The Accountancy Office Blog

Part Time Accounts Assistant/Bookkeeper

2011-10-11T02:33:00.000-07:00

The Accountancy Office is an experienced and highly proactive firm of Chartered Management Accountants based in Evesham, Worcestershire. We pride ourselves on our proactive and personal approach and work closely with our clients to provide a service that is tailored to their individual needs.

Due to our expanding client base, we have an excellent opportunity for an experienced and dynamic Accounts Assistant/Bookkeeper. This is an exciting time to join this progressive Accountancy Practice and its small, friendly team working on a portfolio of small business clients.

The role will include the following duties:

• Responsibility for maintaining the accounting records for our client businesses (some off-site work at clients premises may be required occasionally)
• Responsibility for managing and maintaining the Payroll records for our clients
• Preparation of our clients VAT returns
• Preparation of statutory accounts for sole traders, partnerships and small limited companies
• Preparation of management accounts
• Preparation of tax computations
• Liasing directly with clients regularly to ensure the firm is building solid foundations for ongoing business
• General office administration

Role

Role will be 2 - 3 days per week, possibly increasing. Office based although travel to clients premises may be required on occasions. The successful candidate will report directly to the Director and must be able to work without close supervision. This is a dynamic role which will grow with the successful candidate, therefore a flexible and hard-working attitude is essential.

This is an excellent opportunity for a part or fully qualified AAT or equivalent.

Skills and Experience

• Excellent communication and technical skills are essential
• Strong IT skills including MS Excel are essential
• Minimum of two years accounting experience is essential and practice experience also preferred
• Knowledge of VT Transaction+ preferred although training will be available for the right candidate. Knowledge of other accounting software programs including Quickbooks, Sage and other online providers would also be useful
• Good organisation and administrative skills
• Excellent attention to detail
• Flexible, hard-working attitude
• Highly motivated and a bright self-starter, who can make a positive impact to the practice
• Full clean driving licence essential

Package

Salary is negotiable and will be in line with experience and abilities. Flexible working hours are available for the right candidate.

Applications

Please submit a letter of application together with a CV and current salary by email to hello@accountancyoffice.co.uk or by post to the address below. Closing date is 1st November 2011. Please note that the successful candidate will be required to complete CRB checks before appointment.

Further information

For further information about The Accountancy Office please visit www.accountancyoffice.co.uk or telephone (01386) 764741.

The Accountancy Office Limited
Basepoint Business Centre
Vale Business Park
Evesham
Worcestershire
WR11 1GP
Tel: (01386) 764741
Web: www.accountancyoffice.co.uk
Email: hello@accountancyoffice.co.uk
www.facebook.com/theaccountancyoffice
Twitter: @TheAccOffice

Companies House Annual Return...what is it?

2011-10-08T04:52:00.001-07:00

Many of our limited company clients find it difficult to understand all of the stautory filings that are required when running a limited company. It can be very confusing but we're here to help and will always remind our clients in advance of any impending reporting deadlines with polite reminders!

These are the essential aspects that a limited company typically needs to worry about:

- Annual statory accounts
- Annual corporation tax return
- Payroll for Director/s
- VAT returns (if VAT registered)
- Self Assessment Tax Return for the Director/s
- Annual Return (AR01)

There is a large amount of red tape involved when running a limited company but it is important to remember that the annual return is a completely separate document to the annual company accounts.

So what is the annual return?
The annual return is "a snapshot of general information about the company's directors, secretary (where one has been appointed), registered office address, shareholders and share capital". Every company in the UK must submit an annual return to Companies House detailing any legal changes that have occurred within the company over the previous twelve months usually from the date of the anniversary of the company.

If you don't know when the company annual return is due you can check this on the Companies House website. The easiest and cheapest way to complete the annual return is to use the WebFiling service via the Companies House website. The associated filing fee is £14. To use WebFiling you must first register for two codes:

•A Security Code (which is sent by email and linked to your email address).
•An Authentication Code (Which is posted to the registered office address).

If you don't wish to file online or don't have the facility to, then you can obtain a hard copy of the form from the Companies House website and once completed it can be returned by post. The filing fee for paper forms is £40 (ouch!).

With effect from 1 October 2011 Companies House implemented some changes to the filing of the annual return. They appear quite complex (and possibly quite pointless!) but essentially you will need to enter a new classification code for your principal business activity. The new regulations also contain changes to shareholder details, one of them being that unlisted companies must provide a 'full list' of all shareholders on the first annual return following incorporation; and thereafter on every third annual return. Any details of transfers of shares that have taken place during the year will be required for intervening annual returns.

The Director/s and secretary of the company are personally liable to deliver the completed Annual Return Form to the Companies House on time. If not filed on time, late filing penalty payments may apply.

Student Loan Notices

2011-10-06T03:26:00.000-07:00

This article appear in our October 2011 newsletter and is reproduced here for our Blog readers:

As an employer you are required to collect repayments of student loans your employees took out through the Student Loan Company (SLC) while they were studying, during years after September 1998.

You are told to start making SLC deductions by a form SL1 from the Tax Office (HMRC). HMRC is currently tidying up the data it holds on employers who collect student loan repayments. You may receive an unexpected SL1 notice for a current employee from whom you are already collecting SLC deductions. Alternatively you may receive SL1 notices for employees who have left your employment. In both cases you should simply file the SL1 notices and take no further action.

If you have a SLC loan yourself and are self-employed, the SLC loan repayments should be collected through your annual self-assessed tax bill, which is generally split over three payment dates. You need to tell us about your student loan, so we can ensure the right boxes are completed on your tax return form.

If your self-employed profits are less than £15,000 per year, you are not required to make any SLC repayments. This also applies if your salary is under £15,000 or you have a number of jobs from which you earn under that threshold in each.

Must you Register for VAT?

2011-06-30T01:37:00.000-07:00

There is a myth in certain quarters that every legitimate business is required to be VAT registered. This is not the case. Your business (as a sole-trader, partnership or company) does not have to become VAT registered until the total sales for 12 consecutive months exceeds £73,000. However, this total does apply to all the businesses you run as a sole trader. You can't artificially divide your businesses to avoid registering for VAT.

Once your business is VAT registered you must charge VAT at the appropriate rate (normally 20%) on your sales. You also have to submit regular VAT returns, either quarterly or monthly, which means you need to keep your records of sales and purchases up to date. If this all sounds a bit too much to cope with there are a number of schemes you can sign up to which are designed to make VAT reporting much easier for small businesses.

One of those schemes is the flat rate scheme for small businesses. When you use this scheme you don't have to worry about your purchases. You just have to total-up your sales each quarter and pay over a flat percentage as VAT to the Taxman. The percentage used will depend on your trade sector. If your business makes very few purchases you can benefit significantly from being within the flat rate scheme.

Some people prefer to keep their total sales below the compulsory VAT registration threshold, so they don't have to charge VAT and submit VAT returns. They do this by turning down work that would take them over the VAT threshold. This is not illegal, but the Taxman is very suspicious of businesses who manage their sales in this way.

If you use this strategy to avoid VAT registration, you need to be able to prove all your sales are correctly recorded and declared. Later this year the Taxman will offer a limited amnesty to those who have sales over the VAT threshold but who have not registered for VAT. Once that amnesty period is over he will start to actively investigate traders who report total sales just below the VAT threshold. Contact us for further information if you are interested in taking advantage of the amnesty.

Tax Efficient Profit Extraction

2011-06-13T13:00:00.000-07:00

This article featured in our June 2011 Newsletter which you can receive directly to your inbox each month by signing up from our website.

As a company owner you can choose how to extract the profits from your company, and by making the right choices you can minimise the tax and NI paid by you and the company.

The Taxman would like you to take all the profits in the form of a salary and possibly a bonus, as these carry the highest NI charges and ensure the tax is deducted under PAYE before you get your hands on the net income. It is good practice to pay yourself at least a small salary that is covered by your personal allowance (£7,475 for 2011/12), as this makes the best use of your tax free allowances. However, the maximum salary you can take so that neither you nor the company pay NICs is £7,072 in 2011/12, as the threshold for NICs is lower than the tax free threshold. You can get credit for NI contributions without actually paying any as long as the salary is above £5,304 in 2011/12.

Most company owners extract any further amount they need in the form of dividends. If the gross dividend is less than the basic rate limit of £35,000 you will pay no further income tax on that income, and no NI charges. However, larger dividend payments will create an additional tax charge in your hands of 25% (for 40% taxpayers) of the net dividend or 36.1% (for 50% taxpayers).If you don't actually need the income now consider extracting the profits in another form such as employer pension contributions although you will have to pay income tax on the pension you eventually receive.

You can also charge a rent for assets you own which the company uses (although this could affect the availability of entrepreneurs' relief on a sale of that asset). These assets could be real property (land) or intellectual property (e.g. patents). If you lend funds to the company it can pay you a commercial rate of interest on that loan. These profit extraction methods are free of NI charges.

We can discuss other methods of extracting profits, perhaps using your family members. Please contact us for specific advice in your own circumstances.

Planning for the VAT Increase

2010-11-25T05:13:00.000-08:00

This article featured in our monthly Tax Tips Newsletter earlier this month and is reproduced here for our Blog. You can receive our newsletter direct to your inbox by signing up from the home page of our website.

The significant VAT announcement in the Emergency Budget was the increase in the standard rate from 17.5 per cent to 20 per cent with effect from 4 January 2011. Will your business be ready?

It may be difficult for retail businesses to re-price everything displayed in the store over the New Year break, ready for opening on 4 January. Fortunately the law does allow you to make the adjustment from 17.5% to 20% VAT at the till for up to 28 days after the VAT increase. You do need to notify your customers that you are making this adjustment so have a sign advising customers that a price adjustment will be made at point of sale to reflect the increased VAT, and find time to reprogramme your tills before 4 January!

An alternative approach is to increase all your prices before 4 January 2011 to accommodate the higher VAT rate. If you are having new menus printed for winter, now could be a good time to make the price changes.

Where a customer places an order before 4 January 2011 for goods or services to be delivered after that date, you can generally charge VAT at the current standard rate of 17.5%. To apply the current rate of VAT you must either issue an invoice, or receive a payment before 4 January 2011. You should not artificially advance sales by issuing invoices that are not due for payment for six months or more. You will also be caught by anti-avoidance rules if your business is connected with your customer, or the amount due is £100,000 or more.

If you use the flat rate scheme for small businesses you need to check-out the flat rates that will apply from 4 January 2011, as set out on the HMRC guidance website: http://www.hmrc.gov.uk/vat/start/schemes/flat-rate.htm#5a

You may find that when you apply the new flat rate to the gross sales made on and after 4 January 2011, you will be worse off than operating outside the flat rate scheme. If this is the case you need to inform the VAT office in writing that you want to leave the flat rate scheme. It's easiest if you do this with effect from the start of your next VAT quarter. If you leave the flat rate scheme you can't rejoin the scheme for at least 12 months.

For specific advice on how to deal with the VAT rate change in your business, please contact us.

Changes to Class 2 National Insurance Contributions Payment Dates

2010-11-23T14:15:00.000-08:00

From April 2011, payments for your Class 2 National Insurance contributions will become due on 31 January and 31 July, the same as a Self Assessment tax bill.

Taxpayers who make payments by internet/telephone banking, CHAPS, Bank Giro, Post Office or by post will receive just two payment requests from HM Revenue & Customs (HMRC) in the year (instead of four bills) in October and April, showing payments due by 31 January and 31 July respectively.

For those who pay by direct debit, the collection of monthly Direct Debit payments will be delayed by HMRC to bring the payment dates into line to meet the new due dates. This means that for the first year only, monthly Direct Debits will stop for a short period and then start again. Class 2 contributions due for April 2011 will be requested from your bank in August 2011. Payments thereafter will be monthly unless you choose to pay 6 monthly from April 2011.

There will also be a new option to pay by six monthly direct debit, collected in January and July each year, which will be available from April 2011 for those who do not wish to spread their payments.

Anyone affected by these changes should receive detailed information via a series of special mail shots in the coming weeks.

Don't forget capital allowances!

2010-11-11T10:19:00.000-08:00

The tax man may be more generous than you think. If you’re a sole trader, partnership or limited company you can claim a tax allowance known as a capital allowance.

When you buy items of equipment and tools for your business, typically items that will be utilised over a period of time, you cannot claim them as a business expense in your accounts. However, you may be able to claim capital allowances. These items are usually regarded as business assets and may include computer equipment, machinery, furniture and even vans and cars. There are various forms of capital allowances and the rates available will vary depending on the specific items of expenditure and dates of purchase.

