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Simpler accounts for sole traders

August 01, 2013 by Elaine Clark

Simpler accounts for sole traders/calculator sales ledger{{}}New tax rules introduced in April 2013 allow sole traders (ie self-employed, unincorporated businesses) to use simpler rules for recording their business expenses. So what are they and how do they make life easier?

Cash basis

The first new rule is that sole traders can record their costs on what is called the ‘cash basis’, which means when they are paid. For almost all sole traders, this will not be very different from what they already do, even though previous rules stated that transactions should be recorded when they are incurred rather than paid (known as ‘accruals basis’). The subtle difference is when items are bought or sold on credit or paid for at a different time.

Simplified expenses

Under the new rules, instead of recording the actual costs and expenses incurred, a flat rate amount can be claimed for certain costs. You can claim these flat rate amounts regardless of whether you decide to cash account or not.

Motor expenses

45p a mile for the first 10,000 miles and 25p a mile thereafter. If you use a motorcycle for business, you can claim 24p a mile.

If you elect to use this method you cannot claim any other motor costs.

Use of home for business purposes

Instead of claiming a portion of actual expenses you can claim the following amounts: 

  • Number of hours home used for business per month
  • 25-50 = £10/month
  • 51-100 = £18/month
  • 100 or more = £26/month

Eligibility for cash accounts

To use the cash accounting rules your yearly turnover in a year must not exceed the vat registration threshold. You must leave this scheme when your turnover exceeds twice the VAT registration threshold.

Caution

If you opt to use cash accounting there are a couple of pitfalls to be aware of: 

  • Losses
    If you make a loss you can only carry this forward to next year. This is much less favourable that the treatment of losses should you not elect to account under the cash accounting scheme.
  • Loan interest
    You can only claim loan interest paid up to £500, so, if you have high business borrowing, the cash accounting scheme may not be for you.

You can find out more about the ‘cash basis’ and ‘simplified expenses’ schemes by visiting the Tax Donut

Using 20 years’ experience spent working at some of the UK’s leading businesses, award-winning chartered accountant Elaine Clark is the founder and managing director of www.cheapaccounting.co.uk.

How to choose the right accountant for your business

June 24, 2013 by Carl Elsby

How to choose the right accountant for your business/businessman working in office{{}}Running a small business can be an isolating experience for owners. They often lack people to confide in who have a sufficient understanding of their business – which is why a good accountant is so vital.

The right accountant acts as a business mentor, helping with so much more than tax strategies, business structure and the usual compliance services. In my experience, growth is best achieved if an accountant applies their skills to identify strengths and weaknesses, using the figures as building blocks to drive the business forward, tasking the owner with addressing limitations and building on assets.

But with so many accountants advertising their services, how do you select the right one for your business? The following may help to guide you in the right direction.

  1. In the UK, anyone can call themselves an accountant – even if they aren’t qualified. So, ensure that the one you choose is suitably qualified and part of the relevant professional body (ie ACCA or ICAEW for chartered accountants).
  2. Recommendation is always a good sign: ask friends, colleagues, fellow business owners, etc if they are happy to recommend their accountant. If you are an active networker, this can be a great place to source an effective accountant.
  3. Beware accountants that make big promises. The first thing an accountant should do is listen so they can get to know your business, including its history, what is currently happening and its future goals.   
  4. Some accountants specialise in specific sectors such as retail or manufacturing and it may be that you want an accountant who is very familiar with yours.
  5. The connection between personal and professional finance can be very closely related within small businesses, particularly family companies and sole traders.  Your accountant should be able to help you make decisions that recognise this link and which are mutually beneficial.
  6. It makes sense to choose an accountant with experience of dealing with businesses of your size and type (eg one who specialises in family businesses, SMEs or start-ups). An accountancy practice with a high proportion of large clients on its books may not understand your needs as well – or value your business as they should.
  7. Finally, it’s important to appoint someone who you feel comfortable with, who understands you, is on the same wavelength and who you feel comfortable picking up the phone to speak to. A sense of humour is an added bonus!

SMEs rarely have the advantage of large management teams with a wide range of specialisms and expertise. So, having access to suitably qualified professionals in the form of a knowledgeable and proactive accountant is essential. Someone who will keep a professional confidence and who understands a company well enough to offer constructive advice can make the difference between getting by and running a thriving and growing business. 

By Carl Elsby, MD of chartered accountants Elsby & Co

Is HMRC failing to follow its own rules?

