Saturday, 20 December 2008
This means that HMRC must now enable firms facing difficulties to spread their tax on a timetable they can afford.
This will apply to all business taxes. VAT, corporation tax, income tax and national insurance. And not for just for three to six months but for as long as they need.”
So How Does This Affect Us?
This now means that many businesses, who are struggling financially, do not have to get into difficulties paying their tax or VAT liabilities.
If you are going to struggle with your cash flow and have some payments to make to HMRC then make use of this service – now.
They will not make any surcharges for late payment as they would normally do, but there will, of course, be an interest charge.
The Business Payment Support Service however only applies to amounts that are about to become due, or are just overdue. They cannot deal with outstanding overdue payments where HMRC have already contacted you about payment. There are separate provisions in place to deal with the longer term debts, but, again, these are considerably improved on the original arrangements.
More details are available at: http://www.hmrc.gov.uk/pbr2008/business-payment.htm
What Do I Do?
Call 0845 302 1435 and talk about your circumstances to one of the advisors. They promise to give you a decision in about 10 minutes for straight forward cases.
What Do I Need To Do To Prepare?
You do need to do a little homework first. They will need your tax reference number, details of the amounts that you will have trouble paying and, in their words, “basic details of your businesses income and outgoings”. This really means you need to have done at least a basic cash flow forecast.
Before you call, spend a bit of time forecasting your cash flow out as far as you need to, so you can see with a good margin how quickly you will be able to repay the amounts due. There is no point in agreeing a deal that you cannot achieve, so spend some time beforehand getting to grips with where you are.
The Business Payment Support Service do have a mandate to resolve all calls within 4 days, although their aim is to deal with them when you call and put in place a ‘time to pay’ deal. It is critical that you are prepared before you call as this will give you the best chance of getting a deal that works for you.
Tuesday, 9 December 2008
More than 1 month but not more than 3 months - £375 (presently £100).
More than 3 months but not more than 6 months - £750 (presently £250).
More than 6 months - £1,500 (presently £500 between 6 to 12 months, £1,000 over one year).
Additionally if you were late filing in the previous year (and the previous financial year had begun on or after 6 April 2008) the above fines are doubled.
The new fines also apply to flat management and dormant companies.
Monday, 24 November 2008
- VAT is to be reduced from 17.5% to 15 with effect from 1 December 2008. This will last for 13 months, until 31 December 2009, when it will revert back to its current rate.
- The temporary £120 allowance for those who lost out when the 10% banding was scrapped is to be made permanent, with the amount rising to £145.
- Pension credits will increase from £124 to £130 per week for single people.
- The state pension will also increase, from £90.70 to £95.25, and every pensioner will receive a lump sum payment of £60. (£120 for couples).
- The increase in child benefit will be moved forward, from April to January.
- There will be a temporary increase in tax relief thresholds for empty properties. Also, some firms struggling to pay these, will be able to spread the timetable for payment.
- £1bn has been promised for a temporary Small Business Finance Scheme.
- An extra £100bn is being provided to help households improve insulation.
- £15m is promised to offer debt advice.
- Repossesion should be the last resort for mortgage lenders, with a 3 month grace period for those struggling to make payments.
- The Government is seeking to find a further £5bn in effieciency savings in 2010/11
- £3bn of capital spending will be brought forward from 2010/11, to include housing and road projects.
- Taxpayers with genuine financial reasons, will now be able to spread payments of both tax and VAT over whatever period they can genuinely afford.
- A proposed 1% increase in the Small Companies rate of Corporation Tax has been postphoned.
- The single most unpopular announcement in this PBR was the increase of 0.5% in all rates of national insurance, from April 2011. On the plus side, the starting point is to be raised to the level of income tax.
- Again, from April 2011, a new 45% income tax rate will be charged to all those earning in excess of £150,000 per annum.
- Alcohol, tobacco and petrol taxes will all be raised to offset the VAT cut.
- Although deferred, and reduced on original plan, new vehicle excise duties will soon be introduced.
There is no doubt there are some positive aspects to this budget, but there are some serious doubts as to
(a) The credibility of the projections, and;
(b) The actual impact of these changes.