Your business accounts will typically only cover a 12 month period and assets of the business will be used for a longer period so they need to be treated differently. The tax man allows you claim ‘capital allowances’ for these items which allows you to deduct a proportion of the cost from your taxable profits and reduce your tax bill. Adjustments for personal use of any asset is usually required.

The most useful capital allowance for small businesses is the ‘Annual Investment Allowance’ (AIA) which enables most businesses to claim 100% of the cost of assets against tax, up to an annual limit of expenditure of £100,000. This limit will be reduced to £25,000 from April 2012 so it’s wise to plan ahead carefully when considering new investment. Cars are excluded from the AIA.

Having just saved a new client a significant amount of tax utilising capital allowances not previously claimed, it is important that these allowances are considered and utilised wherever possible. Always consult your accountant for professional advice.

Director Charging Rent for Use of Home

2010-10-28T03:41:00.000-07:00

If your company is based from your home you may wish to consider formalising an arrangement with your company to rent part of your residence to the company to occupy for business use. The benefit of this is that by charging the company rent, the company’s corporation tax bill will be reduced.

What do I need to do?
You cannot charge your limited company rent unless there is sufficient evidence of the arrangement so you will need to set up a formal rental agreement between yourself and the limited company. This is straight forward to do and templates are readily available. You should also ensure that you have a Board Minute recording the agreement. Providing the rental agreement clearly sets out that the company will not have exclusive use of that part of the home then this arrangement will not create capital gains tax implications if you sell the property in the future.

How much rent do I charge?
The rent that is charged to the company should be reasonable and justifiable and not in excess of commercial market rental values of serviced office space - research these locally. Also, bear in mind that if the amount of rent charged to the company, which then is subsequently paid to you, exceeds the household costs that you have personally incurred for that area of space you will be taxed on the difference which is regarded as rental profit. If you want to avoid this, the rent that you receive from the company should equal the costs paid by you.

Firstly, calculate the annual costs of running your home and consider the following expenses:

• Rent or Mortgage Interest
• Council tax
• Water rates
• Light and heat
• Telephone
• Insurance
• Repairs
• Cleaning
• Repairs or re-decoration of home office

The rent charged should include use of all services that are provided to the company from the home but be careful with telephone costs. If you are utilising a private residential telephone line, you can only claim the cost of the business calls. You cannot claim the cost of line rental as this will be treated as a benefit in kind on which you will pay tax. HMRC argue that the line rental would have been paid anyway without business use as it is already installed for your own private use. If you have a separate business line installed, in the name of the company, then all costs are allowable and VAT can be reclaimed as usual.

If the broadband account is in the company name and any private use is not significant then there is no taxable benefit for internet usage. If the account is personal then you may only claim a proportion of the bill based on your business usage.

A simple example…
Say that the total running costs were £14,000 per year. You will need to proportion these costs based on the amount of space occupied by the company. This can be done based on the number of rooms within the property or the total floor area of the household. Either method is acceptable providing you use the most accurate method based on all circumstances, such as the size of the property and the number of rooms within it. Adjustments also need to be made based on the amount of time that the room is utilised by the company.

Bob runs his company from a spare bedroom within his house five days per week. The house has a total of six rooms, all the same size. The costs would be apportioned as follows:

£14,000 ÷ six rooms = £2,333 per room.

Usage is five out of seven days so the costs are reduced by £2,333 x 5/7 = £1,666

£1,666 is the annual rental charge to the company for the year and the company’s profits are reduced by this amount which also reduces the corporation tax liability.

Bob will also need to record enter £1,666 rental income onto his personal self assessment tax return but he will not be taxed on this amount because the associated costs of running the home of £1,666 are also entered onto the tax return so the profit to Bob is nil.

Note
This is a very simplistic example and your accountant will be able to help you based on your specific circumstances.

Directors should also ensure that their mortgage lender or landlord permits the property to be used for business purposes and that the household insurance is not adversely affected.

National Minimum Wage Changes

2010-10-10T09:25:00.000-07:00

Newsletter issue - October 2010.

In the current recession you may have been forced to freeze or even reduce wages. If your workers are low paid you must be careful that you continue to pay at least the national minimum wage rate (NMW).

The hourly NMW rates increased on 1 October 2010 and now apply to workers in the following age bands:

21 and over: £5.93
18-20: £4.92
16 and 17: £3.64
Apprentice rate: £2.50

The apprentice rate applies to apprentices aged under 19, or those aged 19 or more in the first year of their apprenticeship.

The Taxman can impose penalties of up to £5,000 if you do not pay the statutory NMW rate, and you may even be tried in the Crown Court for non-compliance with the NMW rate regulations, leading to an unlimited fine. You must also pay any arrears of wages owed (for the previous 6 years), based on the current NMW rate, not the rate in force when your employee was underpaid.

Above and Beyond The Call of Duty

2010-09-29T02:22:00.000-07:00

Why do people feel intimidated by accountants? Why are accounts often the last thing small business owners think about when they are essential in managing the business effectively? Are we really that terrifying?

I conducted a bit of research amongst contacts and associates (all of whom are potential users of accountancy services) and it appears that high costs, technical jargon and the prospect of being repremanded for carrier bags brimming with receipts is enough to make prospective clients run to the hills. Whilst these reasons are nothing new, I personally feel that the accountancy profession has made significant progress in moving away from this reputation but apparently it still exists. I would certainly be extremely surprised if any of our clients reported us to be anything other than approachable, professional, friendly and cost effective. This is why The Accountancy Office was established in the first place - a professional, affordable and friendly accountancy service which is easily accessible for our locally based clients. We regularly keep in touch with our clients for feedback on our service and I'm delighted to say that it's all been extremely positive and a far cry from the stereotypical reputation of accountants mentioned above.

If clients prefer to provide us with their accounting records in shoe boxes, carrier bags or biscuit tins that is absolutely fine and they won't be penalised. I've said before that we love them! There's nothing more therapeutic that taking a box full of receipts and turning them into decent accounting records. It isn't everybody's idea of fun but we're accountants after all! Shoe boxes may not be the most effective method of preparing annual accounts in terms of time and costs but it's entirely up to the client. That's why we're here - to provide a service to the client.

We always work with our clients to assess and determine their requirements and how they want the service to work for them, this is all part of our free initial consultation. Some are looking to minimise their existing fees as much as possible and we happily provide suggestions as to how they can do this by maintaining their own accounting records efficiently and as painlessly as possible. Others really do not want to go near an invoice or receipt book at the end of a busy day but they still want to remain in control of the finances and keep up to date with how the business is performing financially. If you don't regularly know how much profit or loss you're making how are you going to evaluate your business? Our 'NoStress' package takes care of all of this each month leaving the client with very little to worry about.

So there is an option for everyone, which is the way it should be. We don't use jargon and we will only charge what is a fair and reasonable fee for the work involved - fixed in advance. If it takes longer than anticipated then it's our loss and there's no risk to the client. We think we're slightly different in a unique way. A client recently quoted us as "going above and beyond the call of duty". It's client recommendations such as this which are expanding our client base and why we're firm believers in providing the best possible service to our clients combined with an affordable fee - with no hidden extras.

We've recently extended our range of services and are now offering inheritance and capital gains tax consultancy and advice through our expert tax adviser, Rebecca. Accountants aren't monsters and if you don't believe us, pop in and say Hello with your shoe box! We'd love to meet you!

On yer bike!

2010-09-04T03:21:00.000-07:00

This article featured in our newsletter earlier this week and is reproduced here for our Blog. You can receive lots of useful tax tips, tax updates and practice news each month by receiving our newsletter directly to your in-box by signing up at our website.

Cycle to Work Scheme Update

The cycle to work scheme allows employers to lend bicycles to their employees tax-free, and in some cases the employees can purchase the bicycle at the end of the loan period. However, the Taxman is looking carefully at abuses of this scheme...

■ Some employers treat the loan of the bicycle to the employee as part of the employee's salary and reduce their cash wages proportionately. This is known as a salary sacrifice, and the arrangement must be agreed with the relevant employee in advance. If bicycle are only provided to employees under salary sacrifice arrangements the whole cycle to work scheme may lose its tax exemption, as some employees cannot have their cash pay reduced due to the National Minimum Wage rate rules.

■ It is quite common for the employee to purchase the bicycle from the employer at the end of the loan period. However, the Taxman says that where there is an automatic transfer of the bicycle to the employee at the end of the loan period, the tax exemption for the cycle to work scheme is also lost.

■ The second problem with the transfer of the bicycle to the employee is how to establish the market value of the bicycle at that time. If the employee pays the employer less than the market value for the bicycle the difference is treated as employment income subject to tax and NI. As a top of the range sporting bicycle can cost several thousand pounds, the second hand value can be quite significant! The Tax Office have produced a table to help employers value second hand bicycles:http://www.hmrc.gov.uk/manuals/eimanual/EIM21667a.htm

Finally, remember, to qualify as a tax free bicycle, it should be used mainly by the employee for travelling to work and on work related business, although other personal use is permitted. An expensive touring bicycle that is never used for work related journeys will not qualify for the tax exemption.

Briefly....your Director responsibilities

2010-09-04T02:44:00.000-07:00

Your responsibilities as Director...

Until recently the role and responsibilities of company directors was defined by case law. The Companies Act 2006 confirms existing case law and requires company directors to act in a way which is most likely to promote the success of the business and benefit its shareholders

Company Directors are responsible for the management of their companies. Shareholders own limited companies but they don't run them - that job is given to the directors. All limited companies must have at least one director and a company secretary is no longer required.

The company is a separate legal entity from its directors, shareholders and employees. The best interests of the company are not always the same as the best interests of the shareholders. You must consider the interests of other stakeholders such as creditors and employees and the long-term prospects of the company and its reputation.

As a director, you must exercise a degree of skill and care by showing the skill expected of a person with your knowledge and experience and act as a reasonable person would do looking after their own business.

You must act in good faith in the interests of the company as a whole. This includes:

> treating all shareholders equally
> avoiding conflicts of interest
> declaring any conflicts of interest
> not making personal profits at the company's expense
> not accepting benefits from third parties

You must obey the law:
> company law requires you to produce proper accounts and send various documents to Companies House
> other laws include areas such as health and safety, employment law and tax
> you may be responsible for the actions of company employees

Directors' powers and financial liabilities

The company's Articles of Association limit what directors can do. Although they usually give you a great deal of freedom, you must check them. Some people are debarred from becoming directors which includes people who have been disqualified by a court from being a director and undischarged bankrupts.

You will be guilty of wrongful (or even fraudulent) trading if you allow the business to carry on, and incur debts, when you know there is no reasonable prospect of the company repaying them. If you do, you could be held personally liable for the company's debts if it subsequently becomes insolvent. The fact that the company is making losses does not in itself mean that the company is trading wrongfully. However, if there is no reasonable prospect of moving into profit, and there are doubts about whether the company assets will cover its liabilities or whether it can repay its debts, the company is probably trading wrongfully.

Finally..

You must ensure that all the company's business stationery carries its name, registered number, country of registration and registered address. These details must also appear on your company website, emails and order forms.

Exercise your directors’ responsibilities carefully and if in doubt, take professional advice. Acting improperly can lead to fines, disqualification from being a director and personal liability for the company's debts or a criminal conviction.

Employing Students during the Summer Holidays

2010-08-17T03:19:00.000-07:00

It's that time of year when students are keen to find employment and earn extra cash during the school holidays. There are special provisions for students who work only during holiday periods such as Easter, Summer and Christmas. If their earnings are under £6,475 then tax need not be deducted on the completion of a P38S form, available from the HMRC website. National insurance is usually still payable and the usual P11 Deductions Working Sheet needs to be maintained. If the student earnings reach the PAYE threshold then tax deductions need to be applied and a P46 completed.

If you employ a student outside of holiday periods and throughout the year, then normal payroll procedures need to be operated. If they don't have a P45 then a P46 must be completed.

Further information can be found from the HMRC website here.

New Business Starting Up? Check out our Check List!

2010-08-12T03:00:00.000-07:00

This checklist is for general guidance only. It considers key issues involved in starting up a new business but please seek advice tailored to your own circumstances.

