Cessation of Contracting – what to do when it’s time to close your Limited Company

Cessation of Contracting

 

Whether you’re retiring, going back into permanent employment forever, or your circumstances change, there will potentially come a time when you will need to close your Limited Company.

 

But how do you go about it and what steps do you need to take? Director of Operations, Laura Hepworth takes you through the stages, to ensure you get the best outcome.

 

Extinct or just sleeping?

Whilst you may think that closing your company is the right option, it might be worth exploring whether you’re better off by putting your Limited Company in a dormant state.

 

In short, a dormant Limited Company is not trading, but is still required to prepare and file accounts with Companies House, submit a Corporation Tax Return and submit accounts.

 

If you are no longer contracting, but may return to contracting in the future or wish to keep your company name protected, then putting your company into a dormant state is the right step for you.

 

Company Liquidation

If you have decided that closing your company is the right choice for you, then you must first start off by asking yourself whether your Limited Company can settle its debts. If your company doesn’t have sufficient funds to pay your creditors in full, then it makes closing your company a much more involved process, which you’ll require professional assistance in doing so.

 

Closing your company

Assuming your company is able to meet its financial obligations, the process of actually closing the company is complex yet relatively straightforward.

 

Firstly, start by deciding on the date you wish to close the company. It’s important not to process any further transactions after this date, other than those required as part of the closure process.

 

HMRC will need to be notified of your decision to close your company as soon as you have decided on the date. We advise holding off from submitting your final accounts when you inform HMRC, as you may have some late-occurring expenses which will need to be accounted for. If VAT registered, you will need to cancel your registration. You’ll also need to pay any outstanding PAYE and/or National Insurance Contributions (NICs), run a final payroll to obtain P45s for yourself and any staff you employ and submit a P35 Employer Annual Return.

 

As soon as you know there are no further funds going in or out of your company, it’s time to close your business bank accounts and then prepare and submit your final accounts. The Corporation Tax due will be calculated by HMRC, which must be paid within nine months (although it’s recommended to do so as quickly as possible, as the company cannot be closed until all money owed has been paid). Once completed, any money remaining should be taken as a dividend.

 

Remember! Not to leave any funds are left in your company’s business bank account(s) as anything left can revert to the Crown.

 

What’s next?

Three months after your Limited Company has ceased trading, use the DS01 form from Companies House to dissolve your company. You will then enter a consultation phase with Companies House, where they publicise the proposal to strike off your company. This gives any interested parties the opportunity to challenge the process and should there be no objections or difficulties (or you change your mind!) your Limited Company will be struck off the Companies House register.

 

Final thoughts

Closing your Limited Company is a big step to take and one that you shouldn’t take alone. The first person you should discuss your plans with is your expert Personal Accountant, as they will be able to offer your tailored advice and support throughout the entire process.

 

This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.

The Limited Company contractor’s guide to pensions

Pensions

As a Limited Company contractor you may pay into a pension in order to lower your overall tax liability, but are you aware of how the payment is made, who the contract is between and the implications this can have on how the tax relief is obtained? Is your pension being treated correctly?

 

Employer’s Pension Contribution

You should inform your pension provider in writing, that your pension contribution is in fact an Employer contribution and that it is being made gross. As the contract is between the Employer and your chosen pension company, payments should therefore be made direct from the Employer’s bank account (your Limited Company’s business bank account).

 

For example, a contribution of £800 will increase your pension pot by £800.

 

Employer’s contributions are deductible expenses for Corporation Tax purposes, meaning the company’s profits are reduced by the value of the contributions and the company pays less tax as a result.

 

Remember! Employer contributions are a deductible expense for IR35 deemed salary calculations, which can reduce the tax due by a large amount (which is great news!).

 

Your Personal Pension Contribution

If you personally pay into a pension, then none of it will go near your Limited Company. You’ll personally pay your pension provider a net amount and your provider will then claim 20% for tax from HMRC.

 

For example, a contribution of £800 will increase your pension pot by £1,000.

 

Personal contributions also increase your basic rate taxband, meaning you can earn more money before you cross over into higher tax rates. If you make a pension contribution of £800, your basic rate taxband will increase from £32,000 to £33,000, so you will pay a lower rate of tax on that portion of income.

