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Self Assessment Deadlines and Penalties

29/6/2022

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Do you need to do a self assessment?

Do you fall under the regime of someone who needs to do a self assessment?

This would mean you’re either self-employed as a sole trader (earning more than £1,000 in the tax year), or a partner in a business partnership.

You may also need to send one if you have any other untaxed income:
  • some COVID-19 grant or support payments
  • money from renting out a property
  • tips and commission
  • income from savings, investments and dividends
  • foreign income

If you’re unsure whether you fall into this category, ask your accountant, or check out the government website which gives full details.

If this is you, here are the deadlines and penalties you need to be aware of when doing your self assessment:

Deadlines:  
5th October - Register for Self-Assessment

You must notify HMRC by 5th October if you fall under the self assessment regime
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​31st October at midnight – File Your Paper Tax Return

HMRC encourages taxpayers to file their tax returns online, which can be done through the HMRC website or using software, but in some cases, it may still be necessary to file a paper return. Paper returns must be filed by midnight on 31st October at the end of the applicable tax year. Please note that this is the date by which HMRC must receive your return. Therefore, please allow enough time to print the forms, complete them and send them to the HMRC.
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30th December – Collect any tax due through your PAYE code for the next tax year

Do you file your tax returns online and also have earnings taxed under PAYE? Then, you can choose to have overdue tax collected via PAYE. But, for this to be allowed, your self-employed tax bill must be below £3,000, and you must file your online return by this date. The advantage of this is that any tax payable would be paid over 12 months from April,  rather than in a single lump sum by 31st January.
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31st January by midnight - submission and payment of tax due

If, like most people, you submit your tax return online, then the deadline for submission and payment is midnight on 31st January. Any tax due must be paid by this same date along with a first payment on account (if relevant).
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31st July by midnight – 2nd payment on account due

Payments on account’ are advance payments towards your tax bill (including Class 4 National Insurance if you’re self-employed). You normally have to make 2 payments on account every year unless:
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  • your last Self Assessment tax bill was less than £1,000
  • you’ve already paid more than 80% of all the tax you owe, for example through your tax code or because your bank has already deducted interest on your savings

Each payment is half your previous year’s tax bill. Payments are usually due by midnight on 31 January and 31 July.
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Penalties:
Late filing penalties for Self Assessment

Time after 31st Jan deadline        Penalty
1 day                                                                            £100    
3 months                                                                     £10 daily up to 90 days (max £900)
6 months                                                                     5% of tax due or £300 (whichever is greater)
12 months or later                                                     5% of tax due of £300 (whichever is greater)

Additional penalties may be applied if HMRC believes the taxpayer is intentionally withholding information or trying to evade tax.

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Late payment penalties for Self Assessment

HMRC will issue the penalties if you do not pay your tax when it is due. 

Lateness                         Penalty
30 Days                                     5% of tax due
6 months                                   5% of tax due at that date
12 months and later                5% of tax due at that date
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If you don't have an accountant or you are looking for an accountant, you're more than welcome to get in touch with me, to see if I'd be the right fit for you/your business. 
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Choosing the right accountant for you and your business.

24/5/2022

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What sort of questions should I ask when choosing an accountant?

When it comes to choosing an accountant, it’s important you choose the right one for you and your business.

You should feel supported, not an inconvenience. You should feel they have yours and your business’ best interests at heart. You should feel they know what they’re talking about. Don’t just go with the first accountant you come across. You should do your research, and ask the right questions…
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So what sort of things should you ask an accountant to help you make the right decisions?

Experience and qualifications

First of all find out what experience they have and also their qualifications. Are they members of (a) professional body(ies)? What are their credentials? Can they prove their skills and their knowledge? Can they demonstrate their experience?

One way of finding this out is by reading reviews they have from other small businesses. Either on Google, Facebook, even their testimonials page on their website if they have one.

Have a browse through their social media. Are their clients singing their praises?

Qualifications are quite often also listed on their website and if they are part of a professional body then that logo will appear on their website. i.e. I am part of the ACCA and the logo is featured on my website. (See footer)
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How long have they been in business?

Secondly, find out how long they’ve been in business. How long have they been a business owner? This gives you an idea whether they have an understanding of what you face as a small business owner yourself. Do they have a provable track record? If they are new to their own business, find out what previous experience they had working as an accountant for other firms, and if they come highly recommended.  You want an accountant that can help you grow your business, it’s not just about getting by.

Do they have references they can share with me?

Thirdly, as well as checking out their reviews, you can also ask for references. What are other companies just like yours saying about them? Do they have proof that they have and are helping other small business owners like you?

Information they may need from me

Fourthly, once you decide on an accountant who you feel is the right fit for you and your business, find out what information they will need from you. As well as finding out when they will need it - maybe a schedule of dates/deadlines. 

You will need to find out if/when they will want your receipts, bank statements, and invoices, and also to review your books and business expenses. This can all be simplified by using one of the digital accounting software packages available as this has everything in one place, and this can also be shared with your accountant.

If you haven’t already got anything set up, ask your accountant what they recommend. I highly recommend Clearbooks but there are plenty of others out there too. It’s important that you set yourself up with one if possible, as this will help you in terms of Making Tax Digital which is gradually being rolled out (see my recent MTD Blog)
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Can they help me with my tax?