1. Contact Business Link – they provide free advice and support to new businesses which is available online or through local advisors. http://www.businesslink.gov.uk/
2. Decide on the business structure – sole trader, partnership or limited company
3. Research a business name and make sure it's available to use
4. Research your business idea – does anyone want your services? Check out the competition. What’s your USP?
5. Where are you going to operate your business from? Home or premises based and what are the costs?
6. Prepare a business plan – include the business objectives, strategies, it's market and financial forecasts. Seek help with this if you’re unsure where to start.
7. How much money do you require to set up? Decide how you are going to finance your start-up business. Bank loan? Grants?
8. Write a marketing plan. How are you going to target your potential customers and win business?
9. Ask friends and family for help. Get independent feedback on your business plan as others can often see things that aren’t obvious to you.
10. Speak to others who have set up their own business and learn from their experiences. A business mentor can be invaluable!
11. Seek professional legal advice – do you need formal documents such as shareholder agreements, trademark registrations or terms and conditions for your customers? If you’re going to employee staff, make sure you’re up to speed on employment regulations such as national minimum wage, sick pay and holiday pay. Employees will also need an employment contract.
12. Seek professional accountancy advice - do you need advice on bookkeeping and tax? Do you need to register for VAT? You will also need to run a payroll if employing staff. Get some early tax planning advice as well!
13. Select and open a business bank account. Key things to consider are transaction and borrowing costs, facilities offered and the type of relationship you want from a bank.
14. Arrange the necessary insurances for your business such as public liability and business property
15. Make sure you register with the necessary authorities which are relevant to your business and obtain the relevant licences . This may include data protection and professional or trade bodies
16. Put your IT and business telephone line into place
17. Organise your website and email address
18. Order your business stationery such as business cards
19. Start trading!
20. Review your business plan regularly to make sure the business is meeting the initial aims and objectives.

Are your dividends legal?

2010-08-11T10:02:00.000-07:00

We've appointed new clients recently who had no idea of the legal requirements when paying dividends. It's also quite shocking that they've received little or no advice on this subject from their previous accountants. It's another classic example of those believing that limited companies are only about saving tax.

It is essential that you have accurate and up to date information on the financial performance of your company before making dividend payments - monthly or quarterly management accounts will be invaluable. We provide these to our clients as standard within our NoStress monthly accounting package which ensure that any dividend payments are made legally.

Our September 2009 newsletter contained an article about illegal dividends and is reproduced below. Hopefully it may be useful as a reminder to directors of limited companies of the legal requirements and especially to newly appointed directors of start-up businesses.

A dividend may be 'illegal', in that it is contrary to Company Law, when the proper procedures are not followed. If the Taxman examines the paperwork and decides the payment from your company was not a legal dividend he may treat the amount paid as a loan, or even as a bonus payment.

In both cases additional tax may be due from the company and sometimes from you.

To pay a legal dividend it is not sufficient just to write 'dividend' on the cheque stub or against the entry in director's loan account.

We recommend following these steps when paying dividends...

1.The directors should first review the profits available for interim dividends. This is not the same thing as cash in the bank, as you have to take account of other assets and liabilities. Those deliberations should be recorded as a formal board minute, so if the Taxman ever asks, you can prove the profits were there when the decision to pay an interim dividend was made.

2.If the final accounts for the year are complete and show the accumulated profit and loss account is positive, the directors can recommend that the profits, which are not required for investment, can be paid out as a final dividend to the shareholders. The shareholders can either accept the directors' recommendation or suggest a lower figure of dividend. Both these decisions also need to be properly recorded at the time they are made.

3.Dividend vouchers need to be prepared when either a final or interim dividend is paid, for each shareholder showing the total due, the tax credit attached to the dividend and the date of payment.

4.The dividend should be paid. The cash can be transferred from the company's account by cheque or bank transfer into the shareholder's own bank account. If the shareholder is a director his account in the company books may be credited with the dividend due to him or her, but this needs to be done as soon as possible after the decision to pay a dividend is taken.

We can help you with all this paperwork, but it is important that the decision to pay a dividend is made in advance of any payment being paid out of the company.

Benedetto Cotrugli is to blame!

2010-07-29T00:23:00.000-07:00

What is Bookkeeping?
Bookkeeping is the process that involves keeping proper financial records for your business transactions - otherwise known as one of the biggest headaches to business owners!

Who is to blame for the burden of bookkeeping? Benedetto Cotrugli is the true inventor of double-entry bookkeeping, although the Italian monk Luca Pacioli is often credited for the invention. However, our NoStress package was invented to take away the bookkeeping and accounting stresses faced by so many, for an affordable monthly fee! So although you may be cursing at Benedetto Cotrugli for his invention, you don't need to worry with ours!

Traditionally the records of each business sale or purchase transaction would have been written into large books, called ledgers, which is where the term comes from. It’s still possible to keep paper records but it’s far easier and efficient to use either a spreadsheet or a bookkeeping software package - or let The Accountancy Office to take care of all of this for you!

All businesses need to maintain good bookkeeping records - it's the law. This applies to limited companies, partnerships and sole traders. Proper financial record keeping will enable you to manage your business more effectively, not to mention the legal requirement to keep your business’ financial records for a minimum of 6 years.

Do I really need to keep bookkeeping records?
All businesses need to keep accurate records of their financial transactions. It is a legal requirement and keeping good financial records will also tell you a great deal about how your business is performing.

By maintaining good bookkeeing records you should easily be able to determine the following:

- how much money you are making
- how much and where you are incurring your biggest costs
- whether your business is making a profit or a loss
- how much cash you have in the bank
- who owes you money, and if you owe any
- when you can pay your bills
- if you’re getting near the VAT threshold and need to register for VAT
- figures that will be included in your tax returns
- information you need to report to any investors or shareholders
- how efficiently you are running your business and whether you need to make any changes to improve its performance

If you're experiencing any of the following, then your books aren't doing what they should be and you will undoubtedbly benefit from some bookkeeping support!

- you’ve lost track of what you’re spending and what you’re earning
- your receipts have been buried in the shoe box for so long you’ve forgotten what they’re for!
- your cash flow is suffering because you’re taking too much time to issue invoices
- you have no idea how much money is still outstanding from your customers
- you have a backlog of paperwork
- paperwork is taking up too much of your time
- you struggle getting the right figures for your tax return or VAT returns
- you just don't like doing the paperwork and have better ways to spend your time

I don't know where to start!
Feeling overwhelmed by maintaining the books is normal. Business owners who don't have the time, the skills, the inclination or the right staff to ‘do the paperwork’ should consider appointing a professional bookkeeper. If your paperwork is in a mess and you don’t have a clear picture of your financial position, you should definitely get some help pretty quickly! Bookkeeping and accounting services are easy and practical to outsource if you don’t want the hassle yourself.

What our bookkeeping services does...
Your books should show details of all the money coming into and out of your business and split accordingly into sales revenue and expenditure.

From the records that you provide us with, such as your sales invoices and receipts, we will record each transaction including a brief note of what the transaction related to. This helps you refer back to the transaction if needed at a later date. Each transaction will be recorded with the date, amount, VAT (if applicable), the name of the supplier or customer. Purchases and expenses will be allocated to an expense category that helps to analyse the business costs such as rent, stock, insurance etc.

Managing the Bank Balance
Each month we check that the amount of money in your business bank account is correct and agrees to the transactions recorded in the accounts for the business. From the previous month's bank balance, we will add all the sales income for the new month and deduct all of the payments that have been made. The total should then equal the amount in the business bank account. If the bank balance does not reconcile with the information in the accounts then we'll work with you to work out where the error is and rectify it.

Our flexible bookkeeping service offers all of the following but it's up to you which of these you require as each business as different requirements:

Maintaining your sales ledger(the goods/services you've sold)
- properly log each transaction
- create and send sales invoices and credit notes
- create and send customer statements
- chase unpaid invoices

Maintaining your purchase ledger (the goods/services that you've purchased)
- properly log each transaction
- record and file purchase invoices and credit notes
- record petty cash and employee expenses claims
- check supplier accounts and prepare payments at the appropriate time

- Reconcile your business bank account
- Prepare your Vat returns
- Prepare your management reporting and accounts (so you know how your business is performing)
- Prepare your annual business accounts
- Payroll services

The benefits of using a professional bookkeeping service:
- save you time
- help you avoid mistakes
- give you peace of mind knowing your paperwork is being done properly
- give you accurate and up to date information on your business performance
- speed up the completion of your VAT returns, annual accounts and tax returns
- help you avoid late filing penalties with HMRC and Companies House
- provide you with a reliable and confidential service

As well as the bookkeeping, we can also produce your annual business accounts and relevant tax returns to ensure that you meet all of the statutory deadlines and most importantly that all available tax reliefs are claimed and you pay only what is necessary!

NoStress is currently offering one month's service completely free of charge to new clients! Be quick, offer ends 31st July! A personalised service for an affordable price to make your life easier! We're sure even Benedetto Cotrugli would approve!

Planning for Tax!

2010-06-28T12:36:00.000-07:00

Last week's budget was full of negatives such as an increase in VAT and Capital Gains and reduced eligibility for tax credits. It's not all doom and gloom and we've come up with some suggestions that may help you minimise tax:

1. The good news. The Chancellor announced an increase in the basic personal income tax allowance from £6,475 to £7,475 from 6 April 2011. This means that you will be able to receive an additional £1,000 tax free as long as you are a basic rate taxpayer. Make sure you fully utilise your personal allowance. If you run a limited company there are efficient ways of extracting profits from your business by utilising salary, dividends and benefits in kind.

2. Incorporation. The increase in Class 4 NICs and the reduction in the rate of corporation tax (20% for small businesses) mean that the tax saved as a result of incorporating a business is likely to increase. If you are a sole trader, or carry on a business in partnership, consider transferring your business to a company. Do also consider the points raised in our previous Blog discussing the benefits of self employment.

3. The introduction of a partner to the business (perhaps a spouse or business partner) can provide an opportunity of sharing the profits. Also, transferring assets to to a spouse may reduce any tax liabiity on the sale of that asset.

4. Timing of Expenditure. Nobody likes to spend money before it's really necessary but if you're going to spend it anyway....the timing of the expenditure may save you tax. The Annual Investment Allowance (AIA) will be reduced from £100,000 to £25,000 with effect from April 2012 so consider the timing of investing in capital expenditure. It may be beneficial to incur capital expenditure sooner than planned.

5. Salary sacrifice. Employees and employers can save tax and national insurance contributions where salary sacrifice arrangements are used (such as childcare costs and pensions). The rates of NICs are increasing and corporation tax is falling so the tax savings relating to tax and NICs are even greater.

6. VAT. From 4 January 2011 the standard rate of VAT increases to 20% If you're not VAT registered, plan your purchases carefully towards the end of 2010 and buy high cost items before the VAT increase. Also, consider how the increase in VAT will affect your business and review your VAT situation. You may wish to consider registering for VAT but consider this carefully, especially if your customer base are mainly non VAT registered as they will face additional costs. If most of your customers are non-VAT registered this could give you a competitve advantage over your VAT registered competitors as their prices will become more expensive to those customers who cannot reclaim VAT. Anti-forestalling legislation will apply from 4 January 2011 to prevent the 17.5% rate applying to goods or services provided after this date.

7. New Businesses. Details of the regional employer scheme will be announced soon. Employers who are eligible will not have to pay the first £5,000 of Class 1 NICs in the first 12 months of employment and applies for the first 10 members of staff employed in the first year of business. Any new business set up after 22 June meeting the criteria will be eligible. So maybe now is the time to consider setting up business?

8. Capital Gains. The annual exempt amount will remain at £10,100 for 2010/11 but the rate increased to 28% from 23 June for tax payers above the basic tax rate. Consider the possiblity of owning assets through a limited company. Also Entrepreneurs Relief could mean that you pay capital gains tax on qualifying gains at 10%. Discuss the options with your accountant.

Budget 2010: A Quick Glance

2010-06-22T12:35:00.000-07:00

The Chancellor of the Exchequer, George Osbourne, presented his first Budget speech to Parliament today, 22 June 2010. He said that "the coalition Government has inherited from its predecessor the largest budget deficit of any economy in Europe with the single exception of Ireland" and that it was a tough but fair budget.

"My measures today mean that 77% of the total consolidation will be achieved through spending reductions and 23% through tax increases".

Here's a quick summary:

Income tax and National Insurance contributions (NICs)

From 2011:
The personal allowance for those aged under 65 will be increased by £1,000 to £7,475 (basic rate taxpayers only).

The NICs Upper Earnings and Profits Limit will be aligned with the income tax higher rate threshold.

The point at which employers start to pay Class 1 NICs, is to be increased by an extra £21 per week above indexation.

The higher rate threshold frozen until 2013/14.

Company tax

From 2011:

Main rate: reducing to 27% from 2011/12, and then reducing by 1% per year for five years.

Small companies rate reduced to 20%.

