Pearl Lemon Accountants

Category: Consulting

  • How Far Back Can HMRC Claim Unpaid Tax

    How Far Back Can HMRC Claim Unpaid Tax

    Why would HMRC claim unpaid tax? And how far can HMRC claim go back? There are many different time limits. The limit set depends on whether it is a claim or an assessment.

    The HMRC is a government agency in the United Kingdom that assists the government in collecting taxes and duties on its behalf. HMRC assists people in reclaiming their tax by offering information on how to submit a claim for their unpaid tax to the government. 

    HMRC will investigate further back the more serious they think a case could be. If they suspect purposeful tax evasion, they can investigate as far back as 20 years. More commonly, investigations into careless tax returns can go back six years, and investigations into innocent errors can go back up to 4 years.

    Let’s get started and find out the length of time HMRC can go and Claim Unpaid Tax.

    HMRC tax investigation

    HMRC can investigate your taxes anytime to see if you’re paying what you owe.

    You have to cooperate with a tax investigation, but this does not mean you are guilty. As long as you have reasonable accounting procedures and an accountant who can help you, a tax investigation should not be too complex or time-consuming.

    They’ll usually contact you first, either with a letter or a phone call and let you know what specific details they want to look at.

    This might include things like:

    • This might include things like:
    • The tax that you pay
    • Your accounts and tax calculations
    • Your Self Assessment tax return for a given year
    • Your Company Tax Return
    • Your PAYE records and returns if you’re an employer
    • Your VAT returns and records if you’re VAT-registered

    HMRC may contact you if you use an accountant, but your accountant should tell you about it. On average, tax audits can be expected every five years or so. Fewer than 2% of income tax credit and corporation tax credit returns are investigated each year.

    Why would HMRC put an investigation on me?

    If you’re an employee, your employer will take care of all your payments. They will remove what you owe HMRC from your wages and send it straight to the taxman. This process is also known as paying taxes through payroll deductions.

    However, you may need to file a Self Assessment if your income comes from sources other than working for anyone else. Such as self-employment, you are renting out property and making a profit as an investor. If you have any questions about this form, please contact MRRC, and they will help you.

    The deadline for submitting your online Self Assessment tax relief is January 31st, and your form must accurately reflect your earnings for the preceding tax year. 

    For example, income from April 6th 2021, to April 5th 2022, must be declared by January 31st 2025.

    HMRC can initiate an investigation if they believe your tax relief contains errors or irregularities.

    How long does a tax investigation take?

    It can take some time to figure out your tax position, typically several months after receiving your first letter. When it comes to larger organisations, a lot more work needs to be done to meet the deadlines. In comparison, some companies are made up of one person and can be fully resolved much quicker.

    HMRC’s investigations can last for up to 12 months, though this will depend on the complexity of your case. Sometimes it can take 3-6 months to resolve a specific tax issue. Even in minor cases, it’s essential to wait until a solution is found and ensure the case has been resolved.

    But for a full-blown tax investigation, you can expect to wait up to 18 months.

    How Far Back Can HMRC Claim Unpaid Tax?

    HM Revenue & Customs will send you a letter notifying you that they will investigate your tax entries. They may do so as a result of a paperwork error. It examines some inconsistent figures or a tip from an anonymous source that you are underpaying.

    Throughout the investigation, you will be required to produce various documents, including bank statements, invoices, expense receipts, and quotes from third parties. All of this information can assist HMRC in determining whether you have done something illegal.

    HM Revenue & Customs also has the authority to reopen previously settled tax returns if an investigation reveals puzzling results. In most cases, HMRC has a four-year time limit on tax investigations during which they can return to claim money from taxpayers.

    HMRC can go back six years if someone has been visibly careless (submitting tax returns with errors). They can search through 20 years’ worth of tax returns to find what they’re looking for purposeful tax avoidance.

    Therefore, if you’re considering closing your limited company and forming a new one, you may want to rethink your choices. The further back HMRC wishes to look; the more arduous and exhausting a tax investigation can be for many people.

    HMRC’s request for information and detail can be overwhelming, so it is critical to seek specialist advice early on. It will assist you in making the correct decisions, including challenging HMRC if necessary.

    If HMRC claims unpaid tax, they may initiate enforcement actions such as sending a notice, applying penalties, or taking legal action to recover the debt.

    Our services of Tax Planning for Partnership Firms can help you optimize your tax strategy and stay compliant.

    What information will HMRC be looking for during an investigation?

    HMRC will conduct a detailed inquiry and request all of your financial papers. Typically, they believe there is a high probability of an error in your tax return. When investigating limited liability companies, they may investigate the directors’ tax affairs and the operation of the business.

    HMRC will investigate any areas of your tax return that they consider essential, such as revenue mismatches. Their reviews verify the accuracy of information regarding one or more specific issues discovered during the investigation.

    For example, HMRC may have interesting information from a building society that contradicts the information on your return. They will require additional information and request more extensive responses/explanations in this scenario.

