Stamp Duty Land tax

Are you a first-time property buyer or have no idea about stamp duty? This is a fact of life for any property buyer and this article will unearth everything about stamp duty and make it known to you.

What is Stamp duty?

Stamp duty land tax (SDLT) is the tax on all property and land transactions. At a very basic level, stamp duty is the tax levied on a number of acquisitions which include selling cars, real estate, and other assets to a business. The tax can also be levied on some insurance, gifts, copyright, patent, securities and home loans. The transfer of documents can only be legally enforced if they are stamped, the stamp shows the amount of tax (stamp tax) paid.

Who pays the tax?

All land transfers and sales of property including the properties received as gift attracts a stamp duty. The circumstance of the sale or transfer determines who between the purchaser and borrower is to pay the tax. However the following concessions (exemptions) may apply depending on your location or state.

  • Deceased estate
  • Pensioners
  • Family farm
  • Young farmers
  • First time buyers
  • Off-the-plan sales
  • Principle place of residence

When you swap properties and no cash is involved you will have to pay tax. Even if you buy the property via mortgage or outright buying the tax still applies.

The only time you won’t be required to pay the tax is in case of divorce or separation. You will only pay the tax when you transfer shares of the property to the other partner or sell the property to a third party.

First-time buyers and stamp duty

If you are first-time property buyer you will pay the same rates of tax as everyone else. However, those buying a home will not be asked to pay anything if its value is below £125000.

If the value is more than £125000, your stamp duty will be charged on percentages that increase proportionally to the value of the property.

When do you pay stamp duty?

When buying and transfer of property is completed, you will have to pay the tax within thirty days of the completion date. This date is usually referred to as the effective date.

In some cases the tax can be paid earlier. For example if payment of the property is done before completion or you decide to move into your new home before completion, then the 30 days period starts on that specific date.

A conveyancer can handle tax payment on your behalf. However, it’s your full responsibility to ensure the right amount of tax is paid to the relevant authorities.

How much is stamp duty?

Stamp duty has several rate bands which vary depending on your country of residence and the value of the property. Each band has a percentage of the tax levied, to get the correct amount of tax you calculate the given percentage of the part of property price falling in each band. The table below gives an example of each band and their respective rates.

Minimum property purchase price. Maximum property purchase price Stamp duty rates
£0 £125000 0%
£125001 £250000 2%
£250001 £925000 5%
£925001 £1.5 million 10%
Over £1.5 million 12%

EXAMPLE

If you bought a property worth £175000, you will be required to pay (2% 0f 50000) = £1000 as the stamp duty land tax.

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What is Corporation Tax?

Corporation Tax is probably something you have heard about in the news but never quite understood what it is or how it differs from other taxes you pay. In this article we will explain what it is and when or not it applies to you and your business.

What is Corporation Tax?

Corporation Tax is essentially a tax on the profits made by a business. You will be expected to pay corporation tax if your business is a limited company, a foreign company with a UK branch or if your organisation is a club or community group.

You must pay Corporation tax on:-

  • Any trading profits made by your business
  • Investment profits
  • Chargeable gains made by your business (Any assets that are sold for more than their costs)

How is it paid?

The process of paying corporation tax is worked in four ways-

  1. Register for corporation tax when you establish a business or restart a new one (if you run an unincorporated association you need to write to HMRC).
  2. Make sure you keep updating your accounts and prepare a tax return in order to work out how much you need to pay.
  3. You then need to pay any taxes owed or report if there is nothing to pay (this is typically 9 months at the end of your accounting year).
  4. File a return 12 months at the end of your accounting year

Need help?

Knowing what you have to pay and when is important. When working with an accountant or tax adviser you will need to sit down and decide if you need to apply to pay for this. Knowing who to go to is equally important, that way you know you are receiving the right advice.

You may be looking to set up your own limited company and will need to consider how this will affect your profits. Alternatively you may be looking to restart up your dormant business and resume trading again. Taking these things into account it may be more prudent to start off as a Sole Trader or Limited Partnership before establishing yourself as a limited company. In both cases it is important consider the various advantages and disadvantages Sole Traders and Limited Partnerships have compared to Limited Companies.

