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The Balance Sheet Easily Explained

You are bound to come across reference to a ‘Balance Sheet’ at some point when looking into accounts for businesses, particularly for larger ones with a ‘full’ set of accounts being involved.

They’re a key part of the accounts, and therefore as a core financial statement they may be called a Statement of Financial Position. Even if you don’t automatically have one of these, then it’s certainly worth looking into one being provided and understand what they will communicate.

Three Simple Elements

Without getting bogged-down with the detail and numbers, it’s essential to know the very basic principles of what these are all about. This will help then cut through all the financial jargon and get to the bottom-line of what these are trying to communicate to people.

So, here are three simple elements to explain these.

1. The Meaning

The idea is to have a look at what the financial position is of say a business at just one point in time. So rather than over a period of time, this is a one-off glimpse of how things are right at that point.

And in short, you’re then looking at both the good and the bad things to see how this all pads out. So hopefully you have more beneficial finances to note, otherwise known as Assets, rather than not so good ones knows as Liabilities - which leaves you with some profit and money.

2. The Balance

So, a balance sheet has three sections to log this basic idea.

Firstly, as Assets column which shows what a business owns and has obligation to that is of benefit to them. So, it might be stock or equipment in the business that of course has a value to it.

Secondly, the liabilities are what you still have to pay out on and cover, maybe a business loan or long-term agreement.

And thirdly, if you take off one from the other, you get the resultant equity or what is sometimes called Net Assets, Capital, or New Worth. In short, it’s the end-value or money that you have left at that point in time once you’ve taken off what you owe from what you have.

3. The Allocations

So, once you have the three areas clear you just need to make sure that you know where individual items fall within the Assets and Liabilities.

Simple in principle, however, be careful of certain items being split between the two.

So, taking a business loan out will incur a liability for the re-payments then due, but then once you receive this lump-sum it can go into Assets as cash in the bank, or when this is spent on items noted as assets in there as well.

Balancing the Balance Sheet

As you begin to understand what these Balance Sheets and Statements of Financial Positions are all about, it’s good to start seeing how this is a snapshot of what the finances are at a certain point in time.

You can then see how it’s like two things balancing out to create a resultant profit (and hopefully not loss). Whatever liabilities you have are taken off the assets you hold, and voila – you have a retained profit!

It’s then a case of making sure everything fits into one of these categories, and that they are all correctly balanced against each other.

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July 2019 - Monthly News

Friday 5th July - PAYE Settle Agreement 2018/2019 Deadline

Employers who want to pay tax and national insurance on their employee’s benefits need to pay attention to this deadline. An agreement with HMRC needs to be struck on the benefits and liabilities not shown on the P11D form.

Saturday 6th July - Forms P11D and P11D(b) Deadline

The P11D form needs to show details of any benefits and expenses provided to employees in order to report these to HMRC. For Class 1A national insurance liability the P11D(b) should be used.

Saturday 6th July - Deadline for Share Incentives for 2018/2019

Companies with events that need to be reported for the tax year of 2018/2019 need to adhere to this deadline.

Friday 19th July - Class 1A National Insurance Contributions

Employers providing employees with benefits for 2018/2019 should be reporting these benefits by 6th July. The form P11D(b) should show the amount of Class 1A employer only national insurance liability due. If the payment is being made electronically, the deadline for the payment to clear is July 22.

Interest and Penalties May Apply for Late Payments

Friday 19th July - PAYE Student Loan and CIS Deductions for Month to 5th July

Employers who have made PAYE deductions, and contractors who have used CIS to pay subcontractors need to pay attention to this deadline.

Employers need to make payments for income tax, NI, and student loan deductions to HMRC. Meanwhile contractors need to pay HMRC the tax deductions from subcontractors under CIS.

Any electronic payment needs to be cleared by 22nd July. Failure to do so may result in penalties being applied.

Friday 19th July - Small Employer Quarterly PAYE Payments Due for 6th April to 5th July

Small employers and contractors should pay attention to this deadline. Quarterly payments of income tax, national insurance and student loan deductions are due to HMRC from small employers with those deductions amounting to less than £1,500 each month.

