RSUs and Stock Options - How Do They Compare?

Author: Uk Tax Associate Molly Smith

Many companies offer stock-based incentives and compensation to their employees, in the form of Restricted Stock Units (RSUs). It is a simple way to increase morale, while also incentivizing employees to put maximum effort into their work, and see the stocks they have accrued, appreciate in-value. Simply put, these workers own a small part of the business, thus giving them a vested interest in the business’ success. But what are the pros and cons of this kind of incentive? Not to worry, keep reading and you are sure to find out.

Restricted Stock Units

RSUs are company shares given to employees by their employer as a form of compensation or incentive. RSUs come at no initial cost to yourself, they do, however, need to be left to vest over a certain period. For example, if your company offers you 500 Shares on an RSU basis over 5 years, once that 5-year period is over, you will acquire the shares at no cost.

Problems may arise if you wish to leave the company before the designated 5 year period has ended. If you did decide to do this you could lose your entitlement completely to the RSUs. This is not the only condition placed on the shares fully vesting and you may have to also meet other conditions. They could be locked-behind performance-based targets and any other perceivable parameter that said company decides.

Another common misconception is the wrongful understanding of no Initial cost. While it is correct, you are not paying for these shares, you will not receive all the proceeds from these shares. For example, if your company is giving you 100 shares after 2 years and they are valued at £20, the misconception is that you will receive £2,000. This is incorrect as RSUs, once vested, are subject to income tax and must be declared, so a portion of your shares will have been sold before you have seen the proceeds at all.

Stock Options

Stock Options, much like their counterpart, are also a form of compensation or incentive to employees. A stock option is a window of time that employers will grant to employees, to purchase stocks at a reduced price. The goal being, the company to grow so that the market price is greater than the employee accessible price agreed upon. For example, an employee may have the option to purchase shares at £20 per share for 6 months, in that time, if the market price of these shares rises to £25, the employee can take advantage of this. However, if the price remains the same, or falls below the employee accessible price, the stock option is rendered useless. The employee could also wait too long, letting the stock option expire, leaving them unable to purchase at the given price.

Summary

You have two incentivizing strategies, both with benefits and drawbacks. Both are used to drive productivity and work toward a higher share price. Your choice between the two may be determined by your future plans and your financial position. Either way, both options give an opportunity for returns and should be considered, given that they are offered.

Any Questions

You have two incentivizing strategies, both with benefits and drawbacks. Both are used to drive productivity and work toward a higher share price. Your choice between the two may be determined by your future plans and your financial position. Either way, both options give an opportunity for returns and should be considered, given that they are offered. Contact Us

EVERYTHING YOU NEED TO KNOW ABOUT ABRIDGED ACCOUNTS WHAT ARE ABRIDGED ACCOUNTS?

Author: Uk Tax Associate Molly Smith

WHAT ARE ABRIDGED ACCOUNTS?

Abridged accounts were introduced in 2008 and are a simplified record of a small company’s accounts. Some financial specifics that are included in full accounts can be excluded from the financial statements, balance sheet, and profit and loss statement, when finalizing abridged accounts. Abridged accounts help small businesses make it more difficult for the public to gain a perception of the company's performance from Companies House.

Abridged accounts are slightly more detailed than the abolished abbreviated accounts.

WHAT ABRIDGED ACCOUNTANTS INCLUDE

Abridged accounts do not include a breakdown of items on the balance sheet; it is not essential to include a breakdown of debtors, creditors, and fixed assets. Due to this, the account’s corporation tax figure is not displayed.

Abridged accounts must include the simplified balance sheet and profit and loss statement, along with any notes the company wishes to disclose. Without this breakdown, it is not possible to approximate a company’s net profit or loss.

If you have abridged accounts, they will have to be identified, therefore a statement needs to be included mentioning that the accounts enclosed are abridged. It has to mention that shareholders have consented to the abridged accounts.

The balance sheet must include the name of the director of the company, alongside their signature. The company can decide to append a simple profit and loss account, in addition to a copy of the company director’s report.

Even though abridged accounts are much simpler than filing full accounts, companies still are obliged to present a fair and true depiction of their accounts.

Unless a company decides to claim exemption, the abridged accounts must include an auditor’s report.

WHEN CAN ABRIDGED ACCOUNTS BE FILED

You will need to file abridged accounts if you do not publish the net profit of your company

You will be able to file an abridged account when all shareholders of your company have agreed to the abridgment of accounts. This consent from shareholders must be given every year, meaning it can not be left to a majority vote, all shareholders have to approve the use of abridged accounts. To file abridged accounts you must meet two of the three requirements:

• The average number of employees is less than 50, therefore must be a small-sized business
• Company turnover is less than £10.2 million

Balance sheet totals to less than £5.1 million.[1]

Therefore, if you are a small business and believe that your company profits should be a private matter, you must file abridged accounts.

ABBREVIATED ACCOUNTS

Abbreviated accounts, due to changes in UK Company Law, were abolished and could no longer be filed after January 1, 2016[4].

These types of accounts were commonly used amongst small businesses as they required far less information than full accounts, as the public and competitors could not gain a detailed insight into the business performance of your small company – similar to the abridged accounts.

Therefore, from January 1 2016 small companies would have to file full accounts, or the alternative option – file abridged accounts. These differ from the previous abbreviated accounts as the criteria for what Companies House considered a small business changed.

• The number of employees required to be considered as a ‘small company’ stayed the same with a threshold of 50.
• The turnover to qualify as a ‘small company’ was previously £6.5 million[5], compared to the current £10.2 million with abridged accounts
• The balance sheet limit to be identified as a ‘small company’ was capped at £3.6 million, whereas now with abridged accounts, the balance sheet threshold stands at £5.1 million.

Need any More Help?

Tax can be a complex subject, especially to those lacking experience in filing their tax return. At Bambridge, we have a team of charted accountants available to offer you sound tax advice. Do not hesitiate to contact us for help with any of your tax needs.

Accounting for non-profit organisations

A non-profit organisation has aims other than profit, such as social, cultural, philanthropic welfare. They do not possess external shareholders who provide capital, they source finance through charitable donations. If you are a member of a non-profit organisation, then you must be aware that it will be eligible for tax exemptions.

Accounting

Accounting for non-profit organisations must take place when there are any monetary transactions. This needs to be recorded as non-profit organisations are answerable to society for such money collected and spent by them.

Why should non-profit organisations maintain accounts?

• To avoid malpractice and misappropriation

• Have control over monetary transactions

• To comply with provisions of laws applicable

• To know the net worth of the organisation

• To know the source of incomes and heads of expenditure

• To know the surplus or deficit of the organisation during a particular period

Financial statements for non-profit organisations

Income and Expenditure:

This account records any income and expenditure, whether it is received or not. The result of the Income and Expenditure account will be a surplus (if income is greater than expenses) or deficit (if expenditures exceed income) rather than profit or loss.

If surplus, this will be carried forward as capital into the organisation, used for the welfare of the society.

Balance Sheet:

Similarly, to a for-profit organisation, a non-profit organisation will require a balance sheet, displaying the assets and liabilities of the organisation.

However, as there are no owners of the organisation, there will be no owner’s equity, and therefore the accounting equation for a non-profit organisation is as follows:

Net Assets= Assets-Liabilities 

A non-profit organisation balance sheet has capital fund (amount contributed by its members) rather than the owner’s capital. Other funds may be found on the balance sheet, such as charity fund, prize fund etc.

Receipts and Payments Account:

This is a summary of all cash and bank transactions. It records all receipt revenue and capital receipts.

Capital Receipts and Expenditure

Capital Receipts and Expenditures are non-recurring and do not form part of the regular flow of the organisation. These are expenses and revenues which occur rarely and are long-term. For non-profit organisations, these may include

• Life membership fees

• Donations

• Sale of fixed assets

• Purchase of assets

• Investments made

Revenue Receipts and Expenditure

Revenue receipts and expenditures are recurring and are part of the regular flow of the organisation. These occur regularly and are usually short term. For a non-profit organisation, these may include:

• Subscriptions received

• Rent received

• Interest on investment received

• Wages and salaries

• Electricity expenses etc.