December 07, 2010 by Julian Shaw

After winning a case on behalf of a client in which HM Revenue & Customs (HMRC) was forced to back down and write-off more than £2,000 of previously demanded tax, Elaine Clark of CheapAccounting.co.uk has accused the tax office of not applying its own rules correctly.

“This is a terrible case. [The taxpayer] receives incapacity benefit as well as an NHS pension,” Elaine said. “HMRC was informed of the two sources of income by the Benefits Agency and the NHS, but did not act on the information provided.”

Elaine claimed under the provisions of Extra Statutory Concession A19. The full version of the concession is quite lengthy, but basically it says the tax office must waive tax owed in certain circumstances if it makes a mistake. You could claim if:

  • HMRC failed to act on information it had
  • that failure lead to a tax underpayment
  • it did not say how much was owed by the end of the tax year after the mistake was made 
  • it was reasonable for you to think everything was in order.

(If the tax office made more than one error, the time limit may not apply.)

If you have been sent a bill and you feel this applies to you, then you may wish to seek further advice. Alternatively, there are a number of draft letters available online. (Search for “Sample letter ESC A19”.)

HMRC correctly said it could not comment on individual cases and that the concession would in all likelihood apply only to a small number of cases.

The problem arises because our tax laws place the onus squarely with the individual. Basically, if your tax is wrong, it’s your fault – even if you were not aware of the situation or if the tax office made mistakes. This is clearly ludicrous, especially given the complexities of our tax laws.

Which is why we have ESC A19. It is an incredibly powerful clause – without it HMRC would be almost unaccountable. Six million people could be affected by recent mistakes by the tax office, through no fault of their own, so the usual rules should not apply. Television programmes such as Panorama and cases such as this have highlighted the problem.

Elaine is right – HMRC is failing to instigate the concession when it could do. It is an Extra Statutory Concession that is being debated, so surely it is not beyond HMRC’s remit to introduce a temporary measure – something as simple as sending out a slip inviting a claim, with space for the relevant details perhaps.

Ethically, this would be the right thing to do, but it would of course cost HMRC and by default the government. 

Julian Shaw, Founder of The Practice Hub

All you need to know about the VAT increase

December 01, 2010 by Justin Randall - Accountant London

There is now just over a month remaining before the standard rate of VAT climbs from 17.5 per cent to 20 per cent. VAT-registered businesses are being urged to prepare themselves for the change.

Any sales of standard-rated goods or services made on or after 4 January 2011 must carry a VAT charge of 20 per cent. All VAT invoices must charge the 20 per cent on bills raised on or after 4 January.

Retail businesses do not have to pass the increase on to customers, but they will have to pay HMRC the additional VAT.

If a customer pays on or after 4 January for an item that has been collected or delivered prior to the 4 January, the sale is normally deemed to have occurred before the changeover and the old 17.5 per cent rate applies.

Where the supply of services is continuous (ie a consultancy service), a business must charge VAT at 20 per cent on invoices issued and payments received on or after 4 January. It can, however, apply the 17.5 per cent rate for the services that have been supplied up to 3 January and the 20 per cent rate thereafter.

Moreover, from 4 January 2011 there will be a new list of flat rate percentages. The threshold for joining the scheme will remain at £150,000 in respect of income in the next 12 months and the exit threshold will increase from £225,000 to £230,000.

Non VAT-registered businesses should consider making any large purchases prior to 4 January and expect the cost of standard rated supplies to increase by 2.5 per cent. The VAT registration threshold of £70,000 remains the same.

VAT registered businesses that have questions about the time of supply and the tax point for any VAT transaction should contact their accountant to make sure the relationship between the two is correct. Zero-rated (0 per cent) and reduced-rated sales (5 per cent) will see no change.

You can visit the Jeffreys Henry LLP website at www.jeffreyshenry.com

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Handling your business expenses

June 30, 2010 by Louise Tillotson

Expenses are an unavoidable part of running a business. If you’re new to company ownership, you may be unsure what does and doesn’t constitute a business expense, and the best way to handle them. Hopefully, this brief guide will help you.

What is a business expense?

From a tax point of view, anything which benefits your business in terms of profit is an expense. This includes things like travelling to a client’s home from the office, or printing costs if you need to advertise in the local paper. This type of expense is tax-deductible, so you can disregard it from your total profits when declaring them to the tax man. Other costs, such as staff lunches or certain equipment, may not be tax-deductible but will still need to be monitored if your cashflow is to remain healthy.

