selling your home

Have you ever considered selling your home? If yes, you’ve probably wondered about the tax implications. Specifically, there might be one tax you’ve heard about: Capital Gains Tax (CGT). In this article, we aim to clarify what this tax is and how Private Residence Relief can potentially protect you from it.

If you need assistance with your tax and accounting, whether it is personal or corporate, CIGMA Accounting is here to help. Visit our Contact Page to set up a free consultation with our CIMA-registered professionals.

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What is Capital Gains Tax (CGT)?

Capital Gains Tax is a tax on the profit or gain you make when you sell or dispose of an asset that has increased in value. This applies to finance assets, investments like art, and company shares. In the context of property, if you sell a house that is not your main home, you may need to pay CGT on the profit you make.

What is Private Residence Relief?

Private Residence Relief, also known as Principal Private Residence Relief (PPR), is a valuable tax relief that can significantly reduce, or even eliminate, CGT when you sell your main family home. This relief recognises that your primary residence should not be subject to the same tax burdens as other investment assets.

Who Qualifies for Private Residence Relief?

There are specific conditions you need to meet for Private Residence Relief. According to the HMRC, the following conditions must be satisfied:

Main Residence: The property must have been your only or main residence throughout the period of ownership.
No Rental: You must not have let out part of the house (having a lodger is not considered letting out a part).
Business Use: No part of your home should have been used exclusively for business purposes. However, using a room as a temporary or occasional office doesn’t count as exclusive business use.
Property Size: The garden or grounds including the buildings on them should not be greater than 5,000 square metres (approximately an acre) in total.
Profit Motive: The property must not have been purchased solely to make a financial gain.

If you meet all these conditions, you may be entitled to full Private Residence Relief on CGT.

Final Period Exemption

Even if you move out of your home, HMRC provides a Final Period Exemption. Under this provision, the last nine months of ownership are disregarded for CGT purposes. This means you might still qualify for Private Residence Relief even if you weren’t living in the property when it was sold. Under certain limited circumstances, this time period can be extended to 36 months.

Private Residence Relief for Married Couples and Civil Partners

It’s important to note that for married couples and civil partners, only one property can be counted as the main home at any one time for the purposes of Private Residence Relief.

In summary, understanding Private Residence Relief can save you significant sums of money when selling your home. However, it’s always wise to consult with a tax advisor or expert who understands your specific circumstances to ensure you maximise any tax relief you are entitled to.

Our CIMA-registered professionals at CIGMA Accounting provide affordable accounting services to clients across the UK and abroad. Get in contact via the form below, or via our Contact Page, to organise a free consultation.

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How to claim work from home tax relief in the UK

06/06/202315/08/2023 by , posted in Blogs, FAQ, Income Tax, Personal, Tax credits

How to claim work from home tax relief in the UK

If you work from home, you may be eligible for work from home tax relief on some of your expenses. This will depend on whether working from home is a choice or is required by your work.

The amount of tax relief you can claim depends on how much your tax band and how much you spend on work-related expenses. When using the standard rate of relief, individuals paying the Basic Rate of tax can get up to £62 per year in tax relief, while those paying the Additional Rate of tax can get up to £140 per year.

It is worth noting that the tax relief for working from home is not a special scheme, but simply one of the job expenses you can claim tax relief on if they are not paid for by employers. You can click here to read our post on tax relief for travel expenses.

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Who Can Claim Work from Home Tax Relief?

Just like tax relief for other work expenses, you can only claim tax relief on working from home when your employer gives you no alternatives and they do not already reimburse you for those costs.

You can claim tax relief if you work from home and:

Your employer requires you to work from home, or requires you to travel an unreasonable distance every day to reach their office.
Your employer does not have an office, or has no appropriate facilities for you at their office.

You cannot claim tax relief if you work from home and:

Your employment contract allows you to work from home some or all of the time.
You work from home because of the coronavirus pandemic.
You work from home because your employer’s office is full.

What working from home expenses Can You Claim For?

HMRC will only allow you to claim expenses that are necessary, and are used only for work purposes. You can claim tax relief for the following expenses:

Heating and lighting for your work area.
Electricity for your work area.
Phone calls made for work purposes.
Internet access for work purposes.
Stationery and other office supplies.
Equipment used for work purposes, such as a computer or printer.

How Much tax relief Can You Claim when working from home?

You can claim tax relief on the full cost of the expenses listed above. However, you will have to keep accurate records to submit to HMRC. If you do not want to manage receipts, you can claim the standard rate, which assumes you spend £6 per week on the costs of working from home.

Now that you have your total expenses (either the exact amount or £6 per week), you multiply this by your tax rate to determine how much relief you will get. Using the standard £6 per week, this means that those paying the 20% Basic Rate of tax can receive £1.2 per week (£62.4 per year) in tax relief.

How to Claim Work from Home Tax Relief

To claim tax relief for your work-related expenses, you can either:

Claim the flat rate of £6 per week. You do not need to keep evidence of your expenses if you claim the flat rate.
Claim the actual amount of your expenses. You will need to keep evidence of your expenses, such as receipts, bills, or contracts, if you claim the actual amount.

You can work expense-related tax relief using HMRC’s online portal. If you submit a Self Assessment tax return for any reason, you must claim the relief on your tax return rather than through the online portal.

Deadline for Claiming Work expense Tax Relief

You can claim tax relief for your work-related expenses up to four years after the end of the tax year in which you incurred the expenses. For example, you can claim tax relief for expenses you incurred in the 2022/23 tax year until the end of the 2026/27 tax year. You can of course also claim relief for up to four years previous, meaning you can still claim expenses from the 2019/20 tax year in your 2023/24 tax return.

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Guide to tax relief for work expenses in the UK

05/06/202307/06/2023 by , posted in Blogs, FAQ, Income Tax, Personal

Guide to tax relief for work expenses in the UK

If you find yourself paying for job costs out of your own pocket, making the most of available tax reliefs is essential. In the UK, HM Revenue and Customs (HMRC) offers tax relief for certain job-related expenses that are not reimbursed by your employer.

In this blog post, we will provide a comprehensive overview of the tax relief options available to UK taxpayers, including working from home, uniforms and work clothing, personal protective equipment (PPE), vehicles used for work, travel and overnight expenses, and buying other equipment.

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Which work expenses qualify for tax relief?

To be eligible for tax relief, expenses must be required for your job, bought with your own money, and only used for work purposes. You cannot claim relief for expenses that are reimbursed by your employer or for which your employer gives you an alternative. For example, you cannot claim tax relief on the cost of buying a work phone when your employer offers to pay for one, but you would rather get a different model.

In the rest of this post we explore the different expenses that are eligible for tax relief, assuming that HMRC’s conditions outlined above are met.

Work from Home tax relief

With the rise of remote work, many individuals find themselves working from home either full-time or part-time. HMRC allows eligible individuals to claim tax relief for additional household costs incurred while working from home.

To be eligible, you must meet certain criteria, such as living far away from your office or your employer not having a physical office. You cannot claim tax relief if you choose to work from home or due to COVID-19.

Allowable expenses include business phone calls and a portion of your gas and electricity bills. You can either claim a flat rate expense of £6 a week (for previous tax years, it was £4 a week) or the exact amount of your extra costs. However, to claim your exact expenses you will have to provide HMRC will receipts.

You can read our full post on claiming work from home tax relief here.

Tax relief for Uniforms, Work Clothing, and Tools

If your job requires you to wear a uniform or specialised work clothing, you may be eligible for tax relief on the cost of repairing, replacing, or cleaning them. A uniform is a set of clothing that identifies you as having a certain occupation, such as a nurse or police officer. Even if the clothing does not identify your occupation but is necessary for your work, such as overalls or safety boots, you may still be able to claim tax relief. Small tools can also qualify for this relief, such as electric drills or cameras.

It is important to clarify that you can only claim relief on the costs of cleaning, repairing, or replacing your specialist clothing or tools. You cannot claim for the initial cost of purchasing these items.

Also important to point out is that you cannot claim tax relief for the cost of buying or cleaning everyday clothing used for work. Similarly, you cannot claim tax relief for personal protective equipment (PPE) as your employer should either provide it free of charge or reimburse you for the costs.

You have the option to claim either the exact amount, which must be backed up by receipts, or you can claim the ‘flat rate expense’ for your job. You can find the list of available flat rates on HMRC’s website.

tax relief on fuel and Vehicles Used for Work

If you use your own vehicle for work purposes, such as cars, vans, motorcycles, or bicycles, you may be eligible to claim tax relief. However, this does not include commuting to and from your regular workplace, unless it is a temporary place of work. The amount you can claim depends on whether you own or lease the vehicle yourself or if it is provided by your employer.

