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A business must register for VAT when its turnover for the last 12 months exceeds £85,000. It must also look forward and judge if its turnover in the next 30 days alone will exceed £85,000. This threshold has been frozen since 1 April 2017, and it will remain at that level until at least 1 April 2022. This means that more businesses will be drawn into the VAT net simply by increasing their prices by inflation every year.

If you don’t want to register for VAT, you either have to keep your total sales low by working fewer hours, or consider splitting your business into two entities which each have a turnover of less than £85,000. Business splitting is legal but HMRC will pursue cases where they believe the split is artificial.

You can only effectively split the business if you have separate products or services which you could deliver from different legal entities. It helps if the separate products are bought by different groups of customers. For example, cleaning commercial buildings for business customers and cleaning domestic premises for non-business customers.

Step 1: Set up two legal entities to deliver your two strands of business, such as a company for the commercial cleaning, and a partnership or sole tradership for the domestic cleaning. You can effectively control both entities.

Step 2: Split the back-office support for the two businesses to ensure HMRC sees that two businesses exist in practice. You will need to set up separate bank accounts and insurance for each entity. Also purchase supplies through distinct orders in the name of each business, and make sure the correct business bank account is used to pay for the goods acquired. Bank the sales income in the correct bank account for each business.

Step 3: Split the cost of commonly used assets. If both businesses operate from the same address, set up a formal lease so that one business sublets part of the area to the other entity. Where some employees work for both businesses, the costs should be charged from the main employer to the other business.
We can help you split your business, but the costs will require continuous monitoring.

When you sell some or all of the shares in your company, you should expect to pay Capital Gains Tax (CGT) on any profits you make. This tax is normally charged at 20% for higher rate taxpayers, but Entrepreneurs’ Relief can reduce the CGT payable to 10%.

To qualify for Entrepreneurs’ Relief you need to be a director or employee of the company and own at least 5% of the ordinary share capital and the related voting rights. New additional conditions require the investor to have a right to either:

• at least 5% of the dividends and assets on a winding-up, or
• at least 5% of the total proceeds should 100% of the company be sold.

These conditions must be met for at least two full years ending with the date your shares are sold, or one year where the sale occurred before 6 April 2019.

When new shares are issued to new investors, this can dilute your own shareholding to below the crucial 5% threshold. Where your company issues new shares after 5 April 2019, you can make an election to protect your Entrepreneurs’ Relief.

Don’t forget to tell us if your company is issuing more shares or converting debt into shares, as there is a time limit for making the relevant elections.

If you allow your staff to pick a tax-free benefit, such as a parking space near work, a bicycle, or employer pension contributions, you would think that everyone would be happy.

But where the employees have given up some of their salary to receive the benefit, some may be taxed on the benefit provided and others won’t. This is because of the tricky rules called optional remuneration arrangements (OpRA). These broadly impose tax on the employee according to the amount of salary sacrificed rather than the taxable (or non-taxable) value of the benefit.

However, there are certain exemptions from the OpRA rules, for example, employer pension contributions and bicycles provided under a cycle-to-work scheme. If the employee sacrifices salary for those tax-free benefits, they will pay less tax and NIC.

A parking space close to work is also a tax-free benefit, but it is not exempt from the OpRA rules. Where salary is sacrificed in favour of a parking space, the employee is taxed on the amount of salary given up.

The solution is not to offer a choice of salary or parking space, but instead offer the employee a basic salary plus parking space, take it or leave it. The employment contract will have to be carefully drafted to make it clear that an option was not available.

The Making Tax Digital (MTD) regulations came into force for periods starting from 1 April 2019 for most businesses which are required to be VAT registered because their annual turnover is £85,000 or more. They must keep their VAT records in a digital format and send VAT returns directly from MTD-compliant software to HMRC.
If you use accounting software which automatically sends your VAT return to HMRC, you are 90% ready for the MTD regime. Ask your software provider when you will receive the upgraded MTD-compatible software. Once that upgrade is installed and tested you can register with HMRC to submit returns under MTD, or we can do that for you.

Where you use a spreadsheet or other accounting software to compile the VAT figures, and manually type them into HMRC’s online VAT form, you are halfway to MTD compliance. You need to install some ‘bridging software’ to pull numbers from your spreadsheet and push them through an application program interface (API) into HMRC’s system. Most accounting software packages will allow the data to be downloaded as a CVS file, which can be read by the bridging software just like a spreadsheet.

Businesses that operate an entirely paper-based accounting system have a bigger mountain to climb. Some form of accounting software or spreadsheet will be required, but this doesn’t have to be a cloud-based accounting package.

When choosing accounting software, be aware of what you need it to do. Some accounting packages won’t cope with the VAT adjustments needed for partial exemption or margin schemes, or even with accounts that run to the tax year end: 5 April.

The purpose of MTD is to encourage businesses to use an entirely digital accounting system, where the data from each transaction is automatically summarised and, with any necessary adjustments, flows into the VAT return. In between there should be no human retyping of figures or cutting and pasting of data between spreadsheets. HMRC understands that it will take some time to implement a fully digital process, so it is allowing businesses an extra year to make all the links between spreadsheets and software fully digital.

Stamp Duty Land Tax (SDLT) is payable when you buy land or property in England or Northern Ireland. Buyers of property in Scotland pay Land and Buildings Transaction Tax (LBTT) and, for purchases in Wales, Land Transaction Tax (LTT) is due.

Until recently all of these taxes were payable within 30 days of the completion date, but the deadline for SDLT has been halved to 14 calendar days from 1 March 2019. This is also the period for submitting the land transaction return which reports the SDLT payable.

When a company buys a residential property for over £40,000 it must pay an additional 3% SDLT on the entire value. This supplementary rate also applies if you buy a second home. If the property is not defined as ‘residential’ it is a commercial property and the extra 3% tax doesn’t apply.

A derelict property which is in such a poor state that it’s not suitable to be lived in when purchased can’t be treated as a residential property for the purposes of SDLT. If you buy a derelict home to develop, you shouldn’t have to pay the additional 3% rate of SDLT on that purchase.

This ‘not fit to live in’ rule should also apply for purchases subject to LBTT and LTT in Scotland or Wales, as those taxes have similar supplementary rates for purchases of second homes. However, the additional rate of LBTT increased from 3% to 4% on 25 January 2019.

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Clarke Nicklin House, Brooks Drive, Cheadle Royal Business Park, Cheadle, Cheshire, SK8 3TD. Registered Number OC309225.
The firm is registered to carry on audit work in the UK & Ireland. Details about our audit registration can be viewed at www.auditregister.org.uk under reference number C001178544. The professional rules applicable are the Audit Regulations and Guidance which can be found at www.icaew.com/regulations, and the International Standards on Auditing (UK and Ireland) which can be found at www.frc.org.uk/apb/publications/isa.cfm.