Change in accounts filing for small companies

Small companies are required to file a copy of their end of year accounts with Companies House. In the past, it has been possible to file abbreviated accounts – basically, a few notes and a Balance Sheet with very little data regarding profitability – for smaller companies this has restricted the amount of financial information available in the public domain, and thus, their exposure to competitors.

 

For accounting periods beginning on or after 1 January 2016, the format of accounts that will need to be filed has changed. An announcement posted to the gov.uk website is reproduced below:

If you’re a small company, you have 4 options for filing your accounts:

Micro-entity accounts

You must meet at least 2 of the following:

  • turnover is no more than £632,000
  • balance sheet total is no more than £316,000
  • average number of employees is no more than 10

Abridged accounts

You must meet at least 2 of the following:

  • turnover is no more than £10.2 million
  • balance sheet total is no more than £5.1 million
  • average number of employees is no more than 50

Full accounts with us and HMRC

These joint accounts are suitable for small companies who are audit exempt and need to file full accounts to us and HMRC. You can also file your tax return with HMRC at the same time.

Dormant company accounts

These accounts are suitable for companies limited by shares or by guarantee that have never traded and can be filed using our WebFiling Service.

We will be considering these options in the coming months and making recommendations to clients based on their available options.

Under 4 year olds now eligible for tax-free childcare

The government have issued the following press release regarding the roll-out of the new tax-free childcare scheme:

From 21 April 2017, working parents can start applying for two new government childcare schemes launching this year – Tax-Free Childcare which begins immediately and 30 hours free childcare which starts in September.

This means that working parents of children, who will be aged under 4 on 31 August 2017, can now apply through the new digital childcare service for Tax-Free Childcare and receive a government top-up of £2 for every £8 that they pay into their Tax-Free Childcare account. All parents of disabled children (under 17 years old) will also be able to apply for Tax-Free Childcare from today.

In addition, parents of 2-3 year olds, who will be eligible for a 30 hours free childcare place in September, can apply through the childcare service and start arranging a place with their childcare provider.

The Childcare Choices website provides information on the government’s childcare schemes and explains how parents can pre-register or apply. It also includes a childcare calculator to show eligible families how much they could receive.

For parents across the UK, Tax-Free Childcare will cut childcare costs by up to £2,000 per year for each child under 12 years old, or £4,000 per year for disabled children under 17 years old. The programme will be rolled out through the year, with all eligible parents able to receive it by the end of 2017.

From September, working parents of three and four-year-olds living in England will also be entitled to the new 30 hours free childcare offer, worth around £5,000 per child. Parents will only need to make a single application for both schemes when their children become eligible.

Finance Bill reduced

In order to ensure that the Finance Bill 2017, introduced March 2017, is passed before the impending general election, huge chunks of the original, published bill have been removed. In the national press this has been referred to as a “wash-up”.

Significant legislation has been side-lined in the process. For example, the following charging provisions have been removed:

  1. Rules to introduce the further digitisation of tax payer records by requiring that certain sectors of the self-employed will need to upload quarterly data to HMRC from April 2018, all unincorporated businesses by April 2019. The so-called, Making Tax Digital processes.
  2. The reduction of the tax-free dividend allowance from £5,000 to £2,000 from April 2018.
  3. Many of the anti-avoidance, counter legislation changes.
  4. The reduction in the pensions money purchase allowance.

The national press is keen to speculate that some or all of these removed clauses will not be reintroduced after the election. Much will depend on who wins the election, but if Mrs May re-enters Downing Street, a second Finance Bill for 2017, to represent the missing clauses, seems likely.

Like so much in politics these days, we will have to wait until the ink has dried on the voting slips, and the count completed, before the re-introduced legislation or new tax changes are considered.

Business owners are to some extent in limbo as the Making Tax changes, although heavily promoted by HMRC, are now without charging provisions in the Taxes Acts. Many businesses, and their advisors, are presently trialling the electronic upload of data to HMRC, so it is difficult to see that this entire raft of legislation will be permanently withdrawn. We will have to wait and see.