In order to fund the VAT cuts, The Chancellor is projecting borrowings next year of £78bn, rising to £118bn in the subsequent year. (Earlier in the year, he was projecting a peak borrowing of £38bn). This is also being funded, in the main, by the increases in national insurance contributions. There are concerns that Mr Darling's growth projections are unduly optimistic, which may then impact on the government's ability to repay these unprecedented levels of debt.
In the real world, how will these changes affect the majority of us? The VAT reduction has, in the main, been greeted very favourably, but, will it make that much of a difference?
There are concerns that a 2.5% reduction will not have a significant impact on spending, especially when many high street retailers are already having 'sales' of 20, 30 or more percent already. A much bigger impact (though not a positive one) is the practical issues, such as the cost and inconvenience of changing paperwork, product prices, web sites, signs, etc etc. This is particular annoying when we know it is only for 13 months, when we shall have to go through the whole process again.
There is also the concern arising for those of us on the flat rate scheme. (See our earlier post of today).
A brave PBR, but also a risky one. Time will tell if the gamble will pay off.
Anyone concerned as to the implications of the new VAT changes can check out the HMRC Guidance notes, at the following link. http://www.hmrc.gov.uk/pbr2008/measure1.htm
Sunday, 23 November 2008
Since 1991, Bartercard has combined the latest technology and a global network of members to transform the traditional form of simple bartering into a flexible and modern business tool to meet the demanding needs of today’s businesses.
Sunday, 9 November 2008
A link to this is given in our post of 13 October, however, this document is 54 pages long, so what, if any are the key findings?
Some of the more pertinent ones are listed below:
- The 2008 report highlighted a 16% increase in businesses running from home.
- This brings the total, in the UK, to over 2.5 Million. (Out of a total of 4.7 Million SMEs in the country).
- Recent research, by O2, shows that many businesses are choosing not to renew their leases on business premises, and that 60% of those still in commercial property are considering giving it up to relocate back to a home environment.
- Home based businesses now make a significant contribution to the economy, as expressed by Professor Colin Mason, of Strathclyde University; "The popular belief that home based businesses are part time, small and marginal does not reflect the reality. The majority provide work for other people, and just over half are generating revenues of more than £50,000 per year".
- There are 5 key factors influencing the rapid growth of the home business sector:
- Reducing Costs (Primarily in terms of rent and travelling, but there are others).
- Increasing Income (Often in conjunction with another job).
- Greater Demand (More requirments for the niche products and services they provide).
- Lifestyle Choice (Offers freedom and flexibilty, thereby fitting in with family commitments).
- Advances In Technology (Allowing / assisting the increase in cost effective tele working).
- This popular way of working shows no sign of slowing, with 71% of home based professionals believing they can grow or maintain their business levels throughout the current economic downturn.
- The most popular ideas for entering into this market sector are currently via franchises, and the number of opportunities in this area are likely to rise significantly in the coming months.
- Not all business for the home based Entrepreneur is locally sourced. Back, once again, to Professor Colin Mason, for words of wisdom; "Contrary to what might be expected, home based businesses are not excessively dependent on their local market for sales: only 47% derive more than half their sales locally, compared with 56% for other SMEs. Indeed, home based businesses are more likely than other SMEs to derive a high proportion of their sales from regional and UK markets".
- 82% of home based business owners responded that technology was either critical, or very important as a factor, in enabling them to work from home.
- A further 67% felt that technology had helped them to attain a better work / life balance.
- So. What about the future? When asked what they would most like to see in their area, home businesses replied, in the majority, that they'd appreciate more events and networks tailored for their specific needs. Physical infrastructure (hubs live / work units, professional meeting space & enterprise units) came a close second.
The report is a comprehensive look at the home business sector, and includes 14 pages of survey data, giving a further insight into the world of the home based business owner. It's a sector of the market we ignore at our peril.
You can check out the Home Business Report 2008, in full, by clicking on the heading, at the top of this article.
Thursday, 16 October 2008
Olivia Willcocks is the Managing Director of Waypoint Systems and here, she shares her 10 top tips to check that your website is working for you.
(1) Ensure your website is up to date.
(2) Manage the content yourself.
(3) Make sure you know how well your website is working for you.