 

However, if you’re not a higher rate taxpayer then this relief will be wasted. It could be more beneficial to make Employer contributions direct from your company, or increase your personal income to take full advantage of the relief. Speak to your Personal Accountant to understand which route is the most beneficial one to take for you and your circumstances. It’s a delicate balancing act when taking an additional dividend to pay into your pension, so make sure your contractor accountant completes the calculations on your behalf.

 

Are you paying net or gross, as an employer or an employee?

Your pension provider will be able to give you this information. If your payments are treated as net but are paid through your Limited Company, then you’re getting tax relief twice which will arouse suspicion from HMRC and could result in an unexpected tax bill.

 

Remember! The overall limit for your pension contributions is £40,000 (for tax years 2015-16 and 2016-17), which includes both payments made by you personally and by your employer.

 

Got questions about your pension? Speak to your dedicated Personal Accountant for tailored advice that’s unique to your needs as a Limited Company contractor.

 

This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.

What is a dividend?

What is a dividend?

ˈdɪvɪdɛnd/

noun

1. a sum of money paid regularly (typically annually) by a company to its shareholders out of its profits (or reserves).

 

Janna Beeching, Director of Accounting and Tax at Intouch Accounting helps Limited Company contractors every day. Here she shares some of the more commonly asked questions she’s asked about how much to take in dividends and when’s the right time…

 

What exactly is a dividend and how do Limited Company contractors benefit from them?

A dividend is a payment to the owners (shareholders) of the business, intended to be a return on the money invested (in share capital) by them.

 

Where a company makes a profit after corporation tax and has the available cash flow to meet all its liabilities as they become payable and meet its current needs then the company has distributable profits available to be paid as a dividend. The amount of a dividend that can be paid is cumulative. Therefore any historic profits not previously paid out are available alongside current year profits.

 

Directors have a duty to the company to ensure that it can meet its liabilities. There may be circumstances where profit is available but there is insufficient cash balances held to meet the dividend and pay taxes and other liabilities. This is where most care is required.

 

A dividend can only be paid to shareholders. Each shareholder is entitled to a proportion of total dividends according to the proportion of the shares they hold.

 

Dividends are not earnings for PAYE purposes and are not subject to income tax and National Insurance in the same way as salary. Dividends are subject to different tax rules, and it is these rules that provide the benefit of dividends over salary.

 

When can dividends be drawn from your company?

Before a contractor does anything they should determine their IR35 status. A contractor inside IR35 may not be able to pay dividends.

 

Technically, there are two types of dividends:

1. Interim dividends – are paid to individuals throughout the year and only require a decision by the directors. However they are capable of being overturned by the shareholders

2. Final dividends – are paid once the company’s annual accounts have been completed and determined by the shareholders, they cannot be overturned.

 

As a contractor’s Limited Company is traditionally made up of one person as both director and shareholders (or husband and wife) the distinction is less important. However, despite the less formality they should still conduct the declaration of dividends properly.

 

A dividend declaration is made by the directors passing a resolution. That resolution sets out the amount of the dividend and the date it is payable. If no date is given then it is payable on the date of the resolution.The payable date is the date that is used for determining the tax year in which the income is included.

 

It’s important to consider the payable date as this it could be beneficial in aiding your tax planning.

 

Paperwork

Dividend declarations must be agreed upon by the company’s directors and this is traditionally decided during a meeting and the passing of a resolution. If you’re the only director of your Limited Company you must still produce paperwork.

 

Dividend paperwork comprises of:

 

Resolution

This is a record of the formal decision taken by the director(s). It states the amount of the dividend and the date it is payable. The resolution is very important. HMRC will consider this evidence that the payment is indeed a dividend and not salary or a loan.

 

Dividend Voucher

Each shareholder has their own individual entitlement to a dividend declared. The voucher is a document that sets out that individual entitlement.

 

Illegal dividends

As stated by the The Companies House Act 2006, section 830, ‘a company may only make a distribution out of profits available for purpose’.

 

In short, this means that as long as your company has enough undistributed profits to date, after tax, and can meet all of its tax liabilities the dividend can legally be declared.