    HMRC has a reputation for conducting “compliance checks” on the accuracy of some tax returns. Many organisations will be subjected to random inspections, while others will be subjected to risk-based assessments. Random checks can occur at any moment, independent of the settings for your accounts or trigger notifications.

    Penalties for Tax Evasion?

    Failing to file tax returns and make payments on time can lead to a financial penalty. There are also penalties if you carelessly report information on your tax return. The most severe penalties are applied to those trying to avoid paying tax and hide that.

    Penalties are charged on a sliding scale based on why the error occurred. The severity of the tax penalty will depend on what caused that particular mistake to happen and can be anywhere from a warning to permanent account termination.

    Frequently Asked Questions

    What are the chances of being investigated by HMRC?

    7% of investigations are conducted at random. As a result, we can presume that everyone is at risk. In reality, the majority of inspections occur when HMRC discovers an error.

    What might HMRC investigate during an investigation?

    HMRC will evaluate the completion of your business records during a comprehensive enquiry, typically because they believe there is a strong possibility of an error in your tax. When investigating limited liability corporations, they may look extensively at the company’s directors’ tax affairs and the business’s operations.

    Conclusion

    HMRC has the power to claim unpaid tax up to six years after the end of the tax year in which the liability arose. If you have not paid your taxes by then, HMRC can take action against you and reclaim any money owed from your bank account or other assets.

    HMRC can also claim unpaid tax from a company for any period it was carrying on a trade, even if it has since ceased trading.

  • How Do You Cancel Car Tax

    How Do You Cancel Car Tax

    Are you thinking of canceling your car tax? Are you looking for the process to do it cancel car tax?

    There are a few situations where it makes sense to get rid of your motor vehicle tax, the most popular of which is while selling your automobile.

    The good news is it’s pretty easy to cancel it and get a refund on any months you’ve already paid for. All you have to do is let the DVLA know.

    So whether you’ve had your car stolen, scrapped, or just decided to remove your vehicle off the road to avoid paying for insurance, you’ll need to register your vehicle with the DVLA.

    Through the article, we will get you through the process you can cancel your car tax.

    Let’s get started;

    What is Car Tax, and How Does it Work?

    A car tax is a fee charged on some or all cars in the UK by the tax collector. It is a tax that provides funding for local authorities. A car tax is an annual charge levied on cars registered in the UK, according to their CO2 emissions. 

    This charge helps local fund councils responsible for road maintenance and other services. Getting a refund can be complicated, so it’s important to know what you need to do if you are entitled to one.

    Car tax is a levy that is imposed on cars in different countries. It’s usually collected by the government and used to fund the roads and other public services. 

    In the UK, there are several different types of car tax. The main types of car tax are the motor vehicle excise tax or the Road Tax.

    Motor vehicle excise tax is levied on all vehicles registered in the United Kingdom.

    The vehicle excise tax is paid on new vehicles that have not been registered for three months.

    Depending on how environmentally friendly your automobile was at the time of registration and how much it cost when new, you will pay a different amount. This is a policy issue that changes often!

    Why cancel car tax?

    To cancel your vehicle tax, you’ll need to provide the DVLA with a reason, which has to be one of the following:

    If The car has been sold or transferred to someone else.

    If you have sold your vehicle or transferred it to someone else, it is essential to cancel your Vehicle Tax. Failure to cancel your Vehicle Tax can lead to a hefty fine.

    If You have declared it off the road (SORN).

    You can cancel your vehicle tax if it is SORN. To do so, you must apply to the V5C/2 form sent to DVLA and inform the DVLA. Also, you must fill out Form V912. Your vehicle tax is paid in 12 monthly installments, and you can ask for a car tax refund if you no longer use it. To do this, you must cancel your vehicle tax.

    If Your insurance company has written it off

    If your car has been written off, you can cancel your vehicle tax. You will need to provide the documents for the insurance company written off your vehicle.

    If You’ve had it scrapped at a vehicle scrapyard

    The DVLA has a new regulation introduced to help scrap vehicles owners. It is called the Scrap Metal Dealers Act 2013. According to this act, if your old vehicle has been scrapped at a registered scrapyard, you are entitled to cancel your vehicle tax.

    If It’s been registered as a tax-exempt vehicle

    Those living in a state that offers tax exemptions for taxes on vehicles can cancel the vehicle tax. To know if you are eligible, you need to visit your state’s revenue department or speak with a certified public accountant (CPA).

    There’s no good reason for canceling your car tax. If you drive on the road without it, the DVLA will fine you £80, which is reduced in half if paid within 28 days.

    How to Cancel Car Tax?

    You have a right to cancel car tax; it’s sometimes not easy. You’ll need to contact the DVLA and provide them with your V5C registration document to cancel your tax. They will issue an exemption certificate allowing you to cancel your tax without providing evidence or paperwork. If they agree, you are eligible.