(4) Make sure you are in control of the metadata on each page.
(5) Purchase similar domain names.
(6) Feel comfortable with your website supplier.
(7) Ensure your website has synergy with the other elements of your marketing mix.
(8) Use a bespoke CMS or e-commerce element that works for you.
(9) Does your website pass W3C standards.
(10) Publish your website.
For more information on anything covered in this article please contact Olivia A Willcocks (firstname.lastname@example.org) or alternatively check out their website http://www.waypointsystems.co.uk/.
Wednesday, 15 October 2008
Monday, 13 October 2008
Later in the week, a the 2008 Home Business Report is due to be released also, and, amongst its contents, 16 case studies of expanding small businesses, including ourselves, 1st Addition Accountancy Limited. I shall be publishing this report to our blog, as soon as it is released.
In the meantime, please feel free to check out the Small Business Week website, at; http://www.sbw08.co.uk/
It's also worth checking out the State of The Small Business Nation report, at; http://www.visualwebcaster.com/imageslides/51544/2008%20State%20of%20the%20Nation%20Report.pdf
Thursday, 9 October 2008
a) If after your death, your spouse/partner re-marries; their new spouse could inherit everything, not your children.
b) If you have children from a previous relationship; after your death your partner could change their Will to disinherit those children.
c) If you end up in a care home, your assets can be seized by the local authority to pay for your care.
Estate Planning is too important an area to risk making a do-it-yourself Will or to put in the hands of unqualified and unregulated so-called ‘will writers’.
A properly prepared Will can protect your family from all of the above scenarios.
You may also have specific wishes or situations which may need to be taken into consideration e.g. a disabled child or a beneficiary with acute behavioural problems or addictions. It would be potentially harmful for these people to benefit directly from your Will but you may not want to disinherit them completely.
Also you may wish somebody such as a partner or elderly relative to be granted the right to live in your property after your death but to not necessarily inherit it. These situations can be dealt with within a correctly drafted Will.
Of course within your Will you can name the people you want to do the important jobs such as who should take over parental responsibility for your children if you should die while they are still minors. You will appoint people to look after your cash and other assets also.
Furthermore, if you have an accident or worse still, become mentally or physically incapable, who’s going to arrange your finances and pay your bills? What if it becomes desirable to sell your home? Even if your husband/wife is still alive and well, they cannot give your consent to do any of these things.
A Lasting Power of Attorney document ensures all these matters are dealt with and stops the wrong people gaining control of your finances.
For further advice on any of the above topics please contact:
Peter Savage on 0800 781 9371
Sunday, 28 September 2008
Thursday, 25 September 2008
Sunday, 7 September 2008
Tuesday, 2 September 2008
- Adult rate (workers aged 22 and over) will increase to £5.73.
- Development rate for 18-21 year olds will increase to £4.77
- Development rate for 16-17 year olds will increase to £3.53
The rate for accomodation offset will increase to £4.46 per day (weekly maximum £31.22).
For more information about the changes, or for general advice, call the NMW Helpline on 08456 000 678, or visit http://www.berr.gov.uk/employment/pay/national-minimum-wage/index.html
Monday, 25 August 2008
Personal Allowances for the 2008-09 tax year will be increased, by £600, to £6,035 (from the current £5,435). This will coincide with a reduction of the basic rate tax band limit from £36,000 to £34,800. (This is the income level, over which, we will pay higher rate tax).
If you are an employee, the changes will take effect on the first day on or after 7 September 2008, and will be back dated to the beginning of the tax year (April 2008). As self employed, these changes will be reflected in our 2008-09 Self Assessment Tax Return.
The changes will equate to an annual tax saving of around £120 per year (or £2.30 per week). Due to the backdating of the changes, depending on the date and amount they are paid, most employees will see a £60 or £70 reduction in their tax bill in the month of September or October respectively.
These changes are designed to benefit basic rate tax payers only. Higher rate tax payers will see no benefit at all, as the higher rate tax threshold has been reduced proportionately to counteract the increased personal allowances.
Sunday, 24 August 2008
Although these emails appear to bear all the right logos and details, we should all be aware that they are fake, and, as with all such emails, we should never respond to an email that asks for personal information.
