WELCOME TO CHARTERED ACCOUNTANT

What expenses get tax relief?

Everyone loves a trier……except HMRC. Some people will try to claim for everything and anything in their tax returns. We’ve seen a few crackers ourselves. However, every now and then HMRC reveal some of the worst expenses claims in Tax Returns.

In recent years, these

have included:

  1. A 3-piece suite for a business owner’s wife to sit on while he was doing his tax return
  2. A very generous business owner bought posh watches for Christmas for all of the staff……..despite not having any employees
  3. Armani jeans – claimed to be “protective” clothing by a decorator
  4. Flights abroad to get dental treatment as they had to look good for business meetings
  5. Pet food for a guard dog. Sounds OK…..until it turned out the dog was a Shih Tzu, which could only frighten away very small burglars.
  6. Underwear – OK if you’re in the Full Monty but not for the rest of us.
  7. A garden shed plus the cost of the part of the garden it sits on

As you can imagine, none of these were accepted.

What expenses can you claim?

The phrase that HMRC have traditionally used is that the expense must be “wholly and exclusively” for the purposes of your business to be allowable for tax relief. But, what does this mean?

At its simplest, ask yourself “Would I be spending this if I didn’t have the business?”. If the answer is “No”, then it’s likely to be an allowable expense. Examples would include:

  • Stock – the items you’re buying to sell on, or to use to make your products.
  • Premises costs – rent and then the costs of light, heat, etc for the business premises. Also any repairs
  • Staff costs – wages, salaries and costs of subcontractors
  • General office costs – stationery, tea/coffee
  • Travel costs – travel to and from meetings and appointments
  • IT costs – website, computers and software
  • Advertising costs – networking, leaflets, etc
  • Business assets – the method of claiming the tax may be different, but any assets you buy get tax relief – vans, furniture, machinery

But then there are also the “grey” areas where you have costs that you may have spent without the business, but you can now claim. HMRC are pretty sensible on these – for example, you can claim for a mobile phone.

What if I use things for business and personal use?

Often assets within businesses are used for both personal and business purposes. What can you claim tax relief on?

It is only the proportion of business use of these assets that can be deducted as an allowable expense.

Example

Julie is a self-employed beautician. She uses her mobile phone for both private use and business related calls to contact clients. For the tax year, Julie’s phone bill was £520. 60% of these calls were used for contact with clients and 40% were personal.

When calculating allowable expenses, Julie can claim £312 (60% of £520) for business use.

Capital allowances

Capital allowances may also be available on assets used in the business. Again only the proportion of the asset that is used for business can be claimed.

Example

Daniel is a self-employed electrician. In his first year of trading he purchased a brand new car costing £15,000 with CO2 emissions of 110g/km. The car is used 75% for business and 25% for personal use.

The car will need to be placed into a single asset pool as it has dual purpose usage. Capital allowances for the car are 18% so, in the first year, capital allowances are £2,700. Only 75% of this is allowed as 25% is for private use. Therefore capital allowances in year one are £2,025 (75% of £2,700).

Working from home

If you operate your business from home, you can deduct certain expenses that relate to business use. These expenses can include telephone, internet, electricity, gas, council tax and cleaning costs. All costs must be apportioned into business use at a reasonable rate.

Simplified expenses

Simplified expenses allow you to claim deductions on expenses used at home for work purposes and mileage costs at a flat rate, ie instead of keeping the receipts and working out proportions.

However, this is only if capital allowances have not been claimed. This saves you having to keep detailed records of expenses and estimating business usage.

Common sense

In summary, it comes down to common sense. Is it really for the business?

Some of the ridiculous claims could actually be OK……if they were genuinely for the business. For example, it’s OK to buy gifts for the team….if you have a team.

 

If in doubt, ask an expert – it’s what we’re here for! Now, I’m just off for a meeting with HMRC….in Hawaii.

What taxes do I pay?

To find out more, you can either watch Claire explain it on our video here or read about it below.

 

The taxes you pay to HMRC come in two forms

The first is DIRECT TAXES – these are charged on income, profits or

other gains.  They are either deducted at source, for example payroll taxes, or paid directly to HMRC.  The main direct tax for Limited Companies is Corporation Tax and for Individuals, Sole Traders and Partnerships it is Income Tax.

The other form of tax is INDIRECT tax which is charged on spending.  The indirect tax which we will look at is VAT.  In this case it is the responsibility of the seller to pass the tax onto HMRC.

What is Corporation Tax?

This is a tax charged on UK resident companies based on their profits.  The Corporation Tax rate is set annually by the Government and for the 2018/19 tax year is 19%.

You must register your company for Corporation Tax with HMRC within 3 months of setting up the business.

Each year a company is required to complete a Corporation tax return called a CT600 and file it online with HMRC.  Normally this must be done within 12 months of the Company’s year end date.  An important point to note is that BEFORE this 12 month filing deadline is reached, any Corporation tax due must be paid electronically to HMRC.  This payment deadline is 9 months and 1 day after the end of the accounting period.

It is the responsibility of the DIRECTORS to ensure these deadlines are met and HMRC will issue penalties for late filing of the return or payment of any tax due.

What is in included in my Corporation Tax calculation?

A Company pays Corporation Tax on

  • Profits from its trading activities
  • Income from its investments
  • Any chargeable gains from selling assets for more than they cost.

If the company is based in the UK it pays Corporation Tax on all its profits from both the UK and abroad.

What happens if I make a loss?

Any trading losses made by a company can be carried forward and offset against any future trading profits which reduces the future tax liability.  Alternatively they can be set against the company’s TOTAL profits for a specified period.  Even if the company has made a loss and has no payment to make a CT600 return must still be filed.

What is Income Tax?

This is the tax charged on the income of Individuals, Sole Traders and Partnerships.  Income tax is assessed for each self assessment tax year which begins on 6 April in the year and ends on 5 April in the following year.

Most people pay income tax through PAYE which is deducted from their wages before they receive their pay.  If you have other sources of taxable income you must complete a Self Assessment Tax Return.  This can be done using a paper form or online.  Once the tax year has ended on 5 April paper returns must be submitted by the 31 October.  If you file your return online the filing deadline is extended to the 31 January.  Any tax due must be paid by 31 January.

What is included in my Income Tax calculation?

The types of income which are taxed include

  • Money and benefits from employment
  • Profits you make from being self employed
  • Some state benefits
  • Most pensions
  • Rental income
  • Investment income above tax free thresholds.

There are several allowances which can reduce you tax bill.  The most common ones are

  • a personal allowance of tax free income, and
  • allowances for savings and dividend income.

The rates of income tax vary, for the 2018/19 tax year

  • income above the £11,850 personal allowance up to £46,350 is taxed at 20%,
  • income above this up to £150,000 is taxed at 40% and
  • any income above £150,000 is taxed at 45%.

What happens if I have paid too much tax?

If you find yourself in a situation where you have paid too much tax you can request a rebate from HMRC.

What is PAYE?

PAYE stands for Pay As You Earn. It is the system for collecting income tax from your earnings or pensions during the tax year. As with all forms of income tax the tax year begins on 6 April in the year and ends on 5 April in the following year.

How often tax is taken off depends on how often you are paid – usually weekly or monthly for employees.

How is it calculated?

HMRC will calculate a tax code for you and send it to your employer.  Most PAYE codes are made up of a number followed by a letter:

  • the letter relates to the type of allowance you are getting
  • the number shows the amount of the allowances which may be set against tax.

Your employer then uses that tax code to work out how much tax to take off your weekly or monthly pay or pension using the income tax rates and banding for the current tax year. They pay over that tax (and National Insurance contributions, if appropriate) to HMRC on a monthly basis.

What information will I be given?

You will be given a payslip each time you are paid. It may show the tax code your employer used to work out the tax to deduct from your gross pay.

If you are employed at 5 April, the end of the tax year, your employer will give you a P60 ‘end of year certificate’ by 31 May. This will show your pay, the tax deducted and usually the final tax code operated.  It is always worth checking you tax code to make sure it is correct.

If you leave a job during the tax year your employer will issue you with a P45 which shows your pay and the tax deducted for the tax year to date.  You give this to your new employer when you start another job.

What is National Insurance?

National insurance contributions are payments based on your level of earnings. They help to fund the UK social security system. You pay National Insurance contributions to qualify for certain benefits and the State Pension.

Who pays National Insurance?

To pay National Insurance you need a National Insurance number.  You have a National Insurance number to make sure your National Insurance contributions and tax are recorded against your name only.  It’s made up of letters and numbers and never changes.

If you don’t have a National Insurance number you can request one.

You pay National Insurance if you’re 16 or over and either:

  • an employee earning above £162 a week
  • self-employed and making a profit of £6,205 or more a year

How much National Insurance will I pay?

There are different types of National Insurance (known as ‘classes’). The type you pay depends on your employment status, how much you earn, and whether you have any gaps in your National Insurance

Employees pay Class 1 National Insurance contributions of 12% on wages between £702 to £3,863/month, and 2% on wages above this.  Contributions are collected by payroll deductions.  As well as their own contribution employers also make a National Insurance contribution on behalf of their employees.  Both these contributions are paid over to HMRC monthly.

If you’re self-employed you pay Class 2 National Insurance of £2.95/week if you have profits of £6,205 or more a year.  If you make profits of £8,424 or more a year you pay Class 4 National Insurance of 9% on profits between £8,424 and £46,350 and then 2% on profits over £46,350.  Most self-employed people pay their National Insurance through their Self Assessment Tax Return.

If you have gaps in your national insurance records you can voluntarily pay Class 3 contributions to make up the shortfall.  The main reason for doing this would be to ensure you have 30 qualifying years of contributions so that you receive the full state pension on retirement.

What is VAT?

VAT is an indirect tax on spending and is charged on certain categories of goods and services sold in the UK.  Certain types of good and services are exempt from VAT – the most common ones are

  • Insurance and finance
  • Education and training and
  • Charity fundraising.

How much VAT do I pay?

For goods and services that are taxable there are 3 rates of VAT charged;

  • Standard rate charged at 20% is the most common and covers supplies not specifically included in one of the other categories
  • Reduced rate charged at 5% on for example children’s car seats and home energy costs
  • Zero rated which as the name suggests is charged at 0% applies to for example non luxury food, children’s clothes, books and publications.

Do I have to pay the VAT to HMRC?

If you are an individual the answer is no, although you are paying VAT when you buy goods and services you are not directly responsible for paying it to HMRC.

If you operate a business with Vatable turnover greater than £85,000 in a 12 month period, the business is required to register for VAT.  The business must then charge VAT on items it sells at the appropriate VAT rate for the category of goods or services.   This VAT is collected when payment is received from customers and accounted for to HMRC on a quarterly basis.  The business must pay HMRC the net of the VAT on its sales after deducting the amount of any VAT it has paid on business purchases.   Any VAT due must be paid to HMRC within one month and 7 days of the end of the VAT quarter.  If the business has paid out more VAT on purchases than it has received on its sales it can request a rebate payment from HMRC.

 

If you have any queries on any of the taxes, please get in touch with us.  We’d love to help.

If you would like to watch our video follow this link.

How do I set up a limited company?

To find out more, you can either watch Billie explain it on our video here or read about it below.

 

You’ve finally made the decision to set up your own company and you want to know the best way to get started.

Everything needs to be done quickly as there seems to be a lot of admin to get through, but you want to make sure that you do it efficiently and do it correctly.

These are our 6 easy steps to set up your new company:

  1. Registering the company
  2. Registering for PAYE
  3. Registering for VAT
  4. Opening a business bank account
  5. Business insurances
  6. Finding an accountant

How do I register a Limited Company?

This is something you can simply do online through several websites but the easiest is to use Companies House as they’re the government body that monitors all Limited Companies.