Corporation tax differs from dividend tax, income tax, stamp duty and inheritance tax.

This is why we are here. At Accountant Chelsea we are experienced in helping all people and businesses deal with tax issues and understand their available options.

If you would like to learn more about Accountant Chelsea and how we can help you save money for your business, visit our homepage  to learn more.

Limited Liability Company vs Limited Partnership – Which one do you Choose?

Limited Company or Limited Partnership – What is best for you?

Setting up a business can be rewarding but it can also be daunting- there are a number of options available to you. We are going to look at limited liability companies and limited liability partnerships to see what is best suited to your business.

Limited Liability Company

A limited company is an organisation separate from your own finances. The major benefit is that the shareholders are not liable for the debts of the company (provided that they don’t break the law) but only for the shares that they haven’t already paid for.

The main benefits of setting up a limited liability include-

  • Pay less tax than a sole trader (corporation tax is set to be cut to 17% by 2020)
  • A more professional image- people are reassured by a more “official” company
  • Easier to secure funding than sole traders
  • Once registered with Companies House your company name is protected by law
  • Not as expensive as people think- it is possible to set up for as little as £15!
  • Easier to transfer ownership in the event of retirement, sell a shareholding etc.

Limited Liability Partnership

A limited liability partnership differs from a limited company in that you need at least one manager who is in charge of the actions of the partnership. However silent partners and investors are still not liable.

Advantages of a limited liability partnership include-

  • More flexibility- No need for boards or general meetings
  • Tax advantages- Ideal for people who have interests in other businesses
  • Protection- Individual partners are not liable for anything that is not under their direct control.

What Is Best For Your Business?

In simple terms, it depends on what you want and what you want to take out from your business- for example the amount of tax you pay is lower on corporation tax than on your own personal income.

Companies also have an advantage in terms of what they can offer- this can include bonuses, pensions and dividends. However, some people may prefer a partnership as it requires fewer meetings, board decisions and so forth.

Ultimately it depends on the structure of the business you want to set up, the level of control and how much protection you personally want/want to offer potential investors. You may have got feedback from potential investors or partners but it is worth considering what will work best for you in the long term.

It is also important to note that this is an introduction to the options available to you. The best thing to do is to discuss your plans with an experienced professional as they can go over your personal circumstances and decide what is appropriate.

If you are not sure or have just started the process of setting up your own business, please contact us today and we will be happy to talk about your options and decide what is best for you and to help you get the most out of your work.

If you would like to learn more about Accountant Chelsea and how we can help you, you can visit our homepage here.

What is a Limited Liability Company?

limited liability companyLimited Liability Company?

If you think to open a business in UK, there are three types of businesses you can choose: Sole trader, Partnership or Limited Liability Company. Limited Liability Company in most of the cases is the most registered type of business these days. A Limited Liability Company means that the founder or the shareholder of the company is a separate legal entity from the company, which is not the case with the Sole trader registered business where the finances of the business are also the personal finances of the trader. Of course these kind of businesses protect the shareholder from a personal financial crackdown, if you choose to sell these business it easier to sell it, and after the death of the shareholder the business can still function. This is not the case in the sole trader type of business, but also it has higher administrative expenses by itself, if the business becomes bankrupt then the director of the company will be banned from being a director in any other company in the future. You are also required to present your financial statements to Companies House every year, and if not you’ll face penalties.

How to set up your Limited Liability Company

To register this kind of business in UK these days is pretty easy, you just need to apply online at Companies House and provide the following information: propose a name of the company, to register a company address, shareholder details, company director details (which can be also the shareholder), the share capital information, the prescribed peculiars relating to each class of shares and as well to deliver the Articles of association and Memorandum of association. While we’re on the subject of Limited Liability Company, we need to mention the fact that, there are many types of Limited Companies:  A private limited company (LTD) a public limited company (PLC), a private limited by guarantee (LBG) and a limited liability partnership (LLP). But most common and most used types of businesses are LTD and PLC. In a private limited companies the shares of the company are traded privately, and one private limited company can have only up to 50 shareholders, while public limited companies are companies that trade their shares publicly. Anyone who is trading on the stock market (London Stock Exchange) can buy and sell their shares of that company. Most of the big corporations are registered as public limited companies such as Barclays PLC, Marc and Spencer PLC, BP PLC and etc. The third type other than sole trader and limited company is a business partnership. This type of business is registered under the name of two or more partners, and the partners in these type of business share all of the profit and loss of the company. Each partner pays taxes on his share of profit. In a partnership it is not always necessary for the two partners to be people, the partnership can be formed as company with a person or a company with another company as well.