Tax Diary May/June 2017

1 May 2017 – Due date for Corporation Tax due for the year ended 31 July 2016.

19 May 2017 – PAYE and NIC deductions due for month ended 5 May 2017. (If you pay your tax electronically the due date is 22 May 2017)

19 May 2017 – Filing deadline for the CIS300 monthly return for the month ended 5 May 2017.

19 May 2017 – CIS tax deducted for the month ended 5 May 2017 is payable by today.

31 May 2017 – Ensure all employees have been given their P60s for the 2016-17 tax year.

1 June 2017 – Due date for Corporation Tax due for the year ended 31 August 2016.

19 June 2017 – PAYE and NIC deductions due for month ended 5 June 2017. (If you pay your tax electronically the due date is 22 June 2017)

19 June 2017 – Filing deadline for the CIS300 monthly return for the month ended 5 June 2017.

19 June 2017 – CIS tax deducted for the month ended 5 June 2017 is payable by today.

What are approved mileage payments

Mileage Allowance Payments (MAPs) are the rates used by employers to reimburse employees when they use their own transport for business purposes. The current rates are well-known. They are:

  • Cars and vans – 45p per mile for the first 10,000 miles and 25p thereafter.
  • Motorcycles – 24p per mile
  • Bikes – 20p per mile

As long as employers pay at these rates, and no more, any expenses paid are tax free in the hands of the employee.

If the employer is registered for VAT, they can also claim back as input tax the deemed VAT included in the mileage rate. To do this, employers should use the advisory fuel rates. These are published on the gov.uk website at https://www.gov.uk/government/publications/advisory-fuel-rates/advisory-fuel-rates-from-1-march-2016

If employers pay at rates higher than MAPs, any excess will be treated as remuneration, added to employees’ salary, and taxed accordingly.

If employers pay their employees at less than the MAP rates, employees can make a claim to HMRC to compensate them for any shortfall. In effect, the difference in the MAP rate paid times the business mileage for the tax year can be claimed as an allowable expense.

Beneficial loans to employees

In many cases, making loans to your employees or their relatives can create an obligation to report a beneficial loan to HMRC. The deemed benefit would be a taxable benefit in kind for the relevant employee, and would increase the employer’s Class 1A NIC bill at the end of the tax year.

However, certain loans are exempt from this reporting obligation. These may include loans employers provide:

  • in the normal course of a domestic or family relationship as an individual (not as a company you control, even if you are the sole owner and employee),
  • with a combined outstanding value to an employee of less than £10,000 throughout the whole tax year,
  • to an employee for a fixed and never changing period, and at a fixed and constant rate that was equal to or higher than HMRC’s official interest rate when the loan was taken out – the official rate for 2016-17 was 3%,
  • under identical terms and conditions to the general public as well (this mostly applies to commercial lenders),
  • that are ‘qualifying loans’, meaning all of the interest qualifies for tax relief,
  • using a director’s loan account as long as it’s not overdrawn at any time during the tax year.

Loans written off also create a National Insurance Class 1 charge. They must be reported on a P11D and the employer has an obligation to deduct and pay Class 1 NIC on the deemed value of the benefit.

Calculating the taxable benefits for chargeable loans can be somewhat complex and readers are advised to take advice if they are unsure of their tax and NIC responsibilities.

All change for driving instructors and learner drivers

Driving instructors will have a tough time this year. Many are sole traders and will need to start changing their record keeping to accommodate the challenges of Making Tax Digital, either April 2018 if their turnover is above the VAT registration limit (presently £85,000), or April 2019 if their turnover is below this limit.

On 4 December 2017, they will also face changes to the driving test. According to a recent press release issued by the Driver & Vehicles Standard Agency there will be four basic changes:

1. The independent driving part of the test will increase to 20 minutes – it currently lasts 10 minutes – so this will be about half of the test.

2. Following directions from a sat nav – during the independent driving part of the test, most candidates will be asked to follow directions from a sat nav. One in five driving tests won’t use a sat nav. You’ll need to follow traffic signs instead.

3. Reversing manoeuvres will be changed – the ‘reverse around a corner’ and ‘turn-in-the-road’ manoeuvres will no longer be tested, but you should still be taught them by your instructor. You’ll be asked to do one of 3 possible reversing manoeuvres:

  • parallel park at the side of the road

  • park in a bay – either driving in and reversing out, or reversing in and driving out (the examiner will tell you which you have to do)

  • pull up on the right-hand side of the road, reverse for 2 car lengths and re-join the traffic.

4. Answering a vehicle safety question while you’re driving – the examiner will ask you 2 vehicle safety questions during your driving test – these are known as the ‘show me, tell me’ questions.

Ironically, this may produce a rash of activity as learner drivers attempt to pass before the December change. It may also be a window of opportunity for employers to consider supporting employees who would benefit from being able to drive as part of their work. As long as the employer directly engages the driving school, and pays for the lessons, and it can be demonstrated that passing a test is a requirement of their employment, then the cost would be a tax-free benefit to the employee.

