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There are many, and we cannot possibly address them all here, but we have tried to identify those we most commonly hear. Businesses, and business and personal tax affairs are complex, and the comments that follow MUST NOT be relied upon in place of specific advice. Everyone’s circumstances are different, and what may be the correct answer in one situation, will not necessarily apply in another.
We address the questions in several sections:-
|1. What trading vehicle is the best for me?|
|1. What trading vehicle is the best for me?|
Ignoring, for now, charities and other specialist situations, there have traditionally been three principal methods of conducting business.
Which vehicle will be best for you will depend upon your personal circumstances as well as the nature of the business sector that you are joining; many factors need to be considered, and these are discussed in the Section 2 which deals with planning.
There is a further trading vehicle, the
|2. The importance of planning.|
|2. The importance of planning.|
Even the smallest of businesses has many issues to consider and deal with; providing the goods or services that are core to the business, maintaining solid customer relationships, finding reliable suppliers, are just for starters. You will need to consider many aspects, the inter-relationships between them.
You set your goals, and then plan to achieve them, giving consideration to what you want to achieve, where you want to be in x years time and how, in commercial terms, you are going to get there.
Whether yours is a ‘start-up’ situation, possibly an acquisition, or, even a disposal or cessation, we have the experience to help you avoid the pitfalls.
Once the business ‘idea’ is born, planning starts with research.
How detailed does my business plan have to be?
The vital thing is to plan; how detailed will depend upon the circumstances of each case. The back of an envelope may be all you need!
But more realistically, the bigger the commitment, both in terms of finance and time, the greater the effort should be put into the proper planning. Remember – proper prior planning prevents p… poor performance!
Your business plan will help you flesh out your idea and get a better feeling of whether you are ready to go ahead.
Taking time to complete a thorough business plan before you start your business will reduce the risk of you missing something.
A plan will also be required by your bank and other lenders before they offer you credit, business loans or overdraft facilities.
It is important to outline all of the main points to give you and others a clear snapshot of your business idea, or where your business is heading.
Completing the plan will help you think methodically and sharpen your ideas about your business concept.
The plan will also enable a stranger to grasp your business idea without getting bogged down in unnecessary details.
Executive Summary. Who are you? Where do your skills lie? What experience do you have in the business sector that you are proposing to enter?
Business Overview comprising brief history of your business or why you have decided to start one, purpose of the business, products and services. Your current position, competitive advantages, strengths and weaknesses of your competitors, a brief overview of your plans to grow the business.
Business Strategy for the next year/3/5 years, your specific objectives and goals, tactics, steps you need to take, resources you will need. Outline strategic threats or opportunities in the short to medium term and outline the business core values.
Marketing – market research undertaken and marketing plans, how you will reach your customers, how you will use technology, how you will actually promote your business to clients, your marketing budget and how you will build credibility.
Team and management – structure and experience, external advisors, management systems.
Financial budgets and forecasts – Cash flow forecast, profit & loss forecast, balance sheet forecast, capital expenditure budget
What are the benefits of writing a business plan?
Many potential start-up businesses are daunted by the prospect of writing a business plan. But it is not a difficult process – and a good business plan focuses the mind as well as helping to secure finance and support.
The business plan will clarify your business idea and define your long-term objectives. It provides a blueprint for running the business and a series of benchmarks to check your progress against. It is also vital for convincing your bank – and possibly key customers and suppliers – to support you.
As important, the plan gives you a pattern to monitor actual performance against – it enables you to see – in ‘real time’, rather than well after the year end, if problems are arising. The results shown in your annual accounts or tax returns should never come as a surprise.
Having drafted your business plan, we can advise you with respect to the tax implications, and give further consideration to the best trading vehicle for you, having regard for commercial factors, business risk and your personal circumstances.
You may need to consider the impact on your business and cash flow of several different taxes; PAYE, VAT for example, as well as income tax and corporation tax.
But with taxation, there are penalties for failing to notify the appropriate authorities at the right time; ignorance of the law will not get you off the hook!
|3. Employing someone|
|3. Employing someone|
What do I do if I want to employ someone?
You must register immediately with HMRC as an employer. You will need to deduct PAYE and National Insurance from your employee’s salary at prescribed rates. If you do not do so, or make incorrect submissions to HMRC then you can be liable to heavy penalties and interest on tax and NIC that you do not pay over. You will also need to disclose and pay NIC on employee benefits that you provide to your employee.