Electronic payments should be cleared by 22 July. Interest and penalties may apply on late payments.

Wednesday 31st July - 2018/2019 2nd Payment Self Assessment Tax Return

This is for the second payment due from individuals on their self assessment tax return accounts to HMRC. This for payments on income tax, Class 4 national insurance, High Income Child Benefit, and capital gains tax.

The deadline is 31st July, late payments may incur interest.

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June 2019 - Monthly News

19th June: 5th June PAYE, Student Loan and CIS Deductions Are Due

Employers who have made PAYE deductions, and contractors who have used CIS to pay subcontractors need to pay attention to this deadline.

Employers need to make payments for income tax, NI, and student loan deductions to HMRC. Meanwhile contractors need to pay HMRC the tax deductions from subcontractors under CIS.

Any electronic payment needs to be cleared by Friday 21st June. “Faster Payments” need to clear by Saturday 22nd June. Failure to do so may result in penalties being applied.

Minimum Wage Regulation Non-Compliance

Findings from a recent Low Pay Commission report have revealed that 439,000 workers are still being paid less than the National Minimum Wage (NMW). The report shows that 369,000 of these employees paid less than the National Living Wage - an increase over previous years - were aged either 25 or over.

From 1 April 2019, the rates rose as follows:

Minimum wage rate

Hourly rate from 1 April 2019

National Living Wage (for workers aged 25 and over)

£8.21

21-24 year-old rate

£7.70

18-20 year-old rate

£6.15

16-17 year-old rate

£4.35

Apprentice rate

£3.90

Accommodation Offset

£7.55 per day: £52.85 per week

The report has also revealed that women are “more likely” to be paid less than men for the National Minimum Wage. It is also more likely that young people and older workers will be paid less than the NMW. The sectors where it is most common are:

● Hospitality
● Cleaning
● Childcare
● Retail
● Maintenance

The Chair of the Low Pay Commission, Bryan Sanderson, said:

“Our analysis reveals a worrying number of people are being paid less than the minimum wage. We recently celebrated 20 years of the minimum wage – it has raised pay for millions of workers, but it is essential that people receive what they are entitled to.

“It is also vital for businesses to be able to operate on a level playing field, and not be illegally undercut on wages.”

Company Car Fuel Rates

Guidance for new company car fuel rates, that will take effect from 1 June 2019, have stated that “You can use the previous rates for up to one month from the date the new rates apply”.

New company car advisory fuel rates are as follows:

Engine size

Petrol

1400cc or less

12p

1401cc - 2000cc

15p

Over 2000cc

22p

Engine size

LPG

1400cc or less

8p

1401cc - 2000cc

9p

Over 2000cc

14p

Engine size

Diesel

1600cc or less

10p

1601cc - 2000cc

12p

Over 2000cc

14p

These rates are only to be used in the following cases:

● to reimburse employees that have undertaken business travel in their company car

Or:
● To seek reimbursement from an employee for fuel used in private travel.

As far as fully electric cars are concerned, the Advisory Electricity Rate is 4 pence per mile.

Consultation on Ancillary Capital Gains Reliefs

If you have sold a residence that had been used as your sole or main residence, a capital gains tax (CGT) exemption will apply under the Private Residence Relief (PRR). As long as the relevant conditions are in play throughout ownership the exemption will apply. This exemption is supported by other types of relief that address other cases related to this.

Two ancillary reliefs had that had been announced and legislated for by the government to target owner-occupiers with PRR, are:

● reducing the final period exemption from 18 months to 9 months,
● and the reformation of lettings relief to only be relevant when an owner is sharing a residence with a tenant.

April 6th, 2020 is when these changes are due to come into force. Meanwhile the government is consulting on these changes, inviting opinions on PRR rules.

Companies House Reforms

A consultation has been launched by the government regarding reforms of Companies House. The consultation aims to extend “greater protection from fraud” to business owners.

