Tag Archives: corporation tax


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Associated Companies

Are you associated?

For the financial year to 31 March 2015, Limited Companies paid different rates of Corporation Tax depending on their profit levels. If taxable profits were higher than £1,500,000 then the rate of tax was 21%. If taxable profits were less than £300,000 then the rate of tax was 20% and for profits between these two limits, marginal relief was applied.

However, if the company was associated with other companies, then their profit limits had to be divided by the number of associated companies, for example, if there were 3 associated companies, they would all pay tax at the higher rate of 21% if their taxable profit was higher than £500,000 (£1,500,000 divided by 3).

For the financial year to 31 March 2016, the tax rates have changed so that regardless of the levels of your profits, the corporation tax rate will be 20%. It therefore doesn’t matter how many associated companies you have, you will still pay tax at 20%.

We can’t forget about associated companies altogether however as the number of associated companies also establishes the limits above which a company has to pay corporation tax in instalments rather than 9 months and 1 day after the year end.

From 1 April 2015 onwards each company has to disclose whether there are other companies that are classed as ‘51% group companies.’ If you are a 51% subsidiary of another company or if there is another company that is a 51% subsidiary of you or if you and another company are both 51% subsidiary companies of the same company, then you are classed as ‘51% group companies.’ To clarify, a 51% subsidiary company means that 50% or more of its ordinary share capital is owned beneficially (directly or indirectly) by another company.

For a company with no 51% group companies, they will not have to pay their corporation tax in instalments until their taxable profits exceed £1,500,000. This limit is reduced by every 51% group company so that a company with 2 additional 51% group companies would have to pay their corporation tax in instalments if their profit levels exceeded £500,000 (£1,500,000 divided by 3).

Even if you exceed your upper limit, if either of the following applies, you will not need to pay your corporation tax in instalments:

  • If your corporation tax liability is less than £10,000 (pro-rated for periods shorter than 12 months)
  • If your profits are less than £10,000,000 and the company has not existed for the full previous 12 months or for any accounting period ending in the previous 12 months, the tax liability was less than £10,000 or the profit levels were below the upper limit.

Please note, the £10,000,000 limit is also divided by the number of 51% group companies, so would be £3,333,333 if there were 3 x 51% group companies.

For periods beginning on or after 1 April 2015 then, it should be simpler to calculate whether your company needs to pay corporation tax in instalments. If you are unsure if your company(ies) will be affected by these changes, please let us know and we will be happy to help.


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Paying HMRC

A question we get asked quite regularly is “How do I pay HMRC?”, below is a summary of the key ways of paying HMRC for Corporation Tax, VAT and Personal Tax:

Corporation Tax

If your taxable profits are less than £1.5m HMRC will expect you to pay the Corporation Tax in one go, the deadline for this is 9 months and 1 day after the end of your accounting period. If the payment is late then HMRC will charge you interest based on the amount of Corporation Tax owed.

  • At the Post Office – For payments up to £10,000 you can pay at the Post Office by debit card, cash or cheque made payable to ‘Post Office Ltd’. You will need a payslip which HMRC will send to you after we have electronically submitted your Company Tax Return.
  • Online or telephone banking – There are two bank accounts you can use to pay your Corporation Tax to HMRC, the payslip which HMRC send you will detail which account to use, but if in doubt use Cumbernauld. As the reference, use your 17 character Corporation Tax reference which can be found from the payslip HMRC will send you.
Account Name Sort Code Account Number
HMRC Cumbernauld 083210 12001039
HMRC Shipley 083210 12001020
  • Online by Debit or Credit Card – You can pay directly to HMRC online using the following link. You will need your 17 character reference number which can be obtained from the payslip HMRC will send you. It is worth noting that HMRC will charge you 1.4% of the payment value if you pay by Credit card.

If your taxable profits exceed £1.5m HMRC will expect quarterly payments.

Value Added Tax – VAT

The deadline for paying your VAT is normally the same as the filing deadline, being 1 month and 7 days after the end of the VAT period. There are several ways to pay your VAT:

  • Direct Debit – The easiest way to pay your VAT is to set up a Direct Debit, once you have submitted a VAT return HMRC will automatically set up to take the payment owed, or if you are due a repayment this will be made directly into your bank.
  • Online or telephone banking – You can make your VAT payment using online banking or telephone banking using the account details just below. The reference you will need to include will be your 9 digit VAT registration number which can be found on your VAT registration certificate.
Account Name Sort Code Account Number
HMRC VAT 083200 11963155
  • Bank or Building society – You can pay at your local bank or building society, however you will need order paying-in slips from HMRC, these can take up to 6 weeks to arrive. Payment can be made using cash or a cheque made payable to ‘HM Revenue & Customs only’ followed by your 9 digit VAT registration number.