Travel to and from work is not a tax deductible expense, unless the employee has to travel to a place of work they don’t usually go to. Travelling to and from places on company business is deductible, and you can claim 40p per mile if using your own car.

If you or your staff need to stay overnight in a hotel for business purposes, then you could claim this as a tax deductible expense – provided the costs are reasonable. Food, drink and accommodation are reasonable, claiming for a pub crawl around the local town is not. If it’s a place your company will use often, set up an account with the accommodation and have them send the bill directly to you.

How to keep track of expenses

The vital part of managing your expenses is to record everything. Receipts and invoices should all be kept, and ideally your costs should be tallied at the end of each working day so you know at a glance what you have spent. If you allow your employees to claim expenses, use claim forms which can then be filed alongside invoices. Business credit cards can make it somewhat easier than using expense claim forms, as the figures are all there on the statement, but you should only allow trusted staff to use these.

Keeping comprehensive records of all expenses (and any benefits your employees are given) is crucial as you will need them at the end of the tax year when filling in your P11D or P9D forms.

Recording expenses

You may have your own ideas about the best way to record your daily expenses, but if not, you can’t go wrong with an Excel spreadsheet. You could either use a blank worksheet and build up from there, or search on the internet for a template – the Microsoft Office website holds many user-created templates for you to download and start using straight away. Excel allows you to set up calculation formulae which will keep a running total for you, making it much easier to see how your cashflow is doing on a daily, weekly or monthly basis.

Bank accounts

It’s imperative that you have a separate bank account for any company money. Look for a bank which doesn’t charge high fees for business banking, and it’s a good idea to get an account with an optional overdraft in case of dire emergency. If you anticipate your expenses to be of a sizeable amount, you may wish to get a separate account for these, as a ‘petty cash’ account. It’s also a good idea to have an account with online facilities, which will make monitoring your expenses much easier.

Louise Tillotson is a financial author with Moneysupermarket, and has written a number of guides on finance in all areas from business to travel

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Should you start up as a sole trader or form a limited company?

April 26, 2010 by Raphael Coman

If you’re thinking about starting up, you must carefully consider whether to form a limited company straight away or hold off for a while and become a sole trader. 

You may think forming a limited company will save you tax and must therefore be the best route.  However, many start-ups incur considerable costs in their initial months. And even if you do not have sizeable initial outgoings, you should still factor in a realistic margin for error in your budgeting. 

You will more than likely have a “learning curve cost” if this is your first time in business or if you’re going to be operating within a sector of which you have no prior experience. In either case, you should not expect the same return straight away as your more experienced competitors. 

If you make a loss as a sole trader, it can be set against your employment income for previous years, which in all likelihood will give you a handy refund after the first tax year. If you make a loss as a limited company, it can only be carried forward and set against future the company’s profits.  If the company never makes a profit, it will be wasted.

Even if you’re more confident that your business plan will be a success, you may still profit from waiting until you form a company. As a sole trader, you can build up custom, contacts, brand awareness and reputation in the business. From a tax point of view, this goodwill can be sold to the company. Future drawings from the company can be taken in the form of a director’s loan repayment, which will be especially beneficial if you expect to be paying tax at a higher rate.

You can set up as a sole trader by simply telephoning HMRC or registering online, whereas the route for a company formation is more complex.  Ongoing accountancy costs are bound to be higher and Companies House will publish your company’s financial results for anyone to see – including your competitors, suppliers and potential clients.

Yes, if your salary and dividends are organised properly, a company can save you considerable tax. It can also limit your liability to company debts. But the decision is not so straightforward. If you want to protect your trading name, you can always form the company and leave it dormant at Companies House until you are ready to start trading.

A limited company can save you tax in certain situations, but it is not always the best way to start out. A brief review of the options with your accountant could save you time and money in the long run.

Raphael Coman is the owner-manager of chartered certified accountants Coman & Co

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PAYE – new late-payment penalty legislation for the 2010-11 tax year

April 22, 2010 by Tim Haggard

We’ve seen many new taxes come in under the radar over the past few years, but for me, this is probably the most badly thought-out, badly communicated of the lot. And once again, it’s being left to accountants and tax advisors to communicate the bad news.

If you employ staff, you’ll be familiar with the need to pay monthly PAYE and NI contributions to HM Revenue & Customs (HMRC) by the 19th of the following month.

Up until now, the legislation has been such that if you pay late, it doesn’t really matter. HMRC might write nasty letters – or even send someone round – but ultimately, there was no penalty for paying late. The trick was to get everything square by 19 May annually, and there was no comeback.