Capital Gains Tax (CGT)

From: on or after 23 June 2010

The CGT rate rises from 18% to 28% for higher rate taxpayers.

The rate remains 18 per cent where total taxable gains and income are less than the upper limit of the income tax basic rate band.

For trustees and personal representatives of deceased persons, the rate is increased to 28 per cent (previously 18 per cent).

Entrepreneurs' Relief lifetime limit increases to £5 million

VAT

From: 4 January 2011 the main rate rises to 20%.

The Flat Rate scheme rates will be adjusted.

There will be anti-forestalling measures.

Furnished Holiday letting

From: 2011

The changes previously announced by the last govenment will not take effect, instead new measures will be considered to:

Ensure the FHL rules apply equally to properties in the EEA.

Increase the number of days that qualifying properties have to be available for, and actually let as, commercial holiday letting.

Change the way in which FHL loss relief is given.

Employment taxes

New employers

From September 2010, new businesses setting up outside London will not have to pay the first £5,000 of employers’ NICs during the first twelve months of employment. This will apply for each of the first 10 employees hired in the first year of business and operate in selected countries and regions.

Shares and incentives

Enterprise Management Initiatives (EMI)

From the date of the new Finance Act (around July).

A change to the qualifying conditions for companies giving a requirement the company granting EMI options will now be required to have a “permanent establishment” in the UK.

Anti-avoidance

Geared Growth and Employment-Related Securities

Following the Grey’s Timber decision, a new consultation is announced to consider tax measures (within the employment related seucurities tax regime) to apply to geared growth arrangements that are used to avoid income tax and NICs.
Anti-avoidance

From 2011:

EBTS, EFURBS, TRUSTS etc Employment Income and Pensions Contributions: measures to tackle the use of intermediary structures (such as Employee Benefit Trusts (EBTs) ands Employer Funded Unapproved Retirement Benefit Trusts (ERURBS)) that are created to avoid of tax and National Insurance Contributions (NICs) on earnings and circumvent restrictions on pensions tax relief.

Capital allowances

From 2010 - 100% allowance on new zero emission goods vehicles.

From 2012 - the rates of writing-down allowances (WDAs) for new and unrelieved expenditure on plant and machinery reduced from 20 per cent to 18 per cent (main rate pool) and from 10 per cent to 18 per cent for main rate pool.
The Annual Investment Allowance reduced from £100,000 to £25,000.

Pensions

From: now to 2011

All change
The aim is to find alternative (i.e. less complicated) ways of restricting pensions’ tax relief from 6 April 2011 by reforming the existing pension savings allowances, principally by significantly reducing the annual allowance.

Provisional analysis has suggested that the level of a reformed annual allowance may be in the region of £30,000 to £45,000.

The reformed allowances would replace the high income excess relief charge, which currently is due to come into force on 6 April 2011.

Pensioners

From 2011 - Relinking of basic state pension to earnings.

Tax collection

From: now (2010/11)

HMRC will use Debt Collection Agencies during 2010-11 to provide it with additional capacity to pursue and collect tax debts

Also:

The previously proposed tax relief on VDU games development is abolished (a measure announced in the March Budget).

Measures to freeze council tax if councils can make necessary savings.

Bank levy from 2011.

An overhaul of state benefits includes:
- Child benefit frozen
- Major overhaul of Child Tax Credits
- Tax credits cut for families with income over £40,000
- Medical assessment for Disability Living Allowances
- Overhaul on Housing Benefit
- Freeze on public sector pay
- Increase in state pension age to 66 years

The Tax Advantages of Self-Employment

2010-06-17T13:33:00.000-07:00

There are a number of advantages of being self-employed, but you must also comply with various regulations including the tax law.

Form of Your Business
When you decide to work for yourself you need to choose which form your business will take. The most common forms of business are:

■Sole-trader - you run the business on your own, usually under your own name;
■Partnership - you and one or more other people jointly run the business;
■Limited liability partnership - a special type of partnership that gives you and the other business owners more protection from creditors;
■Limited company – an organisation that you own and control, which carries out the business on your behalf.

If you run your business as a sole-trader or as a partnership you are legally self-employed.

When you choose to run your business as a limited company you will normally be a director and an employee that company. You will be employed rather than self-employed, but in practice you will work for your own business.

It is important to understand the difference between being employed by your own company, and being self-employed, as it will affect the tax you pay, and the regulations you have to comply with. This helpsheet deals only with the advantages and regulations of being self-employed.

Tax Advantages

Cash-flow. As a self-employed person you only have to pay income tax twice a year on 31 January and 31 July. This means you can hang on to your money for longer than an employee who has tax deducted under PAYE from every pay packet.

You must make sure you have the money ready to pay the tax when it is due as you will be charged interest on any tax paid late.

If you work in the construction industry you may have tax deducted from each of your sales invoices by the contractor you work for, under the Construction Industry Scheme (CIS). You may be able to reclaim some of the CIS deductions each year when you submit your tax return.

Expenses to Claim

■ The cost of any goods or services you use fully for your business can be deducted from your sales revenue for tax purposes. Where an item is used partially for your business and partly for private purposes, such as your private car or home, you can claim the business proportion of the costs against your business profits. However, you must be able to justify the business proportion with evidence such as the miles driven, or space used by the business.
■ Capital allowances - if you purchase an item that is expected to last several years, such as a van, you can claim a special deduction known as a capital allowance. The first £100,000 you spend on equipment each year qualifies for 100% capital allowances in the year of purchase. This does not include cars.
■ Loan interest - if you take out a business loan the interest paid on that loan can be deducted from your sales revenue. The loan must be taken out to fund your business, rather than a personal loan or credit card borrowings.
Government Support
■ Government funding - if you live in an area in the UK that has been designated as a regeneration area you may qualify for a government funded programme to help people start their own businesses.
■ Charitable support is also available from the Prince's Trust throughout Britain for those aged 18 to 30 who wish to start their own business.
■ Self-employed credit - if you have been registered as unemployed for at least six months you may qualify for a self-employed credit of £50 per week if you start your own business. Ask at your local Jobcentre Plus office for more details.
■ Working and child tax credits - You may qualify for these while you run your own self-employed business. Your tax credit award is based on your family's joint income including your self-employed profits, but it will also be determined by the number of hours worked by the adults in the family, and the number of children aged under 16

Your Tax Obligations

Tell the taxman when you start your own business. You must register as a self-employed person with the Taxman (HMRC). It is best to do this as soon as possible after you start to charge your customers for the goods you sell or for the services you provide. You can register in the following ways:

■ On the HMRC website - http://www.hmrc.gov.uk/selfemployed/register-selfemp.htm
■ By telephoning the tax office on: 0845 915 4515
■ By completing the leaflet CWF1: Becoming self-employed and registering for national insurance contributions and tax.

You must register as self-employed even if you make a loss from your business. Every partner in a partnership business must register separately as a self-employed person. If you do not register with the Taxman by 31 January following the end of the tax year in which you started your business you may be charged a penalty of up to 100% of the tax and national insurance you owe.

National Insurance
As a self-employed person you must pay two types of national insurance contributions (NICs) known as class 2 and class 4.

Tax Returns
You must complete a self-assessment tax return every year to report the income and expenses from your self employed business and any other income you have to the Tax Office.

Register for VAT
When your sales for 12 months reach the compulsory VAT threshold, you must register for VAT within 30 days.

How We Can Help You
We can help you register with the Tax Office for tax, national insurance and VAT. We can show you how to keep accurate records for your business and complete tax and VAT returns. As you business grows we can discuss tax planning ideas with you to ensure your tax bills are kept as low as possible.

Sole Trader or Limited Company? That is the question!

2010-06-10T14:14:00.001-07:00

I thought I would write a little something on this as it’s an issue that crops up regularly and has done a couple of times this week alone...

When most people have decided to set up their own business, the first issue they encounter is how to do this. This inevitably leads to the question, should I operate as a sole trader or start my own limited company? I can't give you the answer. There are many factors to consider and many advantages and disadvantages to setting up as either.

The decision often depends on the personal preference of the person who owns and runs the business and the type business they are operating. There is never one standard answer for all businesses so it is worth spending the time to consider this carefully. It is about finding the right business format for the individuals involved as there is no easy answer. The decision should always be made on the specific business and what is important to the individuals concerned.

Firstly, lets get the formalities out of the way. Any individual of any nationality may register a limited company subject to a few conditions:

• They are not an undischarged bankrupt
• They have not been restrained by court order
• They are not subject to UK government restrictions

The Advantages of a Limited Company

• Perhaps the most attractive benefit of trading as a limited company is the aspect of limited liability. Essentially this protects the personal assets of the officers should the company run into financial difficulties. Financial liability is limited to what has been personally invested.

• There are potential tax savings in terms of remuneration. The most efficient strategy is to pay the directors a low salary which is supplemented through payment of dividends. Check out our nifty Incorporation calculator which works out the tax savings for you!

• The ownership of a limited company can easily be divided up through the sale of shares - the shares can be further used as a means of generating capital.

• A company is more than just the people in it, and still exists even when members resign, retire or die.

• Companies can create mortgages or floating charges over assets, making it easier to borrow money.

• Perception. Limited companies tend to instil added confidence in suppliers and creditors. Many large organisations will only conduct business with limited companies. An example of this is the IT sector where it can be difficult to obtain contracts unless you trade through a limited company.

The Disadvantages of a Limited Company

• Setting up a limited company means a lot of paperwork due to a higher level of regulation and legislation. There is also ongoing administration, such as filing annual accounts and the annual return with Companies House each year.

• Company accounts and shareholder details are publically available to view for a small fee.

• Shareholders and directors may have to personally guarantee contracts entered into with lenders or suppliers.

• Winding up a company is more complex and expensive than a sole trader business or a partnership. Consideration should be given to the longevity of the business.

• Tax credits can be adversely affected due to dividends being grossed up. Exactly the same actual income would be treated differently for tax credits and affect the amount received.

• Mortgages and insurances such as critical illness cover may all be affected by a typical Limited Company form of remuneration which involves the payment of a low salary supplemented by a higher level of dividends.

If that's not enough, there are other considerations too:

• Losses can potentially be relieved sooner through a sole trader than a limited company.

• Company cars are rarely tax efficient. Business use versus personal use of a car or van needs some thought and whether this is to be owned personally or by the company.

• The extent to which profits will be retained in the company to fund capital expenditure and expansion

• The extent to which post-corporation tax profits will be used to fund loan repayments rather than dividends.

• It's also important to be aware that companies pay corporation tax on their profits. The taxable profits of a company are arrived at after deducting all salary payments including those paid or payable to the directors. Dividends however are not deducted. Company law requires that dividends are paid out of a company's retained profits - whatever is left after corporation tax has been charged on the profits.

• Salary payments attract income tax and national insurance where dividends are only subject to income tax if you're a higher rate tax payer. No national insurance payments are payable on dividends hence potential tax savings compared to a sole trader (who will pay both tax and national insurance on their profits).

• The amount of corporation tax depends upon the level of profits but small companies currently pay corporation tax at 21% on profits up to £300,000.

* IMPORTANT * In light of the Emergency Budget on 22nd June, it is not known what will happen to the current rates of income tax and corporation tax. Even after 22nd June, nobody can predict the future so it not wise to make a trading vehicle decision purely based on tax savings.

CONCLUSION: There is no ‘best way’ and all options should be considered in conjunction with professional advice to ensure your personal circumstances and preferences are fully taken into account.

Are you facing a tough decision?

2010-06-10T11:59:00.001-07:00

It's a tough call. It's 12th June 2010 and England vs USA is about to kick-off in South Africa. Just as you sit down with a nice cool beer, it dawns on you that you haven't done your accounts and the VAT return is due. Just what you need. You could worry about it tomorrow and enjoy the game, but then again, there's another game to watch tomorrow and the day after that. Not too mention Big Brother.

We have the solution! You don't need to worry about sorting out your order book, the invoices, bills, bank statement and those fiddly receipts that you put in a safe place somewhere 6 weeks ago. Our all inclusive monthly accounting service takes care of the bookkeeping, annual accounts, tax return and those dreaded VAT returns which have a nasty habit of creeping up on you. Let us take the strain for just £30 per month!

So if you want to relax and sit back to watch England win the World Cup (well, you never know, have some faith) get in touch. As an extra little incentive, you can receive the first month completely free of charge if you're a member of our Facebook page! Could we possibly make it any easier for you?

Now keep your fingers crossed. C'mon England!

