BARRISTERSManagement o f P ro fes s i ona l F i nanc es

BARRISTER TEAM• David Truman

Partner

• Tim HumphriesAssociate Director

• Yasmina KreaaAssistant Manager

Menzies LLPLynton House7-12 Tavistock SquareLondonWC1H 9LT

PROGRAMME TIMETABLE• Registration• Responsibilities as a self employed individual• Accounts and Choosing your year end• Tax and Tax Returns• Case Study

TEA BREAK• Allowable expenditure• Penalties and Enquiries• VAT• Protecting your wealth• Protection• Money Laundering Regulations

REGISTRATION• Need to reg is ter wi th HMRC onl ine

• By 5 October in your second year o f t rad ing

Responsibilities as a self employed individual

• The UK operates a “se l f assessment” tax sys tem

• Record keeping

• Statutory requi rement to keep records for 6 years

• Open a separate bank account

ACCOUNTS• Cash bas is

– Turnover less than VAT threshold (current ly £82,000) can e lec t to prepare on cash bas is

– Leave the scheme when receipts twice the VAT threshold (current ly £164,000)

• True & fa i r bas is– Earn ings bas is– Work in Progress (WIP)

Choosing your year end• You can choose when your account ing year ends• Fi rs t set o f accounts cannot be longer than 18 months

TAX AND TAX RETURNS• Year runs 6 Apri l – 5 Apri l

• F i l ing deadl ine

– Paper f i l ing – 31 October fo l lowing the end of the tax year

– Elec tron ic f i l ing – 31 January fo l lowing the end of the tax year

• What tax you wi l l pay – POA, Class 4 NIC, Class 2 NIC

• Student loan repayments

TIMELINE

April 2017Tax year 2016/17

April 2018Tax year 2017/18

April 2019Tax year 2018/19

31 January 2018

-2016/2017 tax payment due

- 2017/2018 1st

payment on account

31 July 2018

-2017/2018 2nd

payment on account

CASE STUDY

• Step 1 – register ing with HMRC– B ert i e secu red pup i l l age beg i nn i ng 1 Oc tobe r 2015– H i s f i rs t s i x mon ths i s tax free (1 Oc tobe r 2015 – 31 March 2016)– The second s i x mon ths , 1 A p r i l – 30 S ep tember 2016 , s ta r ts h i s

accoun t i ng pe r i od– B ert i e reg i s te rs w i th H MR C as be i ng se l f emp l oyed , and fo r C l ass

2 N IC

• Step 2 – Accounting Year End– B ert i e has dec i ded tha t h i s accoun t i ng yea r end w i l l be 5 A p r i l

(N o te as d i scussed H MR C w i l l i gno re the f i rs t f i ve days from 1 A p r i l -5 A p r i l 2016 so a tax re tu rn fo r tha t yea r need no t be comp l e ted )

– B ert i e ’ s f i rs t accoun t i ng yea r runs 1 A p r i l 2016 – 5 A pr i l 2017– B ert i e has rece i ved cash o f £50 ,000 and i ncu rred expenses o f

£30 ,000 . H e the re fo re has p ro f i ts o f £20 ,000 on w h i ch he i s taxed

CASE STUDY• Step 3 – the Tax Return

– Ber t i e’ s t ax r eturn has been c ompleted, wi t h addi t i on t o t he prof i t f r om hi s s el f employ ment as a bar r i s ter ; t here i s al s o a s mal l amount of bank i nteres t . Hi s t ax l i abi l i t y f or t he t ax y ear 2016/17 i s c al c ulated at £3,020.20

– Ber t i e’ s t ax r eturn i s due elec t r oni c al l y by 31 J anuary 2018– Ber t i e’ s t ax bi l l of £3,020.20 i s due by 31 J anuary 2018– Ber t i e i s al s o due to mak e two pay ments on ac c ount t owards

hi s 2017/18 tax l i abi l i t y of £1,510.10 (£3,020.20/ 2)

Payment due 31 January 2018

Payment due 31 July 2018

2016/17 Balancing payment

2017/18 1st Payment on Account

2017/18 2nd Payment on Account

3,020.20

1,510.10

1,510.10

Total 4,530.30 1,510.10

CASE STUDY

• Step 4 – next year ’s tax re turn

– We then prepare t he 2017/18 tax r eturn and s ee that Ber t i e has a t ax l i abi l i t y of £10,000

– Ber t i e has al r eady made two pay ments on ac c ount t otal l i ng £3,020.20 whic h l eav es a balanc e of £6,979.80 to be paid on 31 J anuary 2018

– But t here i s s omething el s e Ber t i e wi l l need to pay on thi s date – the f i r s t pay ment on ac c ount f or t he nex t y ear ’ s l i abi l i t y. Thi s y ear, t hey wi l l be £5,000 (50% of t he £10,000 l i abi l i t y ) and thi s mak es the t otal pay ment t o be £11,979.80, due to be paid by t he 31 J anuary 2018

TEA BREAK

EXPENDITUREGenera l ly, HMRC al low you to deduct a l l expendi ture that is :• Incurred “whol ly and exc lus ive ly ” for the purpose of

generat ing your bus iness income.