 

If a dividend is paid but the company cannot meet its tax liabilities it is considered illegal; and must be repaid by those that are aware, or should be aware, that it is illegal. For contractors, this would normally mean the directors and shareholders.

 

HMRC normally treat illegal dividends as loans to the directors/ shareholders and then tax them at a rate of 32.5%.

 

What are the benefits of dividends?

Dividends are beneficial in terms of how they are taxed and the ability to pay them to shareholders rather than employees.

 

What is the dividend tax rate?

From 6 April 2016 the rate at which dividends are taxed changed. The first £5,000 of dividends fall within the nil rate:

 

2015 rates Rates from 6 April 2016
Nil Rate 0% 0%
Falling within basic rate 0% 7.5%
Falling within higher rate 25% 32.5%
Remainder 30.5% 38.1%

 

Use our free dividend calculator to work out how much tax you’ll pay on your dividends this tax year.

 

Visit HMRC’s website if you need further information on the changes to dividends and how they might affect you.
Got questions about dividends? Our Personal Accountants provide expert, tailored advice to our clients on when they can take dividends and how much. Speak to our team today to find out more.

 

This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.

Five reasons why your accounting spreadsheet is letting you down…

Is your accounting spreadsheet up to scratch?

There’s nothing more satisfying than when your complicated spreadsheet tallies up, especially when you’re using it for your accounts. But what happens when it doesn’t, or more worryingly, if you were to make a mistake that isn’t picked up for while?

 

In this blog, Janna Beeching, Director of Accounting and Tax shares the top five reasons how your accounting spreadsheet is letting you down and why you should consider online alternatives.

 

1.Can you spot the the mistake?

It’s so easy to throw a spreadsheet off track, yet incredibly hard to know when and where it occurred. By using spreadsheet programmes such as Microsoft Excel, you are putting 100% of your trust in both yours and its accuracy; but one simple formatting flop, an extra figure, or even a dicey decimal point can push your entire spreadsheet off course.

 

2. Caveman accountancy

Using a spreadsheet is truly going back to basics, as it cannot do much more than show your account’s core foundations. Savvy contractors need to be able to calculate their VAT, credit control, dividend allocation, payroll maintenance, to name but a few functions.

 

Unless you have a sound understanding of accounting and can work all this out yourself, then you’re going to be missing out on some key areas and potential opportunities for maximising your take home pay.

 

3. Pennies in – pounds out

Following on from point two, spreadsheets also can’t display your real-time cash flow or any outstanding payments. Cloud software will show you a generated overarching view of your finances and the income you can expect.

 

4. Fragile, immobile and at risk

HMRC can demand to see your accounts for the previous six years, so what do you do if your system fails you? Servers can crash, hard drives can break and viruses can corrupt your files – so why take the chance?

 

Having your accounts accessible in the Cloud means you can access them wherever and whenever you wish, plus they’re backed up, so there’s no need to worry about losing your data.

 

5. Spread the love

Sharing spreadsheets is a pain. You’ll have to be comfortable with emailing your accountant the latest version, then wait until they are done with it before you can edit it. Plus, there’s the added danger of them finding a mistake and then charging you for their time to rectify it.

 

Cloud accounts mean your accountant can have access at any point and have a real-time snapshot of what’s going on. No sharing, no saving multiple versions and no danger of mistakes.

 

What can Intouch Accounting do?

So after reading these points, ask yourself if it’s worth your time, effort and possibly the costly repercussions from using your own spreadsheets. Why not explore what specialist, online software that’s designed for contractors can do for you?

 

With Intouch Accounting’s portal, our expert Personal Accountants are able to access your accounts whenever and provide you with specialist advice and guidance. Request your free portal demo today and see for yourself how it can work for you. Or spend 99 seconds watching our video to show how our portal will make your life easier.

 

This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.

What’s in store for Umbrella contractors after April 2016?

Change is on the horizon for Umbrella contractors

Whilst the 2015 draft Finance Bill and Autumn Statement indicated less change is immediately on the cards for Limited Company contractors compared to their Umbrella contractor colleagues, there are still certain aspects planned for 2016 that all contractors need to be aware of.