The government’s consultation intends to tackle misuse of the register by:

● identifying the persons setting up, managing and controlling companies
● helping to prevent the abuse of corporate entities
● improving the data held on the companies register
● securing personal information

Companies House Chief Executive, Louise Smyth, has said: “This package of reforms represents a significant milestone for Companies House as they will enable us to play a greater part in tackling economic crime, protecting directors from identity theft and fraud, and improving the accuracy of the register.”

Welsh Income Tax Confusion

New income tax codes have been assigned to Welsh taxpayers from April 2019. They begin with C. However, it has come to light that Welsh taxpayers have mistakenly been allocated Scottish income tax codes by their employers. This means that Welsh taxpayers have been paying income tax with Scottish income tax rates and bands.

Overall, the tax paid by Welsh taxpayers is in line with that paid by English and Northern Irish taxpayers, with rates and bands ranging from 20% to 45%. In Scotland tax rates and bands range from 19% to 46%.

The full impact of the mistake is not yet clear but HMRC will review how the Welsh tax codes work in June 2019.

Chair of the National Assembly for Wales’ Finance Committee, Llyr Gruffydd, has said: 'We raised concerns about the flagging process for identifying Welsh taxpayers during our enquiries into fiscal devolution and the Welsh government's draft budget.

“On each occasion, we were told the matter was in hand, and the lessons from the devolution of income tax powers to Scotland, where there were similar issues, had been soundly learned and would be put into effect. We are seeking an immediate explanation of how this has happened and will be asking representatives from HMRC to appear before this Committee in the near future.”

Reporting Employee Benefits With the Forms P11D

The forms P11D are used to list the benefits and expenses afforded employees and directors are due to be submitted to HMRC by 6 July 2019. If this applies to you it is important to get this process underway as the collection of all relevant information can take some time. Employers who run the benefits through their payroll do not need to use the forms P11D.

HMRC has created a toolkit to help with the reporting of these expenses and benefits. This includes access to a handy checklist that helps employers to ensure that the forms are being completed correctly.

Dishonest Dog Breeders Hounded by HMRC

More than £5m has been recovered by an HMRC taskforce dedicated to tackling the sale of black market puppies by dishonest dog breeders. Animal welfare groups weighed in during discussions with HMRC that led to the debut of the taskforce in October 2015.

Puppies are being sold on the black market on a mass scale and at a huge profit, failing to declare sales and pay taxes. 257 cases have led HMRC to recover £5,393,035 since October 2015, using civil and criminal enforcement powers.

Tax bills handed out include:

● A former Crufts judge in the Midlands: £157,000
● A Northern Ireland dealer: £185,000
● A puppy breeder in Swansea: £110,000
● A Somerset puppy breeder: £114,000
● An East Scotland dealer: £400,000

Mel Stride MP, and Financial Secretary to the Treasury, has said: “It is utterly appalling that anyone would want to treat puppies in such an inhumane way and on such a scale. It's also deeply unfair to all of the legitimate businesses who do pay the right tax, and the total recovered by the taskforce is equivalent to the annual salaries for more than 200 newly qualified teachers.

“We continue to work hard with other government agencies and our partners to tackle these traders. We urge anyone with information about tax evasion to report it to HMRC online or call our Fraud Hotline on 0800 788 887.”

OTS Backs Smaller Businesses

The Office of Tax Simplification (OTS) has called for smaller businesses to be prioritised by the government in regards to the following issues:

● Early step-by-step guidance on things a business needs to run smoothly
● Help with working the PAYE system
● Using HMRC’s Agents Strategy
● Improving Corporation Tax return process
● Making sure business processes are considered when making changes to tax

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May 2019 - Monthly News

Sunday 19th May - Deadline for PAYE, Student Loan and CIS Deductions

This is the deadline for employers to make payment to HMRC for income tax, national insurance and student loan deductions for the month up to 5th May 2019.

Contractors should make payments to HMRC for tax deductions from subcontractors under CIS.

Electronic payments must be cleared by 22nd May 2019. Interest and penalties may apply for late payments.

Friday 31st May - Deadline for Employees to Receive 2018/2019 P60 forms

All employers need to issue their employees with P60 forms. The P60 is an End of Year Certificate that constitutes proof that an employee has paid tax.

