Claim tax relief for work uniforms

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Uniform Rules

When working for an employer there are often myths surrounding whether you can or cannot claim tax relief on items you have purchased for work. The same applies when you are self-employed – although the rules here are different.

Employee

If you are an employee in a childcare setting – or any setting – you are entitled to claim money back on your uniform if you meet certain requirements:

  • Did you have to pay for your uniform?
  • Do you have to wash your uniform?
  • Do you have to replace or repair your uniform?
  • Do you solely wear your clothes for work? Every day clothes that you happen to wear to work do not count.

If you are answering yes to any of these questions you can make a claim for tax relief. It is important that if you are paying for items yourself you keep all your receipts although you are entitled to make a flat rate expenses claim.

By heading to www.gov.uk you can check how much you are allowed to claim thanks to their handy guide of professions. However if your profession is not listed – which childcare is not – you are still entitled to make a claim.

Any occupation that is not listed is entitled to make a claim for £60, which means if you pay tax at a rate of 20% that year you will receive tax relief of £12.

Self-Employed

If you are self-employed the rules are slightly different, as is often the case! You can still claim for your uniform, again so long as it is not every day items that you happen to wear to work as well. The items you are allowed to claim for are:

  • Uniforms, usually have the logo of the childcare business.
  • Protective clothing needed for work – such as aprons, latex gloves etc
  • Costumes for actors and entertainers – some self-employed childcare providers have costumes for certain events and these can also be claimed for.

With all uniform items – as well as everything you need for your childcare setting – you must keep all your receipts to be able to make your claim. It is worth setting aside a separate folder for your receipts and claimable expenses as well as keeping them altogether electronically. While some self-employed business owners prepare their own accounts or their own spreadsheets, it could be worth having a professional look after your accounts.

By having a professional such as Accountancy Kids look after your accounts – either on a monthly, quarterly or annual basis – you can make sure you are claiming for everything you are allowed to be. Many self-employed providers make the mistake of claiming for items they are not allowed to, or worse, not claiming for everything they are allowed to!

We recommend keeping every receipt for every purchase to do with your business so that when it is time to complete your tax returns you know exactly where you stand. It is far easier to dismiss a receipt than try and find one for something you could have claimed as a genuine business expense.

Pension requirements

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Whether you are a registered childminder, self-employed childcare provider, foster parent or run a childcare facility you should be signed up to a pension scheme. Whilst the rules are different depending on if you are employed or self-employed the theory behind pensions is the same – you need to save for your retirement!

Employer

If you are a childcare employer there are specific rules you must adhere to regarding pension provision. All employers have a legal obligation to provide a pension scheme for any of their employees who wish to join a pension scheme – this applies if you have hundreds of employees or just one. If your employee does not qualify for a workplace pension scheme you do not have to legally enrol them into one. However if they request to join a workplace pension scheme the employer cannot refuse. If your employee does not qualify and they do not want to be enrolled in a scheme there are still obligations you have to adhere to by The Pension Regulator.

Each pension will have contributions made into it by the employee, the government and the employer so it is imperative that you keep full records of what is being paid and to where. The most common pension scheme for employers is the government’s own pension scheme, NEST.

It is worth noting that there are different requirements for your employees joining the scheme. For instance, an entitled worker – someone who is aged between 16 and 75 and has earning either at or below the lower level of qualifying earnings (currently £512 per month or lower) – can join their employer’s scheme however the employer is not obliged to make contributions on their behalf.

You can find out more information on the different requirements for the employers workplace pension scheme here.

Employer Contributions

The contribution requirements made by both the employee and the employer varies depending on which workplace pension scheme you have enrolled in. We provide a pension service through our monthly payroll provision using NEST which we can discuss with you.

Currently the minimum contribution set by the government is 8 per cent of your salary and this must be made up by both the employer and the employee, although the minimum employee contribution must be 5 per cent – which is approximately 4 per cent of your take home pay. There are currently no maximum restrictions.

Self-Employed

Unfortunately being self-employed means you do not have an employer making contributions into your pension on your behalf or even choosing where your pension is held so it is important to do some thorough research before choosing where to open your pension scheme. The Pension Advisory Service recent research found that less than a third of self-employed people are paying into a pension.

The government scheme NEST isn’t just for employees. The guidance from NEST is that you can usually join if you’re self employed. To check your eligibility and start saving, visit the self employed page  on NEST’s website.

