September 2022 | DSK Partners LLP

Overdrawn director’s loan account

Posted on September 1, 2022 by

An overdrawn director's loan account is created when a director (or other close family member) '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 as interest must be charged.

There are also further Income Tax costs if the loan is written off or 'released' (not repaid) by the company. If this happens, the company must deduct Class 1 National Insurance through the company’s payroll. The director will be required to pay Income Tax on the loan through their Self-Assessment tax return.

Source: HM Revenue & Customs Wed, 31 Aug 2022 00:00:00 +0100

Farming – using the herd basis

Posted on September 1, 2022 by

There are special rules which can apply to farmers and market gardeners that prepare their accounts on accruals basis. This includes special rules for farmers’ averaging relief, dealing with losses and the treatment of compensation for compulsory slaughter.

The special rules also refer to the use of the herd basis. The herd basis is a special method of calculating profits or losses which may be used by farmers who keep production livestock. Usually, farm animals are treated as trading stock. However, under the herd basis a herd or flock of production animals is excluded from trading stock and treated, in most but not all circumstances, like a capital asset.

Any farmer that wishes to use the herd basis must elect to do so. Where a herd basis election is in force, the treatment for calculating farming profits of the herd or herds covered by the election is governed by special rules. The herd basis rule can also apply where animals are jointly owned, for example, in some share-farming arrangements.

From the farmer’s point of view, the main benefits are likely to be that:

the cost of maintaining the herd can be charged against tax; and
any profit on its eventual disposal will be tax-free.

Note, that these special rules do not apply to farmers and market gardeners who calculate their profits using the cash basis.

Source: HM Revenue & Customs Wed, 31 Aug 2022 00:00:00 +0100

Still time to claim super-deduction

Posted on September 1, 2022 by

There is still time to claim the super-deduction allowance that offers 130% first-year tax relief. The deduction is available to companies until March 2023. The super-deduction is designed to help incorporated businesses finance expansion in the wake of the coronavirus pandemic and to help drive growth.

The super-deduction tax break was introduced on 1 April 2021 and allows businesses to deduct 130% of the cost of any qualifying investment on most new plant and equipment investments that would ordinarily qualify for 18% main rate writing down allowances. This means that for every £1 businesses invest they can reduce their tax bill by up to 25p.

In addition, an enhanced first year allowance of 50% on qualifying special rate assets also applies expenditure within the same period. This includes most new plant and machinery investments that would ordinarily qualify for 6% special rate writing down allowances.

Only companies can claim the the super-deduction. This means that self-employed traders are unable to benefit. However, they could benefit from the temporary increase in the Annual Investment Allowance (AIA) cap to £1 million. The AIA allows for a 100% tax deduction on qualifying expenditure on plant and machinery. The temporary limit of £1 million will also remain in place until 31 March 2023 before reverting to the usual £200,000 limit.

Source: HM Revenue & Customs Wed, 31 Aug 2022 00:00:00 +0100

Working from home

Posted on September 1, 2022 by

If you receive no compensation from your employer, you can still claim tax relief for certain costs that arise when working from home. HMRC will usually allow you to claim tax relief if you use your own money for things that you must buy for your job, and you only use these items for work. You must make a claim within four years of the end of the tax year that you spent the money.

Costs you may be able to claim for include:

if you purchase your own uniforms, work clothing and tools for work;
the cost of repairing or replacing small tools you need to do your job as an employee (for example, scissors or an electric drill); and
cleaning, repairing or replacing specialist clothing (for example, a uniform or safety boots).

A claim for valid purchases can be made to recover actual costs or as a 'flat rate deduction'. However, you cannot make a claim for relief on the initial cost of buying small tools or clothing for work.

You may also be able to claim tax relief for using your own vehicle, be it a car, van, motorcycle or bike. As a general rule, there is no tax relief for ordinary commuting to and from your work. The rules are different for temporary workplaces where the expense is usually allowable. You should also be able to claim if you use your own vehicle to undertake other business-related mileage.

Please note, if you have agreed with your employer to work at home voluntarily, or if you choose to work at home, you cannot claim tax relief on the bills you have to pay. If you previously claimed tax relief when you worked from home because of coronavirus (COVID-19), you may no longer be eligible for relief.

Source: HM Revenue & Customs Wed, 31 Aug 2022 00:00:00 +0100

How dividends are taxed

Posted on September 1, 2022 by

The dividend tax allowance was first introduced in 2016 and replaced the old dividend tax credit with an annual £5,000 dividend allowance. Tax was payable on dividends received over this amount. The tax-free dividend allowance was reduced to £2,000 with effect from 6 April 2018 and remains fixed at that level ever since. The 1.25% increase in NIC contributions that came into effect on 6 April 2022 was mirrored by a similar increase in the tax charge on dividends.

This means that the tax rates for dividends received in 2022-23 (in excess of the dividend tax allowance) are taxed as follows:

8.75% for basic rate taxpayers will pay tax on dividends;
33.75% for higher rate taxpayers will pay tax on dividends; and
39.35% for additional rate taxpayers will pay tax on dividends.

Dividends that fall within your Personal Allowance do not count towards your dividend allowance. Depending on your other income sources and the amount of dividends received, you may pay tax at more than one rate on dividends received.

If you receive up to £10,000 in dividends, you can ask HMRC to change your tax code and the tax due will be taken from your wages or pension or you can enter the dividends on your Self-Assessment tax return if you already complete a return. You do not need to notify HMRC if the dividends you receive are within your dividend allowance for the tax year.

If you have received over £10,000 in dividends, you will need to complete a Self-Assessment tax return. If you do not usually send a tax return, you will need to register by 5 October following the tax year in which you received the relevant dividend income.

Source: HM Revenue & Customs Wed, 31 Aug 2022 00:00:00 +0100

Month: September 2022

Overdrawn director’s loan account

Farming – using the herd basis

Still time to claim super-deduction

Working from home

How dividends are taxed

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