Another Delay to Scottish Air Departure Tax Plans

Air Departure Tax (ADT) was due to replace the Scottish government’s Air Passenger Duty (APD), but the plans have been delayed, this time beyond 2020.

The change had been due to be made in April 2018, but issues regarding how the current exemption applies to airports in the Highlands and Islands have led to delays.

Kate Forbes MSP, Minister for Public Finance and Digital Economy has said: “The Scottish government has been clear that it cannot take on ADT until a solution to these issues has been found, because to do so would compromise the devolved powers and risk damage to the Highlands and Islands economy.

“While we work towards a resolution to the Highlands and Islands exemption, we continue to call on the UK government to reduce APD rates to support connectivity and economic growth in Scotland and across the UK.”

Article 50 'Flexible Extension'

EU leaders have granted the UK a six-month “flexible” extension to Article 50 and the British Chambers of Commerce (BCC) and the Confederation of British Industry (CBI) have been commenting on the delay to Brexit which has been pushed back to 31 October 2019.

BCC has stated: “Politicians must urgently agree on a way forward. It would be a disaster for business confidence and investment if a similar late-night drama is played out yet again in October.”

Meanwhile the CBI’s Director General, Carolyn Fairbairn, has said: “For the good of jobs and communities across the country, all political leaders must use the time well. Sincere cross-party collaboration must happen now to end this crisis.”

HMRC List of Businesses Failing Money Laundering Regulations

A list of businesses that have failed the Money Laundering Regulations has been published by HMRC whose duty, as supervisor of the regulations, it is to publish the details of those failing businesses.

Businesses are considered on a case by case basis by HMRC which decides whether to publish complete details, or anonymously. HMRC may choose to publish anonymous details if it concludes that the effects would be disproportionate.

VAT Fuel Scale Charges

The updated VAT fuel scale charges that apply from the beginning of the next prescribed VAT accounting period, on or after 1 May 2019, has been published by HMRC. The fuel scale charges are used by VAT registered businesses to account for VAT on road fuel bought and used privately.

Latest Employer Bulletin

The latest issue of the Employer Bulletin is available and its articles include discussions on:

● Cash Allowances, Salary Sacrifice, and Flexible Benefits Packages
● Student Loans
● Both Scottish and Welsh rates is income tax
● The National Minimum Wage and unpaid work trials
● Euro standard 6d Diesel Supplement Company Car Tax Changes
● Reminders for contractors and subcontractors under the Construction Industry Scheme

“Springtime” Scam

Young people of the UK have been warned by HMRC to maintain vigilance to avoid the “Springtime” tax refund scam which is often perpetrated by criminals upon young people, or the elderly, people who generally know less about the UK tax system.

April and May are the months that taxpayers are often bombarded with tax refund scams. Spring last year saw HMRC receive 250,000 reports of tax scams perpetrated via calls, voicemails and text messages. Taxpayers have been warned to be vigilant of potentially criminal attempts to get personal and financial information from them.

HMRC’s Head of Customer Services, Angela MacDonald, has said: “We are determined to protect honest people from these fraudsters who will stop at nothing to make their phishing scams appear legitimate.

“HMRC is currently shutting down hundreds of phishing sites a month. If you receive one of these emails or texts, don't respond and report it to HMRC so that more online criminals are stopped in their tracks.”

Pensions Dashboards

The government’s initiative to introduce a pensions dashboard will go ahead, allowing savers to view details from their range of pensions from a single place. It is said that the dashboard will “open up pensions to millions” with “an easy to access online view”.

Legislation will be brought forward by the Department for Work and Pensions (DWP) which will require consumers’ data to populate their dashboard. This will include State pension details.

Mike Cherry, National Chairman of the Federation of Small Businesses (FSB), said:

“The government's commitment to compel pension schemes to share data with platforms through primary legislation is particularly welcome. Some urgency is now required, and we question the three to four-year timeframe for schemes to prepare data for dashboards.”

