Creating a business plan

create business plan

A business plan needs to contain all the information that somebody would need in order to share your vision and also to understand the financial viability of the project. In particular your “break-even” point, best and and worst case scenarios.

A business plan often accompanies a finance application or is part of a proposal to potential investors. The plan could be read by people with a wide array of business skills and it is important therefore to make it as easy to understand as possible.

The Princes Trust offers a wealth of free information that would serve as a useful starting point

https://www.princes-trust.org.uk/help-for-young-people/tools-resources/business-tools/business-plans

Or you could try a subscription service that was recently recommended to me by a regional business manager of a large national bank (we have not used this product at Darrall & Co so cannot endorse it specifically, but the reports derived from this service, that we have been shown, did look impressive):

https://www.liveplan.com/features/impressive_plans

For a wider read (that will bring you back to the Princes Trust resources) you could try this link: https://www.gov.uk/write-business-plan

If you would like some help throughout the process of writing a business plan please get in touch:

https://www.darrallandcompany.com/contact-us/

Partial Exemption VAT

partial exemption VAT

Partial Exemption VAT

Do you provide a mixture of supplies where the VAT treatment of each is different?

Where a business makes both taxable and exempt supplies then it has to calculate how much VAT it is entitled to recover on business expenditure – this is done by way of a partial exemption calculation.

Here is a list of -> Exempt Supplies

Where a business makes fully taxable (VATable) supplies it can register for VAT and can recover in full any VAT that it incurs in the course of making those taxable supplies.

Where a business makes fully exempt supplies it is not entitled to register and so has no ability to recover VAT that it incurs in the course of its business.

Partial Exemption Calculations:

Standard method

This is the default method and doesn’t require approval from HMRC for use, and there are 3 stages involved;

  1. The total value of income defined as ‘taxable’ is worked out as a proportion of the total income to work out how taxable the business is as a percentage. This percentage is rounded up to the next whole number under this method.
  2. The VAT on expenditure is attributed to one of three categories, A = wholly taxable use, B = wholly exempt use, and C = unattributable, or ‘pot’. All of ‘A’ and the taxable percentage of ‘C’ will always be recoverable in full. The remainder is defined as ‘exempt input tax’.
  3. The exempt input tax value is compared to the relevant ‘de minimis’ limits. If the comparison shows that the value meets both conditions of the de minimis test then all VAT on expenditure can be recovered in full (the business is deemed to be ‘fully taxable’). If either element of the test is not met then the business is ‘partly exempt’, and only the taxable part is recoverable (being A + % of C as above).

Special method

Where the standard method does not accurately reflect the business structure or sector, and does not produce a ‘fair and reasonable’ result, then it is possible to request that a special method be used instead. This would require HMRC approval, and would use different calculations (for example proportional floor space, employee time, head count) rather than income values. The calculation would still require attribution of VAT on expenditure, and would still be compared to the same de minimis limits.

Standard method override

Where the standard method does not produce a fair and reasonable result it may have to be overridden. This would apply where the amount of input tax recovered “differs substantially” from the actual use for taxable purposes. The definition of substantial is where the difference exceeds

  • £50,000 or
  • 50% of the ‘pot’ value (C) and £25,000

Examples of situations where this might apply include delayed or abandoned projects where input tax might be recovered in advance, business units using costs to make different supplies, or costs incurred in one year that will not be used until a later year.

Annual adjustments

All methods require an annual adjustment that effectively recasts the values for the longer period and may result in adjustments – either VAT to be paid back or additional VAT to be recovered. There are also some simplifications to the standard method that allow provisional values to apply throughout the year with an annual adjustment at the end, and some simpler calculations that avoid having to carry out a full partial exemption calculation.

Making Tax Digital – MTD

Your options on how to make the quarterly and annual adjustments will depending on the Software you have chosen to file your MTD tax returns with.  Here at Darrall & Co we will do our best to guide you through this.

We’ve been through the mill already – read about this here:

https://www.darrallandcompany.com/making-tax-digital-pilot-test/

Still using Spreadsheets … we have a solution for you:

Making Tax Digital – Bridging Software

Click here to contact us for Help !

