What’s New on Public Sector IR35 2017-18?

A lot of doctors are working with the NHS as a locum doctor and IR35 has become a big issue to most doctors. It is nearly the anniversary of the public sector IR35 rule that kicked-in from April 17. Here we have provided the updated guidelines on the tax implications if you are inside IR35 and being paid to your Ltd company, the expenses claims and considerations of closing down a company.

Tax Treatment When You Are Inside IR35 and Being Paid to Ltd Company

A lot of locum doctors were deemed inside IR35, they still have active limited companies and being paid to the company bank account, but after tax/NI deducted as an employee. This caused a lot of confusion when it comes to corporation tax and income tax. And most importantly how one can avoid being taxed twice for the same income.

As the income inside IR35 were still technically ‘employment income’, you would declare this income under Self-Assessment, but you may not have additional tax liability on this income as taxes were already deducted.

When it comes to Ltd company corporation tax, the same gross income should be treated as the ‘revenue’ for the company. But equally, the same gross amount will be taken out as ‘director’s salary’ so that the income will not be taxed under corporation tax.

For example, Dr Rebecca being paid £6,000 gross per month, the tax/NI deducted was appx £1,500. That gives net amount of £4,500. Dr Rebecca would need to count the £6,000 as revenue, but £6,000 as ‘director’s salary’ which is ‘deductible expense’, so there’s no corporation tax charged on that income. And that income would declare the IR35 under her Self-Assessment.

Expenses Claims

If you still run an active company, any expenses that are necessary for the company are still tax deductible, e.g. your bookkeeping software or subscriptions. When you are doing any consultancy jobs that are outside of IR35, the expenditures that are directly related to those activities are still tax deductible.

When inside IR35, you may not claim travel and subsistence the same way as a self-employed individual. As you are technically an ‘employee’, you may only claim the travel to temporary workplace and that are necessary for you to perform your job. You may not claim travel from home to ‘clients’ office’ by justifying your home is your usual workplace, as those will be treated as usual work commute.

Company Strike Off Considerations

Some individuals might feel as though it is not worth to keep the company running and they just want to do the job, get paid and be tax efficient. In order to close down the company, the company has to be at least 3 months dormant. One thing to be aware of is the final assets of your company, if its less than £25,000 then you can do a normal strike off. Anything remaining will be counted as capital gain. If there is more than £25,000 you might need to use a liquidator to apply for members voluntary liquidation.

Summary

  • You would need to make sure you declare the income as employment income in your self-assessment.
  • Inside IR35, you are technically an employee, so any expenses related to the work that is inside IR35 you will claim the expenses as an employee.
  • You need to look at your long-term vision, if running a business is not your long-term vision then you would need to look at closing down the company.

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

Learn the Basics of Inheritance Tax

This week, I would like to tell you a bit more about inheritance tax. In previous weeks, we talked about how you can make the most of tax breaks on a general level. This week, join me in understanding how inheritance tax (IHT) works.

It is not easy for us to talk about morbidity and death, but the best way to leave your family members free of debt and finance-related stress is to plan for it. Inheritance planning is essential for the financial and general well-being of those you leave behind. My guest expert this week was Aidan Dow and owner of Aidan Dow Wealth Management. Aidan introduced the three basics of inheritance tax. They are:

  1. Wills and Inheritance Distribution

Over 60% of the UK population does not have a will. This figure is concerning considering that wills form the basis of inheritance planning. It ensures only those you want to inherit your property do so. It also allows you to redirect your property to take advantage of tax breaks.

  1. Nil Rate Band

Nil rate bands refer to the value of a property that is tax-free. For inheritance, this band stands at £325,000. If your estate is valued at below this figure, you do not have to pay inheritance tax. Every pound above this amount is taxed at 40%.

  1. Gifting Assets

You can avoid IHT by understanding how potentially exempt transfers work. These transfers apply to assets you gift to others, but under the seven-year rule. Under this rule, such assets will not be counted as part of your estate only if you are alive seven years after gifting them. They then fall under the property of the people you passed them to.

However, gifting assets such as cash as wedding presents or charity donations automatically mitigates or eliminates the IHT on your estate.

  1. Married couples

Transferring assets between married couples triggers no taxable gain. In some cases, individuals may want to leave the assets to the surviving spouse. It triggers no IHT at the first death, but it may trigger higher IHT at the second death as the nil rate band for the first death was wasted. Therefore, it worth noting that you may wish to consider ways to fully utilize the nil rate band to save £130,000 worth inheritance tax.

Of course, IHT has many other facets; these are just the basics. Follow our future blogs to get the latest on the more technical side of IHT in the coming weeks.

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

Save Money This Year with Tax Breaks for Couples

It was Valentines Season, and as you celebrate with your significant other, I thought you could use a few pointers about how to make your status as a couple work for you – financially speaking. For this feature, couples will refer to married pairs (because marriage is recognized by the law).

Here are a few tips to help you put money aside for other household items.

How can I save money as a married spouse?

Under the current UK tax regulations, the following scenarios can result in tax breaks for married couples:

  1. Marriage Allowance

For couples in different tax brackets, marriage allowances present a great tax relief option. If you earn less than £11,500 and your partner falls within the £11,501-45,000 tax bracket, you can transfer 10% of your unused personal allowance to your partner. He/she will then be able to save up to £230 per annum.

  1. Sharing ownership of Buy to Let Property

Transferring ownership of a property between a married couple will incur no capital gains tax. This is what makes it a great tax relief strategy for couples. This strategy involves one spouse transferring shares of a property to the other. If your spouse earns lower income and pays tax at lower rate, this enables part of the property income being taxed at lower rate. However, the overall situations of both partners need to be assessed in order to determine whether or not this strategy is a good fit.