Trustees' Annual Report

As a non-profit organisation, you must file a trustees’ annual report. This contains information about the charity, how it is run, its achievements and activities and helps to explain the numbers in the corresponding accounts.

The sole purpose of the trustees’ annual report is to ensure that the charity is accountable to stakeholders for any funds received and spent.

The trustees’ annual report explains its outputs, outcomes and its impacts and benefits.

You will need to complete a trustees’ annual report if the charity’s income is below £500,000[3]. The report should include:

• Charity name, registration, address, and names of trustees

• Structure of the organisation and how it is managed

• Activities and objectives in the year

• Achievements and performance in the year (including reporting on its public benefit)

• Financial review including any debts, details of reserves policy (if necessary)

• Details of any fund held as a custodian trustee

For a large charity, income above £500,000, a full report needs to be prepared, following the Statement of Recommended Practice (SORP).

Tax for non-profit organisations

Your non-profit organisation may have to pay tax if you have received income that does not qualify for tax relief and/or income has been spent on non-charitable purposes. Therefore, non-profit organisations pay tax on:

• Dividends received from UK companies

• Profits from developing property

• Purchases (VAT rules for non-profit organisations apply)

• Business rates in non-domestic buildings (80% discount applies)

Tax exemptions for non-profit organisations

As a non-profit organisation, you do not need to pay tax on your charitable expenditure – the income and gains you utilise for charitable purposes. This includes:

• Donations (Gift Aid)

• Profits from trading (if applicable)

• Rental or investment income (bank interest)

• Profits when you sell an asset (property)

• When you buy property

VAT for non-profit organisations

As a non-profit organisation, registering for VAT is the same as a for-profit organisation; you must register for VAT if your taxable turnover is above the threshold (£85,000).

To claim VAT relief as a non-profit organisation, you must give your supplier evidence that you are not for profit, for example, your Charity Commission Registration Number

If you are VAT registered, you are required to send a return every three months.

As a non-profit organisation, you will pay VAT on goods and services bought from a VAT registered business. VAT registered businesses can sell particular goods and services at reduced or the zero VAT rate.

An Employers Guide To UK Pensions

Socio-economic experts have said that financial planning and pensions are becoming increasingly important for future generations as life expectancy consistently rises every year.

A pension is a long-term savings plan which you contribute to over your working life that you can them live off later in life. Responding to the increasing importance of pensions, The Government and The Pension Regulators have introduced a number of incentives that can help individuals increase their pension savings.

This article will focus on informing employers about all of the need to know facts about pension tax relief schemes for employees

Who are the pension regulators?

The Pension Regulators (TPR) is the UK regulator of workplace pension schemes. They therefore are a focused pension organisation that ensures employed individuals pensions are protected. 

The pensions regulators are responsible for:

• Ensuring employers enrol their staff into a pension scheme (automatic enrolment)

• Protecting employee savings in workplace pensions

• Improving workplace pension schemes

• Reduce the risk of pension schemes ending up in the Pension Protection Fund

• Helping employers balance the needs of their pension schemes with business growth.

Choosing the pension scheme for your staff

 There are a number of different pension schemes you can choose from as an employer for your staff. When choosing a pension scheme employers must consider which scheme is most beneficial to the employees. 

Below is further information about what employers need to consider when choosing a pension scheme.

DOES THE PENSION SCHEME INCLUDE AUTOMATIC ENROLMENT?

 Automatic enrolment means that staff will not be required to do anything to join the scheme, nor choose their own investments. Some schemes only accept employers with a minimum number of staff, or employees who earn a certain amount. 

It is important to check if the scheme is regulated by the Financial  Conduct Authority.

HOW MUCH THE SCHEME WILL COST THE BUSINESS AND EMPLOYEES?

 Different pension scheme providers have different fees. Some providers will charge monthly and others will charge a one-off up-front charge for the life of the pension scheme. There can also be exit fees for employers who decide to change pension schemes.

As pension scheme members, employee’s contributions should pay the charges to cover the cost of managing their savings. Some schemes may have different charges for different members, depending on income. It is important to weigh up the cost and charges against the level of service that the scheme will provide.

WHAT TAX RELIEFS WILL MOST BENEFIT EMPLOYEES? 

There are two methods that can be used to allow employees to have access to tax relief on what they pay into their pensions:

• Relief at source

• Net pay arrangements

A pension scheme can only use one method for all staff. Which method is used can affect lower and higher paid staff differently. Neither method is usually judged as superior to the other, but it can be good to be aware of what the implication of each method is.

Tax relief will only be available to employees who do not pay income tax if there is a scheme that uses relief at the source. Such schemes may have lower member charges. 

The staff that pays income tax will have access to tax relief through either the relief at source or net pay arrangement methods. However, if the relief is at source, higher rate taxpayers and additional rate taxpayers will have to claim the tax relief by completing a self-assessment.

RELIEF AT SOURCE TAX RELIEF SCHEME MODELS

Below we have summarised the different tax relief schemes that us relief at source:

National employment Savings Trust (NEST)

The Peoples Pension

True Potential Investments

Standard Life Workplace Pension

NET PAY ARRANGEMENT TAX RELIEF SCHEME MODELS

The Bluesky Pension Scheme

Creative Pension Trust

NOW: Pensions

Smarter Pension Master Trust

The Lewis Workplace Pension Trust

Workers Pension Trust

How to increase your pension pot and retire early

In recent years there have been a number of government pension schemes and incentives introduced to help people save towards retirement. Experts have said that financial planning for retirement is becoming increasingly important as the UK population lives longer and longer. 

The benefits to saving into a pension run long and wide. Pension schemes allow savings to grow much faster than through other means. This not only allows people to retire earlier, but also can enable cash injections when required later on in life. 

Below is the the questions answered in this article surrounding retirement income and pension tax relief

The different types of pensions

How pension tax relief can increase pension savings

The lifetime allowance

How to find out your pension balance

The Maximum Pension Contributions

How much to save into your pension plan

Can you pay into a spouse's pension?

The benefits to making maximum contributions

If you have further questions contact us

The different types of pensions

There are three main types of pension: 

The State Pension

The State Pension is a retirement fund paid out by the government when individuals reach the state pension age. You can find out what your state retirement age is via the Gov.uk checker. You build up your entitlement to the State Pension by making National Insurance Contributions throughout your working life. If you are employed this is usually done automatically through PAYE.

How much is the state pension?

The state pension is currently set at £175.20 per week. However it can be higher depending on your National Insurance records and if you choose to delay taking your state pension. 

Defined benefit pension

If you have ever worked for the public sector or large company, it is likely you have a defined benefit pension. 

How much is the defined benefit pension?

The total amount you receive is based off of your income and how long you have been part of the scheme. 

Defined Contribution Pension 

Defined contribution pensions can be a combination of personal and workplace pension schemes, as well as stakeholder pension schemes. The Defined Contribution Pension built up through contributions by yourself and your employer. The final balance of your DC pension will depend on the below: 

• How much money you paid into your pension

• How much money your employer paid into your pension

• How much tax relief you received 

• How your investments have performed over time. 

You can access your defined contribution pension fund from the age of 55. Many use this pension savings to tide them by until they have access to their other pension funds later in life. 

How pension tax relief can increase pension savings

When money is paid into your pension some of the money that would have gone to the government as tax goes into your pension also. 

Claiming pension tax relief on workplace pensions

There are two ways you can receive tax relief on your workplace pension: Relief at the Source or Net pay arrangements. Which pension scheme your work uses is generally decided by the business owner. 