 

What are these changes and how will they affect you?

IR35

Whilst no major changes were presented in the Autumn Statement, it’s likely that further announcements to IR35 will be made, post April. It was, however, announced that if you’re truly operating outside of IR35, then you are still able to claim for travel and subsistence (T&S), which is a major bonus for contractors that rely heavily on their T&S claims to increase their overall tax relief (after considering the 24 month rule).

 

Supervision, direction or control (SDC)

SDC will not apply to Limited Company contractors, if their contract is not caught inside IR35. So as a Limited Company contractor, as long as you ensure your contracts have undergone an IR35 risk assessment, you can rest easy knowing that SDC will not apply to you. With Intouch, you can have your contracts assessed as part of your all inclusive monthly service.

 

If your accountant doesn’t offer unlimited, free contract risk assessments, then it’s time to switch. With HMRC likely to once again sharpen their focus on IR35, it’s wise to be certain about the status of your contract.

 

The new SDC ‘test’ and the effects on Umbrella workers

April 6 will mark a significant change for Umbrella workers, as they will no longer be able to claim tax relief for their T&S expenses, if subject to SDC. It will be up to the Umbrella worker’s enlisted Umbrella service provider and end client to determine their SDC status, meaning that the Umbrella worker will not see a penny of their expenses until their status has been decided.

 

If you do pass the SDC test, you’ll then only be able to claim tax relief on your expenses via a Self Assessment Tax Return. You will have to pay your tax through PAYE throughout the year, then claim it back at the end of the tax year.

 

Whilst the finer details of SDC are yet to be announced, it’s clear that Umbrella workers are under the spotlight (with some industries more so than others), so make sure you keep an eye out for any further announcements that are to be made surrounding SDC.

 

Are you an Umbrella worker worried by SDC?

HMRC have provided some contractor scenarios to give you an indication on how certain careers may be affected. Whilst these scenarios can give you a good understanding of SDC, you should discuss it further with your Umbrella company to understand how they will support you during this time of change.

 

The Salary Sacrifice Test

If you’re an Umbrella worker that currently receives expense claims as part of your weekly / monthly payroll, then you’re going to notice a major difference come April 6. HMRC now view any form of expense payments within your salary as a salary sacrifice payment and are putting a stop to it.

 

This means many Umbrella companies will change their approach to how expense claims are paid to their contractors and, as explained previously, Umbrella workers can only claim expenses once a year through the use of a Self Assessment Tax Return.

 

What a load of kerfuffle for serious contractors still using an Umbrella company!

If you’re a serious contractor that relies on the tax relief from your expenses and you see contracting as a long term option, it make sense to check and be sure that working under an Umbrella is still right for you.

It’s clear that Limited Company contractors have mostly been left untouched (for the foreseeable future) to get on with what they do best, so why not join them and continue to enjoy the benefits from contracting that you rely on the most?

Join the contracting revolution with an accountancy that champions Britain’s contractors! Things are changing, don’t be left behind…

 

This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.

Feeling unloved? It’s time to switch accountant

It’s time to switch accountants

Like strawberries and cream, gin and tonic or Batman and Robin, your contractor accountant should be your perfect other half, steering you on the path to contracting success. It’s their responsibility to keep you compliant, feeling assured and taking home as much of your hard earned contractor pay as possible.

 

But what happens when the relationship turns sour and you no longer get the support or service you need and deserve? If you resonate with any of the following examples, then it might be time to look elsewhere:

 

switch accountant

 

Don’t settle for second best, have the accounting relationship you deserve

If you’ve made the decision to switch accountants, then changing over to Intouch really couldn’t be easier.

 no switcher fees

With no switcher fees* for joining us, or charges for leaving, there really is nothing stopping you from discovering the perfect contractor accountancy relationship.

 

Call us, we’d love to speak to you

Why not discuss your current circumstances with one of our expert advisers? Switching is so easy to do and we’ll even speak to your current accountant for you, so you won’t have to worry about any uncomfortable conversations. There really is nothing for you to lose…but lots to gain!