Although you do not get employer contributions you do get some tax breaks, for example you are entitled to tax relief on your contributions. If your a basic-rate taxpayer, this means you’ll get an extra £25 for every £100 you pay in, when you come to do your tax return.

I hope you find this article interesting and if you require payroll services including pension provision then please contact us by email at mcdowallaccountancy@windowslive.com.

 

 

How do childcare vouchers work for a child-minding setting?

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When setting up your childcare setting there are many things you need to take into consideration; the location, how many staff you may or may not require, how many children you can legally accept and are there any alterations to the setting required. But you also need to think about how you will get paid.

 

Most childcare settings are set up so that parents can either pay via cash, bank transfer or even through childcare vouchers. But how does this work for childminders?

 

Childcare vouchers have been made available through a parents’ wage packet to provide benefits to both the organisation and the parent. While the parent can make savings in the amount of provision they pay for – up to £1,000 in some cases thanks to the vouchers being exempt from NI and tax – the childcare setting accepting them know they are guaranteed payment, so long as they are registered or approved.

 

By being a registered childminder (eg CSSIW, Ofsted & Care Commission) you will be eligible to become affiliated with one of the many childcare voucher companies available. Once you have this system in place you should advise the parents or guardians of the children in your care which voucher scheme you have signed up with. If you only have a few families it may be worth discussing it with the parents first so you can make sure you sign up to a scheme that their employer works with.

 

In the first instance you would need to inform the parents your account or reference number from the childcare voucher company. You do not need to give them your bank details, unless the voucher is only part payment for your services.

 

Once everything has been set up between you, the affiliate, the parents and their employer, you can start accepting vouchers. These are usually paid via a bank transfer however in some cases you may receive a physical voucher that will need to be redeemed either by post or online.

 

Depending on which voucher provider you have chosen you should receive a direct bank transfer (BACS) or cheque, usually within 4 working days after the parent has requested the payment. It is imperative for your business records that you keep full records of all payments, vouchers and parents information for future reference.

 

Sometimes you may receive a payment for more money than is required for that month’s contracted childminding hours. If this is the case you can either reduce the amount from the next month’s quota or ask the voucher company to carry the amount forward as a credit on their next month’s invoice. You can also arrange a refund back to the parents.

 

As with all financial aspects of a business you must keep clear records, especially for tax return purposes. If you are a childminder and not sure what you should or shouldn’t keep, or if you are struggling with the financial requirements of being a childcare provider, contact us for an informal chat about your accounting needs. We offer a range of services that include accountancy, tax and pensions.

What should childcare providers be keeping for accounting purposes?

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All businesses need to keep information for accounting purposes – especially when putting together their end of year tax returns. But what does and doesn’t need to be kept? We’ve put together a handy guide to help you whether you’re a large nursery or self-employed childminder.

Childminder

Childminding is different to other forms of childcare provision as it is a service you are providing in your own home. You will already have had your Ofsted inspection and, once approved, can start putting your paperwork in place.

As you are working in your own home you will need relevant public liability insurance. There are many companies that specialise in childcare settings and will be able to assist you in making sure you have the correct, legal cover for your home. As with all paperwork, you must keep copies of the certificate for 6 years from the end of the last financial year.

You will also have to register yourself as self-employed which means you will have to prepare your own tax returns, which in turn will let you know how much income tax and national insurance – if any – you will need to pay. For your tax returns you need to make sure you keep records of everything you have to pay for, including insurances, toys, food, drink and business mileage if required. As you are working from your home setting you can also claim for a share of your household bills including your heating, lighting, water and council tax.

You can also make a claim for milk payments if the child/children are under 5 years old, or formula if they are under 12 months.

If you have any children coming to you that require local authority payments you must also keep all records. The same applies to any childcare vouchers you receive as well as bank transfers and cash. Childcare fees in are just as important as expenditure purchase invoices or till receipts so any payment you receive regarding a child in your care must be kept with full information of who paid the money, how, when and how much.

Creches and Nurseries

If you are running a crèche or nursery the paperwork you have to keep is very similar to that of a childminder. As well as all the payments coming in and the costs of running your setting – heating, rates, rent, food, equipment – you must also keep records of insurances, staff wages – including NI and tax payments, training course fees and visitor costs – such as a sign language tutor or a children’s entertainer.