To set your company up, you’ll need to think of a few details first:

  1. A company name – Something simple, could be your initials or just something memorable.
  1. A company address – what address do you want to be on the public records?
  1. Director’s details – have you decided who the directors are going to be?

If your setting up the business on your own, then this will just be you and therefore you’ll just need to fill out all your own personal details (date of birth, nationality, etc.)

  1. Shareholders – you want the company to be limited by share capital so that you can take out the profits tax-efficiently. The shareholders own the company and receive dividends. As with the director, you can start with you as the sole shareholder and you can chose the number of shares that you want. If it’s just you, one £1 ordinary share is enough.
  1. A credit card – it costs £12 to register the company on Companies House.

After you have done all this, Companies House will process the application. This can take a few days and then they’ll send you your Incorporation Certificate, which your clients may need to see before signing a contract.

You will also receive a 6-digit authentication code through the post – keep hold of this. You will need this code whenever you want to sign into Companies House in the future.

HMRC will then automatically be notified of your new company. They will write to you with your company’s Unique Taxpayer Reference which you will need to be able to file a tax return next year as well as for some of the steps we will take today.

Registering for PAYE

The most efficient way of taking money from the company is by paying yourself a small salary each month and then taking the rest as dividends.

Where do you do this?

You will need to register a payroll with HMRC through the Employers section of the HMRC website.

What you need to do it?

You will need all the company details including the Unique Taxpayer Reference, and also your personal details again.

You will then need to submit payroll documents to HMRC monthly. You can so this online, through a payroll software, or by using an accountant.

Registering for VAT

You must register for VAT is your VAT taxable turnover is over £85,000 in a 12-month period. Even if your business turnover is below £85,000 you can register voluntarily for VAT.

If you’re not sure whether to do this, you may want to get some expect advice for an accountant.

Where do you do this?

Again, you can do this on the HMRC’s website – it’s the same place for registering for PAYE, so you can do it at the same time.

What do you need to do it?

You will need all the company’s details again, including the Unique Taxpayer Reference and your personal details.

You will then submit VAT returns to HMRC, usually quarterly. You can do this through an accountant or through your government gateway on HMRC’s website.

How do I open a business bank account?

Your business will need its own bank account as it is a separate legal entity. You can then use this bank account to pay for all your business bills and transactions, for example:

  • Your salary
  • Dividends
  • Payments to HMRC for VAT, Corporation Tax and PAYE/NI
  • Repaying your personal expenses, e.g. mileage
  • Paying other business bills, e.g. mobile phones and travel expenses

How do you choose your bank account?

It may be easier using the bank that you already have your personal account with, but that doesn’t always mean the best solution. Here are a few things you should consider:

  • Bank Charges – Usually free for the first year then you pay monthly fees and charges depending on transactions.
  • Online Banking – Check you can get online access to statements and can make payments online without extra charges.
  • Phone Banking – Can be convenient if you aren’t near your local branch but have enquiries.
  • Location and bank manager – Having a face-to-face approach, asking about any other enquiries. A helpful bank manager can be very useful.
  • Interest paid to you – Check the rates you’ll receive back on any cash in your account.

When you’ve chosen the bank, you can set up the account.

Where do you do this?

You will usually need to go into the bank to do this as there are some security procedures that you’ll need to follow. However, ring first or apply online as there is often a delay in getting an appointment as start-up managers deal with a lot of businesses.

What do you need to do it?

You’ll need all the company details, Certificate of Incorporation that Companies House issued you, your Memorandum, Articles of Association and Share Certificates – you’ll have received all of these when you registered the company.

The bank will also need to do some security checks on you personally – they’ll need to see some photographic ID (passport or driving licence) and proof of address.

Insurances

Depending on your nature of work and your clients, you may need some insurance.

Even if your clients don’t require it, you should at least consider Professional Indemnity Insurance which will cover you against any claims from your clients.

You may also want to look at Public Liability Insurance for the company and now you’re self-employed, you might want to check insurances for loss of earnings if your unable to work, due to illness for example.

Finding an Accountant

You can do all the bookkeeping yourself and submit the relevant returns to Companies House and HMRC – these can include accounts, Corporation Tax returns, VAT returns and payroll submissions.

Or you might want to concentrate on what you do best and use an accountant for all the other stuff. You will also be able to get advice from your accountant to make sure your company and personal finances are as tax-efficient as possible. They should help you fully understand all the numbers, should be available throughout the year and of course making sure you meet all the HMRC requirements and deadlines.

How do you choose an accountant?

There are a number of things to consider. These include:

  • Size of firm – Apple wouldn’t pick a one-man band accountancy firm in Liverpool. And a global firm of accountants wouldn’t be right for a small business in Liverpool. It makes sense to pick an accountancy firm that works with businesses of your size.
  • Their experience – do they have experience with your type of business and in your sector? Make sure they’re able to give you relevant advice.
  • Fees – cheapest isn’t always best.
  • Recommendations – if anyone that you know has used them, ask their opinion. Otherwise, check out testimonials on their website or ask them if you can speak to a current client.
  • Relationship – make sure that you can work with this person on a day to day basis, trust them and value their advice.

What do you need to do it?

It is possible to speak to an accountant before you set up the company. They will need to do some of the same security checks as a bank, so you’ll need photographic ID and proof of address.

If you already up and running, you’ll also need all the company details so that they can start work.

What can go wrong when I set up a Limited Company?

There are a number of common pitfalls in setting up a Limited Company:

  • Getting the share capital wrong – this can be costly as the tax efficiencies are based on shares.
  • Getting the salary wrong – most companies pick a whole round number, eg £1,000 a month and pay more tax than necessary.
  • Choosing the wrong VAT scheme – there are lots of different schemes. You need the one that’s best for you.
  • Delaying VAT Registration – some customers like to see your VAT registration before you start a contract.
  • Setting up a PAYE scheme but missing a monthly submission to HMRC – fines can add up quickly.
  • Underestimating the waiting time for a bank account – can be a que for a few weeks to meet with a start-up manager.
  • Not getting correct insurances – we all hope that nothing is going to go wrong but sometimes it does and its useful to be covered.
  • Failing to claim for the allowed expenses to reduce your tax bill– an accountant can help you with this.

 

Hopefully, you now feel confident enough to set up your limited company and start trading. But, sometimes, it does pay to get expert help. If you do need anything, please do get in touch with us using the details below.

If you would like to watch our video follow this link.

VAT

…Content coming soon…

 

Accounts & Tax

…Content coming soon…

Switching Accountants

…Content coming soon…

How do I set up a limited company?

To find out more, you can either watch Billie explain it on our video here or read about it below.

 

You’ve finally made the decision to set up your own company and you want to know the best way to get started.

Everything needs to be done quickly as there seems to be a lot of admin to get through, but you want to make sure that you do it efficiently and do it correctly.

These are our 6 easy steps to set up your new company:

  1. Registering the company
  2. Registering for PAYE
  3. Registering for VAT
  4. Opening a business bank account
  5. Business insurances
  6. Finding an accountant

How do I register a Limited Company?

This is something you can simply do online through several websites but the easiest is to use Companies House as they’re the government body that monitors all Limited Companies.

To set your company up, you’ll need to think of a few details first:

  1. A company name – Something simple, could be your initials or just something memorable.
  1. A company address – what address do you want to be on the public records?
  1. Director’s details – have you decided who the directors are going to be?

If your setting up the business on your own, then this will just be you and therefore you’ll just need to fill out all your own personal details (date of birth, nationality, etc.)

  1. Shareholders – you want the company to be limited by share capital so that you can take out the profits tax-efficiently. The shareholders own the company and receive dividends. As with the director, you can start with you as the sole shareholder and you can chose the number of shares that you want. If it’s just you, one £1 ordinary share is enough.
  1. A credit card – it costs £12 to register the company on Companies House.

After you have done all this, Companies House will process the application. This can take a few days and then they’ll send you your Incorporation Certificate, which your clients may need to see before signing a contract.

You will also receive a 6-digit authentication code through the post – keep hold of this. You will need this code whenever you want to sign into Companies House in the future.

HMRC will then automatically be notified of your new company. They will write to you with your company’s Unique Taxpayer Reference which you will need to be able to file a tax return next year as well as for some of the steps we will take today.

Registering for PAYE

The most efficient way of taking money from the company is by paying yourself a small salary each month and then taking the rest as dividends.

Where do you do this?

You will need to register a payroll with HMRC through the Employers section of the HMRC website.

What you need to do it?

You will need all the company details including the Unique Taxpayer Reference, and also your personal details again.

You will then need to submit payroll documents to HMRC monthly. You can so this online, through a payroll software, or by using an accountant.

Registering for VAT

You must register for VAT is your VAT taxable turnover is over £85,000 in a 12-month period. Even if your business turnover is below £85,000 you can register voluntarily for VAT.

If you’re not sure whether to do this, you may want to get some expect advice for an accountant.

Where do you do this?

Again, you can do this on the HMRC’s website – it’s the same place for registering for PAYE, so you can do it at the same time.

What do you need to do it?

You will need all the company’s details again, including the Unique Taxpayer Reference and your personal details.

You will then submit VAT returns to HMRC, usually quarterly. You can do this through an accountant or through your government gateway on HMRC’s website.

How do I open a business bank account?

Your business will need its own bank account as it is a separate legal entity. You can then use this bank account to pay for all your business bills and transactions, for example:

  • Your salary
  • Dividends
  • Payments to HMRC for VAT, Corporation Tax and PAYE/NI
  • Repaying your personal expenses, e.g. mileage
  • Paying other business bills, e.g. mobile phones and travel expenses

How do you choose your bank account?

It may be easier using the bank that you already have your personal account with, but that doesn’t always mean the best solution. Here are a few things you should consider:

  • Bank Charges – Usually free for the first year then you pay monthly fees and charges depending on transactions.
  • Online Banking – Check you can get online access to statements and can make payments online without extra charges.
  • Phone Banking – Can be convenient if you aren’t near your local branch but have enquiries.
  • Location and bank manager – Having a face-to-face approach, asking about any other enquiries. A helpful bank manager can be very useful.
  • Interest paid to you – Check the rates you’ll receive back on any cash in your account.

When you’ve chosen the bank, you can set up the account.

Where do you do this?

You will usually need to go into the bank to do this as there are some security procedures that you’ll need to follow. However, ring first or apply online as there is often a delay in getting an appointment as start-up managers deal with a lot of businesses.

What do you need to do it?

You’ll need all the company details, Certificate of Incorporation that Companies House issued you, your Memorandum, Articles of Association and Share Certificates – you’ll have received all of these when you registered the company.

The bank will also need to do some security checks on you personally – they’ll need to see some photographic ID (passport or driving licence) and proof of address.

Insurances

Depending on your nature of work and your clients, you may need some insurance.

Even if your clients don’t require it, you should at least consider Professional Indemnity Insurance which will cover you against any claims from your clients.

You may also want to look at Public Liability Insurance for the company and now you’re self-employed, you might want to check insurances for loss of earnings if your unable to work, due to illness for example.

Finding an Accountant

You can do all the bookkeeping yourself and submit the relevant returns to Companies House and HMRC – these can include accounts, Corporation Tax returns, VAT returns and payroll submissions.

Or you might want to concentrate on what you do best and use an accountant for all the other stuff. You will also be able to get advice from your accountant to make sure your company and personal finances are as tax-efficient as possible. They should help you fully understand all the numbers, should be available throughout the year and of course making sure you meet all the HMRC requirements and deadlines.

How do you choose an accountant?