Personal Tax

Payments for personal tax are generally required to be made to HMRC twice a year. On 31 January you are required to pay the prior year’s tax (Balancing payment), and also the first payment on account for the year ahead. On 31 July you need to make your second payment on account.

  • At the Post Office – For payments up to £10,000 you can pay at the Post Office by debit card, cash or cheque made payable to ‘Post Office Ltd’. However, you will need to still be getting paper statements from HMRC and also have the paying-in slip which HMRC sent you.
  • Online or telephone banking – There are two bank accounts you can use to pay your personal tax to HMRC, your bill should tell you which account to use, but if in doubt use Cumbernauld. As the reference use your 11 character Unique Taxpayer Reference (UTR) followed by the letter “K” which can be found on your tax return or your HMRC online account.
Account Name Sort Code Account Number
HMRC Cumbernauld 083210 12001039
HMRC Shipley 083210 12001020
  • Online by Debit or Credit Card – You can pay using your credit or debit card using the following links. You will need your 11 character Unique Taxpayer Reference (UTR) followed by the letter “K” which can be found on your tax return or your HMRC online account.

Pay HMRC online via Debit Card

Pay HMRC online via Credit Card  – (Incurs 1.4% fee)

  • Post a cheque – You can post a cheque to HMRC, the cheque will need to be made payable to ‘HM Revenue & Customs only’ followed by your Unique Taxpayer Reference (UTR). You will need to send the cheque with a payslip, if you did not receive a payslip from HMRC you can create your own payslip online.

The cheque and payslip should not be folded or fastened together, they should then be sent to the following address:

HM Revenue & Customs
Bradford
DB98 1YY


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Late Filing Penalties – Companies House

Late filing penalties

Many companies are still failing to meet the nine month filing deadline for their accounts and are not aware of the deadline for filing of their company’s Annual Return, it is not surprising when a company has four deadlines to meet, the accounts filing, the Annual Return filing, the Corporation Tax payment and the Corporation Tax return filing that deadlines are sometimes missed.  Monetary penalties are imposed by Companies House for the late filing of accounts and potential striking off action can be implemented for late filing of Annual Returns.  HM Revenue & Customs also impose their own fines and interest with regard corporation tax returns and corporation tax payments.

Companies House eReminders

Companies House offer a free, convenient eReminder service which provides those companies who register you with a timely electronic reminder of when accounts and Annual Returns are due for filing.

Recent analysis of the Companies House reminder service  has revealed that email reminders are more successful in achieving on time filings, and avoiding those late filing penalties, than paper reminders.

The email reminder service is free and can be benefit as follows:

  • Up to 4 people, including your accountant, can receive the reminder.
  • Within the reminder is a link for you to file say the Annual Return.
  • It’s more convenient and better for the environment.

Here at Kelsall Steele, we of course keep a detailed tracker of all of our clients’ deadlines and regularly send our own reminders, however receiving the email reminders straight from Companies House would certainly give a belt and braces approach in order to avoid late filing penalties for your private company accounts.

Accounts Late Filing Penalties

Not more than one month £  150
More than one month but not more than three £  375
More than three months but not more than six £  750
More than six months £1,500

Be Aware:

  • The penalties will be doubled if the accounts are filed late two years in succession.
  • If you form a new company, you must deliver your accounts to Companies House within 21 months of the date of incorporation so you do not get until a month end, it could be an odd day of the month.

If you have any queries or concerns over the eReminder email service, the accounting or Annual Return deadlines, please give us a call.


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Autumn Statement 2014

The Chancellor delivered his Autumn Statement on 3 December 2014. Here is our guide to some of the key points announced in the Autumn Statement 2014.

Personal Allowance and Tax Bands

The personal allowance for 2015/16 was originally scheduled to increase to £10,500 but it was  announced that this will now be £10,600, so the tax free amount will now be £883 per month. If re-elected the Chancellor stated that this would be increased to £12,500 by 2020. The point at which higher rate tax (40%) becomes payable will be £42,385 for 2015/16, meaning that the basic rate band will be £31,785. The Chancellor “promised” that this threshold would increase to £50,000 by 2020. The 45% rate will continue to apply to taxable income over £150,000. Remember that the personal allowance is reduced where the taxpayer’s adjusted net income exceeds £100,000. The reduction is £1 of allowance for every £2 of excess income, resulting in a marginal tax rate of 60%. For 2015/16 this restriction is even wider than before with the increase in personal allowance to £10,600:

Taxable income Marginal rate
£100,000 to £121,200 60%
£121,201 to £149,999 40%
£150,000 + 45%

Transfer of Personal Allowance

As previously announced, 2015/16 sees the introduction of a transferable personal allowance for married couples and civil partners. As the amount that may be transferred is 10% of the basic personal allowance, this will now be £1,060. The recipient must not be liable to tax above the basic rate and is eligible to a tax reduction of 20% of the transferred amount, in other words £212.