 

Making Tax Digital – Pilot Test

making tax digital pilot

Read the Post on LinkedIn

Today I filed my company VAT return as part of the MTD Pilot and have decided to report my findings to you. I used TaxCalc VAT filer which was simple and effective.

This process was not without some degree of pain due to issues arising from the HMRC VAT/MTD system. This involved multiple phone calls and emails over the last few months that get acknowledged but never actioned. It is very difficult to get through to any HMRC representative that understands what is going to happen when the switch over happens and even harder to get help on the Pilot. I still have unanswered questions.

It also did not help that the original Software that I tried to use, which bills itself as “MTD Ready” was unable to submit under MTD. Yes they are one of the Big Players and yes they are HMRC Recognised (https://lnkd.in/ga68Sk6). Even more surprising is that they have stated to me that they have no intention to provide MTD services for businesses that are not mandated to do so. Therefore if your turnover is less than £85,000 per year and you volunteer for MTD you will be disappointed in the near future.

If you need help – I’m only a phone call away!

Click here for Contact Us Details

Pool Cars VAT & PAYE

pool car vat paye

Pool Cars, VAT & PAYE

Are you considering claiming the advantageous Pool Car treatment instead of of regarding it as a Company Car?  If so please be aware of the following rules.

Pool Cars & VAT

If only one person uses a pool car it isn’t a pool car and no VAT is recoverable.

In order to be a pool car for VAT purposes HMRC say:

3.7 VAT incurred when you buy a pool car

You can recover the VAT incurred as long as it’s:

  • normally kept at the principal place of business
  • not allocated to an individual
  • not kept at an employee’s home

Click to read HMRC VAT guidance

Pool Cars & PAYE

Pool cars have wider implications and also need to comply with these rules deriving from the PAYE manuals:

Sections 167 and 168 ITEPA 2003 ensure that no car or van benefit arises on a pooled car or van made available by reason of the employment that, in the relevant tax year, satisfies all the following conditions:

  1. it was made available to, and actually used by, more than one of those employees
  2. it was made available, in the case of each of those employees, by reason of the employee’s employment
  3. it was not ordinarily used by one of those employees to the exclusion of the others
  4. in the case of each of those employees, any private use of it made by the employee was merely incidental to the employee’s other use of it in that year (see EIM23455), and
  5. it was not normally kept overnight on or in the vicinity of any residential premises where any of the employees was residing, except while being kept overnight on premises occupied by the person making it available to them (see EIM23465).

For the purpose of these five conditions all employees should be considered, including those in excluded employments, who would not be chargeable to tax even if the car or van were available for their private use.

Click here to read HMRC PAYE guidance

What if usage changes? (i.e. it was a Pool Car but is now a Company Car)

3.10 Changing the use of a car

If you recover VAT on a car because of one of the exceptions in paragraph 3.1, but later put the car to a use that would not qualify for recovery under any of the exceptions a ‘self supply’ occurs.

A ‘self supply’ means that you must account for output tax at the time of the change of use on the current value of the car. You can take the current purchase price of an identical car or, if this is not available, of a similar car as the current value.

Click here for further HMRC reading

If you would like to discuss the wider implications please contact us:

Click to go to the Contact Us page

Buying and renovating property

capital vs revenue

Buying and renovating a property

Will you get tax relief for say £50k of repairs that you are planning to do at the new premises that you have recently acquired with a view to renting it out.

The following link details HMRC’s opinion https://www.gov.uk/renting-out-a-property/paying-tax

Allowable expenses do not include ‘capital expenditure’ – like buying a property or renovating it beyond repairs for wear and tear.

  • If the expenditure is “Capital” it gets added to the cost of the property and you get tax relief when you sell.
  • If the expenditure is “Revenue” you get tax relief against income.

 

Deciding if the repairs represent a Revenue cost :

Click here to read the full HMRC guidance   The relevant part is duplicated here:

Repairs to reinstate a worn or dilapidated asset are usually deductible as revenue expenditure. The mere fact that the customer bought the asset not long before the repairs are made does not in itself make the repair a capital expense. But a change of ownership combined with one or more additional factors may mean the expenditure is capital. Examples of such factors are:

A property acquired that wasn’t in a fit state for use in the business until the repairs had been carried out or that couldn’t continue to be let without repairs being made shortly after acquisition.