There are a number of things to consider. These include:

  • Size of firm – Apple wouldn’t pick a one-man band accountancy firm in Liverpool. And a global firm of accountants wouldn’t be right for a small business in Liverpool. It makes sense to pick an accountancy firm that works with businesses of your size.
  • Their experience – do they have experience with your type of business and in your sector? Make sure they’re able to give you relevant advice.
  • Fees – cheapest isn’t always best.
  • Recommendations – if anyone that you know has used them, ask their opinion. Otherwise, check out testimonials on their website or ask them if you can speak to a current client.
  • Relationship – make sure that you can work with this person on a day to day basis, trust them and value their advice.

What do you need to do it?

It is possible to speak to an accountant before you set up the company. They will need to do some of the same security checks as a bank, so you’ll need photographic ID and proof of address.

If you already up and running, you’ll also need all the company details so that they can start work.

What can go wrong when I set up a Limited Company?

There are a number of common pitfalls in setting up a Limited Company:

  • Getting the share capital wrong – this can be costly as the tax efficiencies are based on shares.
  • Getting the salary wrong – most companies pick a whole round number, eg £1,000 a month and pay more tax than necessary.
  • Choosing the wrong VAT scheme – there are lots of different schemes. You need the one that’s best for you.
  • Delaying VAT Registration – some customers like to see your VAT registration before you start a contract.
  • Setting up a PAYE scheme but missing a monthly submission to HMRC – fines can add up quickly.
  • Underestimating the waiting time for a bank account – can be a que for a few weeks to meet with a start-up manager.
  • Not getting correct insurances – we all hope that nothing is going to go wrong but sometimes it does and its useful to be covered.
  • Failing to claim for the allowed expenses to reduce your tax bill– an accountant can help you with this.

 

Hopefully, you now feel confident enough to set up your limited company and start trading. But, sometimes, it does pay to get expert help. If you do need anything, please do get in touch with us using the details below.

If you would like to watch our video follow this link.

VAT

…Content coming soon…

 

Business Growth

…Content coming soon…

 

 

Does an accountant just crunch the numbers?

A good accountant does a lot more than just crunch the numbers.

To find out more, you can either watch Jon explain it on our video here or read about it below.

 

Crunching the numbers can be a starting point. Generally, this would

be called bookkeeping.

Bookkeeping is processing and recording the financial data of the business, so raising sales invoices, processing purchase invoices, making sure that supplies are paid and customers pay you.

Then the next step is actually taking those numbers and turning them into a set of accounts.

Traditionally, this is where accountants are seen as crunching the numbers. You give them some numbers. They pick them up, manipulate them slightly and put them into statutory format.

These days that’s not everything. That’s just the bare minimum.

For some businesses, to be honest, that is enough. That’s all they need.

 

But a really good accountant will then take those numbers, and they will interpret them. They will analyse them, and they will give you advice of what the numbers mean because as a business owner you should always understand what the numbers in your business mean.

You should own those numbers – they are yours. They’re the difference between you having a successful business and a failure.

A good accountant will explain them to you, make sure you know what they mean and will then give you advice to make those numbers better.

By making those numbers better, you’ll have bigger profits. You’ll reduce your tax bill and ultimately, you’ll have more money in your bank account.

A good accountant does that. They help you put more money in your bank account and help you meet your business and personal goals.

 

It’s so much more than just crunching the numbers.

If you would like to watch our video, follow this link.

Can I claim tax relief on professional subscriptions?

Do you pay a professional subscription?

If you do, you may be able to claim tax relief on it!

Read below to find out more

Am I eligible?

You’re eligible to claim as long as you’ve paid the subscription because your job/profession requires it,

or it’s helpful for your job/business.

The professional body must also be approved by HMRC. They’ve recently updated the list of approved bodies here It’s a looooong list!

You can’t claim tax relief if:

  • Somebody else paid it for you (eg your employer); or
  • The body isn’t on HMRC’s approved list; or
  • It’s a life membership

Example

I’m a member of the Institute of Chartered Accountants in England and Wales. Can I claim tax relief? Let’s work through the steps:

 

  1. Do I need the membership? I don’t need it, but it’s definitely helpful as the owner of an accountancy firm.
  2. Is it an approved body? Yes – it’s on the list
  3. Have I paid it myself? Yes
  4. Is it a life membership? No – I pay annually

Therefore, I can claim tax relief.

How do I claim the tax relief?

If you’re a business owner, the business can pay the subscription and claim Corporation Tax relief.

If you’re an employee, or have paid the subscription personally, you can claim it by one of these methods:

  • If you already have to file a Self-Assessment Tax Return (SATR), you include the expense in your return
  • If you don’t already file a SATR:
  • You can make claims for total annual subs under £2,500 by filling in a form P87 or by ringing HMRC
  • If the total annual subs are over £2,500, you will need to file a SATR

 

So, take a look at your professional subscriptions, and see if you can claim.

And, if you need any help, just get in touch.

What expenses get tax relief?

Everyone loves a trier……except HMRC. Some people will try to claim for everything and anything in their tax returns. We’ve seen a few crackers ourselves. However, every now and then HMRC reveal some of the worst expenses claims in Tax Returns.

In recent years, these

have included:

  1. A 3-piece suite for a business owner’s wife to sit on while he was doing his tax return
  2. A very generous business owner bought posh watches for Christmas for all of the staff……..despite not having any employees
  3. Armani jeans – claimed to be “protective” clothing by a decorator
  4. Flights abroad to get dental treatment as they had to look good for business meetings
  5. Pet food for a guard dog. Sounds OK…..until it turned out the dog was a Shih Tzu, which could only frighten away very small burglars.
  6. Underwear – OK if you’re in the Full Monty but not for the rest of us.
  7. A garden shed plus the cost of the part of the garden it sits on

As you can imagine, none of these were accepted.

What expenses can you claim?

The phrase that HMRC have traditionally used is that the expense must be “wholly and exclusively” for the purposes of your business to be allowable for tax relief. But, what does this mean?

At its simplest, ask yourself “Would I be spending this if I didn’t have the business?”. If the answer is “No”, then it’s likely to be an allowable expense. Examples would include:

  • Stock – the items you’re buying to sell on, or to use to make your products.
  • Premises costs – rent and then the costs of light, heat, etc for the business premises. Also any repairs
  • Staff costs – wages, salaries and costs of subcontractors
  • General office costs – stationery, tea/coffee
  • Travel costs – travel to and from meetings and appointments
  • IT costs – website, computers and software
  • Advertising costs – networking, leaflets, etc
  • Business assets – the method of claiming the tax may be different, but any assets you buy get tax relief – vans, furniture, machinery

But then there are also the “grey” areas where you have costs that you may have spent without the business, but you can now claim. HMRC are pretty sensible on these – for example, you can claim for a mobile phone.

What if I use things for business and personal use?

Often assets within businesses are used for both personal and business purposes. What can you claim tax relief on?

It is only the proportion of business use of these assets that can be deducted as an allowable expense.

Example

Julie is a self-employed beautician. She uses her mobile phone for both private use and business related calls to contact clients. For the tax year, Julie’s phone bill was £520. 60% of these calls were used for contact with clients and 40% were personal.

When calculating allowable expenses, Julie can claim £312 (60% of £520) for business use.

Capital allowances

Capital allowances may also be available on assets used in the business. Again only the proportion of the asset that is used for business can be claimed.

Example

Daniel is a self-employed electrician. In his first year of trading he purchased a brand new car costing £15,000 with CO2 emissions of 110g/km. The car is used 75% for business and 25% for personal use.

The car will need to be placed into a single asset pool as it has dual purpose usage. Capital allowances for the car are 18% so, in the first year, capital allowances are £2,700. Only 75% of this is allowed as 25% is for private use. Therefore capital allowances in year one are £2,025 (75% of £2,700).

Working from home

If you operate your business from home, you can deduct certain expenses that relate to business use. These expenses can include telephone, internet, electricity, gas, council tax and cleaning costs. All costs must be apportioned into business use at a reasonable rate.

Simplified expenses

Simplified expenses allow you to claim deductions on expenses used at home for work purposes and mileage costs at a flat rate, ie instead of keeping the receipts and working out proportions.

However, this is only if capital allowances have not been claimed. This saves you having to keep detailed records of expenses and estimating business usage.

Common sense

In summary, it comes down to common sense. Is it really for the business?

Some of the ridiculous claims could actually be OK……if they were genuinely for the business. For example, it’s OK to buy gifts for the team….if you have a team.

 

If in doubt, ask an expert – it’s what we’re here for! Now, I’m just off for a meeting with HMRC….in Hawaii.

What is National Insurance?

To find out more, you can either watch Claire explain it on our video here or read about it below.

 

National insurance contributions are payments based on your level of earnings. They help to fund the UK social security system. You pay

National Insurance contributions to qualify for certain benefits and the State Pension.

Who pays National Insurance?

To pay National Insurance you need a National Insurance number.  You have a National Insurance number to make sure your National Insurance contributions and tax are recorded against your name only.  It’s made up of letters and numbers and never changes.

If you don’t have a National Insurance number you can request one.

You pay National Insurance if you’re 16 or over and either:

  • an employee earning above £162 a week
  • self-employed and making a profit of £6,205 or more a year

 

How much National Insurance will I pay?

There are different types of National Insurance (known as classes’). The type you pay depends on your employment status, how much you earn, and whether you have any gaps in your National Insurance

Employees pay Class 1 National Insurance contributions of 12% on wages between £702 to £3,863/month, and 2% on wages above this.  Contributions are collected by payroll deductions.  As well as their own contribution employers also make a National Insurance contribution on behalf of their employees.  Both these contributions are paid over to HMRC monthly.

If you’re self-employed you pay Class 2 National Insurance of £2.95/week if you have profits of £6,205 or more a year.  If you make profits of £8,424 or more a year you pay Class 4 National Insurance of 9% on profits between £8,424 and £46,350 and then 2% on profits over £46,350.  Most self-employed people pay their National Insurance through their Self-Assessment Tax Return.

If you have gaps in your national insurance records you can voluntarily pay Class 3 contributions to make up the shortfall.  The main reason for doing this would be to ensure you have 30 qualifying years of contributions so that you receive the full state pension on retirement.

 

We hope you have found this useful. If you have any queries, please get in touch. We’d love to help.

If you would like to watch our video follow this link. 

Who do I need to tell about my new business?

To find out more, you can either watch Billie explain it on our video here or read about it below.

 

What are the first steps to take?

The main body that needs notifying straight away is HMRC, whether it be for taxes, National

Insurance Contribution or VAT.

If you are setting up a Sole Trader or a Partnership, then you must notify HMRC by registering online. This will have to be done before the 5th October following the end of the tax year in which the business has started.

If you are registering as a Limited Company, then Companies House will notify HMRC for you. HMRC will then send your newly formed company a form that must be completed and returned within three months.

 

Is there anyone else I need to notify?

Depending on what type of business you have decided to set up, there are possibly several people that you should inform.

If you have decided to set your business up from home, then firstly you may have to notify the local council. There you will be assessed on whether you’re required to pay any business rates.

You may need to notify your mortgage company, or at least just check that your mortgage allows a business to operate from the mortgage premises.

If you rent your property, then you may just want to check your contract as some tenancy agreements prohibit running a business from home. Sometimes it can just be a matter of courtesy to let your landlord know about what you’re planning on doing.

Then, lastly, check your house and contents insurance companies. You can then check to see if they can offer you any cover for the business assets so that everything is protected.

 

We hope you have found this useful. If you’d like to know more, please get in touch. We’d love to help.

If you would like to watch our video follow this link

Do I have to register for the Construction Industry Scheme (CIS)?

To find out more, you can either watch Claire explain it on our video here or read about it below.

 

If you are a Contractor in the construction industry who subcontracts work to other businesses you must register for CIS.  This applies

whether you operate as a company, partnership or a sole trader.

