Are you excited? What about? The start of the new tax year of course! Well okay, maybe entering a new fiscal year isn’t as interesting as the summer weather we have all been enjoying or the upcoming royal wedding, but it is still important – particularly for small business owners. Here are the top nine numbers you need to know to see you through the next twelve months.

1.         £7,475 (the personal allowance for those under 65 years)

The personal allowance is the amount of income you can earn before you have to start paying income tax. The good news is that the personal allowance increased by £1,000 with effective from 6 April 2011. What’s more, the Government has announced that the personal allowance will increase to £8,105 in 2012. 

However, the bad news is that the threshold at which tax payers start paying income tax at 40% has reduced to £35,000. This increases the need, for those individuals that own and run a limited company, to consider the how best to extract profits from the business – whether that be through salary, pension or dividends.

2.         20% (the new corporation tax threshold)

Corporation Tax is based on the taxable profits of limited companies and other organisations. The rate of corporation tax for organisations with “small profits” will decrease to 20% as of 1 April 2011. HMRC defines “small profits” as profits of up to £300,000, where the company has no associated companies.

3.         45 pence (approved car mileage allowance)

The approved mileage rates are available where an employee (or sole trader) uses his or her private vehicle for business purposes and is reimbursed by the business for their work-related mileage.  Provided the amount reimbursed by the business does not exceed HMRC’s published rates, there is no income tax to pay. (Where reimbursement is lower than that allowed by HMRC’s rates, the employee may claim a deduction from their income tax calculation for the balance.)

The approved mileage rates for 2011-12 have been increased to 45 pence per mile for the first 10,000 business miles, followed by 25 pence per mile for each subsequent mile. These rates apply to all cars and vans.

4.         £73,000 (the VAT threshold)

The VAT threshold, which determines whether a business must be registered for VAT, has increased from £70,000 to £73,000.

If your turnover of “VAT-able” goods and services supplied within the UK for the previous 12 months is more than the current registration threshold, or you expect it to go over the threshold in the next 30 days alone, you must register for VAT.

However, if your turnover has gone over the registration threshold temporarily then you may be able to apply for exception from registration.

5.         13.8% (Employer’s class 1 NI)

Several important changes to NI were announced in advance and took effect on 6 April 2011. The rates of NI will all increase by one percentage point. For instance, employers will have to pay 13.8% instead of 12.8% on salaries and benefits.

From the individual’s point of view, this is equivalent to an increase of 1% in the rate of tax: salaries will be charged at 12% (and 2% for income over a certain level) instead of 11% (and 1%). Likewise, self-employed profits will be charged at 9% and 2% instead of 8% and 1%.

 6.         £10,680 (the ISA limit)

On 6 April 2011 the annual Individual Savings Account (ISA) limits increased. The overall ISA subscription limit is now £10,680, of which up to £5,340 can be put into a cash ISA.

7.         10% (Entrepreneur’s relief)

Entrepreneurs’ Relief reduces the amount of the Capital Gains Tax payable when disposing of your business (as long as you have met the qualifying conditions throughout a one-year qualifying period). The entrepreneur’s relief allows business owners to pay an effective 10% capital gains tax rate when a business is sold, up to a lifetime “allowance”. This allowance has been increased to £10 million from April this year.

8.         £10,600 (the capital gains tax annual exempt amount)

Each tax year nearly everyone who is liable to Capital Gains Tax gets an annual tax-free allowance – known as the ‘Annual Exempt Amount’. You only pay Capital Gains Tax if your overall gains for the tax year (after deducting any losses and applying any reliefs) are above this amount. The exempt amount has been increased to £10,600 from 6 April 2011.

9.         £50,000 (annual allowance for tax relief on pension savings)

The level of contributions that can be made with full tax relief to a registered pension scheme has been reduced from £255,000 to £50,000 per pension input period (PIP) (which is typically a year).

However, this cap can be expanded by bringing forward unused relief from the previous three tax years, up to a maximum of £50,000 from each year. If you exceed the annual allowance, you must pay an annual allowance charge on the excess at your highest rate of income tax.

In the Budget speech, there was some further good news for small businesses, building upon what we had already been told in 2010’s budget. This is clearly a key aim for George Osborne, the Chancellor, who has said he wants to “make Britain the best place in Europe to start, grow and finance a business”.