You would also need to keep all your paperwork when dealing with a parent or guardian, the local authority or any other company that you deal with.

As with childminders, you must keep all paperwork for 6 years from the end of the last financial year. Paperwork must be kept secure and you must be able to

have easy access to it.

Many childcare providers do not feel they have the time or the experience required for keeping all their paperwork together and this is where companies such as ourselves can step in. We can provide an accounting service that covers everything – including tax returns, pensions, wages – or we can provide one off services such as putting together your tax return. Contact us today for more information on what would work best in your setting.

 

Tax bills and payments on account for a childcare business

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It’s an exciting and daunting  time during the first few months of building your new childcare business and sometimes the book-keeping and financial paperwork are neglected in this initial stage of your business development.

At the start of your business your accounting records and tax returns may be low on your priority list. You know you have to find time to ensure you don’t neglect this side of the business but it’s pushed to the back of the queue for a later period on the to do list.

Many small business owners may start with a trading loss in their first year as they attempt to establish, market and build the business so tax payments may be avoided in the first year of trading.
When the business grows in the second tax year and the business achieves good taxable profits this can trigger payments on account as well as the tax due for the trading period.

There is growing evidence from many new childcare business owners that they don’t understand the rules regarding the timing on how HMRC collects tax bills and payments on account. This invariably causes problems for clients sending records just before the tax deadlines and some may have a larger tax bill than anticipated because they must also pay payments on account for the current year tax period.

A quick example will highlight the potential cash flow problems that a small self employed business may encounter.

Example

A small out of school club in England has a very successful second year in business with profits of £30,000 tax year ending 5th April 2020 . After deducting the personal allowance of £12,500 that leaves an income tax bill of £17,500 at 20% = £3,500 plus class 4 national insurance at 9% above the lower profit limit of £8,632 = £1,923 national insurance due. Many clients think that the total tax bill is £5,423 due by 31st January 2021 but  are shocked when payments on account are also added  onto the tax bill.

What are payments on account

Payments on account are payable by the self employed  when the previous year  tax payable exceeds £1,000. HMRC want to collect  current year tax payments quicker if the tax threshold is breached in the previous tax year. The current payments are estimated based on the previous year tax due and payable in two instalments on the 31st January 2021 and the 31st July 2021 at 50% for each date.

In our example the £5,423 due is used to calculate the current year bill at 50% and added to the £5,423 to give a total bill of £8,134 payable at 31st January 2021 and then another 50% is payable on the 31st July 2021 at £2,711.

Cash flow consequences

If a client from a growing business is unaware of the tax bill rules then potentially in the second year they may encounter cash flow problems, tax penalties and late tax payments to HMRC. If a client waits until the beginning of January 2021 to prepare tax returns then the consequences from our example shows that they would have to find an extra £2,711 by 31st January 2021 and then an additional £2,711 by 31st July 2021.

If the client is continually late in sending their books to us then as you can see a growing business with a tax year ended 5th April 2021 won’t have additional months to make tax payments once payments on account are triggered.

Can clients adjust payments on account

Payments on account can be adjusted online if the client believes the estimates are too high but they may be liable for interest payments if the adjustment is wrongly estimated. Once the actual tax return is completed after the 5th April then an adjustment would be made to pay additional tax based on a lower estimate or a refund requested on the submission of lower profits than anticipated.

It’s vitally  important to prepare your books in a timely manner and to set aside money or make monthly payments to HMRC to avoid any cash flow difficulties and shocks when the tax return is submitted.

Tips to follow:-

  • Be aware what payments on account are and the dates when they are payable.
  • Ensure you prepare your accounts and submit your tax returns shortly after the financial year end.
  • Plan how much money to set aside to pay your tax bills, why not make regular payments to HMRC if that makes you feel more comfortable in planning how to pay your tax bills.
  • Watch out for any employment income that you have as well as your self employed business, combined this can trigger payments on account even if you childcare business is relatively small.

Please contact us by email at mcdowallaccountancy@windowslive.com  if you require any additional help.

 

 

Nursery free parking under threat

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The Scottish Government reached an agreement with the Greens to get the budget spending plans through for the coming year. Council tax payers across Scotland are set to face higher bills from April 2019. Local authorities will be able to raise council tax by almost 5 per cent, levy new fees on businesses who offer parking to employees and introduce a “tourist tax” on visitors to their area.

