All posts by Richard Hallsworth

Long service celebrations for Lincolnshire Accountant

A senior accountant has recently celebrated working at Nicholsons Chartered Accountants for 15 years.

After taking early retirement from his long-term career with HMRC, Paul Grafham joined Nicholsons in May 2004. At this time the firm was based in the city centre but moved out to Weaver Road a few months later.

Paul started as a Tax Senior and has taken on a varied and increasing portfolio of personal tax cases and clients over the years. Since joining Nicholsons he has been able to put to good use his experience from working with HMRC and has specialised in dealing with ‘benefits in kind work’.

Paul says “Over the years I have seen many changes and none so much as the people I have worked with. I enjoy working with my colleagues who have also been supportive.”

When Paul is not at work, he likes to dedicate some time to his on-line business where he deals with collectable model railway items. Paul also enjoys his rail travel, visiting historic buildings and playing his guitar.


Extracting profit from the family company

 The start of the new tax year means that shareholder/ directors may want to review the salary and dividend mix for 2019/20. The £3,000 employment allowance continues to be available to set against the employers national insurance contribution (NIC) liability which means that where the company has not used this allowance it may be set against the employers NIC on directors’ salaries.

Thus, where the only employees are husband and wife there would generally be no PAYE or employers NIC on a salary up to the £12,500 personal allowance.

There would however still be employees NIC at 12% on the excess over £8,632 (£166 per week) which would be £464 on a £12,500 salary, leaving £12,036 net.

Taxation of Dividend Payments in 2019/20

Traditional advice would then be to extract any additional profits from the company in the form of dividends. Where dividends fall within the basic rate band (now £37,500) the rate continues to be 7.5% after the £2,000 dividend allowance has been used. Thus where husband and wife are 50:50 shareholders they would each pay £2,663 tax on dividends of £37,500 assuming they have no income other than a £12,500 salary, leaving £34,837 net of tax.

So a combination of £12,500 salary and £37,500 in dividends would result in £46,873 (93.7%) net of income tax and NICs.

Ensure dividend payments are legal

The Companies Act requires that companies may only pay dividends out of distributable profits. This means that in the absence of brought forward reserves the company would need to provide for 19% corporation tax in order to pay the dividends and thus there would need to be profits of £92,593 in order to pay dividends of £75,000 (after providing corporation tax of £17,593).

Overall the combination of salary and dividends suggested above would result in net of tax take home cash of £93,746 for the couple out of profits before salaries and corporation tax of £117,593 (20.3% overall tax). This still compares very favorably with the amount of tax and NIC payable if the couple were trading as a partnership.

If you would like any further information please call our tax specialist on 01522 815100

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Taxation of Dividend Payments in 2019/20

Traditional advice would then be to extract any additional profits from the company in the form of dividends. Where dividends fall within the basic rate band (now £37,500) the rate continues to be 7.5% after the £2,000 dividend allowance has been used. Thus where husband and wife are 50:50 shareholders they would each pay £2,663 tax on dividends of £37,500 assuming they have no income other than a £12,500 salary, leaving £34,837 net of tax.

So a combination of £12,500 salary and £37,500 in dividends would result in £46,873 (93.7%) net of income tax and NICs.

Ensure dividend payments are legal

The Companies Act requires that companies may only pay dividends out of distributable profits. This means that in the absence of brought forward reserves the company would need to provide for 19% corporation tax in order to pay the dividends and thus there would need to be profits of £92,593 in order to pay dividends of £75,000 (after providing corporation tax of £17,593).

Overall the combination of salary and dividends suggested above would result in net of tax take home cash of £93,746 for the couple out of profits before salaries and corporation tax of £117,593 (20.3% overall tax). This still compares very favorably with the amount of tax and NIC payable if the couple were trading as a partnership.

 


Private Residence Relief could see changes in 2020

The government is currently consulting on important changes to private residence relief that are likely to be introduced from 6 April 2020.

The two possible changes, announced in the Autumn 2018 Budget are:

Firstly to limit to just 9 months the period prior to disposal that counts as a period of deemed occupation

The second is to limit “letting relief” to periods where the taxpayer is in shared occupation with the tenant.

Final period exemption to be reduced

The final period exemption was for many years three years and was always intended cover situations where the taxpayer was “bridging” and waiting to sell their previous residence. However, 36 months was felt to be too generous and was allegedly being abused by a strategy known as “second home flipping”. As a result the final period relief was restricted to the current 18 month period of deemed occupation a couple of years ago. The latest proposal is to restrict still further to 9 months although it will remain at 36 months for those with a disability, and those in or moving into care.

Possible Lettings Relief Changes

Lettings relief currently provides a further exemption for capital gains of up to £40,000 per property owner. The additional relief was introduced in 1980 to ensure people could let out spare rooms within their property on a casual basis without losing the benefit of PRR, for example where there are a number of lodgers sharing the property with the owner.