One of the biggest areas you will need help with in business is Tax, so make sure you find out how they can help you with your tax. Not only with the general paperwork etc. but also making sure you’re only paying the tax you need to and letting you know of anything you may be doing wrong, or claiming wrong, so you don’t get into trouble with HMRC.

How/when/how often can we communicate?

As you will already know in business, communication is key. Before you even start with a new accountant, agree on how you will keep in touch. Find out their preference, tell them your preference and come to an agreement. Email, phone call, video call… however you both find it easier to communicate, just make sure you do.

Building towards my goals.

Can I achieve my goals? It might seem like the sort of question you would ask a business coach, rather than an accountant, but a good accountant should know if the goals you have set for your business are achievable. Even if they don’t think they are, they should then be able to help you take steps in the right direction and show what you can do instead to get you where you need to be to succeed.

Am I making any mistakes?

Another question you should always be able to ask your accountant is if you are making any errors in how you are keeping records/claiming expenses/doing your taxes etc. The mark of a good accountant is when they can address any issues you may unknowingly have, as soon as they notice.​
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Being prepared for the tax season

Being prepared for the tax season is also important. Not only should your accountant file your tax return etc. for you, but they should also be willing to help you, give you advice, let you know of any industry specific regulations you might not know about, and just generally help you keep up to date with your financial records throughout the year.

Can they answer the hard questions?

How an accountant answers your questions - especially the harder, more industry relevant, or questions specific to your own circumstances - is also of great importance. This shows the depth of their knowledge, experience and understanding, and can give you the confidence in them, and how they will handle your accounts. 

Can they advise me on my business structure?

Lastly, a business will grow and change over time. While you might start out as a sole trader, it may be that due to the way your business has changed it might be worth your while becoming a limited company. This is something you should be able to ask and discuss with your accountant as they will know what the best business structure is for you at that moment in time. 

As an accountant, I would expect you to do your research before taking me, or any other accountant on, and I hope these questions and explanations help you in making that decision. 
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Sonya is a qualified and experienced chartered accountant, with over 20 years general practice experience. She is registered with the ACCA, has professional indemnity and public liability insurance. 

Sonya covers areas like general accountancy, booking keeping, business start-ups, tax planning, self-assessment, corporation tax, VAT, company formation, company secretarial, and tax enquiries and investigations.

She has worked with many business start-ups, and has a wide knowledge plus years of experience with new businesses and all the things setting one up entails, especially from a financial and tax perspective.

Sonya is also part of Handpicked Accountants which is a nationally recognised platform and a leading local provider of accountancy services to businesses and start-ups across Ribble Valley, Lancashire, and Yorkshire. 

“Running your own small business means you are expected to wear many hats.  As finance and tax matters are not one of my strengths (!) it made total sense to let someone else manage this for me (allowing me to focus on actually running my business). Sonya is so approachable, helpful, always there to answer questions and provide support as needed. I can highly recommend her.” Jo from Little Biz Marketing UK

If you have any questions for me about choosing an accountant, or any other accounting needs, you can contact me here.

Or if you'd like regular tips and advice then you're welcome to follow me on Facebook and/or Twitter.
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Making Tax Digital: the ins and outs

1/4/2022

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We are getting ever closer to an overhaul of the tax reporting system in the UK and even though the self-employed will only have to comply from 6th April 2024, it is certainly worth looking into the requirements in advance. 

If you currently use paper based records (such as a Simplex D cash book) then you will definitely have to change the way in which you prepare and maintain your business records. If you use spreadsheets it is possible to use bridging software in order to comply.
Making Tax Digital Timetable:
  • VAT:
    • From April 2019, most VAT registered businesses with turnover exceeding the VAT registration threshold have had to retain digital records and submit their VAT returns to HMRC using 'functional compatible software'.
    • From April 2021, 'digital links' between software programs, applications or products have had to be in place. 
    • From April 2022, this includes all VAT registered businesses unless an exemption such as digital exclusion applies. This includes those below the VAT registration threshold. 

  • Income Tax:
    • From April 2024, self-employed businesses and landlords with business turnover above £10,000 are to report under MTD for Income Tax.
    • From April 2025 general partnerships join MTD. 

  • Corporation Tax:
    • From April 2026 companies join MTD for CT.
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So what is Making Tax Digital?

Making Tax Digital (MTD) is a government initiative which aims for the UK to “have one of the most digitally advanced tax administrations in the world” and promises to “transform tax administration so that it is easier for taxpayers to get their tax right”.

What is changing under MTD for income tax?

Self employed business owners and landlords with turnover more than £10,000 a year will have to follow the new rules from 6 April 2024.

Partnerships will follow from 6 April 2025.

Instead of submitting an annual self assessment tax return to HMRC, the requirement for those affected will be to submit four quarterly updates about their business income and expenditure. At the end of the tax year, they will also have to send an EOPS (end of period statement) and final declaration (which replaces the current tax return).

Records will need to be kept digitally.
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It is currently understood that the timing of Income Tax payments will not change although in the future this may eventually change to payments being required four times a year.
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Deadlines

The deadlines for submitting quarterly updates will be the same for everyone who has to follow the MTD for ITSA rules. From the start of the tax year on 6th April, these deadlines are:
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  • 5th August (for April/May/June)
  • 5th November (for July/August/September)
  • 5th February (for October/November/December)
  • 5th May (for January/February/March)
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Tax penalties

HMRC have stated that it will not apply any penalties in respect of late submissions for MTD, for a period of one year. Then there will be a new points based system for penalties.