 

Keep on loving what you love

Love contracting, love your professional freedom, love your take home pay. Whatever it is that you love about contracting, make sure you have the perfect relationship with your contractor accountant to help you achieve contracting success.

 

This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.

Five reasons to be your own boss in 2016

Be your own boss in 2016

With the recent announcements in this year’s Autumn Statement (or lack of them!), the future of contracting is appearing to be more attractive than ever.

 

So why should you consider contracting in 2016? Here we explore the professional and personal benefits you can gain by contracting with our top five reasons to contract in 2016 and beyond:

 

Career progression

career progression

If you’re in permanent employment there will often be a limit to the level of progression you can achieve. But as the boss of your own Limited Company the climb up the ladder of success is endless, as you control your own destiny.

Fancy branching out into a new field of expertise? Or are you seeing a trend for a specific type of contract within your field of profession? Your professional development and career progression is completely up to you, so why not go for it! Whilst the sky’s the limit, you’ll have to be driven enough to build up your network, promote yourself and have the determination to succeed.

 

 

Tailoring your skills

skills

Whilst contracting allows you the freedom to design your working life to your requirements, it also means that it’s completely up to you to do so! From scouting for contracts, creating and managing your business website to networking and managing your time, you’ll never stop learning. Permanent employment means you move to the beat of someone else’s drum, but as a Limited Company contractor you’ll need to find your own rhythm.

But don’t let being Limited limit you! There are so many tools out there to help you hone your skills and time management, without distracting you from your contract at hand.

 

Flexibility

Page_4_iStock_000009697091Large

Tailoring your work life around your personal life (and not the other way around) is one of the major benefits of contracting. You make the rules, so if you only want to work certain hours or days to fit around your family life or favourite hobby, then you can!

 

It’s also completely up to you what time you feel you can give to certain contracts and when work is suitable for you. Fancy a break in the summer, or don’t want to work on your birthday? Choosing your contracts means you can decide when you work and for how long!

 

Remember! Being flexible in the early days of contracting means that you’ll build up your network and client list far quicker, allowing you to be more selective once you’ve established yourself. If previous clients know your calibre of work but are aware of an impending holiday, they’ll be more likely to hold off hiring anyone else until you’re back, especially if you’ve worked for them before and they’re keen to have you back.

 

Financial independence

Hand and money staircase isolated on white

Imagine a job where you can charge what you like for the work you do. Within reason, you can charge clients hourly or daily rates that just aren’t possible in permanent employment.

 

But whilst financial independence is probably one of the most popular goals for any professional worker, it’s worth bearing in mind that you’ll need support to ensure you get the most from your take home pay. This is where enlisting the services of a professional contractor accountant comes in, as they will be able to make sure you are taking advantage of all the taxable benefits available to you whilst maximising your take home pay.

 

New challenges

page_3_iStock_000033300086_Large

You’ll face new challenges; from learning new skills and working patterns, to winning business and learning how to deal with gaps in contracts, every contract will teach you something new about the world of contracting.

 

But whilst there will be a few obstacles to overcome, the financial, professional and personal achievements from going Limited far outweigh those offered in permanent employment.

 

How Intouch Accounting can help

Whether you’re just starting out and wondering what contracting can offer you, or are a seasoned pro but feel you need more from your current accounting solution, Intouch can help you at every step of the way. From incorporating your Limited Company free of charge and explaining how it all works, to making sure you’re supported when it comes to key deadlines such as your Self Assessment Tax Return, your Personal Accountant is here to provide guidance and support, whenever you need it.

 

To find out more about the services Intouch provide, why not visit us, email us, or better still,  speak to one of our advisers on 01202 375 562.

 

This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.

Can I get a mortgage as a contractor?

Can I get a mortgage as a contractor?

As a contractor, one of the most commonly asked questions is whether or not it is possible to secure a mortgage. Quite understandably, many contractors are unsure as to what their position is, given the fact that they’re not in permanent employment. It’s common knowledge that it’s becoming increasingly difficult to secure a mortgage following the Mortgage Market Review in 2014.