This changed on 6 April this year, when the new legislation came into effect.

Here is a brief synopsis of the new rules and penalties for those on the main monthly scheme:

  • pay your monthly liability by the 19th of the month following (this is the date by which the funds must be deposited in the bank account at HMRC – so beware of paying online on the 19th. Confirm with your bank that it will get there on time);
  • pay late once in any year and there’s no penalty – unless the payment is more than six months late – see below;
  • pay late two-four times in any year, you’ll be fined 1% of the total amount that is late (ignoring the first late payment), so, if your monthly payment is £10,000 and on four occasions you’re a day late paying, the penalty will be 3 x £10,000 x 1% = £300;
  • pay late five-seven times and you’ll be fined 2% of the total amount that is late (ignoring the first late payment);
  • pay late eight-ten times and you’ll be fined 3% of the total amount that is late (ignoring the first late payment);
  • pay late 11-12 times and you’ll be fined 4% of the total amount that is late (ignoring the first late payment);
  • if any payment is more than six months late, you’ll have a pay a penalty of 5% of the overdue amount. If the payment is 12 months late, you will pay a further 5%.

No due reflection is given to the extent to which you’re late. If you are one day late, the penalty will apply.

From an administrative point of view, the law allows HMRC to charge penalties at any stage during the tax year, or after the end of the tax year up to two years of the due date.

In 2010-11, penalties will be charged after the end of the tax year. Therefore, penalty notices will not be sent out until April or May 2011. So please don’t test the system and think you’ve got away with it – you will get a nasty shock in April next year!

 Tim Haggard is founder and managing director of My Bookkeeping Online Ltd

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Have your say! Business regulation

April 14, 2010 by Rory MccGwire

Earlier this year, entrepreneur and founder of The School for Startups, Doug Richard, published his Entrepreneurs’ Manifesto – a “declaration of rights” for small businesses.

The manifesto sets out eight demands to a new government, each of which addresses a different key concern for businesses. In the build-up to the 6 May general election, Donut MD Rory MccGwire is offering his thoughts on the issues raised by Doug Richard.

In his manifesto, Doug Richard argues that business regulation should be streamlined so that people can start businesses more quickly and run them more easily. 

I agree. But in order to achieve this, I think the law must make an important distinction between small and large businesses. They have different regulatory requirements. What is fair and suitable for one is often neither fair nor suitable for the other. 

It’s also important to recognise the natural bias in our regulations, a bias that stems from the fact that regulations are always going to favour the people who make them. So our regulatory system is heavily skewed towards the preferences of the government, the public sector, big business and the trade unions. 

The seemingly simple task of taking a chunk of time off for a family holiday is a struggle for many people running a small business, so it’s hardly surprising that they do not have time to assist in the law-making process. 

Nor do the various small business membership organisations have the power to make much of a difference. Think back to when the government raised CGT by 80 per cent without realising until afterwards that for many small businesses the only “pension” available at retirement is the proceeds of the sale of the business. A £1m threshold was hastily added, but not before it became obvious that the small business lobby groups had not even been consulted on this legislation, let alone listened to. 

Yet it’s small businesses that end up paying the price for so much of the legislation. Take a law requiring organisations to offer wheelchair access to their premises. I’m sure everyone agrees that society wants to help make life less difficult for disabled people. But few people stop to consider who will be forced to pay for the door widening. We all pay for the doors to be widened in the public sector buildings and the corporate buildings, through our taxes, pensions and savings (some of which are invested in listed shares), which seems completely fair. 

But when it comes to all the properties owned by small businesses, it’s the business owner who pays. So if I earn a £20k salary working for the local council or for a big company, I am not affected at all, but if I would have earned £20k from owning a shop, I might be left with just £17k after the adjustments to my shop front. How can that be fair? It’s not. It is merely convenient, both for the lawmakers and for the Treasury. 

It’s the same with employee rights. Nobody questions the need for new parents to spend more time with their children. But who pays? There’s no compensation to any of the small business owners who pick up these costs. In a small business, every member of staff is a key person and losing them, even temporarily, is a considerable blow. Larger businesses have the resources to cushion the blow; small businesses don’t. 

Given that small businesses employ a very considerable proportion of the workforce, I suggest that society ought to compensate small businesses if we all want to have those benefits. If not, you end up with a situation where business owners are terrified of employing women of a certain age. It’s discriminatory, but it happens; the law has massive unintended consequences. 