ISA Limit Changes in 2015/16

The annual limit for savings in an ISA increases by £240 to £15,240 for 2015/16, but remember that the 50% restriction on cash was removed with effect from 1 July 2014.  For Junior ISAs the limit will increase by £80 to £4,080, the same as the Child Trust Fund subscription limit. There was an important announcement about the treatment of ISA savings on death in the Autumn Statement. It is proposed that the ISA savings will not lose their tax free status on death but, if transferred to the spouse, can be added to their tax free ISA savings.

Corporation Tax Rates

 

Profits     31/3/15(FY2014) 31/3/16(FY2015)
First £300,000 20% 20%
Between £300,000 and £1.5m  21.25%  20%
Over £1.5m 21% 20%

As previously announced there will be a single 20% rate of corporation tax regardless of the level of the company’s profits from 1 April 2015 onwards. Although a 20% rate will generally apply to corporate profits from 1 April 2015, a new “diverted profits tax” charge at 25% will apply to profits that are artificially shifted from the UK to an entity in a low tax country. This is part of a number of measures to counter tax avoidance by multi-national companies. It will be interesting to see if the new measures will bring in additional tax revenue from such companies.

Annual CGT Exemption

This is set to be £11,100 in 2015/16, so is worth a useful £3,108 for higher rate taxpayers for whom the 28% rate applies.

CGT on Non-Residents Disposal of UK Residential Property

Following consultation during Summer 2014, the Government is proceeding with the introduction of a capital gains tax charge from 6 April 2015 on non-residents disposing of UK residential properties. Such individuals will not be able to treat the property as their Principal Private Residence, and thus are potentially exempt, unless there are substantial periods of residence in the property. The proposal is that the individual must spend 90 nights there each year to qualify for the relief, however we await further details.

Stamp Duty Land Tax

Stamp Duty Land Tax (SDLT) has often been referred to as a “slab” tax as there are significant increases in the tax payable at the £250,000 and £500,000 price points causing a cliff edge effect and  distortions in the property market. This was particularly relevant around £250,000 as at that purchase price the rate went up from 1% to 3%, which meant £2,500 if the purchase price was £250,000 but an extra £1 meant a further £5,000 SDLT was payable. Where residential property is purchased from 4 December 2014 onwards, the rates will be as follows.

Purchase price SDLT rate  Cumulative
Up to £125,000 NIL NIL
£125,001 – £250,000 2% £2,500
£250,001 – £925,000 5% £36,250
£925,001 – £1,500,000 10% £93,750
£1,500,001 and over 12%

The Government considers that this will create a much fairer system and those buying residential property up to £937,500 will pay less SDLT, about 98% of all purchasers. For example, where the purchase price is £275,000 (the average price of a family home) the SDLT reduces from £8,250 to £3,750.  This is 2% on £125,000 to £250,000 = £2,500 plus 5% on £250,000 to £275,000 = £1,250. The new rules apply to transactions on or after 4 December 2014 but if you’ve already exchanged on a property you’ll have a choice about whether to use the old or new rules.

National Insurance Rates

There will be no increase in the rates of national insurance contributions (NICs) for employers, employees nor the Class 4 rate for the self-employed  for 2015/16, although the thresholds will be increased. Employee contributions will be payable at 12% on earnings between £155 per week and £815 per week and 13.8% employers contributions will start at £156 per week instead of £153 for 2014/15. The £2,000 employment allowance will continue to be deductible from employers’ NIC for 2015/16. The Class 2 NIC weekly contribution for the self-employed increases to £2.80 from 2015/16. As previously announced, from April 2015 employers NIC for those under the age of 21 will be abolished. This exemption will not apply to those earning more than the Upper Earnings Limit (UEL), Employers NIC will be charged as normal beyond this limit. In addition, to encourage apprenticeships there will be no employers NIC payable in respect of wages paid to apprentices under the age of 25 from 6 April 2015.