If you would like to learn more about Accountant Chelsea and how we can help you and your business, please visit our homepage here.

What are Dividend Taxes?

What do Dividend Taxes mean?

Dividend taxes are taxes paid by the stockholders or shareholders of a corporation, mutual fund, real estate investment trust and etc. Basically these stockholders and shareholders are making investment in the mutual fund, and for the positive profit achieved, the mutual fund is obliged to pay dividend to their stockholders or shareholders, and when they receive the dividend, they’re obliged to pay taxes on that dividend. These holders can receive the payment in a form of a cash dividend or stock dividend. Cash dividend, by itself state that the dividend is paid either by cash or electronic bank transfer, but when the dividend its paid by cash or electronic transfer, then the share price goes down at the same price as the dividend is paid. Stock dividend, is the dividend that is paid to the investors by issuing number of new stocks to them by the price they need to receive, in this way the mutual fund would increase the number of shares.

When it comes to taxation of dividends there are two types of dividend taxes:

-Qualified

Capital gains tax rate is the method of which the qualified dividends are taxed. Qualified dividends taxes are more common than the unqualified one, because they’re affecting the companies with normal structure, like the corporations. They’re in the favour of the stockholder, because these qualified rates are lower than the typical income tax rate of the unqualified one. For Individuals, estates, and trusts, qualified dividends are taxed at the current capital gains rate of 15%. For individuals whose income tax rate is 10% or 15%, then the capital gains tax rate is 0. For all other investors, the tax rate for qualified dividends is 15%, with the exception of those in the highest tax bracket, who pay 20%.

-Unqualified

Unqualified or ordinary taxes are not in favour of stockholders, and as the name by itself state they’re not qualified for the lower tax preferences, because they need to pay the dividend taxes at the same rate as the ordinary income taxes, such as wage from work. The tax rates for ordinary income, including non-qualified dividends, ranges from 10 to 39.6% as of 2016.

So we explain the difference between the qualified and unqualified dividend taxes, but the next question is: How to know when is qualified and when is unqualified? As we mention before the qualified are dividends issued by companies with the most common structure such as corporations. Unqualified dividends are dividends paid out by: tax exempt companies, individual retirement accounts, real estate investment trust, master limited partnership and etc. The number of investor in the unqualified business structure is small, so investors don’t need to worry because most regular corporations are with qualified dividends. But, if you are an investor in the stock market, it is always a good idea to stay in touch with a broker and accountant.

It is important to note that dividend taxes differ from other taxes such as Capital Gains TaxInheritance tax, stamp duty land tax and corporation tax.

If you would like to know more about how Accountant Chelsea can help you or your business. Or if you simply have any questions that you need answered, please visit our homepage for more info.

What is an Umbrella Company?

umbrella companyAn Umbrella company is one that acts as an employer to agency
contractors
that work under a fixed term contract assignment.

Working under an Umbrella Company may se
em confusing at first, but in reality the company just acts as an employer to agency contractors that are working under a fixed contract assignment. In the United Kingdom this is usually through a recruitment employment agency. When working through an Umbrella company there are a series of steps that will happen before you begin your work.

How does an Umbrella Company work?

First, the Umbrella Company will sign a contract with your recruitment agency, you will then sign an employment contract with the Umbrella Company. At the end of every week you will then have to submit both timesheet and expenses information to the Umbrella Company. The Umbrella can then invoice your agent/recruiter or client. The Umbrella Company will then pay your salary through PAYE (Pay As You Earn) after it has made the relevant deductions for expenses and tax. At the end of the tax year, your Umbrella Company will provide you with a P60 and a P11D form so that you can claim back any expenses you are entitled to.