Whilst it is quite conceivable that HMRC may send out emails, from time to time, they would never do so requesting login names, passwords, bank and / or credit card details.
If you suspect you may have received one of these emails, under no circumstances should you follow any links within the mail, or disclose any of the information requested. Forward the mail to HMRC, at email@example.com. Although HMRC can't, obviously, reply to every email, it will help with the reduction of online fraud.
If you have reason to believe to suspect that your personal details have been stolen, you should report the incident to your Internet Service Provider, as they are able to close down sites that subsequently prove to be fraudulent.
Friday, 15 August 2008
1) Contracts, Letter of Engagement or Head of Terms
It may sound obvious but, whether you’re selling a service or product, do you have a document which your client has signed to say they would like to enter into an agreement with you? The detail of the item being purchased along with the cost and timescales should also be included in the document. Should your client dispute the level of service or goods provided, you can refer to this contract, letter of engagement or Head of Terms to ensure you have delivered what was agreed at the price agreed. This way your invoices are less likely to be disputed.
How will you deliver the service or product? What processes does your business need to have in place to ensure the smooth delivery? Do you have the necessary project management quality systems in place? How many times have you ordered a product and something has arrived broken or missing? Having the right business processes in place can and will save companies money in the long term. Business processes should be tailored to your business and that doesn’t mean lots of endless form filling. Remember, only happy clients will signoff the service or product. Unhappy clients will leave your invoice to gather dust on their desks!Where a business is providing a service, whether a one off service or one which will take several months to deliver, think about when you will invoice the client. Could you ask for staged payments rather than wait until you’ve delivered the service before invoicing?
Once you’ve agreed the invoicing schedule for each client, put these into one document to make it easy to refer to and which will clearly state all your client invoices to be issued each month making it easy to know who to invoice when.
Don’t leave it until the end of the month before drafting and issuing your invoices. Invoice your clients as soon as you’ve delivered the product/service or at the agreed stages during the project.
Think about who drafts and issues the invoices, are they the right person to do this? What business processes do you have in place to ensure your invoices are issued efficiently? Do they include all the expenses i.e. travel, postage etc, you have incurred? These costs really can mount up over 12 months and, by not passing on these costs to your clients, will result in an erosion of your profit!Explore whether you can issue invoices earlier in the month. If you only invoice at the end of the month and your terms are 30 days, it is likely you will not receive payment until the end of the following month, i.e. when you have to pay salaries and VAT. So by issuing as many invoices as you can during the month, it hopefully means you will have monies coming in during the month hence reducing your business risk and for the need of overdrafts or loans.
Who does this task in your business? If you are a Managing Director or a Director, is this a good use of your time and skills? Are you effective enough i.e. are you to close to the situation, do you think you might upset your clients, so don’t talk to them about overdue monies owing? Are your clients settling invoices within the agreed business terms? If not, then why not? It is very important to think about this area and to be honest.
If you have a member of staff performing this role, review how effective they are. Have they received proper training? Do they actually chase clients for payment? I have come across many companies where staff don’t like chasing for monies owed and have even admitted they actually don’t do it, keeping busy on other tasks in order to ‘get out’ of having to pick up the phone.
In this current climate, clients are unlikely to settle invoices if they are not being actively chased. This will become more apparent over the coming months, and it’s very important for businesses to keep on top of debtors.
If a client consistently takes longer to settle invoices i.e. not as agreed in your business terms, then ask yourself the question: Do I want to continue to do business with them? The answer may be yes, but you are then making the conscious decision. By ensuring you have the right business processes and people in place performing the right tasks, it reduces the need for you to make this decision. A business can only afford to have 1 or 2 clients who may take longer to pay than the agreed business terms. If you have more, you need to give this some urgent attention.
5) Cash Flow
Can you project your cash flow at the end of any one week or month? Do you know when monies are due in and when payments need to be made?
By monitoring cash flow based on sales, purchases, direct debits and standing orders, you can easily see if your business is generating enough sales or whether your overheads are too high. Monitoring cashflow will give you an early indication that more sales are needed or a reduction in overheads is required. You can then make an informed decision as you are in control. So many businesses don’t have this system in place and are put in a position of taking large overdrafts or loans which only further impacts on the business.