I employ staff, what are the current National Minimum Wage rates?
From 1st October 2012 you should pay at least-
From 1st October 2013 you should pay at least-
Expect the rates to go up again in the future.
How do I pay myself?
If you are a director/shareholder of a limited company then you can pay yourself by means of a salary or by declaring a dividend which is paid to shareholders out of its profits. Advice needs to be taken about the best way to do this. After due consideration of your particular circumstances, we can advise you on the most tax efficient means of extracting profits from the company.
If, on the other hand you are a sole proprietor or partner, the wages and salaries you pay to your employees are deducted in arriving at the profits on which you are assessed to income tax. It is important to understand that what- ever you may draw out of the business on a weekly/monthly basis to meet personal living costs is NOT a wage/salary in these circumstances.
How do I know how much PAYE to pay?
As we run a payroll service, we can prepare the necessary details for filing under RTI and we will of course advise you of any PAYE liability due and when payable.
This is a potential disaster area for the unwary. At the planning stage you should identify whether the service or supplies you are going to be making are subject to VAT or ‘exempt’ and consideration to registration should be given then.
I don’t know if I need to register for VAT. What is the current registration threshold?
You can register for VAT if you’re in business and you are one of these
An individual, a partnership, a company, a club, an association, a charity, any other organization or group of people acting together under a particular name, such as an educational or health institution, exhibition, conference etc, a trust, a local authority.
From 1st April 2013 you must register if your VATable turnover exceeds £79,000 within (a rolling) 12 month period. There are a number of VAT schemes so it always pays to ask our advice on these before registering.
How does flat rate VAT work?
The flat rate VAT scheme is aimed at simplifying VAT for smaller businesses with an anticipated turnover of up to £150,000 (gross) per annum. You pay VAT to HMRC as a flat rate percentage on your gross sales. The flat rate percentages vary depending on business activity. Under the flat rate scheme you cannot reclaim VAT on your purchases and expenses, but you can on larger capital purchases of equipment over £2,000. Once you enter the flat rate scheme you are free to leave at any time, but then cannot re-enter the scheme for 12 months.
We will be happy to discuss this in more depth should you require further guidance. It can be beneficial but there are potential pitfalls.
To find out more about VAT please click here.
|5. What expenses can we claim?|
|5. What expenses can we claim?|
Can I claim travel expenses?
Yes. Travel expenses can be claimed however there are rules to be considered as your workplace must be a temporary one. A temporary workplace is one that will last less than 24 months. If you become aware that your assignment will exceed 24 months, main site travel expenses should not be claimed from this point onwards. Copies of all receipts should be retained and in the case of mileage, an accurate log should be kept.
How do I claim mileage?
HMRC guideline allowance is 45p per mile for the first 10,000 miles and 25p per mile thereafter (tax year 2013-2014) and other rates apply for motorcycles and bicycles. Main site mileage should only be claimed if the assignment is deemed to be temporary (i.e. you expect the assignment to last for less than 24 months). As soon as you become aware the assignment will exceed 24 months, any main site travel expenses should not be claimed as this will be categorized as a permanent work place.
Can I claim for my lunch?
Yes. Reasonable subsistence expenses for working away from home or your normal place of work can be claimed. Keep copies of all receipts and make sure the sum you claim is the exact amount incurred, not round sums.
Can my company provide me with a mobile phone?
Yes. Further advice on claiming for a mobile phone can be obtained from us, including what you can claim for when using your home as an office.
Can I claim for using my home as an office?
Yes. Further advice can be obtained from us.
Can the company pay for childcare costs?
Yes. Every employee can claim £55 per week from the company to help with childcare costs, as long as they are paying a registered child-minder.
Can I claim for accommodation if I am working away from home?
Yes. If you are away on business overnight, you can claim the cost of your accommodation. You can also claim expenses for rented accommodation if you need it for business purposes as long as it is not your main personal private residence.
Can the company pay my personal expenses, e.g. a suit or dry cleaning?
This is not advisable. Personal expenses paid by the company can be allocated as a repayment if the company owes you money, or can be treated as an allowable company expense but you will have to accept a taxable personal benefit, otherwise it’s a loan and accumulates a tax liability.