Penalties for errors and mistakes will continue to apply. 

What does ‘keeping digital records’ actually mean?

Recording data from a business transaction in a digital format creates a digital record. 
You can choose whatever digital format suits your needs. Whether this is a spreadsheet (and you can link it with bridging software) or a cloud based accounting system like Clearbooks, Xero, Quickbooks or Sage. You can use whatever you feel comfortable with and what meets the needs of your businesses.

You are only required to digitally record the following data points from each transaction for MTD:
  
  • Date of the transaction
  • The expense category (for income tax)
  • Amount or value 
  • Rate of VAT charged on a sale (for VAT)
  • Amount of VAT to be claimed on a purchase (for VAT)  
 
You will want to record more than the information above like supplier name etc but that is the bare minimum in order to comply with MTD.
 
Retailers can use daily totals rather than each transaction if they do not have digital transaction software. 
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If you have any questions about Making Tax Digital, or any other accounting needs, you can contact me here.

Or if you'd like regular tips and advice then you're welcome to follow me on Facebook and/or Twitter.
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Spring Budget 2022: Future tax cuts to support families with the cost of living.

29/3/2022

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With the Spring Budget being announced last week by Rishi Sunak, the chancellor's main priority was to address the 'cost of living' crisis. With inflation rising to a 30-year high, and a promise of future tax cuts to support families with the cost of living.

Here I break down the information for you into what I hope are manageable chunks.

Rates and Allowances
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​The government will reduce the basic rate of income tax to 19% for England and Wales from April 2024.
 
With inflation at 6.2% and predicted to go higher, the personal allowance and tax thresholds remain frozen. A consequence is that more individuals and businesses are likely to need assistance in navigating the complex tax system.

National Insurance
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From April 2022 the rate of National Insurance contributions across all classes (except Class 2 and 3) will change for one year. The amount of the contribution will increase by 1.25% which will be spent on the NHS and social care across the UK. This will be replaced by the new Health and Social Care Levy which will take effect from 6 April 2023.
 
The Chancellor announced that the Primary Threshold and Lower Profits Limit will both increase from £9,880 to £12,570. This aligns the thresholds with the personal allowance.
 
This increase in National Insurance contributions will apply to:
 
Class 1 (paid by employees)
Class 4 (paid by self-employed)
Secondary Class 1, 1A and 1B (paid by employers).
 
Employers will only pay on earnings above the secondary threshold.
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The annual National Insurance Primary Threshold and Lower Profits Limit, for employees and the self-employed respectively, will increase from £9,880 to £12,570 from July 2022. From April, self-employed individuals with profits between the Small Profits Threshold and Lower Profits Limit will not pay Class 2 NICs. Over the year 2022/23, the Lower Profits Limit, the threshold below which self-employed people do not pay National Insurance, is equivalent to an annualised threshold of £9,880 between April to June, and £12,570 from July. This means the Lower Profits Limit will be £11,908 for the 2022/23 tax year which is equivalent to 13 weeks of the threshold at £9,880 and 39 weeks at £12,570, reflecting the position for employees and the annualised basis of thresholds underpinning Class 2 NICs.

Employment Allowance

ACCA in representations had suggested an increase in the Employment Allowance. This allowance increases by £1,000 from £4,000 to £5,000. This increase applies from April 2022.The allowance continues to be limited to employers with an employer NIC bill below £100,000 in the previous tax year.
 
Pensions

With effect from 6 April 2028 the earliest age at which most pension savers can access their pensions without incurring an unauthorised payments tax charge will increase from 55 to 57.
 
Capital gains tax annual exempt amount (after personal allowance)

These are frozen at £12,300 for individuals and £6,150 for trusts.
 
Dividend allowance
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The tax-free dividend allowance is unchanged at £2,000. The dividend tax rates are increased by 1.25% for each category of taxpayers for 2022/23.
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Corporation tax

The corporation tax rate will remain at 19% but from April 2023 the applicable corporation tax rates will be 19% and 25%. Businesses with profits of £50,000 or below will still only have to pay 19% under the small profits rate.
 
Enhanced capital allowances: super deduction 

This introduces increased reliefs for expenditure on plant and machinery. For qualifying expenditures incurred from 1 April 2021 up to and including 31 March 2023, companies can claim in the period of investment:

  • a super-deduction providing allowances of 130% on most new plant and machinery investments that ordinarily qualify for 18% main-rate writing-down allowances
  • a first-year allowance of 50% on most new plant and machinery investments that ordinarily qualify for 6% special rate writing down allowances
 
Annual Investment Allowance (AIA)
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Annual Investment Allowance is available until 31 March 2023. Businesses will therefore have until March 2023 to consider bringing forward capital investments of between £200,000 and £1m, accessing upfront support by claiming tax relief on such costs in the year of investment.
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Recovery Loan Scheme 

The Recovery Loan Scheme is extended six months until 30 June 2022 for small and medium sized enterprises and from 1 January 2022 capped at a finance level of £2m per business with the government guarantee reducing to 70%.
 
Making Tax Digital (MTD)

MTD for ITSA will be introduced from 6 April 2024. This impacts sole traders and landlords, with income over £10,000. General partnerships will not be required to join MTD for ITSA until 6 April 2025.
 