If you are a Sub-contractor who works on larger projects for a main contractor you have the option to register for CIS and there are benefits to doing this.

If you are a contractor and a subcontractor you must register for both schemes.

There are exceptions for businesses that only do certain jobs for example architecture or surveying, carpet fitting and delivery.  The full list is on the HMRC website.

If your businesses is not in the construction industry but carries out £1 million of construction work in any 3 year period you will also be required to register.

How does the Construction Industry Scheme Operate?

Under CIS, contractors deduct money from their payments to subcontractors and pay it over to HMRC.  In simple terms the deduction applies to the labour element of invoices not materials or VAT.  Specific details of the calculation are given on the HMRC website.  The deduction counts as an advance payment towards the subcontractor’s tax and National Insurance.

If the subcontractor is registered for CIS the deduction is 20%.

If the subcontractor is not registered for CIS the deduction increases to 30%.

If you are a registered sub-contractor you can apply for gross payment status which means no deduction is taken.  You must meet these conditions to qualify.

    • The business is carried on in the UK and has a bank account
    • The business has paid its tax and National insurance on time in the past.
    • The business must meet minimum turnover limits specified on the HMRC website.

How do I register as a contractor?

This should be done before you start to pay anyone as an employee or a subcontractor.  To register as a contractor you need to first register as an employer with HMRC.  This can be done online and HMRC will then issue you with a PAYE Employer Reference and an Accounts Office Reference.  Using these references you can register online for the CIS scheme.

How do I register as a sub-contractor?

Subcontractors register online on the HMRC website by providing business information including the Unique Taxpayer Reference number.

What are my obligations as a contractor under CIS?

A contractor must file monthly online returns with HMRC.   These show which subcontractors have been employed in the month and the deduction taken from their invoices.

Within 14 days of the end of each month you must do three things

  • 1 – Provide a statement to each subcontractor, showing the payments made and the amounts deducted
  • 2 – File an online return with HMRC showing all the subcontractor payments made in the month.
  • 3 – Pay over the deductions made to HMRC, you get 3 extra days to pay if the payment is made electronically.

When can a subcontractor reclaim the tax deducted?

Sole Traders and Partners submit details of the tax that has been deducted during the tax year when they submit their Annual Self Assessment Tax Return.  HMRC will then adjust the amount of tax to be paid to take account of the CIS deductions.

Limited Company subcontractors submit their CIS deduction information to HMRC monthly together with their payroll tax information.  The CIS deductions are used to reduce the monthly payroll tax amount which is then paid as usual.

 

If you have any questions please get in touch with us at Jon Davies Accountants.  We’d love to help

If you would like to watch our video follow this link.

Why do I need an accountant?

To find out more, you can either watch Jon explain it on our video here or read about it below.

 

You may need an accountant to help you with your legal requirements in terms of preparing and submitting accounts and tax returns.

If you own a limited company, you must legally submit a set of accounts to Companies House each year, and a Corporation Tax return to HMRC.

 

If you’re a sole trader, you need to prepare a self-assessment tax return that includes the accounts for your business, and calculates the tax. These need to be submitted to HMRC each year. You may need an accountant to help you do those.

Is it a legal requirement?

You don’t legally need to use an accountant – it’s more about whether you’re able to do it yourself…..or want to.

 

I often use the analogy that it’s like painting and decorating. If I have a small room to paint at home, I might do it myself. I painted my girls’ bedrooms because they’re small rooms. I also kind of wanted to because they’re my little girls, and to be honest, it wasn’t too difficult. When it came to a big job, like the lounge, I paid someone to come and do it – I knew that was it was a lot of work and it was quite tricky. I also was aware that people would be seeing it everyday and would see if I made any mistakes!

 

If your business is simple, you might decide to do your accounts yourself. But, as your business grows you might decide you don’t want to do it yourself. You want to pay somebody – an expert – to do it.

 

There are all the advantages of paying an expert to do it. Firstly, it saves you time that you could use to do something else that either you enjoy or helps you grow the business.

 

Also, you do have that comfort it will be done right. An accountant, of course, knows all of the tax reliefs available that you might miss out on. An accountant will, therefore, help you reduce your tax bill.

 

It’s their job to do that – they do it all day, everyday.

 

That’s why I liken it to the painting and decorating. The painter and decorator will do my room quicker and a with better quality than I can do, leaving me free to do what I want to be doing in my spare time.

Why else should I use an accountant?

There are also many other reasons you might want an accountant. A good accountant will save you tax, but they could also help you grow.

 

Accountants work with lots of businesses and, therefore, have lots of experience and see lots of examples, both good and bad, in business. They can help you use the best examples to grow your business and make it more successful. And help you avoid the bad ones!

 

You might want an accountant to sit down with you to do an independent review on your business on a regular basis. It is easy to get caught up in your business and be doing the day-to-day work without actually standing back and taking a look.

 

Meeting your accountant regularly to look at the numbers in your business and see how you’re doing -comparing them to your budgets and to your goals, can be a really useful exercise.

 

Also, your accountant’s there for you to pick their brain and to help you on any of the financial aspects in your business.

 

So, there are some reasons why you might need an accountant but, more importantly, there are a lot of reasons you might want an accountant.

 

We hope you have found this useful. If you have any queries, please get in touch. We’d love to help.

If you would like to watch our video, follow this link.

VAT

…Content coming soon…

 

Business Growth

…Content coming soon…

 

 

Switching Accountants

…Content coming soon…

Does an accountant just crunch the numbers?

A good accountant does a lot more than just crunch the numbers.

To find out more, you can either watch Jon explain it on our video here or read about it below.

 

Crunching the numbers can be a starting point. Generally, this would

be called bookkeeping.

Bookkeeping is processing and recording the financial data of the business, so raising sales invoices, processing purchase invoices, making sure that supplies are paid and customers pay you.

Then the next step is actually taking those numbers and turning them into a set of accounts.

Traditionally, this is where accountants are seen as crunching the numbers. You give them some numbers. They pick them up, manipulate them slightly and put them into statutory format.

These days that’s not everything. That’s just the bare minimum.

For some businesses, to be honest, that is enough. That’s all they need.

 

But a really good accountant will then take those numbers, and they will interpret them. They will analyse them, and they will give you advice of what the numbers mean because as a business owner you should always understand what the numbers in your business mean.

You should own those numbers – they are yours. They’re the difference between you having a successful business and a failure.

A good accountant will explain them to you, make sure you know what they mean and will then give you advice to make those numbers better.

By making those numbers better, you’ll have bigger profits. You’ll reduce your tax bill and ultimately, you’ll have more money in your bank account.

A good accountant does that. They help you put more money in your bank account and help you meet your business and personal goals.

 

It’s so much more than just crunching the numbers.

If you would like to watch our video, follow this link.

Why do I need an accountant?

To find out more, you can either watch Jon explain it on our video here or read about it below.

 

You may need an accountant to help you with your legal requirements in terms of preparing and submitting accounts and tax returns.

If you own a limited company, you must legally submit a set of accounts to Companies House each year, and a Corporation Tax return to HMRC.

 

If you’re a sole trader, you need to prepare a self-assessment tax return that includes the accounts for your business, and calculates the tax. These need to be submitted to HMRC each year. You may need an accountant to help you do those.

Is it a legal requirement?

You don’t legally need to use an accountant – it’s more about whether you’re able to do it yourself…..or want to.

 

I often use the analogy that it’s like painting and decorating. If I have a small room to paint at home, I might do it myself. I painted my girls’ bedrooms because they’re small rooms. I also kind of wanted to because they’re my little girls, and to be honest, it wasn’t too difficult. When it came to a big job, like the lounge, I paid someone to come and do it – I knew that was it was a lot of work and it was quite tricky. I also was aware that people would be seeing it everyday and would see if I made any mistakes!

 

If your business is simple, you might decide to do your accounts yourself. But, as your business grows you might decide you don’t want to do it yourself. You want to pay somebody – an expert – to do it.

 

There are all the advantages of paying an expert to do it. Firstly, it saves you time that you could use to do something else that either you enjoy or helps you grow the business.

 

Also, you do have that comfort it will be done right. An accountant, of course, knows all of the tax reliefs available that you might miss out on. An accountant will, therefore, help you reduce your tax bill.

 

It’s their job to do that – they do it all day, everyday.

 

That’s why I liken it to the painting and decorating. The painter and decorator will do my room quicker and a with better quality than I can do, leaving me free to do what I want to be doing in my spare time.

Why else should I use an accountant?

There are also many other reasons you might want an accountant. A good accountant will save you tax, but they could also help you grow.

 

Accountants work with lots of businesses and, therefore, have lots of experience and see lots of examples, both good and bad, in business. They can help you use the best examples to grow your business and make it more successful. And help you avoid the bad ones!

 

You might want an accountant to sit down with you to do an independent review on your business on a regular basis. It is easy to get caught up in your business and be doing the day-to-day work without actually standing back and taking a look.

 

Meeting your accountant regularly to look at the numbers in your business and see how you’re doing -comparing them to your budgets and to your goals, can be a really useful exercise.

 

Also, your accountant’s there for you to pick their brain and to help you on any of the financial aspects in your business.

 

So, there are some reasons why you might need an accountant but, more importantly, there are a lot of reasons you might want an accountant.

 

We hope you have found this useful. If you have any queries, please get in touch. We’d love to help.

If you would like to watch our video, follow this link.

6 Ways To Tell Your Accountant Is Costing You Money

Every business needs a good accountant. The problem is that most business owners don’t realise what a good accountant looks like – that’s because they’ve never had one.

“You don’t know what you don’t know.”

If you have got a good accountant, you’re in a very

small minority.

If you’ve got a bad accountant, you’re also in a minority.

The problem is that the majority of business owners have a mediocre accountant. And that’s why they’re costing you money. They don’t mean to. But, by being mediocre, they’re making you miss out on extra profits and extra tax savings.

Some are even taking money from your pocket through their mediocrity.

Too many accountants are still just doing the minimum legal requirements – a set of accounts and a tax return. There is a value in that – everyone needs to be compliant. But are they making your business better? Or making your life better?

Working with a really good accountant is like having a Non-Executive Director for your business. Having a sounding board for you and your ideas. Having a source of wisdom, guidance and experience – all designed to improve your business and your profits.

Someone to work alongside you throughout the year. Someone to understand your goals and help you achieve them. Someone to provide regular input and information to help you get to where you want to be.

My next door neighbour recently bought a new car. He replaced an 11-year old car with a nice new Audi. He couldn’t believe the difference – power steering, cruise control, and full air con.

And then there’s the sat nav, the iPod doc, and the hands-free phone. And he’s getting used to having a nice, big storage unit where the handbrake used to be – it’s now just a small button.

He was quite happy with the old car. But now he can’t believe what he’s been missing out on.

And that’s what it’s like switching to a good accountant. And a progressive 21st Century Accountant.

A standard accountant does a perfectly decent job…..until you see what you can get by upgrading.

So, how can you spot if your accountant is costing you money? Here are six indicators.

YOU CAN DOWNLOAD THE 6 WAYS TO TELL YOUR ACCOUNTANT IS COSTING YOU MONEY HERE

I hope you find them useful.

If you found this useful, please share it using the icons at the side of the page, or leave a comment below.

Any questions?

If you’d like a meeting or a Skype call to discuss this, please get in touch with your favourite Liverpool accountant

  •  You can ring us on 0151 380 8080
  • You can email us at growth@jondaviesaccountants.co.uk

VAT

…Content coming soon…

 

Accounts & Tax

…Content coming soon…

Switching Accountants

…Content coming soon…

Can I get tax relief on food, travel and accommodation?

If you travel for business, you can claim tax relief on the expenses.

Usually, you would keep the receipts to prove expenditure but, to make things easier, you can claim a fixed amount that’s been agreed by HMRC.