 

Yes, a contractor can secure a mortgage

As a very top-line answer; yes, of course a contractor can get a mortgage. Lenders aren’t there to prevent individuals from owning their home, simply to reduce risk associated with it. So it all comes down to taking the right route to ensure an application is made to a lender who understands contracting. In theory, so long as a contractor is able to provide two or three years’ worth of income details (for example, wage slips, accounts, dividends documentation) or, if operating as a sole trader, SA302s, it should be possible to secure a mortgage. However, unfortunately, it’s rarely that simple.

 

Many lenders do not understand contracting

One of the main problems in this area lies in that many lenders may not understand what a contractor is. Whether you’ve been contracting six months or six years, there ARE lenders out there who understand your situation and are happy to lend to you, so long as the standard criteria are met.

 

Different contractors operate in different ways

It’s important to understand that contractors can operate in different ways; sole traders or company directors primarily. With a company director for example, lenders will be looking at the combined salary and dividends drawn in a financial year, however this can cause problems for contractors who leave profits within the business. In this instance, it’s necessary to apply to a lender who will consider and take into account the company’s retained profits.

 

Many advisers are inexperienced
It is commonly seen, further to the above, that the majority of advisers in banks are inexperienced in dealing with anyone other than employed individuals, so when a contractor makes an application, they themselves are unsure as to what is and isn’t able to be assessed. This further backs up the justification for carrying out the research and finding a suitable lender who understands the trading style.

 

The bottom line is that a contractor will need at least one year’s accounts in order to be considered, however in reality, having two or three year’s accounts will make a larger number of lenders accessible.

 

Proving a steady income

So long as it can be proven that a steady income is earned and that, in the case of a director who pays a smaller wage and dividend, there are retained profits which can be taken into account, there’s no reason why a contractor should struggle to get approval on a mortgage. Our top tip here, however, is to speak with a specialist mortgage broker who fully understands the options available, has a track record of securing mortgages for contractors and that, as with all mortgage applications, the base criteria of affordability and the correct paperwork are met.

 

If you want any further information on getting a mortgage as a contractor, contact one of our team on 01202 375 562. Also, why not contact us to see how Intouch Accounting can help keep you compliant and maximise your income?

 

This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.

Claiming Christmas expenses through your Limited Company

Claiming Christmas expenses through your Limited Company

Can I claim Christmas party expenses through my Limited Company?

The interest-free sofa adverts have started and the supermarkets are full of advent calendars, yes you’ve guessed it, it’s now officially Christmas. If you’re currently contracting within a corporate environment the annual Christmas party is probably a hot topic amongst permanent employees.

 

But there’s no need to feel left out, as HMRC give even the smallest of Limited Companies the ability to take advantage of a tax exemption for any allowable costs of their Christmas event. So you can still have a good old merry knees-up for your Limited Company’s most valued member of the team.

 

In this blog we take a look at the rules surrounding Christmas party expenses and what you can claim for. We also look at why it doesn’t have to be lonely this Christmas, as the rules for claiming can extend to others if you’re a single-person Limited Company contractor.

 

How much can I claim for?

If you take advantage of the tax exemption for annual events it means that you’ll only have to pay for 80% of the costs. HMRC usually spend most of the year telling you how to stay compliant and reinforcing the the taxes you must pay, so why not make the most of their generosity at this time of year?

 

Which HMRC rules apply to Christmas party expenses?

For your event to qualify for a tax exemption, the event must meet the following criteria:

The event must run annually - If you’re going to party once then you’ll have to do it every year (sorry about that….!) The event doesn’t have to be restricted to Christmas though, it could be a summer party or Easter event. The point here is that whichever event you choose to celebrate it has to be annually recurring. Do bear in mind though that if you decide to have an event for just one member of staff, you must still account for the expenses and that they will not be treated as tax allowable.

The event should be available to all employees in one location - That includes all directors, staff and guests. The guests of directors can include spouses or civil partners. Children of the directors or employees are also included within this. This inclusion therefore means that if you wanted to hold a Christmas party for you and your family, there’s nothing saying that you can’t. Part time employees are also included in this, so you could have a party for them, their partners and children.

There’s a limit of £150 per head - If you were planning on treating yourself or your employees to a Christmas party in the North Pole, it’s worth bearing in mind that there’s a limit of £150 per head. This is the absolute maximum and HMRC will make no exceptions. This is not an allowance and therefore it is the receipted amount that is an allowable expense.