    When canceling your car tax, you need to submit all the necessary documentation promptly. The faster you send it, the better your chances of getting it processed on time.

    Method 1: Contact the DVLA to cancel car tax

    You must inform the DVLA of any changes in the ownership of your car. You may reach the DVLA by dialing 0300 790 6802 from 8 a.m. to 7 p.m., Monday through Friday, or 8 a.m. to 2 p.m., on Saturday. DVLA Vehicle Customer Services, Swansea SA99 1AR, is the address where you may write a letter.

     Check to see whether you’ve had your taxes canceled. If you’ve paid your automobile tax, it should be canceled automatically. Your car tax will no longer be valid if your DVLA direct debits have been discontinued automatically. Keep an eye out for your reimbursement. It’s unlikely that you’ll have to do anything, and your refund will arrive in a check in the mail.

     If you haven’t received your refund within six weeks, you should contact the DVLA to inquire about the status of your refund.

    Method 2:Contact the Bank or Credit Union That Holds Your Vehicle’s Title

    When you have a vehicle, you may need to pay taxes to the government. If your vehicle is in the UK, you need to contact the bank or credit union that holds your vehicle’s title. When you sell a car, the buyer should be responsible for paying the taxes on the vehicle. However, sometimes people forget to cancel their car tax payment, which can cause problems down the line.

    You need to contact your bank or credit union to cancel car tax. If they don’t know who holds your title, you’ll need to contact the DVLA or Secretary of State’s office to find out who holds your title.

    Some UK residents who have recently had a car registered in their name may have received a letter from their bank or credit union asking them to cancel their vehicle tax. However, you should contact your bank or credit union to find out whom they are referring to so that you don’t lose any money. If the DVLA holds your vehicle’s title, you’ll need to contact the DVLA for this information.

    Method 3: Cancel Online

    Road tax can almost always cancel online, which is one of the best online services of DVLA. All you have to do is complete the appropriate application form for your situation.

    You can also notify the DVLA in various ways about events such as the sale of a car. Filling up the logbook and mailing it to the DVLA, for example, will alert that organization that you are no longer the registered owner of the car.” This will take longer, though it is suggested that you use the online approach.

    Frequently Asked Questions

    Can you drive your car straight away after taxing online?

    Transferring road tax from one vehicle to another is no longer possible. Rather than that, the present owner of the vehicle may seek a rebate, and the new owner is responsible for re-taxing the vehicle. The new owner must immediately tax the car before driving it.

    What happens if I pay my car tax Late UK?

    You will be fined £80 if you fail to tax your car or notify the DVLA that it is no longer roadworthy. Additionally, you’ll be responsible for the period it was not taxed. If you do not pay your fine promptly, your car may be clamped or crushed, and your information may be shared with a debt collecting agency.

    Conclusion

    Canceling your car tax should not be an option if it is not of utmost urgency or necessity.  The tax you pay gets to be spent on you and the wellbeing of the road you are driving, or you will drive. 

    The more regularity you will maintain to pay the tax, the more benefits from it you will get. If you ever get into any trouble while driving, you can easily claim the necessary benefit you need against the tax you have paid. 

    But as the article goes, you can follow the steps mentioned above to cancel your car tax as per your necessity. 

  • Credit Control – How to Get it Right Every Time

    Credit Control – How to Get it Right Every Time

    One of the most important aspects of running a successful business is effective credit control. Your business’s cash flow can be severely impacted if money does not come in on time, and the resulting problems can quickly spiral out of control.

    Effective credit control is an important process that begins with getting to know your customers before selling to them and ends only when you’ve been paid. Here we are going to take a step-by-step look at credit control best practices to help you ensure you get paid on time, every time.

    Before the Sale Credit Control Best Practices

    Credit checks on potential customers are a must, as are strict credit control procedures that your sales and credit control teams understand and adhere to.

    The Importance of Setting a Credit Control Policy

    Your accounts receivables team should implement a coordinated and professional credit control procedure by clearly laying out a day-by-day strategy from the time the order is placed until the invoice is paid. From there make sure that the appropriate levels of training are provided so that all stages are properly completed, communicated, and adhered to. No special favours to certain people, no ‘we’ll let it slide this time’, or everything will fall apart.

    Get to Know Your Customer’s Payment Profile

    Before committing to credit terms, it’s becoming increasingly important to get to know your customer. The first step is to collect all the necessary business data by having new customers complete an application form.

    Using this information, you can ask a credit expert to check the credit risk posed to your company using one of the many credit rating services available on the market. Banks do this before they issue business or consumer credit, and you should too.

    Check Your Customer’s Terms

    It’s critical to check for any onerous terms imposed by your customer that may override your company’s own Terms & Conditions of Sale. Before delivery, if at all possible, send out an order acknowledgement to reaffirm your terms.

    To demonstrate your seriousness, use this opportunity to explain your credit control procedure in the event of late payment, such as charging interest, taking legal action, or referring the debt to a specialist commercial debt collection agency.