Read

below to find out more.

What are the rules?

At its simplest, you can claim tax relief on any expenses that are incurred wholly and exclusively for business purposes.

If you’re travelling, this can include:

  • Business mileage or fuel
  • Road/tunnel/bridge tolls and congestion charges
  • Parking costs
  • Public transport
  • Taxi fares
  • Food and drink
  • Hotel or other accommodation for overnight journeys
  • Incidental costs such as business phone calls

You should keep receipts to prove the expenditure for all of these.

Can I claim for all journeys?

To claim tax relief, the journey must be for business purposes and can’t be to your permanent place of work (ie the daily commute). It must be a journey to a meeting, appointment, or a temporary place of work.

Business mileage or fuel?

If the car is owned by the business, you can claim relief on the cost of fuel – petrol, diesel or electricity.

If the car is owned privately, you can claim relief on the HMRC-approved mileage rates. For cars and vans, these are currently:

  • 45p per mile for the first 10,000 business miles in the tax year
  • 25p for each additional mile

If you travel by bike, you can claim using the following rates:

  • Motorbikes – 24p per mile
  • Bicycles – 20p per mile

You calculate the expense by multiplying the number of miles by the appropriate rate, and then claim tax relief on this expense.

Flat Rates for subsistence

For the past couple of years, there have been new rules on claiming fixed amounts for food and drink on journeys away from home. These fixed amounts are approved by HMRC and can be used instead of using exact amounts.

The rates depend on the time spent away from home on the journey and are as follows:

  • Journeys over 5 hours – £5
  • Journeys over 10 hours – £10
  • Journeys over 5 hours and ending after 8pm – £15
  • Journeys over 10 hours and ending after 8pm – £20
  • Journeys over 15 hours and ending after 8pm – £25

The benchmark rates can only be used if the qualifying conditions are met:

  • You must be away from your normal workplace or home for at least five ten hours
  • You must have incurred expenditure on a meal and also kept a receipt.

The advantages of using the flat rates are:

  1. It’s easier!
  2. You can claim the flat rate even if you spent less
  3. If you spent more than the flat rate, you can simply claim the larger amount

How do I claim the tax relief?

As a business owner, you simply include the expenses in your accounts to reduce your taxable profit.

Your tax bill will then be reduced at the appropriate rate.

 

We hope you have found this useful. If you have any queries, please get in touch, we’d love to help.

Can I claim tax relief on professional subscriptions?

Do you pay a professional subscription?

If you do, you may be able to claim tax relief on it!

Read below to find out more

Am I eligible?

You’re eligible to claim as long as you’ve paid the subscription because your job/profession requires it,

or it’s helpful for your job/business.

The professional body must also be approved by HMRC. They’ve recently updated the list of approved bodies here It’s a looooong list!

You can’t claim tax relief if:

  • Somebody else paid it for you (eg your employer); or
  • The body isn’t on HMRC’s approved list; or
  • It’s a life membership

Example

I’m a member of the Institute of Chartered Accountants in England and Wales. Can I claim tax relief? Let’s work through the steps:

 

  1. Do I need the membership? I don’t need it, but it’s definitely helpful as the owner of an accountancy firm.
  2. Is it an approved body? Yes – it’s on the list
  3. Have I paid it myself? Yes
  4. Is it a life membership? No – I pay annually

Therefore, I can claim tax relief.

How do I claim the tax relief?

If you’re a business owner, the business can pay the subscription and claim Corporation Tax relief.

If you’re an employee, or have paid the subscription personally, you can claim it by one of these methods:

  • If you already have to file a Self-Assessment Tax Return (SATR), you include the expense in your return
  • If you don’t already file a SATR:
  • You can make claims for total annual subs under £2,500 by filling in a form P87 or by ringing HMRC
  • If the total annual subs are over £2,500, you will need to file a SATR

 

So, take a look at your professional subscriptions, and see if you can claim.

And, if you need any help, just get in touch.

What expenses get tax relief?

Everyone loves a trier……except HMRC. Some people will try to claim for everything and anything in their tax returns. We’ve seen a few crackers ourselves. However, every now and then HMRC reveal some of the worst expenses claims in Tax Returns.

In recent years, these

have included:

  1. A 3-piece suite for a business owner’s wife to sit on while he was doing his tax return
  2. A very generous business owner bought posh watches for Christmas for all of the staff……..despite not having any employees
  3. Armani jeans – claimed to be “protective” clothing by a decorator
  4. Flights abroad to get dental treatment as they had to look good for business meetings
  5. Pet food for a guard dog. Sounds OK…..until it turned out the dog was a Shih Tzu, which could only frighten away very small burglars.
  6. Underwear – OK if you’re in the Full Monty but not for the rest of us.
  7. A garden shed plus the cost of the part of the garden it sits on

As you can imagine, none of these were accepted.

What expenses can you claim?

The phrase that HMRC have traditionally used is that the expense must be “wholly and exclusively” for the purposes of your business to be allowable for tax relief. But, what does this mean?

At its simplest, ask yourself “Would I be spending this if I didn’t have the business?”. If the answer is “No”, then it’s likely to be an allowable expense. Examples would include:

  • Stock – the items you’re buying to sell on, or to use to make your products.
  • Premises costs – rent and then the costs of light, heat, etc for the business premises. Also any repairs
  • Staff costs – wages, salaries and costs of subcontractors
  • General office costs – stationery, tea/coffee
  • Travel costs – travel to and from meetings and appointments
  • IT costs – website, computers and software
  • Advertising costs – networking, leaflets, etc
  • Business assets – the method of claiming the tax may be different, but any assets you buy get tax relief – vans, furniture, machinery

But then there are also the “grey” areas where you have costs that you may have spent without the business, but you can now claim. HMRC are pretty sensible on these – for example, you can claim for a mobile phone.

What if I use things for business and personal use?

Often assets within businesses are used for both personal and business purposes. What can you claim tax relief on?

It is only the proportion of business use of these assets that can be deducted as an allowable expense.

Example

Julie is a self-employed beautician. She uses her mobile phone for both private use and business related calls to contact clients. For the tax year, Julie’s phone bill was £520. 60% of these calls were used for contact with clients and 40% were personal.

When calculating allowable expenses, Julie can claim £312 (60% of £520) for business use.

Capital allowances

Capital allowances may also be available on assets used in the business. Again only the proportion of the asset that is used for business can be claimed.

Example

Daniel is a self-employed electrician. In his first year of trading he purchased a brand new car costing £15,000 with CO2 emissions of 110g/km. The car is used 75% for business and 25% for personal use.

The car will need to be placed into a single asset pool as it has dual purpose usage. Capital allowances for the car are 18% so, in the first year, capital allowances are £2,700. Only 75% of this is allowed as 25% is for private use. Therefore capital allowances in year one are £2,025 (75% of £2,700).

Working from home

If you operate your business from home, you can deduct certain expenses that relate to business use. These expenses can include telephone, internet, electricity, gas, council tax and cleaning costs. All costs must be apportioned into business use at a reasonable rate.

Simplified expenses

Simplified expenses allow you to claim deductions on expenses used at home for work purposes and mileage costs at a flat rate, ie instead of keeping the receipts and working out proportions.

However, this is only if capital allowances have not been claimed. This saves you having to keep detailed records of expenses and estimating business usage.

Common sense

In summary, it comes down to common sense. Is it really for the business?

Some of the ridiculous claims could actually be OK……if they were genuinely for the business. For example, it’s OK to buy gifts for the team….if you have a team.

 

If in doubt, ask an expert – it’s what we’re here for! Now, I’m just off for a meeting with HMRC….in Hawaii.

What taxes do I pay?

To find out more, you can either watch Claire explain it on our video here or read about it below.

 

The taxes you pay to HMRC come in two forms

The first is DIRECT TAXES – these are charged on income, profits or

other gains.  They are either deducted at source, for example payroll taxes, or paid directly to HMRC.  The main direct tax for Limited Companies is Corporation Tax and for Individuals, Sole Traders and Partnerships it is Income Tax.

The other form of tax is INDIRECT tax which is charged on spending.  The indirect tax which we will look at is VAT.  In this case it is the responsibility of the seller to pass the tax onto HMRC.

What is Corporation Tax?

This is a tax charged on UK resident companies based on their profits.  The Corporation Tax rate is set annually by the Government and for the 2018/19 tax year is 19%.

You must register your company for Corporation Tax with HMRC within 3 months of setting up the business.

Each year a company is required to complete a Corporation tax return called a CT600 and file it online with HMRC.  Normally this must be done within 12 months of the Company’s year end date.  An important point to note is that BEFORE this 12 month filing deadline is reached, any Corporation tax due must be paid electronically to HMRC.  This payment deadline is 9 months and 1 day after the end of the accounting period.

It is the responsibility of the DIRECTORS to ensure these deadlines are met and HMRC will issue penalties for late filing of the return or payment of any tax due.

What is in included in my Corporation Tax calculation?

A Company pays Corporation Tax on

  • Profits from its trading activities
  • Income from its investments
  • Any chargeable gains from selling assets for more than they cost.

If the company is based in the UK it pays Corporation Tax on all its profits from both the UK and abroad.

What happens if I make a loss?

Any trading losses made by a company can be carried forward and offset against any future trading profits which reduces the future tax liability.  Alternatively they can be set against the company’s TOTAL profits for a specified period.  Even if the company has made a loss and has no payment to make a CT600 return must still be filed.

What is Income Tax?

This is the tax charged on the income of Individuals, Sole Traders and Partnerships.  Income tax is assessed for each self assessment tax year which begins on 6 April in the year and ends on 5 April in the following year.

Most people pay income tax through PAYE which is deducted from their wages before they receive their pay.  If you have other sources of taxable income you must complete a Self Assessment Tax Return.  This can be done using a paper form or online.  Once the tax year has ended on 5 April paper returns must be submitted by the 31 October.  If you file your return online the filing deadline is extended to the 31 January.  Any tax due must be paid by 31 January.

What is included in my Income Tax calculation?

The types of income which are taxed include

  • Money and benefits from employment
  • Profits you make from being self employed
  • Some state benefits
  • Most pensions
  • Rental income
  • Investment income above tax free thresholds.

There are several allowances which can reduce you tax bill.  The most common ones are

  • a personal allowance of tax free income, and
  • allowances for savings and dividend income.

The rates of income tax vary, for the 2018/19 tax year

  • income above the £11,850 personal allowance up to £46,350 is taxed at 20%,
  • income above this up to £150,000 is taxed at 40% and
  • any income above £150,000 is taxed at 45%.

What happens if I have paid too much tax?

If you find yourself in a situation where you have paid too much tax you can request a rebate from HMRC.

What is PAYE?

PAYE stands for Pay As You Earn. It is the system for collecting income tax from your earnings or pensions during the tax year. As with all forms of income tax the tax year begins on 6 April in the year and ends on 5 April in the following year.

How often tax is taken off depends on how often you are paid – usually weekly or monthly for employees.

How is it calculated?

HMRC will calculate a tax code for you and send it to your employer.  Most PAYE codes are made up of a number followed by a letter:

  • the letter relates to the type of allowance you are getting
  • the number shows the amount of the allowances which may be set against tax.

Your employer then uses that tax code to work out how much tax to take off your weekly or monthly pay or pension using the income tax rates and banding for the current tax year. They pay over that tax (and National Insurance contributions, if appropriate) to HMRC on a monthly basis.

What information will I be given?

You will be given a payslip each time you are paid. It may show the tax code your employer used to work out the tax to deduct from your gross pay.

If you are employed at 5 April, the end of the tax year, your employer will give you a P60 ‘end of year certificate’ by 31 May. This will show your pay, the tax deducted and usually the final tax code operated.  It is always worth checking you tax code to make sure it is correct.