Going Limited...10 things you should know

2010-06-04T10:31:00.000-07:00

You can form your own limited company for around £25 in minutes - simple, job done! Your mate down the pub probably told you that you pay less tax this way too. So now you're a Director of your own company and you're the boss. Do you understand your legal responsibilities as a Director? If not, spending that £25 may prove costly than you imagined!

It's a familiar story. "I set up my own company last year and now I'm being chased for accounts, tax returns and annual returns - I don't know what to do?!" The regulations involved in running a limited company can be complex so if you don't know what you're doing, get an accountant!

1. Registration
To ensure avoidance of penalties, companies should notify HMRC (HM Revenue & Customs) within 3 months of commencing trading which is normally done by means of completing form CT41G.

2. Annual Accounts
You will be required to produce annual accounts for your company. Two sets are required - a full set of accounts need to be submitted to HMRC along with the corporation tax return (see below) and an abbreviated version for Companies House (which will be held on public record).

3. Filing Date for Corporation Tax Return
The corporation tax self-assessment return (CTSA) must be submitted to HMRC along with the full accounts and tax computations. The filing deadline for the CTSA return (plus accounts and tax computations) is normally 12 months from the end of the accounting period. If the return is late there are penalties as follows...

■ Up to 3 months late - £100 (increasing to £500 for a third consecutive late return)
■ Over 3 months late - £200 (increased to £1000 for a third consecutive late return)
■ 18 to 24 months late - Extra tax geared penalty of 10% of the unpaid tax.
■ More than 24 months late - 20% of the unpaid tax.

Completing the corporation tax return can be complex and this is best left to an accountant to avoid mistakes.

4. Payment Dates For Corporation Tax
This is usually 9 months and 1 day after the end of the accounting period for small companies. However large companies (£1.5 million of profits) pay under 4 quarterly instalments, that commence 6 months into the accounting period, so they must use an estimate of their eventual tax liability for the year. Companies that form a group may fall into the definition of "large" and be required to pay corporation tax by instalments. Interest runs on late payment.

5. Companies House Annual Return
This is a completely different return to the corporation tax return but the two are often confused. The annual return needs to be completed each year and submitted to Companies House. It is a summary of company information such as who the current Directors and Shareholders are. The filing fee is £15 for online returns and £30 for paper returns.

6. Annual Self Asssessment Tax Return
All Directors, regardless of their salary, are required to complete a self assessment tax return.

7. Payroll & Annual Paye as Your Earn (PAYE) Reporting
If you're employing staff, you will need to register as an employer with HMRC and operate a payroll system. As well as quarterly tax and national insurance payments and returns, you will also be required to complete annual reporting requirements including P35, P60 and P11D.

8. Value Added Tax (VAT) Registration
You will need to register for VAT if your turnover reaches the VAT threshold (currently £70,000). You will then be required to complete quarterly VAT returns and in order to do this you will need to have accounts available. VAT returns are generally filed online with payment being made electronically.

9. Fines & Penalties
If you are late in submitting any of the above documents, fines and penalties will apply and can be hefty. Make sure your documents and payments are submitted on time!

10. Records
Records must normally be kept in support of the return for 6 years from the end of the accounting period. The penalty for non compliance can be as much as £3000 for each accounting period.

Finally, a couple of other things to consider. If you issue dividends then you will need to complete appropriate records to document these payments. Also, if you cease trading for any reason you will still need to submit dormant accounts. Likewise, if you register a company in order to preserve a company name, you will be required to submit dormant accounts for that company.

There are many advantages to operating a limited company but this trading vehicle may not necessarily suit all so make sure you're aware of the responsibilities before taking the plunge! Be aware that accountancy costs will also be considerably more than a sole trader business.

Tax Saving Tips for the Self Employed

2010-05-06T03:46:00.000-07:00

Self assessment can be pretty daunting for the newly self employed or even for those who have been self employed for some time and have muddled through! Make sure you're claiming for all expenses that can be offset against your trading income in order to minimise your tax bill.

Generally, you can claim for expenses incurred that are "wholly, necessarily and exclusively" for the purposes of your work. Even if they're not incurred exclusively for the business because there is a mix of both personal and business use, you may be able to claim the business proportion - check with your accountant.

Here are some general guidelines:

1. Use of Home. You can claim £3 per week for the additional costs that are incurred by running your business from home. Alternatively, you can claim a proportion of the actual household expenses.

2. Mileage. You can claim 40p per mile (for the first 10,000 business miles) that you travel in your own car. Alternatively, you can claim capital allowances (a form of tax relief spread over a number of years) and a proportion of motor running costs including fuel, insurance, servicing and repairs in accordance with business usage.

3. Telephone. Many self employed individuals utilise their home telephone lines in their business. You can claim a proportion of the line rental and broadband costs in accordance with the level of business usage. Also, keep a note of the telephone calls made and you reclaim the calls as an expense too.

4. Year end accruals. At the end of the tax year, you may have received goods and services within your business that you haven't actually paid for so they aren't recorded in your accounts. Keep a record of these expenses as you will be able to charge these to your accounts for the year - this increases your expenditure and therefore reduces your tax liability.

5. Trading Losses. It is normal for new business to make losses in the early years of trading. These losses can be offset against future profits to reduce your tax liability. Other options are available for relieving losses so discuss these with your accountant to establish which is most effective for your personal circumstances.

6. Expenses. Many business owners don't realise that they can reclaim all expenses that are incurred wholly for the business - these include advertising, accountants fees and office supplies. Business expenses incurred up to seven years prior to trading actually commencing can be claimed too if these expenses were solely for the future business purposes.

7. Capital expenditure. When you purchase expensive items such as tools, equipment, vans or computer equipment, although you cannot claim the purchase cost as an expense, you can obtain capital allowances which will reduce your tax liability. Capital allowances are a form of tax relief which are spread over a number of years.

8. National Insurance Contributions. You will be required to pay Class 2 National Insurance contributions of £2.40 per week when you're self employed (2010/11). If your profits are below the Small Earnings Exemption of £5,075 then you don't necessarily need to pay these - but make sure you're aware of the impact this can have on your entitlement to state benefits. If you've been both self employed and employed for a period of time, check that you haven't overpaid Class 1 national insurance contributions as you may be able to defer Class 4 contributions.

9. Avoid Penalties! Your annual accounts and self assessment tax return should be prepared in advance of the tax return filing deadlkine which is 31 January. Late returns and tax payments are subject to penalty fines and interest charges and should be avoided.

10. Seek professional advice. Take advantage of the skills of a qualified accountant, with their experience they may be able to find legitimate ways for you to pay less tax and save you money. You may find that the tax savings obtained outweigh the accountant fees. Also, you'll avoid the risk of incorrectly calculating the tax due and missing the tax return filing deadline!

Confused by P11D and P9D?

2010-05-06T02:26:00.000-07:00

Another HMRC filing deadline is around the corner...it is of course the filing of the P11D and P9D by 6 July. Still none the wiser?

Background
The basic rule is that if you provide an employee with anything other than pay it may count as an expense or benefit, and you will need to check whether you need to report it to HMRC and pay any tax or national insurance on it.

Expenses and benefits must be reported to HMRC on forms P11D or P9D at the end of the tax year. The form to use depends on the employee's earnings and on whether they're a company director.

- Employees earning £8,500 or more a year - form P11D
- Employees earning less than £8,500 - form P9D
- Company directors usually complete form P11D

Company directors would only need to complete a P9D if the following apply:

- they earn at a rate of less than £8,500 per year
- they have no material interest in the company - see below for explanation
- they are either a full-time working director or a director of a charity or non-profit organisation

Who completes the P11D or P9D?
The company, as employer, is responsible for preparing a P11D and not the director. When completing form P11D or form P9D, you must enter the total value of the expenses and benefits in various categories that you provided to your employee during the tax year.

What are expenses and benefits?
Typical expenses and benefits that need to be reported include beneficial loans, company cars, school fees, health insurance and season travel tickets.

Key dates
You must make sure that you give your employees a copy of the information from their P11D or P9D no later than 6 July. Payment of any Class 1A NICs owed on expenses or benefits you’ve provided must reach HMRC’s bank account by 22 July - or 19 July if paying by cheque.

Payment of any PAYE tax or Class 1 NICs owed on expenses or benefits you’ve provided should be paid during the year according through the usual PAYE system.

The good news is...
You can apply for a dispensation to save time and paperwork in completing the P11D and P9D forms.

A dispensation is a notice which covers both the tax and national insurance and it means that you don't have to put any of the expenses or benefits that the dispensation covers onto the P11D and P9D forms. It also means that you don't have to include them on tax returns.

HMRC will usually allow a dispensation if they're satisifed that no tax or national insurance is due on the expenses paid or benefits provided to the employee.

The bad news is...
Penalties! To avoid a late-filing penalty, you must ensure that P11D and P9D forms are filed with HMRC by 6 July. The same deadline applies regardless of whether you file the form online or send HMRC a paper version.

If you file your P11D or P9D forms late, you’ll be charged a penalty of £100 per 50 employees for each month or part month your return is outstanding after the 6 July deadline. HMRC will send you a penalty notice advising you of the amount you’re being penalised.

If your P11D or P9D forms remain outstanding, you’ll receive further penalty notices in November and again the following March and July, if necessary. These penalties will be calculated the same way as the first one, so for each month or part month you delay filing your return the penalty will be £100 per 50 employees. Ouch!!

Back to Basics...

2010-05-03T03:08:00.000-07:00

It never fails to amaze me how so many small businesses fail to recognise the real importance of keeping accurate financial records. It is a legal requirement!!

You must update the information regularly - penalties have been introduced for not taking reasonable care with records and tax returns, so you need to keep accurate records. It also helps when obtaining finance and preparing tax returns.

Here's my Top 10 Tips of how to make lighter work of the bookkeeping:

1. Make sure you obtain or provide an invoice or receipt for every business transaction. If you're VAT registered, make sure it is a valid VAT invoice or receipt.

2. Get organised. Keep all of your invoices, receipts and bank statements in tidy order. It doesn't have to be expensive! A simple filing system will do the job. We provide our clients with our own 'File-It' folder and there is a section for each type of document and this works very well. Simple.

3. Staple! Many till receipts, such as fuel receipts, are two-part and produce two pieces of paper. It's a good idea to staple these together so that they don't get lost. Keep delivery notes and the respective invoices together too.

4. Use a bookkeeping system. Invest in bookkeeping software that suits the needs of your business. There are many options on the market so have a look around and select what is best for you. The size of your business, business type and whether VAT registered or not will have an impact on your purchase. Software isn't necessarily expensive and there are some great low cost or even free options available. You can of course keep your records manually but software will make your life (and your accountants life) a lot easier, saving time and money in the long run.

5. Training. Make sure you have an idea of what you're doing. If you're using software, make sure you understand how to use it and process your bookkeeping entries correctly otherwise you will end up in a mess. Seek help from your accountant, especially when it comes to entering higher value items such as computers.

6. Post all your bookkeeping transactions on a regular basis - little and often is easier than catching up every 6 months and it will make life easier at the end of your financial year. You'll always have an accurate financial picture of your business throughout the year too, rather than just at the end of the year.

7. When paying an invoice, make sure you make a note of how and when it was paid on the invoice including date, amount and cheque number if applicable. It is important that you can easily trace back how expenses have been paid. If paying by cheque, make sure you enter all the details of the payment onto the cheque book counterfoil too.

8. Keep a clear record of any transactions that cannot be wholly charged to the business because there is also an element of personal use too. Keep a note of this as you should be able to reclaim the business element.

9. Keep business and personal transactions separate. It is advisable to open a separate business account for the business. Many banks offer free business banking for small businesses and this is certainly worth looking into.

10. Reconcile your bank account to ensure all of your bank entries have also been recorded into the accounts.

11. Yes, I know this is No. 11 but it is very important. Make sure you keep your records for at least 6 years in case HMRC need to inspect them for any reason in the future.

As a business owner, keeping on top of the books may not necessarily be the best use of your time. If this is the case, you should ensure that you seek professional bookkeeping support. Keep your records in good order and filed neatly - the less work to be done by the bookeeper, the less money it will cost you!

Finally, HMRC offer some good advice on their website about record keeping and is most definitely worth reading.

Sarah Sallis ACMA FMAAT
Chartered Management Accountant
The Accountancy Office Ltd
www.accountancyoffice.co.uk

New Penalties for late PAYE

2010-04-30T14:57:00.001-07:00

This article has just featured in our May edition of 'Tax Tips & News'. You can receive these directly to your inbox by signing up via our website.

From this current tax year the Taxman can impose penalties if you are late in paying over the payroll and CIS deductions you make in the tax year. 'Late' in this context means the payment reaches the Tax Office after the 19th of each month, (or 22nd when paying electronically).

