Mid-Year Tax Planning – Allowance Maximisation

Have you considered mid-year tax planning so that you can take action in time to maximise your allowances and save tax? Mid-year tax planning is around October and there is less than 6 months till 17/18 tax year ends. A lot of people overlook things during the tax year and do not take action which causes them to not take advantage of available allowances and they receive a high tax bill. We are going to share some tips on what you need to consider at this time of the tax year to make the most of your entitled allowances.

3 Major Allowances You Need to Consider

  1. Pension Contribution – If you are paying tax on the 20% threshold, every £80 you invest in your pension pot, the taxman will top-up £20. It is effectively 25% return of investment. No other investment will give a good return as this and it is relatively stable. Despite your income level, you will always need to consider this type of allowance first. For most small businesses, it has now become an obligation for employers to contribute pension to their employees if they are an eligible worker. This type of contribution is funding your retirement and it is funding your future. Even if you could squeeze around £15 per month to your pension pot, that small amount will build up and eventually will give support your lifestyle when you retire. Currently the annual allowance is £40,000. It will be reduced when your income is over £150k. So consult your financial advisor if you consider investing relatively high amount of it.
  2. ISA Allowance – You might want to consider having some savings which is something that everyone can afford to do. A type of savings account is an ISA that is available at the moment. For 17-18 tax year, you can invest up to £20,000 worth of funds into an ISA. There is a cash ISA available as well as a stocks and shares ISA. The interest and dividends you earn from that particular ISA wrapper is tax-free as well. You do not have to have a lot of money in order to start saving, every small contribution counts. In reality, cash ISA can be very useful for when you are considering some emergency funds. It is easily accessible and the interest in it is tax-free.
  3. Venture Capital Trust – This allowance does require more amount of money and is relatively high-risk but the reward is really good. Every £10,000 you invest in a VCT, you receive £3,000 as a tax relief which means you get cash back from the government. It is a government scheme and the money goes towards UK start-up companies. It is a government incentive to encourage people to invest in UK businesses because these are the type of businesses that are very ambitious. The government wants to boost the prosperity and wants these companies to grow. Running a business is not always easy, most small business owners will have a brilliant idea but they might need a certain amount of capital which a VCT can provide.

If you can afford to invest then this is something you can consider, especially if you are earning more than £100,000 as an employee. This can help to reduce tax bill for someone who cannot form a company to run their business and have to be a sole trader but also earn a significant amount of profit. The downside is that you are investing in a small business and it is not always stable, it can be very risky therefore you would always need to consider your risk profile. If you are interested in investing then do seek for professional advice on this matter as a financial advisor will analyse your risk profile. There are different types of investments out there and it is not a good idea to put all of your money into a VCT so you do need to spread out your investments. This is to ensure that you always have some investments to lean on when one goes wrong. Once you have invested, the money will be tied up for at least 5 years, in order for you to keep the tax relief, which means that if you have some immediate cash needs then this is not an option that you should consider. However, if that is not the case then once the small companies grow and pay dividends, the dividends you receive are tax-free.

Things You Need to Double-Check

There are other situations that are quite common and should not be overlooked. If you are an employee you need to double-check if you have made sure your tax code is correct. For example, if you have a wrong tax code and are earning £70,000 but your tax code is BR this means only 20% can be taken from everything you earn which. This means you are under taxed which is a situation that you would want to avoid so do check your tax code if you are on PAYE.

If you are self-employed and the business has just started to take off, you can consider restructuring and looking out for the tax deductions so you do not miss out on them.

P.S. If you find this content useful, we do provide tailored professional advice on your personal or business tax matters. If you are interested, please book me in via the link so we can arrange a chat: https://hannah-xu.youcanbook.me

How Not to Forget to Pay Yourself

One of the most important factors of building wealth of any kind is to start paying yourself. It does not matter the amount that you pay, even if it is a small amount, the most vital part is that it will accumulate over time. In Tony Robbins, ‘Money Master the Game’, it mentions the power of compounding where it explains that time can actually make a small amount accumulate so that when you get to retirement age you will have a healthy pension retirement fund. It also tells us that it is very important to start paying ourselves no matter what the income level is. Some people may question the fact that they will be living on paycheque by paycheque but the point is that you should not wait until you are earning over a certain amount before you start paying yourself. As long as you are receiving an income, you should pay yourself and then eventually start to think about planning and paying your bills etc.