If you leave a job during the tax year your employer will issue you with a P45 which shows your pay and the tax deducted for the tax year to date.  You give this to your new employer when you start another job.

What is National Insurance?

National insurance contributions are payments based on your level of earnings. They help to fund the UK social security system. You pay National Insurance contributions to qualify for certain benefits and the State Pension.

Who pays National Insurance?

To pay National Insurance you need a National Insurance number.  You have a National Insurance number to make sure your National Insurance contributions and tax are recorded against your name only.  It’s made up of letters and numbers and never changes.

If you don’t have a National Insurance number you can request one.

You pay National Insurance if you’re 16 or over and either:

  • an employee earning above £162 a week
  • self-employed and making a profit of £6,205 or more a year

How much National Insurance will I pay?

There are different types of National Insurance (known as ‘classes’). The type you pay depends on your employment status, how much you earn, and whether you have any gaps in your National Insurance

Employees pay Class 1 National Insurance contributions of 12% on wages between £702 to £3,863/month, and 2% on wages above this.  Contributions are collected by payroll deductions.  As well as their own contribution employers also make a National Insurance contribution on behalf of their employees.  Both these contributions are paid over to HMRC monthly.

If you’re self-employed you pay Class 2 National Insurance of £2.95/week if you have profits of £6,205 or more a year.  If you make profits of £8,424 or more a year you pay Class 4 National Insurance of 9% on profits between £8,424 and £46,350 and then 2% on profits over £46,350.  Most self-employed people pay their National Insurance through their Self Assessment Tax Return.

If you have gaps in your national insurance records you can voluntarily pay Class 3 contributions to make up the shortfall.  The main reason for doing this would be to ensure you have 30 qualifying years of contributions so that you receive the full state pension on retirement.

What is VAT?

VAT is an indirect tax on spending and is charged on certain categories of goods and services sold in the UK.  Certain types of good and services are exempt from VAT – the most common ones are

  • Insurance and finance
  • Education and training and
  • Charity fundraising.

How much VAT do I pay?

For goods and services that are taxable there are 3 rates of VAT charged;

  • Standard rate charged at 20% is the most common and covers supplies not specifically included in one of the other categories
  • Reduced rate charged at 5% on for example children’s car seats and home energy costs
  • Zero rated which as the name suggests is charged at 0% applies to for example non luxury food, children’s clothes, books and publications.

Do I have to pay the VAT to HMRC?

If you are an individual the answer is no, although you are paying VAT when you buy goods and services you are not directly responsible for paying it to HMRC.

If you operate a business with Vatable turnover greater than £85,000 in a 12 month period, the business is required to register for VAT.  The business must then charge VAT on items it sells at the appropriate VAT rate for the category of goods or services.   This VAT is collected when payment is received from customers and accounted for to HMRC on a quarterly basis.  The business must pay HMRC the net of the VAT on its sales after deducting the amount of any VAT it has paid on business purchases.   Any VAT due must be paid to HMRC within one month and 7 days of the end of the VAT quarter.  If the business has paid out more VAT on purchases than it has received on its sales it can request a rebate payment from HMRC.

 

If you have any queries on any of the taxes, please get in touch with us.  We’d love to help.

If you would like to watch our video follow this link.

What is VAT?

To find out more, you can either watch Claire explain it on our video here or read about it below.

 

VAT is an indirect tax on spending and is charged on certain categories of goods and services sold in the UK.  Certain

types of good and services are exempt from VAT – the most common ones are

  • Insurance and finance
  • Education and training and
  • Charity fundraising.

How much VAT do I pay?

For goods and services that are taxable there are 3 rates of VAT charged;

  • Standard rate charged at 20% is the most common and covers supplies not specifically included in one of the other categories
  • Reduced rate charged at 5% on for example children’s car seats and home energy costs
  • Zero rated which as the name suggests is charged at 0% applies to for example non luxury food, children’s clothes, books and publications.

Do I have to pay the VAT to HMRC?

If you are an individual the answer is no, although you are paying VAT when you buy goods and services you are not directly responsible for paying it to HMRC.

If you operate a business with Vatable turnover greater than £85,000 in a 12 month period, the business is required to register for VAT.

The business must then charge VAT on items it sells at the appropriate VAT rate for the category of goods or services.   This VAT is collected when payment is received from customers and accounted for to HMRC on a quarterly basis.  The business must pay HMRC the net of the VAT on its sales after deducting the amount of any VAT it has paid on business purchases.

Any VAT due must be paid to HMRC within one month and 7 days of the end of the VAT quarter.  If the business has paid out more VAT on purchases than it has received on its sales it can request a rebate payment from HMRC.

 

If you have any queries on any of the taxes, please get in touch with us.  We’d love to help.

If you would like to watch our video follow this link.

What is PAYE?

To find out more, you can either watch Claire explain it on our video here or read about it below.

 

PAYE stands for Pay As You Earn. It is the system for collecting income tax from your earnings or pensions during the

tax year. As with all forms of income tax the tax year begins on 6 April in the year and ends on 5 April in the following year.

How often tax is taken off depends on how often you are paid – usually weekly or monthly for employees.

How is it calculated?

HMRC will calculate a tax code for you and send it to your employer.  Most PAYE codes are made up of a number followed by a letter:

  • the letter relates to the type of allowance you are getting
  • the number shows the amount of the allowances which may be set against tax.

Your employer then uses that tax code to work out how much tax to take off your weekly or monthly pay or pension using the income tax rates and banding for the current tax year. They pay over that tax (and National Insurance contributions, if appropriate) to HMRC on a monthly basis.

What information will I be given?

You will be given a payslip each time you are paid. It may show the tax code your employer used to work out the tax to deduct from your gross pay.

If you are employed at 5 April, the end of the tax year, your employer will give you a P60 ‘end of year certificate’ by 31 May. This will show your pay, the tax deducted and usually the final tax code operated.  It is always worth checking you tax code to make sure it is correct.

If you leave a job during the tax year your employer will issue you with a P45 which shows your pay and the tax deducted for the tax year to date.  You give this to your new employer when you start another job.

 

We hope you have found this useful. If you have any queries, please get in touch. We’d love to help.

If you would like to watch our video follow this link.

What is National Insurance?

To find out more, you can either watch Claire explain it on our video here or read about it below.

 

National insurance contributions are payments based on your level of earnings. They help to fund the UK social security system. You pay

National Insurance contributions to qualify for certain benefits and the State Pension.

Who pays National Insurance?

To pay National Insurance you need a National Insurance number.  You have a National Insurance number to make sure your National Insurance contributions and tax are recorded against your name only.  It’s made up of letters and numbers and never changes.

If you don’t have a National Insurance number you can request one.

You pay National Insurance if you’re 16 or over and either:

  • an employee earning above £162 a week
  • self-employed and making a profit of £6,205 or more a year

 

How much National Insurance will I pay?

There are different types of National Insurance (known as classes’). The type you pay depends on your employment status, how much you earn, and whether you have any gaps in your National Insurance

Employees pay Class 1 National Insurance contributions of 12% on wages between £702 to £3,863/month, and 2% on wages above this.  Contributions are collected by payroll deductions.  As well as their own contribution employers also make a National Insurance contribution on behalf of their employees.  Both these contributions are paid over to HMRC monthly.

If you’re self-employed you pay Class 2 National Insurance of £2.95/week if you have profits of £6,205 or more a year.  If you make profits of £8,424 or more a year you pay Class 4 National Insurance of 9% on profits between £8,424 and £46,350 and then 2% on profits over £46,350.  Most self-employed people pay their National Insurance through their Self-Assessment Tax Return.

If you have gaps in your national insurance records you can voluntarily pay Class 3 contributions to make up the shortfall.  The main reason for doing this would be to ensure you have 30 qualifying years of contributions so that you receive the full state pension on retirement.

 

We hope you have found this useful. If you have any queries, please get in touch. We’d love to help.

If you would like to watch our video follow this link. 

What is Income Tax?

To find out more, you can either watch Claire explain it on our video here or read about it below.

 

This is the tax charged on the income of Individuals, Sole Traders and Partnerships.  Income tax is assessed for each self-assessment tax

year which begins on 6 April in the year and ends on 5 April in the following year.

Most people pay income tax through PAYE which is deducted from their wages before they receive their pay.  If you have other sources of taxable income you must complete a Self-Assessment Tax Return.  This can be done using a paper form or online.  Once the tax year has ended on 5 April paper returns must be submitted by the 31 October.  If you file your return online the filing deadline is extended to the 31 January.  Any tax due must be paid by 31 January.

What is included in my Income Tax calculation?

The types of income which are taxed include

  • Money and benefits from employment
  • Profits you make from being self employed
  • Some state benefits
  • Most pensions
  • Rental income
  • Investment income above tax free thresholds.

There are several allowances which can reduce you tax bill.  The most common ones are

  • a personal allowance of tax free income, and
  • allowances for savings and dividend income.

 

The rates of income tax vary, for the 2018/19 tax year

  • income above the £11,850 personal allowance up to £46,350 is taxed at 20%,
  • income above this up to £150,000 is taxed at 40% and
  • any income above £150,000 is taxed at 45%.

 What happens if I have paid too much tax?

If you find yourself in a situation where you have paid too much tax you can request a rebate from HMRC.

 

We hope you have found this useful. If you have any queries, please get in touch. We’d love to help.

If you would like to watch our video follow this link.

What is Corporation Tax?

To find out more, you can either watch Claire explain it on our video here or read about it below.

 

This is a tax charged on UK resident companies based on their profits.  The Corporation Tax rate is set annually by the

Government and for the 2018/19 tax year is 19%.

You must register your company for Corporation Tax with HMRC within 3 months of setting up the business.

Each year a company is required to complete a Corporation tax return called a CT600 and file it online with HMRC.  Normally this must be done within 12 months of the Company’s year end date.  An important point to note is that BEFORE this 12 month filing deadline is reached, any Corporation tax due must be paid electronically to HMRC.  This payment deadline is 9 months and 1 day after the end of the accounting period.

It is the responsibility of the DIRECTORS to ensure these deadlines are met and HMRC will issue penalties for late filing of the return or payment of any tax due.

What is in included in my Corporation Tax calculation?

A Company pays Corporation Tax on

  • Profits from its trading activities
  • Income from its investments
  • Any chargeable gains from selling assets for more than they cost.

If the company is based in the UK it pays Corporation Tax on all its profits from both the UK and abroad.

What happens if I make a loss?

Any trading losses made by a company can be carried forward and offset against any future trading profits which reduces the future tax liability.  Alternatively they can be set against the company’s TOTAL profits for a specified period.  Even if the company has made a loss and has no payment to make a CT600 return must still be filed.

 

We hope you have found this useful. If you have any queries, please get in touch. We’d love to help.

If you would like to watch our video follow this link.

Who do I need to tell about my new business?

To find out more, you can either watch Billie explain it on our video here or read about it below.

 

What are the first steps to take?

The main body that needs notifying straight away is HMRC, whether it be for taxes, National

Insurance Contribution or VAT.

If you are setting up a Sole Trader or a Partnership, then you must notify HMRC by registering online. This will have to be done before the 5th October following the end of the tax year in which the business has started.

If you are registering as a Limited Company, then Companies House will notify HMRC for you. HMRC will then send your newly formed company a form that must be completed and returned within three months.

 

Is there anyone else I need to notify?

Depending on what type of business you have decided to set up, there are possibly several people that you should inform.

If you have decided to set your business up from home, then firstly you may have to notify the local council. There you will be assessed on whether you’re required to pay any business rates.

You may need to notify your mortgage company, or at least just check that your mortgage allows a business to operate from the mortgage premises.