Sensible regulation is essential to protect customers, employers and employees. But it must recognise the reality of running a small business. 

So much of our business regulation is designed for Hewlett Packard and Rolls Royce, not for “mom and pop” businesses. But, in my view, firms with fewer than five employees should have a completely different set of regulations. If you choose to work for them, perhaps you shouldn’t have quite the same rights as employees in larger companies, simply because these rights amount to robbing Peter (the employer, who is a person) to pay Paul (the employee). But then you would be discriminating against employees of small businesses, which is clearly wrong. 

So the only fair solution is for society (aka the taxpayer) to face up to, and pay for, the cost of implementing all these rights, instead of turning a blind eye while the costs fall onto the shoulders of small business owners. 

Doug Richard is right and all the political parties seem to agree. We need to do something to enable the moms and pops to run their businesses in a more flexible and efficient way. Now let’s see if anyone actually does anything. 

What do you think? 

Rory's other Have your say! blogs

  • Have your say! Business support – Part 1
  • Have your say! Business support – Part 2
  • Have your say! Business support – Part 3
  •  

    What do you think about the regulations affecting small businesses? Please leave your comment below.

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    Budget 2010 – how will it affect you?

    March 25, 2010 by Raphael Coman

    With the general election imminent, it’s hard not to see the most recent budget as strongly political. A number of tax incentives were announced, mainly to benefit the largest groups of taxpayers, but paid for by rises affecting the wealthy.

    There were no further announcements on income tax, National Insurance or VAT. Although, as previously announced, a 50 per cent top rate of income tax will be introduced from 6 April 2010 on incomes of more than £150,000. On the same date, a reduction in personal allowances will start on incomes of more than £100,000. Finally, a 1 per cent increase in National Insurance is due to take effect from 6 April 2011.

    First-time buyers escape stamp duty

    The stamp duty threshold will be raised for first-time buyers from £125,000 to £250,000. As the threshold was raised at midnight last night, almost all affected buyers who have not yet exchanged will benefit. The stamp duty rise will take effect for the next two years, and could result in tax savings of up to £2,500, compared with the previous threshold.

    Wealthier homeowners will fund the rise. There will be a permanent increase in stamp duty from 4 per cent to 5 per cent on house purchases over £1m.

    Tip: Where possible, consider negotiating the asking price to below the threshold by negotiating extras such as curtains or garden furniture in a separate deal.

    Good news for SMEs

    From October, there will be a business rates cut. This will result in an exemption for properties with a rateable value of less then £6,000 and an increase in small business rates relief for properties with a value between £6,001 and £11,999.

    The annual investment allowance will be doubled to £100,000. The relief – which allows a 100 per cent tax deduction for new capital expenditure – will be welcome by small and medium-sized businesses in particular.

    The lifetime limit for entrepreneur’s relief will be doubled, with the effect that the first £2m (previously the first £1m) of gains will be taxed at an effective rate of 10 per cent. Contrary to wide predictions, Capital Gains Tax did not rise with the Budget, but will remain at its historically low level of 18 per cent.

    Tip: It continues to be a good time for businesses to invest in growth. The difference between the top rate on income tax at 50 per cent and Capital Gains Tax rate at 18 per cent provides a clear incentive for investment in business expansion.

    The Chancellor announced a 15 per cent increase in the number of government contracts that will be awarded to SMEs.

    The two state-subsidised banks, RBS and Lloyds, will lend a further £94bn, of which at least half will be to small and medium-sized firms.

    The Chancellor will set up an investment bank with £2 billion of equity to invest in low carbon industries such as wind farms.

    The planned hike in petrol duty by 3 pence will be staggered, so that there will be a 1 pence rise in April, a further 1 pence rise in October and the final 1 pence rise in January 2011.

    Good news for savers

    As announced in the pre-budget report, the ISA limit will be raised from £7,200 to £10,200 from 6 April. The Chancellor also announced in this Budget that the limit will rise in future years in line with inflation.

    Tip: If you have not yet used your ISA allowance there are just a few days before the end of the tax year to use the allowance before it is lost.

    The wealthiest targeted

    The one-off 50 per cent tax on bank bonuses has raised more than £2bn – double the amount forecast. Further attempts to increase tax revenue from higher income groups were also announced.

    The inheritance tax thresholds will be frozen for four years at £325,000. If there is inflation, this will amount to a real term reduction in the threshold.

    There will a crackdown on tax avoidance through agreements made with Dominica, Grenada and Belize.

