Discover Your Ability to Create Wealth

Happy New Year!

I hope you had a great holiday and are looking forward to trying out new opportunities this year!

As we move on to 2018, I just wanted to let you in on a few things. First, new year, new me, new us! We are rebranding our firm and the weekly LIVE show on Facebook. I will be showing up every Monday for a live chat on Facebook talking about subjects related to wealth building, so don’t forget to tune in each week! Simply subscribe to my Facebook page and look out for WealthAbility LIVE every Monday to get your weekly dose of interesting and motivating money advice from me (and a few other experts).

Number two, as we welcome the new year, here is a piece of advice I thought you would appreciate. It’s a little something on what I call the three pillars of wealth building. With them, you can discover your ability to create wealth.

So, what are the 3 Pillars of Wealth-Building?

For me, they are the tools you can use to not only create but also maintain wealth. I hope they are for you too.

1. Your Health

Your health is your ultimate wealth. When you are healthy, you can accomplish tasks that will help you build your wealth. Tasks such as decision-making, learning and even dealing with stressful situations. Keeping yourself healthy is essential to you and to your business.

2. Inner Work

Sometimes we find ourselves dwelling on what is going wrong in our lives. We blame ourselves for failed relationships and are afraid to talk to others about our work for fear they will learn of our failures. However, I have learnt from experience that when you appreciate your accomplishments and your potential to add value to other people’s lives, when you accept that you are not perfect and embrace your authentic self, you can look past failure and insecurity to set and achieve your goals.

3. Be Comfortable with the Numbers

Do yourself a favor this year. Learn to be as comfortable with your numbers (or at least knowing the basics of your finances) as you are with counting your hard-earned notes.  This does not mean you have to know all the details of finances inside out, just like a financial professional. But just the basics tools that is sufficient to look after yourself. It is just as it important to know how to look after your own health, feed your body with the right food, and when to seek out the doctor, it is essential to know the state of your finances and know when to seek out financial professionals for guidance.

Last Thoughts

I hope this dose of inspiration helps you discover your ability to create wealth this year. Stay tuned for more informational pieces 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

VAT in the Healthcare Industry

In the healthcare industry, there are some VAT related issues that can arise. Today we will be giving some guidance on VAT, this will be helpful for you as we will cover the important areas such as how you can account for VAT and when you need to register for VAT etc. Even if you are not in the medical industry, some of the points we will discuss might apply to you too. We will also share some questions commonly asked and some scenarios that some of our clients have been through.

What Services Can You Register for VAT?

If you become a locum doctor and you are doing freelance work, for the treatments and services that has a primary purpose of restoring human health, you will not be able to charge VAT for this so you do not register for VAT. This is due to the fact that it is necessary for people and the government want it to be affordable which is why it is exempt for VAT registration.

On the other hand, if you are a freelancer but also do a bit of medical legal work on the side, you are able to register the legal work for VAT. However, you do not have to if you do not reach your threshold. Currently, the threshold is £85,000 for any role in 12 months. If you are doing that level of medical legal work then VAT is something that you would need to watch out for. However, if you only do it on an ad hoc basis then it is probably not worth for you to register yourself for VAT and having to do all of the paperwork as it does cost money to submit a VAT and it takes up a lot of your time.

Another similar situation is a dental practice. As a dental practice, you are not only providing a treatment but you are also selling products, which you may register VAT for. In this case, you are able to register for VAT only when your business has reached the threshold mentioned.

Locum Doctors and Agency Workers

VAT implications for locum doctors who are working under a limited company and/or work via an agency can be a grey area. The limited company might become a staff supplying service as the company is supplying medical staff. You would need to be clear within your contract between yourself and your agency as well as any clients. You need to figure out whether you are working as a service provider as a medical professional or if your company providing medical staff. If you are providing medical staff, that service can be registered for VAT. If you are providing medical services as a medical professional then you cannot register for VAT.

Providing Work and Services Under a Company

Some people ask whether they are able to set up a different company just for medical legal work. If you put all of the VAT-able work to that company just to receive a payment and provide medical legal service then you can set up a company for this purpose. This can apply to you especially if you are a self-employed medical professional or if you are doing medical legal work it can also be classed as self-employment. Setting up a company can be tax efficient for you because you can get tax-free dividends and dividends cost less than your personal income tax. It is important to note that when it comes to setting up a company, please do seek legal and professional advice.

One thing you cannot do is split a company. For example, if you do medical legal work and use two companies to run it, you may think that each of the companies will be under the threshold. However, this isn’t the case as you are the person who provides the service which means you control both companies. In this case, you would need to combine the revenue when it comes to considering the VAT.

When Do You Need to Register and What Happens Once You Register?

You are able to voluntarily register even if you are under the threshold. You might be worried that you will not be notified once you reach the threshold and you forget to register so it is important to take care of this when you can so you do not forget about it.

Whenever you do register, you need to set-up an effective date. For example, if it is November but you want the effective date to start on the 1st December, any services/invoices you provide would need to start charging VAT from this date. There may be some delay from the date you register and the date you receive the VAT certificate, which means you might receive it after the effective date. You must not charge VAT until you receive the certificate. But within that time period you can do either of the following:

  • Increase the price by 20% and state it is a service fee. Once you do receive the certificate, you can just reverse the service fee and start charging VAT, OR
  • Invoice the service as it is, and issue a VAT-only invoice once you have received the VAT certificate.

You need to make sure you are transparent and let your clients know what is happening so that you have set some expectations for them.

From the effective date, any overhead expenses that you have paid VAT for you are able to claim it back from HMRC by doing your quarterly VAT return. It is something you would need to be really organised with and make sure you are able to record and provide the relevant paperwork on a quarterly basis. It is always beneficial to be compliant especially if HMRC decide to do a VAT investigation.

What to Reclaim

  • You are able to claim Any bill that clearly states you have paid VAT for, you need to make sure you keep the bill for your records. If something is VAT inclusive but it does not show the VAT on the actual bill then you would still need to include the VAT when you reclaim it.
  • If you are newly VAT registered, you can backlog some expenses. For services, you can backlog for 6 months and if you have any equipment or any goods that you have paid VAT and still own you can backlog for 4 years.
  • You need to watch out for things like entertainment as if it is for business purposes such as entertaining your staff then you can claim the VAT but if you are entertaining clients then you cannot. You might not be able to claim 100% of the VAT if it is a combination of business and personal use.
  • When it comes to a medical practice, anything directly related to the medical legal work you can claim the VAT on. For the overheads, such as rent, you can only claim an apportion of the VAT back if you are using the office to do treatments but also medical legal work.

De-registration

If you see yourself doing less VAT-able work, you can choose to deregister VAT. When your revenue goes down and do not want to be registered anymore, HMRC will not automatically deregister you so it is important to evaluate your situation yourself. You need to make sure is based purely on business decisions instead of tax mitigation strategies.

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

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 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.

 

Company Car or Personal Car? 3 Things You Need to Know About Company Cars

‘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

  1. 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.
  2. 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.
  3. 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.

Screen Shot 2017-08-24 at 12.47.01

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.

Screen Shot 2017-08-24 at 12.47.19

Steps You Need to Remember to Consider

  1. The dual tax implications.
  2. 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?
  3. Carbon dioxide emission levels in comparison to the personal tax charge or corporation tax relief.

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.