Extending IR35 Rules

IR35, the off-payroll working rules, has had guidance on its extension published by HMRC, ahead of being introduced on 6 April 2020. HMRC has stated that the organisation receiving the individual’s service will be responsible for deciding whether the rules apply.

The guidance lays out a four-step process, a template for preparing for the changes. It begins with determining which individuals, if any, are providing services via PSCs.

The consultation requires responses on a range of issues, such as:

● scope of the reform
● Individual employment status disagreements
● how it will affect non-corporate engagers and information required for them
● Personal service companies (PSCs)

Closing on 28 May, the details of HMRC’s plans include providing education and support for the affected businesses.

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April 2019 - Monthly News

Pay PAYE Tax, Student Loan Deductions, Class 1 NI or CIS Deductions by 19th April to Avoid Automatic Interest

If you’re an employer who makes PAYE deductions from your employees’ salaries, or if you’re a contractor who pays subcontractors under the CIS, this deadline is important to you.

Please note that penalties may apply if there have been late payments throughout the tax year.

PAYE Quarterly Payments Are Due by Friday 19th April

This is a deadline that is particularly important to small employers and contractors with income tax, national insurance and student loan deductions that total less than £1,500 per month. If that’s you, you need to make your quarterly payment to HMRC.

If you’re making your payment by post, it should have reached the HMRC Accounts Office by this date. If your payment is made electronically, the deadline for receiving a cleared payment is Thursday 18th April. Or, if you have arranged a “Faster Payment”, the deadline is Monday 22nd April.

Late payments will incur interest and penalties may also apply.

19th April - PAYE, Student loan and CIS Deductions Are Due

Relevant to employers paying PAYE deductions from the salaries of their employees, and it’s also important to contractors paying subcontractors under CIS.

Employers, HMRC is expecting your payment for National Insurance, and student loan deductions. Contractors are expected to pay HMRC the tax deductions from subcontractors under the CIS.

If you’re making payment by post, it should reach the HMRC Accounts Office by 5th April. Electronic payments must be cleared by 18th April. “Faster Payment” submissions must clear no later than Monday 22nd April.

Late payments will incur interest and penalties may also apply.

19th April - Final 2018/2019 PAYE Return for Employers to be Submitted Online

Friday 19th April is the deadline for HMRC to receive the submission of your final Full Payment Summary (FPS).

After 19th April HMRC will not accept any 2018/2019 FPS submissions. Corrections to a 2018/2019 FPS will need to be made via an Earlier Year Update (EYU).

Disguised Remuneration Avoidance - HMRC Wins Case.

HMRC stands to collect more than £40 million in unpaid taxes due to a legal case win involving a contractor loan scheme.

Hyrax Resourcing Ltd was involved in the scheme, a disguised remuneration avoidance scheme that paid loans instead of salaries, thus avoiding income tax and national insurance contributions on earnings.

Details of the tax avoidance scheme will need to be divulged. These details will include names and addresses of the 1,180 users of the scheme. If Hyrax Resourcing Ltd fails to provide the information, it could be penalised.

Financial Secretary to the Treasury, Mel Stride MP, said: “HMRC is cracking down on the unscrupulous promoters who sell these highly contrived tax avoidance loan schemes.

“Promoters need to take note of this decision and make sure they contact HMRC urgently about schemes they haven't yet disclosed.”

Income Tax Changes for 2019/2020.

The new tax year is in full swing and has brought major changes to income tax bands and allowances.

For 2018/2020 the personal allowance will increase to £12,500.

There will be a personal allowance reduction of £1 for every £2 for each individual with an income above £100,000. For 2018/2019, individuals with adjusted net incomes of over £123,700 will have no personal allowance. For 2019/2020 this amount becomes £125,000.

Marriage allowance allows certain couples, where each person pays tax at no more than the basic rate, to transfer 10% of their personal allowance to a spouse, or civil partner.

20% is the basic rate of tax and the band of income taxable at the basic rate is £34,500 in 2018/2019. This makes the threshold at which the 40% band comes into effect £46,350.