In practice lettings relief extends much further than the original policy intention and also benefits those who let out a whole dwelling that has at some stage been their main residence. It is those situations that the government appear to be attacking under the proposed changes.

Note that those who are renting their property temporarily whilst working elsewhere in the UK or working abroad are unlikely to be affected by this change as there are alternative reliefs available under those circumstances.

Please check with us if you are likely to be affected by the proposed changes as it may be worth considering disposing of the property before the new rules are introduced from April 2020.

Call Richard Grayson on 01522 815100.

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Jim Carratt gives us his end of season report for Lincoln City FC

March began with 3 victories and 2 home wins, with a satisfactory 1-0 v to-be-relegated Yeovil and a 2-0 win over Paul Scholes’ Oldham, which was his last match in charge, where City played some of their best football of the season. A 2-1 away victory followed over former National League rivals Forest Green.

A highly important Sky TV game versus local rivals Mansfield and a John Akinde penalty earned us a 1-1 draw in a tight encounter.

A 3-0 win at Crawley followed by a 1-1 draw at home to relegation threatened Macclesfield.

Backed by over 5,500 fans City travelled to promotion rivals MK Dons and won 2-0 with a cool penalty from John Akinde and a great strike from Bruno Andrade – a commanding display and season defining moment.

A win v mid table Cheltenham the following week would guarantee promotion. A 1-1 draw caused confusing scenes as fans started leaving the ground unaware that we had been promoted even though Sky TV had announced this had been achieved as other results went their way.

An entertaining 0-0 draw against Tranmere sealed the club’s first championship since 1976. A pitch invasion ensued before the team were able to celebrate with a lap of honour.

The season finished with a 1-0 loss at Newport and a 3-0 home defeat against an excellent Colchester side where the team were harshly booed at half time – the fickle fans forgetting the previous 45 games. The presentations took place after the match and the defeat was soon forgotten with the bus parade through the city taking place the day after.

What a season! – 3 trophies now in 3 years and just 1 division off the Championship.

Arguably the fans started to believe the club were on the way back just over 2 years ago when we played championship side Ipswich in the FA Cup, Lincoln were a non-league club, Next year we play them in Division 1.


“Rent a Room” Relief to continue for AIR BNB landlords

Last year HMRC carried out a review of rent a room relief and it was proposed that the availability of this generous relief would be restricted to situations where the taxpayer was resident for at least part of the time when the “lodger” was paying rent. The scheme currently exempts from tax gross rents up to £7,500 where rooms within the taxpayers’ main residence are rented out.

HMRC were concerned that the relief was being “abused” by letting out the entire property using websites such as Airbnb and living elsewhere temporarily whilst the tenants were in the property. An example would be renting out a house in south London during Wimbledon fortnight and potentially receiving up to £7,500 tax free.

Note that the Autumn Budget announced that the proposed restriction was not now being introduced

Need further advise on tax relating to renting out rooms or a property then contact Richard Grayson on 01522 815100.

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Effective multi-tasking and productivity

In today’s fast-paced business world, here are some tips to help you to be more effective at multi tasking.

Over the past 10 years or so businesses have become leaner by reducing employee numbers, focusing on efficiency and increasing the demands on their staff. An increased workload forces us to multitask, which may be effective for a short period of time, but over the long term, can cause stress.

Multitasking is not about “piling on the work” to the point of exhaustion. It’s about training the brain to channel energy in an efficient and effective manner so you can accomplish more in less time. One of the keys to learning how to multitask effectively is actually to slow down, in order to accomplish more.

Set Priorities

Try to think of your brain as a computer. If you are working within multiple programs and have numerous windows open so you can quickly jump from program to program, you may find that your computer crashes a lot, due to the strain. The same thing happens in your brain. When you’re performing multiple tasks that require your undivided attention, your brain gets overloaded, as it can only process information from one channel at a time. Therefore, do not multitask if the assignment requires your full attention.

Useful tools

Make lists and write things down. You can’t remember everything so having a central to-do list is helpful. If you have a list of items you need to refer to often (such as pricing schedules or keyboard shortcuts) position this next to your phone or computer for quick access. Diarise some “management time” in your calendar each day – this might be a 45 minute slot where you have no meetings and can take stock, look at your to-do list and work through anything that needs your immediate attention.

Shift multitasking to single tasking

Your brain cannot multi-task all the time. So, occasionally, stop multitasking and allow yourself to do just one thing for fifteen to twenty minutes. At the end of this “rest period”, you’ll feel refreshed, alert, and ready to tackle more tasks – and you’ll do so with fewer mistakes.

Take regular breaks

Make the most of your breaks – avoid working through lunch and make sure to take a short break in the morning and afternoon. Use your break to walk around the building, sit outside, or do whatever you like for a few minutes to clear your head and give your brain a rest. Taking this time out during the day can actually make you more productive.