Whilst we think this budget is broadly favorable to larger businesses, we believe that more could be done to help smaller businesses.   

The summary below sets out the changes that will have an impact for you or your business. 

 Individuals

Personal allowance

These allowances represent the amount of an individual’s income in the tax year that is not subject to income tax.

The personal allowance for 2011/12 will increase by £1,000 to £7,475, however the 40% tax threshold will reduce to £35,000. This ensures that higher and additional rate taxpayers do not benefit from the increased personal allowance in this year. From 6 April 2012 the personal allowance will be increased again by £630 to £8,105, and in that year the 40% threshold will be reduced further to £34,370. The government has to goal to increase the personal allowance up to £10,000 before next election.

The 2011/12 personal allowances:

Under 65 – £7,475
65-74 – £9,940
75 and over – £10,090
Blind person’s allowance – £1,980
Income limit for allowances for those aged 65 or more – £24,000
Income limit for allowances for those aged under 65 – £100,000

Income Tax Rates

The tax rates for 2011/12 will stay at 2010/11 levels but the threshold at which the 40% tax rate is applied is reduced to £35,000. This introduces a subtle tax increase as it pulls more taxpayers into the 40% tax bracket, and increases the amount of income subject to tax at 40%.

The 2011/12 rates and bands are:

Savings rate* (10%) – 0 to £2,560
Basic rate (20%) – 0 to £35,000
Higher rate (40%) – £35,001 to £150,000
Additional rate (50%) – over £150,000

* Only applies if non savings income is below this amount

Savings and investments

Enterprise Investment Scheme

Income tax relief for investors is to be proposed to be enhanced as follows:

Rate of income tax relief: 2010/11 – 20%, 2011/12 – 30%, 2012/13 – 30%

Annual maximum investment qualifying for income tax relief: 2010/11 – £500,000, 2011/12 – £500,000, 2012/13 – £1,000,000

Pension Contributions

The level of contributions that can be made with full tax relief to a registered pension scheme is to be reduced from £255,000 to £50,000 per pension input period (PIP) falling in the tax year. However, this cap can be expanded by bringing forward unused relief from the previous three tax years, up to a maximum of £50,000 from each year. If the annual allowance is exceeded the taxpayer must pay an annual allowance charge on the excess at their marginal rate of income tax.

The Lifetime Allowance will reduce from £1,800,000 in 2011/12 to £1,500,000 in 2012/13.

Independent Savings Accounts (ISAs)

The ISA savings limits applicable in 2011/12 for those over 18 are:
Overall limit – £10,680
Cash up to – £5,340
Balance in stocks and shares up to – £10,680

For those aged 16 & 17:
Overall limit – £5,340
Cash up to – £5,340
Balance in stocks and shares up to – nil

Savings for Children

Children born between 1 September 2002 and 2 January 2011 inclusive were eligible for a child trust fund account (CTF). Each child received a voucher to allow the account to be opened which also provided an initial deposit. The existing CTF accounts will continue and funds of up to £1200 per year can be contributed for each child tax free. The CTF account can only be accessed by the child when he or she reaches age 18.

Employers

National Insurance rates

From 6 April 2011 the rates and thresholds for the main NI contributions were already known with most increasing by 1%.  After a bit of number crutching, here are the main rates for 2011/12:

Employer’s class 1 above £136/week (£7,072/year) not contracted out – 13.8%
Employee’s class 1 not contracted out from £139 (£7,228/year) – 12%
Employee’s additional class 1 above £817/week (£42,484)- 2%

Self-employed class 4 from £7,225 to £42,475 per annum – 9%
Self-employed class 4 additional rate above £42,475 per annum – 2%
Self-employed class 2 – £2.50 per week

Voluntary contributions class 3 – £12.60 per week

Usage of your own car- approved mileage allowance

Where an employee uses his or her own car for business journeys their employer can pay them an approved mileage allowance payment (AMAP), free of tax and NIC.

 The AMAP will increase to 45p per mile from 6 April 2011 for the first 10,000 business miles per year, any additional miles can be reimbursed at 25p per mile.

Car Benefit

The tax charge for personal use of a company car is based on a percentage of the list price of that car when new.