Until now the Taxman did not impose penalties or interest on small employers if all the payroll deductions for the year reached him by 19th April (or 22nd) after the end of the tax year. Large employers, (those with more than 250 employees) have been subject to surcharges for late payment for some years, as they have been obliged to pay over all deductions electronically.

Those surcharges for large employers have been scrapped and all employers are now subject to the same penalties. However, small employers do not have to pay over their deductions electronically.

The penalty will be based on the total amount of deductions paid late for the tax year and will be calculated based on the number of times payments are late in a tax year as follows ...

Late once – no penalty
Late 2 to 4 times – 1% penalty
Late 5 to 7 times – 2% penalty
Late 8 to 10 times – 3% penalty
Late 11 or more times – 4% penalty

The penalty applies to the total amount that is late in the tax year (ignoring the first late payment in that tax year).

If any payment is made more than six month late a further 5% charge is added to the above penalties. Where the payment is over 12 months late another 5% penalty charge is added.

However, these penalties cannot be imposed automatically as at present the Taxman does not known how much PAYE etc you should be paying over month on month. Although, when the Taxman inspects your PAYE records and it is apparent that you been late in paying over your payroll deductions, he has every right to impose these heavy penalties for late payment.

Income tax increases from 6 April 2010

2010-04-15T03:07:00.000-07:00

The introduction of a 50% tax rate for taxpayers with income in excess of £150,000 and the withdrawal of the personal allowance for those with income exceeding £100,000is a significant change to the income tax regime.

At the same time, tax relief for pension contributions made by high earners is also in the process of being reduced. Not surprisingly, this cocktail of what are effectively income tax increases has created a large demand for tax-planning solutions among those clients affected.

Changes from 6 April

- The personal allowance was withdrawn for individuals whose income exceeds £100,000 a year

- A 50% income tax rate was introducted on all income above £150,000 a year.

Income above £100,000

The personal tax allowance (currently £6,475) will be tapered away at a rate of £1 for every £2 of income over the threshold for those with income of more than £100,000, and disappears completely on income of £113,000 and above. This effectively means that the rate of income tax between £100,000 and £113,000 is 60%. Many will consider this to be unacceptable and will be looking for ways to reduce it:

- Pension contributions either made personally or by salary sacrifice. Note anti forestalling rules for pension contributions are introduced from 6 April 2011 which may limit the contributions.

- Charitable donations

- Transferring savings into their spouse's name

- Making approved investments in order to qualify for 20% income tax relief

Income above £150,000

This income will be taxed at the higher rate of £150,000 and the above strategies will be effective in reducing levels of taxable income.

Self Employed

The self employed are largely restricted to the tax-planning examples above but there are a number of other opportunities, such as the introduction of a partner to the business (perhaps a spouse or business partner) which provide an opportunity of sharing the profits.

Alternatively, incorporating the business into limited company status may be considered, providing flexibility to consider additional tax planning alternatives available to those trading through a limited company.

Directors/Shareholders of Limited Companies

If your business is already trading through a limited company, you may feel the impact of the changes when you extract income from the company. There are alternative considerations:

- Accruing dividends before the introduction of the increased tax rate

- Maximising pension contributions

- Taking loans from the company

- Spreading dividend income with your spouse whilst this option remains available

- If rent is paid by the company, consider the ownership of the property in order to spread the rental income

Summary

Changes such as these are never popular but it is likely that we will continue to see increased levels of taxes in an attempt to restore the economic deficit as a result of the financial crisis. Taking a proactive approach is essential to ensure the sustained growth of your firm.

The Accountancy Office takes every care in preparing material to ensure that the content is accurate and up to date. However no responsibility for loss to any person acting or refraining from acting as a result of this material can be accepted.

New Employment Regulations

2010-04-01T03:18:00.001-07:00

There are a host of new employment related regulations coming into force on 6 April 2010. This is a brief summary of those regulations that are likely to affect you or your business.

- Fit notes - these replace sick notes issued by GPs and will state what the worker can do, rather than what he or she is prevented from doing.

- Pension date - the date from which the individual can draw the state retirement pension will not necessarily fall exactly on a woman's 60th birthday. For example, a women who reaches age 60 between 6 April 2010 and 5 May 2010 will have a state pension date of 6 May 2010. This date also affects the payment of the employee's NI contributions.

- NI contribution years - individuals who reach state retirement age only have to have to accumulate 30 full years of NI contributions or credits to gain a full state pension.

- A single year of NI contributions will count towards the state pension. Until now a person had to accrue at least one quarter of their working life (about 11 years for a man, 10 for a woman) to be entitled to any state retirement pension. Each year of NI contributions will be worth roughly £3.20 of weekly pension at current rates. It will be essential to accurately record the NI number for every employee, so that each individual can collect their pension entitlement when they retire.

- Home responsibility protection credits (HRP) will be given on a weekly basis. This will allow the HRP credit be combined with actual NI contributions to make up a full year of NI credits. HRP credits are given where a person stays at home to look after a child and claims child benefit.

VAT Payments & New Penalties

2010-04-01T03:14:00.000-07:00

From 1 April 2010 all VAT payments made by cheque will be treated as being paid on the day the cleared funds reach the Taxman's account. Previously the VAT was treated as being paid on the working day the cheque reached the VAT Office. A cheque will normally take at least three working days to clear. Where VAT payment is received late more than once in 12 months you may have to pay a default surcharge (a penalty).

The Taxman will exercise his discretion not to charge a default surcharge for VAT periods that commenced before 1 April 2010, where the paper VAT form and the cheque payment are both received on time. VAT cheque payments for periods that begin on and after 1 April 2010 will have to clear the Taxman's bank account by the due date, or surcharges may apply.

Where the VAT return is submitted online the payment for any VAT due must also be made online. However this can cause problems where the VAT due for the quarter exceeds £10,000.

Many banks impose a daily limit of £10,000 for electronic payments for both business and personal accounts. Larger electronic payments can be made by CHAPs but this may involve bank charges of up to £35 per transaction. You need to check with your bank in advance about the best way to pay a large VAT bill electronically.

If your business is not already VAT registered but your sales are edging up towards the VAT compulsory registration threshold, (£70,000 from 1 April 2010), you need to be particularly careful about when you register. From 1 April 2010 there is a new set of penalties for failing to register for VAT on time. The penalty is based on the underpaid VAT. The minimum penalty will be 10% of the VAT due, and the maximum penalty 100%. The highest penalty will be charged where there has been deliberate concealment of the need to register for VAT.

Full Budget News

2010-03-25T07:10:00.000-07:00

This was a pre-election Budget but without many give-away prizes. Many of the standard allowances and thresholds have been frozen for two to five years, which introduces hidden tax rises by way of fiscal drag.

This summary concentrates on the main tax issues affecting our clients.

The good news points for small businesses are the extensions of entrepreneurs' relief and the Annual Investment Allowance. The bad news includes the new anti-avoidance rule for loans provided to participators in private companies. There are also a large number of complex measures which may not pass into law before this Government runs out of Parliamentary time

BUSINESS TAX

Capital Allowances
The maximum Annual Investment Allowance (AIA) available to each business or group of companies will double to £100,000 for expenditure incurred from 1 April 2010 (6 April 2010 for unincorporated businesses). The cost of all qualifying equipment (not cars or buildings), that falls within the AIA limit can be deducted in full from the business profits in the year the equipment is bought.

The AIA was introduced in April 2008 with a cap of £50,000, which was sufficient to cover the annual capital expenditure for about 90% of businesses. This increase in the AIA limit means the capital expenditure of about 99% of businesses will be covered by the AIA, and thus will be allowable in full when incurred. Any capital expenditure in excess of the AIA limit is taken into the relevant capital allowance pool where it receives tax relief at either 10% or 20% per year.

Partnerships where one or more of the partners is a company do not qualify for the AIA. Also a group of companies only qualifies for one AIA limit for the whole group.

Loans to Participators
This is bad news for private companies. It undermines an arrangement that is becoming popular in owner-managed companies; where the director takes a loan from his company to spread the taxation of that income into a future tax year. When the loan is written-off or released by the company, the director is taxed on the value of the loan as if it was a dividend. However, the Taxman may also insist that the company pays class 1NICs on the loan write-off where the loan may have been substituted for part of the director's remuneration.

Before today's Budget the company could claim a deduction in its accounts for the value of the loan written-off as well as any NICs paid on that amount. For loans written-off on or after 24 March 2010 the company will not be able to claim a deduction in its accounts for the value of the loan, which will make the whole exercise very expensive. This new rule applies where the loan is provided by a privately owned company to a participator of that company, which includes all shareholders, directors and loan creditors of the company and their associates.

Corporation Tax
The corporate tax rate for small profits remains frozen at 21% for the financial year that runs from 1 April 2010 to 31 March 2011 (2010/11). The small profits rate applies where a single company has profits of no more than £300,000. Companies with profits of £1.5 million or more pay corporation tax at 28%. Profits that fall in the band £300,000 to £1.5 million are taxed at a marginal rate of 29.75%.

Where a company is part of a group or has associated companies the profit thresholds that determine where each tax rate applies are divided by the number of associated or group companies.

Business Rates
Businesses that occupy premises in England with rateable values of up to £6,000 per year will be able to claim full exemption from business rates for 12 months from 1 October 2010. In addition those businesses in properties with rateable values of up to £12,000 will be able to claim reductions in their business rates from that date. Different business rates relief schemes apply for properties in Wales and Scotland, but details of those schemes were not given in this Budget.

INDIVIDUALS

Income tax Allowances
All personal tax allowances have been frozen for 2010/11 at the 2009/10 levels as follows:

Under 65 - £6,475
65-74 - £9,490
75 and over - £9,640
Minimum marriage allowance* - £2,670
Marriage one partner born before 6 /4/1935* - £6,965
Blind person's allowance - £1,890
Income limit for allowances for those aged 65 or more - £22,900
* given at 10% rate only

This freezing of allowances for everyone amounts to a hidden tax increase as the value of the allowance is reduced in real terms by inflation, which from the latest measure of the consumer prices index (CPI) is now 3%. Unfortunately the annual adjustment in allowances is based on a different measure of inflation: the Retail Price Index (RPI) as reported for the year to September which was a negative number: (-1.4), which has resulted in frozen personal allowances for 2010/11.

Another hidden tax rise lies in store for those with total income of £100,000 or more. From 6 April 2010 those individuals will lose £1 of their personal allowance, for every £2 of their total income that exceeds £100,000. This equates to a marginal tax rate of 60% on that slice of income.

Income Tax Rates
The tax thresholds for 2010/11 at which each tax rate is imposed have also been frozen at the 2009/10 levels. This also introduces a subtle tax increase for those people whose income has increased, if that increase takes their taxable income over one of the tax thresholds.

Savings rate* - 10% - £0 - £2,440
Basic rate - 20% - £0 - £37,400
Higher rate - 40% - £37,401 to £150,000
Additional rate - 50% - Over £150,000

* Only applies to savings income such as interest where earned income is covered by allowances or is also within this band.

The 50% tax rate only applies on income over £150,000, it does not replace the 40% tax rate.

Capital Gains Tax
The much anticipated increase in the rate of capital gains tax (CGT) did not emerge, the CGT rate remains at 18% for 2010/11. The CGT annual exemption is also frozen for 2010/11 at £10,100, with the exemption for trusts set at £5,050.

The good news for all ambitious business people is that entrepreneurs' relief is to be extended. Entrepreneurs' relief reduces the effective rate of CGT to 10% on gains arising on the disposal of businesses and certain business assets. Taxpayers are limited to claiming this relief on up to £1 million of gains made from 5 April 2008 to the end of their life. This lifetime limit is to be increased to £2 million for disposals made after 5 April 2010. No additional relief is given for gains realised before 6 April 2010 that exceed £1 million.

Inheritance Tax
The nil rate band for inheritance tax has been frozen at £325,000 for 4 years. Although widows and widowers can benefit from the transfer of any unused nil rate band from their deceased spouse or civil partner, this freezing of the IHT zero rate represents an hidden tax rise in real terms.

Savings Income
The tax-free ISA limits have already been increased for 2010/11 to £10,200, of which £5,100 can be saved in a cash form such as a bank savings account. These limits will now be increased by the rate of inflation (RPI measure) every year from 6 April 2011. If the RPI is negative the ISA limit will not be reduced. The amount that can be saved in a cash form will continue to be half the value of the full ISA limit for stocks and shares.