    Keep a Stop List

    It can often help to put persistently late-paying customers or those with a poor credit rating on a “stop list” or a “watch list” to ensure due diligence when selling to these companies in the future.

    Businesses on the stop list should be notified and should not be supplied with any additional goods or services until at least all outstanding invoices have been paid, while those on the watch list should no longer be offered credit terms without an up-front payment or deposit.

    Credit Control After the Sale

    This is the most crucial stage of successful credit control, from timely invoicing to maintaining regular contact with your customers.

    Send All Invoices in a Timely Manner

    It may seem pretty obvious, but sending invoices to customers as soon as an order is fulfilled is critical, as any delays in invoicing will generally result in delays in receiving payment. The process can be sped up even further by faxing or emailing the invoice rather than mailing it.

    It’s also crucial that the invoice is addressed to the correct person and that the information it contains is correct. Make sure to include purchase order numbers or vendor references whenever possible, as such things are great for both parties to reference later.

    State Your Terms and Conditions Clearly and Firmly

    Your invoices must be clear and easy to understand, with your credit terms, the actual payment date, and the acceptable payment methods and details prominently displayed. Make sure you don’t make the mistake of choosing fancy looking invoices over easy to read and accurate ones.  

    Work on Positive Customer Relationships

    Having a pleasant and positive relationship with your customers has a number of benefits. It will not only encourage them to buy more goods and services from your company, but it will also increase your chances of getting paid on time; the more they like you, the less likely they are to keep you waiting.

    It’s always a good idea to call ahead of time to ensure that your invoice is in the system, to avoid any disputes, and to make sure that your payment is at the top of the payment queue.

    Dealing with Difficult Beyond Terms Issues

    Chasing customers for past-due payments can be difficult and uncomfortable, but you must act quickly and decisively to achieve the best results.

    Review Your Sales Ledger Often

    Knowing when an invoice exceeds its credit terms is a crucial aspect of credit control. Your accounts department or credit controllers should review your sales ledger on a regular basis to ensure that your customers’ payment activity is always tracked.

    Begin the Chase Early

    When an invoice exceeds its credit terms, the pressure is on to collect the debt in full, as the likelihood of collecting the debt in full decreases as the debt matures. As a result, it’s critical to speak with the person in charge of your invoice right away to find out why you haven’t been paid and when you should expect to be.

    Don’t Be Afraid to Get Tough

    Asking customers for money they owe you, despite the fact that it is rightfully yours, can be a daunting task – especially for those larger than you. It’s important to remember that by not paying on time, they’ve harmed your company’s cash flow and exploited the trust you put in them by offering credit terms. You have a right to go hard.

    Call in the Professionals

    When you’ve done everything you can to recover the debt, it’s critical to make the most of every resource available to you.

    Specialist commercial debt collection agencies excel at recovering particularly outstanding debts, devoting the time and attention that you may no longer be able to afford to each individual debtor.

    Ongoing Credit Control Best Practices

    From benchmarking to insuring against bad debts, there are always things you can do behind the scenes to ensure your credit control process is as efficient as possible.

    Keep an Eye on Collections Performance

    Always examine your company’s credit control performance, determining whether the process can be made more efficient, whether the team is too big or too small, and how your credit terms compare to those of your competitors. The comparison of your average debtor days to the industry average is crucial to this process. You can keep your company on the front foot by reacting to the latest trends.

    Insure Against Late Payments

    Credit insurance safeguards a company’s cash flow from the effects of late payments and bad debts by protecting it from non-payment due to insolvency or prolonged default, and policies can be tailored to meet your specific needs.

    Stay in Your Bank’s Good Books

    Because late payments can cause serious cash flow problems for your company, it would be great to be able to turn to your bank for short-term funding to bridge the cash flow gap. To stay in their good books, it’s crucial to keep in touch on a regular basis, attend all scheduled meetings, and let them know right away if you’re having any short-term cash flow issues.

    Remember to Thank Your Good Paying Customers

    Remember to send a thank you to all of your on-time paying customers! It not only shows you appreciate their punctuality, but it also improves customer relations and may lead to additional sales.

    Consider Getting Credit Control Help

    Given its importance to the success of your business – particularly for those with a large debtor book – credit control should be an everyday business task. As a result, hiring a full-time credit controller who spends all of their time keeping the business’s sales ledger up to date, building rapport with your customers’ accounts departments, and performing basic credit control tasks could be a serious plus.

    Pearl Lemon Accountants can help with your credit control issues. Get in touch today and let’s chat about how we can help you.

    FAQs

    What is credit control?

    Credit control is a business strategy that allows credit to be given to customers (usually those with a good credit standing) to purchase products and services.

    How do you do credit control?

    The are a few steps you can take to do credit control.

    1. Make sure procedures, and payment terms are agreed to from the beginning.
    2. Be sure to check up on aged debtors regularly.
    3. Confirm that your customers have received the necessary invoice, and be sure to remind them of the upcoming due date.
    4. Late payments should be pursued every 7 days until the payment has been received. You can also automate this to make it easier to pursue multiple late payments at once.