The price paid for the property was substantially reduced because of its dilapidated state. A deduction isn’t denied where the purchase price merely reflects the reduced value of the asset due to normal wear and tear (for example, between normal exterior painting cycles). This is so even if the customer makes the repairs just after they acquire the asset.

The customer makes an agreement that commits them to reinstate the property to a good state of repair. For example, Fred is granted a 21-year lease of a property in a poor state of repair by his landlord that he, in turn, sublets. When Fred’s landlord grants him the lease Fred agrees that he will refurbish the property. Fred’s expenditure on making good will be capital expenditure and not allowable. But Fred’s landlord may be chargeable on the value of the work under the premiums rules (PIM1200 onwards) and Fred may qualify for some relief (see PIM2230 onwards).

My loose interpretation if the fully renovated property is worth say:

  • Value: £450k and you pay £330k being – £280k (for the premises) + £50k (repairs) which combined make it worth £450k, then the £50k is most likely capital.
  • Value: £310k and the £330k spent puts it into a liveable state without actually improving the property (i.e. without making it worth more that £310k) then there is probably a fair degree of repair included in the £50k.

This is an area which can involve a lot of work.  My advice is to ensure that the builder provides a full costed itinerary of the works that they are undertaking and makes it as clear as possible such that the above question of “is it capital or revenue” is very easy to interpret.  This would also present a strong argument to HMRC if they were to ever challenge the costs.

I hope that you have found this interesting and that some of the links prove to be of help.  If you however you would like some structured advice then please be sure to get in touch:

https://www.darrallandcompany.com/contact-us/

This blog came about as part of an exercise looking into Stamp Duty.  Feel free to click here to read it. https://www.darrallandcompany.com/stamp-duty-land-tax-sdlt

Stamp Duty Land Tax (SDLT)

stamp duty land tax SDLT

There is much that can be said about Stamp Duty Land Tax and I do not intend to try and cover all potential aspects of this in a humble blog.

This blog covers a few issues that I was looking into recently in respect of residential properties:

Key:

SDLT = Stamp Duty Land Tax

BTL = Buy to Let

HMRC – H M Revenue & Customs

Italics = Direct download from the listed webpage/link

 

Buying Flats in one premises that might be considered to be multiple properties:

Unless the Flats have entirely separate access points (e.g. no shared front door) they are likely to be regarded as one premises for SDLT purposes.  e.g. Two flats bought together costing say £280,000 would most likely not be regarded as two separate properties of £140,000 (which would otherwise reduce the overall charge to SDLT).

Click to read HMRC Manual which gives a fuller explanation

How much stamp duty might be due?

This is a useful link where you can run various scenarios, including if the property is not your only one.

If it’s not your only property chances are you will pay an additional charge.

Click through to a stamp duty calculator

Buying through a company – does it avoid the additional charge?

If you have one property already, will buying your second through a company remove the additional charge?

This article confirms a company also pays the additional charge  https://www.gov.uk/guidance/stamp-duty-land-tax-corporate-bodies

Companies must pay the higher rates for any residential property they buy if:

  • the property is £40,000 or more
  • the interest they buy is not subject to a lease which has more than 21 years left

If the property costs more than £500,000, the 15% higher threshold SDLT rate for corporate bodies may apply instead.”

I hope that you have found this interesting and that some of the links prove to be of help.  If you however you would like some structured advice then please be sure to get in touch:

https://www.darrallandcompany.com/contact-us/

 

Please also feel free to read the related blog on buying and renovating property

(Nb – this blog will not be active until after 1st December 2018)

Buying property for children

Buying property for children

The content in this month’s blog about Buying property for children was written by:

Liz Cuthbertson CA CTA, Private client partner, Mercer & Hole Chartered Accountants, and director, Mercer & Hole Trustees Limited

It was such a great article that I really wanted to share it.  The link at the bottom will take you to the original post.

Here’s what Liz has to say:

Parents often want to help their children buy a first property but that is sometimes mixed with concern about the potential risk of losing some of the family wealth – for example, if the child enters a relationship that fails with the risk that some assets are shared with the partner. For the purposes of this article, the child is aged 18 or over.

Below, I have highlighted some of the options that can be considered. All have their merits for different reasons. In practice, the objective to preserve wealth long term often trumps some of the tax considerations when it comes to deciding just what to do.