    Tax credits rise

    Families with one and two-year-olds will receive an additional £4 per week in child tax credit from 2012. The number of hours needed to qualify for working tax credit will be cut for the over 60s.

    Tip: Consider making a protective claim for tax credits. Your tax credits claim is based on the prior year unless there is an increase in your income of more than £25,000. Alternatively, you can claim for your assessment to be made on your current income level. Careful planning can ensure you derive the maximum benefit from the system.

    The tax system is constantly changing and it is important to review your investment plans, cashflow forecasts and wealth management in the light of new rules and regulations.

    Raphael Coman, founder of south London-based Coman & Co, is a chartered certified accountant with many years' experience gained at leading, national accounting firms. He specialises in taxation and small business accounting and offers personal tax advice to business owners, managers and contractors.

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    Year-end tax planning for start-ups

    March 22, 2010 by Raphael Coman

    Planning before the end of your accounting year could reduce your tax bill and improve your cashflow. With 5 April fast approaching and many start-ups reaching the end of their year on 31 March, here are my ten tips for year-end tax planning:

    1. Bring forward costs and get tax relief a year earlier. Be careful though, because some expenses have to be spread over tax years, even if you paid for them now. Also keep in mind that tax rates are increasing next tax year, especially for higher income groups.
    2. Make your investment in the business before the year-end and enjoy the reduction in your tax liability a year sooner. Businesses are still entitled to 100 per cent tax relief on most capital expenditure of up to £50,000 per year.
    3. Delay invoices. If possible, plan larger jobs until after the year-end and you will delay payment of tax thereon for a further year. Be careful though, because you must account for tax on fees built up through work in progress.
    4. Value stock. Now is the time to do a stock take to assess write-offs. Stock is valued at the lower of its cost and its net realisable value.
    5. Consider changing your year-end. If your profits have been going down recently, then you could benefit from extending your year-end towards 31 March. If profits improve over the next twelve months, you will delay tax on these profits. Moreover, any profits you made when you started the business could be offset to further reduce your tax bill.
    6. Plan when to take profits out of the company. Any profits for the current year, plus any undrawn profits for previous years, can be taken as a dividend. If you are already a higher taxpayer this tax year, you could delay paying a dividend. If you may become a higher taxpayer next year, you could bring forward the payment. If your spouse is a shareholder in the business, effectively, you have two lots of personal allowance and basic rate to keep taxes low across the family.
    7. Use your ISA allowance. Up to £10,200 for the over-50s and up to £7,200 can be invested in an ISA for the year to 5 April 2010. Income and gains in an ISA are tax-free. Any unused allowance cannot be carried forward, so there are only a few days left to take advantage of the allowance.
    8. Realise capital gains. You can realise capital gains of £10,100 each tax year before you are liable to pay tax. A capital gain could arise on your shares, second home or buy-to-let property.
    9. Be aware that it is widely predicted that taxes will rise with this year’s budget. Capital gains tax is at a historically low level of 18 per cent, and many are predicting that it will increase to 25 per cent or more. Cashing in your investments or transferring them to someone else (other than your spouse) now will ensure you are taxed at the current rate.
    10. Assess whether to change your business type next year. Becoming a sole trader is a cheap, simple way to start – and tax efficient, if you made an initial loss. Now could be the time to go limited or form an LLP, especially with the upcoming rises in tax and National Insurance.

    Ray Coman,  Coman & Co Tax Accountants (specialising in helping start-ups to succeed through quality accounting and tax advice)

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    Tax tips for business mums

    March 12, 2010 by Amy Taylor

    If you're a mum in business, there are a number of areas that could be of benefit to you. As well as making sure you are claiming Child Tax Credits, you could try the following:

    Not paying Class 2 National Insurance Contributions
    Currently £2.40 a week, Class 2 National Insurance Contributions don’t have to be paid if you earn below £5,075 in 09/10, but make sure you understand that you will be giving up rights to incapacity allowance, basic state pension and maternity allowance. Claim a deferment and you can save £2.40 a week (09/10 rate). You are eligible for state pension anyway if you have children under 12. Make a claim on http://www.hmrc.gov.uk/forms/cf411.pdf.

    Investing in The Child Trust Fund
    The Child Trust Fund is available to all children born on or after 1 September 2002. The government will give you a voucher for £250 which you can invest in a Child Trust Fund savings account of your choice, and they will give you another £250 when your child is seven. If you have a relatively low household income, you may also receive another payment. You, your friends or family, can top up the fund by up to £1,200 annually and there are no taxation impacts. The fund will be available to your child when they reach 18.