If you use your own vehicle, you can claim tax relief based on approved mileage rates, which cover the cost of owning and running the vehicle. For company cars used for business trips, you can claim tax relief on fuel and electricity expenses, provided you keep records to show the actual cost.

You can click here to read our full post on travel and mileage expense claims.

Travel and Overnight Expenses

If your job requires you to travel for work purposes, you may be eligible to claim tax relief on certain expenses. This includes public transport costs, hotel accommodation for overnight stays, food and drink, congestion charges and tolls, parking fees, business phone calls, and printing costs.

However, it’s important to note that you generally cannot claim for regular commuting expenses unless you’re travelling to a temporary place of work. This means that you cannot claim mileage costs for your daily commute from home to work and vice versa. You can click here to read our full post on travel and mileage expense claims.

Buying Other Equipment

In most cases, you can claim tax relief on the full cost of substantial equipment, such as a computer, that is necessary for your work. This falls under the annual investment allowance (AIA), a type of capital allowance. You can currently claim for expenses up to £1 million under the AIA.

However, you cannot claim capital allowances for cars, motorcycles, or bicycles used for work. You will have to claim business mileage and fuel costs, as described above. For smaller items like uniforms and tools that have a shorter lifespan, you can claim tax relief in a different way.

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Using Companies House WebFiling to simplify your tax returns

30/05/202331/05/2023 by , posted in Blogs, Corporation Tax, FAQ

In today’s fast-paced business environment, efficient and accurate filing processes are essential for every company. Companies House WebFiling provides a convenient and streamlined way to manage your company’s filing requirements online. In this blog post, we will explore the benefits of using Companies House WebFiling and how it can help your accounting firm and clients stay compliant while saving time and resources.

Understanding Companies House WebFiling

Companies House WebFiling is an online platform provided by Companies House, the UK’s official registrar of companies. This platform allows businesses to file various statutory documents electronically, simplifying the entire filing process. With Companies House WebFiling, accountants and businesses can submit documents quickly and securely without the need for manual paperwork or physical visits.

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Key Benefits of Companies House WebFiling

Time-saving Convenience
By using Companies House WebFiling, accounting firms can save valuable time and resources. No longer will your team need to navigate through complex paperwork or make trips to the Companies House office. The platform allows you to file documents anytime, anywhere, making it a convenient solution for busy accounting professionals.
Enhanced Accuracy
Manual paperwork is prone to human error, leading to potential mistakes and delays in filing. Companies House WebFiling eliminates the risk of errors by providing a digital platform that guides you through the filing process, ensuring all required information is entered correctly. The system also performs validation checks, minimizing the chances of rejection due to missing or incorrect data.
Cost Efficiency
Traditional filing methods often incur additional costs, such as printing, postage, and travel expenses. By using Companies House WebFiling, your accounting firm can significantly reduce these expenses. The platform’s online submission process eliminates the need for physical copies and mailing, resulting in cost savings for your firm and clients.
Real-time Updates and Notifications
Companies House WebFiling provides immediate confirmation of document submissions. You can easily track the progress of your filings and receive notifications on the status of your documents. This ensures that you and your clients stay informed throughout the process and can take necessary actions promptly if required.

How to Get Started with Companies House WebFiling

Getting started with Companies House WebFiling is a straightforward process. Follow these steps to make the most of this efficient filing platform:

1. Register for an Account
  Visit the Companies House website and register for a WebFiling account. Provide the necessary information and wait for your account to be approved. Once approved, you can log in and begin using the platform.
2. Familiarize Yourself with the Process
  Take some time to explore the platform and familiarize yourself with its features. Companies House provides comprehensive guidance and tutorials to help you navigate through the system and make the most of its capabilities.
3. Gather the Required Information
  Before filing any documents, ensure you have all the necessary information at hand. Double-check the accuracy of the data to minimize the chances of rejection or delays.
4. Submit Your Documents
  Using Companies House WebFiling, submit the relevant documents in accordance with the statutory requirements. Follow the platform’s instructions to provide all the requested information accurately.

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How to best pay yourself as a UK company director

26/05/202326/05/2023 by , posted in Blogs, Capital Gains Tax, FAQ, Income Tax, National Insurance, Payroll

As a new company director in the UK, you are likely wondering how to best pay yourself through your company. You have several options for transferring company profits into personal income, including salaries, dividends, and investments. This post outlines the pros and cons of each, and gives you the information you will need to make your income as tax efficient as possible.

How can a company director pay themselves?

Company directors are considered employees of the company and so take a salary which is subject to income tax. Directors can also pay themselves using dividends, which are a common method of distributing profits to shareholders (which includes directors).

Salaries and dividends are subject to different tax rates, tax-free allowances, and National Insurance obligations, which we break down below.

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What is the difference between salary and dividends?

Dividends are a way for companies to distribute a portion of their profits to their shareholders. As a director, you can choose to pay yourself through dividends instead of a salary. Dividends are typically paid out after the company has paid its taxes and can be a tax-efficient way to receive income.

However, there are some basic rules to follow. Firstly, your company must have sufficient profits to pay dividends, and you should keep records of these profits. Secondly, dividends must be declared and approved by the company’s shareholders. Lastly, dividends cannot be paid if the company is insolvent or if the payment would render it insolvent.

When it comes to tax purposes, it’s important to find the right balance. Dividends are subject to lower tax rates than salaries. You also do not need to pay National Insurance Contributions on dividend income, which you would have to do so on any salary income.

Lastly, as is also the case with personal income tax, a certain amount of dividends you receive is tax-free.

You can read our full guide to dividends to learn more.

What is the most efficient way for a company director to pay themselves?

From the explanation above, it should be clear that paying yourself efficiently as a company director involves balancing tax-free personal allowances and differing tax obligations.

The table below should be very helpful in outlining these differences between salary and dividends.

At the most basic level, directors clearly want to use all of their available tax-free personal allowance. That means taking at least £12,570 as salary and £1,000 as dividends.

It is important to note that once you reach the Higher Rate income bracket, your personal allowance amount begins to decrease. And in the Additional Rate bracket, there is zero tax-free personal allowance.

An important factor that is left out of the above table is the added cost of National Insurance Contributions on salary income. National Insurance Contributions must be paid both by the employee and employer. The basic NIC rate for employees is currently 12% of earnings, and an additional 13.8% of earnings to be paid by the employer. These are basic figures, see our guide to National Insurance for a detailed understanding.

As a company director, you will effectively bear both of these costs, making salary income even less appealing when compared to dividends. A common strategy is to take enough of a salary that the director qualifies for state benefits such as the State Pension, but that does not incur NIC payments.

Under most circumstances, dividends will be more tax efficient than salary income, though how easy it is to distribute dividends will depend on the structure of your company and its shareholders.

Using investments as tax-efficient income sources

It is also important to take advantage of any other tax free allowances that HMRC makes available. An example of this would be transferring company profits into investments, rather than personal salary. In that way, you could take advantage of the tax-free capital gains allowance of £6,000.

Trusts are another way of accomplishing this, and which have their own tax-free capital gains allowance of £3,000.

It is also essential to consider how increased income may push you into a new tax band, and create much higher tax liability. For example, the dividend tax rate jumps from 8.75% in the first income bracket to 33,75% in the second.

As such, it may be more profitable in the long term to reinvest money into business (tax-free), or into other investments, rather than taking extra personal income that pushes you into a higher tax band.

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Comparing company formations in the UK

22/05/202324/10/2023 by , posted in Blogs, Business, Corporate Governance & Regulation, Corporation Tax, FAQ, Income Tax

All legal profit-seeking businesses fall into one of two broad categories: unincorporated and incorporated. The difference is that incorporated forms have what is called a ‘separate legal personality’. The business is considered its own entity under the law.

This means that those in charge of unincorporated businesses bear full responsibility for the company’s debts. The people running incorporated businesses, on the other hand, have what is called ‘limited liability’ – they only stand to lose what they have already invested.

To incorporate or not?

The most important difference between being self-employed and running a limited company is liability and the amount you are taxed. As explained above, self-employed individuals have full responsibility for any losses, while shareholders in a limited company only lose as much as they paid (or promised to pay) for their shares.

Company income is not taxed at the same level as personal income tax paid by employees and people that are self-employed. At under £50,000 annual income, corporate tax is only 1% lower than the standard 20%.

But above £50,270 your personal tax rate jumps to 40%. Even the highest corporate tax rate is only 25%, which means gaining income from a limited company more tax efficient no matter how much you earn.