  1. Transfer of Business Ownership

If your partner makes a significant and legitimate strategic contribution and bringing him or her on board was part of your long-term business strategy, transferring shares of your business to them will help you save tax in the long term. Your business will enjoy the first £5,000 tax-free allowance, while the payment of dividends and salaries to you and your spouse will reduce the taxes owed by the business.

  1. Savings on Wedding Cost

This is a creative way for couples to save money through tax relief if they’re planning to get married. Donating valuable wedding decorations to your church, or a charity that is close to your heart, is considered as charitable donations and you can get tax relief from it. However, be aware of the limitations. For example, you will not get tax relief if the size of the donation is more than 4 times of the tax you’ve paid in previous year.

  1. Inheritance Tax

As a married couple, you and your spouse could double your nil rate band for inheritance tax purposes. What that means is that your inheritance value could go untaxed for up to £650,000 if your spouse did not utilize his/her inheritance tax.

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

The Tax Season Highlight: 3 Reasons to Feel Positive About Taxes

As the taxing season comes to an end, I wanted to give you a few reasons not to dislike the taxation process.

A lot of my clients are doctors and majority of them have negative feelings about tax. I understand why there would be a lot of negative emotions surrounding taxation. We work hard five to seven days a week to get our paychecks, then have to hand over a chunk of our earnings to the government, or at least that is what it feels like. You are not alone if you share these feelings. However, I made this trip to your inbox to show you that negativity is not necessary when it comes to paying taxes. Below I have compiled a list of three tips to help you feel more motivated to participate in the tax process.

Here are the 3 tips that will help you feel more positive about paying tax

  1. Tax rules are there to help us pay less tax

Have you always thought that the taxes were too high? It turns out that it doesn’t have to be. If we look out for the taxation guidance, only a small portion of the information is about how the Government collects taxes. There’s more information showing a multitude of tax reliefs including exemptions, allowances, and deductibles that you can file for to optimize your tax bill. All you have to do is take advantage of them. Seek out a professional and assess which provisions apply to you. I do this for my clients so that they can minimize their tax expenditure.

  1. Look on the profitable side

I was so excited the first time I paid my corporate tax. I know this sounds absurd, but it’s true. And do you know why? It’s because having to pay corporate tax meant that I was doing good and my business was profitable. If I owned a struggling firm, I wouldn’t have to cater to pay taxes. So (Name), the next time you feel like taxation is a burden, look on the positive side: at least your business is healthy.

  1. Money you pay into the system is still YOURS

The taxes you give to the government are still yours. Here’s why. That tax money you pay is what goes into funding free public healthcare so that you pay little or next to nothing when you visit a public hospital. It funds the public education for your kids or those of your friends and family as well as the pension and unemployment benefits that you may enjoy one day. Ultimately, the taxes you pay benefit you too.

I hope you have enjoyed this wrapping-up-the-tax-season session. Remember that loving the Tax Man comes down to one key element – looking on the bright side, which I hope you will.

Don’t forget to follow me on Facebook for more tips on how to discover your ability to create wealth next week!

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

Organise Your Finances the More Efficient Way

Dear Client,

I hope you had a great week.

Last time I was in your inbox, we went through how you can discover your ability to create wealth. This week, I picked out a topic that I hope will help you get through the tax season without any hitches.

Do you sometimes look through your books and wonder how to put all your finances in order before the tax man rolls in? Do you find it hard to sit down to spreadsheets to organize your finances? If you do not have a problem organizing your finances, then congratulations, I’ll just be helping you do it more efficiently. However, if you are like many entrepreneurs I know who think of bookkeeping as a chore, then you can thank me later for showing you that bookkeeping does not have to be expensive, exhaustive or time-consuming.

Below, I will take you three steps to help you organize your finances the more efficient way

Step 1: Embrace Technology

There are numerous applications and technologies available today that are dedicated to helping you manage your finances. For instance, you can switch from manual data entry to simply scanning receipts to track expenditure by using Receipt Bank? Or that cloud computing services such as Xero Accounting can feed your bank statements into your accounting system so that you do not have to? Those systems nowadays cost as little as £20 per month, and they are designed to make your life easier. All you have to do is take advantage of them.

Step 2: Seek Help In Cost-Effective Ways

As an entrepreneur, having others help you will save you time, money and energy as you organize your finances. An easy way to get help is to have your spouse or children to handle the admin and bookkeeping tasks, so that you focus on building the business. You can pay them a salary that do not trigger much tax burden, and help reduce tax for you business the same time.  However, if you are solo, you can also now outsource bookkeeping in affordable way by hiring an accountant in India (or somewhere else in the world). Make sure you do try those freelancers first before you commit, so that you have the reliable person work for you. Also do consider protecting your data by having proper system and Non-disclosure Agreement.

Step 3: How and when to hire the right accountant for your business

Sometimes you have to spend money to save money. Hiring an accountant is an efficient way to organize your finances because a) you won’t have to worry about doing it yourself b) accountants will leave you free to build your business and c) the right accountant will not only get your finances in order but also optimize your tax bill. Wondering who the right accountant is? Here are the criteria: It is important to hire someone who thinks more like a business owner, rather than an employee; the ones who understand your vision and values; the ones who understand your financial pressure and work towards helping you achieve your financial goals.

I hope that today, you have taken away a lesson that will help you organize your finances the more efficient way. Don’t forget to tune in for more financial tips next week!

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