From 6 April 2011 the percentages are all increased by 1% for those in the 15% to 35% range but with a 35% maximum kept. The taxable benefit of using a car with CO2 emissions of 121-129g/km is 15% of the list price. This percentage increases by 1% for each additional 5g/km of CO2 emissions to a maximum of 35% for cars with CO2 emissions of 225g/km or more.

Where a company car driver receives free fuel, the taxable benefit is calculated as the percentage of the list price for the car applied to a set value, currently £18,000. This value will increase to £18,800 from 6 April 2011. The maximum taxable benefit of receiving fuel for personal use will increase from £6,300 (for 2010/11) to £6,580 (for 2011/12).

Businesses

There has been an extension in Business rate relief

If you have a small business with a property with a low rateable value, you might qualify for relief on your business rates. The relief will be extended until October 2012.

Corporation tax

The main rate of corporation tax will be reduced to 26% from April 2011.

 The corporation tax for small businesses (i.e. businesses with profits up to £300,000) will be 20%. The small profits rate applies to profits of up to £300,000 where the company has no associated companies which are trading.

Capital Allowances

For a few years the Annual Investment Allowance (AIA) cap has been set high. Currently and ongoing into 2011 the cap is £100,000, this will be reduced from 6 April 2012 to £25,000

Capital Taxes

Entrepreneurs’ relief

The entrepreneur’s relief allows business owners to pay an effective 10% capital gains tax rate when a business is sold up to a lifetime “allowance”. This allowance is to be increased from £5 million to £10 million from April this year.

Inheritance Tax

The nil rate band for inheritance tax (IHT) will remain frozen until 2014/15 at £325,000. This is the amount of a person’s estate that is free of inheritance tax.

The rate payable on death for 2011/12 remains at 40%, with the rate payable on lifetime gifts to certain trusts remaining at 20%.

If you have any queries pleas contact Metric Accountants on 0845 3045473 or send us an email at info@metricaccountants.co.uk

I have just spoken to one of my clients who had filed his annual accounts two months late to Companies House. My client was very upset as the fee charged for filing two months late was £375! The fees charged by Companies House were sharply increased in 2009 and are now – if you ask me -extraordinary.

To avoid any late filing fees to the Companies House you have to submit your annual accounts on time (within nine months after your company’s accounting period has ended).

If you are late, the penalty charges are:

Ensure you provide your accountants with your information well in advance of your deadline to enable him/her to complete and file your accounts on time!

It is January once again and we are fast approaching the Self Assessment deadline for filing your 2009-10 tax return (31 January 2011).

I have put together a list of things to consider when completing your tax return. Whilst this is not a comprehensive list, it will hopefully provide a helping hand.  

1.       Check whether you need to complete a Self Assessment tax return.  If you have run a business, either as a self-employed person or as a director, you will have to submit a tax return. Yes, even if you earned less than the personal allowance. You’ll also need to complete a return if you received income (above set thresholds) on savings, investments or property.

 2.       Do not leave it until the last minute. If you need to submit a tax return, you’ll need to register online at www.hmrc.gov.uk before you can file a return.  You will also need the following details to hand – your Unique Taxpayer Reference (UTR), national insurance number and post code. If you do not have these , HMRC can provide these, but it will delay your filing. Make sure your register before21 January, as this is the latest date for registering to ensure you will be able to meet the 31 January deadline.  

 3.       If you are late with your filing you are likely to be charged with a £100 fine.

 4.       Use your losses. If you have submitted Self Assessment returns previously – make sure you take into consideration any prior-year losses. These losses should be offset against any profit made in the current tax year.

 5.       Ensure that you include all your income received in the tax year. It is important to disclose all income such as rental income, capital gains, dividends from shares and bank interest received. However, remember that interest received on certain national savings and ISA accounts do not need to be disclosed on the return.

 6.       Do not round-up figures. HMRC have said that this can indicate that a person’s affairs have not been properly maintained and could trigger a further enquiry.

 7.       Remember to deduct all eligible expenses. HMRC allow individuals to take into account certain costs, such as student loan repayments and personal pension contributions, deduct when preparing their Self Assessment return. Remembering to include these costs, can make a considerable difference to your tax bill.