R&D Tax Credits

In order to further encourage innovation in the UK, the Government has announced an increase in R&D tax relief for the SME sector from 225% to 230% from 1 April 2015. In addition, the credit for larger non-SMEs will be increased from 10% to 11%. An advance assurance scheme for small businesses making their first claim to R&D tax credits will be introduced along with new guidance.

No Tax Relief on Write Off of Goodwill on Incorporation

One of the anti-avoidance measures announced in the Chancellor’s Autumn Statement was a proposal to block the corporation tax deduction for goodwill and other intangibles transferred to a limited company on incorporation. This was potentially available where intangibles were created or acquired by the individual or a partnership after 1 April 2002 and then transferred to a company that they controlled. Furthermore, it will no longer be possible to claim CGT entrepreneurs’ relief against the gains arising on the sale of such assets to the company. Both of these measures will be included in the 2015 Finance Bill and, if enacted, will apply to transactions on or after 3 December 2014.

Relief from Business Rates

Many small businesses will welcome the news that the doubling of Small Business Rate Relief will be extended to April 2016. This means that around 385,000 of the smallest businesses will continue to receive 100% relief from business rates until April 2016, with around a further 190,000 benefiting from tapering relief. High street retailers will be grateful for the increase in the business rates discount for shops, pubs, cafes and restaurants with a rateable value of £50,000 or below, from £1,000 to £1,500 in 2015/16, benefiting an estimated 300,000 properties and helping such small business compete with internet retailers.

Car Fuel Benefit Charge

Employees and directors with company cars and who also have some or all of their private fuel paid for by their employers are subject to the fuel benefit charge – on an all or nothing basis. The benefit charge is determined by multiplying a notional list price by the appropriate percentage for the car, based on its CO2 emissions. The car fuel notional list price will increase from £21,700 to £22,100 with effect from 6 April 2015, notwithstanding the actual fall in fuel prices in the current tax year, so this is another attempt to stop employers providing any private use fuel. For a company car emitting between 121g to 125g CO2 per km the scale charge would be 20% of £22,100 and this would result in taxable fuel benefit of £4,420 and £1,768 income tax for a 40% taxpayer. At 11p per mile the employee would need to drive 16,073 private miles to make having private fuel paid for worthwhile.

Private Use of Company Vans

Where employees are provided with a company van the taxable benefit increases from £3,090 to £3,150 for 2015/16 and there will be an additional taxable benefit of £594 where private fuel is provided by their employer. Note that this charge does not apply to all company van drivers, only those who use the van for private journeys.

Reduction in Company Car Fuel Rates

Not part of the Autumn Statement, but you need to know that some of the rates are reduced from 1 December 2014  (previous rates in brackets where there was a change):

Engine size Petrol Diesel LPG
1,400 cc or less 13p (14p) 9p
1,600 cc or less 11p
1,401cc to 2,000cc 16p 11p
1,601cc to 2,000cc 13p
over 2,000cc 23p (24p) 16p (17p) 16p

The Gov.uk website contains full details of the Autumn Statement 2014 and it’s key announcements. Alternatively feel free to contact Neil Brittain on 01872 271655 or email at neil.britain@kelsallsteele.co.uk should you require any further information or clarification on any of the points detailed in this article.


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Thinking inside the Patent Box

Introduced in April 2013, the patent box regime allows companies owning a patent or holding an exclusive licence for a patent to pay corporation tax at a lower rate of 10% on the profits attributable to the patent rather than the usual corporation tax rates of 23% or 20%.

The Patent Box regime is open to certain qualifying companies;

To qualify for Patent Box a company must either

  • Own a patent granted by the UK Intellectual Property Office, the European Intellectual Property Office or one of certain patent offices in the EEA.

or

  •  Hold an exclusive licence over a patent granted by one of the above offices.

In addition, the company or a company in the same group must have significantly contributed to the creation of the patent or contributes to the development of the patent or the products it is used in. Alternatively for group companies, the company must demonstrate that it is involved in the active management of the patent if it has not been involved in the development of the patent itself.

Calculating the Tax

The profits which can be taxed at the reduced rate are the profits associated to the income of the patented product less statutory deductions for routine and marketing activities.

Qualifying income includes sales of patented products, sales of products with patented components (regardless of how small the component may be) or licence fee income derived from a patent.

Patent box applies to profits arising to new and existing patents from 1 April 2013 and are taxed at a reduced rate which falls to 10% by 2017, much lower than the headline rate of 23% or 20% rate for small companies.

If your company holds any patents or if you have not yet considered registering a patent and would like to discuss how you may qualify for the patent box regime, please contact Clare Vaughan on 01872 271655 or clare.vaughan@kelsallsteele.co.uk.