• Revenue in nature – a l though p lant and machinery may qual i fy for capi ta l a l lowances.

• Not an expense that is spec i f ica lly d isa l lowed by s ta tue/case law.

The fo l lowing expenses are not an exhaust ive l is t but he lps g ive you an unders tanding of the main expenses usual ly c la imed.

ALLOWABLE EXPENDITURE Revenue• Chambers rent and/or c lerk fees• Bus iness Use of Home:Ø A reasonable proport ion of household cos ts orØ Flat ra te (between £10 and £26 per month) depending

on number of hours worked f rom home (25 hours to 101 hours a month)

• Mobi le / in ternet cos ts – bus iness use only• Prac t ice cert i f icate, Indemni ty insurance and Data

Protec t ion Ac t payments• Accountancy fees

ALLOWABLE EXPENDITURE

• Books & Stat ionery• Travel (normal commuting does not count, i .e . home to

chambers)• Hote ls and reasonable subs is tence cos ts i f incurred

during qual i fy ing bus iness t rave l • Col lars , bands and s tuds • Bank charges for operat ing a bus iness account. • Bank in teres t - i f account overdrawn to set t le bus iness

expenses (under the cash bas is in teres t capped at £500)

ALLOWABLE EXPENDITURE

• Motor Expenses:

Ø Annual a l lowance g iven based on the cos t o f the car and a percentage (18% to 8%) dependant on the CO2 emiss ion (130g/km) less any pr ivate use. Plus road tax , insurance, MOT/serv ic ing, fue l cos ts less pr ivate use or

Ø Cla im based on HMRC AMAP rates o f 45p a mi le for f i rs t 10,000 bus iness mi les then 25p thereaf ter

• Car lease payments a l lowable subjec t to a 15% res tr ic t ion for renta l o f cars wi th CO2 over 130g/km less pr ivate use

ALLOWABLE EXPENDITURECapital – Qualifying Plant & Machinery

Annual Inves tment Al lowance current ly a l lows 100% re l ie f on purchases of up to £500,000 therefore a l l cos ts wi l l be fu l ly deduct ib le• Wigs and Gown (but laundry cos ts a l lowed as Revenue)• Sui tcase Tro l ley bags• Laptops / IPADs, less any pr ivate use adjus tment• Ful l deduct ion for capi ta l i tems under cash bas is but

any proceeds on sa le are taxable

EXPENDITUREDisallowable• Cos ts o f BPTC• In te res t on the loan taken ou t to pay fo r BPTC• Dinners a t the Inn• Inns o f Court membersh ip• C lo th ing e .g . su its , sh irts , shoes e tc . • C l ien t en te rta in ing• Park ing /speed ing f ines• Payment o f Tax and Na tiona l Insu rance • Overd ra ft fees to fund p riva te expenses

PENALTIES & ENQUIRIES• Fai lure to submi t a tax re turn on t ime

– 1 day l ate - £100– 3 months l ate - £10 for eac h day up t o 90 day max – 6 months l ate - £300 or 5% of t ax due, whic hev er i s t he higher– 12 months l ate - £300 or 5% of t he t ax due whic hev er i s t he

higher Ser ious c as es may be as k ed to pay 100%

• Fai lure to pay tax due– Interes t – c ur rent l y 3%– Penal t i es

• 3 0 d a y s l a t e – 5 % o f t a x d u e• 6 m o n th s l a t e - 5 % o f t a x d u e• 1 2 m o n th s l a t e – 5 % o f t a x d u e

• Fa i lure to reg is ter wi th HMRC– Penal t y due bas ed on tax outs tanding at 31 J anuary

• Enqui r ies

VAT• C om puls or y r e g is t r a t io n

- Tu r n o v e r e x c e e d s VAT th r e s h o l d ( c u r r e n t l y £ 8 2 ,0 0 0 ) i n a r o l l i n g 1 2 m o n th p e r i o d• Vo lun t a r y r e g is t r a t io n

- Yo u c a n r e g i s t e r v o l u n ta r i l y i f y o u r b u s i n e s s tu r n o v e r i s b e l o w £ 8 2 ,0 0 0• VAT R e t ur ns