VAT
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All VAT-registered businesses must register for MTD.
In July 2020, it was announced that all VAT-registered businesses must file digitally through Making Tax Digital (MTD) from April 2022, regardless of turnover.
HMRC urges VAT-registered businesses to sign up for Making Tax Digital for VAT before 1 April 2022.
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The VAT registration and de-registration thresholds will not change for a further period of two years from 1 April 2022. Given the increased costs and inflation we will see many small businesses having to register.
 
The reduced rate of VAT of 12.5% ends on 31 March 2022 for the hospitality sector returning to the standard rate of VAT of 20% from 1 April 2022.
 
All VAT-registered businesses must file digitally through Making Tax Digital (MTD) from April 2022, regardless of turnover. HMRC urges VAT-registered businesses to sign up for Making Tax Digital for VAT before 1 April 2022.
 
Losses
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Trading losses will have more flexibility to carry them back over three years. This applies only for losses incurred by companies for accounting periods ending between 1 April 2020 and 31 March 2022, and for individual for trade losses of tax years 2020/21 and 2021/22.
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Entrepreneurs’ relief

The lifetime limit on gains eligible for entrepreneurs’ relief is £1m for qualifying disposals.
 
R&D

SMEs applying for R&D tax credits will be eligible to a maximum of £20,000 in repayments per year plus three times the company’s total PAYE and NIC liability.
 
Rates 

The business rates multiplier will be frozen in 2022/23. Eligible retail, hospitality, and leisure businesses will also benefit from a new temporary 50% Business Rates Relief. 

Inheritance tax (IHT)
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Time to pay

Taxpayers can set up a payment plan online with HMRC.
 
Pensions

The pension lifetime allowance will remain at its current level of £1,073,100 until April 2026.
 
Annual Tax on Enveloped Dwellings (ATED)
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The ATED charge increases automatically each year in line with inflation (based on the previous September’s Consumer Prices Index).
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If you need any further information please do not hesitate to contact me.
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Jolly Accountancy Services joins Handpicked Accountants network

15/3/2022

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We are delighted to have been selected to join the nationally recognised platform of Handpicked Accountants as a leading local provider of accountancy services to businesses and start-ups across Ribble Valley, Lancashire, and Yorkshire. 
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Founded by sole director, Sonya Jolly, we provide accountancy and taxation services to business owners and start-ups across the UK from our Gisburn office.  With over 20 years of hands-on experience in general practice, Sonya is well versed in all areas of accountancy for sole traders, partnerships, and limited companies. From offering traditional accountancy services, such as self-assessment support, bookkeeping, and tax planning, our expertise also extends to dealing with HMRC tax investigations.
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Handpicked Accountants is a reputable online network that carefully selects highly powered and respectable accountants across the country and connects them with businesses and individuals looking for an accountant. The Handpicked team are veterans in the financial services industry and therefore understand exactly what to look out for in an accountant. 
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Working hand in hand with an accountancy provider can help you manage your directorial responsibilities efficiently and fulfil your reporting duties to HMRC and Companies House. At Jolly Accountancy Services, we offer a free consultation to all new customers as we are confident that we can maximise your tax home pay and help your business operate smarter. 
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​David Tattersall, Head of Client Relations at Handpicked Accountants, said:
“I am delighted to welcome Jolly Accountancy Services to the Handpicked Accountants network as a strong addition to our bank of Northwest accountants.

“Sonya at Jolly Accountancy Services is a model accountant and ticks all the boxes in terms of what we look for when signing a new accountant. Her drive and determination are unmatched and backed by her extensive industry track record.”
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The Jolly Accountancy Services Handpicked Accountants profile is now active.
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Year End Tax Planning

4/2/2022

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What date is the tax year end date? What do I need to do to be ready for the tax year end date? Do individuals need to do things differently to a limited company at tax year end? Can I plan for the tax year end now?

As we are getting towards the tax year end of 5th April 2022, it is worth looking at whether there is anything you can do before this date to maximise your tax reliefs and to possibly save money. 


For Limited Companies it is always good practice to consider certain things to see whether or not you can help to reduce any Corporation Tax payable or to save yourself tax or National Insurance Contributions when extracting profits.

This is one of the many reasons as to why it is useful to know what profit/loss you have made on a weekly/monthly basis so that better, more informed, decisions can be made. I advise using bookkeeping software and keeping on top of entering the transactions so you have a more accurate picture. 
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What can I do as an individual towards year end tax planning?

Capital Gains Tax

The first thing you can do as an individual when it comes to planning your tax year end is to take advantage of your Capital Gains tax allowance of £12,300. This is if you are making a disposal and likely to have another within the next 12 months, and you should consider doing it before 5 April to use this year’s allowance as any unused amount cannot be carried forward.


Child Benefit

A % of child benefit has to be repaid if your income is above £50k (and repaid completely if above £60k). If your earnings are around this amount, making charitable donations or pension contributions can reduce your income and therefore save you having to repay the Child Benefit.

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Marriage Allowance
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If you are married or in a civil partnership, look to see whether you or your partner can claim the marriage allowance. This is where the lower earner's income must be below the personal allowance (currently £12,570) and the higher earner is a basic rate taxpayer. The lower earner can transfer £1,260 of their personal allowance to the higher earner which will save £252 a year in tax. The claim can be backdated up to 4 years.

Charitable Donations

Tax relief is available on charitable donations made by an individual who has paid income tax equivalent or more than the tax on the donation.
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Professional Subscriptions

If you are an employee and pay for professional subscriptions personally then you can claim tax relief for these amounts subject to them appearing on “HMRC’s list 3” which is available to look at online.