Company formation agents

Company formation agents are independent, professional firms that specialise in company formation and registration with Companies House.

We at CIGMA Accounting specialise in helping sole traders incorporate their businesses. If you’re looking to take advantage of the lower tax rates for companies, our CIMA-registered accountants would be happy to assist with company formation in London and across the UK.

Unincorporated businesses

These businesses are not considered as separate entities from the owners. This means that owners have full responsibility, i.e. ‘liability’, for the company’s debts and legal obligations. Owners are considered self-employed and must submit annual self-assessment tax returns.

Sole Trader

This is the simplest way to set up and run a business. Ownership and control of the business rests solely with a single person. Regulation for the Sole Trader is minimal. There is no requirement to write a formal constitution for the business, and no need to register with the government’s Company House.

Profits are treated as personal income which is subject to income tax as well as national insurance contributions. Being a Sole Trader is risky by nature, as the owner has unlimited personal liability for the business’ debts and contracts.

Of course they also own all of the business’ assets, and can employ staff. It is unlikely that being a Sole Trader is best for any businesses that need more than small amounts of external investment. Being unincorporated puts limits on borrowing money and raising money by selling shares.

Unincorporated Association

Unincorporated Associations are groups of people that agree, i.e. ‘contract’, to work together for a specific purpose. These businesses usually have a constitution setting out its purpose, rules, and members.

They are usually run by a kind of management committee, all of whom have unlimited liability (unless specifically made immune in the constitution). They are subject to the same restrictions as the Sole Trader.

Partnership

A partnership is a relatively simple way for two or more people to set up a business aimed at making profit. While formal agreement isn’t needed for a partnership to form, it is usual to draw up a legally binding ‘partnership agreement’. This sets out things like the capital put in by each member, and how profits will be shared.

Partners share all the risks and responsibilities of the business. Partners do not need to be individual people, they can also be any ‘legal person’ – such as a company. In these cases, the partners have extra tax and reporting obligations.

Limited Partnership

This is not to be confused with the similarly named, but incorporated, Limited Liability Partnership. These businesses have two kinds of partners: general partners and limited partners.

Limited partners may not be involved in the management of the business and their liability is limited to the amount they have already invested. Unlike other unincorporated businesses, Limited Partnerships must register with Companies House.

Trust

Trusts are essentially legal tools for holding assets with the aim to separate legal ownership from economic interest. A trust holds assets on behold of another person or business, and is run by a small group of trustees.

Trusts usually just manage assets and do not give out profits. They are often used alongside unincorporated associations which can’t own property themselves.

Incorporated businesses

Incorporated forms of business are considered their own legal persons. This gives the owners of the business limited liability for its debts and obligations, but they are subject to stricter regulations.

Limited Company

The Limited Company is the most common kind of legal business, and is subject to corporate tax rather than personal income tax. They must have two constitutional documents:

A Memorandum, which records the fact that the founding members wish to form a company together. This cannot be amended.
Articles of Association, which sets out legally binding rules regarding decision-making, ownership, and profit sharing.

A Limited Company is owned by members, who have all invested in the business. The company’s finances are separate from the members’ personal finances. There are two ways to determine members: shares and guarantees.

Most companies are Limited by Shares. This means members own one or more shares in the company and are known as shareholders. If the company must be liquidated, the shareholders only stand to lose the amount still unpaid on shares. Shareholders also have voting rights, which may depend on the kind of share they own.

A company can also be Limited by Guarantee. This is where members give a guarantee to pay a set amount if the company fails and goes into liquidation.

The day to day management of a company, performed by a ‘director’ or board of directors, is in principle separate from its ownership. However, directors can also be members, meaning that the simplest Limited Company is a single member who owns and directs the whole company.

Limited Companies have a greater ability to finance themselves as they can use their assets as securities for loans. The stricter regulation on Limited Companies includes accountability to both shareholders and the public, as well as the need to provide annual reports to Companies House.

While Private Limited Companies are most common, Public Limited Companies are also possible. These companies can sell shares to the public, but attract even more regulation. This is to protect the public investor who is usually much less involved in managing the business than a private investor.

Limited Liability Partnership

A Limited Liability Partnership (LLP) is similar to a normal partnership, but with limited liability for the partners. Each member must register as self-employed with the HMRC and submit annual self-assessments. At least two members must be ‘designated members’, who are responsible for appointing auditors and filing accounts at Companies House.

LLPs have much more freedom than companies in arranging their internal affairs, making decisions, and sharing profits.

Community Interest Company

A Community Interest Company (CIC) is a form of company (limited by shares or guarantee) created for ‘social enterprises’. They want to use their profits and assets for community benefit. CICs have the flexibility and limited liability of companies, but also special features to make sure they serve the interest of the community:

CICs must submit statements and evidence every year to satisfy the ‘community interest test’.
CICs have an ‘asset lock’ to restrict the transfer of the company’s assets.
CICs have caps on profits paid to members

WHAT DO YOU NEED TO INCORPORATE YOUR BUSINESS?

In order to make your application to Companies House, you will need the following:

A company name
Your business activity (SIC) code. You can find it here
A registered office address. CIGMA accounting offers a service for using our address if you do not have a registered office.
List of shareholders or guarantors
List of directors
List of people with significant control (PSCs)
Details about your capital investments

is a company registration number the same as a VAT number?

No, your Company Registration Number (CRN) is not the same as your VAT registration number (VRN). Neither of these are to be confused with your Unique Taxpayer Reference number (UTR). The UTR is a 10-digit number issues by HMRC. The CRN is an 8-digit number assigned by Companies House to all new limited companies or LLPs.

What is a company registration number?

The Company Registration Number (CRN) is an 8-digit number assigned by Companies House to all new limited companies or LLPs.

You can find your CRN on your company’s Certificate of Incorporation or by using this online tool from Companies House.

What is a vat registration number?

A VAT registration number contains 9 digits and is issued by HMRC. You must register for VAT is your total VAT taxable annual turnover is greater than £85,000. You can check wich products and services are exempt from VAT here.

Need Assistance from an Accountant?

No matter your type of business, CIGMA Accounting can help manage your finances and tax obligations. Our organisation is registered with the Chartered Institute of Management Accounting (CIMA), and our accountants specialise in personal finance and cooperating with business management.

We believe small businesses can change the world, and love helping them work in the most tax-efficient way.

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entertaining a client; london accountant; entertainments for clients

Entertaining a client: Don’t forget your tax and reporting

05/05/202308/05/2023 by , posted in Blogs, Corporate Governance & Regulation, Employee Benefits, Employment & Payroll, FAQ, National Insurance

As a business owner in the UK, it’s crucial to understand the tax, National Insurance, and reporting obligations associated with providing entertainment for clients through your employees. Whether it’s wining and dining a client or hosting social events, certain rules govern the financial aspects of these activities. In this article, we’ll explain what constitutes entertaining a client, differentiate between business and non-business entertainment, and outline how they can impact your tax, National Insurance, and reporting obligations.

What Qualifies as entertaining a client?

Entertainment includes various activities such as dining, drinking, and hospitality provided to clients. When your employees engage in such activities on behalf of your business, it becomes necessary to consider the tax and National Insurance implications and fulfil reporting requirements.

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Entertaining a client for business purposes

Business entertainment refers to instances where you entertain clients with the specific purpose of discussing a business project or establishing and nurturing business connections. The rules for business entertainment remain the same regardless of whether you directly arrange and pay for the entertainment, pay a supplier for entertainment arranged by your employee, or reimburse your employee’s entertainment expenses.

In all cases, you must report the cost of business entertainment on form P11D. However, you are not required to deduct or pay any tax or National Insurance on these expenses.

Non-Business Entertainment for clients

Non-business entertainment involves entertaining clients for social reasons or maintaining business acquaintances outside of specific projects. The tax, National Insurance, and reporting obligations for non-business entertainment differ based on who arranges and pays for the entertainment.

Entertainment for clients Arranged and Paid by Your Business

If your business arranges and pays for non-business entertainment, you must report the cost on form P11D and pay Class 1A National Insurance based on the value of the benefit provided.

Entertainment for clients Arranged by the Employee and Paid by Your Business

When your employee arranges non-business entertainment, and your business covers the expenses, you must report the cost on form P11D. Additionally, you need to add the full cost to the employee’s earnings and deduct Class 1 National Insurance (but not PAYE tax) through payroll.