Can the company buy a computer?
Yes. If it is primarily for business purposes, but there may be a personal tax charge for personal use.
What entertaining can the company pay for?
The company can pay for business entertaining, but it will not be tax deductible.
Can the company pay for a staff party?
Yes. The company can pay up to £150 per head per year towards functions, such as a Christmas party. If you exceed £150 per head, then the total amount becomes personally taxable as a benefit.
Do I need receipts for expenses?
Absolutely. You must be able to provide proof of all the company’s business expense claims for a period of 7 years after the claim has been made and 6 years after the company has been wound up. This is in case HMRC decide to audit or investigate.
Can I have a company car? And if so what are the tax implications?
The company may provide you with a company car and fuel for personal use. However, this will create a taxable benefit in kind (based on the actual list price of the vehicle and not the purchase price applied to a detailed formula). Be aware of the tax implications – both for you and the company. We can help you decide if it is better for the company to provide a car, or for you to use a private car and reclaim mileage.
|6. More about limited companies|
|6. More about limited companies|
How do I form a company?
This is quite straightforward assuming that you have basic information to hand. (such as the Company’s proposed name, Directors date of birth, place of birth, mother’s maiden!). We have in-house software and we can have a company up and running in 24 hours.
How do I pay myself?
Simply transfer funds from the business account to your personal account. Payments are normally net salary, dividends or a combination of the two. But remember, salary and dividend payments should be made as separate transactions.
How much do I pay myself?
Once you’ve agreed a salary with us, we’ll provide you with a wages summary. This provides guidance on your net salary that you can pay yourself on a monthly basis. You also have the option of taking some dividends, which are paid from remaining company profit.
How often can I make a dividend payment?
Interim dividends can be paid throughout the financial year; final dividends are paid at the end of the year. Dividends can ONLY be paid if the company has a ‘distributable profit’. Payment of dividends without profit is a breach of the Companies Act 2006. Director’s face repayment of all illegal dividends and possible prosecution. Once again, it comes down to planning, and monitoring actual against planned results in order that the payment of technically illegal dividends is avoided.
How do I pay shareholders company dividends?
The first thing you need to know is dividends are paid to shareholders from the company’s retained profit after tax, so you need to make sure the payment reflects the number and class of shares held.
Can I take a loan from the company?
Yes you can, but you should look at it as a short term measure. It’s best to speak us prior to moving funds to ensure you are aware of all the implications.
Can the company pay into my personal pension?
Definitely. The company can make payments into pension plans which are a tax deductible expense for the company.
Can the company make investments?
Yes, provided they are within the companies allowed investments and objects.
When are the company’s accounts due?
If the company is in its first year since incorporation, the accounts are normally due to be filed with Companies House within 21 months after the incorporation date however this may alter if the accounting period is changed. HMRC require accounts to be filed 12 months after the year end period. After the first year of trading, the accounts are due to be filed with Companies House 9 months after the year end and with HMRC 12 months (soon to be reduced to 9) after the company’s year end.
What is corporation tax?
Corporation tax is the tax a company pays on all its profits and gains, after deduction of allowable expenses and salary. Unlike personal tax, the same rate of corporation tax is charged on income of the company and any capital gains.
What rate is corporation tax?
The rate of corporation tax for small companies whose profits do not exceed £300,000 is currently 20% (tax year 2013-2014).
When is the company’s corporation tax due?
Usually corporation tax is due within 9 months and 1 day of the company’s year end, however this depends on the company trading date. We will advise you when and how to make payment.
What is a Companies House annual return?
An annual return is a document that is filed once a year at Companies House. It provides non-financial information about the company and ensures the public record is kept up to date. Companies House require a fee of £13 to file this document electronically and £45 to file a paper version (2013-2014). We charge a little admin fee should you require assistance for filling.
Can I do other work through my company?
Yes. Most companies Memorandums and Articles allow a wide range of business activities. You can run more than one activity through a company. As long as it is legal! We can help you understand your companies Memorandums and Articles and adopt new ones where required to suit your business needs.
What is IR35?
Be aware of this! Depending upon the nature of your business, it may affect you and potentially undermine the benefits of trading through a limited company. IR35 is HMRC tax legislation that was introduced to identify contractors who are receiving the tax benefits of working through a Limited company when they are really a disguised employee of the clients.
