Monday, 17 February 2014

Changes to Director’s Loan Accounts

When a Director of a company takes money out of the business in a form other to salary and dividends, which exceeds the amount of money they have put in, this is known as a director’s loan. This could be money withdrawn or even personal expenses claimed using company funds.

If the director’s loan is paid off in full by the end of your company’s accounting period:

·         -Your company does not pay corporation tax on the loan.
·         -You don’t need to tell HMRC about the loan on your Company Tax Return.

You will, however, need to include it in your Company Tax Return if you either:

·         -Take a further loan within 30 days of (before or after) the repayment.
·         -Have arrangements in place for a further loan to be made at the time of the repayment.

If your director’s loan is paid off in full within 9 months and 1 day of the end of your company’s accounting period:

·         -Your company does not pay corporation tax on the loan.
·         -You must include details of that loan in your Company Tax Return.

You will, however, need to pay Corporation Tax on the loan if you either:

·         -Take a further loan within 30 days of (before or after) the repayment.
·         -Have arrangements in place for a further loan to be made at the time of the repayment.

If your director’s loan is not paid off within 9 months and 1 day of the company’s accounting year end:

·         -Your company must pay Corporation Tax on the loan – the current tax rate for a director’s loan is 25% of the loan (i.e. a company with a director’s loan account which is £10,000 overdrawn will have to pay £2500 corporation tax on that loan).
·         -You must include details of the loan in your Company Tax Return.
·         -HMRC will charge interest on the amount unpaid.

Claiming relief after your director’s loan has been repaid

If you do have to pay corporation tax and the director’s loan has been paid back in full, the amount of the corporation tax can be reclaimed. This can only be done in a window starting 9 months after the end of the accounting period in which the loan was paid off. Claims must be made before within 4 years from the end of the financial year in which the loan is repaid. Any interest paid is not reclaimable.

Director’s Loans that are written off or released

When the loan is written off or released, it does not need to be repaid. Instead the amount written off is treated as personal income and needs to be included on the personal self-assessment tax return, NIC’s will also need to be paid.

Director’s Loan – Change to Benefit In Kind

Previously, when the director’s loan account was overdrawn by £5000 or more, the loan amount was treated as a benefit in kind. The threshold has since been increased to £10,000.

This means that the director will have to pay income tax based on HMRC’s official rate of interest of the loan if they owe the company £10,000 or more. It must be reported on the director’s Self-Assessment Tax Return. The benefit in kind can be avoided by paying interest to the company on the loan at or above the HMRC official rate. Class 1A NIC’s will also have to be payable by the company.

If the director owes less than £10,000 then they have no responsibilities with regard to income tax and national insurance. They do, however, still have to adhere to the above rules on corporation tax.

Closing the loophole on bed and breakfasting

This loophole was widely used as a method to avoid paying the corporation tax on the loan. Repayment of the loan would be made to the company before the 9 months and 1 day deadline, but not long later the director then re-loans the money. Even after the company pays the tax, the loophole was available to re-loan the money not long afterwards and to then re-claim the tax.

New rules have been brought in to deny relief where tax has been paid if, within a 30 day period, repayments of more than £5000 are paid to the company from directors and which are then later re-loaned.

Where this 30 day rule does not apply, relief will also be denied if there are amounts outstanding of at least £15,000 at the time of repayment and there are future arrangements or intentions to re- loan this money to the director’s.  

Thursday, 13 February 2014

Taking a year in a Work Placement

Since July 2013, I have been employed at Brealey Foster & Co as the placement student. In this role I am primarily responsible for the personal tax element of our clients’ tax returns, but also will be assigned tasks which offer an insight into different aspects of accounting.

Personally, the main reason for taking up a work placement was to gain an understanding of what a career in accounting was about and to familiarise myself with the office environment. This is possible in my current position as I am able to experience all the topics that I studied during my first two years of university using real figures that belong to actual people. A greater degree of care and accuracy is therefore something that you will learn during an accounting placement, which I hope to take forward with me in my final year of study and into future job applications.

The change from theory to actual projects is initially daunting, but once you settle into the job and the workplace it is very satisfying to see happy clients and senior members of staff. The main advantage of experiencing a placement is the increased level of confidence that it gives you. Even self-assured individuals can develop skills to improve their appearance to future employers.

No matter how confident you are, your personal skills can always improve and weaknesses can be transformed into strengths. Before taking on the work placement I feared that my lack of presenting skills would hold me back in my career. Since coming into Brealey Foster & Co, I have been given genuine responsibility which in turn means my role is client facing. As a result, throughout the year my communication skills with clients have vastly improved. Not only do you need to talk over the phone but are also involved in meetings where you are in charge of giving guidance and explaining your work.

You will also improve your organisational skills. With personal tax computations, there is a self-assessment deadline at the end of January. Time management was therefore required to ensure that all work is completed before the end date and all clients were happy.

The process of a work placement doesn't start on your first day of work. The effort you put in towards application processes and interviews will reflect well to employers. Getting a few knock-backs before my interview with Brealey Foster & Co, allowed me time to evaluate the areas where I needed to improve and it helped me to analyse what companies wanted in a placement student. All in all, the route from deciding you want to do a placement year all the way to completion is entirely worthwhile.

Wednesday, 12 February 2014

Lib Dems proposed "Mansion Tax"

Nick Clegg has this week suggested that the Liberal Democrats will enforce more taxes on the wealthy should they get in power. The ‘Mansion Tax’ will be an annual levy of 1% on the taxpayers of all homes valued over £2m. A move which is also supported by Labour, it was previously put forward in the run up to the last election. The Conservatives opposed it, and so was not enacted in the current coalition government.

The proposed levy promises to divide opinion, but for many it will be seen as a welcome alternative to the existing policy of public spending cuts. In answer to opposition, Clegg has claimed that relevant home owners who are “asset rich” only and are not on high incomes may be able defer payment. Certainly one to keep an eye on.

Monday, 3 February 2014

Transferability of Personal Allowance from 2015/16 onwards (Autumn Statement)

As featured in the Autumn Statement, a new option will be available to married couples and civil partnerships from the 2015/16 tax year onwards.

The new feature will enable an individual to transfer up to £1000 of his/her personal allowance to his/her spouse or civil partner. Couples that only live together and are not married/in a civil partnership will not be eligible. In the following years from 2015/16, the transferable amount will be increased in proportion with Personal Allowance levels.

This transfer will only be allowed if both members of the marriage/civil partnership are not higher rate of additional rate taxpayers (earning below £41,685 at current levels).

As a result, it only seems to benefit partners which have one member not earning as much as the personal allowance figure. This transfer will enable the other partner to reduce his/her tax bill by taking on the additional personal allowance.