    Setting up a pension for your children
    An even better place to invest for your child’s future could be in a pension. Obviously this is a long term investment and would not be available from age 18, but many parents may consider that an advantage. Stakeholder pensions are available to non earners and children, and you can invest £2,880 a year, which is then topped up to £3,600 by HMRC.

    Making sure interest on savings accounts is tax free
    In most cases, your children should be receiving interest on their savings tax free. If this is not the case, complete form R85 and take it to the bank to make sure interest is paid tax free.

    Involving children in your business

    1. Give them shares in your company.
      If you are incorporating your business, it could be worth giving your children some shares whilst they are not worth very much. If you decide to give them some shares later when they are worth more, the transfer could be subject to capital gains tax. However, you should bear in mind the voting rights of the shares, and the proportions gifted to make sure you are not at risk of undue influence from your children at a later date. You should also be aware that any income derived from a parental gift is taxed over £100, so any dividends you made would be taxable in your hands.
    2. Employ them.
      When your children are old enough (current legal guidance indicates age 13), there is nothing to stop you employing them in your business. There is no requirement to pay your family national minimum wage in a family owned business and their salary will be tax deductible. Not only that, but they will have their own personal allowance of £6,475 (09/10) and hence if you pay them at that level, they will pay no tax on it. From web sites, to book-keeping, to filing and despatching goods, there are many ways that your children could help you grow your business and learn valuable skills at the same time.

    Amy Taylor Accountancy 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 by Amy Taylor Accountancy.

    Amy Taylor, Amy Taylor Accountancy

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    Organisation – the key to making tax less taxing

    February 26, 2010 by Anita Brook

    Tax is never a popular subject – made even less so by recent revelations that HMRC has got many of our tax codes wrong, meaning excessive charges for some. Mistakes by HRMC aside, ‘tax doesn’t have to be taxing’, as the saying goes. If small firms take the time to keep their books in order throughout the year, a mad dash at key dates in the taxation calendar can be avoided.

    2010 has only just begun, so now is the perfect time to turnover a new (bookkeeping) leaf. Start by buying yourself some filing equipment, with different folders for sales invoices, paid and unpaid bills, bank statements and VAT returns, plus wages, if you have staff.

    Now you have some inviting looking new folders, go through your in-tray – at least once a week – and put all your bits of paper in the appropriate place. If you set aside a small amount of time to sort out your books, weekly – or even daily – it shouldn’t become too much of a chore. Bookkeeping needs to be part of your routine, like reading emails, otherwise it can be all too easy to find something else to do instead.

    Keeping accounts isn’t just sensible, it’s a legal obligation. Companies must keep all records relating to their VAT returns for a minimum of six years after the tax year to which they relate. As a minimum, you must record any income earned or expenses incurred by the company and retain all related documents, including receipts, cheque stubs, invoices, bank statements, PAYE records, etc.

    To get a clear picture of where your money is going, your transactions must be recorded in a meaningful way. You should give your ‘expenses’ record a sheet of its own, with columns representing categories such as ‘rent’, ‘utilities’, ‘travel’ and ‘stationery’. This will give you an ongoing sense of where you might be over-spending, which can help you to cut unnecessary costs

    Why rely on books or bits of paper when there is a wide variety of accounting software available? For a more simple and cheaper solution, an Excel spreadsheet is a perfectly useful tool for keeping records on your computer.

    Keeping your records on a spreadsheet or using bookkeeping software enables you to see your total transactions in an instant. You can also search for a figure among your costs should a mystery debit appear on your bank statement and even produce projections based on the average transactions made in previous months.

    You should be using your bank statements as a reference point, checking every figure in your bookkeeping records against transactions on your bank statement. This is a great way to identify missing receipts, while giving you a consistent monthly deadline to follow for getting your records in order.

    Make sure you note all key deadlines for filing with HMRC. Set reminders on your computer, so you don’t have to rely on remembering to check your diary. The next one to note is the PAYE deadline on 19 May, when employers must register with HMRC to file online. HMRC is supplying free software so small businesses can file their employee data securely. For more information visit the HMRC website.

    If you really can’t commit to the above, it may be time to call in an experienced bookkeeper. Of course, there will be an expense associated with this, but since it could free up your time and give you better information with which to make business decisions, it could be worth the investment.

    Anita Brook is director of chartered certified accountancy firm Accounts Assist. Follow her on Twitter.