Reading the above tips may well lead us to ask ourselves the all important question; "Am I in control of my business?" If the answer is; "Yes" then you probably have a healthy business. If not, then what are you going to do about it?
Sunday, 3 August 2008
1. Personal Skills
4. Marketing Skills
6. Financial Skills
Tuesday, 22 July 2008
1) Arm yourself with information
2) Consider how much of the work you want to do
If you are not so confident, find a mortgage broker. Ask your friends and family if they can recommend someone. Perhaps do a Google search for mortgage advisers in your area and find out what ‘word of mouth’ has to say about them.
3) Narrowing down the options
Find out if the adviser charges fees. Charging a fee does not mean the advice you receive will be any better.
Ensure you choose an adviser you feel comfortable with. You need to trust them and feel confident they are going to find the best deal for you.
4) Adverse credit?
5) Keep ALL of your options open
6) Protecting your mortgage
As some lenders will only deal with you directly, do some research of your own as well. If you find a great PP deal that beats anything your adviser suggests, then ask your adviser to compare the cover. Again, a good adviser will be open and honest with you even if it means you take protection cover out elsewhere.
Monday, 21 July 2008
As with many other regular bills, wouldn’t it be great if we could spread the payments over a number of months, to help us to budget more effectively.
As accountants, we are dealing with more and more ‘time to pay’ arrangements on behalf of our clients.
HM Revenue & Customs have no plans to formally relax the rules by giving companies extensions on paying their quarterly VAT bill. They have, however, confirmed that businesses do, subject to certain criteria, have the option to spread the payments.
So, what are the criteria?
As soon as you realise you need to make a payment arrangement, you should contact your local office immediately. Alternatively, you can contact the Payment Helpline, on 01274 539 628, during office hours.
Making a Proposal
If you agree to pay the amount in full, within 28 days, no further action is required.
If you require longer, you will need to provide details of;
• Your savings and other assets, for payment arrangements of up to 3 months, and;
• Your income, spending, savings and other assets, for payment arrangements longer than 3 months.
HMRC will consider any payment arrangements you request. If you feel they’ve rejected it without considering it properly, you can make a complaint, but you can’t appeal against their decision.
Things to Remember
• HMRC will only entertain payment arrangement proposals if all returns (whether VAT or tax) are up to date.
• You will have to pay interest on any tax or VAT paid late. The current rate is 8.5% PA
So, although HMRC don’t really like it, and you may have to pay interest, and provide additional information, this could be an invaluable means of budgeting your VAT payments, thereby keeping the wolf from the door.
Free advice on arrears and dealing with HMRC is available through the charities; Citizens Advice Bureau, and TaxAid, by following these links.
Citizens Advice Bureau
If in doubt, always seek the advice of these agencies, or your own accountant.
Saturday, 19 July 2008
Often, when we work from home, our house will have a dual purpose, as both a business premises, and a personal residence, so how does this affect our mortgage?
The simple answer is that, in most cases, it won’t.
Although we may need to notify our insurers, simply working from home is not something that mortgage companies generally need to be aware of.
The implications for buying a house will depend on its current usage at the time of purchase, as well as the level of business undertaken there.
If, for example, we buy a house with extensive outbuildings, as long as they are not currently used for business, then we will simply need a standard domestic mortgage. What we do to the buildings after that, is not relevant, until we come to sell or re finance the property. If, however, they have already been converted, say to offices, or a small retail unit, we would normally need a specialist mortgage, with dual residential / commercial usage.
This does not apply if the vendor simply ran a business from home. It is only relevant if there have been structural modifications, making the premises partly commercial.
Whilst looking at mortgages, I should just mention that it is common practice for small business owners to extend their mortgage, in order to finance a business venture. This could be for converting / fitting out our new office premises, or it could be for anything from web site design / production to recruiting new staff etc. As long as we can prove that some of the mortgage relates to our business, we can claim 100% of the mortgage interest relating to that proportion of the loan. This is something that often gets missed when completing our tax returns.