Tax advantage of using an Umbrella Company

If you work for an Umbrella Company you will likely be required to complete different tasks. These will most likely be completed at different locations such as your end-clients office. For tax purposes these locations can be treated as temporary workplaces. This means that you will be able to offset the costs of subsidies and travel expenses of travelling to and from your place of work. This in turn reduces your gross taxable salary, and therefore reduces your tax levy. On average, salary paid through PAYE Umbrella has about 5-10% advantage over straight PAYE, or working as a Sole Trader.

Getting Paid

Before you begin any assignment for your company, you will have to have already agreed your fee. When you complete your job, you will have to submit your time sheet to the Umbrella who will then forward this on to your clients. This payment is then processed taking into account all of your expenses claims and tax deductions. These could include things like pension contributions, accrued holiday pay, administration charges etc.

Things you should know

When working for an Umbrella Company by law you are it’s employee and therefore are entitled to full employment rights. Always make sure that your practices are in accordance with IR35 legislation, if you are investigated and found to be in breach of it, you will have to pay back any unpaid tax as well as a likely penalty. In some cases you may even be prosecuted for tax evasion. You should also be wary of companies that claim that they pay more to contractors than others. This is because every company will charge administration fees that are taken from the clients payment to you. This means that your actual take-home pay will be less or about the same as anywhere else you go.

If you would like to learn more about us here at Accountant Chelsea, then please visit our homepage to find out more.

Sole Trader vs Limited Liability Company- What Is Best For Your Business?

Setting up your own business can be a rich and rewarding experience. However, there can be a lot of details to consider. One of the most important is the kind of structure you want for your business. In this article we will be looking at setting up as a sole trader or a limited liability company to see what is most appropriate for your particular needs.

The Big Difference

The big difference between being a sole trader and a limited liability company is that as a sole trader you are intertwined with your business- you are liable for any costs (unless you are insured) and you are responsible for it whereas a limited liability company exists as an entity that is separate from its members.

Ease

One of the big advantages sole trader status has over a limited liability company is that it is easier than setting up a company. Essentially you can register with HMRC and it involves less paperwork.

However, there are structural advantages with a limited company- for example it is easier to pass on a shareholding if a member of the board or other shareholder retires or dies, something that is more difficult to do with a sole tradership.

Tax

By contrast a massive benefit of limited liability companies is that you pay less in tax and with Corporate Tax due to be cut to 17% by 2020 this is an even bigger incentive to register.

Professionalism

This depends on the kind of image you want to project- some people may simply want sole trader status in order to indicate the work whereas others may want to give customers reassurance that they are working with a company rather than a single individual.

There is also the added advantage that once you register a business with Companies House that name is then protected by law.

Funding

A company that is registered as separate from its owners can often attract funding in a way that a sole proprietor may not be able to. You can also use this to issue shares and attract potential shareholders.

One thing that puts people off registering companies is that it is perceived as expensive. However, this does not necessarily have to be the case- it can be as low as £15 depending how and where you register it.

Pensions

Pensions are an important consideration when thinking about what kind of business structure you want- one big advantage with a limited company is that your pension can be covered as a business expense.

Get Help

As you can see there are different reasons why you may want to choose to register as a sole trader or limited company. What you have to decide is what structure works best for you.
If you are concerned about what works best for you, please contact us today and we will be happy to look at your current circumstances to find the best business structure to meet your needs.

If you find that you still have further questions about Accountant Chelsea and how we can help you, then feel free to visit our homepage here for more information.

What is a Sole Trader?

sole traderWhat does it mean to be a Sole Trader?

Setting up a new business is an exciting and scary experience for anyone. Before you get started however it is important to choose the correct structure so that you don’t find yourself in trouble with HM Revenue and Customs (HMRC). Not only this, you want to make sure you are registered as the correct structure so that you are protected from certain liabilities and taxes. Here we outline some key details about the popular business structure; the Sole Trader and how it differs from a limited company.

What does a Sole Trader do?

If the business is run and controlled by you and only you, then you can be considered as a Sole Trader. This is regardless of whether you employ other people as part of your business. This is another way of describing yourself as self-employed, since you are the sole owner of the business.