The £150 includes VAT, transport costs and the total cost for any accommodation. The total amount is then added together and divided up between the number of guests attending the event.

If you’re feeling generous and thinking about footing the bill for any costs over the £150 per head, don’t! Even a penny over will mean that the exemption will be void and the total cost will be taxed. It’s not worth the extra large bill just before Christmas, so if you’re in doubt speak to your contractor accountant to be sure everything has been calculated correctly.

 

If you like to party throughout the year

Annual events don’t have to be limited to just one per year. You could hold one whenever you wish, as long as the total combined costs of all events do not exceed the £150 per head threshold for the tax exemption to still apply. If you do happen to go over the threshold for any particular event, HMRC will only apply the tax exemption to expenses for the events that have fallen within the allowable limit.

 

Giving gifts to employees

It’s also worth bearing in mind that you are entitled to claiming back any costs for ‘trivial’ gifts you purchase for your employees. Now this doesn’t mean that you can buy them all a brand new Ferrari and claim the cost back! These gifts must be in keeping with the season, so giving your employees a bottle of wine or turkey is acceptable, but giving them a case of wine or a Christmas hamper would be considered as a non – trivial gift and therefore not allowable.

 

It is always best to discuss any annual event expenses with your contractor accountant, to ensure that you are covered by the tax exemption before you part ways with your pennies. If  you’re thinking about switching accountant, or even becoming Limited in the New Year, call our team on 01202 375 562, or email us at enquiries@intouchaccounting.com.

 

This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.

 

Intouch Accounting celebrate International Men’s Day

International Men’s Day

It’s International Men’s Day (IMD), celebrated in over 100 countries across the world to recognise the contribution men make to those around the them, their family and friends, their world place and the community, the nations and the world. We are marking this event by championing all of the men who are doing what they love as contractors through their own Limited Companies.

 

In particular we will look at the rights men have when it comes to paternity pay and how they can support their families once they go back to contracting after paternity leave.

 

What are the rules surrounding payment?

To be eligible for Statutory Paternity Pay (SPP) you must be either the child’s biological or adoptive parent.

 

How much and when can you expect to be paid during paternity leave?

As a contractor of course you can make arrangements to take time out of contracting for as long as you wish and it’s a good idea to make provisions to ensure you have enough money to put aside to cover these periods when you are not earning. But the good news is, you can claim SPP for up to two weeks of paternity leave. You can expect to be paid within eight weeks of the biological child’s birth date, or the adopted child’s date of placement within your family.

If you take either one to two week’s paternity leave, it can be taken with SPP of 90% of your average weekly earnings (AWE), or £139.58 (whichever is lower). Make sure you let your contractor accountant know of the expected date of arrival, so that they are prepared to start your SPP payments.

 

What you should do if SPP isn’t enough to support you and your family

If you are worried that 90% of your SPP won’t be enough to support you and your family for the duration you wish to take, there are a few things you can do in order to make yourself more financially comfortable:

  • try to sync a break in contracts (as best you can!) with your child’s arrival date – that way you will therefore suffer little or no unexpected financial impact
  • budget for the time you expect to be off of work, save 5% of your monthly income over a period of seven months, to cover each week you wish to take off for your paternity leave

 

Beyond paternity

Caring for your child doesn’t just end the second your paternity leave stops. When you return to work, finding suitable childcare can be a real challenge. In the Summer Budget the Government announced they will be giving free childcare to working families with three and four year old children from September 2017 (increasing from 15 to 30 hours).

In addition to this the Childcare Voucher Scheme will continue until early 2017 when the new tax free childcare is to be introduced.

 

Final thoughts

Being a contractor and Dad should never be a ‘one or the other’ scenario and Intouch Accounting help out by providing all the support and guidance you’ll need when considering your working options whilst starting a family. Our team of specialist Personal Accountants are on hand to answer any questions our clients have and can advise on the best working practice from the moment you find out you’re expecting, through to childcare and beyond.

 

Call our team of advisers on 01202 375 562 to discuss joining Intouch Accounting today.

 

This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.