The rising of cloud technology has replaced a lot of labour intensive work. The old way of accounting, which focuses only on number crunching tasks, is going to be replaced by technology. But the new breed of accounting profession will look to interest their clients with the cause and prevention of high tax bills.
Most of us might have been through some sort of technology change over the last couple of years. The digital accounting systems that used to cost thousands of pounds are now replaced by cloud accounting in as little as £20 per month. You do not need to install it onto your PC or on a laptop. You simply have a login and are able to look at your financial information. As it is cloud based, it is easy to sync it with your bank statements which will allow you to have direct bank feeds. All of these things have replaced a lot of labour-intensive work.
Entry-less Receipt Processing (e.g. Receipt Bank)
When it comes to accounting, in the past 5 to 10 years it has involved a tremendous amount of paperwork. Nowadays there are systems and apps like Receipt Bank that can help with the workload. Receipt Bank allows you to take a picture within the app on your smartphone and import it straight to the system. It also enables you to export it as an excel document from there. You do not have to input the name, category and amount as the system does that for you. It extracts the information and saves it as a draft, which you can approve eventually.
It is very handy as you do not have to keep the paper receipts once you have taken a picture of them as it is stored in the cloud. There is a study that shows that keeping physical copies of receipts is not good for your health as the ink on the receipts have a certain type of chemical in them. Receipt Bank not only saves you time and makes things easier, it benefits your health too. When you are digitally storing information, you must always keep in mind cyber security and data protection but in general accounting systems do have a certain level of security that they aim to maintain.
Benefits of Cloud Accounting
- Most clients nowadays prefer to provide information via cloud accounting especially when it comes to bank statements. This is a benefit as you do not need as much space or storage as before. If some clients do send some paperwork, you can just store it temporarily and scan the document to store it in a cloud then send it back to the client.
- Less space required and less storage means you do not need to spend much money hiring somewhere big. You can hire an open office and are able to still get the job done.
What System Should You Use If You Are Self-Employed?
When you become self-employed or start your own company you have to take care of your own tax and self-assess your accounts and your tax bill. This means you would need to keep track of how much profit you have made and keep track of your expenses so that you can run your business properly. Most people nowadays do own their own laptops or have access to one, it is very easy to pull out a spreadsheet to total all income and keep a note of all the receipts in order to categorise them etc.
Microsoft Excel is cheap and very easy to use, it is quite straightforward but the downside of it is that when you need to put out a report, it can be quite time-consuming as you would need to key in all the words and dates into the spreadsheet. Another downside of Excel is that if you have inputted data into the spreadsheet, anyone else can edit it and input other data which can eventually create errors and can be hard to track. With cloud technology, you can view what has been changed and can track who has edited it which makes things clear. You can always find out the root of a single mistake and are able to correct it.
There are several cloud technologies that you can use such as:
Always go for the providers that are bigger, popular and have more recommendations because the smaller ones might end up being merged by the bigger providers.
When Is the Right Time to Start Using Bigger Providers Instead of Spreadsheet?
Spreadsheet is very straightforward to use, if you really want to keep track of your businesses it is more ideal to set up the company on a proper accounting system especially if you are planning for the business to grow. If you do not have a lot of transactions then you can take the time to get familiar with the accounting system. If you have a lot of transactions, you can outsource but you need to make sure you do have the knowledge and the wellness to know what is going on. If you are really serious about your business then it is important to have a proper system set up from day one.
There are people previously on desktop systems such as Sage and would like to transition. You can use a third-party system called Move My Books and you can take the Sage backup and use it to transition to Xero. It helps because you do not need to stress out too much, of course in the end you would need to double-check everything but if you take the right steps, everything should match perfectly.
Nowadays as long as your bank statements are synchronised with your accounting system and most things are automated then you are able to submit important information to HMRC or Companies House. All you or your accountant would need to do is just tweak the figures and then you are able to submit it which is less time-consuming. If you are doing your bookkeeping on Xero, you are able to submit your VAT Return straight from there which is very handy. Xero also allows you to customise your reports just to show you the numbers that really matter to the business. Just because a lot of the work that accountants have been doing has been replaced by technology does not mean that it will make all accountants redundant. It just means that is time for the profession to change the way that it delivers its service.
If Cloud Technology Replaced A Lot of Accountant’s Work, How Will That Change the Way Accountancy Services Are Delivered?
The idea is that cloud technology will automate most of the accounts and tax preparation work, the new breed of accountancy profession will focus more on caring about clients’ needs, help them ease their tension around cash flow problems and pay the right amount of tax through their proactive advisory services. Certainly, a cloud accounting system will make your life much easier. It also makes the accountants life much easier too and that means you can expect slightly reduced accountancy fees when you operate your business on a cloud accounting system.
What it really means is accountants need to change. They will no longer be paid for just adding up the numbers. Technology will do that. Instead, the accountant for the future will interest their clients in the care of their financial health, in tax saving, and in the cause and prevention of cash flow problems. Some accountants will make that change. Some won’t. Either way, it is a good thing for business owners.
If you find this content useful, we do provide tailored professional advice on your personal or business tax matters. If you are interested, please direct message the author of this article so we can arrange a chat.
