Friday May 8, 2009

Dear Reader

Payroll year end filing

The first key date of the new tax year is almost upon us with the deadline of 19th May 2009 for preparing and filing employer payroll annual returns. This is part of the process by which employees receive their P60s and employers notify the Inland Revenue of the amount of salary paid to their staff and tax and NIC deducted. If you are preparing your own or using another bureau, there are a few things to consider when answering the questions that accompany the return. The main one most people get wrong is declaring that P11D and P11D(b) forms are not due. Normally a P11D is associated with benefits in kind e.g. company car or private health insurance. However, if you use a company credit card for business or reclaim expenses from your company which you incurred out of your own money, then a P11D is also required for each employee. We'll show you in the next weeks how this information is collated and how to avoid it being taxed, but for now, please remember to tick the box indicating that P11Ds are due if you claimed expenses or had a company credit card. The other common mistake is to tick the box asking if you are a service company. This does not mean that you provide a service to your clients, but deals with a specific type of business. The answer to this question is usually "No".

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Would flat rate VAT benefit your business?

The flat rate VAT scheme is a simplified means of recording and paying VAT. It can, in a number of cases, result in you paying less VAT to HM Revenue & Customs than would be the case in a traditional VAT calculation.

The simplicity comes from not having to split out the VAT on your purchases – no longer do you have to think – “can I claim for this”. This can be especially time consuming when running a small business. Instead, you record your purchases as if you weren’t VAT registered. You still charge your customers VAT as normal at the appropriate rate – normally 15%. When it comes to calculating the VAT to be paid over, you add your VAT to your sales and then multiply by the flat rate percentage applicable to your business. As an example, if you had sales of £10,000 and a flat rate percentage of 9%, the VAT payable would be 9% of £11,500 or £1035, instead of the £1500 you have charged your customers.

The extra profit comes through looking at your purchases. In the above example, if you had VAT on purchases in the quarter amounting to £250 then under traditional VAT you would subtract this from the VAT on sales leaving £1250 to be paid across. The flat rate scheme would only pay across £1035 leaving you and additional £215 profit. You can also receive a first year of discount of 1% on the amount of VAT to be paid over.

Flat rate VAT is not profitable for everyone, it depends on the level of your purchases, your business sector (as different sectors have different flat rate percentages) and your sales. As an example, if your normally receive a VAT repayment, this scheme would not be for you. If you’d like to learn more, please feel free to give us a call on 0845 644 3579.
 

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Saving tax through payroll

If you run your own limited company then you should consider implementing payroll to utilise your personal tax free allowance. All taxpayers are entitled to earn £6475 free of tax per annum. If you were to take this as a dividend from your company, it would be taken after Corporation Tax. In order to give you a dividend of £6475, the company would have to make nearly £8200 in profits before tax. Taking the same earnings as salary would mean a saving of over £1700 in tax per shareholder/director.

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