Claiming pension tax relief on Relief at the Source arrangements

Under the Relief at the source arrangement, your employer deducts tax from you taxable earnings as normal. They can then deduct 80% of your pension contributions from your net pay and send this to your pension provider. Your pension provider will then claim the other 20% in tax relief directly from the government. 

Higher and additional rate taxpayers do not automatically receive the tax relief under the relief at the source arrangement. They must claim the extra 20% in a self assessment tax return.

Claiming pension tax relief on Net pay arrangements

Under the Net pay arrangement, your employer deducts the full amount of your pension contribution from your gross pay. You will pay tax on your earnings minus your pension contributions. As a result your tax bill will be lower. 

All taxpayers will receive the tax relief automatically under this arrangement. However, no tax relief is available to people who do not pay tax under the arrangement. 

The Lifetime allowance

Lifetime Allowances (LTA) are a cap on the amount of tax-free savings that can be made within a pension fund. For the 2020-21 tax year, the lifetime allowance is set at £1,073,100. This means that the maximum amount someone can save into their pension tax-free is £1,073,100.

If you exceed the lifetime allowance there could be a tax charge, the excess can be paid as a lump sum, subject to a 55% tax charge. You can also opt to keep the money in you pension pot and be charged a 25% tax on the excess. 

How to find out your pension balance

Checking Personal, workplace and self employment pensions

Your pension provider will typically send you a breakdown of your total retirement savings in an annual pension statement. If you have a defined contribution pension, which most workplace and personal pensions are, your annual pension statement will include a calculation of the level of income you can expect to receive in retirement. 

What is the maximum contribution that can be made to your pension?

After establishing the major tax perk of putting long-term savings into your pension, many clients follow up with questions regarding the minimum contributions and maximum contributions that can be made each year. For the 2020/21 tax year, the annual limit is 100% of your salary or £40,000 (Whichever is lower). This included both contributions paid by you and employer contributions. 

Tapered annual allowance 

How much to saving into your pension savings

The tapered annual allowance is lower than the standard annual allowance and mainly affects those with income over £240,000. For every £2 of adjusted income over £240,000, the individuals allowance will be reduced by £1. 

Exceeding the pension contribution limit

If you exceed the pension contribution limit, there will be a tax charge on any amount over the contribution limit. This is called an ‘annual allowance charge’.

Figures released by the government show that around 10.4 million people contributed to their personal pension during the 2017-18 tax year. The average gross annual contribution for the 2017-18 tax year was £226 per month. This figure considers both the employer and personal contributions.

The average annual contributions tend to differ considerably depending on salary bracket. It is generally advised that people make the maximum contribution that they can each year, without impairing their regular cash flow.

Can you pay into a spouses pension?

If you have met maximum contributions to your own pension for the tax year, you may be considering contributing your spouses. It is possible to make pension contributions to your spouses pension. In this case your spouse will receive the benefits of the pension tax relief. 

The Benefits to maximum contributions

Unlike the majority of other saving schemes and products, pension plans can by boosted by contributions and money from the government in the form of tax relief. 

Below are some of the key benefits to pension savings

Employer contributions

When you make a contribution to your workplace pension, your employer will also contribute to your pension plan. This means that your will receive extra money that does not come from your salary.

Tax relief

For every £100 paid into a pension by a basic rate taxpayer, the government will contrite £25. If you are a higher rate taxpayer you can claim a further 25% top up through your annual tax return.

No inheritance tax

If you were to die before the age of 75, your pension can usually be passed on as one lump sum without inheritance tax.

Contact us to for support claiming pension tax relief

Tax advice for creatives moving to America

Every year thousands of individuals and families leave the UK to further their career in America. The increased opportunity is very attractive for a wide range of different careers; however, the differences in tax regulation can be tedious and difficult to navigate for those who have taken the step to move abroad.

We aim to aid expats in their exciting new journey and alleviate some of the stress and pressure that comes with moving to America by providing free tax advice.

We are a team of American and British Accountants who are expert in all areas surrounding cross border taxation.

How Different is the American Tax System? 

The American tax system, when compared to the United Kingdoms tax system, is widely considered to be much more complicated and difficult to understand. According to the BBC a ‘typical company’ will spend around 110 hours to comply to the UK tax code, this is substantially less than the 175 hours that American companies spend with the US tax code. Below are some key differences

What British Expats need to know about the IRS

 It is important to know the regulatory body for the American tax system is the IRS. Like the HMRC (UK’s regulatory body) they are responsible for the collection of tax and enforcement of tax laws. This includes, auditing households and individuals, providing the yearly tax brackets, providing tax aid, collecting tax, etc.

The Taxation of Households rather than individuals

The US tax code allows couples to file under one household, this doubles the tax bracket and is generally favored over opting to file separately. This is because it provides a tax break to households with one high-income earner, as the tax bracket will essentially double.

State Taxes

 Different states have different State Taxes. For example, Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming have no state income tax at all; whereas, a state such as Utah has a flat income tax rate of 4.95%.

Better Rates for High Income Earners

Despite the more complicated nature of the American tax system there can be substantial benefits in regards to the money you come away with for the wealthier portion of the population. This is because of the lower tax percentage for higher earners. Where in UK the income tax brackets can go as high as 45% in the US federal income tax is capped at 37%.

How to know if I need to submit a US Tax Return?

According to the IRS any individual can be considered a “United States resident for tax purposes if you meet the substantial presence test for the calendar year”.

The Substantial Presence Test is a means of measuring the amount of time an individual has spent in the USA for work purposes. To fit the requirements you must either be “physically present” for 31 days of the current year and 183 days over a 3 year period (this period being the current year and the 2 years prior).

For queries regarding your tax the IRS has an interactive tax assistant. This online database contains answers to frequently asked questions to help individuals and households with tax problems.

The income tax due date is normally the 15th of April; However, due to the current coronavirus pandemic, the due date for income tax return 2018/19 has been deferred 3 months to July 15th.

Tax Advice for Actor Expats in America

The USA has one of the biggest entertainment industries on the planet. Every year thousands of budding actors from all across the globe make the move to America to further their career. We have compiled brief tax advice for an actor who has moved to America.

The Forms 

British expats who are employed by a US employer must fill out form W-4, which lets their employer know how much tax to withhold from their pay check, based on their circumstances.

The US tax return form is called form 1040, and it can be e-filed online. The American tax year is the same as the calendar year, and the filing deadline is 15th April following the end of the tax year. It’s important not to miss this deadline, as fines for late filing are much higher than those in the UK.

There is a vast array of forms all with different uses. For a comprehensive list of each form and what each one is for, visit irs.gov/forms-instructions. Failing that you should contact a tax professional to assist you with your tax return.

More information on tax forms

Deductions

 Tax-deductible expenses function to reduce an individual/ household’s taxable liability. For example, if a household’s net income is $40,000, and they have $5,000 in tax-deductible expenses, said household will only have to pay tax on $35,000 of their income.

Some common deductible expenses include:

·     Travel - Any transportation, accommodation, Airfare that occur as a direct result of your work. You can also include 50% of Meals within this category

·     Agent Fees

·     Manager Fees

·     Equipment - Film Camera, Lights, etc.

·     Headshots

·     Office Expenses

·     Education

·     Promotional Expenses - Photos, Videos, Websites, Advertisements in trade publications, Business cards and other promotional expense

·     Makeup and Wardrobe - Deductible only when incurred through business use directly, i.e. not for a pair of Jeans you have used on stage but also wear day-to-day outside of Acting

·     Subscriptions: Magazines, Newsletters and other Subscriptions relevant to your business

·     Legal and Professional Fees

Receipts 

It is very important that you keep your receipts organized and filed. If the IRS were to conduct an audit on your account, and were to query a deduction claimed, it would be your responsibility to provide the receipt for said deduction. Failure to do so would lead to a re-evaluation in tax owed and, depending on the severity of the circumstance, could lead to fines and maybe even legal action.