    If you would like more detailed information, feel free to book a call with our experts!

    What are the types of credit control?

    There are three kinds of credit control, each with its own risk. Restrictive, moderate, and liberal are the three most common types of credit control.

    Why is credit control necessary?

    Credit control is necessary for every business as it decreases the chances of racking up bad debt and the accumulation of unpaid invoices.

    What are the benefits of credit control?

    Credit control has a few benefits, including increasing your organisation’s cash flow and reducing negative debt, among other things.

    What are the limitations of credit control?

    For starters, having poor credit control can compromise the overall cash flow of the organisation, thus making it tough to pay anything you owe, such as employee salaries, suppliers, etc.

    If you would like more detailed information, feel free to book a call with our experts!

     

  • What is a P11d: A Basic Guide

    What is a P11d: A Basic Guide

    Do you receive or pay your employees’ or directors’ expenses or benefits throughout the year?

    Then you must complete and submit a P11d form to HMRC for each employee who has received the benefits, as well as a P11d(b) to summarize the class 1A NIC due, as required by law.

    Does all that sound like nonsense? If so, it does to many people, so you are not alone. The good news is that here we are going to explain this form in greater detail in this P11d guide, so it makes more sense (or as much sense as a government tax form can anyway.)

    P11d Basics

    The biggest question most people have, after what is a P11d is what goes on a P11d. The answer to the latter is any of the following:

    • Any reimbursed expenses
    • Any employment benefits that do not go through payroll, such as gym memberships or non-business related  education.
    • All business related entertainment expenses.
    • Company car provisions and fuel reimbursements
    • Any directors’ beneficial loans.

    Some of these benefits will result in a charge to the company for Class 1A NIC; if any Class 1A NIC is due, it must be paid by July 19th (or 22nd for cleared electronic payment).

    Statistical Details for a P11d Form

    There are also certain standard statistical details that must be included on a P11d form:

    • Your employer reference number
    • Your employees’ full legal name
    • Your employee’s NI number or date of birth, as well as his or her gender
    • If you’re reporting a company car, include the list price.
    • If you fill out the ‘total cash equivalent of car fuel provided,’ make sure to fill out the ‘total cash equivalent of cars provided’ as well.
    • If you give a beneficial loan to an employee you’re reporting, fill out the ‘cash equivalent of loans’ section as well.

    What Exactly is a P11d(b)?

    A P11d (b) is a summary of your P11ds that shows the total amount of Class 1A NIC your company owes to HMRC. You must also submit a P11d (b) if you have one or more P11ds to submit

    4 Steps to a Successful P11d (b)

    • Enter the total cost of all expenses and benefits for the year.
    • Adjust this total to account for expenses and benefits that do not require Class 1A NIC.
    • Calculate your NIC for Class 1A.
    • Make your P11d declaration in its entirety via a P11d(b)

    Is it Possible to Get Rid of the Need to Submit a P11d?

    It is possible to apply for a Dispensation if you are declaring certain benefits on a P11d for which no class 1A NIC is due, removing the need to report business expenses and benefits. Once the dispensation is in place, it will only cover the expenses and benefits listed on the dispensation application; there will be no need to fill out a P11d/P11d (b) for the expenses covered by the dispensation.

    You’ll need to check the HMRC website to see if your expenses are eligible for a dispensation.

    A Word About Company Cars and the P11d

    One of the most common reasons for a P11d to be submitted is to report the usage costs associated with a company car. Obviously the type of car – and its age – will affect how it is taxed.

    Despite the fact that you, the employer, will be the one to submit the P11D form, the employee will be the one to pay the tax bill. This is where the P11D becomes crucial for company car drivers.

    Company car drivers should choose a car with a low P11D value and a low company car tax band to keep their tax bill as low as possible. As an employer, this is something you may want to point out when an employee is champing at the bit to get their hands on the newest ride available.

    Although the term “P11D value” is not an official term, it is commonly used to refer to the value of a company car in the eyes of HMRC. The P11D value is the car’s list price, including VAT and any delivery fees, but not the first registration fee or road tax. The list price of the car, as well as the P11D value, will include any factory options installed.

    Once you have the P11D value for a company car, multiply it by the percentage rate of the employee’s income tax bracket (either 20% or 40%) and the car’s benefit-in-kind tax band, which is based on CO2 emissions on models registered since January 1, 1998.

    The same P11D value calculation applies to both new and used cars, so if you’re thinking about running a fleet of used company cars to save money, the P11D value and tax will still be based on the original list price. If there isn’t a list price to refer to, a notional price is used instead. This is the price at which the car’s manufacturer, importer, or distributor would have been expected to sell it.

    When Do P11d (b) Forms Need to be Filed?

    The P11d(b) form has a filing deadline of July 6th.

