Christmas is nearly upon us, so would like to ensure you all know about of our office opening hours over the Christmas break.

Office closes: 24 December 2009 at 1:00pm

Office opens: 04 January 2010 at 8:30am

We would like to wish all our clients a very merry Christmas, a safe and enjoyable New Year, and we will see you all in 2010.

Just a minor note, but one that will be appreciated by our clients.  As announced by Chancellor Alistair Darling in his Pre-Budget Report speech to the House of Commons, the corporation tax rate for small companies will remain at 21% for 2010.

Last year he proposed a 1% increase in the small companies’ rate of CT from 21% to 22% – this will now be deferred for a year.

Extra for Experts

The small companies tax rate of 21% applies to all qualifying companies with profits at a rate not exceeding £300,000.

The main rate of corporation tax is 28% (unchanged for 2010 also). This kicks in on profits, once they exceed £1,500,000.

Effective from midnight on 31 Dec 2009, the standard rate for VAT changes from 15% to 17.5%. The following information is for our VAT registered clients.

A brief summary on the effect of this VAT rate change:

The following information will in all likelihood apply to nearly all of our clients who supply services on a continuous basis to their client(s). If after having read it you are still not sure how to apply the new VAT rate, please take a look at our detailed guidance further down.

(1)   If you raise an invoice for any period of work up to (and/or including) 31 December 2009, you will invoice your client at the VAT rate of 15%;

(2)   If you raise an invoice for any period of work starting from 01 January 2010 onwards, you will invoice your client at the VAT rate of 17.5%;

(3)   If you raise a single invoice for a period that straddles the 01 January 2010, you have two options;

Option 1 -  Detail on the invoice the split in period, and assign 15% and 17.5% for the period before 01 January 2010, and the period after, respectively (note, within your No Worries online bookkeeping system, only one VAT rate can be used per invoice), or;

Option 2 -  Use the 17.5% VAT rate on the whole invoice;

A more detailed summary on the effect of this VAT rate change:

If you feel our general guidance above does not cover your situation, or you would simply like to know more about this, please read on.

Some Basic Rules

(1)   Standard rate VAT must be charged by a VAT-registered person (or company) when a supply of goods or services within the scope of standard rate VAT is made;

(2)   The date a supply is made, is determined by the tax point rules, which help determine what VAT rate should be used;

(3)   For goods or services the basic tax point is usually when the goods are shipped or when the service has been completed;

(4)   However this can be over-ridden by the actual tax point, which occurs when either;

1. You raise an invoice for the supply of goods or services within 14 days of its basic tax point date – then you use the invoice date as the actual tax point date, or;
2. You issue a VAT invoice, OR receive payment, prior to the basic tax point – then you use the date you issue the invoice or receive payment as the actual tax point date;

There are however optional rules that override the actual tax point date, to be used around the period of a VAT rate change. You do not need to notify the HMRC when using this treatment.

Optional Rule 1 – For goods or services supplied before 01 January 2010

If you issue a VAT invoice after 01 January 2010, for work that that was done before 01 January 2010, you can choose to apply the VAT rate of 15%.

Optional Rule 2 – For goods or services supplied after 01 January 2010

If you issued a VAT invoice or received payment before 01 January 2010 for work that will be done after 01 January 2010, you can choose to apply the VAT rate of 17.5%.

Optional Rule 3 – For goods or services supplied spanning 01 January 2010

If you issued a VAT invoice or received payment before 01 January 2010 for work that will be done spanning 01 January 2010, then you can charge the entire supply at 15%.

If you issued a VAT invoice or received payment after 01 January 2010 for work that will be done spanning 01 January 2010, then you can charge the entire supply at 17.5%.

If you can demonstrate that the apportionment of work done before and after 01 January 2010, then you can apply the VAT rates of 15% and 17.5% respectively.

With Christmas nearing, there is an excellent opportunity to spend some of your hard earned money completely tax free by having a Christmas party, or even two…..

Be careful though – make sure you abide by the rules.

The Rules:

You have the opportunity to spend £150 (incl any VAT) per head at your own office Xmas party. The cost is completely tax deductibe for your company, and there is not personal benefit tax on you.

You must invite all Directors and employees along to your party.

The £150 per head can be spent on whatever you like. Food, alcohol, accommodation, paint-balling, theatre tickets – anything.

You can take one partner. So if you are the only Director of your company, your company Christmas party will have a maximum of two people attending.

This isn’t an allowance – you actually have to spend the money, and keep your receipts.

The total cost per head, CANNOT exceed £150. If it does, the whole lot become taxable, which then makes the party pointless (from a tax-saving perspective).

You cannot pick and choose your office party expenses, up to the £150 per head maximum. For example, if you are the sole Director of your company, and decide to have a Christmas party my yourself at the local pub, the maximum you can spend is £150. If it turns into the best Christmas party ever, and you end up spending £210 at the bar, you cannot elect to claim just £150 of the bar tab. The total party cost was £210, which would be entirely taxable, therefore resulting in no tax savings. Avoid this scenario at all costs.

You can have more than one annual party. For example, if you are the sole Director of your company, and decide to have a Christmas party with your friend/partner as your guest, the total allowable amount you can claim is £300. If you have one Xmas party costing £90, another for £100, and a third for £105, you are still below the £300 threshold overall, so its fine.

In fact, you can have an annual party whenever you like – even in the middle of summer (and call it a annual summer party, obviously). The £150 per head limit cannot be exceeded per year – so keep the cumulative party expenditure below this threshold between 01 April to 31 March.

When your record the expense within your No Worries online account, give a description like “Annual Xmas party – food and beverages” – just so we allocate it correctly within your accounts.

Just like any other company expense, your company does actually need the funds to cover the cost of your Christmas. If you have sufficient retained earnings then this will not be a problem. If not, pay yourself a smaller dividend next time you make a divdiend payment. Remember, dividends are paid out of post-tax company profits – however the Christmas party expense is paid out of pre-tax company profits, so will reduce your overall tax laibility.