Tax Legislation for Expats

Specific legislation has been formed to provide financial aids for expats. It is important to be aware of the various legislations as they can allow for maximum savings on your tax bill.

Double Tax Treaty

Double tax treaties (also known as double tax agreements) are created between two countries, which define the tax rules when it comes to a tax resident of both countries. These agreements often aid in the reduction of overall tax liability for individuals who have to submit tax returns in two countries. Double tax treaties are complex and often require a tax professional’s assistance to make sure you are claiming correctly and taking full advantage of the legislation. 

The Totalisation Agreement

The Totalisation Agreement is designed to ensure that UK expats living in America (and Americans living in the UK) only pay social security tax (i.e. National Insurance tax) contributions in one of the two countries rather than both, with the contributions counting towards state pension entitlement in both.

Aid for Expats

Navigating the murky waters of US tax legislation is the last thing you will want to do when making the exciting move to further your career. We understand this and want to help. Please do not hesitate to contact us for expert advice on any and all of your tax needs.

Bambridge Accountants London and New York aims makes tax simpler for self-employed professionals worldwide.

Our team of highly trained US and UK accountants are expert in tax for all sectors within the creative industry. We have worked with self employed actors, photographer, graphic designers, architects, directors, creative directors and so much more. We have prepared thousands of UK tax returns and US tax returns for self employed professionals and learn't so much along the way.

Contact us for expert entertainment industry tax support

Returning To The UK - What Are The Taxes For UK Expats?

The current crisis has many UK expats returning home to be with family and loved ones. For others, they may just have been planning a short trip to their home country and have been unable to fly out due to flight restrictions.

Expat taxes when you leave the UK

When you leave the UK to move abroad, the UK tax year is split into 2 - you will be UK tax resident up to the date you leave and then non-resident for UK tax for the remainder of the tax year.

You will complete a UK self-assessment tax return, claiming split-year treatment.

You will also need to be out of the UK for a full tax year to claim the split year treatment.

UK residence and taxes

Your UK residence status impacts how you pay tax in the UK.

UK tax residents report worldwide income in the UK and are liable for UK tax. There are exclusions if your permanent tax home (tax domicile) is overseas.

Non-residents only pay UK tax on their UK source income, foreign income is excluded.

Tax issues for UK expats returning home

For British expats returning home early, you may now be deemed UK tax resident and will be liable for UK tax on your worldwide income.

If you were planning to be outside the UK to claim split-year treatment and you have come back early, you may not qualify for that tax status.

Now you are living in the UK, your UK tax return may need to be adjusted to report worldwide income for the entire time you were away.

The UK will give relief for double taxation, by recognizing foreign tax credits on foreign-sourced income. If the UK has a tax treaty with the other country, there may be further tax relief.

Returning to the UK within 5 years

While you are overseas, if you sell or otherwise dispose of assets you held before you left the UK, you may be liable for UK capital gains tax if you return within 5 years of leaving the United Kingdom.

The UK tax will be charged in the year you return to the UK, the tax due date being 31 January following the end of the tax year.

UK tax returns once you move back

Once you arrive back in the UK, if you have foreign taxable income, were outside the UK for less than a whole UK tax year, or you are working for yourself you may need to register with HMRC for self-assessment.

Exceptional circumstances

If you have been unable to leave the UK due to the current travel restrictions, and based on the number of days you have spent in the UK you would deem to be non-tax resident, HMRC will grant 60 additional days in the UK to keep your non-residency tax status.

As an expat explore the number of days you have spent in the UK so far this year - HMRC are trying to assist expats meaning you may still be able to claim non-residency for tax.

Summary

As an expat accountant, we specialize in expat tax UK reporting and also US expat taxes. If you need assistance, feel free to contact us here.

Business Tax Reliefs in the UK

The government and HMRC have introduced a number of tax reliefs to work as an incentive to entrepreneurs to keep their business’s growing and thriving. As a business owner or self-employed professional, you can experience huge benefits from understanding the different reliefs and credits you are entitled to. 

Understanding how the tax system can work in your favour could not be more important, especially as we move towards a post-Brexit economy.

What is the difference between tax credits and tax deductions?

Tax credits are often regarded as superior, in terms of tax savings, to deductions. Credits are deducted from income before gross before-tax income is determined. Deductions are taken in the next step of the tax process, reducing the net taxable income.

Business Tax Credit and Deductions for ‘Going Green’

The government have introduced many incentives to encourage energy efficiency and being environmentally friendly. In addition to tax credits, you may also be eligible for tax deductions for changes made to your business facilities.

 Examples of some ‘Going Green’ credits: Business Energy Tax Investment Credit

Research and Development Tax Credits

Research and Development tax credits have been introduced to encourage businesses to build and discover in their field. The PATH Act of 2015 includes some increased incentives- in the form of tax credits- for small businesses who use the R&D tax credit.

Alternative/Hybrid Vehicle Tax Credit

Individuals and businesses who buy and use a new hybrid or electric vehicle can take advantage of the Alternative Vehicle Tax Credit.  

Contact us for more advice and tips on the different tax credits that can be claimed

How to get a mortgage as a self-employed first-time buyer

Nationwide, it is becoming more and more difficult be granted an appropriate-sized mortgage. The number of people going self-employed within the UK is increasing every year, with self-employed workers now accounting for 15% of the working population (Jones, 2018).

There are a number of problems currently associated with being self-employed, i.e. the pension crisis and getting a mortgage. This article focuses on how to get a mortgage as a self-employed individual.  Research has shown that 30% of self-employed homeowners feel that the mortgage process is biased (McDowell, 2018).

 There is no such mass-market thing as a mortgage especially designed for the self-employed (currently), self-employed individuals are able to get the same- if not a higher- income than employed professionals and so are in the same pool as everyone else for mortgage brokers. However, the problem associated with self-employed individuals getting a mortgage is often the issue of proving their income.  

Proving you income to mortgage brokers

Generally speaking, the longer that you have been self-employed the better; this way you can show a steady ability to pay towards a mortgage. The majority of lenders insist that chartered accountants do the accounts. Feel free to contact us to see about getting your accounts done with the goal of getting a mortgage in the future. 

 You will also be expects to present the income you’ve reported to the HMRC and the tax paid, a SA302 is used to show this.

Planning towards getting a mortgage 

One thing that is overlooked by so many self-employed professional, when they go to enquire about getting a mortgage is the amount they are claiming in expenses. Yes, on the most part it is great to save money against tax. However, when it comes to getting a mortgage- not so great. In the spirit of being granted mortgage, you should consider not claiming the maximum and paying a little extra tax for a few years. If you are seeking to get a mortgage as soon as possible, but have previously claimed the maximum, feel free to contact us about backdating your tax returns.

Just gone self-employed

If you have just gone self-employed and want to get a mortgage, don’t lose hope. There are specialist lenders such as Precise Mortgages and Kensington that may consider applicants with only one year worth of accounts. It should be noted that this is likely to come at a higher rate.

Your self-employed status 

The status of your self-employment, whether it is sole trader, company director etc., is an important factor to your eligibility for a mortgage. Sole traders are assessed differently depending on whether their income has increased or decreased over recent years. While contracts who earn a day rate can have their rate multiplied by the number of working days in the year, as well as looking at their past income.

Contact us for expert tax support for self-employed professionals

Expenses to claim as a self-employed consultant

As a self-employed consultant you are likely to have several running costs and expenses. Theses costs and expenses should be taken away from your business income to work out your profits. Not all expenses are allowable for tax purposes, it is therefore important to be aware of you what you are and aren’t allowed in order to save money against tax and avoid a HMRC enquiry.

What are allowable expenses? 

