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There is no simple answer to this question. We have listed below some of the matters that need to be are considered. As self-employed business owners’ profits are subject to income tax and National Insurance – and limited companies to corporation tax – we have divided our comments accordingly.

Before making this distinction it is important to state that profit shown on your accounts is not the figure that is used by HMRC to work out taxes due. Your published figures are adjusted to reflect the following (this is not a comprehensive list):

• Depreciation of assets is always added back and replaced with a capital allowance. Generally, capital allowances claimed will reduce your tax bill and on some occasions the amount claimed can be more than any depreciation charge shown in the accounts.
• Certain business expenses are not allowed for tax purposes. A common example is business entertaining.
• Payments to the owners of the business are treated differently if the business is incorporated or self-employed. Some of these distinctions are set out below.

Self-employed – income tax and Class 4 NIC

Sole traders and partners in trading partnerships (including Limited Liability Partnerships) are subject to income tax and Class 4 NIC. Profits adjusted for tax purposes are treated as the income of the business owner.

The self-employed are not taxed on the funds they withdraw from the business but the profits they earn.

They will pay income tax at 20%, 40% or 45% depending on the amount of profits earned. Additionally, the self-employed pay Class 4 NIC of 9% on profits between £8,632 and £50,000. This 9% rate drops to 2% for profits earned in excess of £50,000.

This exposure to potentially high rates of income tax and NIC is the main reason for considering the incorporation of successful self-employed business.

Limited companies

In the majority of cases limited companies pay corporation tax on their adjusted trading profits at a fixed rate. Currently, corporation tax is charged at 19%.

However, if director/shareholders withdraw money from the company they are taxed separately on those withdrawals. The most common director shareholder rewards are:

• A salary – taxed under the PAYE rules. Salaries and employer NIC charges are an allowable deduction for corporation tax purposes.
• A dividend – dividends are a distribution of taxed profits (company trading profits less corporation tax paid). They are not a cost to the business and do not reduce the company’s corporation tax bill. Any dividends received by shareholders in excess of £2,000 are taxed at hybrid rates of income tax (7.5%, 32.5% or 38.1%) the rate you would pay depends on the level of your overall income.
• A benefit, company car etc – most benefits are treated as income and will increase a beneficiary’s income tax charge. Additionally, companies will be charged extra NIC based on the total value of benefits provided.

Planning note

Working out the best structure for your business should take the above into account. However, there are a range of other “risk” considerations that should be examined. If you are concerned that you may not be operating in the most tax efficient way please call so we can help you work through your options.

The following details were recently published on the gov.uk and regional websites. They set out bank holiday dates for Christmas 2019 and 2020.

Upcoming holidays in Scotland 2020

Upcoming holidays in Northern Ireland 2020

If a bank holiday is on a weekend, a ‘substitute’ weekday becomes a bank holiday, normally the following Monday.

Readers are reminded that employers do not have to provide paid leave on bank holidays.

A reminder that in just a few months the present tax year closes, 5 April 2020.

After this date, a whole raft of 2019-20 tax planning options for individuals will cease to be available.

These cover a multitude of opportunities to reduce your liability to Income Tax, Capital Gains Tax and National Insurance. These opportunities include, but are not limited to:

• Remuneration choices for director/shareholders of small companies,
• Pension planning,
• Tax effective gifts to charities,
• Repaying certain benefits to employers – for example, repaying any private petrol provided,
• Reviewing tax efficient use of investment allowances – planning capital expenditure,
• Maximising use of the “trivial benefits” exemption,
• Gifting income producing assets to spouse or civil partner,
• Considering options if your total annual income is approaching £100,000 for the first time. Income over this figure will trigger a gradual reduction in your personal tax allowance.

We cannot list all of the available options here. Each person’s financial affairs are to some extent unique.

If you have not yet considered your options, please call so we can act before it’s too late.

The government announced 13 November that it will extend its Farming Recovery Fund to support farmers badly affected by the recent flooding across Yorkshire and the Midlands. Through this scheme, farmers and land managers who have suffered uninsurable damage to their property will be able to apply for grants of between £500 and £25,000 to cover repair costs – whether that’s clearing debris or recovering damaged land.

Householders affected will need to contact brokers and insurers – if supplied direct – to start the weary process of claims for flood damage. This in addition to dealing with the distressing upheaval caused by extensive water damage.

In the past HMRC has been supportive if tax-payers cannot make returns or pay tax due to flood disruption. They will also be sympathetic if business or tax records are lost due to water damage.

There is a pretty comprehensive flood alert service on the Gov.uk website and it is possible to register for a flood alert. These can be sent to your mobile, email address or landline. The service is free to use.

You don’t have to pay tax on a benefit (gift) to your employee if all of the following apply:

• it cost you £50 or less to provide
• it isn’t cash or a cash voucher
• it isn’t a reward for their work or performance
• it isn’t in the terms of their contract

Gifts that fall into this category are known as a ‘trivial benefit’; and whilst they may be much more than trivial in substance, you don’t need to pay tax or National Insurance or let HMRC know you are making the gift.

Any gifts that do not meet this definition will likely be taxable.

Gifts to directors are treated in a similar fashion with one over-riding condition: a director cannot receive trivial gifts of more than £300 in total each tax year. This restriction only applies to the directors of “close companies”. A close company is a limited company with five or fewer shareholders.

Watch out for VAT charge

If you recover the input tax charged when you buy gifts for employees, and if the total value of gifts given to an employee in a tax year exceeds £50, then you will have to account for VAT on the total value of gifts provided. If this is the case, you may be advised to avoid recovering the VAT in the first place.

If you need evidence of employment for a claim, the following notes published by HMRC may help.