Plant and equipment investments

Capital allowances are available to claim at 100% for most plant and equipment so if your accounting year end is 31 March/5 April consider making any large investments in equipment before then to be eligible for the relief.
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Working from home
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If you have had to work from home even for just one day you can claim working from home tax allowance which is £312 per year (worth £62 a year for a basic rate taxpayer and £125 for a higher rate taxpayer). This applies to 2020/21 and 2021/22.
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What can limited companies do towards year end tax planning?

Super-deduction

There is a ‘super-deduction’ available for Limited Companies of 130% tax relief for the purchase of any new plant or equipment from 1 April 2021 to 31 March 2023. It does not apply to equipment bought second hand though.

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Dividends

If your Company has sufficient profits, taking a dividend out of the business could be the most tax efficient way as the rate is only 7.5% if within your basic rate band and 32.5% if this takes you into a higher rate. It is normally also worth taking a minimal salary to obtain a NIC qualifying year credit too. The first £2000 of dividends are completely tax free.

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Pension Contributions

​Pension contributions have to be physically paid before the year end to be included in the accounts and to obtain a relief against Corporation Tax.
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The tax differences between a sole trader and a Limited company.

5/1/2022

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There are a number of tax differences between a sole trader and Limited company, so in this guide I explain the main tax differences between a business run by a sole trader and a Limited company which is managed by its directors/shareholders.
 
What’s the tax differences between a sole trader and a Limited company? Who owns my business? What happens in the event of a legal dispute? Can I be sued? What about my tax return? What is my employment status? What about tax on profits? Losses? Extracting profits? Making Tax Digital?

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Who owns my business if I'm a sole trader?

As a sole trader you are the business and also its owner.

Who owns a limited company?

If you have a limited company, your company is a separate legal entity to its owner.
If the company is limited by shares, and you hold those shares, you are a shareholder.
As a director you are an officer of the company: you have a fiduciary duty to act in its best interests.
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What are the differences between a sole trader and a limited company in the event of a legal dispute?

As a sole trader you will be sued personally unless you have suitable insurance e.g. products and services liability, professional indemnity, employer's liability etc.

As a limited company, in the event of any legal dispute, the company will be sued unless it has suitable insurance cover. It is exceptionally difficult and rare under UK law for anyone to sue a director personally for a company's wrongdoing although there are exceptions where a director may be held personally accountable such as in tax cases of fraud by the directors.
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What are the differences between a sole trader and a limited company when it comes to accounting basis and tax returns?

For sole traders, annual accounts are simple to prepare. Generally Accepted Accounting Practice (GAAP) is followed unless cash accounting is used.

As a limited company your accounts are prepared in the format specified by the Companies Act, and Generally Accepted Accounting Practice (GAAP), generally under FRS 105 or FRS 102. Software makes this a pretty easy task for most small companies.

HMRC requires you to convert your accounts into a tagged iXBRL format.

As a sole trader you prepare one tax return under Self Assessment. If you are below the VAT threshold you may enter a three-line summary of your accounts in the self-employed section of the return. Otherwise, you enter the accounts details, line-by-line version.

As a limited company is a separate legal entity, it prepares its own tax return and tax computations. You as a director (and possibly shareholder) also prepare a separate return for yourself.

If you make errors or mistakes in your self assessment tax return as a sole trader, you are personally accountable for them.

If a limited company makes errors or mistakes in its tax returns, the directors are not personally accountable for them unless the directors have committed fraud on HMRC.
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What are the differences between a sole trader and a limited company in regards to employment status?

If you are a sole trader, you are self-employed; you cannot be your own employee.
If you are a director of a limited company, a director is an office holder, and this does not automatically make you an employee in terms of employment law, the National Minimum Wage or for Tax Credits.

For Income Tax and National Insurance purposes company officers are treated as employees.

What are the differences between a sole trader and a limited company when it comes to tax on profits?

As a sole trader, you pay Class 2 & 4 National Insurance and Income Tax on the taxable profits of your business, or your share of profits if you are in partnership. 
A limited company pays corporation tax on its taxable profits. Company tax rates are lower than higher rates of Income Tax.
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What are the differences between a sole trader and a limited company when it comes to losses?

A sole trader can offset trading losses against other income.

A limited company can flexibly offset its trading losses against its other income, but not against your income as an individual shareholder.

What is “extended carry back” and how does it apply to me and my business?

Extended carry back as a sole trader are trading losses arising in the years to 5 April 2021 and 2022 and can be carried back three years against profits of the same trade.

Extended carry back as a limited company are losses arising in accounting periods ending between 1 April 2020 and 31 March 2022 and can be carried back three years.
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What are the differences between a sole trader and a limited company when extracting profits?

A sole trader may withdraw cash from the business without tax effect.

As a company owner/director of a limited company, you are taxed on:
Any income withdrawn from the company. If it is a distribution, it is taxed as a dividend. If it is earnings it is under PAYE and subject to NICs.

Most employment benefits received are taxable too.

What are the differences between a sole trader and a limited company on Making Tax Digital (MTD)?

VAT registered sole trader businesses with turnover exceeding the VAT threshold of £85,000 had to join MTD for VAT from April 2019. All other VAT registered businesses will have to join from April 2022.

MTD for Income Tax applies from April 2024.