Allowable expenses include costs that you pay with the sole purpose of earning business profits. You’re not able to deduct costs:

·      For non-business or personal purposes

·      For buying or improving fixed assets or capital items which last for several years

·      Which are recoverable under an insurance policy

Below are some allowable expenses that you may be able to claim as a consultant:

Accountancy fees

Accountancy fees, like many other professional fees, are allowable expenses. This means that you can claim the cost of your tax returns against your taxable income.

Advertising

As a consultant it is likely that you have to market yourself to gain work. The money you spend on ad campaigns and creation is claimable against tax. This includes the costs of running a website.

Car Insurance

If you have brought a car for the purpose of work, traveling from one client to another, you can claim a portion of your car insurance against tax.

 Contact us for expert tax advice for consultants

What are statutory accounts?

Statutory accounts (commonly known as annual accounts) are financial reports that must be prepared and filed at the end of each financial year. For UK private limited companies statutory accounts are a compulsory part of the tax year.  

Statutory accounts are used to report financial activity and the performance of limited companies; as well as being used to calculate corporation tax.

Once your Statutory accounts have been prepared they should be sent to shareholders, Companies House and the HMRC.  

Limited companies must produce their annual accounts in line with either IFRS Standards or the New UK GAAP. Therefore they must include a balance sheet, a profit and loss statement and notes about the accounts.

Depending on the size of your company, you may also need to include a directors’ report and/or an auditors report.

I’m a small business owner. Do I need to file statutory accounts?

If you are the owner of a small business you may not be required to file full statutory accounts or supply chain reports.

Dormant companies, micro-entities and small companies are subject to different rules when it comes to statutory accounts.

 

Dormant companies and statutory accounts

If you are the owner of a dormant company you are not required to audit your company nor submit an audit report.

Micro-entities and statutory accounts

If you are the owner of a micro-entity, Companies House will accept simpler statutory accounts and balance sheets.

Small Companies and statutory accounts  

If you are the owner of a small company Companies House will accept ‘abridged’ accounts.  These contain much simpler balance sheets and make less information about your company publicly.

Contact us for support on your statutory accounts

The Basics of Tax for Business Owners

As a business owner it is important to be aware of your companies tax obligations and liabilities. There are a number of taxes that small businesses are required to pay. Below is our breakdown of the taxes you should know about as a business owner:

Corporation tax 

If you are the owner of a limited company and your profit is above a set threshold it is likely that you are required to pay corporation tax.  Corporation tax is self assessed- meaning that the company is required to calculate how much Corporation tax they owe. This should be paid nine months after the businesses tax year-end. 

VAT  

If your business sells products and services, then- depending on your company’s income- you may be required to start charging clients Value Added Tax (VAT). VAT is chargeable on the majority of products and services sold in the UK. VAT is usually charged at a rate of 20% of the price of the product or service. 

National Insurance 

If you employ staff then you are required to pay National Insurance Contributions (NIC). These payments should  be made directly to the HMRC when you run payroll. 

Income tax 

If you are a sole trader, you are required to pay income tax based off of the income of your company. You must start paying income tax once your income exceeds the personal tax allowance.

Business rates

The business rates you are required to pay depend on the location of you company and the type of company you run. There work the same as council tax.

Contact us for expert tax advice for business owners

Updated 21st September 2022

As accountants specialists in UK and US investments,  we have experienced increased demand from both clients and our article readers for more information on UK tax on cryptocurrency. 

This article will break down how cryptocurrency is taxed in the U.K and tax planning considerations for cryptocurrency in the future. 

We will update this article as the UK tax treatment of cryptocurrency develops. 

For an explanation of how cryptocurrency is taxed in the US and  how to reduce US tax on cryptocurrency- go to this article 

Disclaimer:

Please note: Recommendations and obligations for crypto investors will vary depending on the circumstance. This article offers a general overview of the topic.

We recommend always consulting a certified UK tax adviser for cryptocurrency to ensure your investments are treated in line with UK tax law and for maximum savings against tax.

Skip to different questions in the articly by selecting from the list below

How is cryptocurrency taxed in the UK?

How Capital Gains Tax is applied to Cryptocurrency 

What can I deduct when calculating my crypto gain/ losses?

Do you pay tax on all crypto gains?

How to pay capital gains tax on cryptocurrency in the UK?

UK Income Tax on cryptocurrency 

What should you know about Paying Employees in crypto-assets

What you should know about Trading (buying and selling) Cryptocurrency?

UK Inheritance Tax on cryptocurrency 

Are gifts of cryptocurrency taxable in the UK?

Tailored advice for UK tax on cryptocurrency

What is Cryptrocurrency?

'Cryptocurrency' is a term often used when referring to ‘virtual currencies. 

Cryptoassets or cryptocurrency- sometimes called “tokens”-are defined by HMRC as “cryptographically secured digital representations of value or contractual rights that can be transferred, stored and traded electronically”. 

Bitcoin is by far the most popular and well-known cryptocurrency. However, there is a wide range of cryptocurrencies available both to invest in and purchase. Some examples of cryptocurrency include

• Bitcoin
• Ethereum
• Tether
• USD Coin
• BNB

The value of some types of cryptocurrency has risen at such a rate that ‘bitcoin millionaires’ are becoming a norm. The surge in cryptocurrency income has been followed by an increased interest in how virtual income is taxed in the UK

How is Cryptocurrency Taxed in the United Kingdom?

As with any other currency, there is no specific crypto tax in the UK. Instead, your crypto will be subject to either income tax or capital gains tax.

 Whether you pay income tax or capital gains tax will depend on how you're using crypto and the particular transactions you’re making.

The treatment of cryptocurrency in the UK tax system is an evolving area, we will keep this article up to date with all the latest UK cryptocurrency tax changes.

Save this article to your bookmarks so you always have it to hand when handling UK taxes on your cryptocurrency

How Capital Gains Tax is Applied to Cryptocurrency

In the majority of cases, you will hold crypto assets as a personal investment, usually for capital appreciation or to make particular purchases. In these instances, you will be liable to pay Capital Gains Tax when you dispose of the crypto. 

A ‘disposal’ is a broad concept and includes: 

·      Selling crypto for money

·      Exchanging crypto for a different type of crypto

·      Using crypto to pay for goods or services

·      Giving away crypto to another person (unless it’s a gift to your spouse or civil partner)

View the capital gains thresholds

What Can I deduct When Calculating my Crypto Gain/ Losses?

There are certain allowable expenses/deductions that can be claimed when claiming a loss on your cryptocurrency against tax. These include, but are not limited to: 

·      Transaction fees paid

·      Advertising costs for a purchaser

·      Professional costs eg. to draw up a contract for acquisition or disposal

·      Costs of making a valuation or apportionment to be able to calculate gains or losses

·      Exchange fees

Speak to one of our chartered crypto tax accountants for more information on what you can claim

Help on calculating your crypto gain/loss:

This can be complex, however, with a want for providing you with as much information about UK tax on crypto as possible we have included. If any questions come up just drop us an email. 

Feel free to skip to “Do you pay tax on all crypto gains?” if you would like to avoid technical jargon.

The gain/loss is equal to the disposal proceeds less the base cost of the cryptocurrency.

The base cost is determined by applying specific ordering rules on a cryptocurrency by cryptocurrency basis to acquisitions:

1. On the same day.

2. Within the following 30 days.

3. From the ‘pool’, which effectively means that gains on disposal are calculated using the average cost of the cryptocurrency.

Do You Pay Tax On ALl Crypto Gains?

No, HMRC gives every UK taxpayer a Capital Gains Tax Allowance of £12,300 in the 2021-22 tax year. This means you'll only pay Capital Gains Tax on any capital gains over your £12,300 allowance. 

However, this allowance is not just for cryptocurrency, it includes all capital gains within a tax year eg. gains on shares, securities, property etc.

The rate of tax you will pay for any gain over the allowance will depend on your level of income (10% for basic rate taxpayers and 20% for everyone else).

How to Pay Captial Gains Tax On cryptocurrency in the UK?