Entertainment for clients Arranged and Paid by the Employee, with Reimbursement by Your Business

In the case where your employee arranges and pays for non-business entertainment, and your business reimburses the employee, the reimbursement amount is considered earnings. Consequently, you should add it to the employee’s other earnings and deduct PAYE tax and Class 1 National Insurance through payroll.

Completing form P11D

When completing form P11D, an entertainment-related tick-box helps HMRC determine whether your employee can claim a tax deduction for the entertainment expenses provided by your business. If you are completing the form for a charity or a tonnage tax company, you don’t need to enter anything in the box.

For other businesses, tick the box if the cost of the entertainment will be disallowed in your business’s tax calculations. Conversely, put a cross in the box if the cost won’t be disallowed.

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Know when to recover VAT on entertainment expenses

04/05/202308/05/2023 by , posted in Blogs, Business, FAQ, Value Added Tax

When it comes to business entertainment expenses, understanding the treatment of Value Added Tax (VAT) is crucial for businesses operating in the UK. While VAT can generally be reclaimed on goods and services used for business purposes, there are specific rules governing the recovery of VAT on entertainment expenses. In this blog post, we will explore the conditions under which businesses can claim back UK business entertainment VAT, distinguish between business and employee entertainment, and provide insights on VAT recovery in different scenarios.

What is VAT Recovery and When Can Businesses Reclaim Input VAT?

Value Added Tax (VAT) is a consumption tax charged on most goods and services in the UK. Businesses are typically eligible to recover, or reclaim, the VAT they pay on goods and services used for business purposes. This allows them to offset the VAT paid against the VAT they charge on their own taxable supplies. However, there are some specific exceptions when it comes to business entertainment expenses.

Defining Business Entertainment VAT

Business entertainment refers to the provision of hospitality to individuals who are not employees of the business, without charge. It encompasses a range of activities such as providing food and drink, accommodation, tickets to events, and more. It is essential to note that employee entertainment is distinct from business entertainment and is treated differently for VAT recovery purposes.

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Can you recover business entertainment VAT?

In general, businesses cannot reclaim input tax incurred on the provision of business entertainment expenses. This means that the VAT paid on business entertainment activities cannot be offset against the VAT the business charges on its supplies. However, there are certain exceptions for business entertainment provided to overseas customers.

VAT on entertainment expenses for Overseas Customers

If business entertainment is provided to customers who are not ordinarily resident or carrying on a business in the UK, including the Isle of Man, there may be a possibility to reclaim the VAT incurred. However, if there is a ‘private benefit’ to the individual enjoying the entertainment, an output tax charge may be applied, negating the recoverable input tax.

Can you reclaim VAT on entertainment expenses for employees?

Employee entertainment refers to the provision of entertainment for the benefit of employees, such as staff parties, team-building exercises, and staff outings. In most cases, VAT incurred on employee entertainment is considered input tax and is not blocked from recovery under the business entertainment rules.

Can you reclaim VAT on entertainment expenses for directors and partners?

VAT incurred on entertainment provided solely for directors or partners of a business is not considered input tax, as it is not used for a business purpose. Consequently, the VAT cannot be reclaimed. However, if directors or partners attend staff parties alongside other employees, the VAT incurred is eligible for recovery.

Can you reclaim VAT on entertainment expenses when employees host clients?

When employees act as hosts to non-employees, the VAT incurred on entertainment costs is considered input tax. However, this input tax is blocked under the business entertainment rules, thus making it non-recoverable.

Business Entertainment VAT events including Employees and Non-Employees

If an event is organised to entertain both employees and non-employees, businesses can only reclaim the VAT incurred on entertaining their employees. The portion of input tax related to entertaining non-employees is blocked from recovery under the business entertainment rules. Proper apportionment of VAT should be undertaken, considering the rules on partial exemption.

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The Ultimate Guide to Personal Tax in the UK

02/05/202304/05/2023 by , posted in Blogs, FAQ, Income Tax, National Insurance, Personal

Navigating personal tax in the UK can be overwhelming, but it doesn’t have to be. Our comprehensive guide breaks down the process and provides helpful tips for filing your personal tax return. From understanding tax codes to claiming deductions, we’ve got you covered.

Understand Your Tax Obligations

Before you can file your personal tax return in the UK, it’s essential to understand your tax obligations. This includes knowing your tax code, which your employer uses to calculate how much tax should be deducted from your pay. You should also be aware of any taxable income you have, such as rental income or self-employment earnings, and any deductions or allowances you may be eligible for. Taking the time to understand your tax obligations can help ensure you file an accurate and complete tax return.

Let’s have a look at what you’re required to pay taxes on as a UK resident: your income, savings, and investments.

Income Tax

Income tax is a tax on your earnings, including wages, salary, and self-employed income. The amount you pay is based on your earnings and tax code. There are a few things to take note of when looking at your income tax, including all your forms of income, your tax-free personal allowance and the different tax bands.

Personal tax Allowance

Everyone has a personal allowance, which is the amount of money you can earn before you start paying tax. As of April 2023, the current personal allowance is £12,570.

It is important to note that the Personal Allowance is reduced by £1 for every £2 earned between £100,000 and £125,140. In essence, this means that those earning over £100,000 in the Higher rate band (explained below) will be paying tax on a larger portion of their income, and those in the Additional rate band have no Personal Allowance and pay a 45% tax on all of their income.

TAX BANDS

The amount of income tax you pay depends on how much you earn. There are different tax bands for different levels of income, which are:

Basic rate: 20% on earnings between £12,570 and £50,270
Higher rate: 40% on earnings between £50,271 and £150,000
Additional rate: 45% on earnings over £150,000

Importantly, as explained above, individuals with taxable incomes over £100,000 lose £1 of their tax-free personal allowance for every £2 of income, and those in the Additional rate band have zero tax-free personal allowance.

PERSONAL Tax Codes

Your tax code is used by your employer or pension provider to calculate how much income tax to deduct from your earnings. It’s based on your personal allowance and any other allowances or deductions you’re entitled to. The most common tax code is 1257L, usually for individuals with one source of income and who are eligible for the full personal allowance.

Where can I find my Tax Code?

You can find your tax code by registering with the HMRC and checking your tax code online. Alternatively, you can also find your tax code on your payslips. Payslip format differs from company to company, but it can usually be found at the top right of your payslip next to your name.

To check whether you are on the correct tax code, or get a better understanding of what your tax code means, you can read our guide on tax codes blog here: Understanding Tax Codes.

National Insurance Contributions

National Insurance contributions (NICs) are payments made by employees, self-employed individuals, and employers to fund state benefits, such as the state pension, unemployment benefits, and healthcare. NICs are calculated on your earnings, and there are different rates depending on your employment status and earning. These contributions are deducted from your earnings and paid to HM Revenue and Customs (HMRC) on a regular basis.

Who Needs to Make National Insurance Contributions?

In the UK, most people who are over 16 and earn over a certain amount of money need to pay National Insurance contributions (NICs). This includes:

Employees earning more than £184 per week
Self-employed people with profits over £6,515 per year
People who earn money from renting out property
People who receive certain benefits or tax credits above a certain level
Some people who live abroad but work in the UK
People who are over 16 and under the State Pension age who have income from savings or investments above a certain level.

There are some exceptions to this, such as people who are over State Pension age (66 years), people who earn less than the minimum threshold, and some people who are self-employed but have low profits.

NIC bands in the uk

In the UK, National Insurance contributions (NICs) are divided into different brackets, depending on how much you earn. The current NICs brackets for the 2022-23 tax year are as follows:

If you earn less than £184 per week, you do not need to pay NICs.
If you earn between £184 and £967 per week, you pay NICs at a rate of 12% on earnings above £184.
If you earn more than £967 per week, you pay NICs at a rate of 2% on earnings above this amount.

For self-employed individuals, the brackets are slightly different, as NICs are based on your profits rather than your earnings. The current NICs brackets for the self-employed for the 2022-23 tax year are:

If your profits are less than £6,515 per year, you do not need to pay NICs.
If your profits are between £6,515 and £9,568 per year, you pay NICs at a rate of 9% on profits above the lower limit.
If your profits are over £9,568 per year, you pay NICs at a rate of 2% on profits above this amount.

Where Can I find my National insurance number?

You can find your National Insurance number:

on your payslip
on your P60
on letters about your tax, pension or benefits
in the National Insurance section of your personal tax account

You can apply for a National Insurance number if you do not have one or find your National Insurance number if you’ve lost it.

Important Documentation and Forms for Personal Tax

Whether you are a sole trader, a PAYE employee or a director, there are a few things you should keep track of during the year to make your personal tax returns effortless and efficient.

