Tax Tips | February

Join us every month as Wes discusses recent Tax updates you need to be aware of, how you can mitigate the effects and save yourself and your business money. Want to hear about a particular topic? Let us know in the comments below.

Thinking of downsizing or selling your business? 

When selling a business, Entrepreneurs’ Relief will be available to the owners of the business. This will limit the tax payable on any gains made to 10%. However, where the vendor is looking to enter into a new business or is only selling part of their business, things are not always so clear cut.

Recent changes to legislation mean that Entrepreneurs’ Relief will not be available where the vendor starts a business or joins an existing business in the same or similar trade as a sole trader, partner or director within 2 years of the sale of the original business, unless it can be proven that the disposal was not made intentionally for tax avoidance purposes.

For example, someone closing their limited company to access cash lump sums ‘trapped’ in the company at preferential tax rates, only to then ‘restart’ a similar business within two years will find that any Entrepreneurs’ Relief claimed could be withdrawn, leaving the drawings from the company to be classified as dividends – resulting in an increase on tax payable!  

Individuals looking to sell a portion of their business may also find that the option to claim Entrepreneurs’ Relief is blocked if the portion of the business sold cannot be run as a separate ‘stand-alone’ business. If the purpose of the sale is for semi-retirement or downsizing – rather than for tax avoidance purposes – then Entrepreneur’s Relief will be available if the part being sold can stand on its own two feet (e.g. due to separate geographical location). If trading through a single limited company, rather than as a sole trader or partnership, restructuring the business can lead to substantial tax savings.

If you are looking to sell part of or the whole of your business, the sale may be able to be structured in such a way to maximise any relief opportunities. Please scroll down for details on how to contact us.

Flat Rate Scheme for Limited Cost Traders

From 1st April 2017, HMRC are bringing out a new category for the VAT Flat Rate Scheme called “Limited Cost Trader” which also introduces a new higher flat rate of 16.5%.

Businesses using the VAT Flat Rate Scheme that are affected by this will be where:

• Spending for the business (excluding vehicles, fuel, subsistence and capital expenditure) for the period (including VAT) is less than 2% of his gross VAT inclusive sales for the same period OR
• The spending for the business (excluding the items above) is less than £250 including VAT in the same quarter.

Where a business is caught as a ‘Limited Cost Trader’, the new higher flat rate percentage will need to be used from 1st April 2017. However, as this new rate gives virtually no credit for input VAT, many businesses affected may find it financially better to revert back to the ‘normal’ method of accounting for VAT.

If you wish to discuss whether you should leave the VAT Flat Rate Scheme from 1st April 2017, please scroll down for details on how to contact us.

Pensions | Employer Contributions Vs. Personal Contributions: Which is best?

We are often asked whether a client should take money out of their company to make a pension contribution – usually as an additional dividend – or to make the contribution as an employer’s pension contribution.

Up until the change in dividend tax in April 2016, it usually didn’t make too much difference from a tax point of view – provided that you had sufficient ‘earnings’ to cover the amount being contributed.

However, since 6th April 2016, the drawing of (most) dividends has become 7.5% more expensive, so in the case of most owner-managers, we would now suggest making the contributions as employer’s contributions direct from your own limited company.

We would recommend taking professional advice when making investments, scroll down for details on how to contact us and we will put you in touch with A4G Wealth, our own Independent Financial Advisers.

VAT Simplification for EU E-Commerce

The European Commission is to introduce an EU wide portal for online VAT payments similar to the current Mini One Stop Shop (MOSS) system used for digital downloads and publications.

The intention of this new portal is to simplify the administration of many small (and large) businesses that sell goods to the rest of the EU. At the present time, businesses selling (non-digital) goods to the EU may have to register for VAT in each of the EU countries to which they sell dependent upon the rules of that particular country.

For example, a business selling goods through Amazon fulfilment centres across the EU have to register for VAT in the countries in which their goods are held by Amazon. This can mean that some businesses have to complete several VAT returns each quarter (or more often), but the new One Stop Shop (OSS) will simplify this to a single return.

However, the changes will not start to be introduced until 2018, with the full OSS not intended to be introduced until 2021 – by which time, it is uncertain as to whether the UK will remain part of the EU’s Single Market.

If you are currently exporting goods to be sold in the EU, and you are uncertain as to whether you should be registered for VAT in the UK or the EU, please scroll down for details on how to contact us.

Contact us: Call us on 01474 853 856 to speak to one of our Client Managers or Principal Advisers. Alternatively, you can complete the Contact Us Form and someone will give you a call back at a time that suits you.