• JOHN H.F. KING

    CHARTERED CERTIFIED ACCOUNTANTS

    We are a small firm specialising in giving advice to small to medium sized owner managed businesses.

    We aim to ensure that all clients receive a friendly personalised service relevant to their needs.

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15-11-2018
Finance (No.3) Bill published

As expected, the government published Finance (No.3) Bill on Wednesday, 7 November 2018. The Bill is so named as it is the third Finance Bill in the current special two-year session of Parliament. The Bill contains the legislation for many of the tax measures announced by the Government at Autumn Budget 2017 some of which have since been the subject of further consultation. The Bill also includes other measures that were first announced in the recent autumn Budget on 29 October 2018.

The Bill extends to some 315 pages whilst the accompanying explanatory notes add another 266 pages. The Bill is colloquially known as Finance Bill 2018-19, and will become Finance Act 2019 after Royal Assent is received which is expected in March 2019 before the Brexit deadline.

Some of the measures included within the Bill are:

  • The Income Tax rates, thresholds, and allowances for 2019-20. This includes, meeting the government’s commitment to increase the basic personal allowance to £12,500 and the higher rate threshold to £50,000.
  • The setting of the Corporation Tax rate for 2020-21 at 17%. The rate for 2019-20 remains at 19%.
  • The temporary increase in the Annual Investment Allowance (AIA) from £200,000 to £1m for two years from 1 January 2019.
  • The introduction of a new 30 day reporting and payment deadline for CGT on UK residential property gains from 6 April 2020.
  • A number of changes to entrepreneurs’ relief including an increase in the minimum period during which certain conditions must be met to qualify for ER from one to two years.
  • A reduction in the tax writing down allowance from 8% to 6% from April 2019.
  • The current VAT registration limit (£85,000) and deregistration limit (£83,000) will continue to apply for a further two years; until 31 March 2022.

The proposed introduction of a new two tiered penalty system for Making Tax Digital has been dropped from the published Finance Bill. The legislation had been included in the draft Bill, but it appears the government needs more time to consider the complexities before including the measure in future legislation. In addition, and as announced at the Budget, the expected change to require shared occupancy to qualify for rent-a-room relief has been shelved.

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15-11-2018
Directors’ loans – tax consequences for your company

There are tax consequences for both companies and directors relating to the issue of director’s loans. We will examine below some of the implications if a company facilitates loans to a director. A director’s loan comprises not just an actual loan, but can also include other payments made by the company for the personal benefit of a director such as personal expenses paid for on a company credit card. These amounts are usually posted to a director’s loan account (DLA).

When and if your company has to tell HMRC about a director’s loan, depends on when the loan is repaid. Any company loans to directors outstanding at the end of the company’s Corporation Tax accounting period, have to be disclosed in the accounts and on the company tax return. There is an additional Corporation Tax (CT) bill of 32.5% of the outstanding amount (prior to April 2016 this rate was 25%) where the DLA remains outstanding 9 months after the year end.  There are also special rules to stop director’s repaying a loan and then taking a new loan out in quick succession (known as bed & breakfasting). 

Planning notes:

In most cases this extra 32.5% (25% if the loan was made before 6 April 2016) CT is not a permanent loss of revenue for the company as a claim can be made to have this CT refunded when the loan is repaid, written off or released. However, any interest paid by the company is non-refundable. To be effective, the claim to have the tax refunded needs to be made within 4 years after the end of the year in which the Director’s loan was repaid.

If the loan exceeds £10,000 at any time in the year, then the company must treat the loan as a benefit in kind and deduct Class 1 National Insurance. There is no benefit in kind to pay, if the director pays a market rate of interest due on the loan.

Please call if you need advice regarding these issues for your company.

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15-11-2018
Directors’ loans - tax consequences for the director

An overdrawn director's loan account is created when a director (or other close family members) 'borrows' money from their company. Many companies, particularly 'close' private companies, pay for personal expenses of directors using company funds. Where these payments do not form part of a director’s remuneration, they are usually posted to the director’s loan account (DLA).

The DLA can represent cash drawn by a director as well as other drawings by a director (including personal bills paid by the company). Whilst it is quite common for small company accounts to show an overdrawn position on a DLA, this can create some unwelcome consequences for both the company and the director. The rules are further complicated if the loan is for more than £10,000 and the loan must be reported on your personal Self Assessment tax return. There are also further income tax costs if the loan is written off or 'released' (not repaid) by the company.

Planning note:

Small business owners need to be mindful that withdrawing funds from their company in this way can have unwanted tax consequences. The CT, Income Tax and National Insurance impacts of using a DLA must be carefully considered. Please call if you have concerns in this area.

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