Councils across the country will be able to increase people’s bills by 4.79 per cent this year instead of the 3 per cent cap that was originally proposed. This will result in occupants of an average band D property seeing their annual bill rise by almost £58 if their council chooses to raise taxes in line with the new cap.

People who park at work may also face extra costs after the announcement of plans to introduce a Workplace Parking Levy, which charges businesses a fee for every parking space they provide. Similar schemes already in operation in cities in England see businesses charged more than £400 per space. Rather than meeting the cost themselves, they can pass this onto the workers using them.

The 5p charge on plastic bags given out at shops across Scotland will also be doubled to a minimum of 10p “at the earliest opportunity”, with a charge for disposable cups also set to be brought in.

Any private childcare facility that offers parking spaces to staff may have a considerable annual bill to pay the local authority in Scotland. It’s not known if some local authority council run childcare nurseries would levy this parking tax on public staff employees.

Workplace pension contribution increases

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The government has set minimum levels of contributions that must be paid to the workplace pension. Employers must actively budget for the additional staffing costs of the new pension contributions increases from 6th April 2019.

The current rates under automatic enrolment are that the employer contributes 2% of the qualifying earnings and the employee contributes 3%. Earnings from employment can include salary, overtime, commission and bonuses. The new contribution rates will increase to 3% for the employer and 5% for the employee.

All employers must factor this increase into their budgets and make employees aware of their increase in contributions in a timely manner. The 8% total contribution may in some instances be paid by the employer if they wish to meet the burden of this extra cost.

The government pays into the pension scheme by giving tax relief on your contributions. The tax relief is at the basic rate of tax 20% and the pension provider claims the additional tax relief on your behalf and adds it to your pension pot.

We operate the government scheme NEST on behalf of our payroll clients. Please give us a call on 01698 421774 or 07543019957 if you wish to discuss setting up and operating this scheme.

Private residence relief

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CAPITAL GAINS TAX

Selling your home – private residence relief slashed

The Chancellor used the 2018 Budget to raise some extra capital gains tax from certain individuals when they sell their home. Could this include you when you move your childcare business.

Selling tax free

As you probably know, if you make a gain from selling your home it’s exempt from capital gains tax (CGT) because of private residence relief (PRR). Even you haven’t used a property as your home for extended periods, for example if you live elsewhere because of your job, PRR can still apply. In addition, the last 18 months of ownership are always CGT free, regardless of whether you occupy the property or not. This means you could move into a new home before selling the old one without losing any PRR. However, the 2018 Budget included two important changes to the PRR rules.

First change – ownership period

The 2018 Budget reduces the PRR for the final period of ownership to nine months (instead of 18) with effect from April 2020. This means if you buy a new home, move out and the property doesn’t sell within nine months you could face a CGT bill when you do finally find a buyer.

Annual exemption

If you lose some or all of your PRR and this results in a capital gain a CGT bill won’t always follow. Your annual CGT exemption, £12,000 from 6 April 2019 (if you haven’t used it against other gains) reduces the taxable amount. If there are joint owners they can also use their annual exemption to reduce the tax on their share of the gain.

Second change – letting relief

Currently, if you let your home PRR includes a bonus in the shape of an extra relief which can reduce the taxable amount of any capital gain you make from selling your home by up to a maximum of £40,000. The Chancellor has decided that this letting relief is to be withdrawn from April 2020 unless you occupy part of your home or share it while letting it.

Check your circumstances

The once simple PRR is becoming more complicated year-on-year. If you’ve occupied a house as your main residence for a while, but you’ve also lived somewhere else, the Budget raises the chance of a CGT bill. In future when you sell your home you’ll need to consider the CGT position if you’ve been absent from your home for one or more extended periods during your ownership.

While some absences are ignored, this might only apply if you re-occupy your home after the absence.

CGT changes in the pipeline

In an obvious attack on landlords, although it may affect others, the Chancellor confirmed that from April 2020 anyone who makes a capital gain from selling residential property which is not covered by an exemption or relief will have to declare and pay an estimate of the CGT within the following 30 days.

From 6 April 2020, if you move home and it takes longer than nine months to sell your old one, part of any gain you make when you sell will be liable to capital gains tax (CGT). Plus, the CGT exemption of up to £40,000 which applies if you rent out your home will be scrapped unless you occupy your home while it’s let.