You report cryptocurrency gains on the Capital Gains Summary (SA108) pages in your annual Self-Assessment tax return.

As cryptocurrency is neither a listed nor unlisted share, information on any capital gains or losses should be detailed in the section ‘Other property, assets and gains’ in boxes 14 to 22.

In some instances, you may want to declare your ‘buying and selling’ crypto transactions even if you didn’t make a taxable gain. Why? If you made a loss by 'buying and selling cryptocurrency, you have two options. 

1) Your crypto loss can be offset against capital gains of the same tax year. 

2) Your crypto loss can be carried forward indefinitely against gains of future years. 

All UK residents are required to declare taxable cryptocurrency gains on their UK tax return. If you’re a US expatriate living in the UK and have declared crypto gains on your US return, you will still be required to report the gain on a UK tax return. 

For US expatriated holding cryptocurrency the article “us crypto article*title” may also be helpful

For more information on how to report cryptocurrency gains, book an initial consultation with a member of our team today.

How does the UK handle Income Tax On Cryptocurrency?

If you fall into any of circumstances below, you are eligible to pay income tax on your crypto assets: 

• Payment for Work
• Staking Rewards
• Tokens recieved from Mining Crypto
• Airdrop

If you receive cryptocurrency as a form of payment then it will be regarded as taxable income, thus you should pay income tax on your crypto assets.

There are circumstances where the rules and regulations around the taxation of cryptocurrency/ crypto assets remain unclear in the U.K. as the HMRC has little guidance on the matter. These include engage-to-earn or play-to-earn platforms and include: 

• Referral Rewards like Binance Referral

• Learn to earn campaigns, like Coinbase Learning Center 

• Watch to Earn platforms like Odysee

• Browse to Earn platforms like Premission.io browser extension

• Play to Earn games like Axie Infinity

• Shop to Earn through browser extensions like Lolli

• Share Public addresses to earn on platforms like Moon Faucet

However, it can be inferred that earning tokens and coins in this manner can be classed in the same bracket as Mining crypto and Staking Rewards which leaves them eligible for taxation. 

If you do have to pay income tax on your crypto-assets the earnings will fall into the U.K. income tax brackets for the year that you are filing based on the economic worth at the time. 

For complete clarity on whether you owe income tax on any of these earnings, we advise that you speak to a tax professional who is familiar with the taxation of cryptocurrency

What Should you know about paying employees in crypto-assets?

Where you are seen to be making an income from crypto, you will pay income tax. 

Cryptocurrency received as employment income count as ‘money’s worth’ and are subject to Income Tax and National Insurance contributions on the value of the asset.

Cryptocurrencies are readily convertible assets if trading arrangements exist or are likely to come into existence.

Accordingly, employer and employee, NICs will be payable when employees are paid in exchange tokens. The employer must collect the income tax and NICs due and pay it to HMRC through Pay As You Earn (PAYE). This applies even if an employee does not have a cash salary, in which case the employee must “make good” the tax the employer has paid on their behalf within 90 days of the end of the tax year in which the asset was received, otherwise additional income tax and NICs will apply.

If you retain crypto assets that were subject to income tax on the acquisition, CGT may apply on a future disposal.

What Should You know about trading (buying and selling) Cryptocurrency?

Trade in cryptocurrency is very similar in nature to trade in shares, securities and other financial products.

 If your crypto activity is considered to be trading then Income tax will take priority over Capital Gains Tax and will apply to profits (or losses). 

However, it is only in exceptional circumstances would HMRC expect you to buy and sell crypto with such frequency, level of organisation and sophistication that the activity would constitute a financial trade in itself. It’s often the case that you would describe buying and selling crypto as ‘trades’, however, the use of the term ‘trade’ is not sufficient to be regarded as a financial trade for tax purposes.

For most, the activity will not amount to trading but will be regarded as an investment where Capital Gains Tax will apply.

UK Inheritance Tax on cryptocurrency

The HMRC considers cryptocurrency property of the deceased for the purposes of inheritance tax and their value will be calculated at the date of death.

As part of the estate, crypto-assets are treated according to the normal rules on inheritance tax. 

For example:

A total estate of less than £325,000 is currently tax free and over that amount the tax rate will be 40 per cent. 

Estates left wholly to spouses are normally exempt from tax regardless of their value, and donations to charity are always tax-free.

Cryptocurrency can fluctuate in value and a sudden drop could result in beneficiaries paying disproportionate taxes. 

For example:

 Assets could be valued at a certain amount for inheritance tax purposes but could be worth half of that a week later if the market crashes. 

Unlike with other assets, at present, there is no tax relief for this situation.

This means the amount of tax payable would not be updated to reflect a fall in value of crypto-assets after death.

Are gifts of cryptocurrency taxable in the UK?

Gifting crypto in the UK is taxed. 

A gift of cryptocurrency is seen as disposal and is therefore subject to Capital Gains Tax.

The proceeds are considered to be the value of the crypto on the date of the transfer. 

For inheritance tax purposes, the gift will be considered as a ‘potentially exempt transfer’ (PET) and no IHT will apply unless the ‘transferor’ dies within 7 years of the transfer. 

How the UK treats cryptocurrency compared to how cryptocurrency is taxed in the EU?

When comparing the UK’s tax treatment of cryptocurrency to how some countries in the EU we can see major variations. 

There is not currently one set rule for tax on cryptocurrency between EU countries.

In general, members of the EU "charge capital gains tax on cryptocurrency-derived profits at rates of 0-50%", which is very similar to the UK.

However, in the UK, taxation on crypto assets and future developments are seen as less defined than in some European countries. 

“Some countries like Malta and Portugal have gone as far as creating crypto havens.”

Tailiored Advice for UK tax on Cryptocurrency

Recommendations and obligations for crypto investors will vary depending on circumstance. This article offers a general overview of the topic.

We recommend always consulting a certified UK tax adviser for cryptocurrency to ensure your investments are treated in line with UK tax law and for maximum savings against tax.
To speak to one of our certified UK tax advisors drop us a message or book an appointment

Bibliography

• HMRC on cryptoassets
• Notes about Bitcoin
• Notes about Ethereum
• Notes about Tether
• Notes about USD Coin
• Notes about BNB
• View a list of known Cryptocurrencies
• What is cryptocurrency staking?
• HMRC captial gains allowances
• The Financial Times on taxation of cryptocurrency and inheritance tax
• Binance on Crypto tax havens
• Coinbase on non-taxable crypto actions

What goes on a confirmation statement?

A confirmation statement is a form that was introduced to replace the annual return (AR01) in June 2016. The purpose of an annual confirmation statement is to verify important company data registered on Companies House to ensure it is correct and up to date.

Compared to the statements predecessor, the Companies House form AR01, a confirmation statement (CS01) is more straightforward as it is not necessary to enter previously filed information if there have been no changes in the past 12 months.  A confirmation statement gives you simple ‘check and confirms’ option that allows you to move last year’s details forward.

What is included on an annual confirmation statement?

Below we have put together some of the information that is included on a confirmation statement:

·       Company name and registration number

·       Registered office address

·       Single alternative inspection location (SAIL address)

·       Location of the company’s statutory registers (i.e. registered office or SAIL address)

·       Information about each director

·       Full name

·       Former names used for business purposes within the past 20 years

·       Usual residential address

·       Service address

·       Date of birth

·       Nationality

·       Occupation

·       Information about each company secretary (if applicable)

·       Name

·       Former names

·       Service address

·       Principal business activities (Standard Industrial Classification (SIC) codes)

·       Name of each shareholder

·       Shares held by each shareholder – class, quantity, and details of any transfers

·       Statement of capital

·       total number of shares of the company

·       aggregate nominal value of those shares

·       aggregate amount (if any) unpaid on those shares (whether on account of their nominal value or by way of premium)

·       For each class of shares, you’ll also need to provide the:

·       prescribed particulars of the rights attached to the shares

·       total number of shares of that class

·       aggregate nominal value of shares of that class

·       Trading status of shares

·       Information about people with significant control (PSCs)

·       Name

·       Month and year of birth

·       Nationality

·       Country, state or part of the UK where the PSC usually lives

·       Service address

·       Usual residential address (this must not be disclosed when making your register available for inspection or providing copies of the PSC register)

·       Date he or she became a PSC in relation to the company (for existing companies the 6 April 2016 should be used)

·       Which conditions for being a PSC are met

Confirmation statement deadline

Your confirmation statement deadline, otherwise known as a confirmation date, is due on the anniversary of your company’s formation. You can find out this date by accessing public records.