Expenses and benefits for employees

Until 2015-16, it was possible to apply for a dispensation to exclude certain expenses and benefits provided to employees from the year end returns to HMRC: primarily the submission of forms P11D. These dispensations ceased to be effective from 6 April 2016. From this date many of the expenses covered by dispensations were exempted from the benefits legislation. The sorts of expenses covered include:

  • business travel
  • business phone bills
  • business entertainment expenses
  • uniform and tools for work

To qualify for an exemption, employers must either be:

  • paying a flat rate to your employee as part of their earnings ­ this must be either a benchmark rate or a special (‘bespoke’) rate approved by HMRC, or
  • paying back the employee’s actual costs

Employers do not have to formally apply for exemption if they reimburse using HMRC’s benchmark rates for allowable expenses. You only need apply if you want to use your own rates as these rates will need to be agreed with HMRC. There must be systems in place to check the payments are as agreed with HMRC.

Filing deadlines:

The filing deadlines for P11D forms and associated returns are:

  • 6 July 2017 – file forms P11D
  • 6 July 2017 – give employees a copy of their P11D
  • 6 July 2017 – submit return of Class 1A NIC due on form P11D(b)
  • On or before 22 July 2017 (19 July 2017 if paying by cheque) – pay any Class 1A NICs due

There is a fixed penalty of £100 per 50 employees for each month or part of a month the P11D(b) return is late. There are also penalties and interest if your payments of Class 1A NICs are paid late.

Don’t forget that the earnings rate of £8,500 pa for a P11D to be required was abandoned from 6 April 2016 so that employees who previously needed a form PD9 will now need a P11D.

A note for driving instructor clients E and learner drivers

The Driver & Vehicle Standards Agency has released its response to a consultation with the industry to “Improve the car driving test”. In their conclusion they say:

“This paper reports the outcome of the Driver and Vehicle Standards Agency’s (DVSA) consultation about changes to the car driving test. The consultation was held between 14 July and 25 August 2016. The consultation paper contained proposals for 4 changes to the way the driving test is conducted.

These are:

 

  • increase the independent driving section of the practical driving test from 10 to 20 minutes
  • provide the option for the directions in the independent driving section to be followed by using a sat nav, in addition to the current practice of following road signs
  • modify the way in which manoeuvres are delivered, so that they are undertaken during the natural course of the drive – the exercises undertaken would be updated for modern driving conditions
  • ask one of the 2 vehicle safety questions while on the move instead of at the start of the test.

 

There was broad support for the proposals. We've received the final presentation with the findings from a trial of the new test undertaken by the Transport Research Laboratory (TRL). This identifies improvements delivered by the new test. Taking into account the outcome of the consultation and the TRL research, the new test will be introduced for learner car drivers from 4 December 2017.”

This will prove to be a busy year for instructors as existing learner drivers try to pass their driving test before the 4 December. And, instructors will need to update their skills to teach drivers the new rules.

New accounts filing regulations for smaller companies

Companies house recently published the following news story.

Changes to UK company law removed the option for small companies to file abbreviated accounts for accounting periods starting on or after 1 January 2016.

Small companies

If you are a small company, you have 4 options for filing your accounts:

1. Micro-entity accounts

  • You must meet at least 2 of the following:
  • turnover is no more than £632,000
  • balance sheet total is no more than £316,000
  • average number of employees is no more than 10

2. Abridged accounts

  • You must meet at least 2 of the following:
  • turnover is no more than £10.2 million
  • balance sheet total is no more than £5.1 million
  • average number of employees is no more than 50

3. Full accounts with us and HMRC

These joint accounts are suitable for small companies who are audit exempt and need to file full accounts to us and HMRC. You can also file your tax return with HMRC at the same time.

4. Dormant company accounts

These accounts are suitable for companies limited by shares or by guarantee that have never traded and can be filed using our WebFiling Service.

How to file your accounts

 

Micro-entity accounts:

To file micro-entity accounts you need to sign-in to our WebFiling service and choose the micro-entity accounts type.

 

Abridged accounts:

We’re working on a replacement service that will enable you to file abridged accounts on Companies House Service. We expect to launch it this year.

 

Currently, there are 2 options for you to consider:

  • Use the Companies House-HMRC joint filing service. You’ll need a Government Gateway account and you can file your tax return to HMRC at the same time.
  • Use third party software. This service benefits those who file regularly.

 

Clients will be relieved to know that we will choose the appropriate filing method and format for them.