In this article, we will discuss doctors of the future and how technology can change the way we deliver healthcare in the UK. Dr Ali, the founder of the app DocNoc, has taken some time to sit with Hannah Xu to talk about the business and how the idea was formed.
Dr Ali has been a qualified doctor since 2002 and has been working with the NHS since 2005. He has worked mainly in general surgery and now doing some accident and emergency work as well as working on the app DocNoc.
What is DocNoc?
DocNoc is a new app focusing on how to practice medicine. The idea of DocNoc formed from working for the NHS. Dr Ali had started to notice that there was an increased demand on services and there is a lack of resources to meet this demand. This demand created a group of patients which are not very ill and do not need emergency care. These patients that fall between these two groups are mainly the patients that struggle the most. The reason being is not because the NHS is not good, it is because there is a lack of resources which creates delay in the services.
When you have a health concern and there is a delay in finding out what is wrong, it creates a sense of anxiety. This anxiety leads to other problems in personal lives and work. These group of patients will keep asking and demanding the quickest and easiest access to healthcare. With technology continuously evolving, digital health is booming and you can get anything on-demand nowadays. That is how DocNoc was formed, you can use digital technology to ease access to healthcare and you can do that by giving patients the choice to see a doctor the way that they want to see a doctor. At the same time, the app gives doctors the flexibility to work.
How Does It Work?
There are 3 ways you can see a doctor nowadays. You can either go to a clinic, you can ask them to see you at home or you can have a video consultation. The founders of DocNoc wanted to put all the services onto one platform so that patients can choose what service they want and what specialty they want to see. There are primary, urgent care, specialist care and mental health care. From the doctor’s side, any doctor can join, doctors in the UK are fit to practice and need to be under the compliance procedure to make sure all the doctors are fit on the platform. Doctors can work any time they want, they can choose any service they want to provide as well. They can choose to provide a video call, a home visit or a clinic appointment if they have their own private clinic. The doctors are completely independent and are in charge of their fees and their time/services.
Doctors Affected by IR35
A lot of doctors are affected by IR35 since April 2017 if they are working for NHS hospitals. But with DocNoc, Doctors are in charge of their rates and working schedules. Their operation will be more like a ‘virtual private practice’ thus is allowed to operate via a limited company.
However, it is advisable to seek for professional advice before deciding whether or not to set up a limited company.
Is DocNoc Competing with the NHS?
DocNoc is not competing with the NHS, there is a need and with this app they are trying to respond to that need. There is a need there because there is a lack of resources for the NHS and there is an increased demand. DocNoc are trying to compliment the NHS, they believe any patients that can be seen through the platform provided can relieve a bit of pressure off of the NHS. For the future, DocNoc want to develop a whole system that operates digitally and where they can actually introduce it to the NHS to improve access and the flow of patients.
What is DocNoc’s Vision for The Future?
DocNoc want to provide patients with a realistic service, a type of service that takes the patients through a journey to better health. This includes initial consultations with a doctor and any steps before that which include preventative medicine, patients looking after themselves and monitoring their own health. DocNoc aims to enable patients to have investigations done within the community and to relieve pressure from hospitals. They strongly believe that if they can achieve that then things can change dramatically in the way healthcare is delivered because of the main problems is communication between patients in the community and their doctors.
How Can Doctors Stand-out by Using This Platform?
Doctors in the UK are one of the best in the world, not only clinically but also in terms of their commitments to patient care. Unfortunately, there is a sense of burnout as well in the NHS among doctor’s due to poor resources, they feel overworked and underappreciated. What DocNoc offers to doctors is an opportunity to be in charge of how they want to deliver medicine using available digital technology. Doctors can choose when they want to work, what service they want to provide, they can set their own fees and organise their own work. This holistic system will make sure that the actual service that is delivered is a good service and a good quality of care is delivered to patients which is DocNoc’s priority from the doctor’s side and the patients side. It is always important to remember that a happy and healthy doctor will deliver better care than a doctor that is unhappy.
DocNoc are currently nominated for 3 awards which includes entrepreneur of the year, diverse medic of the year and health-tech of the year!
If you find this content useful, we do provide tailored professional advice on your personal or business tax matters. If you are interested, please direct message the author of this article so we can arrange a chat.
Do you know that you can pay less tax by making more environmentally friendly choices? The government has put forward a few tax incentives for taxpayers to choose to go green. These tax incentives include tax breaks for choosing low emission cars, the cycle to work scheme, etc. This article will also cover how the Government has made the tax system more helpful for our environment and human health.
Low Emission Cars for Employees
The lower the CO2 (carbon dioxide) emission level, the lower the tax charge on the company care benefit.
If you hire an employee and provide them a company car, it will be used for both business and personal use. The employee will be due an income tax charge on the personal use of the car.
If you are providing a high-emission car, it is not beneficial for you because the employee gets a higher tax charge. But if you provide a low-emission car or an electric car, where the carbon dioxide emissions are under 75g per kilometre, the employee will get less tax charge. If you are the director of the company, the same rule will apply to you.