In this article, we will be breaking the whole process down into a couple of steps in order to make things clear on how you can pay yourself and how you can make the idea of paying yourself more fun and positive.

Be Clear with Your Value and Objective

First of all, in order to not forget to pay yourself you will need to prioritise your needs. You cannot neglect your needs and then think about paying yourself. If you do not know what you need and if you do not prioritise your own needs then it is very hard to make things easy. You need to decide how much you need to pay your bills, groceries etc. You will also need to consider the other aspects that are important to you because if you are living under a certain budget then you cannot have a lot of luxury things. You need to decide on what you value the most. For example, if you value going out that is completely fine but you would need to let go of what is not important in order to fund the parts of your life that are the most important to you. Always know your value, know what you need and be clear on why you need that extra money.

Set Income Goal

After you have decided what you need the extra money for and why, you can start to set an income goal. It does not matter whether you are self-employed or employed, you are always able to set an income goal. If something is really important to you, you will always find the extra money. When people state they cannot afford something what it really shows is that they do not want to do whatever it takes to pay for that or they choose not to buy that. Instead of saying you cannot afford something you should start to ask yourself how can you make it affordable and then set some income goals.

If you are self-employed, you might want to work backwards and figure out how much you need to fulfil your needs and the things you value the most. You are then able to work out your bare minimum and how much you have to earn as a minimum for that particular month in order to support yourself. If you are on a fixed-contract or if you are an employee, you can still set some goals based on how much you actually need in order to support the lifestyle you really want. You might want to consider negotiating a pay rise or sell some unused items from your home to create some income.

Put a % of Income Aside First

Whenever you have a pay cheque, you need to make sure you put a small percentage aside for your long term financial future. You should not wait to pay yourself after you have paid for the expenses and there is a bit of money left over. It will not work this way, you need to make sure you pay yourself first before anything else.

When you have a business, you need to use the same concept. Whenever a customer or client pay you, you need to put aside a small percentage first and then use the rest to pay bills or expenses. If you find out you do not have enough money to fund your expenses it does not mean you have to borrow from yourself, it just means you need to re-think your current strategy. You have to strategize your business to make sure you are making extra income or figure out if there are any expenses that you can save for the time being.

This concept works for personal finance too. If you are an employee, when you receive your net pay, you can put a small percentage into your pension pot. This is a very tax efficient approach because every £80 you pay in; the government will put £20 on top and for a higher rate tax payer the government will top up even more. Paying your pension means you will get 25% return and no other investment can be as good as that.

You can also consider putting money into an ISA which will allow you to earn some tax-free interest. If you have an investment ISA or if you sell the shares then all the dividends you get from your ISA wrapper is tax-free as well.

Tax Efficiency

When you are a business owner, especially a limited company, once you decide how much money you need to fund your lifestyle it is important to go through everything with your tax advisor or accountant. You need to make sure you are extracting money in a tax-efficient way and doing it properly because when you have a limited company you cannot randomly withdraw money. You can either have a salary or dividends but you would need to work out which option is the most tax-efficient. If you have a home-based business, there are certain expenses you can claim as a business expense and you can let your company pay for it. An example of a type of business expense is use of home, which means that if you are working from home a portion of your bills will be paid for by your business.

If you are self-employed, there is no restriction. Whatever you earn, you can use as long as you have sufficient funds to pay all of your expenses as well as your tax bill. There are certain strategies as mentioned that you can use such as pension contribution and the ISA wrapper.

If you are earning really good profit but for some reason you cannot incorporate as a company it is best to consider taking more advanced advice on things like Venture Capital Trust investment which will give you good tax relief as well. Every £10,000 you invest will give you back £3,000. However, please note that this type of investment is very risky as it involves funding start-up businesses and it is likely that they will fail. If they succeed you will get tax-free dividends.

If you are running a profitable business from a limited company, you can think about retaining some money. You do not need to extract the money if you already have enough to fulfil your needs. Business can sometimes slow down, it is always ideal if you have money to have it in a vault account. You can also set up investment funds under the company name in order to keep the cash in there and get some return.

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.

How Cloud Technology Has Changed the Way Accounting Services Are Delivered

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.

Cloud Accounting

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:

  • Xero
  • QuickBooks
  • KashFlow

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.


Doctors of The Future – Changing The Way Healthcare is Delivered in The UK

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.

Tax Breaks for Going Green

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

  1. 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.

  1. 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.