    A penalty will be imposed if HMRC does not receive the return by July 19th. Each month (or part month) that a return is not filed will result in a penalty.

    For each month/part month, penalties will be calculated at £100 per 50 employees.

    You will receive one reminder from HMRC that your P11d is overdue if it is not received by July 19 – after that, you will only receive a penalty notification if your return is 4 months late. By that time you will have already incurred a minimum of £400 in penalties, so it is critical that you submit your returns by July 19 at the latest!

    Need help with P11d forms, need a P11d guide or any other aspect of business accounting? Pearl Lemon Accountants can help. Get in touch today and let’s chat about your unique accounting needs and just how we can assist you.

    FAQs

    Who is responsible for P11D?

    Employers. The employer needs to file the document rather than the employee. However, if you are a contractor, freelancer, etc., this also applies to you. Curious to know if you need to submit a P11d? Let’s chat!

    Is P11D the same as P60?

    No, they are not. The P60 lets HMRC know how much tax you have paid on your salary. The P11d reports the monetary values of benefits and expenses to HMRC.

    Do I need to send P11D to HMRC?

    If you pay or receive your directors’ or employees’ benefits and/or payments, then yes, you must complete the P11d form and submit it to HMRC. 

    The deadline to submit the P11d form is July 6th, and there is a penalty if the form doesn’t get submitted by July 19th.

    Do I need to submit a P11D if no benefits?

    A P11d is not required if you haven’t had any expense payments or if the employee has not received benefits. 

    Want to make sure you don’t need a P11d? Let’s chat!

  • The Right – and Legal – Way to Use a Probation Period in the UK

    The Right – and Legal – Way to Use a Probation Period in the UK

    It’s unsettling to realise you may have made a poor hiring decision.

    When dealing with a new employee, you might find they are different from how they appeared in the interview. Implementing a probation period in the UK can help ensure you’ve made the right hiring decision.

    It’s possible that they’re not very capable in the role, or that they’re not quite right for your company – which is especially important if you’re a small business where everyone needs to get along.

    Probation periods (or probationary periods) can help in this situation.

    But what exactly are they? What is the proper way to use them? And, as an employer, how can you make the most of them without getting into legal trouble? These are some of the issues we are going to explore here.

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    What is a Probationary Period? Basic Definition

    A probationary period in the UK – the definition varies in other counties – is a period of time at the beginning of a job when an employee can be sacked with little or no notice if they are found to be unsuitable for the position. Any new employment contract will almost always include a probation period in the UK, typically lasting three months.

    Probation periods are important because they allow employers to ensure that they’ve made the right hiring decision and to act more quickly if a new hire isn’t up to the task.

    This lowers the cost of keeping someone who is unqualified for the job on staff and allows them to be replaced more quickly, minimising the disruptions to your company and to the individual in question’s career.

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    Understanding Employment Law for Probation Periods in the UK

    There is no specific UK employment law that covers probation periods.

    However, if you include the terms of a probationary period in your employment contract, it becomes legally binding.

    It’s also important to remember to follow the Equality Act 2010 during the probation period, and to make sure that the reasons for a dismissal are not discriminatory, even if it’s during the probation period. You’ll need to make sure you have documented evidence of this, just like you would with any other dismissal.

    How to Formalize a Probation Period in the UK

    In the absence of strict legal requirements for probation periods, it’s crucial to formalize your probation period in the UK by including a clause in your employment contracts that clearly defines the terms and makes them legally binding.

    This clause should include:

    • What is the length of your probationary period?
    • Are there any terms regarding notice periods?
    • That you have the option to extend your probation period at your discretion

    Probation periods are typically three months long, though businesses may choose to extend them to six months or even longer in some cases.

    The length of your probation period is usually determined by the nature of the job, how long you think it’ll take an employee to grasp the main responsibilities, and how long you think it’ll take you to decide whether they’re right for the job. In some cases this may be more than three months, especially if it’s an unusual or very challenging role.

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    Best Practices for Managing an Employee on Probation

    Even the best people can struggle without good management and the right support, so it’s critical to take steps to help you get the best possible sense of the person’s ability.

    Make use of a well-thought-out induction strategy.

    The better your induction, the faster a new employee will become familiar with your company’s processes and goals, as well as the company’s behavioural norms.

    Make sure your expectations are clear.

    Outline your employee’s responsibilities early on, so they are aware of what is expected of them.

    Set simple goals.

    Setting goals will give you a benchmark against which to measure your new hire’s progress. However, make certain that these goals are attainable. Remember that the employee will need time to learn the ins and outs of your company.

    Take weekly notes and reflect on the employee’s performance.

    It’s useful to consider how the employee performed each week, especially during the first month. Making a written note of your thoughts will also provide you with documented evidence of any problems that emerge.

    Schedule regular meetings with the employee.

    Keep in touch with your new hire on a regular basis to discuss their progress and ability to meet your expectations. After each meeting, send an email to the employee with a summary of your discussion to ensure that they have a clear understanding of the expectations and next steps.