As a limited company, VAT registered businesses with turnover exceeding the VAT threshold of £85,000 had to join MTD for VAT from April 2019. All other VAT registered businesses will have to join from April 2022.

MTD for Corporation Tax to be introduced from April 2026 at the earliest.
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Have you completed your self assessment tax return?

20/12/2021

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Help, I haven't completed my self assessment tax return! When do I need to complete my self assessment tax return? What were the tax rates for the year to 5 April 2021? What were the NIC rates for the year to 5 April 2021? What does payments on account mean? Do I need to pay payments on account? When do I need to pay payments on account? What are supplementary pages? Do I need to complete the supplementary pages? Is there a deadline for me to pay my tax bill? What if I can't afford to pay my tax bill? 


We are fast approaching the 2020/21 tax return deadline of 31 January 2022. 

Have you completed your self assessment tax return yet?

If the answer is yes, give yourself a pat on the back. It still might be worth reading this article, as it covers all aspects of your self assessment tax return, and you can ensure you haven't missed anything. 

If the answer is no, read on, as I will be covering all aspects of completing your self assessment tax return. Most importantly, try not to panic, and if you're really stuck, you can always get in touch.
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​What were the tax rates for the year to 5 April 2021?

Personal allowance – which is the amount you can earn before being liable for income tax was £12,500

Basic rate band of 20% income tax is on earnings of £12,501 - £50,000
Higher rate band of 40% income tax is on earnings of £50,000 - £150,000
Additional rate band of 45% is earnings over £150,000

If your income is over £100,000 your personal allowance goes down by £1 for every £2 that your adjusted net income is above this amount. This means your allowance is zero if your income is £125,140 or above.
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What were the NIC rates for the year to 5 April 2021?

Class 1 is payable on employment earnings but I will only discuss NIC on self employment here.

Self employed taxpayers often don’t realise that they also have to pay Class 2 NIC (which was £3.05 per week in 2020/21) and also Class 4 NIC which is 9% on profits between £9,500 - £50,000 and then 2% above this amount.

Both Class 2 and Class 4 NIC are payable with any income tax due by 31 January 2022.
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Class 4 NIC is also added to the income tax liability when calculating payments on account but Class 2 isn’t.
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​I've been asked for payments on account, what are these? 

If your tax liability is more than £1,000 you will have to make payments on account in both the January and July following the tax year for which you have prepared a return. These payments will be 50% each time. Then when you prepare your next tax return, the liability will be reduced by these payments on account and you will have either a balancing payment to make (if your income is higher) or a repayment to claim.

However, again if your liability for that year is more than £1,000 you will need to make payments on account again. The first year you fall within this regime is often a shock having to pay upfront so make sure that you budget throughout the year for your tax liabilities.
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If you think your profits have fallen in the current tax year you can reduce your payments on account accordingly by making a claim on your tax return.

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When do I need the supplementary pages on the self assessment tax return?

If you have other income such as PAYE income as an employee or if you made a Capital gain or loss in the year there are additional sections of the return you will need to complete.
​

Make sure you include each self employment you have separately; they cannot be added together.

Other information worth remembering about completing your self assessment tax return


Do you know what your government gateway login and password is?
Ensure that you know what your government gateway login and passwords are as it can take up to 10 working days for a new code to arrive through the post.


My tax is higher than I expected it to be, what should I do if I can't afford to pay it?
If you are struggling to find the funds to pay your bill by 31 January 2022 you can contact HMRC to arrange a payment plan and this can now be done online. There will be interest added to any amounts still outstanding from 1 February 2022.



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Is my PAYE code correct?

16/11/2021

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What is a PAYE code? How do I find out my PAYE code? How do I recognise a PAYE code?  What should my tax code be? How do I know what my tax code should be? Is my PAYE coding correct? How does the HMRC work out tax codes? Why do people ignore their P2 code change notices? What can cause my PAYE code to be wrong?

TODAY I AM GOING TO TALK ABOUT HOW TO CHECK YOUR PAYE CODE.

​Have you ever checked your PAYE code? Has your PAYE code ever been wrong? 


First, you might be asking...

What is a PAYE code?
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PAYE stands for “Pay As You Earn”, which is basically when your income tax is deducted from your salary before you receive it; paid straight from your employer to HMRC. This is different if you are self-employed and you would then need to do a self-assessment tax return.
PAYE is worked out depending on how much you earn and whether you're eligible for the personal allowance which is the amount of money you're able to earn each year, tax-free.

How do I find out my PAYE code?

There are several places you can find your tax code:
  • PAYE Coding Notice, Form P2 – you and your employer get this ‘notice of coding’ from HMRC in the mail every March. It sets out how much tax your employer will deduct from your wages in the coming tax year.
  • Payslips – weekly or monthly, from your employer.
  • P60 – your annual tax summary, from your employer.
  • P45 – document received from an employer when you stop working for them.
  • HMRC – if you cannot find any of these documents, then call HMRC. You will need your National Insurance Number and they will have security questions for you, before they release your tax code.
Pension advice slip – for private pension tax codes, this figure is also shown on your P60.
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How do I recognise a PAYE code?

Most PAYE codes have a number followed by a letter.

The number tells the employer how much tax free pay you are allowed. The letters also have a specific meaning - you can find out more specifics here https://www.gov.uk/employee-tax-codes/letters. Some codes just consist of letters. Codes may also have ‘X’ attached to the end (used to be ‘W1’ or ‘M1’); meaning the payroll should be used with the tax code stated, but on a week 1 or month 1 basis.