Sunday, 15 June 2008
That’s all very well, but what about the kids? Can we pay them a salary too? Everyone, including our children, has a tax / NI free personal allowance of around £5,500, so can we use this to our advantage?
The simple answer is; “Yes”, so here are a few of the basics:
The Children And Young Person’s Act states that no person under 13 years of age may be employed, other than in very specific areas, such as acting, modelling and sporting activities, so employing your 8 year old as head of marketing could just raise a few questions.
Under current legislation, the National Minimum Wage doesn’t need to be paid to workers in the family business, provided they are members of the employer’s family, and share the family home. That said, the more we can pay them, within reason the greater the expense, for tax purposes.
As with most things, common sense is the watch word here. We need to be able argue that our kids are performing tasks that are well within their capabilities. Many, these days, are highly computer literate, and may have done work for us on our web sites, spread sheets etc. Others may have helped us with despatching goods, filling mail shot envelopes etc.
So, as long as our kids are over 13, and they perform appropriate tasks, within our business, for a sensible salary, there is nothing to stop us paying them for work done, in order to reduce our business tax liability.
There is a wealth of legislation governing this, but, for most of us, it’s definitely worth some serious consideration.
Thursday, 12 June 2008
One thing that any small, home based business owner will need to know is; “What expenses can I claim for running my business from home?"
Surprisingly, there are no ‘standard’ or recognised methods of calculating these allowable expenses, although there are a number of conventions and guidelines which we, in the profession, tend to adhere to.
In the ‘good old days’ we accountants would simply claim a global ‘round sum’ amount (often about £20 - £30 per month) to cover these costs, which was never challenged by HMRC, as it was not significant or worth amending.
However, since 2004, the limit of these round sum amounts has been capped at £2 per week (or £104 per year). Anything above this rate is increasingly likely to trigger an investigation.
If we feel that the £2 is insufficient, we can claim specific costs, based on actual expenditure.
• We must actually work from home, and have a dedicated area for this work (doing the books on the kitchen table once a week simply won’t cut it)
• Expenses must be ‘wholly and exclusively’ for the business. If mixed usage (part business, part personal) the business part must be separately identifiable.
• Where an area of the house is used partly for business, and partly for personal, the expenses will be apportioned by time used, as well as floor area utilised.
What Can We Claim
The following property expenses can be claimed:
• Light and Heat
• Rent / Mortgage Interest
• Council Tax
• Water Rates
• Property Insurance
• Re decoration and repairs (internal and external)
Calculating ‘Business’ Element
As a general rule, we tend to apportion all of the above costs on the basis of floor area utilised. In reality, this may be difficult to calculate, so it is perfectly acceptable to work on the basis of numbers of rooms in the house. If, for example, we use one room for business purposes, and there are four further rooms, the business element will be 1/5, or 20% of the total running costs of the home. If we further estimate that this room is used 50% for business, and 50% personal, the percentage claimed will be halved to 10%.
Other Claimable Costs
In addition to our home, we can claim any expenses utilised ‘wholly and exclusively’ for the purposes of the business, including:
• Telephone (including line rental) apportioned by call time (incoming and outgoing). A dedicated business line can be claimed in full.
• Broadband (as telephone costs)
• Business insurance
• Repairs to business equipment
• Capital allowances (wear and tear) on business equipment. (including computers and peripherals, office furniture and fixtures such as shelving etc).
• Printing, stationery, postage and advertising
• Computer software used for business
• Travelling and subsistence costs (a whole topic in it’s own right). Subsistence relates to the ourselves only. Any entertaining of suppliers, business associates and, even, customers is totally disallowable.
• Motor expenses of running business vehicles (less any personal element).
Examples of expenses claims we can make in certain circumstances are given in the HMRC guidance manual; http://www.hmrc.gov.uk/manuals/bimmanual/BIM47825.htm
When claiming expenses relating to our home business, we need to be aware of some potential issues:
• We can claim any costs directly attributable to the business working area of our home (such as decorating the home office, installation of specialist equipment, additional utility supplies, insulation etc) However, if we treat a room as being 100% for business, then, on the sale of our house, the percentage of the sale relating to the ‘business’ area will, potentially be subject to Capital Gains Tax. This will only be an issue where a significant profit is made, as smaller gains will be covered by our annual exemption. **UPDATE** From June 2008, HMRC have announced that this will no longer be an issue, and that capital gains tax will no longer be charged where home business expenses, such as mortgage interest etc are claimed against profits.