PAYE Documentation and Forms

As a PAYE employee, there are a few things to take into account when completing a self-assessment. The “P” range of forms are important for you to keep track of all your expenses and benefits, as well as the codes you need to be aware of. A brief breakdown of these forms:

P800

You may receive a P800 form, also known as a ‘tax calculation letter’, if HMRC believes you have paid the wrong amount of tax – either too much or too little

P45

When you stop working at a job, your employer must supply you with a P45 form. This form details how much tax you have paid on your salary so far for that tax year. Tax years run from 6 April to 5 April the following year.

P60

The P60 form details how much tax you paid on your salary via PAYE. If you have multiple jobs, you will get a P60 from each of them. If you work for an employer on 5 April, that employer must provide you with your P60 by May 31st of that year.

P11D

P11D forms are used to report your ‘Benefits in Kind’ (or simply ‘benefits’) to HMRC. Benefits are anything given to you by an employer that has monetary value and is not wholly necessary for your work.

For a more detailed view of the PAYE forms, please see our guide: What are P800, P45, P60 and, P11D Forms?

Other important things to take note of are expenses that can offer tax relief benefits. You can read more about which expenses you can claim as a PAYE Employee in the following post: Save on Taxes – Tax Exemptions in the UK.

Sole Trader / Sole Proprietor / Entrepreneur

As a sole trader, you are trading as a business which means you may have additional business expenses and income that need to be listed. As a sole trader, there are many expenses that you can claim. See our guide here: What Expenses can I Claim for As Self Employed?

At CIGMA we love working with small businesses and helping them in the most tax-efficient way. We also want to make it easy for entrepreneurs to manage their taxes which is why we’ve created a bookkeeping spreadsheet to assist you in keeping your information in an orderly manner:

Download Our Free Bookkeeping Spreadsheet:

When Do You Need To Submit Personal Tax Returns to the HMRC?

There are clear guidelines as to who needs to submit a personal tax return and who should not. We’ve created an in-depth guide that you can read here: Do I Need To Submit a Self-Assessment?

However, in short, anyone meeting one or more of the following criteria is required by law to submit a tax return:

Taxable income was over £100,000.
Have a rental income of over £1,000.
Received untaxed income over £2,500 (example: tips or commission).
Savings or Investment income over £10,000.
State pension as your only source of income and was over your personal allowance of £12,750 .
Sole proprietor earning over £1,000.
Earning any type of foreign income.
Claiming child benefit and your or your partner’s income exceeds £50,000.
You are a trustee of a trust or registered pension scheme.

How Do I Pay Taxes in the UK?

In the United Kingdom, individuals who meet the above-mentioned criteria must complete and submit a self-assessment to the HMRC. Never filed a self-assessment before? Not a problem. We’ve created a detailed guide to submitting your self-assessment here: Complete your Self Assessment Like A Pro.

A self-assessment takes into account your tax code, NIC, expenses and income to see whether you are eligible for a tax rebate. Tax rebates are usually paid within 5 days of your self-assessment being approved by the HMRC.

To have the best chance of receiving a tax rebate, it is advised to make use of a tax return specialist. At CIGMA we specialise in tax returns so we complete our client’s self-assessments by taking everything into consideration so that you have the best possible chance to get a tax rebate.

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Understanding Universal Credit: how to apply and how much you can claim

26/04/202328/04/2023 by , posted in Blogs, FAQ

Universal Credit is a new benefits system that has replaced several legacy benefits and credits. It is designed to simplify the process of claiming benefits for people in the UK, by bringing together a range of benefits and tax credits into one payment. In this blog post, we will outline the Universal Credit system, including how much Universal Credit you can claim, how to apply to universal credit, and how to find your account number for Universal Credit.

what benefits has universal credit replaced?

Universal Credit is replacing several legacy benefits and credits, including Working Tax Credit, Child Tax Credit, Housing Benefit, Income Support, Jobseeker’s Allowance, and Employment and Support Allowance. The transition to Universal Credit began in 2013 and is still ongoing, with most areas of the UK now using the system.

How does Universal Credit work?

Universal Credit is a means-tested benefit, which means that the amount you receive depends on your income, savings, and circumstances. You can claim Universal Credit if you are on a low income or out of work. The amount you receive is made up of a standard allowance and any additional amounts that you may be entitled to, such as for housing costs, children, or a disability.

When you apply for Universal Credit, you will need to provide information about your income and circumstances, including details of any savings or investments you have. Your payment will be adjusted each month based on any changes in your income or circumstances.

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What are the benefits of the new Universal Credit system?

One of the main benefits of Universal Credit is that it simplifies the process of claiming benefits. Instead of having to make separate claims for different benefits and tax credits, you can now apply for everything in one go. This makes it easier to manage your finances and reduces the risk of errors or delays in payments.

Another benefit of Universal Credit is that it is designed to incentivize work. Under the old system, people on benefits could face a “benefit trap” where they would lose their benefits if they started work. With Universal Credit, your payment will be adjusted based on your earnings, so you can continue to receive some support even if you are working part-time or on a low income.

Who is eligible for Universal Credit?

Eligibility for Universal Credit does not depend on work status or any other benefits you claim. To claim Universal Credit you must:

Live in the UK.
Be aged 18 or over (there are some exceptions if you’re 16 to 17).
Be under State Pension age.
Have £16,000 or less in money, savings and investments.

How much Universal Credit can you claim?

The amount you receive from Universal Credit depends on your age and whether you live with your partner. The standard allowance for a single person over 25 is currently £368.74 per month. For those under 25, the standard allowance is £292.11.

Additional amounts may be added to your payment for things like housing costs, children, or a disability. You could also have amounts deducted from your allowance because of money owed, such as utility bills, or because you earn money from a job.

How do your earnings affect your Universal Credit payments?

Your Universal Credit payment will be adjusted based on your earnings. For every £1 you earn, your payment will be reduced by 55p. This means that you can continue to receive some support even if you are working part-time or on a low income.

Universal Credit: How to Apply

To claim Universal Credit, you will need to create an online account on the gov.uk website. You will then need to provide information about your income and circumstances, including details of any savings or investments you have. You may also need to attend an interview at a Jobcentre Plus to discuss your claim.

How do you find your number for Universal Credit?

If you’re planning to apply for Universal Credit, one of the first things you will need to do is find your National Insurance number. This is a unique number that identifies you as a UK resident and is used to track your tax, National Insurance contributions, and benefits.

If you don’t know your National Insurance number, you can find it on your payslip, P60, or tax return. If you can’t find it, you can contact the National Insurance helpline on 0300 200 3500, and they will be able to provide you with your number.

Once you have your National Insurance number, you can start your Universal Credit application by creating an online account on the gov.uk website. You will need to provide information about your income and circumstances, including details of any savings or investments you have. You may also need to attend an interview at a Jobcentre Plus to discuss your claim.

It’s worth noting that the Universal Credit application process can take several weeks, so it’s important to apply as soon as possible if you think you may be eligible. If you’re struggling to make ends meet in the meantime, you may be able to apply for an advance payment of Universal Credit to tide you over until your first payment is due.

BOTTOM LINE

Universal Credit is designed to simplify the process of claiming benefits and incentivise work. The amount you receive depends on your income, savings, and circumstances, and your payment will be adjusted each month based on any changes in your income or circumstances. If you think you may be eligible for Universal Credit, you can apply online through the gov.uk website.

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Understanding the tax code in UK: 1257L, BR, 0t, and more

25/04/202325/04/2023 by , posted in Blogs, FAQ, Income Tax, Personal

Taxes can be a complicated subject, and your UK tax code can be particularly tricky. However, it’s important to have a basic understanding of your tax code and what it means, as they can significantly impact the amount of tax you pay. In this blog post, we’ll provide a comprehensive guide to the tax code in UK including common categories such as the tax code 1257L, the tax code BR, and the tax code 0T.

What are tax codes and what is a common tax code in UK?

A tax code is a combination of letters and numbers that HM Revenue and Customs (HMRC) use to calculate how much income tax should be deducted from your salary or pension. Tax codes are based on your personal allowance, which is the amount of money you can earn each year before you start paying income tax.

Tax codes affect how much tax you pay, so it’s important to make sure they’re correct. If your tax code is wrong, you may end up paying too much or too little tax. If you’re paying too much tax, you may be able to claim a refund, but if you’re paying too little tax, you’ll need to pay the extra amount.

The most common tax code in the UK is 1257L.

What is the tax code 1257L?