What should my tax code be? How do I know what my tax code should be?

Is my PAYE coding correct? 

First of all, it is always up to you to check that your code is correct. It’s not the responsibility of your employer or of the HMRC. So if you’re not sure, there are ways of checking. 

If you’ve recently changed employment, job role, had a promotion or started a new job then the likelihood is your tax code will need to change. To pre-empt any mistakes down the line you can tell HMRC about a change in your income here.

Or if you think your tax code is wrong, you can update your employment details using the check your Income Tax online service.

How does the HMRC work out tax codes? 

Your tax code is based on how much you can be paid tax free before you start to incur charges. The numbers and letters refer to various bands and other related allowances depending on if you’re in a couple or not, or other circumstances that are taken into consideration. 
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Why do people ignore their P2 code change notices?

Research by HMRC in 2018 showed that the vast majority of taxpayers who are under PAYE do nothing when they receive a PAYE coding notice.

Why? One important factor seems that the notice looks generic and not personalised. It could also be that people don't like tax and so it's simply easier to put your head in the sand and pretend that it won't affect you.

  • HMRC will advise PAYE code changes using a form P2 notice.
  • If your PAYE code is wrong, you pay the wrong amount of tax. 
  • HMRC issues a P800 tax calculation at the end of the year if you are not within Self Assessment (i.e. you have not been sent a notice to file a Self Assessment return).
  • If you have an underpayment of tax calculated via a P800 notice you cannot appeal it. You should have checked your tax code.
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What can cause my PAYE code to be wrong?

HMRC issues some 20 million PAYE codes to employees and pensioners each year. Using data collected under PAYE Real Time Information Reporting by employers, HMRC should be capable of generating the correct code for you.
​

The top causes of incorrect PAYE codes, are:
  • You have multiple jobs or pensions and HMRC has not restricted your personal allowances and the code is only given for one job/pension. Check your code.
    • Have you told HMRC you have more than one job?
    • Do your employers know that you have another job? They might have started you on the wrong code if you did not complete a starters form fully. 
  • You have taxable employment benefits that have not been adjusted in your PAYE code. 
    • Check your P11D and inform HMRC as soon as you spot a problem.
  • You have had employment expenses in a previous year, and HMRC continues to adjust your PAYE code as if you incur those costs in the current year when you don't.
    • Check your code and inform HMRC.
  • HMRC has adjusted your code for pension contributions or gift aid and you no longer make those payments.
    • Check your code and inform HMRC.

If you have any questions about Self Employed Allowable Expenses, or any other accounting needs, you can contact me here.

Or if you'd like more tips and advice then you're welcome to follow me on Facebook and/or Twitter.
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The "post covid age of optimism": Autumn Budget 2021

28/10/2021

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With the Autumn Budget being announced yesterday by Rishi Sunak, the chancellor's message was that we are in a "post covid age of optimism." 

But what does this mean to the likes of you and me, and how or will the changes effect us?

Rates and allowances
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While some Income tax rates will stay the same as we go into 2022/23, the 20% basic rate rises slightly by £270. There is no change to the current Scottish Tax Rates, as their budget will be published 9th December 2021, and there is no change to the Personal Allowance either. 

Rates and Allowances from 6 April 2022.

National Insurance

​From April 2022 the rate of National Insurance contributions across all classes (except class 2 and 3) will change for one year. The amount of the contribution will increase by 1.25% which will be spent on the NHS and social care across the UK. This increase in National Insurance contributions will apply to:

  • Class 1 (paid by employees)
  • Class 4 (paid by self-employed)
  • secondary Class 1, 1A and 1B (paid by employers).

Employers will only pay on earnings above the secondary threshold.

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Pensions

With effect from 6 April 2028 the earliest age at which most pension savers can access their pensions without incurring an unauthorised payments tax charge will increase from 55 to 57.
 
Capital gains tax annual exempt amount
(after personal allowance)

These are frozen at £12,300 for individuals and £6,150 for trusts.
 
Capital Gains Tax (CGT): property payment window

From 27 October 2021 the deadline for residents and non-residents to report and pay CGT after selling UK residential property increases from 30 days after the completion date to 60 days. This will be a welcome measure for taxpayers, giving them sufficient time to report and pay CGT.
 
Dividend allowance
​

The tax-free dividend allowance is unchanged at £2,000. The dividend tax rates are increased by 1.25% for each category of taxpayers for 2022 -23.

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​Directors loan accounts s.455 rate will also increase from April 2022, from 32.5% to 33.75%.


Corporation tax

The corporation tax rate will remain at 19% but from April 2023 the applicable corporation tax rates will be 19% and 25%. Businesses with profits of £50,000 or below will still only have to pay 19% under the small profits rate.
 