Low Emission Car for Business Tax Benefit
When you buy a company asset you can get tax relief by claiming capital allowance. In most cases, you may not receive the full amount of capital allowance if you purchase a business car. For example, purchasing a car for £20,000, during the first year you can only write down 18% of the value of the car as capital allowance. On the other hand, if you do purchase a low-emission car with a higher cost, you will get 100% of the capital allowance (i.e. First Year Allowance) during the year you purchased the car.
Fuel Scale Charge
This applies to you if you are a VAT registered business. You might be able to reclaim the VAT you paid whenever you have purchased fuel on your business journey. But due to the personal element use of the car, the Government put a ‘reverse VAT charge’ to restrict you from reclaiming the full amount of the VAT on the fuel costs. This is called Fuel Scale Charge and the level of charge depends on the CO2 emission of the car.
For example, if you have spent on fuel this quarter and the total VAT paid is £200, and the CO2 emission of the car is 120g/km, you will only get £140 fuel scale charge. This means you can reclaim the difference which is £60 and that is what you will get back from the government.
If your car has higher emissions, then the charge will be higher. If the fuel scale charge is £393 (CO2 emission is 190g/kg) then you need to pay back an extra £193. The government wants people to use low-emission cars, so it is a tax incentive.
Cycle to Work Scheme
The government has also introduced another tax incentive that is called the Cycle to Work Scheme. This enables you to provide to your employees a certain amount of bicycle vouchers per year, which is tax free, to encourage them to cycle to work instead of driving or using public transport. This means you are encouraging your employees to live a more active lifestyle and effectively when people drive less then there will be less carbon dioxide emissions which is more environmentally friendly.
How the Tax System Can Be More Helpful for Our Environment and Human Health – here are a few thoughts
- Levying more tax on animal products
51% or more of the global greenhouse-gas emissions are caused by animal agriculture.
At the moment, there is 0% rate VAT on raw food such as meat, fish, vegetables and fruit which are fit for human consumption. When we consume food that is in its raw form we believe it is good which is true but it is causing more and more pollution. As farmers want to produce a lot of meat, they mass produce the meat by mass feeding the livestock. Effectively, the more animals you produce will produce more carbon dioxide. There are certain animals where once they produce gas, it is 25 times more powerful than carbon dioxide.
When farmers are producing meat, they will require more land, energy and water. As they are taking up a lot of land, when the animals produce a lot of waste it is not good for the land as well. Fish farming is also very commercialised and it creates a lot of pollution in the ocean. The fish are fed different nutrients but it is not as nutritious as before and it is destroying the oceans system.
- Making all processed and unhealthy foods all VAT-able
Most people know processed food is not good for our health, but not all processed food is levied on VAT. For example, ready to eat meals are 0% rated. Microwave meals are not good for our health, the plastic packaging is not good for the environment and in order to preserve the food more oil is added to the food.
The government should encourage people to be environmentally friendly and encourage people to consume more raw vegetables rather than meat. Consuming raw vegetables and fruit is better for our health as we need most of the nutrients from them. The government could also think of more tax incentives to encourage people to be healthier.
If you find this content useful, we do provide tailored professional advice on your personal or business tax matters. If you are interested, please direct message the author of this article so we can arrange a chat.
What to do if the business is making a loss? This is a guidance on how to use business losses to offset other taxable income to save tax. There are slightly different rules between incurring losses as a sole trader and as a company. And there are rule changes for corporation tax loss which was brought forward from April 2017.
Business Losses as a Sole Trader
If you are in transition from being employed to a business owner, you might have a salary job to make sure you have the sufficient financial support as well as building your business on the side at the same time. If your side business is making a loss but you have a full-time/part-time job and tax is being deducted before you get paid, you can use your business loss to offset your salaried income. This enables you to get some tax back.
You can even decide how much loss you want to offset for the current year and carry back some to the previous year so that your personal allowance (currently £11,000) will not be wasted. For example, if you currently earn £10,000 which is under the tax-free threshold for personal tax, then you have a business that is making £2,000 loss, if you are offsetting the current year there is no benefit to you, as your first £11,000 income is tax-free anyway. However, if your previous year’s income is £30,000 and you paid tax on it then you can use that £2,000 to offset previous years which allows you to get some tax back. If you do not have anything to offset to the previous or current year then you can carry forward and if it becomes profitable in the second year you are able to offset the second year’s profit. Either way, you can always get some tax relief from your losses.
The income related to a sole trader includes capital gain. If you do have capital gain, there is an allowance of roughly £11,000 per year. When you use the allowance to offset capital gain, you need to make sure you do not waste the annual allowance. For you as a person, you have a tax-free allowance for both income tax as well as your capital gain.
Business Losses as a Ltd Company
A limited company is a separate person than you. If the company is making a loss, the loss cannot be used to offset your personal income. This is one of the reasons why people find it beneficial to first set up their business as a sole trader.
A limited company does not have any allowance. If you do incur loss but at the same time the company is running two different kinds of business activities where one is profitable and one is making a loss. You are able to use the current year loss to offset other income; this includes the interest from your business savings.
If there is nothing else left for you to offset, you need to consider carrying it back to the previous year. If you do have a trading history and you were making some profits before then you can carry it back to the previous year to offset that. Once you make a declaration on the corporation tax, you will get a tax refund from the government. The remaining unused losses will be brought forward for the future years.