This is the most common tax code in UK. The first part of the code, 1257, represents your tax-free personal allowance, which is currently £12,570. The letter at the end of the code, L, represents your tax status, and means that you have a tax-free personal allowance and income above that is taxed at the basic rate of 20%.

This is used for most individuals, who have only one job or pension as their form of income.

What is the tax code BR?

BR is a tax code which means that you pay tax on all of your income from that particular job. You will usually encounter this code when you have more than one job or pension.

Another common tax code is D0. This tax code means that you’re a higher rate taxpayer, and all of your income is taxed at the higher rate of 40%. You don’t get a tax-free personal allowance with this tax code.

What does a tax code with T mean?

A tax code with T in it usually means that other calculations are needed to work out your tax-free personal allowance. It may also mean that you have used up your personal allowance, such as in the codes S0T or C0T.

What is the tax code 0t?

This code means that your tax-free personal allowance has been used up, or you’ve started a new job and your employer does not have the details they need to give you a tax code.

In the first case, your income will now be taxed as you have gone over your tax-free allowance. For most people seeing this code, the tax will be at the basic rate of 20%.

In the second case, you will have to give your employer the P45 form from your previous job, or fill out a starter checklist. The starter checklist is a standard form made available by HMRC for employers to work out your correct tax code.

What are the current tax codes in the UK?

Below is the full list of tax codes and their meanings:

L	You’re entitled to the standard tax-free Personal Allowance.
M	Marriage Allowance : you’ve received a transfer of 10% of your partner’s Personal Allowance.
N	Marriage Allowance : you’ve transferred 10% of your Personal Allowance to your partner.
T	Your tax code includes other calculations to work out your Personal Allowance.
0T	Your Personal Allowance has been used up, or you’ve started a new job and your employer does not have the details they need to give you a tax code.
BR	All your income from this job or pension is taxed at the basic rate (usually used if you’ve got more than one job or pension).
D0	All your income from this job or pension is taxed at the higher rate (usually used if you’ve got more than one job or pension).
D1	All your income from this job or pension is taxed at the additional rate (usually used if you’ve got more than one job or pension).
NT	You’re not paying any tax on this income.
S	Your income or pension is taxed using the rates in Scotland.
S0T	Your Personal Allowance (Scotland) has been used up, or you’ve started a new job and your employer does not have the details they need to give you a tax code.
SBR	All your income from this job or pension is taxed at the basic rate in Scotland (usually used if you’ve got more than one job or pension).
SD0	All your income from this job or pension is taxed at the intermediate rate in Scotland (usually used if you’ve got more than one job or pension).
SD1	All your income from this job or pension is taxed at the higher rate in Scotland (usually used if you’ve got more than one job or pension).
SD2	All your income from this job or pension is taxed at the top rate in Scotland (usually used if you’ve got more than one job or pension).
C	Your income or pension is taxed using the rates in Wales.
C0T	Your Personal Allowance (Wales) has been used up, or you’ve started a new job and your employer does not have the details they need to give you a tax code.
CBR	All your income from this job or pension is taxed at the basic rate in Wales (usually used if you’ve got more than one job or pension).
CD0	All your income from this job or pension is taxed at the higher rate in Wales (usually used if you’ve got more than one job or pension).
CD1	All your income from this job or pension is taxed at the additional rate in Wales (usually used if you’ve got more than one job or pension).

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What if my tax code starts with ‘k’?

Tax codes with ‘K’ at the beginning mean you have income that is not being taxed another way and it’s worth more than your tax-free allowance.

For most people, this happens when you’re:

Paying tax you owe from a previous year through your wages or pension.
Getting benefits you need to pay tax on – these can be state benefits or company benefits, which you may declare using a P11D form.
Your employer or pension provider takes the tax due on the income that has not been taxed from your wages or pension – even if another organisation is paying the untaxed income to you.

Note that employers and pension providers cannot take more than half your pre-tax wages or pension when using a K tax code.

Emergency Tax Codes

‘W1’, ‘M1’ and ‘X’ are known as emergency tax codes. They mean that you’ll pay tax on all your income above the basic Personal Allowance.

You may be put on an emergency tax code if HMRC does not get your income details in time after a change in circumstances such as:

a new job
working for an employer after being self-employed
getting company benefits or the State Pension

Emergency tax codes are temporary. HMRC will usually update your tax code when you or your employer give them your correct details. If your change in circumstances means you have not paid the right amount of tax, you’ll stay on the emergency tax code until you’ve paid the correct tax for the year.

Where Do I Find My Tax Code?

You can find your tax code on your payslip, your P45 if you’ve left your job, or your P60 at the end of the tax year. You can also check your tax code online using HMRC’s online services. If you’re unsure about your tax code or think it might be wrong, you should contact HMRC to check.

When Does My Tax Code Change?

Your tax code can change for several reasons, including changes to your personal circumstances, such as getting married or starting a new job. It can also change if you receive benefits in kind from your employer, such as a company car or private healthcare. HMRC will notify you of any changes to your tax code, and you should check that it’s correct.

What if your tax code is wrong?

If your tax code is wrong, you may end up paying too much or too little tax. If you suspect that your tax code is incorrect, you should check it against your most recent payslip or P60 to see if the correct code has been applied. You can also check your tax code online using HMRC’s online services.

If you find that your tax code is wrong, you should contact HMRC as soon as possible to correct it. You can do this by calling the tax helpline or using the online services. You may need to provide additional information or evidence to support your claim, such as a P45 or P60.

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SWAPs: What are Sector-based Work Academies?

21/04/202321/04/2023 by , posted in Blogs, Employment & Payroll, FAQ

Are you receiving unemployment benefits and looking to kickstart your career in a specific industry but struggling to find a way in? If so, you may want to consider a Sector-based Work Academy Programme (SWAP) in the UK. SWAPs are designed to provide job seekers with the skills and knowledge they need to succeed in a particular sector, and they can also be cost-effective tools for recruiting trained workers to your business.

In this blog post, we’ll explore what SWAPs are, how they work, and the benefits they offer to job seekers in the UK.

What are Sector-based Work Academies (SWAPs)?

A Sector-based Work Academy Programme (SWAP) is a training and work experience programme that is designed to help job seekers acquire the skills and knowledge they need to succeed in a particular industry or sector.

These programmes are typically offered by employers, training providers, and job centres, and they provide participants with the opportunity to gain valuable work experience, develop new skills, and improve their employability.

How do SWAPs work?

SWAPs typically consist of three key components: pre-employment training, work experience, and a guaranteed job interview. The pre-employment training provides participants with the skills and knowledge they need to succeed in the sector they’re interested in, such as technical skills, industry-specific knowledge, and employability skills like communication and teamwork. This training can take place in a classroom setting, online, or through on-the-job training.

After completing the pre-employment training, participants will typically undertake a work experience placement with an employer in their chosen sector. This provides them with the opportunity to apply their newly acquired skills and knowledge in a real-world setting, and to gain valuable experience and contacts in the industry.

Finally, upon completing the work experience placement, participants are guaranteed a job interview with the employer they completed the placement with. This provides a fantastic opportunity for participants to secure a job in their chosen sector, and to put their new skills and knowledge into practice in a paid role.

Who is eligible for SWAPs?

If you are claiming Universal Credit, JSA or ESA, live in England or Scotland, and are looking for work, then you qualify for joining a Sector-based Work Academy. Contact your job coach to learn about available programmes.

SWAPs for individuals over 50 who are looking to return to the workforce have also recently been created. This is part of the UK government’s ‘Returnership’ initiative.

How swaps can help those on unemployment benefits

SWAPs offer a range of benefits to job seekers in the UK. Firstly, they provide participants with the skills and knowledge they need to succeed in a particular sector, which can significantly improve their employability and job prospects. Additionally, the work experience component of SWAPs allows participants to gain valuable experience and contacts in the industry, which can help them to secure a job in the future.

How SWAPs Benefit Businesses and Employers

Sector-based Work Academy Programmes (SWAPs) can be highly beneficial to businesses in a number of ways. Firstly, by providing pre-employment training and work experience placements, SWAPs enable businesses to identify and recruit talented individuals who are committed to working in their sector. This can help to reduce recruitment costs and streamline the recruitment process, as employers can be confident that the candidates they interview have the skills and knowledge required for the job.

SWAPs can also help to address skills shortages in particular industries or sectors. By providing targeted training and work experience, SWAPs can help to ensure that businesses have access to a skilled workforce, which can be crucial in industries where skills shortages are a common problem.

Finally, SWAPs can help businesses to build positive relationships with their local communities. By offering training and work experience opportunities to local job seekers, businesses can demonstrate their commitment to supporting the local economy and helping people to find employment.