If you rent your property, then you may just want to check your contract as some tenancy agreements prohibit running a business from home. Sometimes it can just be a matter of courtesy to let your landlord know about what you’re planning on doing.

Then, lastly, check your house and contents insurance companies. You can then check to see if they can offer you any cover for the business assets so that everything is protected.

 

We hope you have found this useful. If you’d like to know more, please get in touch. We’d love to help.

If you would like to watch our video follow this link

How do I set up a limited company?

To find out more, you can either watch Billie explain it on our video here or read about it below.

 

You’ve finally made the decision to set up your own company and you want to know the best way to get started.

Everything needs to be done quickly as there seems to be a lot of admin to get through, but you want to make sure that you do it efficiently and do it correctly.

These are our 6 easy steps to set up your new company:

  1. Registering the company
  2. Registering for PAYE
  3. Registering for VAT
  4. Opening a business bank account
  5. Business insurances
  6. Finding an accountant

How do I register a Limited Company?

This is something you can simply do online through several websites but the easiest is to use Companies House as they’re the government body that monitors all Limited Companies.

To set your company up, you’ll need to think of a few details first:

  1. A company name – Something simple, could be your initials or just something memorable.
  1. A company address – what address do you want to be on the public records?
  1. Director’s details – have you decided who the directors are going to be?

If your setting up the business on your own, then this will just be you and therefore you’ll just need to fill out all your own personal details (date of birth, nationality, etc.)

  1. Shareholders – you want the company to be limited by share capital so that you can take out the profits tax-efficiently. The shareholders own the company and receive dividends. As with the director, you can start with you as the sole shareholder and you can chose the number of shares that you want. If it’s just you, one £1 ordinary share is enough.
  1. A credit card – it costs £12 to register the company on Companies House.

After you have done all this, Companies House will process the application. This can take a few days and then they’ll send you your Incorporation Certificate, which your clients may need to see before signing a contract.

You will also receive a 6-digit authentication code through the post – keep hold of this. You will need this code whenever you want to sign into Companies House in the future.

HMRC will then automatically be notified of your new company. They will write to you with your company’s Unique Taxpayer Reference which you will need to be able to file a tax return next year as well as for some of the steps we will take today.

Registering for PAYE

The most efficient way of taking money from the company is by paying yourself a small salary each month and then taking the rest as dividends.

Where do you do this?

You will need to register a payroll with HMRC through the Employers section of the HMRC website.

What you need to do it?

You will need all the company details including the Unique Taxpayer Reference, and also your personal details again.

You will then need to submit payroll documents to HMRC monthly. You can so this online, through a payroll software, or by using an accountant.

Registering for VAT

You must register for VAT is your VAT taxable turnover is over £85,000 in a 12-month period. Even if your business turnover is below £85,000 you can register voluntarily for VAT.

If you’re not sure whether to do this, you may want to get some expect advice for an accountant.

Where do you do this?

Again, you can do this on the HMRC’s website – it’s the same place for registering for PAYE, so you can do it at the same time.

What do you need to do it?

You will need all the company’s details again, including the Unique Taxpayer Reference and your personal details.

You will then submit VAT returns to HMRC, usually quarterly. You can do this through an accountant or through your government gateway on HMRC’s website.

How do I open a business bank account?

Your business will need its own bank account as it is a separate legal entity. You can then use this bank account to pay for all your business bills and transactions, for example:

  • Your salary
  • Dividends
  • Payments to HMRC for VAT, Corporation Tax and PAYE/NI
  • Repaying your personal expenses, e.g. mileage
  • Paying other business bills, e.g. mobile phones and travel expenses

How do you choose your bank account?

It may be easier using the bank that you already have your personal account with, but that doesn’t always mean the best solution. Here are a few things you should consider:

  • Bank Charges – Usually free for the first year then you pay monthly fees and charges depending on transactions.
  • Online Banking – Check you can get online access to statements and can make payments online without extra charges.
  • Phone Banking – Can be convenient if you aren’t near your local branch but have enquiries.
  • Location and bank manager – Having a face-to-face approach, asking about any other enquiries. A helpful bank manager can be very useful.
  • Interest paid to you – Check the rates you’ll receive back on any cash in your account.

When you’ve chosen the bank, you can set up the account.

Where do you do this?

You will usually need to go into the bank to do this as there are some security procedures that you’ll need to follow. However, ring first or apply online as there is often a delay in getting an appointment as start-up managers deal with a lot of businesses.

What do you need to do it?

You’ll need all the company details, Certificate of Incorporation that Companies House issued you, your Memorandum, Articles of Association and Share Certificates – you’ll have received all of these when you registered the company.

The bank will also need to do some security checks on you personally – they’ll need to see some photographic ID (passport or driving licence) and proof of address.

Insurances

Depending on your nature of work and your clients, you may need some insurance.

Even if your clients don’t require it, you should at least consider Professional Indemnity Insurance which will cover you against any claims from your clients.

You may also want to look at Public Liability Insurance for the company and now you’re self-employed, you might want to check insurances for loss of earnings if your unable to work, due to illness for example.

Finding an Accountant

You can do all the bookkeeping yourself and submit the relevant returns to Companies House and HMRC – these can include accounts, Corporation Tax returns, VAT returns and payroll submissions.

Or you might want to concentrate on what you do best and use an accountant for all the other stuff. You will also be able to get advice from your accountant to make sure your company and personal finances are as tax-efficient as possible. They should help you fully understand all the numbers, should be available throughout the year and of course making sure you meet all the HMRC requirements and deadlines.

How do you choose an accountant?

There are a number of things to consider. These include:

  • Size of firm – Apple wouldn’t pick a one-man band accountancy firm in Liverpool. And a global firm of accountants wouldn’t be right for a small business in Liverpool. It makes sense to pick an accountancy firm that works with businesses of your size.
  • Their experience – do they have experience with your type of business and in your sector? Make sure they’re able to give you relevant advice.
  • Fees – cheapest isn’t always best.
  • Recommendations – if anyone that you know has used them, ask their opinion. Otherwise, check out testimonials on their website or ask them if you can speak to a current client.
  • Relationship – make sure that you can work with this person on a day to day basis, trust them and value their advice.

What do you need to do it?

It is possible to speak to an accountant before you set up the company. They will need to do some of the same security checks as a bank, so you’ll need photographic ID and proof of address.

If you already up and running, you’ll also need all the company details so that they can start work.

What can go wrong when I set up a Limited Company?

There are a number of common pitfalls in setting up a Limited Company:

  • Getting the share capital wrong – this can be costly as the tax efficiencies are based on shares.
  • Getting the salary wrong – most companies pick a whole round number, eg £1,000 a month and pay more tax than necessary.
  • Choosing the wrong VAT scheme – there are lots of different schemes. You need the one that’s best for you.
  • Delaying VAT Registration – some customers like to see your VAT registration before you start a contract.
  • Setting up a PAYE scheme but missing a monthly submission to HMRC – fines can add up quickly.
  • Underestimating the waiting time for a bank account – can be a que for a few weeks to meet with a start-up manager.
  • Not getting correct insurances – we all hope that nothing is going to go wrong but sometimes it does and its useful to be covered.
  • Failing to claim for the allowed expenses to reduce your tax bill– an accountant can help you with this.

 

Hopefully, you now feel confident enough to set up your limited company and start trading. But, sometimes, it does pay to get expert help. If you do need anything, please do get in touch with us using the details below.

If you would like to watch our video follow this link.

Do I have to register for the Construction Industry Scheme (CIS)?

To find out more, you can either watch Claire explain it on our video here or read about it below.

 

If you are a Contractor in the construction industry who subcontracts work to other businesses you must register for CIS.  This applies

whether you operate as a company, partnership or a sole trader.

If you are a Sub-contractor who works on larger projects for a main contractor you have the option to register for CIS and there are benefits to doing this.

If you are a contractor and a subcontractor you must register for both schemes.

There are exceptions for businesses that only do certain jobs for example architecture or surveying, carpet fitting and delivery.  The full list is on the HMRC website.

If your businesses is not in the construction industry but carries out £1 million of construction work in any 3 year period you will also be required to register.

How does the Construction Industry Scheme Operate?

Under CIS, contractors deduct money from their payments to subcontractors and pay it over to HMRC.  In simple terms the deduction applies to the labour element of invoices not materials or VAT.  Specific details of the calculation are given on the HMRC website.  The deduction counts as an advance payment towards the subcontractor’s tax and National Insurance.

If the subcontractor is registered for CIS the deduction is 20%.

If the subcontractor is not registered for CIS the deduction increases to 30%.

If you are a registered sub-contractor you can apply for gross payment status which means no deduction is taken.  You must meet these conditions to qualify.

    • The business is carried on in the UK and has a bank account
    • The business has paid its tax and National insurance on time in the past.
    • The business must meet minimum turnover limits specified on the HMRC website.

How do I register as a contractor?

This should be done before you start to pay anyone as an employee or a subcontractor.  To register as a contractor you need to first register as an employer with HMRC.  This can be done online and HMRC will then issue you with a PAYE Employer Reference and an Accounts Office Reference.  Using these references you can register online for the CIS scheme.

How do I register as a sub-contractor?

Subcontractors register online on the HMRC website by providing business information including the Unique Taxpayer Reference number.

What are my obligations as a contractor under CIS?

A contractor must file monthly online returns with HMRC.   These show which subcontractors have been employed in the month and the deduction taken from their invoices.

Within 14 days of the end of each month you must do three things

  • 1 – Provide a statement to each subcontractor, showing the payments made and the amounts deducted
  • 2 – File an online return with HMRC showing all the subcontractor payments made in the month.
  • 3 – Pay over the deductions made to HMRC, you get 3 extra days to pay if the payment is made electronically.

When can a subcontractor reclaim the tax deducted?

Sole Traders and Partners submit details of the tax that has been deducted during the tax year when they submit their Annual Self Assessment Tax Return.  HMRC will then adjust the amount of tax to be paid to take account of the CIS deductions.

Limited Company subcontractors submit their CIS deduction information to HMRC monthly together with their payroll tax information.  The CIS deductions are used to reduce the monthly payroll tax amount which is then paid as usual.

 

If you have any questions please get in touch with us at Jon Davies Accountants.  We’d love to help

If you would like to watch our video follow this link.

When does a Limited Company pay Corporation Tax?

To find out more, you can either watch Billie explain it on our video here or read about it below.

 

For companies, the annual accounts are submitted to Companies House and the Corporation Tax return is submitted to HMRC.

 

If you have taxable

profits over £1.5 million you must normally pay your Corporation Tax for that period electronically in instalments.

 

If you have taxable profits of up to £1.5 million the deadline for your tax return is 12 months after the end of the accounting period it covers. There is a separate deadline to pay your corporation tax bill and it is usually 9 months and 1 day after the end of the accounting period.

 

The only exception to this is in your first year of trading, when you may have two accounting periods, if the accounting period is longer than 12 months.

 

For example, if you set up your business on 1 May 2018, your year-end would usually be 31 May 2019. The first accounting period is a 12 month period of 1 May 2018 to 30 April 2019, and a second shorter accounting period of 1 May 2019 to 31 May 2019. Then, going forward, the accounting periods will run from 1 June to 31 May.

 

In the first year of trading your accounts are due 1 year and 9 months after the incorporation of the company.

Using the example above, the first year accounts cover two accounting periods from 1 May 2018 to 31 May 2019. The accounts and corporation tax are due 1 year and 9 months after the incorporation, so 1 February 2020.

 

When you file your tax return you work out your profit or loss for corporation tax and corporation tax bill. You can either get an accountant to prepare and file your tax return or do it yourself.

 

We hope you have found this useful. If you have any queries, please get in touch. We’d love to help.

If you would like to watch our video, follow this link.