If you are in your final year of trading and have some losses, you can use that loss to offset your previous 3 years profits then you will get some tax back that you have paid.
Corporation Tax Losses Rule Change Post April 2017
- If the losses are incurred before April 2017, you can only use it to offset the future profit of the same trade.
- If the losses are incurred after April 2017, you can use it to offset any profits. But the trade-off is that for carry forward losses, companies will be able only to use the losses to offset against up to 50% of the profit. Each company will be entitled to £5 million annual allowance. That means most small businesses will not be affected.
The Best Order to Consider Loss Relief to Get the Tax Relief Quicker
- Offset current year first – so that you get immediate tax relief from current year
- Carry back to previous years – so that you get tax refund from previous year’s taxed that you’ve already paid
- Bring forward to the future years – so you get tax relief if your business is profitable the next year
For sole traders, always remember to consider your tax-free allowances when utilising the losses, so that you can make sure your tax-free allowance won’t be wasted and you can maximise the tax relief you are entitled.
‘Health is the Ultimate Wealth!’
It costs the NHS more than £11 billion a year to treat the diseases that are related to poor lifestyle choices! (Public Health England)
When we are thriving to build wealth, it is easy to forget that ‘Health is the Ultimate Wealth!’
However, the good news is, most of the chronic diseases can be prevented by healthy lifestyle choices. When you are healthier, as a medical professional, you are more productive at work, have more positive energy that can impact other people’s lives, and help more people be healthier and happier.
You are good enough to look after your health no matter what profession you are in as long as you prioritise it.
Tips to Prioritise Your Health and Plan Effectively
- Prepare Your Meals in Advance – Instead of cooking every day you could try to cook your food in bulk. This can be handy if you are a busy professional. It will enable you to fit in a quick and easy meal within your busy lifestyle and save you money. You will also be able to control what is going into that meal. There are a lot of healthy alternative food options out there that you can use to help.
- Scheduling and Planning – You can try to do something health-related as soon as you get out of bed. This will allow you to create a morning routine that you will eventually get used to and once you are, it will become a part of your lifestyle naturally.
- Preparing for Your Morning Routine – The first thing that you need to take into account is that your health starts with your mind. If your mind is not in a healthy place in the morning then it is really difficult to pick that up later on in the day. For example, if the first thing you do when you wake up is go through social media, whatever you may see whether it be positive or negative, it will stay in your mind the whole day.
Having a routine that takes you away from that is very important. Once your alarm goes off in the morning you could try to not check your notifications but instead, take some time to yourself. You could spend some time writing down things that you are really grateful for. This will instantly put you in a positive frame of mind as soon as you wake up because it is making you think about things that are making you happy.
You can then write down some things about affirmations. Affirmations are statements that you say to yourself that help you believe them. For example, if you are working towards your weight goal and you want to be healthier, you will write down, ‘I’m so grateful and happy that I can now fit into that dress.’
Lastly, you can then write down your intentions for the day. It is better to keep them basic so that you do not disappoint yourself. It could be anything small such as calling a family member on the day or messaging a friend. Fitting in a workout or exercise routine within this will also help. It is important to remember to always reward yourself consistently.
Creating a Lasting Habit and Sticking to It
This is something that a lot of people struggle with. It will always feel really unnatural when you first start off because it is not a habit just yet as you are not used to doing it. However, if you keep pushing yourself then you will overcome the hardest bit and afterwards everything will start to become more natural for you.
Once you have an everyday routine you will find it will be very difficult to go back to how you were. An important tip to take into account is to be prepared for the growing pains. If you can handle the difficult stages then things will pick up for you and everything will become easier. It is fine to challenge yourself because if you do not do this you will not grow as a person.
Healthy Snacks Ideas
- Protein Ice Cream – The ingredients you need to use to make this is yoghurt, ice cubes, soy protein and then all you have to do is blend it then put it in the freezer for about 10 minutes.
- A healthy alternative to KFC – All you need to do is get some chicken breasts, marinate them, add seasoning, crush up some cornflakes and roll the chicken breasts in them to coat it. You will then need to bake it.
Finally, why am I talking about this? Imagine more people start looking after their health, the costs of treating those diseases can decrease, so free up more money to invest in disease prevention, doctors’ welfare so they can be healthier first then look after more people, or even other things to enhance people’s lifestyle.
This is written just out of passion, if you have any thoughts or feedback on this topic, we’d love to hear from you.
‘Shall I buy a car under a company or personal name?’
There have been a lot of questions around personal cars vs company cars, when you are a running a limited company. It is important to be aware of the different things to consider as in the end there are a number of tax consequences when you purchase a car under a company’s name. If you are a company director you have a choice on whether it is worth it to purchase a car under the company’s name or have it under personal name but only claim the mileage through the business use.
What You Need to Consider
- You need to be aware of the tax implications. When you buy a car under your name and for business purposes, you are only allowed to claim tax deductions it when you are traveling from your office to a client. This is due to it being a business journey that is necessary for you to do your job.
- If you buy a car under a company, then that car belongs to the company and the company does get some tax relief on the corporation tax. However, it is important to note that for the company, they cannot always deduct 100% of the cost of the car.