PENSION CONTRIBUTIONS

Special Annual Allowance Charge
Taxpayers with total income of over £150,000 will have to pay a special annual allowance charge (SAAC) of 20% to 30% of the irregular pension contributions they make that exceed £20,000, or in some cases £30,000, in 2009/10 or 2010/11. Irregular contributions are defined as those made less frequently than quarterly. The measure of income is the taxpayer's total income before deductions for the current tax year, or in either of the two preceding tax years.

Employees with total annual income before deductions of £130,000 or more can also be caught by the SAAC if the sum of their income plus value of the pension contributions made by their employer on their behalf totals £150,000 or more.

From 6 April 2011 tax relief on pension contributions will be tapered down to the basic rate of tax for those earning between £150,000 and £180,000 or more.

Annual Allowance Charge
Tax relief on pension contributions is capped at the lower of 100% of the taxpayers' relevant earnings, or the annual allowance. This annual allowance is to be frozen at £255,000 for the tax years 2010/11 to 2015/16. Where the pension contributions made exceed the annual allowance the taxpayer must pay an annual allowance charge (AAC) of 40% of the excess pension contribution. The SAAC and the AAC can apply on the same pension contributions, but the amount subject to the SAAC is reduced by the amount of contributions already subject to the AAC.

The detailed rules that govern exactly how these charges apply are very complex, so if your pension contributions or earnings are likely to break any of the thresholds mentioned please ask us for tailored advice.

New Obligations on Employers
In spite of these excessive tax charges on high pension contributions the Government wants all workers to be a member of a pension scheme. From a date to be announced in 2012, all employers will be required to ensure that their employees are members of a pension scheme. If the employee is are not already a member of a registered pension scheme he will be automatically enrolled in the Government scheme known as the National Employment Savings Trust (NEST). The employer will be required to make contributions to NEST or the employee's registered pension scheme.

STAMP DUTY LAND TAX

One of the give-aways of this Budget is relief from Stamp Duty Land Tax (SDLT) due on buying residential properties that cost up to £250,000, where the property transaction is completed between 25 March 2010 and 25 March 2012. The issue is that this zero rate only applies to first-time buyers, and the relief will have to be claimed by those individuals, it will not be given automatically.

To help fund this tax relief an additional rate of SDLT is to be introduced at 5% on properties costing £1 million or more from 6 April 2011. So if you are planning to buy that million pound home, get on with it!

VAT

Rates
The rates of VAT have not been changed. The standard rate remains at 17.5%, the reduced rate is 5%.

Registration Threshold
The level of turnover that triggers a requirement to become a VAT registered trader within 30 days is to rise by £2,000 to £70,000 with effect from 1 April 2010. The turnover threshold below which traders can apply to become deregistered for VAT increases by £2000 to £68,000 from the same date.

Postal Services
Certain commercial postal services provided by the Royal Mail and ParcelForce, will become subject to standard rate VAT from 31 January 2011. Services provided to private individuals, such as stamped mail, will continue to be exempt from VAT.

TAX AVOIDANCE

Off-shore Income
The Taxman has been gathering information about off-shore accounts held by British residents from banks based in the UK and in tax havens such as Liechtenstein. Now three further tax havens; Belize, Grenada and Dominica are about to sign information exchange deals with the UK.
Tax evaders with off-shore accounts were given until 12 March 2010 to come clean and declare all their off-shore income and gains to HMRC. If they persist in their tax evasion tactics after 1 April 2011 and hide money in a country that does not have an information exchange agreement with the UK, they will find themselves subject to penalties of up to 150% of the tax due. If the tax evaded is £25,000 or more, HMRC may publish the taxpayer's name and address as part of their name and shaming powers.

Security for PAYE
Currently the owners or directors of new business may be asked to provide a lump sum to HMRC as security before the business is permitted to become VAT registered. The Tax Office tends to demand such payments where the business owners have previously been involved in a business that failed owing VAT. From 6 April 2011 HMRC will also be able to ask for security payments from the business owners before the business is permitted to operate a PAYE scheme.

Budget 2010 - A Brief Summary for Small Businesses

2010-03-25T06:54:00.000-07:00

The budget brought a pleasant surprise in that the Annual Investment Allowance (AIA) is doubled from £50,000 to £100,000 from next month and there is currently no expiry date. This means that businesses can write off 100% of qualifying expenditure up to £100,000 each year against taxable profits. Whilst this is good news, whether it encourages capital investment remains to be seen as few businesses are able to utilise the current £50,000 AIA due to cash restraints. This headline grabbing statement may actually have little benefit to small businesses.
However, there is little bad news for small businesses:

• VAT rates remain the same. Registration & deregistration thresholds increase from 1 April to £70,000 and £68,000 respectively.

• No change in corporation tax rates. The main rate will continue at 28% for 2011/12. The small profits rate is still due to increase from 21% to 22% from 1 April 2011 if the 2009 Pre-Budget Report proposal is carried through.

• There are no changes to the the Business Support Service so business should still be able to defer their tax payments for the next year - but expect more rigorous questioning!

• Business rate taxes for small businesses will be reduced for one year starting from October 2010. This will impact on 345,000 businesses who may get a business rate tax holiday.

• The chancellor confirmed the basic rate of income tax will be 20%, the higher rate will be 40% and the additional rate will be 50%. Personal allowances will remain at their existing amounts.

• Entrepreneuer's lifetime limits are to be raised to £2m (from £1m) on which they will pay just 10% capital gains tax, instead of the main rate of 18%.

• The inheritance tax threshold will be frozen for four years at £325,000

As this budget is announced before a General Election, some of these changes may be overturned after the election - wait and see.

If you would like more information or tailored advice for your business, please get in touch. We offer a free initial consultation and would be able to advise based on your specific circumstances. You can also sign up for our free informative start-up business guide and regular tax tips through our website www.accountancyoffice.co.uk

VAT Online Filing & Payment - Compulsory from April

2010-03-25T06:45:00.000-07:00

With effect from VAT periods commencing on or after 1 April 2010 existing businesses with an annual turnover of £100,000 or more will have to file their VAT Returns online and pay their VAT by electronic payment. The same rules also apply to all new businesses (regardless of turnover) that register for VAT on or after 1 April 2010. Other businesses will need to follow the compulsory online filing at a later date which has yet to be confirmed.

Filing VAT returns online has several benefits for small businesses. One of the main advantages is that the process is simple and very user friendly, with the added advantage that you no longer need to file paper returns by post. Once you have submitted your return online, you receive an on-screen acknowledgement and a unique reference number, so that you know that HMRC have received your return successfully. Other advantages of the online system include email alerts to keep you up to date on developments that affect your business and the ability to amend your VAT registration details online.

If you pay your VAT by direct debit, you will also receive an extended filing date of an additional 7 calendar days from the standard due date. It will be a further three working days before they collect payment from your bank account. This can create a substantial cash flow benefit to your business.

To enrol for VAT online you need the following 5 pieces of information about your business to hand:

• VAT Registration Number
• The postcode of your principal place of business
• Your effective date of registration for VAT
• The final month of the last VAT return you submitted
• The Box 5 figure from the last VAT Return you submitted

You can find further information at http://www.hmrc.gov.uk/vat/start/register/signup-online.htm or alternatively please get in touch with us at The Accountancy Office and we'll be delighted to help you.

Going It Alone...

2010-02-25T02:00:00.000-08:00

Many businesses were relieved when 2009 came to an end after many faced redundancies or reduced working hours to try and survive the recession. 2010 would appear to have started more optimistically but many are rethinking their career paths and considering setting up their own business – but don’t know where to start. We're currently helping a number of clients regarding setting up their own business. It's important to get it right and there are a number of aspects to consider.

When a business starts up there are a number of different structures under which it can operate. Each has its own implications and their suitability depends on a number of factors. There isn’t a universal answer to what is the best form of legal or tax structure to use and there are advantages and disadvantages with each option. As always with a decision as important as this for your business, you should take professional advice from a qualified accountant before making a commitment.

The two most common trading vehicles are discussed below:

Sole Trader
A sole trader is a type of business entity that legally has no separate existence from its owner. The law makes no distinction between the business and the sole trader - they are one and the same. If you set-up as a sole trader, you should inform HM Revenue & Customs (HMRC) within 3 months of starting out. you will also need to start paying Class 2 National Insurance Contributions (NICs).These are relatively small at £2.40 per week for the tax year 2009/10.

Advantages

As a sole trader you will only need to prepare basic accounts and a self assessment tax return. Consequently the accountancy fees tend to be lower for a sole trader as there is reduced administrative burden.
Many businesses are initially loss making. If you leave a job to become self-employed, and make a loss, you can offset that loss against your previous employment income. If you have other income such as savings interest, dividends, or rental income, then again, the sole trader losses can be set-off against these. This can result in a repayment of tax in the early period of trading. With a limited company, losses cannot be offset against your personal income.
As a sole trader, you only need to submit information to HMRC and your sales income, profits and tax affairs are private between you, your accountant and HMRC. Limited companies must file accounts with Companies House which are in the public domain for anyone to see.

Disadvantages

Because there is no legal separation between the individual and the business, a sole trader is liable for all the business debts and this can put at risk not only assets used in the business but also personal assets too.
A sole trader business usually ceases on the owner's retirement or death.
Options for raising finance are more restricted for a sole trader.

Limited Company

Sole traders and partners can be held personally liable for all business debts but a limited company is a legal entity separate to its directors and shareholders. As a separate corporate body a company can own property, incur debts, sue and be sued in its own right. Any business dealings are made on behalf of the company so the owners are normally liable only for the amount invested as shareholders. There must be at least one director to manage the business.

Advantages

Limited liability status provides some protection for you as a director if the business is not successful. In simple terms if a company cannot afford to pay all its debts the directors will not normally be personally liable for them.
Shares in a company can be created and transferred to divide the ownership subject to company law and the company’s constitution contained in a document called the Articles of Association. Careful consideration must always be given to the tax consequences of any share transfers.
A company as a separate legal entity survives the retirement or death of its owners.
A limited company can be perceived as having more credibility making it easier to raise finance. Financing options such as debentures and invoice discounting are available to companies which are not available to sole traders.
A company can pay dividends to shareholders which can be advantageous in reducing the overall tax payable compared with income paid as salary which is subject to tax and both employee’s and employers National Insurance (NI).
Limited companies are taxed on their profits at corporation tax rates (typically lower than personal income tax rates) and can offer tax advantages.
Some business customers may feel more comfortable trading with a limited company rather than a sole trader. They may have a perception that a limited company will be a more established business, and therefore more reliable. The reality of course that creditability is more to do with how you market and present your business and ultimately how effective you are at meeting the needs of your customers.

Disadvantages

Annual accounts are more complicated to prepare and specific details and disclosures need to be filed with the Registrar of Companies. This usually makes it necessary to use a qualified accountant to prepare accounts for the company.
Financial information about the business will be in the public domain for anyone who is interested to see.
Directors are treated as employees for any salary that they draw and so are subject to income tax and NI on their salary from the company. In addition, the company must also pay employer’s NI on the directors’ salaries.
Shareholders and directors may have to personally guarantee contracts entered into with lenders or suppliers so personal liability can still arise.
It can be more difficult and expensive to close or wind-up a company compared to a sole trader or partnership business.
A company director is more at risk of civil or criminal proceedings or penalties which can arise for late filing of accounts or from breaches of insolvency rules such as those relating to wrongful of fraudulent trading.

Other things to consider:

Depending on your trade or sector, you may need some form of statutory licence to run your business.
You must have adequate insurance for the business. If you have employees, you must have employers’ liability insurance.
Notify HMRC when you begin trading and use an accountant to help you keep your tax, NI and VAT affairs in order.
You must ensure your premises comply with regulations. If your business is based at home, you need to consider whether your title deeds, mortgage or tenancy agreement places any restrictions on this.
If part of your home is treated as non-residential there may be tax implications.

If you would like more information regarding setting up your own business, please get in touch. We offer a free initial consultation and would be able to advise based on your specific circumstances. You can also sign up for our free informative start-up business guide and regular tax tips through our website www.accountancyoffice.co.uk.

Sarah Sallis
Chartered Management Accountant
The Accountancy Office Limited
e-mail: hello@accountancyoffice.co.uk

The Accountancy Office takes every care in preparing material to ensure that the content is accurate and up to date. However no responsibility for loss to any person acting or refraining from acting as a result of this material can be accepted.

Are you claiming the right expenses in your business accounts?

2010-01-05T07:15:00.000-08:00

Not all business expenses are tax deductible, so its important to make sure you claim all that you can. Generally, if something you buy for your business is not a capital asset, you deduct its full cost when working out your taxable profits. This means you get immediate tax relief for the full amount.