Can I withdraw from my pension early? Advice from a UK tax accountant.

Updated: 24/08/2022

If you are considering withdrawing from your pension early it is important to understand the different components of your pension that may lead to hefty fines. 

A rise in 'Early Pension Release' offerings from companies have been found in recent years. Anybody considering taking advantage of this offering should do so with caution and seek the appropriate advise. Early Release Pensions, some times called 'Pension Unlocking' involves withdrawing money from your pension before the minimum age of 55 (57 from 2028). 

Although not illegal, Early Release Pensions, have often been employed by scammers and sadly many innocent people have lost their savings as a result. Unless you meet specific conditions, you’ll be charged a substantial amount of tax on your early pension withdrawal.

Pension providers may charge you up to 30% on the total sum you withdraw which is a considerable chunk of money to miss out on. Further to this, the pension provider is then required (by law) to notify HMRC that you have withdrawn money from your account. This will be followed by a hefty 55% tax on the remaining amount you're left with after the previous 30% cost was incurred. Whether you felt you were aware of the potential costs or not, HMRC will require you to pay up. You can offer to pay the money back into your pension fund if you are yet to spend it but under certain circumstances, you will not be allowed to do so. 

EXCEPTIONS WHERE YOU MAY AVOID FINES:

There are some early pension tax exceptions that the HMRC allows where you may be able to access your pension pot early. It is important that this be done through certified professionals to ensure that you are eligible and avoid unnecessary expenses. 

1) You are severely ill and need to retire early for health reasons. 

2) Your life expectancy is less than a year

3) you had previously declared a 'protected retirement date' which brought the date of withdrawal forward. This had to have been created before 06/04/2006. This pension privilege is reserved for those in professions that are unrealistic to be in until the standard retirement age. 

In both these cases, your money would be released to your directly from your pension provider. 

Pension release at 55 

Once you have reached the age of 55 you can release money from your personal or work pension. 

Up to 25% can be withdrawn from your pension pot tax-free. This can be done as a lump sum or in smaller instalments.  

For more information on pension tax planning contact us 

Are you saving enough for retirement?

Retirement planning doesn't have to be complicated but can often be neglected because we like to prioritise our current spending. Failing to pay into a pension or disregarding retirement saving might make your bank account a little fuller in the short-term, but when you reach an age where generating an income isn't as easy as it once was, you'll find yourself high and dry if you don't plan ahead. According to a study by Which? the average household needs £18,000 a year to cover household essentials and this doesn't include costs of any bucket-list items you might have been saving for your wonder years - keep reading to find out if you're doing enough to save for your retirement.

You might want to start by finding out how much you already have saved. While household essentials came in under £20,000, the figure rises to an average of £26,000 when you take into consideration 'luxury' additions like leisure activities (what retirements are made for!). If you check up on your funds and they're underperforming, having a reshuffle and seeing what other plans are available will help maximise your assets.

According to the Bureau of Labor Statistics, the average worker will hold 10 different jobs before the age of 40 and this can make keeping up with your work pension schemes difficult. You may have funds saved you've forgotten about entirely and you wouldn't be alone - at the last count, there was £3 billion of unclaimed savings. Workplace pensions can be traced using 'Pension Tracing Service' and for Personal plans give 'The Pensions Advisory Service' a call. This will make sure you are getting all the funds you're entitled to. You may then wish to place all your funds under the same scheme to make keeping track of your savings easier. While this might not be possible with some savings due to penalties or complex clauses, modern schemes can often be cheaper and more tax-savvy, so explore all your options.

Pensions are tax-friendly so if you can afford to pay more each month into a retirement fund it can really pay off. You will tend to find increasing the amount you pay into a Workplace pension scheme will prompt your employer to match your contributions. With Personal pension plans, savings are from untaxed earnings resulting in a 25% increase on savings where you would have normally paid 20% income tax on any earnings. If you're a higher rate taxpayer, filing your annual tax return will enable you to claim back additional tax you paid on your contributions. 

If you haven't yet started paying into a pension plan, whether it be through work or a personal alternative, it's never too late to start. When taking into consideration tax breaks, even if you haven't accumulated much you'll have dropped into a lower tax band at retirement age and therefore pay less in taxes when you choose to cash out. By law, 25% of the money you take out upon retiring is tax free regardless. 

What is Museum and Gallery Tax Relief?

The Museum and Galleries tax relief was introduced in November 2017 as an opportunity to claim back money on the production of Exhibitions. 

The premise of the tax relief is to allow museums and galleries which are charities to claim back some of the cost they incurred to put on their exhibitions, which the government hopes will make promoting the work of creative industries more sustainable. 

Non-touring exhibitions rates of 20% and touring rates of 25% will be applied to the equivalent of £500,000 of qualifying expenditure per exhibition. Current calculations are based on 80% of qualifying expenditure but must be incurred on and after 1 April 2017 but before the 31st March 2022. 

Museum And Galleries Tax Relief Doubled: What Does That Mean?

As part of the government’s Autumn Budget 2021, the Cultural Relief Rate has been temporarily doubled until April 2023. This includes the Museums and Galleries Exhibition Tax Relief (MGETR). 

In this article, we will be breaking down the rate changes implemented and guiding you whether you meet the requirements to claim the MGETR. 

What is the Museums and Galleries Exhibition Tax Relief (MGETR)? 

MGETR scheme is aimed to provide support for museums and galleries, allowing them to develop new exhibitions and display collections to reach a wider audience and benefit the public. 

The value of the relief:

There are two rates available for the MGETR. For the non-touring exhibitions, the qualifying expenditure has been increased to 45%, capped at £80,000 per exhibition. Whereas for the touring exhibition, it has been increased to 50% (available for both PPC and SPC*), and capped at £100,000 per exhibition, per venue.

The plan for the following years is to increase the MGTER rates for the next two years and eventually go back to the current rates by 2024: 

What are the qualifying expenditures?

It needs to be taken into consideration that the qualifying expenditures applicable for the MGETR need to meet the following conditions:

• Expenditure incurred must be made within the European Economic Area (EEA), with a minimum of 25% sped within the EEA

• Expenditure must have been paid or subject of an unconditional obligation pay

• Expenditure incurred for producing and uninstalling the exhibition at each venue are claimable

Who qualifies?

To qualify for the MGTER, you must be an Exhibition Production Company (EPC). 

This means you are: 

• A charitable company that maintains a museum or gallery

• Wholly owned by a:

• the charity which maintains a museum or gallery

• the local authority which maintains a museum or gallery

• a charity formally recognized by the HMR

• Identify as the Primary Production Company (PPC) or the Secondary Production Company (SPC)

*Primary Production Company (PPC) and Secondary Production Company (SPC): What’s the difference?

Primary Production Company (PPC) 

If you are a Primary Production Company (PPC), you are responsible for organizing an exhibition at the first venue (touring) or only venue (non-touring). 

The responsibilities would include:

• Creative and Technical decisions

• Contractual Agreements

• Producing and running the exhibition

• Uninstalling and closing the exhibition

Secondary Production Company (SPC)

 If you are a Secondary Production Company (SPC), you are responsible for organizing an exhibition at the second or any following venues for a touring exhibition.