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    Any concerns should be communicated as soon as possible.

    Although it may be difficult, communicate with your employee as soon as possible if they are not meeting expectations. You’ll be giving them the best chance possible to try to change things if they can.

    Make a list and check it twice

    It’s critical to keep track of your probationary employee’s progress and concerns throughout your probation period in writing, so that you can back up any decisions you make during or at the end of the probationary period.

    Know Employee Rights During a UK Probation Period

    During a probation period in the UK, employees retain the same legal employment rights as those who have completed their probation and are within their first two years of employment.

    This means they are entitled to the national minimum wage, statutory sick pay, family-related leave, and statutory notice, as well as time off in accordance with the Working Time Directive.

    They also have the right to be protected from unjustified dismissal and unlawful discrimination. As a result, it’s critical to remember that if you’re terminating a probationary employee, you’ll need evidence to show that your reasons for termination are reasonable and nondiscriminatory.

    You must also make reasonable accommodations for a probationary employee with a disability, in accordance with their right not to be discriminated against unlawfully because of their disability.

    Although employees on probation have the same statutory rights as other employees, some employers choose to hold off on providing certain (non-statutory) benefits, such as enhanced sick pay, until the employee has successfully completed their probation period.

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    What are the Notice Requirements During a Probation Period in the UK?

    Both the employer and the employee must give notice during the probation period according to the terms of the employment contract.

    This must be at least the statutory one-week notice period after the first month of employment.

    This means you are not required to give notice during the first month of your probationary period unless your employment contract states otherwise.

    Dismissing a Probationary Employee 

    Under the guidelines of a probation period in the UK, as stipulated in your employment contract, you hold the authority to dismiss an employee at any time during their probationary period.

    After raising concerns with them, you should give them a period of time to improve before dismissing them.

    The amount of time you give them will be determined by the severity of their failure to meet expectations and whether or not there are any signs of improvement or attempts at improvement.

    If you still think the employee isn’t right for the job, schedule a formal probation review meeting with them.

    Conducting a Probation Review Meeting Fairly (and Legally)

    If, despite informal discussions in which you have raised your concerns and clearly defined your expectations, an employee still does not appear to be right for the job, you should invite them to a probation review meeting to discuss terminating their contract.

    Review your notes from your catch-ups with your new employee to prepare for the meeting, and make sure you have specific examples of where they have failed to meet required standards.

    • Begin by stating the purpose of the meeting: to evaluate performance and conduct during the probationary period.
    • Also, let the employee know that he or she will be able to respond to what you say.
    • Provide specific examples of how the employee has fallen short of expectations.
    • Be as specific as possible, comparing and contrasting their performance to what was expected.
    • Communicate what you’ve seen in a straightforward and honest manner, without sounding accusatory.
    • Encourage the employee to comment on what you’ve observed. Keep an open mind because there could be a valid reason for their difficulties.
    • Allow yourself time to make a thoughtful decision by adjourning the meeting. At this time you can choose to extend the probation period to give the employee more time to demonstrate their worth or formalise the process to terminate them.

    Covering Your (Legal) Back 

    There are two important steps to remember when dismissing an employee who is on probation:

    Give Proper Legal Notice

    If you’re terminating a probationary employee, make sure you give them enough notice. You might want to fire them on the same day as the meeting, in which case you’d pay them in lieu of their notice period.

    This should be in accordance with the probationary period’s contractual notice period, as specified in their employment contract.

    As previously stated, even during the probationary period, this contractual notice cannot be less than the statutory notice period, which requires a minimum of a week’s notice if the employee has worked for more than a month.

    Give the Employee a Chance to Appeal

    Providing an opportunity to appeal during the probationary period is not required by law, but it is recommended because it will highlight any potential discrimination claim that the employee may intend to make.

    This should give you the opportunity to resolve any internal conflicts and avoid an Employment Tribunal claim, something no employer wants to have to face, even when they believe they are in the right. 

    FAQs

    A probation period is a temporary  timeline within which  you are  evaluated to see if you are a good fit for a specific  position.

    This refers to a predetermined timeline, depending on the position and the organisation. However, it can be anywhere from three to six months.

    Yes.  You are still entitled to your employment rights,   This means that you should receive a  standard salary.

    Legally speaking, there isn’t a specific law that can control the overall length of a probationary period.  Once  hired, your record will show that you began working on your hiring date rather than after  your probationary period.

    Need more clarification? Book a call with our experts today!

  • How to Close a Limited Company the Right Way

    How to Close a Limited Company the Right Way

    How to Close a Limited Company the Right Way

    Not every business succeeds, and not every partnership blossoms as expected, meaning that it’s not unusual for the time to come when the principals involved might want to close a limited company and move on to the next phase in their professional lives. Closing a limited company involves more than just closing the doors though, especially when it comes to tax issues.

    But how do you close a limited company the right way? That’s the issue we are going to explore here.