If you are the Sole proprietor of a business, you have full control over the business and all of its dealings. This also means that you are the owner of all of the assets of the business and any of the profit that it make (minus what you pay your employees). However you will also be considered to be responsible for all the debts and liabilities that are accrued by the business.

Benefits of being a Sole Trader

  • Any profit that you earn after tax is yours to keep.
  • You have full control over your business and don’t have to answer to any boss above you or any investors as you are the sole owner.
  • Since you are a smaller business you will be able to offer your clients a more personalised and tailored experience. Which may be preferred by a lot of customers.
  • You are free to trade when you please and take holidays when you want.
  • After you have registered with HMRC, you will be able to begin trading almost straight away.

Disadvantages of being a Sole Trader

  • Trading as a Sole Trader means that you are liable for the actions of your business rather than a separate entity. This means that if the business was to find itself in debt, then you are liable for that debt. This means that if the business was to face significant financial debt, then the you may find that your home and personal savings are risk.
  • It is often a challenge for Sole Traders to raise extra finance they need to expand their business.
  • Since all the decisions are made by you the Sole Trader, then it may be difficult to find help in important decision making from others.

If you still cannot decide whether being a Sole Trader is for you, take a loot at our comparison of Sole Traders vs Limited Liability Companies.

If you have taken all of these factors into consideration and you still would like to trade as a Sole Trader, then you can register your new business with HMRC online or through us…

What is VAT and how does it work?

What exactly is VAT?

Value Added Tax, better known as VAT, is the term used to describe the general consumption tax that is applied to all commercial activities that involve the production and distribution of goods and services. This tax is only applied to goods and services that are bought and sold within the European Union. This means that for all goods and services that are sold for export to non-EU countries are not subject to Value Added Tax. Despite this, imports into the EU are still taxed by VAT in order to keep the system fair for EU producers and to keep these businesses competitive with non-EU companies.

Who pays Value Added Tax?

VAT is an indirect tax. This means that it is paid to revenue authorities by the seller of the goods (i.e. the ‘taxable person’), but it is actually paid by the buyer to the seller as part of the price. Therefore Value Added Tax is ultimately carried to the final consumer, and not a charge on the business. Vat is charged as a percentage of price, so that the actual tax burden at each stage in production and distribution is visible. Value Added Tax is collected fractionally via a system of partial payments. In these payments, the taxable persons (the VAT-registered business) the amount of tax they have paid to other taxable persons, on purchases for their business activities, from the Value Added Tax they have collected. This is done to ensure that the tax remains neutral, regardless of the number of transactions involved.

Because VAT taxes only the value added at each stage of production, it is able to avoid the cascade effect that is commonly caused by sales tax. Value Added Tax is calculated and collected on the value of the goods or services that have been provided every time there is a transaction. This means that the seller of the goods charges VAT to the buyer, and this Value Added Tax is paid by the seller to the government. If the buyers are not the final users of the goods (I.e. the consumer) then the goods or services are considered as costs to their business. This means that the tax they have paid for these purchases can be deducted from the tax they charge to their customers. The government then receives the difference. Simply put, VAT is the tax paid on the gross margin of each transaction, by each participant of the manufacturing process.

What does VAT mean for you?

As a VAT-registered business, you MUST charge Value Added Tax on all goods and services offered. You may also reclaim any Value Added Tax that you have paid on business-related goods and services. If you are a VAT-registered business then you must report the amount of Value Added Tax you’ve charged and the amount of Value Added Tax you’ve paid to HM Revenue and Customs (HMRC). This is done through your VAT Return which is usually due every 3 months. Regardless of the type of payment you’ve received, you MUST account the full value of what sell. This means that even if receive goods or services instead of money (such as a part exchange) or if you haven’t charged any VAT to the customer. If you have charged more VAT than you have paid, then you have to pay the difference to HMRC. If you have paid more VAT than you have charged, then you can reclaim the difference back from HMRC.

Accountant Chelsea is a professional services firm operating in Chelsea, London. We aim to provide our clients with the best possible service and advice possible that is tailored to each of our customers needs. If you would like to learn more about us and the services that we offer, take a look at our information here.