The responsibilities would include:

• Production and running the exhibition of the venue

• Deinstalling the exhibition at that venue

You cannot be both a PPC and an SPC for the same exhibition.

What exhibitions qualify?

The exhibition must be accessible and open to the public to qualify for the MGETR. However, it does not matter if there are any admission fees or not. 

A qualifying exhibition must meet the following criteria:

• It is an arranged public display or organized collection of objects and works considered to be scientific, historic, artistic, or of cultural interest

• It can be a single object

• It must be at least 25% of core expenditure spent on goods/services that are provided within the European Economic Area (EEA)

(Core expenditure to be spent on either producing the exhibition or uninstalling and closing the exhibition, if open for a year or less)

A qualifying touring exhibition must meet the following criteria:

• The exhibition is held at more than one venue

• At least 25% of objects or works displayed must also be exhibited at every following venue

• No more than 6 months

• ' gap between uninstalling at one venue and installing at the next.

• There must be a Primary Production Company (PPC) within the charge of Corporation Tax, for the exhibition

• The PPC was be involved in the planning stage that the exhibition will be touring

What exhibitions are excluded from MGETR?

An exhibition will fail to meet the criteria for claiming relief if it is

• Organized in association with a competition

• Intention and main purpose are selling the displayed objects or works

• Any part of the display is alive

• Includes a live performance

• Less than 25% of ‘core’ expenditure incurred is EEA expenditure

How to apply?

Museums and Galleries Exhibition Tax Relief can be claimed under the Company Tax Return. You would have to calculate:

• Additional deduction due to your company

• Any payable credit due

You will also need to provide:

• Statements of the total core expenditure (EEA and non-EEA expenditure separated)

• Breakdown of expenditure by category

It needs to be taken into consideration that the rate increase is only applicable for production activities that begin on or after 27 October 2021.

Creative Industry Start-up company tax advice

We have worked with both start-ups and established businesses in the creative industry for over 10 years. Our wealth of knowledge in creative industry business tax allows start ups to access all of the exclusive tax breaks they are entitled to, that will enable them comfortably make it through their first year.

New Creative Industry Start Up Venture

Cash flow is often the make or break factor of any business. Prompt invoicing and good credit control are essential to you businesses success and survival.

There are a number of tax reliefs that exist to support companies that are just starting out.

Pre-Trading Expenditure Relief

Many creative industry entrepreneurs spend years preparing for their businesses launch- buying equipment, such as camera equipment, bit by bit. Whether the purchases were consciously towards your launch or an unconscious contribution towards your unforeseen business, the expenditure is often claimable.

Pre-trading expenditure can be deducted from the turnover of your businesses first accounting period- as if it has been incurred during the first year of trading.

Please note there are some items that do not qualify as a claimable pre-trade expense, such as capital expenses.

VAT

Whether you need to register for VAT is likely to be an early consideration.  There are a number of compulsory registration requirements that may well mean that you do not have an option.

If you are likely to be incurring work-related expenses on a regular basis we often recommend you register for VAT from the get go. For instance, if you are a filmmaker and are going to have to upgrade your camera and editing equipment regularly. 

Pre-registration VAT

If you have decided to register for VAT, you should first consider whether any work related VAT has occurred prior to registration. Pre-registration input VAT may be reclaimed on goods acquired within four years of the effective registration date (EDR), provided the goods are still in use at the EDR, and for services within six months.

EDR

If you register for VAT after beginning trade, it is important to ensure the optimum date for recovery of the maximum pre-registration input tax. For voluntary registration, the EDR can be backdated to upto four years.

Early year Losses

It is perfectly normal to make slight losses within your first year of business. To aid start-up losses, the normal one-year carry back facility is extended to the three years preceding the loss. This extension applies to losses incurred in the first four years of trade.

This can be extremely useful for entrepreneurs who were previously employed, as sideways loss claims can lead to a tax refund- providing a cash injection for the your business.

 

Sideways loss Relief

In order to claim sideways loss relief you will need to prepare your accounts and tax return on the accruals basis. The HMRC will deny relief if it determined that the trade is not being pursued on a commercial basis, i.e. it’s actually a hobby.

 

Contact us for expert creative industry tax advice for start ups.

Tax advice to a UK business expanding to the US

As a UK business considering expanding to the US it is essential that you understand that tax obligations and implications you will incur as a foreign business in the US. 

EIN and Form 8832

Before any forms are completed, the firm must obtain an Employee Identification Number (EIN) from the IRS.  When this happens, the IRS will automatically designate the company as either a corporation, partnership, or disregarded entity with one owner.  From there, the foreign company should fill out form 8832 to either confirm this classification or elect a different one. 

W-8 Forms

The most important step in this process is filling out one of the W-8 forms.  This type of form acknowledges that the foreign company intends to take advantage of the tax treaty they have with the US, and therefore will see the 30% withholding tax reduced.  For UK businesses, this rate is reduced to 0%, so they should not have to pay any withholding taxes on payments received from US businesses.  This applies to a wide variety of income types, including interest, dividends, rents, royalties, premiums, annuities, and compensation for services.  In most cases, the company making the payment or the IRS will tell the firm which form to fill out.   Usually, foreign entities will fill out W-8BEN-E while partnerships will use W-8IMY. 

Setting a business up in a physical location of the US

If the UK company decides to set up a physical location in the US, they will be subject to US corporate tax.  The firm should file form 1120 and pay the tax to the IRS.  This income should also be reported on the UK tax return.  However, they may file for double tax relief under the UK/US tax treaty and reduce their UK tax liability by the amount of US tax paid.  If the company does not have a physical location in the US, they do not have to pay US Corporate Tax. 

Form 1065

Additionally, the IRS may request that a company entering the US provide records of their income and expenses for past years.  This is commonly done using Form 1065, and is strictly for reporting, not tax, purposes. 

By following these steps, any UK business can efficiently begin operating in the US while minimizing their tax burden and remain in accordance with all US tax laws.    

Contact us for expert US Corporation tax advice

Expenses and Deductions for Musicians

One of the first steps that we will take when looking at your accounts is ensuring that you are claiming absolutely every expense you are eligible to as a musician. 

MUSICIANS HAVE A NUMBER OF TAX DEDUCTIONS THAT ARE UNIQUE TO ANY OTHER INDUSTRY.

Below we have put together a list of some of the expense you are entitled to as a musician. 

CLOTHING

Clothing can be an extremely useful expense to claim on your tax return. As a musician you almost definitely spend some of your income on work-related clothing, whether it be clothing for auditions, shoots or rehearsals.

Clothing is definitely one of the more obvious expenses to claim. However for a smooth and painless tax-filing season every year, it is vital that you are aware of your entitlements when claiming this expense. Many musicians are subject to penalties and hold-backs due to over claiming. 

USE OF HOME AS AN OFFICE

Use of home as an office is an expense that all too often missed out by musicians. If you use your home to apply for auditions, rehearse or any other work-related uses you are entitled to claim this expense.

You are able to claim a percentage of your household bills for your use of home as an office.

TRAVEL TICKETS

Part of the nature of being a musician is constantly performing and practicing at different locations. All travel that is work-related is claimable against tax. Therefore flights, train-tickets and bus-rides to photography shoots are claimable. 

It is important to note that if your travel was partly personal-related, i.e. 5 days of your travel were taken as holiday, you must apportion the expense.

Work-related petrol and other motor costs are also claimable.

EQUIPMENT 

Perhaps on of the most obvious expenses to claim for a musician is work-related equipment i.e. your instrument or microphone! This expense can, however, be stretched much further. For example, the equipment need to maintain your instrument. 

Make sure you are identifying all work-related expenses on equipment. Equipment is defined as items that you intend to use for a prolonged period. Your do not include this in your business expenses but instead in an AIA (Annual Investment Allowance), which works to reduce the tax you pay. 

Find out more expenses and deductions you are entitled to as a musician. Contact us now.