• Most mortgage companies ask us to stipulate whether or not there is a business element to our occupation. We may need to be able to prove to them that we have separate business insurance to cover us for this.
• Running a business from home may attract the attention of the Valuation Office Agency who will determine whether or not a property will attract business rates. Guidelines for this can be found at: http://www.voa.gov.uk/council_tax/working_from_home.htm
Legislation is constantly being updated, and the only piece of advice that never changes is; Always check with your accountant, when looking to claim or calculate these expenses.
For the 2008/09 tax year, the flat rate allowance has been increased from £2 to £3 per week.
Saturday, 7 June 2008
In a number of features and articles, I have made reference to the fact that, for most of us, it will be preferable to run our business as a limited company, rather than as a self employed person or partnership, and in my last feature, I touched on some of the reasons why this might be the case, but what does it involve? Is it more work or more expensive? Will you have to have an audit, register for VAT or find a company secretary?
The latest Companies Act has now completed the task of simplifying the limited company process, by, amongst other things, removing the requirement to have a company secretary, from 1 April this year.
Other recent simplifications include:
• The audit requirement for small companies has been removed for companies whose turnover is below £5.6 Million.
• The requirement to have two directors has now also been removed.
• Limited companies were previously required to have at least two shareholders. This was, in reality, a bit of a pointless exercise, anyway, as business owners would simply issue 100 shares, 99 to themselves and 1 to their partner.
The net effect of all of this is that, from April this year, it is now possible to form and run a limited company with just one person, without the need to involve anyone else. The structure of the business, therefore, becomes as simple as that of a sole trader.
The other benefit of this is in the costs involved. The fact that most of us will never require an audit, will significantly reduce accountancy costs, and the simplified company structure means that you can now form a brand new limited company online from as little as £25.
Thursday, 5 June 2008
One of the fundamental questions when starting a new business is; “Should I run my business as a sole trader, partnership or limited company”?
In the majority of cases, it will be preferable to run your business as a limited company. Some of the benefits of doing so include:
If your business fails, your house and other assets are not at risk (unless you have guaranteed any debts personally).
Over the last few years, legislation has changed almost yearly. For some of that period, the first £10,000 of a limited company’s profits were tax free. Although this provision is not currently in force, the Small Companies Corporation Tax Rate presently stands at 21%, from 1 April 2008, for profits up to £300,000.
Although the Chancellor has now back peddled somewhat on the 10% tax band, a self employed person will pay a basic rate of Income Tax of 20% (rising to 40% from £36,000 of income) plus 8% Class 4 National Insurance. This, obviously, represents a minimum saving of 7% on every penny earned for a limited company..
The perception held by most people is that limited companies are larger entities, and this automatically gives increased credibility.
As long as you actually pay tax (in other words, you earn more than the tax free threshold, currently £5,430 per annum) then the tax benefits of being a limited company will normally be significant, and one of the biggest misconceptions amongst new business owners is; “I’m too small to be a limited company.”
To all of you I would say; “You’re never too small to save tax!”
Tuesday, 3 June 2008
Everyone has heard of Tax Credits.
We’ve all seen the Inland Revenue publicity, but the usual reaction is; “That won’t apply to me. I earn too much” or “It’s not worth applying. The Government never give anything to people like me.”
Many people, though, particularly those with young families, are surprised to learn that they are, in fact, entitled to some form of Tax Credits.
There are two main types available; Working Tax Credits and Child Tax Credits. The former is only available to families with a household income below £15,000, but the latter can be available up to a household income of £66,000.
When starting out on a new business venture, money can often be a major issue, and any extra help is always welcome. It is important to remember, also, that, for the self employed, Working Tax Credits are paid, based on NET income. Just because you have total income of, for the sake of argument, £18,000, does not mean you’re not eligible. By the time you have deducted allowable expenses, such as travelling, telephone, insurance, etc, it is quite likely your net income will fall into the qualifying bracket, and this is where a good accountant will be able to help.