- If you buy a car under a company but also use it for personal reasons, then the use of company car becomes a benefit, so you do need to pay personal tax on it.
Tax Implications Explained
If you buy a car under a company then there are dual tax implications. The company does have tax relief, but as a director (who is treated as one employee) you do have to pay tax on the personal use of that car. You are able to pay some money for the personal use which will effectively reduce your personal tax, but it is still something that you need to pay out of your pocket when evaluating the cash flow.
You need to make sure you consider whether the benefit of corporation tax outweighs the personal tax liability. For instance (based on the Illustration 1 below), if you get £820.80 as company tax relief but you have to pay personal tax at £1,104, as you have a £283.20 loss, in this case it is not worth it to put the car under the company’s name.
It might be better to put the car in your personal name and just claim the mileage. When you do record the mileage, for the first 10,000 miles you can claim 45p per mile, which you can reimburse yourself from your company. Anything above 10,000 miles is 25p per mile. For most contractors/locum doctors, it probably is better for you to put the car under your personal name and claim the mileage.
Is It Better to Lease the Car or Purchase the Car?
- When you are leasing a car, you are entering a long term monthly rental agreement. You are able to claim the tax relief on the lease payment you made. If you are VAT registered, you are able to claim the VAT paid on the lease payment but that is restricted to 50% of the VAT. It can be a better option for you if it is better for your cash flow, and you are not interested to own the car at the end of the lease.
- If you buy a car and it is under your company’s name (that included a hire purchase agreement, i.e. the kind of lease that you will own the car at the end of the lease), then the company does get tax relief but you need to consider the tax implications stated above.
Carbon Dioxide (CO2) Emissions
At the moment, the government has been encouraging low emission and electric cars. The lower the carbon dioxide emission is the more tax beneficial it is. If you have a very low emission car or electric car, it is likely that from the corporation tax point of view you will get 100% capital allowance on the year it was purchased (with CO2 emission lower than 75g/km). If the carbon dioxide emission from your car is around 100g-120g per Km (which has been shown on average cases), then you can only claim 18% of the cost of the car towards corporation tax.
For personal use, if you have a very low emission car or electric car, you only get personal tax charge based on 9% (7% in 2016-17) of the ‘cost’ (list price) of the car. This may be more beneficial for you if this is the case as it does not incur much personal tax liability and you get corporation tax relief based on 100% of the cost of the car.
It is important to note that if you have a very low emission car or electric car, it may be to your advantage to put it through the company. As you do not have much personal tax charge, but from the company tax point of view you get tax relief of 100% of the cost of the car.
Steps You Need to Remember to Consider
- The dual tax implications.
- Would it benefit the cash flow or is it cost effective? Would it be cheaper for you to lease the car or buy the car?
- Carbon dioxide emission levels in comparison to the personal tax charge or corporation tax relief.
Travel and subsistence is a very simple expense but there is a lot to say about it. We will look at this in further detail and explain when you cannot claim this expense and when you can. There are also some tricks if you are running your own business to make the travel tax deductible.
When You Can and Cannot Claim Travel and Subsistence
- If you are an employee or business owner and you have an office, the regular commute from home to office every day is not allowed to be claimed. This is due to it being your normal commute so it is seen as a personal travel expense.
- If you travel from your office to a client’s site temporarily or if you have to travel to another city to stay overnight then these types of travel are seen as business journeys. This means you are allowed to claim the expenses.
Temporary Workplace Vs. Permanent Workplace
There are many different scenarios that need to be taken into consideration when deciding on whether you can claim the expenses or not. They are mainly linked to whether they are a temporary workplace or permanent workplace. If you are an employee/self-employed and travel from home to one place or your primary office base is from home but you do have client’s you travel to regularly, the journey will only be allowable if it is from your primary workplace to your temporary workplace.
- A very simple rule to remember is that when you do travel to the temporary workplace if it has been ongoing for longer than 24 months it might be considered as a permanent workplace. If it is less than 24 months, it will be seen as a temporary workplace.
For example, if you are a self-employed contractor and have been working for a client for 6 months, it will be classed as a temporary workplace. However, if you have been working for them for 3 years and even if they are paying you to your limited company, it is still considered as a permanent workplace so you cannot claim that.
- Another rule to remember is that it has to be less than 40% of your working time. (Less than 24 months)
If you run a self-employed consulting business for 3 years but you have had a contract for 6 months which is less than 40%, this means it is still a temporary workplace. Even if it is less than 40% and you have been travelling back and forth for a client for more than 24 months, it cannot be temporary so cannot be claimed.
If you are a trainee doctor what might happen is that you will be on rotation and work at a hospital for a couple of months but perhaps you are on an essential single contract. If this is the case, your payslip will show that you are being paid differently but in reality, they are all linked to each other. As you have only been working there for a couple of months and it is less than 24 months, it is considered as a temporary workplace. If you are a qualified locum doctor and are self-employed/running a limited company, this rule will also apply to you.
Travelling to Another City and Staying Overnight
For example, if you are based in London but need to travel to Manchester and stay overnight just for work, then you are allowed to claim this. It is important to record your business journey because you will be claiming mileage and if you travel by public transport, you need to make sure you have the receipts with you.