- P r e p a r e d e v e r y q u a r t e r- R e tu r n h a s to b e s u b m i t t e d o n l i n e o n e m o n th a n d s e v e n d a y s a f t e r t h e q u a r t e r e n d- P a y m e n t i s d u e s a m e t i m e a s s u b m i s s i o n d e a d l i n e

• I npu t VAT- 5 0 % o n l e a s e p a y m e n t s o f c a r- Tw o d a r k s u i t s a n d s i x t u n i c s h i r t s- M a y r e c o v e r i n p u t VA T o n s e r v i c e s i f i n c u r r e d s i x m o n th s b e fo r e e f f e c t i v e d a te o fr e g i s t r a t i o n i f t h e s e r v i c e i s f o r a ta x a b l e b u s i n e s s p u r p o s e- I n p u t V AT o n g o o d s m a y b e c l a i m e d i f i n c u r r e d u p to fo u r y e a r s b e fo r e e f f e c t i v e d a te o f

r e g i s t r a t i o n i f g o o d s s t i l l u s e d i n th e b u s i n e s s• C a s h A c c ount ing S c h e m e

- P a y VAT o n y o u r s a l e s w h e n y o u r i n v o i c e s a r e p a i d r a th e r t h a n w h e n r a i s e d- C a n o n l y r e c l a i m VAT o n y o u r p u r c h a s e s w h e n y o u h a v e p a i d th e VAT- Tu r n o v e r m u s t b e £ 1 .3 5 m i l l i o n o r l e s s – n o a p p l i c a t i o n n e e d e d

• F la t r a t e s c he m e- F i x e d % ( c u r r e n t l y 1 4 .5 % ) o f y o u r f l a t r a t e tu r n o v e r.- F l a t r a t e tu r n o v e r i n c l u d e s VAT r e c e i v e d a n d e x e m p t i n c o m e ( i . e . r e n ta l i n c o m e )- I n y o u r f i r s t y e a r a s a VAT- r e g i s t e r e d b u s i n e s s th e r a te i s r e d u c e d b y 1 % .- C a n n o t r e c l a i m i n p u t VA T o n p u r c h a s e s e x c e p t f o r c a p i t a l g o o d s w i t h a V AT i n c l u s i v ec o s t o f £ 2 ,0 0 0 o r m o r e .- To j o i n t h e s c h e m e tu r n o v e r m u s t b e l e s s th a n £ 1 5 0 ,0 0 0 , y o u m u s t l e a v e th e s c h e m e i fy o u r t u r n o v e r e x c e e d s £ 2 3 0 ,0 0 0 i n th e l a s t tw e l v e m o n th s .

Protecting Your Wealth

• Plan for your l i fe, not just for your death

• Protect your income and assets

• Make a wil l– Asse ts /Trus ts /Guard iansh ip /Tax

• Plan for retirement– Pens ions /ISAs/Investments /Property

Protection

• Income Protection

• Cr itical Il lness

• Life Assurance – Term Cover

• Life Assurance – Whole of Life

Write in Trust

MONEY LAUNDERING REGULATIONS • What is money launder ing?• Does this affect me?

– Regu la t ions app ly to a number o f pe rsons inc lud ing • t a x a d v i s e r s• i n d e p e n d e n t l e g a l p r o f e s s io n a l s ( f i r m o r s o le p r a c t i t i o n e r ) wh e n

d e a l i n g w i t h – B u y i n g o r s e l l i n g o r p r o p e r t y– M a n a g i n g c l i e n t m o n e y, s a v i n g s o r s e c u r i t i e s– Or g a n i s a t i o n o f c o n t r i b u t i o n s n e c e s s a r y f o r c r e a t i o n , o p e r a t i o n o r

m a n a g e m e n t o f c o m p a n i e s– C r e a t i o n , o p e r a t i o n o r m a n a g e m e n t o f t r u s t s , c o m p a n i e s o r s i m i l a r

s t r u c tu r e s

• Important dec is ion in Bowman v Fels • Obligations • Penalties

– F ine o r up to 2 years imprisonment

USEFUL CONTACT DETAILS• Registering for Self Assessment and National Insurance contributions if you are a self-employed

sole traderhttps://www.gov.uk/government/publications/self-assessment-and-national-insurance-contributions-register-if-youre-a-self-employed-sole-trader-cwf1

• Record Keeping softwarehttp://www.hmrc.gov.uk/softwaredevelopers/mobile-apps/record-keeping.htm

Our detailsDavid Truman, Partner Tim Humphries, Associate Director Email : dtruman@menzies.co.uk Email: thumphries@menzies.co.uk

Yasmina Kreaa, Assistant Manager Phone: 020 7387 5868Email ykreaa@menzies.co.uk

http://www.menzies.co.uk/helping-you/private-client/barristers-advice/