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Autumn Statement 2023: An Update for Contractors and Freelancers

27/11/2023 by PaperRocket

If you’re a contractor or freelancer, you might have tuned into the Autumn Statement expecting some big shake-ups. However, Chancellor Jeremy Hunt’s update turned out to be relatively low-key for our sector. But don’t let that fool you – there are still some noteworthy changes worth your attention so let’s dive into the details.

Lightening the NIC Load

For self-employed (sole traders), the Class 4 NIC rate is set to go down from 9% to 8% on profits between £12,570 and £50,270, effective from April 2024. Plus, the flat rate Class 2 NIC, which is currently £3.45 per week, will no longer apply to those earning above £12,570. And yes, you’ll still have access to essential contributory benefits like the state pension.

For those earning less than £6,725, the small profits threshold remains steady, ensuring continued access to National Insurance credits without the need to pay NIC.

Employees Get a Break Too

If you’re on a payroll, there’s a bit of relief coming your way as well. The main rate of employee NIC will drop to 10% (currently 12%) on earnings between £12,570 and £50,270 from January 2024.

IR35: Easing the Double Taxation Woes

The Chancellor has tackled a significant IR35 issue – ‘double-taxation’ in cases of incorrect status determination. With this fix, HMRC will now account for the taxes you’ve already paid, reducing financial risks and complexities for contractors and clients alike.

Full Expensing: A Permanent Feature

The full expensing policy, allowing deductions on investments in equipment from profits (therefore reducing Corporation Tax), is now here to stay. This includes a 50% first-year allowance for certain other assets, offering more investment incentives.

National Living Wage On the Rise

For those employing staff, be aware that the National Living Wage is set to increase to £11.44 in April 2024. This is for workers aged 21 and over, a notable increase from the current rate.

Tackling Late Payments

To combat late payments, new rules will soon require firms bidding for government contracts worth over £5m to show a solid track record of timely payments. This is a step towards better cash flow for businesses.

Simplifying Making Tax Digital (MTD)

Making Tax Digital for Income Tax Self Assessment is getting simpler. The government plans to ease the requirements for quarterly updates and remove the need for an End of Period Statement, effective from April 2026.

Capital Allowances Made Permanent

Lastly, the 100% first-year allowance for qualifying plant and machinery expenditure and a 50% allowance for special rate expenditure are now permanent fixtures, offering long-term planning clarity.

PaperRocket are a multi award winning Chartered accounting practice, and Accredited FreeAgent Practitioners.

We specialise in providing friendly, non-accounting jargon, services for contractors, freelancers, sole traders, and landlords across the UK.

Our fixed fee monthly accounting packages all include a FreeAgent subscription as standard and unlimited support from your allocated accountant.

To find out how we can help you please get in touch now.

Limited Company Accounts: A Beginner’s Guide

22/11/202322/11/2023 by PaperRocket

Now, I know what you’re thinking: “Accounts? Yawn!” But trust me, getting to grips with these can be more straightforward than you think and extremely useful for your business.

The Balancing Act: Understanding the Balance Sheet

The balance sheet is like a financial snapshot of your company at a specific moment. It answers a key question: “What is my business worth?” To simplify, think of it as:

Assets: What you own (e.g., buildings, machinery, money owed to you).
Liabilities: What you owe (e.g., loans, bills).
Equity: The difference between assets and liabilities. In plain English, it’s what you’d have left if you sold everything and paid off all debts.

The Tale of Earnings: The Profit and Loss Account

This is your business’s storybook, narrating how you made (or lost) money over a period. Think of it like this:

Income: Money from sales, services, or even discounts received.
Expenses: Day-to-day costs like buying goods, paying wages, or general overheads.

The key takeaway? It’s not just about cash in the bank; it’s about understanding income and expenses over time.

The Flow of Cash: Cash Flow Statement

While not legally required, the cash flow statement is a practical tool. It shows the movement of cash in and out of your business, helping you understand your liquidity. In simpler terms, it’s about tracking cash from sales, expenses, and the overall cash position each month.

Debt: Understanding Its Role in Your Business

Debt on the balance sheet can tell you a lot about your financial health. It’s divided into:

Short-term debt: Payable within a year (like invoices or short-term loans).
Long-term debt: Things like mortgages or long-term loans.

Remember, having debt isn’t always bad. It could mean you’re investing in growth. But, keep an eye on it to avoid surprises.

Net Debt Position: A Quick Health Check

To check your business’s financial health, compare your cash and debts. More cash than debt? You’re in a ‘net cash’ position, which is typically good. More debt than cash? This is ‘net debt’. Don’t panic – it might mean you’re using debt strategically, but be cautious of excessive, long-term debt.

Final Thoughts

Understanding your company accounts isn’t just a compliance task; it’s crucial for making informed business decisions. While your accountant plays a key role, being familiar with these basics helps you spot opportunities and potential issues early.

PaperRocket are a multi award winning Chartered accounting practice, and Accredited FreeAgent Practitioners.

A Simplified Guide to Upcoming Changes at Companies House

13/11/2023 by PaperRocket

Big Changes Ahead: A Clearer, Safer Business Environment

Companies House, the agency overseeing company registrations in the UK, is gearing up for some significant changes. Thanks to the new Economic Crime and Corporate Transparency Bill, now a law, Companies House is set to play a larger role in preventing economic crime and ensuring businesses operate transparently and smoothly. This move is seen as one of the most substantial changes in the organization’s long history.

Simplified Filing and Identity Checks: What You Need to Know

Streamlined Filing Options:

Two Choices: Small businesses will now have just two filing options: for micro-entities and small companies. The option for ‘abridged accounts’ is being scrapped. This means all small companies, including the tiniest ones, must file their profit and loss accounts.
Going Digital: The filing process will be entirely digital, with paper filings being phased out for most companies.