If you do stay overnight, you are allowed to claim your food and accommodation because they are both necessary for work. When it comes to claiming food, there is another rule that needs to be taken into consideration:
- If you are working somewhere that is more than 5 miles from your normal workplace and you have to work there for more than 5 hours then you are able to claim subsistence.
There may be another scenario where entertainment and food can be claimed. This may happen if you have to go networking as part of your business. The food expenses are incurred as part of your networking to find prospects as part of your marketing. As long as you clearly state it is necessary for your business to go networking in order to meet a lot of people in order to get more business. If the food and entertainment are for your staff it will be part of your payroll costs so for your business tax purpose it is allowed as well.
How to Make Your Travel Overseas Tax Deductible
Going on holiday can be tax deductible but not if it is for personal enjoyment. However, if you are going to a location to expand your business and do some market research, or are going to find some networking events to find some potential prospects then it can be considered as a business expense.
Are you tired of working long hours to fund your tax bill?
There are a lot of people who may feel as though they would need to work more shifts in order to fund their next tax bill, this is a short-term solution but it is tiring as well. When you are working seven days a week for a month you will have an income surge and cash flow wise you will have a lot of cash coming in. On the other hand, your incurred tax liability from that particular month will be high which means that it will be added to your future tax bill. It is best to not be in this position because you will be going around in circles and you will end up working forever for the taxman.
But the upcoming new changes may help you stay on top of your money and predict your tax bills in time, so that ‘working for the taxman’ may become unnecessary!
The new movement is called ‘Making Tax Digital’.
What is ‘Making Tax Digital’?
It is the new quarterly reporting requirement that will be coming into play from April 2018, and most of the self-employed individuals and landlords will start the duty from that time. Previously, if you were self-employed and running a business you would file a tax return once a year. However, with the new changes taking place you are required to report the tax on a quarterly basis. This does not mean you have to pay tax every quarter, it is only a process to enable you to update your records on a quarterly basis. From the government’s point of view, they are looking to close the tax gap and by doing this they will have an idea of how much you are going to pay to them.
The Benefit of Making Tax Digital
Making Tax Digital should not be seen as a negative change that only benefits the government. There are a few positive outcomes from this change such as:
- Prediction of Tax Liability – It will allow you to have a prediction of your tax liability so that you can pay the liability by the deadline set and make sure you meet your payment deadline.
- No Errors or Omissions – It makes sure you do not end up having errors or having any omissions on your tax calculation.
- Enable You to Update Your Records – If you are keeping your records up-to-date on a quarterly basis instead of 9 months after your year end, you will have the prediction on your tax bill. This will allow you to put money aside which will enable you to meet the payment deadline. You will pay the tax easily and you do not have to end up working so many hours to make up this tax bill.
The government has set a timeline for all the changes to take place:
- April 2018 – If you are self-employed or a landlord and are earning over the VAT threshold, which is £85,000 for the year, it is likely that you have to prepare for the changes. You will start to do the quarterly reporting from April 2018 so it is worth paying attention to it.
- April 2019 – If you are earning under the VAT threshold, the changes do not apply to you until April 2019. If you are VAT registered the same will apply but the changes should not make much difference to you as you file a VAT return quarterly already.
- April 2020 – By April 2020, everyone including limited companies, will be taking part in the quarterly tax reporting.
Exemption: Businesses, self-employed individuals and landlords with turnover under £10,000 are exempt from this duty.
What You Need to Do
- Check your Timeline – The first step you need to take is to check your timeline so that you can prepare for the quarterly tax reporting.
- Keep your Records Up to Date – The second step is to look at your current record-keeping and if you are keeping your records up-to-date regularly. Most people that are self-employed are currently doing their 16/17 tax return, it is best to get that out of the way as soon as possible and once it is done you would need to update your records.
- Consider the Best Record Keeping System for You – If you are using spreadsheets at the moment you can continue to use it as a record keeping system as long as you continuously update it quarterly. There are some online cloud-based software that you can also use that are very inexpensive and easy to use. It is automated as well so it can include your bank transactions which can simplify the process for you. An example of suppliers are Xero or QuickBooks, they are both good and are worth looking out for.
There are more medical professional clients who are looking to start property investment. It is important to be aware of the tax implications when you rent out a property and how different it is tax-wise when you rent it out. This is a guidance focusing on when you do not have to declare rental income in your tax return, buy-to-let tax changes and options to mitigate the tax impact.
Note – Please be aware that this article focuses only on tax legislations around properties. However, if you are looking for full property investment strategy, further specialist advice may be required.
Non-declarable Rental Income
If you are starting out or if you are a home owner and are renting out a spare room to earn extra cash, there are three types of scenarios where you do not have to declare your income such as:
- Rental Income Less Than £1,000 For the Year – If you are just starting out and only have £1,000 from the rental income for the year then you do not have to declare the income.
- Rent Out A spare-room for less than £7,500 for the year – If your earning collected for the year is less than £7,500, you do not have to declare it in your tax return.