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    Online filing tips for the January deadline

    January 15, 2010 by Julian Shaw

    The deadline for submitting your tax return is fast-approaching. Below are some tips to help make this an easier process.

    31 January deadline

    If you have a tax return and do not file it on time you will be fined £100.

    If the return was issued in April 2009, or any time up to 31 October 2009, it must be submitted by midnight on Sunday 31 January 2010, with a very small number of exceptions.

    (If you were sent a return after 31 October 2009, you have three months from the date it was issued. You can file it online or by paper, and the guidance below does not apply to you.)

    If HMRC receive your tax return after 31 January you'll get a late filing penalty of £100. 

    Avoiding Penalties

    If you pay all the tax you owe by 31 January you will not need to pay the penalty. 

    Submitting your tax return

    You will now need to send your return online. If you send in a paper version at this stage, even before 31 January, you will be fined £100.

    If you have previously filed online you can use the same system as last time.

    You will need your user ID, which was sent by HMRC when you first registered. If you cannot find it, go to the HMRC online filing site where you will be able access 'lost user id' or 'lost password' services.

    You will be asked a number of questions, following which a replacement user ID and password can be issued. These may be sent online or by post. If you think you may have lost the details, give yourself plenty of time to get a replacement.

    If you can find neither ID nor password you should contact the Online Helpdesk.

    Registering to file online

    If you have not previously filed online, you will need to register to obtain an activation code. You will not be able to file online without this code.

    The code will be posted to you, and to ensure you receive it on time you must register by 21 January 2010.

    Tips for online filing

    There can be many people trying to file at the same time. In 2008, 200,000 people filed on 31 January. Try to use quiet periods.

    HMRC provide year round online services, 24 hours a day. Avoid delays by accessing them on weekdays after 5pm or before 8am.

    There may be maintenance issues. Check the HMRC site for scheduled downtime.

    Use the HMRC website for step-by-step guides, and also the built in help available in free HMRC software.

    Visually impaired users can access specific help.

    Paying your tax

    As well as filing your return, whether paper or online, you must pay tax due for 2008-09 by 31 January 2010.

    Direct Debit payments are now possible, provided you have registered online. Paying this way allows you to make a payment as soon as you have worked out what it should be.

    HMRC now kindly let you manage your finances by setting up regular payments towards your next bill.

    Exceptions to online filing

    HMRC allow you to submit using a paper tax return after 31 October if:

    • Their software cannot handle it, for example non-resident companies.
    • You have been told that you cannot!

    Julian Shaw

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    How to set up a business at home - regulatory

    November 18, 2009 by Tim Haggard

    My first blog post on setting up a business at home proved popular - I thought I would follow it up with some tips on the regulatory side to working from home.

    1. Decide whether to trade as a sole trader or to set up a limited company.
    2. Incorporate a company using a formation agent (e.g. @UKplc) or an accountant. This is easy and you should not have to pay more than £150 - including disbursements.
    3. As a sole trader, you will need to register as self employed with HM Revenue & Customs.
    4. You will be able to offset a portion of your home costs against your profits. This is a great way of reducing tax.
    5. VAT registration – this is compulsory if your sales are greater than £70,000. You can register voluntarily if wish to reclaim VAT suffered on purchases. It’s a complex area and you should seek the advice of an accountant. Make sure your accountant is set up to register and file returns online for you.
    6. PAYE registration – you will need to do this if you plan to pay yourself and/or your staff a salary. Again, use an accountant and make sure that the accountant is set up to make all the necessary submissions online.
    7. Home insurance – make sure that your building and contents policy covers you for working from home. Similarly, make sure that your car insurance covers business use. There should be no/minimal extra cost.
    8. Liability insurance – if you need it, you might want to make sure that it covers Public Liability Insurance at your home, particularly if you plan to regularly host clients, suppliers and/or staff.
    9. Business Rates – there is an element of scale to consider here – you on a laptop on the sofa is not a problem. Five staff turning up every day to work in the spare-room may be. If in doubt, check out your local council’s position.
    10. Registered Office – if you set up a company, you will need to have an “official” address. If you use your home address, you will need to display the company name outside your front door. The sign can be business card size. Alternatively, use your accountant or virtual office service.
    11. Make a note in your diary of the dates and deadlines that matter – particularly on the submission of official documents - because you get fined if you are late.

    I'm always looking for new topics to blog about so if you have any suggestions - do get in touch or leave a comment below.

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