Also, people who are aware that they can claim Tax Credits, often fail to do so, as they feel it’s ‘not worth it’. In this situation though, we need to look at the bigger picture. Whilst the amount of the Tax Credits received may be small, there are a number of further benefits that will make a claim worthwhile, such as free dental treatment, assistance with childcare arrangements etc.
Still not sure? Why not check it out for yourself? The Government have a Tax Credits calculator available online. Simply by entering a few basic details, it will not only calculate whether you are eligible, but also give an indication as to how much you can expect to receive. This calculator is available at
Sunday, 1 June 2008
It used to be common practice to pay a spouse or partner a small wage, in order to utilise their tax free personal allowances, or lower rate tax banding (particularly if they have no other employment).
This loophole has been partially closed in recent years, as any such salary must now be ‘earned’ by the person concerned, which can be difficult to prove when they have a full time job elsewhere.
One way around this, if you run your business as a limited company (and it is likely that you should be) is to issue a number of shares to your partner, so that they are able to receive part of the dividend paid for the year.
Under current legislation, a dividend is classed as investment income, rather than earned income, and, as such, there is no requirement to prove any involvement on the part of the partner. (Also, as investment income, it won’t be subject to National Insurance).
Alternatively, if they do actually play a part in the business (such as bookkeeping, administration or company secretary) then a salary is permitted, as long as it is at a commercial rate. One of the best ways to prove this is to ensure that they sign the odd document, from time to time, such as letters, cheques, etc.
Saturday, 31 May 2008
Briefly, we can claim household running costs as follows:
Firstly, we need to calculate the business element of the calls. The Revenue will now only accept a figure that has been calculated from at least two telephone bills from each line / mobile used over the year. In practice, this means going through the itemised bills to identify business / personal usage.
You don’t need to identify every call, but will need to calculate the business percentage of those you can.
Whilst this may seem a lot of effort, bear in mind that, without adequate evidence, the Revenue will not allow ANY costs against the business. Also, you only need to do this for a couple of bills, just to establish a pattern.
Use of Home As Office
This is a global allowance, designed to cover us for the element of the home used for business purposes.
The simplest way to carry out the calculation is to add up the annual costs (as applicable) of:
· Gas / electric / solid fuel
· Council Tax
· Contents / buildings insurance
· Water rates
Remember to keep all the bills to support these amounts.
Next, we simply count up the number of principal rooms in the house (kitchen, reception rooms, bedrooms, bathroom etc). If there are seven, and one is used for half for business, and half personal (eg spare bedroom / office) then we would allow half of one seventh.
We should remember that this ‘allowance’ is a Revenue concession, and is not supported as business expenditure in Tax Law.
Sticking to the Revenue guidance will avoid any suggestion of liability to Capital Gains Tax on the part or parts of your home you use for business.
You may have exceptional circumstances depending on your business, in which case, the calculation can be adapted. The more information you can provide, the easier it is for your accountant, and the greater the protection in the event of Revenue Enquiries.
Thursday, 29 May 2008
In other words, if turnover in a three month period exceeds £17,000, and it is likely that it will continue to do so, then registration is required immediately.
It is possible to register for VAT voluntarily, even if you are below the Registration Threshold.
Reasons we might want to would include:
* In order to reclaim the VAT incurred on large initial capital outlays at business start up. (Equipment, vans etc).
* To reclaim VAT on ongoing purchases and expenses, thereby making them 17.5% cheaper. (although we should be wary if we are mainly selling to the public).
* To improve company image. If a company is not registered for VAT, then any potential large customers will realise that its turnover is below £67,000, and may refuse to deal with such a small company, on the grounds that its continuity cannot be assured. This will be a potential issue for any of us working from home.
When considering voluntary registration, you need to be aware of who your customers are. If we are dealing mostly with business customers, then they will, in the main, be able to reclaim any VAT that we charge on our products and services.
If, on the other hand, we mainly deal with the public, they are unable to make such a reclaim and our goods and services immediately become 17.5% more expensive. Alternatively, we can make our current prices VAT inclusive, and lose out on the extra profit. Either way, this will be a major factor in choosing whether or not to register for VAT before we actually need to.