How Businesses Can Get Involved with a SWAP

If you’re a business owner or employer who is interested in getting involved with a Sector-based Work Academy Programme (SWAP), there are several ways to do so. One option is to contact your local Jobcentre Plus, who can provide you with information about SWAPs that are running in your area.

Another option is to contact a training provider or college that offers SWAPs. These organisations can provide you with more information about the content and structure of SWAPs, as well as the benefits they offer to businesses.

Finally, you can also consider partnering with other businesses in your sector to develop a SWAP. By working together, businesses can pool their resources and expertise to create a SWAP that meets the needs of their sector, while also benefiting their individual businesses.

Overall, getting involved with a SWAP can be a fantastic way for businesses to access a skilled workforce, address skills shortages, and build positive relationships with their local communities.

IS A SWAP RIGHT FOR YOU OR YOUR BUSINESS?

If you’re looking to kickstart your career in a particular sector, a Sector-based Work Academy Programme (SWAP) in the UK could be the perfect solution. By providing pre-employment training, work experience, and a guaranteed job interview, SWAPs offer job seekers the skills, knowledge, and experience they need to succeed in their chosen industry.

Importantly, SWAPs can also be effective tools for employers to recruit individuals committed to working in their sector, and to train those workers in the skills your business needs using government funding.

Contact CIGMA Accounting today for advice on the most tax-effective ways to recruit, train, and employ the people your business needs.

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Understanding the Differences Between Interest Only and Repayment Mortgages

14/04/202317/04/2023 by , posted in Blogs, FAQ

When it comes to choosing a mortgage, there are two main options: interest only and repayment. Each has its own advantages and disadvantages, and it’s important to understand the differences before making a decision. This guide will help you weigh the pros and cons of each type of mortgage and make an informed choice.

What is an interest-only mortgage?

An interest-only mortgage is a type of mortgage where you only pay the interest on the loan each month, rather than paying off any of the principal. This means that your monthly payments will be lower than with a repayment mortgage, but you will still owe the full amount of the loan at the end of the term.

Interest-only mortgages are often used by investors or those who expect to have a large lump sum of money at the end of the term to pay off the loan. There are several types of interest-only mortgages available for buying a property in the UK, below are some of the most common ones:

1. Standard interest-only mortgage

With this type of mortgage, you only pay the interest on the amount you borrow each month. The capital amount borrowed remains the same throughout the term of the mortgage. This type of mortgage is suitable for people who have a repayment vehicle in place, such as an endowment policy or ISA, that will pay off the capital at the end of the mortgage term.

2. Buy-to-let interest-only mortgage

A buy-to-let interest-only mortgage is specifically designed for people who want to buy a property to rent out. With this type of mortgage, you only pay the interest on the amount borrowed each month. The loan is usually secured against the rental income from the property, rather than the borrower’s income.

Another important aspect to consider with a buy-to-let mortgage is that you will be considered a landlord and therefore, you will be required to submit a tax return for rental income.

3. Lifetime interest-only mortgage

A lifetime interest-only mortgage is designed for older borrowers who want to release equity from their property without having to make any repayments. With this type of mortgage, the interest is added to the loan each month, and the loan is repaid when the property is sold, or the borrower passes away.

It’s important to note that interest-only mortgages require a separate repayment vehicle to pay off the loan at the end of the term, and borrowers should have a robust plan in place to avoid potential financial difficulties in the future.

What is a repayment mortgage?

A repayment mortgage is a type of mortgage where you pay both the interest on the loan and a portion of the principal each month. This means that your monthly payments will be higher than with an interest-only mortgage, but you will be paying off the loan over time and will eventually own your home outright.

Repayment mortgages are often used by those who want to own their home and have a stable, predictable monthly payment. Here are some common types of repayment mortgages:

1. Fixed-rate mortgages

With a fixed-rate mortgage, the interest rate is fixed for a specified period, typically 2, 3, or 5 years. During this time, your monthly payments remain the same, regardless of any changes in the Bank of England base rate.

2. Tracker mortgages

A tracker mortgage has an interest rate that tracks the Bank of England base rate, meaning that your monthly payments can go up or down depending on changes in the base rate.

3. Discounted mortgages

With a discounted mortgage, the interest rate is set at a discount to the lender’s standard variable rate for a specified period. During this time, your monthly payments are lower than they would be on the standard variable rate.

4. Offset mortgages

An offset mortgage links your mortgage to your savings account. The amount you have in savings is offset against the amount you owe on your mortgage, meaning that you pay interest on a lower amount. This can help you to pay off your mortgage faster.

5. Flexible mortgages

A flexible mortgage allows you to overpay, underpay, or take payment holidays, depending on your financial situation. This can be a useful option if you want to pay off your mortgage faster or have an irregular income.

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Pros and cons of interest-only mortgages

Interest-only mortgages can be attractive to those who want lower monthly payments in the short term. However, they come with some risks. With an interest-only mortgage, you are only paying the interest on the loan each month, so the principal amount remains the same.

This means that you will need to have a plan in place to pay off the principal at the end of the mortgage term. Additionally, interest-only mortgages often have higher interest rates than repayment mortgages, which can result in higher overall costs over the life of the loan.

Benefits of interest-only Mortgage

Lower monthly payments
One of the main benefits of an interest-only mortgage is that the monthly payments are lower than those on a repayment mortgage, as you are only paying the interest on the loan.
Greater affordability
Because the monthly payments are lower, you may be able to afford a larger mortgage, which could allow you to buy a more expensive property or to keep your monthly payments within a budget.
More flexibility
Interest-only mortgages offer more flexibility than repayment mortgages, as you have the option to make lump sum payments to reduce the amount of the loan or to switch to a repayment mortgage at any time.
Potential for investment returns
With an interest-only mortgage, you have the opportunity to invest the money you would have paid towards the capital repayment of the loan, which could potentially earn a higher return than the interest rate on the mortgage.
Tax benefits
If you are a higher-rate taxpayer, you may be able to claim tax relief on the interest payments of an interest-only mortgage, which could make it a more attractive option for you.

Disadvantages of an Interest-Only Morgtage

Higher risk of negative equity
With an interest-only mortgage, you only pay off the interest on the loan, which means you don’t reduce the amount of the loan itself. This increases the risk of negative equity, which can occur when the value of your property falls below the amount you owe on the mortgage.
Higher overall interest payments
Because you are not paying off any of the loan itself, the total amount of interest you pay over the term of the mortgage will be higher than with a repayment mortgage.
Limited availability
Interest-only mortgages are not as widely available as they used to be and may be more difficult to find, particularly for first-time buyers.
Endowment mortgage risk
In the past, many interest-only mortgages were taken out with an endowment policy, which was intended to repay the loan at the end of the term. However, there have been cases where the endowment policy has not generated enough funds to pay off the loan, leaving the borrower with a shortfall.

Pros and cons of repayment mortgages

Repayment mortgages are a more traditional option where you pay both the interest and the principal amount each month. This means that you are gradually paying off the loan over time, and at the end of the mortgage term, you will have fully paid off the loan (assuming all payments have been made in full).

Benefits of Repayment Mortgage

Pay off the loan
With a repayment mortgage, you gradually pay off the loan over the term of the mortgage, so you will own your property outright at the end of the term, assuming all payments have been made in full.
Certainty of payments
With a fixed-rate mortgage, your monthly payments remain the same for the fixed-rate period, giving you certainty and making it easier to budget.
Lower overall interest payments
Because you are paying off the loan, rather than just the interest, over the term of the mortgage, you will pay less interest overall compared to an interest-only mortgage.
Equity in your property
As you pay off the loan, you will build up equity in your property. This can be used to finance future purchases, such as buying a bigger property or taking out a loan against equity.
Lower risk
With a repayment mortgage, there is less risk of falling into negative equity, which can occur with interest-only mortgages, where the value of the property falls below the amount owed on the mortgage.
Better mortgage rates
Lenders often offer better interest rates for repayment mortgages compared to interest-only mortgages, as they view them as less risky.

Disadvantages of a Repayment Mortgage

Higher initial monthly payments
Monthly payments on a repayment mortgage are typically higher than those on an interest-only mortgage, especially during the early years of the mortgage.
Limited affordability
Because monthly payments are higher, you may not be able to afford as large a mortgage as you would with an interest-only mortgage, which could limit your purchasing power.
Higher overall cost
While you pay less interest overall with a repayment mortgage, the higher monthly payments mean that the total cost of the mortgage is likely to be higher than with an interest-only mortgage.
Less flexibility
With a repayment mortgage, you are committed to paying off the loan over the term of the mortgage, which can limit your flexibility to make other financial decisions, such as investing in other assets.