Identity Verification:

For Everyone: New and existing company directors, significant controllers, and those filing on behalf of companies will have to verify their identities.
Ensuring Legitimacy: This step aims to make sure that the information on the register is genuine, which is crucial in stopping fraudulent companies from getting registered.

Enhanced Powers and Objectives: A More Reliable Register

New Objectives: Companies House will focus on ensuring accurate information on the register, compliance with document delivery requirements, preventing misleading public records, and thwarting unlawful company activities.
Increased Authority: They’ll have more power to scrutinize and reject incorrect information, enforce stronger checks on company names and addresses, and ensure that companies are formed for lawful purposes.

What’s Happening When?

Gradual Rollout: Although the bill is now law, not all changes will happen immediately. Some measures need more system development and secondary legislation.
Early Measures: Expect to see some changes like enhanced powers to query information and new rules for registered office addresses coming into force in early 2024.
Fee Changes: Companies House will increase some fees from early 2024, but they will still be among the lowest worldwide.

In Summary: Preparing for the Shift

These updates are a big step towards a more transparent and safe business environment in the UK. For small business owners, it means getting familiar with digital filing, preparing for identity verification, and understanding the new responsibilities and requirements. By staying informed and adapting to these changes, you can ensure your business remains compliant and benefits from the enhanced trust and transparency these measures aim to bring.

PaperRocket are a multi award winning Chartered accounting practice, and Accredited FreeAgent Practitioners.

The Tax Benefits of Your Company’s Christmas Party

02/11/2023 by PaperRocket

With Christmas just around the corner, the festive season will soon be in full swing. It’s a time for joy, togetherness, and celebration, and if you’re a contractor or business owner, it’s also a time to consider the financial benefits that come with hosting your annual Christmas party. That’s right, HMRC offers some tax relief for your festive bash, and we’re here to delve into the details.

What is the Annual Party Allowance?

The Annual Party Allowance is a tax exemption provided by HMRC for companies that host an annual event for their employees. This can be a Christmas party, a summer BBQ, or any other annual gathering. The key is that it must be an event that is open to all employees.

The £150 Rule

The most crucial figure to remember is £150. This is the maximum amount, including VAT, that you can spend per person attending the event without incurring any tax or National Insurance liabilities. This amount covers not just the event itself but also any associated costs like transport and accommodation.

Note: Exceeding this limit by even a penny will make the entire amount taxable as a ‘benefit in kind’.

Who Can Attend?

The event must be open to all employees. If you’re a contractor with a limited company, this means you and any staff you employ. Partners of employees can also be invited, and an additional £150 per head can be claimed for them.

Virtual Parties

Given that, post pandemic, a lot of people now work from home, virtual events also qualify for this exemption. So, if your team is remote, you can still host a virtual Christmas party and claim the allowance.

What If Christmas Isn’t Your Thing?

If you’d rather not have a Christmas party, you can still benefit from this allowance by hosting another type of annual event. The key is that it must meet the same criteria as mentioned above.

Final Thoughts

The Annual Party Allowance is a small but welcome gift from HMRC, allowing you to celebrate with your team without worrying too much about the financial implications. Just remember to keep track of your spending and ensure you meet the criteria to make the most of this tax benefit.

So, go ahead, plan that Christmas party or summer BBQ!

PaperRocket are a multi award winning Chartered accounting practice, and Accredited FreeAgent Practitioners.

Busting Myths About Director’s Loans and Tax: What You Really Need to Know

23/10/2023 by PaperRocket

Director’s loans are a bit like the talk of the town in the business community—everyone’s heard of them, but not everyone knows the full story. So, let’s clear the air and get down to the nitty-gritty of what director’s loans are all about, shall we?

What is a Director’s Loan?

In its most basic form, a director’s loan is money that you either borrow from or lend to your own company. This isn’t your regular salary, nor is it a dividend or an expense reimbursement. It’s a separate financial transaction that you’ll need to record in a Director’s Loan Account (DLA). The DLA is essentially a ledger that keeps track of all transactions related to the loan, whether it’s money going in or coming out.

Why Consider a Director’s Loan?

Director’s loans can offer a flexible way to access funds, either for personal use or to inject some cash into the business. However, it’s not a decision to be taken lightly. There are specific tax implications and rules that govern how these loans are treated. Now that we’ve covered the basics, let’s move on to busting some myths.

Myth 1: Director’s Loans are Just Like Any Other Loan

Reality: Not quite. A director’s loan is a specific financial transaction between you and your company. It has its own set of rules and tax implications.

Myth 2: There’s No Rush to Repay the Loan

Reality: Time is of the essence. If you don’t repay the loan within nine months of your company’s accounting year-end, you’ll face a 32.5% S455 tax charge on the outstanding amount.

Myth 3: Borrowing More Than £10,000 is No Big Deal

Reality: Crossing the £10,000 threshold turns your loan into a Benefit in Kind. This means additional paperwork and tax liabilities for both you and the company.

Myth 4: I Can Offset the Loan with Dividends, No Problem

Reality: While true, you’ll still need to pay Dividend Tax on the amount.

Myth 5: If I Can’t Repay, It’s Not the End of the World

Reality: Failure to repay could lead to legal action and, in extreme cases, bankruptcy.

Myth 6: I Can Repay and Re-borrow to Avoid Tax

Reality: This tactic, known as ‘bed and breakfasting,’ is frowned upon by HMRC as a tax avoidance method.

Conclusion

Director’s loans can be a useful financial tool, but they come with their own set of rules and tax implications. Always consult your accountant before any loans are taken to be sure you know where you stand financially.

PaperRocket are a multi award winning Chartered accounting practice, and Accredited FreeAgent Practitioners.