For 2019/2020 the basic rate band is due to increase to £37,500 making the threshold for the 40% band £50,000.

Individuals with income over £150,000 pay tax at 45%.

Scotland

Scottish residents will pay taxes differently to others in the UK. For Scottish residents income tax rates and bands apply to employment income, self-employed trade profits and property income.

There are 5 income tax rates which range between 19% and 46% for the tax years of 2018/2019 and 2019/2020. Despite this, Scottish taxpayers enjoy the same personal allowance as their English and Welsh counterparts. In Scotland the higher rates are 41% and 46%. For 2019/2020 the 41% threshold is £43,430.

Wales

April 2019 saw Wales assume the right to change the rates of income tax payable by Welsh taxpayers. The 3 rates of income tax paid by Welsh taxpayers has been reduced by 10 pence by the UK government. Meanwhile the Welsh government has set income tax at 10 pence, which will be added to the reduced rates. In short, this means that the tax rates will remain the same as that payable by English and Northern Irish taxpayers.

Social Media Businesses May be Taxed

The government has been called upon to impose taxes upon the profits of social media businesses.

A report has recently been published by the All Party Parliamentary Group (APPG) on Social Media and Young People’s Mental Health and Wellbeing. The report detailed the impact upon the health of young people that social media is having. To fund research and help to “draw up clearer guidance” on the impact that social media is having on young people, a 0.5% tax on the profits of social media companies has been proposed by the APPG.

Structures and Buildings Allowance Update

Chancellor Philip Hammond’s Spring Statement included comments on the Structures and Buildings Allowance (SBA) which gives relief on expenditures for improving structures and buildings meant for commercial use, but it also extends to converting or renovating existing premises. Only the original cost of construction, or renovation, will be valid for relief, and it will be across a fixed 50-year period at a flat annual rate of 2%.

The relief will only be valid for work for making properties suitable for qualifying activities, such as trades, professions, and vocations. Relief will be available for costs incurred on or after 29 October 2018.

Probate Fees Rise to be Delayed

Probate fees were to be increased, however that increase has been delayed by the government. The increase had been due to come into effect from 1 April 2019, but it has been shelved due to “pressure on Parliamentary time” in light of the various Brexit debates and votes.

HMRC has said: “Probate registries will accept applications before processing by us as long as they are assured the inheritance tax (IHT) forms from us will be coming shortly.

“Our processes aren't changing, it's just that probate registries will be willing to accept applications before our processing is done when normally it would need to be after.”

A temporary system is in place for probate applications. Meanwhile higher fees will not be imposed upon estates if applications are received before fee changes take effect.

Brexit Advice for Small Businesses

New documents have been published by the government in an effort to offer more advice on Brexit for small UK businesses. This information is intended to aid business owners so they can “understand how leaving the EU may affect their business”. The new advice covers topics from changes to UK-EU trade, to changes to how personal data is handled by businesses.

The government’s advice remains to prepare as soon as possible, and UK Economic Operator Registration and Identification (EORI) is recommended for all businesses that import or export goods to the EU.

There may also be new rules for businesses providing services to, or operating in, the EU, after Brexit. There may also be changes to the rules surrounding copyright, patents, designs and trademarks, so businesses that hold intellectual property such as this should consider themselves warned.

The Exit Tool is being recommended by the government to give business owners the latest information.

Forms P11D

Forms P11D for the year ending 5 April 2019 need to be submitted to HMRC by 6 July 2019. These forms are intended to detail the benefits and expenses provided to employees and directors. Since it can take a while to gather all the relevant information, it’s recommended that the process is started as soon as possible.

Using a PAYE coding notice adjustment, or via the self assessment system, employees can pay tax on benefits, as displayed on the form P11D. Where benefits are “payrolled” they do not need to be declared on forms P11D, but employees should be made aware of the benefits by their employers.

Whether or not the benefits are payrolled, the employer needs to pay Class 1A National Insurance Contributions at a rate of 13.8% on most benefits. The deadline for this payment is 19th July, 2019.

There is a toolkit available from HMRC that employers can use to ensure that the forms are being completed correc

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