You can ask HMRC for a record of your employment history, for example if you are making a compensation claim for:

• an industrial injury (for example asbestosis or industrial deafness)
• a road traffic accident
• medical negligence
• hardship (for example you’re claiming through a benevolent fund or charity)

How to get your employment history

Fill in the application form that is available on the gov.uk website and send it to HMRC. The address is on the form.

Apply for an employment history on behalf of someone who has died

You can also apply to get the employment history of someone who has died if you are legally entitled to claim damages on behalf of their estate.

If you are wary of undertaking the task, we can help.

1 December 2019 – Due date for Corporation Tax payable for the year ended 28 February 2019.

19 December 2019 – PAYE and NIC deductions due for month ended 5 December 2019. (If you pay your tax electronically the due date is 22 December 2019)

19 December 2019 – Filing deadline for the CIS300 monthly return for the month ended 5 December 2019.

19 December 2019 – CIS tax deducted for the month ended 5 December 2019 is payable by today.

30 December 2019 – Deadline for filing 2018-19 self-assessment tax returns online to include a claim for under payments to be collected via tax code in 2020-21.

1 January 2020 – Due date for Corporation Tax due for the year ended 31 March 2019.

19 January 2020 – PAYE and NIC deductions due for month ended 5 January 2020. (If you pay your tax electronically the due date is 22 January 2020)

19 January 2020 – Filing deadline for the CIS300 monthly return for the month ended 5 January 2020.

19 January 2020 – CIS tax deducted for the month ended 5 January 2020 is payable by today.

31 January 2020 – Last day to file 2018-19 self-assessment tax returns online.

31 January 2020 – Balance of self-assessment tax owing for 2018-19 due to be settled on or before today. Also due is any first payment on account for 2019-20.

As a general rule, if you use your private transport for trips related to your employment, you may be able to claim tax relief if you are not reimbursed for this business use by your employers.

Exceptionally, any normal travel between your home and your place of work will always be excluded from this calculation unless you are required to travel to a temporary place of work.

How much you can claim depends on whether you’re using:

• a vehicle that you’ve bought or leased with your own money
• a vehicle owned or leased by your employer (a company vehicle)

Using your own vehicle for work

If you use your own vehicle or vehicles for work, you may be able to claim tax relief based on an approved, HMRC mileage rate. This covers the cost of owning and running your vehicle. You cannot claim separately for things like:

• fuel
• electricity
• road tax
• MOTs
• repairs

To work out how much you can claim for each tax year you will need to:

• keep records of the dates and mileage or your work journeys
• add up the mileage for each vehicle type you’ve used for work
• take away any amount your employer pays you towards your costs, (sometimes called a ‘mileage allowance’)

Approved mileage rates

If your employer pays less than the above rates you can claim tax relief on the difference.

If your employer pays more than the above rates per mile you will be taxed on any excess as a benefit-in-kind.

We are fast approaching the deadline for filing self-assessment tax returns in the UK for 2018-19. As readers will be aware, this deadline is 31 January 2020.

Unfortunately, this coincides with a pick-up in scamming activity by fraudsters pretending to be the tax office. HMRC have recently posted an alert for taxpayers and this is reproduced below.

Over the last year, HMRC received nearly 900,000 reports from the public about suspicious HMRC contact – phone calls, texts or emails. More than 100,000 of these were phone scams, while over 620,000 reports from the public were about bogus tax rebates.

Some of the most common techniques fraudsters use include phoning taxpayers offering a fake tax refund or pretending to be HMRC by texting or emailing a link which will take customers to a false page where their bank details and money will be stolen. Fraudsters are also known to threaten victims with arrest or imprisonment if a bogus tax bill is not paid immediately.

HMRC operates a dedicated Customer Protection team to identify and close down scams but is advising customers to recognise the signs to avoid becoming victims themselves. Genuine organisations like HMRC and banks will never contact customers asking for their PIN, password or bank details. Customers should never give out private information, reply to text messages, download attachments or click on links in texts or emails which they are not expecting.

Taxpayers are urged to act by forwarding details of suspicious calls or emails claiming to be from HMRC to phishing@hmrc.gov.uk and texts to 60599. Individuals who have suffered financial loss should contact Action Fraud on 0300 123 2040, or use their online fraud reporting tool.

As readers will note, it is highly unlikely that HMRC will contact taxpayers using text, email or the telephone. Certainly, HMRC staff should never ask for your personal details or bank information in this way.

If you are contacted, and are unsure if the message is genuine, you should call HMRC using one of their contact numbers listed on the gov.uk website. If you are one of our clients please call your point of contact at the practice and we will check out if the communication you have received is genuine and the action you should take.

The following extracts from HMRC’s website explain how certain benefits to employees can be tax-free. Surprisingly, HMRC describe these as “trivial” benefits.

You don’t have to pay tax on a benefit for your employee if all of the following apply:

• it cost you £50 or less to provide
• it isn’t cash or a cash voucher
• it isn’t a reward for their work or performance
• it isn’t in the terms of their contract

This is known as a ‘trivial benefit’. You don’t need to pay tax or National Insurance or let HMRC know.

You have to pay tax on any benefits that don’t meet all these criteria.

Salary sacrifice arrangements

If you provide trivial benefits as part of a salary sacrifice arrangement they won’t be exempt. You’ll need to report on form P11D whichever amount is higher:

• the salary given up
• how much you paid for the trivial benefits

These rules don’t apply to arrangements made before 6 April 2017 – check when the rules will change.

Directors of ‘close’ companies

You can’t receive trivial benefits worth more than £300 in a tax year if you’re the director of a ‘close’ company.

A close company is a limited company that’s run by 5 or fewer shareholders.

So, if you keep to HMRC’s trivial benefit rules, these payments may help you to spread a little festive cheer this Christmas. Goodness knows, we could all do with some of that.