Leasing is a way of raising finance (as opposed to traditional renting) to purchase outright or purchase the use of an asset.
This article excludes leases over 5 years and car leases where tax treatment differs.
The Lease period may vary from 1 to 5 years depending on the life of the asset.
The Lessor is the business providing the asset.
The Lessee is the business using the asset.
There are two types of Leases available, both of which are accounted for differently.
Please refer to our article Leasing in our knowledgebase for full details.
Once you have filed your Self-Assessment Tax Return you can expect to receive your statement of account within 45 days of a payment becoming due. If you have filed your return on-line, you will see a breakdown of any tax owed after completion.
Balancing Payments
Any balancing payment that you owe from the previous year will be added to your tax statement.
Example
For the tax year 2007-08 your tax bill was £5,000. You have made payments of £2,500. The balancing payment of £2,500 is due for payment on January 31st 2010. If there had been any unpaid tax from the previous year/s, this would be added and would include any interest and penalties.
Payments on Account
Tax due to be paid under £1,000 will not have to be paid on account; a single payment will be due on 31st January 2011 for the tax year 2008/9.
If it is over this amount, it will be spread over two payments.
Example
For the Tax year 2008-09 your tax bill was £8,000. Payments on account are assessed for the current tax year 2009-10, at the amount of the 2008-09 tax bill.
You will have a payment on account of £4,000 on 31st January 2010 and £4,000 on 31st July 2010.
When your tax return for 2009-10 is filed on 31st January 2011, any payments on account are deducted from tax due in that year.
Application to reduce Payments on Account
If you have received a tax bill with payments on account and you think that your income for the next year will be less, therefore less tax being owed, you can apply to have the payments on account reduced. If you use on-line filing you can make an application on the Government Gateway. If you do not then you need to complete from SA303 and send to HMRC. If it is found that later you owed more tax than you have paid on account, interest will be chargeable and penalties may be applied.
Penalties and Interest
Any balancing payments for the previous year that have not been paid by 31st January will be charged a daily interest of 3% (applicable September 2009) plus an automatic 5% surcharge. If this still has not been paid by the second payment date of 31st July a further 5% surcharge will be added.
Where a self-assessment return is filed after the deadline an automatic surcharge will be charged of £100. If you leave filing your return until 31st January 2010 and should have paid tax by that date you will get an automatic 5% surcharge and daily interest of 3%.
Please refer to ourguide on Self-Assessment Tax Returns in our knowledgebase.
In the April 2009 Budget, the Chancellor increased the tax free investment limit for ISA's from £7,200 to £10,200.
Any person over 50 years of age qualifies for the increase in the 2009/10 tax year. It will apply to all other individuals from 6th April 2010. The tax year commences on 6th April ending 5th April following.
This means that a 40% tax payer can save £4,080, and £2,040 for 20% tax payers.
The ISA (Individual's Saving Account) was introduced in April 1999 and replaced Tessa's and Pep's.
Please see our guide on Individual Savings Accounts in our knowledgebase for further information.
Formerly known as Permanent Health Insurance (PHI), IPI is an insurance paid when a person is incapacitated to work their usual work that they are qualified to perform due to illness or accident.
Typically policies pay out around 65% of gross earnings, although this may be lower for high earners.
Some providers will allow dividend income to count towards gross earnings, but many will not. Therefore careful selection of a provider is important as generally Contractors and Freelancers take a low salary with the majority of income taken as dividends.
There may be tax savings to be made when taking out a group policy in the company name; however, in the event of a claim, the cost to the individual may outweigh any tax savings.
For further details please see our guide Income Protection Insurance.
Recently HMRC released new rates for business mileage for company cars effective from 1st December 2009. Interestingly enough, the AMAP’s rates that many of us claim (approved mileage allowance payments) remain unchanged since 2002.
When the AMAP rates were set at 40p for the first 10,000 miles reducing to 25p per mile thereafter, petrol was an averageof 44% cheaper than it is of today. And not only have fuel prices gone through the roof; this also has a knock on effect to most other related costs including servicing and insurance.
With the Standard VAT rate reverting to 17.5% 1st January this will further increase costs.
It's worth spending a few minutes in comparing the costs, each case will be unique. For full information please see our guide on Company Cars v AMAPs in our Knowledgebase.
It is probable that many Professional Contractors and Freelancers have contributed into private or company pension schemes prior to starting their own companies. In some cases there may be multiple funds, especially for those of you have 'career hopped' in the past.
If you have lost track of past schemes, the Government Pensions Office have a tracing service which is free to use.
For full details please see our guidance on Pensions -Tracing missing funds in our knowledge base.
Where an employer ( your Limited Company ) is required by Health and Safety to ensure that Director's and employees eyes are not suffering any strain from working at a PC , the cost of the eye tests and sometimes the corrective spectacles can be borne by the company.
This means the company can pay for the eye tests and the glasses by reimbursing the employee, and there will be no tax charge on the employee.
Its good news for anyone having to look after their eyes because of the nature of the work they do, and a tax effective way of making sure you can do so.
For more details please see our knowledgebase article on Eye Tests.
When you purchase an asset; if the net value is £500 or above then it will need writing onto the Balance Sheet as an asset. Purchases of computer equipment under this value can be classed as an expense in the Profit and Loss Account.
When an asset is written into the accounts it's 'useful' life has to be determined and the depreciation calculated accordingly.
There are two ways to calculate depreciation:
1) Straight line method
2) Reducing balance method
For full details please see our guidance on Depreciation methods
Contractors can be sure that their accountants fees in respect of IR35 contract advice and support are tax deductible on a Limited Company.
So too are the accountancy fees for the Limited Company accounts.
But Directors Personal Tax Return fees are not tax deductible on a company, and accountants who provide this service "within a company monthly fee" are risking their clients being assessed for tax on the proportion of the monthly fee that is for personal tax returns.
We believe that its is HMRC compliant to charge separately for a tax return to the Director, who should pay for this service personally.
For full details see our guidance on Accountants Fees.
Business Gifts are normally treated as non deductible for tax in the same way as entertainment expenses.
But this is not always true.
Some gifts can become tax deductible to the giver and non taxable to the recipient, but you need to know the HMRC guidelines.
For instance if you are under contractual obligations to make the gift under a supply of service or if you give a gift as part of a purchase then it can be tax deductible. Gifts under a certain value can also be tax deductible, and you can have branded gifts too !
See our detailed guidance on Gifts here