Enhanced capital allowances: super deduction
 

This introduces increased reliefs for expenditure on plant and machinery. For qualifying expenditures incurred from 1 April 2021 up to and including 31 March 2023, companies can claim in the period of investment:
 
  • a super-deduction providing allowances of 130% on most new plant and machinery investments that ordinarily qualify for 18% main-rate writing-down allowances
  • a first-year allowance of 50% on most new plant and machinery investments that ordinarily qualify for 6% special rate writing down allowances
 
Annual Investment Allowance (AIA)

Annual Investment Allowance of £1m was due to end by December 2021. This will now be extended until 31 March 2023. Businesses will therefore have longer to consider bringing forward capital investments of between £200,000 and £1m, accessing upfront support by claiming tax relief on such costs in the year of investment.
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Rates 

Business rates in England will move to a more frequent revaluation cycle of every three years from 2023. A new temporary relief of 50% (up to £110,000) will be introduced for retail, hospitality and leisure properties in 2022/23. The rate multiplier will also be frozen for 2022/23.
 
Multipliers, revaluations and reliefs for the devolved nations remain subject to policy decisions by devolved governments.
 
From 2023 a new rates investment relief will be available to ensure qualifying property improvements do not result in a higher rates liability for a year following improvements, to support investments in green technologies, improvements to productivity and expansion of premises. 
 
Recovery Loan Scheme
 

The Recovery Loan Scheme is extended six months until 30 June 2022 for small and medium sized enterprises and from 1 January capped at a finance level of £2m per business with the government guarantee reducing to 70%.
 
Apprenticeship funding

In England, the government will continue to meet 95% of the apprenticeship training cost for employers who do not pay the Apprenticeship Levy. The £3,000 apprenticeship hiring incentive payment (per new hire) has been extended four months to 31 January 2022.
 
In Wales, apprenticeships are funded by the Welsh government, and apprenticeship incentive payments ranging from £1,500 – £4000 are available until 28 February 2022.
 
In Scotland, the type of funding you can access will depend on the type of apprenticeship. Additionally, the Adopt an Apprentice scheme provides employers with £5,000 for employing a redundant apprentice.
 
Making Tax Digital (MTD)

MTD for ITSA will be introduced from 6 April 2024. This impacts sole traders and landlords, with income over £10,000. General partnerships will not be required to join MTD for ITSA until 6 April 2025.

VAT

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The VAT registration and deregistration thresholds will not change for a further period of two years from 1 April 2022.
 
The reduced rate of VAT of 12.5% ends on 31 March 2022 for the hospitality sector returning to the standard rate of VAT of 20% from 1 April 2022.
  
Self-Employment Income Support Scheme
(SEISS) and other support


The amounts received through the support schemes are taxable income and is required as a separate entry on tax returns. 
 
Losses

Trading losses will have more flexibility to carry them back over three years. This applies only for losses incurred by companies for accounting periods ending between 1 April 2020 and 31 March 2022, and for individual for trade losses of tax years 2020/21 and 2021/22.
 
Cross-Border Group Relief (CBGR) and other related loss reliefs have been removed from 27 October 2021.
 
Entrepreneurs’ relief

The lifetime limit on gains eligible for entrepreneurs’ relief is £1m for qualifying disposals.
 
Employment allowance reform

The allowance is £4,000 but continues to be limited to employers with an employer NIC bill below £100,000 in the previous tax year.
 
R&D

SMEs applying for R&D tax credits will be eligible to a maximum of £20,000 in repayments per year plus three times the company’s total PAYE and NIC liability.

Inheritance tax (IHT)

The nil-rate band remains at £325,000 frozen until 2026. The residence nil-rate band for deaths in the following tax years are:
 
  • £100,000 in 2017/18    
  • £125,000 in 2018/19
  • £150,000 in 2019/20    
  • £175,000 in 2020/21
  • £175,000 in 2021/22 and subsequent tax years to 2026.
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Powers 

HMRC will have new powers relating to offshore tax avoidance schemes, allowing them to target the UK based entities which act as go-betweens. The rules would allow HMRC to impose additional penalties on UK facilitators, apply to the courts for freezing orders to prevent funds being dissipated and for winding up orders against companies or partnerships ‘operating against the public interest’. The rules also create a power to name promoters and share the details of their schemes. Although the powers would not come into force until Royal Assent, they can be used in respect of evidence or activities predating Assent.
 
New powers will also allow HM Treasury to make temporary modifications to support taxpayers in the event of a disaster or emergency of national significance including exempting benefits in kind and specified reimbursements or providing relief for specified expenses.
 
Time to pay

Taxpayers can set up a payment plan online via GOV.UK.
 
Pensions

The pension lifetime allowance will remain at its current level of £1,073,100 until April 2026.

​Interest relief for landlords

Landlords will be able to obtain relief as follows:

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Annual Tax on Enveloped Dwellings (ATED)
The ATED charge increases automatically each year in line with inflation (based on the previous September’s Consumer Prices Index).

More than £0.5m but not more than £1m
£3,800 in 2022/23 & £3,700 in 2020/21

More than £1m but not more than £2m
£7,700 in 2022/23 & £7,500 in 2020/21

More than £2m but not more than £5m
£26,050 in 2022/23 & £25,300 in 2020/21

More than £5m but not more than £10m
£60,900 in 2022/23 & £59,100 in 
2020/21

More than £10m but not more than £20m
£122,250 in 2022/23 & £118,600 in 2020/21

More than £20m
£244,750 in 2022/23 & £237,400​ in 2020/21

I hope this information has been useful to you, and if you have any questions at all don't hesitate to get in touch, or follow my social media for regular, up-to-date posts.

Join me on Facebook or follow me on Twitter.

[All information in this blog is correct at the time of writing and credit to ACCA]


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    Sonya Jolly qualified as a chartered certified accountant in 2000 and has over 20 years of general practice experience.

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