Gift of cash sum to child

Parents can make a simple unconditional gift of cash to the child to enable the child to have a sufficient deposit or full funding to buy the property. The child would be the sole owner and the acquisition is funded with the cash plus a commercial bank loan, if required.

This is simple and transparent. There are additionally some inheritance tax (IHT) benefits to be obtained by this strategy, subject to certain conditions being met:

Potentially exempt transfer (PET)

The gift is a PET and falls out of the parent’s estate for UK Inheritance Tax (IHT) purposes in full after seven years have passed from the date of the gift. The parents must not receive a benefit out of the sum given away and the parent’s estate then saves IHT at 40% on the value of the gift after the full seven years.

Capital gains tax (CGT)

Assuming the child occupies the property as his or her main residence, throughout the child’s period of ownership, any capital gain arising on disposal of the property will be exempted from CGT by Principal Private Residence Relief (PPR). Periods of ownership not occupied by the owner will not be exempted, although further reliefs, not covered here, may be available.

The key disadvantage is the outright control and ownership it gives the child. If the child enters a relationship that later breaks down, there is a risk of assets being lost to the estranged partner. Outright ownership also gives the child power to sell the asset whenever he or she wishes. It is this aspect that has the potential to be the subject of conflict on a practical level.

Joint ownership

If a property is partly owned by the parents and partly owned by the child, then in the event of a relationship breakdown for the child, the part owned by the parent or parents is likely to be protected, assuming the property was acquired well in advance of the relationship breakdown.

Also, a property owned by more than one person can only be sold by agreement of all owners. Therefore, if the parents own an interest in the property and the child owns the remainder, the child cannot singlehandedly sell or mortgage the whole property.

The drawback is the absence of PPR relief in relation to the part owned by the parent. Any gain arising on a disposal of the parents’ interest during their lifetime will therefore attract CGT at 28% (at current rates).

Although not covered by this article, the Stamp Duty Land Tax (SDLT) implications of parents acquiring an interest in a second property must also be considered when assessing the assets involved.

Due to the SDLT complications, joint ownership is sometimes approached by way of the parents making just a loan to the child and taking a charge over the property rather than anything else. This is very simple to achieve and ensures the parents get their money back in the long run.

However, the cost of protecting the parents’ wealth like this is continued IHT exposure for them. The property interest owned by the parents or the loan receivable by them is still part of the parents’ own estate for IHT purposes and will attract IHT at 40% on their deaths without further planning.

Acquisition by a family trust

A family trust may already exist in which case it is worth considering acquisition of the property by that vehicle, if the trustees have sufficient cash to fund it. Trustees usually find it more difficult to obtain commercial bank mortgages and so in practice, this option works best where the trustees can buy the asset outright with cash they already have. The trust I refer to here is a UK trust, of which the settlor is specifically excluded and trustees have discretionary powers over all beneficiaries.

If there is not an existing trust, the parents could create a trust by each making a life time transfer of £325,000 (£650,000 in total) to a trust to fund it, subject to not having made transfers in the previous seven years. The sums transferred are chargeable lifetime transfers and therefore, if the parents transfer more than their nil rate bands for IHT, the excess would be subject to an IHT charge of 20% at the time of transfer.

If the property cost more than the total sums transferred, then it is better to transfer the balance by way of loan, if the parents have the cash available to do so. A loan is not a chargeable transfer but must be properly legally documented with repayment terms.

The big advantage of a trust is that it is a completely separate vehicle enabling family wealth to be ring-fenced and protected. This is extremely helpful in alleviating some of the concerns described with direct ownership over outright control.

In this respect, a trust can provide the best of both worlds – the trustees can allow the child to occupy the property and even pay all property maintenance costs for him or her but the child neither owns nor has direct control of the property.

Provided the settlor(s) are specifically excluded from benefit, trust property is also not part of the beneficiaries’ own estates for IHT purposes. It belongs to the trustees and there are IHT consequences for them:

The trustees are subject to a charge to IHT on every 10th anniversary of the trust in respect of their chargeable relevant property. This is the ’10-year charge’ that, very broadly, amounts to 6% of the value of chargeable trust assets held on that occasion.