 8.       Ensure that you claim for all business expenses and capital allowances. If you forget to deduct business expenses you get hit by a double whammy – not only do you end up paying for these expenses out of your own pocket, your tax bill will increase as well.  

 9.       Start saving now. Do not forget that you will have to pay half of this tax year’s tax bill as a payment on account on 31 January (i.e. the same time as you pay your 2009-10 tax bill). However, if you know that your circumstances have changed since last April, you should consider notifying HMRC, as it may be possible to decrease any payment on account for the 2010-11 tax year.  

 10.   Get professional advice. If your affairs are complicated, consider getting advice. DIY tax returns can end up being a false economy.

Good luck with your Self Assessment return!

Metric Accountants does not take any responsibility for losses incurred after acting on the above information and suggests that individuals seek professional advice.

Whether your business is a start-up or a veteran, here are 4 ways to get off to a flyer in 2011…increasing profitability, saving you time and reducing your costs.

 (1) Make a business plan

It cannot be stressed enough how important it is to prepare a business plan. In the same way that you wouldn’t set out on a journey without a clear idea of which route you intend to take, you should not try to run a business without a clear idea of what you want to achieve, and how you expect to get there.

A business plan should be as detailed as possible, to ensure that all potential obstacles are identified. To do this properly, you will need to include a financial budget into your plan.  Generally speaking, it is when you start to look at the numbers that you start to be more realistic about what you can (and cannot) achieve in the next three, four or five years.

(2) Management accounts

From experience, many business owners do not know how their business is performing during the year. Management accounts will give you a good idea of how profitable your business actually is.

To make it even more beneficial, compare your management accounts against your budget. If you are not performing as well as expected, look at the reasons why and make  necessary changes – before it is too late.

Management accounts are also a good way to estimate your current year’s tax bill. Providing your business would perform similarly over the remainder of the year, you should have a good indication as to how much corporation tax you will need to pay down the line.

(3) Put good systems in place

Setting up internal procedures early on not only improves customer service, it can also save you money. If you have slick systems, it improves efficiency and reduces the need to correct mistakes, which all helps to improve your bottom line.

For example, take invoicing. How are you going to invoice your clients and ensure that you invoice your clients on a timely basis? How will you make sure you know which invoices have been paid? Whilst this is not as exciting as say, marketing, it can have a dramatic effect on how your business is perceived by customers.

(4) Use the right business structure

Many people are not aware of the legal and tax differences between operating as a sole trader, a partnership or a limited company. These differences can have a huge impact on the amount of tax to be paid, as well as affecting your personal responsibilities.

Establishing a limited company can be a great way to reduce your tax bill and limit your personal liability (should the business fail). However, you should not form a limited company just because you think it might be a good idea. For instance, you should be aware that being a director carries certain legal responsibilities. We would always suggest speaking to an accountant to ensure that you make the right choice for your business.

Watch out for more useful tips in the coming weeks. In the meantime, we wish you a happy and successful 2011.

Welcome to our revitalised website, following its recent facelift. We are thrilled about the new look and hope you like it as much as we do!

So much is happening at Metric Accountants at the moment – as well as updating the website, we have developed our new service package, forged a new business partnership on top of starting this blog.

We wanted to update our website to make it clearer what we are all about and what makes us different. However, our strategy remains the same – we still believe that we exist to save you time and money, and to help you grow your business.

Our newly developed service package gives our clients exactly what they need in the various stages of their business venture. This way, the service that we offer changes to suit your business as it grows.

We are also excited to have teamed up with accounting software provider, Clearbooks. This likeable bunch has designed a nifty online accounting software which we simply love. For instance, how great is it to be able to upload your bank statements straight into the system? We cannot wait to show our clients its benefits. (Needless to say, we are not on commission – we like it because it helps our clients, not because it helps us.)

One of the features of the new site that we’re particularly excited about is our new blog.  Keep an eye on this blog as we will be sharing our knowledge and experience in different areas that we think can help you and your business. Our blog is written for entrepreneurs by entrepreneurs! If there are any topics you want us to cover, then why not drop us a line.

All of these developments have one thing in common – they are designed to help you. Whether you are a prospective or existing client, we think that you’ll find the new format, greater information and increased clarity really useful.

However, we are always on the lookout for new ways to improve our service. So, if you have a suggestion, let us know.

Once again, welcome.