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Accountancy Advice

Gifts To Clients 150 150 Stepping Stones Accountancy

Gifts To Clients

Do you know what you can purchase in order to say thanks to your clients for their support in 2020? This animated video provides full details one what options you can select along with the money you can spend.

New Year New Company | Accounting Advice for Business Start-Up 2018
New Year, New Company? 758 513 Stepping Stones Accountancy

New Year, New Company?

Many people use the Christmas break to reflect on the last 12 months and plan for the year ahead. For some though that can mean an entire career shift and the launch of a new business venture. For those of you considering taking the plunge into self-employment in 2018 there are a number of things to consider along the way.

Firstly, test your business idea. Market research is an essential part of ensuring that your idea will work and that you are targeting the right audience in the right way. Make sure you have a clear vision of the direction of the business to keep you focussed o your journey.

Write a business plan. Writing down your idea in black and white rather than keeping it in your head can help bring it to life. Remember though, it doesn’t need to be complicated, often the simpler the better. Your business plan should help you prove that your business idea is worth investing in both financially and in terms of your time and effort.

Choose an accountant. Ask for recommendations from other business, your bank or even trade associations. Your accountant should be an invaluable addition to your business, guiding you, supporting you and ensuring that you stay compliant with all the business regulations. You should be able to build a strong relationship with them based on mutual trust.

Finally, take advice. There are so many sources of good advice out there for start-up businesses, use them. From Companies House to HM Revenue & Customs, from your local Chamber of Commerce to your small business adviser at your bank, let the experts help you so that you can get off to a flying start.

Dividend & Tax Support in Bristol
Dividend Tax 758 513 Stepping Stones Accountancy

Dividend Tax

The largest change to the taxation of small company owners in a generation came into effect on 6 April 2016 but small company owners are yet to see the effect on their tax bill. With the 2015/16 tax returns now all submitted it’s time to look ahead to the impact the dividend tax will have on your 2016/17 tax return.

Under the previous rules dividends were taxed at effectively 0% if they were within the basic rate. They also included a complication in the 10% tax credit where the actual dividend would be increased by 10% with this then refund by way of a tax credit. With the introduction of the dividend tax the tax credit has been removed which should make the numbers on your return a bit easier to understand.

Tax on dividends within the basic rate band will now be at a rate of 7.5% with the higher rate taxed at 32.5%. this will mean the majority of small business owners that operate through a company will now need to pay personal tax as well as corporation tax.

There is some relief as a new dividend allowance, which is essentially a personal allowance that can only be used against dividends, of £5,000 per person has been introduced.

Let’s see an example of a small business owner who takes £8,000 in salary and £32,000 in dividends. Under the old rules no tax would be payable but with the introduction of the new dividend tax their tax position will look like this:

  • Income                           £40,000
  • Less
  • Personal allowance        (£11,000)
  • Dividend allowance        (£5,000)
  • Net income                     £24,000
  • Tax payable (24,000×7.5%) £1,800

That’s an increase of £1,800 in tax but it’s not the worst part. If your personal tax liability exceeds £1,000 you need to make payments on account every January and July. These are payments in advance towards the following tax year. They are calculated as 50% of the last year’s bill and the first payment is due with all of last years tax. In our example above the January 2018 payment will be the £1,800 in tax due for 2016/17 plus a payment on account of £900 towards 2017/18 giving a total amount payable of £2,700. From then on if everything remains equal payments of £900 will be payable every July and January.

So what can be done to help ease this tax bill? Generally, we’ll look to other family members to gift shares to starting with your spouse. A gift of shares to a spouse will attract no capital gains tax and you can then take advantage of the £5,000 dividend allowance that your spouse has available. Gifts of shares to other family members can work but need planning to avoid capital gains tax and you’ll need to be careful not to fall foul of anti-avoidance legislation and make sure the dividend is spent by the family member and doesn’t come back to you. Another option would be to reduce the dividends down and keep investments within the company, this of course assumes you have excess cash.

Whatever measures taken to reduce the tax bill it’s likely a great deal of small company owners will be paying this tax. It’s essential small company owners understand the impact and save for that first January 2018 bill.

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