However, this is nowhere near the IHT rate of 40% on death if the property is held in a person’s own estate but it does accelerate a tax charge at a time when there may otherwise not have been a charge at all.

If the trustees ever decide to appoint the property out to a beneficiary, an IHT exit charge arises on the trustees as property is leaving the trust. The actual calculation can be complex, but the rate charged does not exceed 6% at an absolute maximum and is often much less than this.

The trustees are also likely to qualify for PPR exemption as long as they grant the beneficiary a right to occupy the property and they do so as their main residence for the entire period of ownership. Given that trusts are used for asset protection, appointment of the asset is not usually on the agenda, at least in the short or medium term.

Longer term, there could potentially be other taxes to consider. For example, if the property is put to another use, such as being let out by the trustees, the trustees will pay income tax on the rental profits at the highest rate of income tax, currently 45% and CGT on any chargeable gain arising in the year of disposal is charged at 28%.

With all this in mind, for family trustees who can afford to fund a property acquisition, it is important to understand the short- and long-term objectives for the property before embarking on this strategy. For cases where it is appropriate, the trust can work very well indeed.

Acquisition by a family investment company

It is widely regarded that ownership by a company of residential property for one’s occupation is unattractive if considered solely from a tax perspective. This is essentially because a company owning a UK residential property is subject to the Annual Tax on an Enveloped Dwelling (ATED), a charge which is set in line with the valuation bandings for the property.

In a nutshell, all residential property worth more than £500,000 at 1 April 2017 is subject to an annual charge starting at £3,600 for 2018/19, which this goes up to £226,950 for properties worth more than £20m. The SDLT payable by a company acquiring a UK residential property worth more than £500,000 for occupation is generally punitive at the rate of 15% and on top of this, the individual in occupation will have a benefit-in-kind charge on the benefit of rent-free occupation.

However, there is relief from the ATED charge where a property is rented out on arm’s length terms to an unconnected third party. Companies also pay corporation tax on their rental profits, which is lower than the current rates of income tax – the rate of corporation tax is currently 19% and will be reduced to 17% from April 2020.

For IHT purposes, each shareholder has IHT exposure only in relation to their shareholding in the company and the value for minority shareholders can carry a discount so exposure to IHT on the overall company value can result in being favourably split across family members.

Despite these potentially positive points, considering all of the above, unless the property is modest in value and likely to be rented out, this option is not going to be as attractive as some of the others but ought not to be dismissed without due consideration.

What is best?

There is no single answer and the most appropriate solution will depend on the overall family circumstances and willingness to accept the particular tax costs attached to the chosen solution.

Asset protection will best be met with a trust and the tax costs are probably manageable. Relatively speaking, the 6% IHT anniversary charge is modest and much better than 40% on death if held personally.

CGT relief is available provided the beneficiary occupies it so is the same as if it were held personally. There may be more SDLT to pay on acquisition by a trust than directly by the child and there will also be some administration costs associated with running the trust.

With high property prices, the cost of making a bad choice is going to hit hard. Some tax charges arise and operating costs arise for the trustees but in the end these are a financial expectation and necessity to protect big family wealth.

Funding a trust to a level that can meet the financial cost of property acquisition will take time so early planning is essential and full advice should always be sought in advance.

Options in brief

Detailed below is a brief summary comparison of the taxes under the options outlined in this article:

Personal ownership – child and/or parent

IHT: yes, 40% on death in the individual owner’s estate

CGT: yes, 28% unless PPR relief exempts whole or part of the gain

Income tax: yes, if property is later rented out and gives rise to rental profits IT is charged at individual’s marginal personal tax rate. Tax rates 20%, 40% or 45%.

SDLT: yes (rates vary)

Trust ownership

IHT: yes, for trustees 10 year and exit charges, but maximum rate of 6%. No 40% rate.

CGT: yes, same as above, 28% unless PPR exempts whole or part of gain

Income tax: trustees pay income tax at 45% on rental profits

SDLT: yes (rates vary)

Family investment company

IHT: yes, 40% on value of company shares held by shareholder at individual’s death

CGT: no

Corporation tax: gains taxed within company profits. CT rate is currently 19%.

Income tax: no

SDLT: yes 15% if property worth more than £500,000 and rates vary.

