Q: I am a director of a small limited company and want to make a donation to a local children's hospice this Christmas. Can you advise on the best way to do this?

Ellie, Norwich

A: Assuming that the children’s hospice is a registered charity your company will get corporation tax relief on the donation.  For small companies (profits below £300,000) the rate is 21% for the tax year to 31 March 2010. To get the tax relief, the company simply makes the payment to the charity and deducts the amount as a 'charge' when working out its profit for corporation tax purposes.

Unlike the gift aid scheme for individuals, your company will make the full payment to the charity. You do not need to deduct any tax from the payment and the charity does not claim back any tax on the donation it receives.

You are no longer required to provide a Gift Aid certificate to the charity or provide a new form of declaration, however it is recommended that you retain evidence of all the charitable donations made in the year.

If your company does not have a corporation tax liability in an accounting period where donations are made, there are special rules that determine how any loss created by the donation can be used. Your local TaxAssist Accountant can provide further details on this treatment.

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Limited Company Tax Advice from TaxAssist Accountants

Poor payers can seriously impact on your company's cash flow

Keeping cash flow going in our current economy is key, so small businesses that are afraid to play hard ball with late paying clients run the risk of becoming victims of the recession.

The threat of incurring monetary penalties on unpaid bills is often the best incentive to persuade business clients to pay.  Businesses have a legal right to claim interest from late-paying business customers, but not individuals. Until the end of the year, businesses have a statutory right to charge an additional 8.5% in interest on top of unpaid bills.

The statutory right to charge late-paying business customers interest applies to contracts which do not already include their own arrangements for 'substantial' interest. If there is no agreed credit period in the terms of business, the law sets a default period of 30 days. Interest can be charged 30 days after goods are delivered, the service is provided, or after the purchaser is notified of the amount of the debt - whichever happened latest.

Although you do have a legal right to enforce your debt and add interest, this can have a negative effect on the relationship with your client.  For one off jobs this may not be such a big issue, but for clients you want to keep, this can have a detrimental effect in the long term.  Often late-payment is a direct result of unclear payment guidelines, or not understanding the way a client’s accounts department works (normally they are a very different beast to your day–to-day contact).

Charging interest should be considered as a last resort- by following the guidelines below, the instances of getting into this situation can be significantly reduced:

• Agree all the fees upfront before starting any work
• Encourage customers to pay a deposit in advance of any work being completed
• Ensure your terms and conditions- especially the payment terms- are understood by the customer before work is started
• If credit is given, before deciding on the amount of credit, checks should be made on the credit history of the client using a credit reference agency
• Consider using a credit insurer to insure any potential bad debt, credit insurers will also help in deciding the level of credit given
• Issue clear invoices promptly after the work has been completed and statements at the end of each month.  Many customers pay when they receive a statement rather than an invoice
• Consider using discounts and incentives to encourage prompt payment
• Keep in touch with the customer and use a credit control system so that you can instantly see who owes you money - and don’t be afraid to follow up any promises of payment that are not fulfilled
• And finally, chasing payment can be very time consuming - if you aren’t having any success then you can always enlist the help of a professional in this field so that you can get on with running your business.

This advice has been prepared by Jo-Ann Westlake, the TaxAssist accountant for Exeter. For more information on how to effectively chase payment from your customers, speak to your local TaxAssist accountant.

Q: I am currently looking to take on a new member of staff. I understand the national minimum wage rules may mean I have to pay him a certain hourly rate. Is this true?

Sally, London

A: Most employees are entitled to be paid the national minimum wage and the rate at which they are paid varies depending on their age.

From 1st October 2009, the national minimum wage for adults aged 22 and over increases to £5.80 per hour. The development rate increases for 16-17 year olds to £3.57 per hour and for those aged 18-22 to £4.83 per hour. The government has also promised to reduce the qualifying age for the adult minimum wage rate from 22 to 21 with effect from October 2010.

There are a few exceptions which apply to the above rates for a small minority of workers.  Currently, apprentices under the age of 19 are not entitled to the national minimum wage and apprentices between the ages of 19 and 25 are not entitled to the minimum wage in the first year of their contract.

For this purpose, apprentices are either workers who have contracts of apprenticeship, or workers who are taking part in specific training programmes which are funded by a local development agency. You must ensure you have a written agreement between you and your new worker which confirms they are employed on an apprentice contract.

For more information on whether or not your employee counts as an apprentice you should visit www.businesslink.gov.uk or speak to your local TaxAssist accountant.

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Payroll Accounting Advice from TaxAssist Accountants

Q: My tax affairs are quite simple in that I am employed and my only other source of income is approximately £2,600 per annum from a property that I have a half share in. Do I have to file a tax return?

Katie, Bath

A: Many individuals with relatively simple tax affairs are now able to deal with various issues with Her Majesty's Revenue & Customs (HMRC) by telephone and this can dispense with the need to file an annual tax return.

You can notify HMRC of any changes in personal circumstances, including changes which may affect any claims to personal allowances you are entitled to.  You can also notify HMRC by telephone of changes to your employment or self-employment status and advise them of any untaxed income, up to a limit of £2,500.

Where untaxed income exceeds £2,500, it is necessary for the individual to complete and file a self assessment tax return.  As your rental income is £2,600, you should therefore contact your local tax office and ask them to issue a tax return form to you.