- Property fund investment held in ISA – ISA is a tax-free environment, they are investments that you can choose from such as property funds. If you are earning income from an investment ISA then it is tax-free so you do not need to pay tax. It is important to speak to a financial adviser about ISA and investment.
In the past, there have been a few scenarios where there are people who rent out a property but do not fill in a self-assessment or declare the tax and eventually the tax man finds them. It is essential that you do fill in a tax return if you do rent out a property or for any other reason other than the three conditions mentioned in order to avoid being in the same situation.
Buy-to-Let Tax Change
From 17/18, if you have a buy-to-let property and are paying mortgage on it, the government starts to restrict the tax relief on the mortgage interest. Such mortgage interest relief will be cancelled completely by 2020-21. Mortgage interest can be the biggest expense currently for buy-to-let landlords. If the government do decide to cancel this tax relief it can be a significant impact.
An example of this is if you are a basic rate taxpayer, you earn around £25,000 and have a lease rental property which collects around £50,000 for the year. The mortgage interest would be £30,000 and other expenses are £10,000. This means that you will have £10,000 profit, in 17/18 you are able to claim 75% of it but until 2020/2021 the interest relief will be completely removed. The impact is that you will have up to 50% of what you have now. In this case, after tax and before the tax change, you will have £8,000 in your pocket. But in 2020/2021, you will only have £4,000. (Graph 1)
If you are a high rate taxpayer and earn £50,000, it will have an immediate impact on you. From this year you will have around £1,500 less but eventually in 2020/2021, the impact will be significant. (Graph 2)
Options to Mitigate the Impact
- Rental Loss Relief – If you have recently had a property loss, you can carry forward the loss to offset your profits. This approach is the cheapest and most straightforward strategy for you to mitigate your tax.
- Spouse Transfer – If you are married and the buy-to-let is under your name only, you might be able to consider having a shared ownership. This can apply to situations where if your spouse is not working or they are earning at a basic rate tax band. When you share the ownership, his/her share of that property profit will be reported by the lower tax bracket. This will help you to save tax.
- Re-invest in Commercial Properties or Furnished Holiday Lettings (Airbnb) – You can still claim the full mortgage interest relief if you invest in commercial properties or furnished holiday lettings. However, only take this approach if you are fully committed to do it and it is your own strategy. There are different mind-sets between having a property and collecting the rent compared to holiday lettings. This is due to constantly having to advertise your property and it is like a business, it involves a lot of work.
- Forming a Limited Company – Forming a limited company will protect you from the impact of the mortgage interest relief restriction. Corporation tax at the moment is only 19%, this is a huge tax advantage. You can also take further advantage if you have your spouse or family member become a shareholder of your company which will allow you to share the company income as well.
However, if you are running a very profitable property management business, the dividend tax is not as good as before which needs to be considered. When it comes to forming a company, when people consider transferring the assets into the company, if they do not do it considerably there is a capital gain tax implication. Another downside is if the properties are held in the company, the mortgage options are very limited. There are also more administration burdens such as; filing company accounts and company tax return. You may also need to run the payroll when you need to hire someone to manage the property business for you.
What is National Insurance and What is it Used For?
National Insurance is one of the payroll deductions and a majority of people do have to face it at some degree. National Insurance is used to fund state benefits such as; state pension, maternity allowance and unemployment allowance. These deductions are indirectly benefiting you or benefiting you for the long-term.
Who Needs to Pay National Insurance?
Employee – For employees, the payroll deduction will be class 1 National Insurance.
Self-Employed – There will be two kinds of National Insurance that you would need to pay when you are making a profit, the first is class 2 and the other is class 4.
Business Owners –As a business owner who has employees working for you need to take care of class 1 as well as the class 1 secondary contribution (i.e. employer’s contribution, which is paid on top of your employees’ gross salary).
Investors – Investment income like stocks and shares, dividend income, when you sell assets or if you rent a home do not trigger any National Insurance. However, if you run a property management business as a sole trader, class 2 and 4 National Insurance may apply to you.
Different Classes of National Insurance and Rates
- Class 1 – As an employee, if you are earning above that then it is 12% till you earn up to £45,000 but after £45,000 it is only 2%. When your earning goes up, the rates go down. When you have multiple jobs, you need to watch out for your overall earning and if it is more than £45,000. If each job is under £45,000 and everything collected is at 12% then you may have overpaid National Insurance so you do need to watch out for that. Currently, if you are earning less than £8,164 you do not have to pay National Insurance.
- Class 2 – This is a flat rate contribution, which means that it is £2.85 on a weekly basis. As a self-employed individual, you do need to declare your income through self-assessment, which is also known as a personal tax return. On your tax return, you will have the tax and the National Insurance, which you will have to pay. If your profit is less than £6,025 then you probably will not have to pay class 2 or class 4.
- Class 3 – This is a voluntary contribution. For instance, if you do not pay National Insurance or if you are an investor and you want to contribute for your state pension then you can voluntarily choose to pay as class 3.
- Class 4 – This has the same threshold as class 1. Between £8,164 and £45,000 it is 9% and above £45,000 it is 2%. It is collected based on the profit you make. It is important to note that in the future the government may abolish class 2 but if that is the case they may increase the class 4 rate.