About the author

Liz Cuthbertson CA CTA is a partner at Mercer & Hole and and director at Mercer & Hole Trustees Limited www.mercerhole.co.uk

Follow the link to Liz’s article 

GET HELP IMPLEMENTING ANY OF THE ABOVE STRATEGIES <- CLICK HERE

Research & Development tax credits “R&D”

research and development tax credits

Research & Development tax credits. “R&D”

Click for : Official .Gov Guidance

Definition of R&D

A project which seeks to:

  • Extend overall knowledge or capability in a field of science or technology; or
  • Create a process, material, device, product or service which incorporates or represents an increase in overall knowledge or capability in a field of science or technology; or
  • Make an appreciable improvement to an existing process, material, device, product or service through scientific or technological changes; or
  • Use scientific or technology to duplicate the effect of an existing process, material, device, product or service in a new or appreciably improved way.

Will be R&D for tax purposes if the project seeks to achieve an advance in overall knowledge or capability in a field of science or technology, not a company’s own state of knowledge or capability alone.

Aim of R&D

Research and development is used to encourage greater R&D spending in order to promote investment in innovation and is a tax relief which can be used to do either of the following:

  • Reduce a company’s taxable profits
  • Create/increase taxable losses

Who can claim R&D

R&D can only be claimed by companies, relief is not available for partnerships or unincorporated businesses.

Qualifying expenditure

R&D must be carried out by the company or on its behalf and any intellectual property created as a result of the R&D is or will be vested in the company.

Costs that can qualify for R&D are as follow:

  • The costs of staff directly and actively involved in the R&D process. Staffing costs include all employment earnings (except that of benefits in kind),employee national insurance and pension contributions as well as costs incurred for that of researchers, managers/staff who plan organise and provide support. This does not include clerical, general management or admin staff.
  • The costs of consumables or materials such as power, water, fuel or computer software used directly in carrying out the R&D
  • A percentage of any costs that the company has incurred if it has subcontracted the work to another person. Currently 65% of those costs.

Company definitions

A small/medium company as defined as a company that:

  • Has less than 500 employees and either or both of:
  • Has a turnover of no more than €100 million
  • An annual balance sheet totalling no more that €86 million.

If a company is part of a group then the above are applied to the worldwide group.

A large company is one that does not fall under the SME conditions above.

Tax Relief for SMEs

Method 1

A company can claim 230% of enhanced deduction on revenue expenditure. That is to say the company can reduce its taxable profit by an additional £130 for every £100 spent.

The relief can then be set against taxable profits of either the current period, carried back one year against a prior year profits or carried forward against a later periods profits.

Method 2

If the company is small or medium and has losses, they may be able to claim payable tax credits from HM Revenue and Customs. The payable tax credit could amount to £14.50 for every £100 of actual R&D expenditure up to the level of the tax loss for the period. However in order to receive this payment, the enhanced relief must be surrendered.

No such reclaim is available for large companies.

Grants

If the company and has received a notified state aid for a specific project then you can only claim R&D at a rate of an additional deduction of £30 for each £100 spent.

Information Required to be Prepared and Maintained

In order to claim R&D on the staff costs it will be necessary to demonstrate that they have been working on the relevant project, a record should therefore be prepared.  Please contact us for further details on how to prepare those records.

Click to : Contact Us

Are paper invoices a thing of the past?

paper invoices a thing of the past

Are paper invoices a thing of the past?

From my personal experience HMRC have accepted scanned invoices in recent times.  Here’s what HMRC have to say about it : Saving invoices electronically

The key extract from that link is:

5.3 Scanned paper invoices stored electronically

You may store what were originally paper VAT records in an electronic format as long as you can meet the requirements explained in this notice for ensuring authenticity, integrity and legibility.

Authenticity and integrity must be maintained during the conversion process as well as during storage.

Good news for a change!

In the real world of Bookkeeping, most Cloud based accounting packages allow you to upload the invoices digitally and store them with the transaction.

Hub Doc have a great facility that provides exactly the kind of service that will make Making Tax Digital a breeze.  Connect it to the supplier account, enable it to access invoices, automate the download and feed it in!

Take me to the HubDoc site so I can take a look

It may seem like smoke and mirrors right now, but in a few years I predict this will just be the norm.

For more information:

Contact Us