Before completing your tax return form you should consider seeking advice from an accountant.  They will be able to review your circumstances to ensure that you claim any reliefs and deductions available, in order to minimise your liability to tax. 

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Property Tax Advice from TaxAssist Accountants

Q: My business has been badly affected by the recession and I have taken the decision to enter early retirement and close down. I am going to keep most of the stock left over, plus a number of tools and equipment which I used for the business. Will I have to pay over any VAT on these items?

David, London

A: When you cease trading, it is important to remember to notify Her Majesty's Revenue and Customs within 30 days of the final day of trade. Once they receive this notification, they will send out a final VAT return for you to complete.

When you cease trading, VAT must be accounted for on stock and certain assets at the close of business on the day your VAT registration is cancelled. You must pay VAT if the market value of standard rated items exceeds £7,666 and this is accounted for on your final VAT return.

The standard rate of VAT reverts back to 17.5% in January 2010, at which point the above threshold will reduce to £6,714.28, which is equivalent to £1,000 in output VAT.  If the items are valued below this figure, then you will not have to pay over any VAT.

It would be prudent to keep a list of the stock held at the close of business, with a note of the estimated value of  any equipment in case there are any queries by HM Revenue & Customs at a later date. If you can obtain a written valuation from the supplier this would be ideal, otherwise you could use advertisements for similar second hand goods as a basis of arriving at an estimated value.

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VAT Accounting Advice from TaxAssist Accountants

Q: I live in Australia and recently left the UK, after spending 6 months on a work placement to continue my studies at university. I have paid UK income tax on my UK employment income. Can I reclaim any of this?

Steve, Melbourne

A: When you undertake a contract of employment in the UK, you will be subject to deductions of income tax and National Insurance under the PAYE regulations, irrespective of the fact that you are not originally from the UK.

When you first arrived in the UK, you should have completed form P86, which should then have been filed with HM Revenue & Customs (HMRC), to notify them of your arrival.  When leaving the UK  a similar form, P85, should have been completed and filed. These forms are important and help HMRC to determine your liability to tax in the UK.

The UK tax year runs from 6th April one year to 5th April next and HMRC will need to work out your liability to UK income tax on your earnings for the period you were in the UK, which may fall into more than one tax year. As you are a commonwealth citizen you are entitled to claim the normal UK personal tax allowance, which is £6,035 for 2008/09 and £6,475 for 2009/10. 

If the relevant forms were not filed with HMRC, then it is unlikely that your employer would have been operating the correct PAYE code on your earnings and you may have overpaid tax.  If this is the case, you will be entitled to a refund.

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PAYE Services & Advice from TaxAssist Accountants

Q: I am forming a charity to provide funds for a local children's hospice. Am I right in thinking that because we are a charity, we will not be charged VAT on the equipment we donate?

Helen, Bristol

A: Registered charities are not exempt from registering for VAT. If business activities exceed the VAT registration limit, the charity must register for VAT.  The current registration limit is £68,000 and if the charity is VAT registered, it will be able to reclaim the input VAT charged on purchases

It is worth checking the VAT status of the items you supply, as some carry a reduced rate of 5% and some are zero rated, meaning they have no VAT charged on them at all. Examples include some advertising services and certain equipment supplied in caring for the disabled.

You should speak to your local TaxAssist accountant who will be able to supply more details on the rate of VAT that applies to the sales you make.

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Tax Advice & Savings from TaxAssist Accountants

Q: I am in the process of setting up a new business and have applied for some government grants. Will these be taxable?

Richard, Manchester

A: The general rule is that grants are taxable unless you are advised otherwise.  The income is normally set against the expenditure for which they were intended to contribute. Where grants are made as a contribution towards specific expenditure on fixed assets, they should be included in the accounts over the useful life of the item concerned.

For example, if you receive a grant for advertising, which is a type of revenue expense, the amount received will be deducted from the advertising costs in your accounts.  This will increase your profits, which in turn will increase the amount of tax due. On the other hand, if the grant is for a new piece of machinery, that is a type of capital expenditure and is treated differently. The cost of the capital item is reduced by the amount of grant received for the purposes of calculating capital allowances.

Some grants may be tax-free and you should always read the small print or conditions carefully, or get your professional advisor to do so for you, before you proceed.

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Start Up Business Accountancy Services from TaxAssist Accountants

Q: I own a small retail business, trading as a limited company from premises on an industrial estate. I have in the past annoyingly received contact from suppliers at my home address who have obtained my details from Companies House. I understand that company law is now changing, will the changes prevent this in the future?

Claire, Newbury

A: Yes, provisions coming into force on 1st October 2009 in the Companies Act 2006 will allow you to set out a service address as well as your usual residential address. The service address may be the company’s registered office, or somewhere different. Companies will have to maintain two registers of directors, one of which will contain a service address for each director and the other register will detail the residential address of each director (this will be protected information).

Home addresses will not be put on public record by the Registrar of Companies after 30 September 2009. Companies House will still hold a register of residential addresses, but access will be very strictly limited (eg liquidators, the police, HM Revenue & Customs and credit reference agencies).

There is an obvious advantage of registering a service address, so it is important you speak with your accountant to find out how you can take advantage of this change in the law.

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Limited Company Tax Advice from TaxAssist Accountants