Part and part mortgage: The Middleground

A part and part mortgage is a combination of an interest-only mortgage and a repayment mortgage. With this type of mortgage, you pay interest on a portion of the loan and make capital repayments on the rest. This can be a good option for those who want to pay off part of their mortgage while also having lower monthly payments.

How to decide which type of mortgage is right for you

When deciding between an interest-only mortgage and a repayment mortgage, it’s important to consider your financial situation and goals. If you are looking for lower monthly payments and have a plan in place to pay off the principal at the end of the term, an interest-only mortgage may be a good option.

However, if you want the security of knowing that you will fully own your home at the end of the term and can afford higher monthly payments, a repayment mortgage may be the better choice.

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UK tax changes in 2023 spring finance bill; london accountant

Unpacking 2023 Spring Finance tax changes

11/04/202317/04/2023 by , posted in Blogs, Business Support, Capital allowances, FAQ, Pension

The 2023 Spring Finance Bill consolidates changes proposed in the 2023 Spring Budget as well as additional changes to tax duty rates and tax relief allowances.You can click here for our breakdown of the relevant changes to income tax, corporation tax, and tax-free allowances.

In this post, we will outline the changes to capital allowances and tax relief schemes for businesses. We will also cover changes to pension allowances, alcohol duty, and air travel taxes which were also included in the Spring Finance Bill.

Permanent increase to £1 million for the Annual Investment Allowance

Capital allowances allow businesses to deduct a portion of the value of assets they purchase from their taxable profits each year. You can claim capital allowances on items that you keep to use in your business – these are known as ‘plant and machinery’.

The primary types of capital allowance are ‘writing down allowances’. Under this scheme, most assets qualify for the ‘main rate’, allowing you to deduct 18% of their value from taxable profits each year, with a 6% ‘special rate’ for assets like integral features of buildings.

The Annual Investment Allowance is a 100% capital allowance available for the cost of most plant and machinery incurred by most businesses up to a specified annual amount. This means you can deduct the full value of purchased assets from your taxable profit in the year of purchase. You can do this until the total value of assets purchased exceeds £1 million, after which you will have to use writing down allowances at the rates described above.

The AIA was temporarily raised from £200,000 to £1 million in 2019, and the 2023 Spring Finance Bill makes this permanent. The measure aims to provide a continued incentive to support business investment with a simple legislative change.

Full capital expensing and extension of 50% special rate

Capital allowances allow certain capital expenditure to be deducted when calculating a business’s taxable profits. As described above, writing down allowances are 18% per year for main rate expenditure and 6% per year for special rate items. For main rate assets, this means you can deduct 18% of the asset’s value from your taxable profits each tax year.

Special rate items include assets with an expected lifetime of over 25 years, integral building features, and cars in the higher bands of CO2 emissions.

The 2023 Spring Finance Bill provides for 100% first-year allowances for main rate expenditure (known as full expensing) and the extension of 50% first-year allowances for special rate expenditure. This is subject to certain exclusions, most notably cars, and will last until 2026.

This change gives an increased incentive to invest in plant and machinery by providing higher rates of relief immediately in the year that assets were purchased, rather than over many years.

Expansion of R&D relief

There are currently two schemes aimed at providing tax relief for research and development (R&D) in science or technology. First is the ‘Small and medium-sized enterprise (SME) R&D tax relief’. For larger businesses, there is the R&D expenditure credit (RDEC) system.

The Spring Finance bill makes the following changes to these tax relief schemes:

Requiring claimants to submit a pre-notification of their claim, unless they are new claimants or have not claimed in the previous three accounting periods.
Expands the categories of qualifying expenditure to include data licences and cloud computing costs to better reflect developments in technology and the different ways that cutting edge R&D is now undertaken.
Require the provision of additional information to support claims.
Address several unintended consequences in the legislation.

Expansion of Seed Enterprise Investment Scheme

The UK Seed Enterprise Investment Scheme (SEIS) is a government-backed initiative designed to encourage investment in early-stage and startup companies. It offers tax incentives to individual investors who purchase shares in qualifying companies, including income tax relief, capital gains tax exemption, and loss relief.

The 2023 changes to the SEIS scheme raises limits on investment and expands which businesses are eligible.

To be eligible for the scheme, companies must have fewer than 25 employees, be less than two years old, and have assets worth less a certain amount. The Spring Finance Bill raises this from £200,000 to £350,000.

The Bill also increases the maximum amount that a company can raise through SEIS from £150,000 to £250,000. Investors can now also claim SEIS relief on investments up to £200,000 per tax year.

Pension lifetime allowance scrapped; allowances increased

The Spring Finance Bill will be abolishing the pension lifetime allowance and increasing pension-related tax-free allowances.

It also includes incentives to help get over 50’s back to work, including expanding the DWP’s “Mid-life MOT” Strategy. This helps people to access financial, health and career guidance ahead of retirement. There will also be a new kind of apprenticeship targeted at the over 50s who want to return to work, called Returnerships.

What is the lifetime pension allowance?

The UK’s pension lifetime allowance (LTA) is a limit on the total amount of pension benefits an individual can receive without incurring an additional tax charge. For the 2022/2023 tax year, the LTA was £1,073,100. If the value of an individual’s pension savings exceeds this limit, they may be subject to a tax charge of up to 25%.

The LTA was designed to limit the amount of tax relief that high earners can receive on their pension contributions and to ensure that the pension system is sustainable. However, it can also affect individuals with long careers or high salaries, as their pension savings may exceed the LTA even with relatively modest contributions over time.

Changes to pension allowances

The 2023 Spring Finance Bill removes the tax charge on pension savings that exceed the lifetime allowances for the 2023/24 tax year. Future legislation will aim to remove the concept of an LTA for pensions entirely.

The Bill raises the pension annual allowance from £40,000 to £60,000, allowing individuals to make more pension contributions each year without incurring tax charges.

The adjusted income threshold for the Tapered Annual Allowance will also be increased from £240,000 to £260,000 from 6 April 2023. This means that those earning over £260,000 (from 6 April 2023) will begin to see their £60,000 annual allowance tapered. For every £2 that your income exceeds £260,000, your annual allowance is reduced by £1.

The annual allowance cannot be reduced to be less than £10,000 (up from £4,000 in 2022/23).

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Changes to alcohol duty

HMRC’s Spring Budget also announced changes to the tax charged on alcoholic products. The policy document outlines how these changes will affect the average consumer:

4% ABV pint of draught beer will be 0 pence higher.
4% ABV 500ml bottle of non-draught beer will be 5 pence higher.
5% ABV pint of draught cider will be 2 pence higher.
5% ABV 500ml bottle of non-draught cider will be 5 pence higher.
40% ABV 25ml serving of whisky will be 3 pence higher.
5.4% ABV 250ml can of spirits-based RTD will be 6 pence lower.
11% ABV 250ml glass of still wine will be 5 pence higher.

The document also states that individuals who drink stronger alcoholic products may pay more through the revised duty structure. Individuals who drink draught products in on-trade venues (such as pubs) will pay less tax than on the equivalent non-draught product in off-trade venues (such as supermarkets).

Air Passenger Duty changes

Air Passenger Duty is charged on commercial passenger flights. Previously, these charges had two bands based on distance travelled. Band A is for flights with a distance between 0 and 2000 miles, and Band B for those over 2000 miles.

The Spring Finance Bill introduced two new bands – one for domestic flights and one for long-haul flights of over 5500 miles. These changes will reduce the tax burden on domestic flights while increasing taxes on ultra-long-distance trips.

The full table of Air Passenger Duty rates is below. The reduced rate applies to the lowest class of travel available on the aircraft, and the standard rates to any other class. The higher rates apply to aircraft of 20 tonnes or more equipped to carry fewer than 19 passengers.

Bands	Reduced rate	Standard rate	Higher rate
Domestic (within UK)	£6.50	£13	£78
0 -2000 miles	£13	£26	£78
2001 – 5500 miles	£87	£191	£574
over 5500 miles	£91	£200	£601

bottom line

The 2023 Spring Finance Bill is broadly aimed at stimulating the UK economy by lowering limits and taxes on business investment, and encouraging individuals to work more (via increased annual pension allowances) and longer (via incentive schemes for over 50’s).

Most notably, the Bill makes permanent the previously temporary £1 million Annual Investment Allowance, and provides ‘full expensing’ for most capital purchases until 2026.

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