    Closing a Limited Company: Getting Started

    Although closing a limited company is a relatively simple process, there are certain conditions and requirements that must be carefully considered. The dissolution process is a low-cost way to close your company, and the company is removed from Companies House’s register.

    There must be no active or pending insolvency proceedings, and once a closure date has been set, you must complete a checklist of tasks before submitting the application. During the three months leading up to the company’s dissolution, it’s critical that it doesn’t:

    • Change its name
    • Actively dispose of any stock or assets
    • Continue to trade

    Because of that last item, you’ll need to be very sure that you really want to lose the limited company for good, as once the wheels are in motion it’s not easy to stop the process.

    Your Payroll and HMRC Obligations

    We’re sure that you have already realised that in dissolving your limited company you have certain obligations to HMRC to meet. You will need to:

    • Notify HMRC of your plans to close the business.
    • Any VAT registration should be canceled.
    • Complete your payroll, including the distribution of P45s to all employees and directors.
    • Request that HMRC close the payroll scheme after all PAYE and NIC obligations have been met.
    • Fill out a P35 end-of-year payroll summary and send it in. If you have to make employees redundant, you must consider their redundancy payments as well as any other liabilities, such as wages or holiday pay they may be owed.

    Final Accounts and Filings

    You can complete and file the company accounts and tax return once all transactions have been processed, making sure to inform HMRC that these are the final accounts before dissolution.

    You will be notified of the company’s Corporation Tax liability, which must be paid as soon as possible because dissolution cannot take place if there are outstanding liabilities.

    Prior to the dissolution date, any remaining assets should be divided among shareholders. Any unallocated assets or cash in the bank will go to the Crown once the company ceases to exist, as they are deemed to have no legal owner.

    Formalising the Strike Off Application

    This is another important stage in the process of closing a limited company. When all the above is complete, a majority of the directors must sign the DS01 application form, that should be sent to the relevant Companies House address with a £10 fee.

    After Companies House has approved the form, a notice of dissolution must be published in the local newspaper as well as on the company’s public record. One of the most crucial aspects of the company closure process remains to be completed: informing all interested parties that the limited company is being dissolved.

    Letting the Right People Know You are Closing Your Limited Company

    Members of staff, creditors, pension fund trustees, HMRC, shareholders, and any directors who did not sign the application are all interested parties. Notification is given in the form of copies of the application form, which must be sent within seven days. These rules apply to anyone who becomes an “interested party” after the application has been submitted.

    Creditors are a crucial group in this stage of the process, as dissolution cannot take place without their approval. Any creditor who has not been notified and is owed money has the right to request that the company be restored at a later date. Third-party objections are also allowed under the terms of the public notice. Once the company has been dissolved, another notice is published in the newspaper stating that it no longer exists.

    What Happens If Someone Objects to the Limited Company Closure?

    If someone objects to your strike-off application, they must write to the Registrar of Companies explaining their objection and supplying evidence to back it up. They may believe that your company still owes them money, or that you have made a false statement.

    At this point you would need to formally answer these claims, submitting evidence supporting your position. The dissolution will be stalled until these outstanding issues are resolved to the satisfaction of the Registrar of Companies.

    When Closing a Limited Company, How Long Will it Really Take?

    From the time of application to dissolution, it takes at least three months – this is the time during which creditors can object. However, depending on the structure and complexity of your company, the process may take much longer.

    You must also account for the three-month period preceding the application, during which you must wind down the company’s affairs and make dissolution preparations. This is not a procedure that can be rushed; it necessitates meticulous planning and even more careful execution to ensure that no errors occur.

    This is where, if you haven’t used one before, you should probably consult an accounting expert. Pearl Lemon Accountants provides expert advice to ensure that all requirements are met prior to filing for company dissolution and closing a limited company, as well as to assist if any objections arise. Contact us to learn more.

    FAQS

    What happens to the money when you close a limited company?

    If money is left in the company’s bank account after settling all your debts, then the money should be given to the organisation’s members according to their ownership percentage.  

    How much does it cost to close a limited company UK?

    In the UK, it can cost anywhere from £3,000 to £7,000.

    How much tax do I pay if I close my limited company?

    Closing a limited company can cost either 18% or 28% in taxes.

    Want more detailed information? Feel free to book a call with our experts!

    How do I inform HMRC of a closing company?

    All you need are two separate letters to inform HMRC. The first letter needs to let them know your overall intentions, and the second letter (from your shareholders) needs to confirm what is going on in the organisation and your reasons for closing the company’s doors.

    Should I close my limited company or make it dormant?

    It all depends on what you want to do. Dissolving a company means that you don’t see any likelihood of resuming regular operations in the future. 

    Maintaining a company dormant, however, means that the organisation has the opportunity to find an investor and be operational again (plus, making the business dormant also means you get to keep the company name). 

    How long does it take to strike off a limited company UK?

    It takes three months or more to strike off a limited company in the UK.

    If you want more detailed information, feel free to book a call with our experts.