Does my company need an audit?
Generally your company will only be required to have a statutory audit if it is not ‘small’ company as defined by size criteria set down in The Companies Act (and amended from time tto time by Statutory Instrument). There are exceptions to this, for example if you are a company registered with the FSA. You will also be required to have an audit if more than 10% of your members require you to do so. You may also wish to have an audit for other reasons, for example if you are a members body that has to submit accounts to many members or if you are an organisation of public interest.
How do I close my company?
We can help you close the company, calculating any outstanding liabilities or refund and meeting the legal requirements, culminating in your company being struck off the register at Companies House. For detailed information, please contact us.
|7. Other bits and pieces.|
|7. Other bits and pieces.|
How long do I have to register with HM Revenue and Customs once I’ve started trading?
You must notify them within 3 months to avoid a £100 penalty. If you’re approaching this deadline then contact us and we can help you get the form in on time.
How do I know whether I am employed or self employed?
This is usually a question of fact and is dependent on many factors, not just, for example whether or not you have more than one client/employer. The answer depends on your working relationship with the business with whom you are working and your contractual position with them. It is never a choice. You are either one or the other! If you are in any doubt about this do contact us as mistakes here can be very expensive.
What do I do if I think that I owe tax?
If you are an individual or a company who owes tax then you are required by law to complete a self-assessment tax return and pay over any tax due. HMRC will not necessarily tell you to do so but, not withstanding this, you could be liable to penalties and interest on outstanding tax if you do not declare such tax or do not complete a tax return within the statutory time limits.
I have money or assets overseas. What are my responsibilities here?
If you are resident and domiciled in the UK then this is easy. You must account to HMRC for everything. If you are not domiciled here then things get a little more complicated. The definitions of residence and domicile are long and complex and have to some extent been decided by case law. If you are not sure then you will need to take advice.
I think that I have paid too much tax. What should I do?
If you know why you have paid too much tax and that it is due to an error by you or the tax authorities, you should contact them by phone or in writing explaining the error and they can then normally adjust it. If however you just feel that you are paying too much tax then perhaps you should realise that we all feel like that, but take advice if you feel thing are not correct!
Do you do my invoicing?
You are responsible for invoicing, but we can provide a sales invoice template if you need one, and we’d be happy to offer guidance.
What information do I need to send you?
When we send you a letter requesting for your accounting records, we normally include a checklist to assist you, although we will advise you of this during our initial meeting.
When do I need to send my accounting information to you?
It is good practice to send records of your business transactions on time and you should send everything we need once you have come to the end of your accounting period. It is important that we receive everything in good time, to meet your return deadlines. Always remember that your records should be complete and accurate for us to provide correct services and advice to you.
How Much Tax Will I Pay?
This depends on your circumstances, we will of course explain in precise detail how we have arrived at your liability, according to legislation and offer you any assistance possible, relating to the payment of same by contacting HMRC, with a payment plan, if this should be necessary.
When do I pay personal tax?
Some income is taxed at source, for instance salary through the PAYE scheme, other income such as dividends are received net of basic rate tax. Your personal tax return compiles your total income and allowances for a tax year and determines your final tax liability or even a tax repayment. A liability is payable in up to three instalments, 31 January before the tax year end (5 April), the 31 July after the year end and a final balance on the following 31 January. This is sometimes difficult to follow but we can explain this fully.
Do I need a business bank account?
Yes. You must have a business bank account as the Limited company is a legal entity and as such requires an account specifically in its own right.
What insurance do I need?
Employers’ liability isn’t mandatory when you are the sole director and shareholder, however if you intend to have a second shareholder or employ anyone in your company it is prudent to consider employers’ liability insurance. Public liability is recommended and for peace of mind you may wish to consider professional indemnity insurance but it is advisable to check each contract you undertake, to ensure the company meets the contractual requirements. You should also consider permanent health insurance as sickness cover. Other insurances can be provided by the company including life cover and personal liability.
Is what I am planning to do “Tax avoidance” or “Tax evasion”?
Tax avoidance is where you use legitimate and legal means to use the tax system to your best advantage. Tax evasion is where you go outside the law to gain an advantage. In general terms if you are doing something that you do not wish to be disclosed to the tax authorities or that you hope they will not find out then you are treading on thin ice and should think carefully about what you are doing. If you have any doubt then you should urgently seek advice.
|8. About us.|
|8. About us.|
Is the first meeting really for free with no obligation?