Here are some key expenses you can claim and some you can’t!

Expenses you can claim
Salaries and benefits
Employees’ wages and redundancy payments
Employers’ National Insurance
Insurance and pension benefits for employees
Any employee childcare provision you make
The cost of training employees

Dedicated business premises
Heating
Lighting
Cleaning
Water rates
Rent
Business rates
General maintenance

If you work from home
A proportion of costs such as:

Lighting
Heating
Cleaning
Insurance
Mortgage interest
Council tax
Water rates
General maintenance

The proportion should be based on, say, the floor area or number of rooms used for business, and the proportion of the time it is used for business if it is not for exclusive use.

Travel and accommodation
Running costs of a car or other vehicle – petrol, car tax, insurance, repairs and servicing. If you also use the car privately, you can claim only a proportion – usually the ratio of your business mileage to your total mileage (keep a log of business mileage for a representative period as well as all bills).

Travel and accommodation on business trips and between different places of work can be claimed as well.

Expenses you can’t reclaim
Salaries and benefits
If you are self-employed you cannot claim your own wages, salary or other money drawn from the business
Your own National Insurance contributions and income tax; your own pension costs, life insurance and health insurance.

Premises
You cannot claim the initial cost of buildings, alterations and improvements (such as extensions to house your business) – such work may qualify for annual investment allowance or capital allowances.
A proportion of bills relating to private use of your home.

Travel and accommodation
Travel between home and workplace
Cost of buying a vehicle (but may qualify for capital allowances)
Meals, except reasonable amount for breakfast and evening meals on overnight trips. (There is no definition of ‘reasonable’. You must keep receipts and may need to argue your case.)

If you can divide an expense between business and personal cost (car running costs between business and personal travel, say), the business proportion is deductible. If the nature of the expense means it cannot be divided (such as the cost of a transatlantic flight), then no deduction is allowed.

Entertaining
Any expenses that you incur whilst entertaining your customers or supplies is not allowable as a deductible expense. Any such costs need to be added back to your annual profit. If you are entertaining staff you can claim up to £150 per head, per annum, for example a Christmas Party. There is no tax payable by the employee either as it is not considered a taxable benefit.

Happy New Year - and don't forget the tax!

2010-01-04T02:15:00.000-08:00

Yes, January is upon us already and for those that haven't submitted their self assessment tax return yet, you have until 31st January 2010 to do so in order to avoid a financial penalty. As the paper filing date has passed (31st October 2009) the tax return must now be submitted online. As well as filing the tax return, you are obliged to pay any tax that you may owe by 31st January .

Due to the limited amount of time available, the most effective method of ensuring that HMRC receive your tax payment on time is by internet or telephone banking. Further details can be found here:

http://www.hmrc.gov.uk/payingHMRC/selfassessment.htm#5

Pre Budget Report Summary

2009-12-28T07:05:00.000-08:00

A summary of the main items of December's Pre Budget Report that will most effect small businesses:

1.National Insurance up by a further 0.5% from April 2011 (up by 1% on 2009/10)
2.1p rise in corporation tax for small firms scrapped, some reports say "deferred"
3.New 50p tax on landline phones to pay for superfast broadband
4.New 10% tax on income from patents to boost science development
5.New tax rebates for electric cars and wind turbines
6.State pension to rise by 2.5% next year
7.VAT to return to 17.5% from 15% from 1 January 2010.
8.No other changes to VAT
9.One-off 50% tax on bank bonuses of more than £25,000.
10.Stamp duty holiday on certain properties to end on 1 January 2010.
11.Child and disability benefit to rise by 1.5% in 2010
12.The Income tax personal allowances and tax thresholds are not increased.
13.The IHT threshold has been frozen at £325,000 for 2010/11.
14.The pensions anti forestalling measure will be amended with immediate effect to include employer pension contributions.
15.The Furnished Holiday tax regime is abolished from April 2010 (previously announced.) All c/f losses at that point will be treated as losses arising on a property business. No further capital allowance claims will be possible, but owners will be able to claim the 10% wear and tear allowance and the Landlord’s Energy Saving Allowance if they choose.
16. and for all those getting a "free" meal.... Salary sacrifice and flexible benefit schemes which provide tax free meals at works canteens are to be terminated from April 2011.

Pension Reforms 2012

2009-11-22T10:59:00.000-08:00

The government’s proposed 2012 pension reforms will oblige employers to offer a private sector pension scheme, known as a Personal Account, to all eligible employees who are not covered by in-house alternatives.

Contributions to the Personal Accounts will be staged over a period of time until eventually employees will provide four per cent of their income, while employers will provide three per cent and the government will contribute one per cent. It’s estimated the reforms will cost UK business around £2.6bn.

What to expect

• The 2012 pension reforms oblige employers to automatically enrol employees into private sector pension schemes

• Employers must set up the pension schemes, known as Personal Accounts, but employees can opt out of them

• To soften the blow, the reform will be gradually introduced, and small businesses will not have to be fully compliant until 2015 or 2016

• Contributions to the pension schemes will be shared among employers, employees and the government

Small and Medium Sized Enterprise (SMEs) in the UK will face significant increases in costs and administration because of the new workplace pensions rules.

Starting Up a Business

2009-11-22T10:33:00.000-08:00

You can run a business either as an unincorporated sole trader or partnership, or by using a company.

A company is a separate legal person - see below, under Forming a company for the issues you will need to consider. You will be a director and employee and also a shareholder in your own company. You can take money out of your company either as salary or by paying dividends.

If you are a sole trader or partnership, your business is not a separate person from you (in England and Wales). As a sole trader, you are taxed as a self-employed person on the profits. As a partner, you are also taxed as a self-employed person but just on your share of the total profits of the partnership.

If your business is a company or partnership, you will need to be aware of new rules on 'income shifting' which were due to come into force from 6 April 2008 but have been deferred for a further period of consultation. The rules can affect any partnership or company where one individual is able to divert income to another person. This is often possible in family businesses, but other business arrangements can be affected.

Books and records

You need to keep books and records for your business. These will show what happens in your business on a day to day basis.

A business must keep accurate books and records. This means setting up a system to record what information is needed, and to keep the required documents. The system does not need to be complicated - the simpler the better as long as it provides the information you need.

You are legally required by HM Revenue and Customs to keep records of all income and expenditure, as well as copies of invoices sent to customers. Bills for expenses and purchases must also be retained, and a record of stock kept if you run a shop or similar business. This information and documents must normally be kept for nearly 6 years (5 years after the deadline for filing your tax return for the period). HM Revenue and Customs can fine you if you do not keep proper books.

Bank statements must be retained, and it is sensible, whatever form your business takes, to have a separate bank account for business transactions so that the distinction between your business and personal funds is quite clear. If you operate via a limited company you need a separate bank account for the company right from the start. Bear in mind though that there may be higher bank charges on business accounts, so if you are intending to run a business as a sole trader you might prefer not to set up a separate account until your business is up and running and can keep a balance in the bank.

The books, records and bank statements referred to above are used to prepare annual accounts. The information on these accounts is needed to fill in your annual tax return. (Most small businesses will not send the actual accounts to HM Revenue and Customs). Your bank manager may also want to see the accounts, particularly if your bank account is overdrawn.

Your accounts will normally be made up of two sheets, profit and loss account, and a balance sheet. The profit and loss account shows your business income and expenses for the year and the profit or loss you have made. The balance sheet shows a snapshot of your business on the last day of your accounting year. It shows the vehicles and machinery you use in the business, your stock in trade, what you owe and what is owed to you. It also shows your financial stake in the business. If you own business premises, or have loans, this is where they are shown. If your business is very small, you may just prepare a profit and loss account.

If HM Revenue and Customs decide to make enquiries into your tax return, they will wish to see the books and records which back up your tax return entries. If you are registered for VAT, HM Revenue and Customs have the right to visit your business and examine your books of account. If you have employees, HM Revenue and Customs have the right to visit and look at your payroll records.

Even with good business records, you still need separate records for your own personal tax affairs. Your personal tax records would include non-business details like savings income, gift aid donations, and income from rents.

Registering your business with the tax authorities

It is important to inform HM Revenue and Customs when you become self-employed. You may be charged a penalty if you do not do this. Similar rules apply to companies.

You must register your business with HM Revenue and Customs to ensure that you pay class 2 National Insurance at the right time and register for self-assessment. You can do this by phoning HM Revenue and Customs' Newly Self-employed helpline (08459 154515) or by using form CWF1 which you can obtain from their website, or any HM Revenue and Customs Enquiry Centre. You may also register on-line at http://www.hmrc.gov.uk/selfemployed/iwtregister-as-self-employed.htm.

You may also have to register for VAT - Make sure you know what the time limits are, as penalties can be heavy.

Forming a company

Some businesses will want to operate as a limited company. Indeed independent computer consultants and some other trades and professions are almost obliged to do so.

Tax is only part of the story and intending businesses should consider the following:

A company is a separate legal entity from you, and its money is not your money. While the figures for tax in the company may be lower, you need to look at the total tax cost for you and the company.

Money you take out of the company will usually be paid as either salary or dividends which involves a lot of administration and an understanding of company law. If you have a personal service company, which may obtain work through an agency, you may come within special rules (often refered to as 'IR35'). These tax provisions defeat any advantages of trading as a company. This is a complex area where individual details make a large difference. If you think IR35 may apply to you, it would be best to take advice.

If you and your spouse or partner hold shares in the company between you, and your spouse or partner doesn't take a full part in earning the income of the business, then HM Revenue and Customs may challenge the arrangement. This is a developing area and you may wish to look at taking professional advice. Income shifting rules may apply to any company or partnership where one individual is able to direct income to another individual.

There is substantial company regulation and administration. A company is ruled by the Companies Acts. You cannot just draw personal cheques on your company's bank account without making proper arrangements. The money is not yours. The records to be kept are more stringent than for a private business. Annual accounts must be prepared in an agreed format, and some companies have to have an annual audit. A tax return has to be completed for the company and tax paid on its profits. The services of an accountant are almost certainly needed.

PAYE has to be operated for directors' salaries and fees, and directors will also be taxed on private use of company cars, and possibly other benefits, on what is known as 'benefits in kind'. A form P11D has to be sent to HM Revenue and Customs in this connection.

Extracting cash from a company is difficult, and one has to go through the correct procedures. This applies to both annual profits and winding up a company on liquidation. The whole subject needs to be examined very carefully, and expert professional advice obtained.

Companies must tell HM Revenue and Customs when they start trading, or start receiving any taxable income. This also applies where a company has been dormant and starts to trade again. Penalties may apply if notification is late.

Starting Up a Part-Time Business?

2009-11-22T09:25:00.000-08:00

When starting up for the first time, many people opt to retain their full-time job and set up their own business part-time. But what does this mean for their tax situation?

As an employee, you pay tax through Pay As You Earn (PAYE) and National Insurance Contributions (NIC) which is deducted from your pay by your employer. Your employer calculates the necessary PAYE and NIC for you and pays this to HMRC (HM Revenue & Customs) on your behalf.

If you decide to set up a part-time business whilst in employment, you must notify HMRC that you have started a business. You can do this through the HMRC website or by telephoning the Self Employed Registration Helpline on 0845 915 4515. You must do this as soon as you start trading or face a financial penalty!

The tax that you are required to pay through self employment is dealt with separately to employment earnings. At the end of the tax year in which you commenced trading in your own business you must complete a Tax Return including a Self Employment section. Profits for the period up to 5 April after you started (and subsequent annual accounting periods) will be subject to Income Tax and National Insurance Contributions.

Self employed people pay different types of National Insurance contributions. As a self-employed person you will pay the Class 2 contribution, which is currently around £2.40 a week.If your profits are below the threshold for the 'small earnings exception' you do not have to pay Class 2 National Insurance. You must ask the Revenue to send you a certificate to confirm that you qualify for this exception. However, you may wish to pay Class 2 anyway, in order to preserve your pension entitlement and certain other State Benefits. In addition, if your taxable profits are above a certain figure you will pay Class 4 contributions. These in effect are an addition to your tax bill. You pay them together with your income tax to HM Revenue and Customs.

Self employed payments of Tax and National Insurance Contributions are required twice yearly - by 31 January and 31 July. You should remember to set aside a percentage of your business income to pay for the tax and NIC liability. This is best done by transferring, say 20/25 per cent to a separate bank account.

You will need to refer to your contract of employment with your current employer. You may find you are subject to a Restrictive Covenant which would prevent you from setting up your business while continuing to work for your current employer.