Special Attention for Small Business Owners
If you decide to incorporate and are a one-man band company, then decide to take salary from the company, if you are taking more than £8,164 a year then you have to have the main class 1 contribution as well as secondary contribution. Secondary contribution is 13.8% which is paid on top of your gross pay.
- Director’s National Insurance – The way director’s pay National Insurance is different to their employees. If you are a normal employee your National Insurance is calculated on a monthly basis but as a director it is calculated on a cumulative basis. For example, if you take £1,000 in month 1, as it is under £8,164 there are no deductions but towards the end of the tax year your accumulative salary is above £8,164 so you start to have more deductions.
- Employers Allowance – Most small businesses qualify for approximately £3,000 per year for employer’s allowance. This amount can be deducted from the secondary national insurance. If the government is giving you a £3,000 exemption, you are able to save up to £3,000 a year. If you are a director-only company, unfortunately this does not apply to you, but if you are a small business then it is very likely you will qualify for it. You can double-check with your payroll bureau or accountant.
There are a lot of fear and stress around the topic of money and tax. I have been working with doctors since 2014 and have also been following the trends about public health. I have seen a lot of articles and stories in the media about doctors being stressed out, constantly overworked or even sadly committing suicide. I feel as though they are supposed to be the ones to look after other people’s health but how can doctors be expected to save more lives, if their own well-beings are not taken care of.
Also in order to stress less and feel good about finances, I do believe there are two parts of financial well-being that need to be looked at. The first part is the inner world, that is the self-worth and the relationship with money. The second part is outside practical guidance. This is the clarity of what’s going on with the own tax bills/finances. There are a variety of professional help out there to give enough practical guidance and look after your taxes. However, there is not enough professional advice on your mindset on money and how you feel about it. Fortunately, today I will be able to bring both of them together as three simple steps in which you can take to get rid of these fears related to your tax bill.
3 Simple Steps
- Own your own financial power
A lot of healthcare professionals say they are not good with money and do not like numbers. In fact, every human being is inherently valuable and you need to believe that you do have whatever it takes to be good with money. You need to have the mindset that you are the only person that can look after yourself. Of course, you will ask for help from an accountant or financial adviser, but eventually you will need these people to work for you and not let them own your power.
Throughout my years of experience, I have noticed that the clients that gain the best results are the ones who are more self-aware. They are aware of the basics of tax, their financial situation and they know who to speak to. This is really important as you are the person who needs to take responsibility of your own finances.
- Money you pay into the system is still YOURS
The tax you pay into the system is still yours because you are the one who added value and you have worked hard to earn this money. The taxman will take their share and you do need to pay your fair share as well. If we look at the bigger picture, the tax is eventually funding our public health and public facilities which are benefitting us.
When you receive a payslip, there are different kinds of deductions. One of them is tax and the other one is called national insurance. National insurance is a social security, these are the money used to fund the state benefits like your state pension. Another example of a state benefit is if you lose your job then you will receive unemployment benefits. If you are pregnant and have stopped working for a while but you are not entitled to any statutory maternity pay, you will get a maternity allowance. This goes to show, the money you pay into the system does benefit you indirectly or in the long-run even if you will not see it immediately.
- Understand the universal rule of tax
To explain this, I usually refer to the Cash Flow Quadrant by Rich Dad Poor Dad:
- Employee – If you are employed, the tax rate is 40% because most working-class people are paying 40% in tax.
- Self-employed – If you are self-employed and run a very profitable self-employed business, you would need to pay approximately 50% of your profit as you pay two kinds of national insurance on top of it. Also, there are different rules such as having to pay half of next year’s tax in advance.
- Business Owner – Currently, if you run a corporation, corporation tax is 19%. The percentage is much lower than people that work as employed or self-employed.
- Investor – If you are an investor, when you have an investment you do have to pay different kinds of tax. This applies when you have dividends or when you sell assets as you will have capital gains tax. On the other hand, if you are a sophisticated investor, you will be aware of how to invest in a tax-efficient way. There are certain types of tax-efficient investments out there. Investing £10,000 in start-ups will enable you to gain £5,000 back from the government which is one of the very generous tax-breaks that investors can get. Perhaps you could put a portfolio in a tax-free environment, which means you will not need to pay any tax. If you save £500 per year, that is £5,000 for 10 years which is an example of how the tax savings amount will build up over time.
Business owners and Investors have more earning potential than employees and self-employed but they are riskier. As an entrepreneur, it is difficult and investments can go down which will lead to you losing money. Effectively, if you look at the whole economy, business owners start businesses because they want to solve people’s problems and they create jobs. This is adding huge value to the economy, as they are giving more people jobs, giving people stability and guarantee a decent life.
Investors are injecting capital into the businesses, if they become successful it will make their dreams come true. They are also adding massive value to the economy. In comparison to employee or self-employed, you are still adding value but you might serve one or two clients in one go, which means the adding value factor is not as repetitive as businesses and investors. Even though they pay less tax but are earning more money, eventually they are adding massive value to the economy which is why the government rewards them with more tax breaks.
P.S. – Do you want to replace your anxiety about taxes with clarity, reassurance and financial well-being? We created an online programme ‘How to prosper as a trainee doctor’ specially to help you get there.
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