Yes we are happy to meet you to discuss your business affairs at no obligation. We also make great coffee!
I’ve just had my accounts done and don’t need an accountant until next year, so is there any need to contact you now?
We can’t over emphasize the importance of tax planning at an early stage, not crisis driven advice. Ideally you do tax planning before the year even starts but after that, the earlier the better. The same is applicable to all areas of advice and we are about helping you change the future, not just reporting what has already happened.
Will you come to visit us for an initial consultation?
Yes. It often helps to see your business, books and records, etc at first hand and we are always happy to invest our time without charge to show you what we can do. Of course, if you prefer to visit us, that’s fine too.
When and how soon can you come to see us?
When’s good for you? Let us know and we’ll do our utmost to help. If you need to see somebody urgently, we’re always out and about and can arrange to see you very quickly. We offer evening and weekend meetings. We can also come to you if that is what you prefer.
You seem to be offering so much that I’m just not used to from my present accountant. How do I know you will deliver?
All we can say is that as accountants, you’d expect us to be a bit analytical, which is true. As such do you really think we would offer you something we couldn’t deliver! Our clients are used to this level of service. You are also more than welcome to speak with some of our existing clients who have the experience of our service.
Are your fees expensive?
No! We offer fixed fees linked to the value of what we provide. We’re not always the cheapest and as with many things in life the cheapest is often the most expensive in the long run. However, we are not expensive and we offer excellent value for what we provide. Most importantly we never undertake work without agreeing the fee arrangements in advance so you always know where you stand.
How Much Is It Going To Cost Me?
Your initial consultation will be free, as will your transfer of documents if you are moving from another accountant. As with ALL accountants our fees depend upon the level of expertise and time necessarily devoted to your affairs. We will negotiate fees which are amicable to both parties, payable on a monthly basis, to assist with your cash flow.
Will I get charged for making phone calls?
We don’t charge for calling us, you are welcome to phone us but we always appreciate if this opportunity is not abused.
Is your fixed quote guaranteed for more than one year?
We’re not in the business of providing low quotes just to get your business for the first year and then raising the fees. We want you as a long term client who trusts us to do what we say we will do. We quote what we anticipate to be a fair fee for the value provided and would only anticipate normal inflationary increases if the work stays the same. Very occasionally there may be reasons why the amount of work involved exceeded what was expected but we would sit down and discuss these with you. In some cases, where it is clear exactly what work is involved we can guarantee the fee for more than one year.
How do I pay my bill?
Our preference is for clients to pay us by monthly standing order or upon receipt of our invoice.
Previous accountants I have used keep changing the staff I deal with, can you assure me of continuity of staff?
As far as possible we try to ensure that you have regular contacts with the allocated staff looking after you for as long as possible.
Do I Need To Sign A Contract With You?
We will give you a letter of engagement explaining the services we offer you, you are of course free to leave us at anytime. This is not a contract, as such, but a memorandum of the work it is agreed that we will undertake for you, and our terms of business.
How easy is it to change accountants and why should I change?
If your existing accountant is offering you an excellent pro-active service at a fair fee then stick with them. However, different accountants will save you different amounts of tax and provide different levels of business advice. If your present accountant doesn’t offer the type of service you want and that we do offer, then changing over to us is very easy. It involves just one letter from you and we take care of everything else for you. Your existing accountant is not usually allowed to charge you for providing the normal handover information.
Can I take out affordable insurance in the event of an HMRC enquiry or investigation?
Yes we have negotiated insurance cover to suit all types of business.
What Happens If I Can’t Visit Your Office To Deliver My Documents?
You can always post your accounts to us. We strongly recommend recorded delivery. Depending on how far you are from our office, we can also arrange to have this picked up by us.
Do you have parking facilities?
Yes we have our own excellent parking spaces behind our building.
Further advice and assistance
If you are unable to find the answer to your query above, there is always our ‘Resource centre’ on our website, together with our quarterly newsletters which may provide the information that you are looking for. And of course, we are always on the end of a telephone line or e-mail.
Above all, don’t simply follow advice from Joe Bloggs in the pub –