 

What are the Best Tax Perks for Directors?

Believe it or not, sometimes the taxman actually gives as well as takes, and it is possible for directors to enjoy a number of perks tax-free.  This can help directors or family members to extract profits in a tax efficient manner.  Here are some

of the most popular tax-free perks.

Claire has recorded a handy video on the tax perks, or you can read about them below.

Mobile Phones
If you are a director of a family or personally owned company, it makes sense for the company to meet your mobile phone costs.  Provided certain conditions are met you can enjoy this benefit free of tax and National Insurance Contributions, and the company can deduct the cost from its profits when calculating its corporation tax.

So what conditions need to be met?

  • Firstly, the mobile phone contract must be between the company and the phone provider,
  • Secondly, the phone is made available for you but it is owned by the company, and
  • Finally, the company pays the phone bill.

The exemption is limited to one phone per director or employee (so a phone can only be provided for family members if they are employees or directors).  It applies to all mobile phones including smartphones designed for making voice calls, but not to devices such as iPads which can be used for voice over internet calls.

Mileage Allowances

The tax charge on company cars can be expensive, which means that often it is not worth providing a director with a company car unless it is a cheap, low emission car.

Where you use your own car for business journeys, you can claim an approved HMRC mileage allowance.  This is free of tax and National Insurance and doesn’t need including on your P11D as long it doesn’t exceed the agreed rate.  The rate is 45 pence per mile for the first 10,000 business miles in the tax year and 25 pence per mile for any subsequent miles.

Mileage allowances paid to directors are deductible against the company’s profit for corporation tax and the VAT element can be reclaimed if the company is VAT registered.  The VAT is calculated using the HMRC advisory fuel rates.

Childcare Support

If you have children you’ll know only too well that childcare is expensive.  Childcare vouchers can be provided tax-free up to the exempt amount, which is £55 per week for basic taxpayers, £28 per week for higher rate taxpayers and £25 per week for additional rate taxpayers.  The government website www.childcarechoices.gov.uk sets out a variety of tax efficient options for assistance with childcare costs, and it is advisable to see what works best for your personal circumstances.

Parking

The cost of parking, particularly in a town or city centre can soon add up.  HMRC offer a parking tax exemption where the company meets the cost of parking at or near your place of work, you incur no tax charge on this benefit.

Pensions

Company pension payments towards your pension can be a significant benefit.  As long as the contributions are to a registered pension scheme they don’t result in any income tax liability.  The pension payments are usually deductible in calculating the company’s taxable profits.  There is an annual tax-free allowance for contributions which can be made into your pension.  Employers pension contributions are taken into account when assessing whether this allowance has been reached in the year.

There is also a separate exemption which allows up to £500 of pension advice a year tax-free.

Party Time

Always very popular, there is an annual exemption which applies to an annual party or similar functions and is capped at £150 per head.  The per head figure can include guests and where there is more than one event a year, the exemption applies to as many events as fall completely within the £150 per head allowance.

A word of caution, if the cost per head of a function is not completely within the allowance the full amount is taxable as an employee benefit in kind.  The cash equivalent of your benefit will include the cost of your guests.

Medical Benefits

Private medical insurance is a taxable benefit. However, an annual health screening assessment and medical checkup can be provided each year without it being considered a benefit in kind.

If you have been off work as a result of an injury or a period of ill health, the company can meet the cost of recommended medical treatment to assist your return to work.  No taxable benefit is triggered as long as the cost is capped at £500 a year.

Rewarding Long Service

Long service awards are tax exempt as long as they don’t exceed £50 for each year of service for example 20 years of service could receive a tax-free reward worth up to £1,000.  The reward can’t be in the form of cash, a voucher or shares, but as long as it is something tangible for example a watch, a painting or jewellery the exemption can be claimed.

Trivial but Worthwhile

The trivial benefits tax exemption allows a company to provide benefits costing not more than £50 to employees tax-free.  The benefit cannot be cash or cash vouchers and, for directors of a company with 5 or fewer shareholders, the benefit is capped at £300 per year.  The exemption can be used for example to provide a £25 monthly treat of flowers, a meal, or a bottle of wine.

I hope you found that useful.  If you have any queries, please get in touch with us.  We’d love to help.

How does VAT work?

Read below to find out what you need to know about VAT.

 

Value Added Tax is a type of general consumption tax, which is charged on the purchase of a good or service provided by UK companies. VAT is collected on behalf of HMRC by

companies and is typically paid to HMRC on a quarterly basis.

How is VAT calculated?

VAT registered companies must charge VAT on the goods and services they provide and can reclaim any VAT they have paid on any purchases for the business.

If you have charged more VAT on sales then you have paid on purchases, then you have to pay the difference to HMRC. Alternatively, if you have paid more VAT on purchases than you have charged on sales you can reclaim the difference from HMRC.

This is done via your VAT return which is usually due every 3 months.

When do I need to register for VAT?

You must register for VAT with HMRC if your business’ turnover is more than £85,000 in a 12 month period or if you expect your turnover to go over this amount in a single 30 day period.

You must also register for VAT even if you only sell goods or services that are exempt from VAT, but you purchase goods for more than £85,000 from EU VAT registered suppliers.

You can also register for VAT voluntarily if your turnover is below £85,000. This may be tax efficient if you purchase more VAT-able products then you would expect to sell.

How do I register for VAT?

The quickest way to register for VAT is online.

If you go to www.hmrc.gov.uk, you can create a government gateway account with HMRC, which you will need to submit your VAT returns. You can also add additional taxes to this account including corporation tax, income tax and PAYE.

If you can’t register online, you can also register by post by downloading a VAT1 form HMRC’s website.

An even easier way is to appoint an accountant to complete the VAT registration for you. They deal with VAT registrations daily and may be able to help with choosing a specific scheme which is tax efficient for your company.

Once you have registered for VAT, you will be sent the following information:

  • Your VAT number
  • Dates when you need to submit your first VAT return and make a payment
  • Your ‘effective date of registration’. This is the date you either went over the VAT threshold of £85,000 or the date you voluntarily asked to become VAT registered

From this effective date of registration, you are responsible for charging the right amount of VAT on sales, paying any VAT due to HMRC, submitting your VAT returns on time and keeping VAT records.

What else do I need to consider?

Different VAT schemes

Usually your VAT returns and payments are submitted to HMRC every quarter, and you calculate VAT received on sales less VAT paid on expenses. However, you may be eligible to apply for one of the following schemes:

  • Annual Accounting Scheme – Where the VAT period is one year and you make advance VAT payments towards your VAT bill throughout the year, which is either based on your last VAT return or estimated if your newly VAT registered company. You can only apply for this scheme if your estimated turnover is less than £1.35 million
  • Flat Rate VAT Scheme – where you pay a fixed rate of VAT to HMRC. This rate will depend on your business type. You keep the difference of VAT charged from sales less VAT paid to HMRC. However, you can’t reclaim VAT on purchases apart from capital assets over £2,000. To join this scheme your annual turnover must be below £150,000. There are further restrictions on joining this scheme, it is best to check with your accountant if you are eligible.

There are also a number of other schemes, for example covering Travel Agents and Motor Trades. It’s worth checking or speaking to an expert.

What records do I need to keep?

You must keep your VAT records for 6 years either on paper, electronically or on accounting software and you must have a VAT invoice in order to reclaim the VAT. If HMRC were to look at you, you could be fined if your records aren’t kept in order. We would recommend using an accounting software such as Xero to keep your records safe.

Whether, you are registering for VAT because your turnover is above the threshold or you are voluntarily wanting to register, it is best to get some advice from an expert, such as your accountant on the different schemes and rates of VAT.

 

We hope you have found this useful. If you have any queries, please get in touch. We’d love to help.

What taxes do I pay?

To find out more, you can either watch Claire explain it on our video here or read about it below.

 

The taxes you pay to HMRC come in two forms

The first is DIRECT TAXES – these are charged on income, profits or

other gains.  They are either deducted at source, for example payroll taxes, or paid directly to HMRC.  The main direct tax for Limited Companies is Corporation Tax and for Individuals, Sole Traders and Partnerships it is Income Tax.

The other form of tax is INDIRECT tax which is charged on spending.  The indirect tax which we will look at is VAT.  In this case it is the responsibility of the seller to pass the tax onto HMRC.

What is Corporation Tax?

This is a tax charged on UK resident companies based on their profits.  The Corporation Tax rate is set annually by the Government and for the 2018/19 tax year is 19%.

You must register your company for Corporation Tax with HMRC within 3 months of setting up the business.

Each year a company is required to complete a Corporation tax return called a CT600 and file it online with HMRC.  Normally this must be done within 12 months of the Company’s year end date.  An important point to note is that BEFORE this 12 month filing deadline is reached, any Corporation tax due must be paid electronically to HMRC.  This payment deadline is 9 months and 1 day after the end of the accounting period.

It is the responsibility of the DIRECTORS to ensure these deadlines are met and HMRC will issue penalties for late filing of the return or payment of any tax due.

What is in included in my Corporation Tax calculation?

A Company pays Corporation Tax on

  • Profits from its trading activities
  • Income from its investments
  • Any chargeable gains from selling assets for more than they cost.

If the company is based in the UK it pays Corporation Tax on all its profits from both the UK and abroad.

What happens if I make a loss?

Any trading losses made by a company can be carried forward and offset against any future trading profits which reduces the future tax liability.  Alternatively they can be set against the company’s TOTAL profits for a specified period.  Even if the company has made a loss and has no payment to make a CT600 return must still be filed.

What is Income Tax?

This is the tax charged on the income of Individuals, Sole Traders and Partnerships.  Income tax is assessed for each self assessment tax year which begins on 6 April in the year and ends on 5 April in the following year.

Most people pay income tax through PAYE which is deducted from their wages before they receive their pay.  If you have other sources of taxable income you must complete a Self Assessment Tax Return.  This can be done using a paper form or online.  Once the tax year has ended on 5 April paper returns must be submitted by the 31 October.  If you file your return online the filing deadline is extended to the 31 January.  Any tax due must be paid by 31 January.

What is included in my Income Tax calculation?

The types of income which are taxed include

  • Money and benefits from employment
  • Profits you make from being self employed
  • Some state benefits
  • Most pensions
  • Rental income
  • Investment income above tax free thresholds.

There are several allowances which can reduce you tax bill.  The most common ones are

  • a personal allowance of tax free income, and
  • allowances for savings and dividend income.

The rates of income tax vary, for the 2018/19 tax year

  • income above the £11,850 personal allowance up to £46,350 is taxed at 20%,
  • income above this up to £150,000 is taxed at 40% and
  • any income above £150,000 is taxed at 45%.

What happens if I have paid too much tax?

If you find yourself in a situation where you have paid too much tax you can request a rebate from HMRC.

What is PAYE?

PAYE stands for Pay As You Earn. It is the system for collecting income tax from your earnings or pensions during the tax year. As with all forms of income tax the tax year begins on 6 April in the year and ends on 5 April in the following year.

How often tax is taken off depends on how often you are paid – usually weekly or monthly for employees.

How is it calculated?

HMRC will calculate a tax code for you and send it to your employer.  Most PAYE codes are made up of a number followed by a letter:

  • the letter relates to the type of allowance you are getting
  • the number shows the amount of the allowances which may be set against tax.

Your employer then uses that tax code to work out how much tax to take off your weekly or monthly pay or pension using the income tax rates and banding for the current tax year. They pay over that tax (and National Insurance contributions, if appropriate) to HMRC on a monthly basis.

What information will I be given?

You will be given a payslip each time you are paid. It may show the tax code your employer used to work out the tax to deduct from your gross pay.

If you are employed at 5 April, the end of the tax year, your employer will give you a P60 ‘end of year certificate’ by 31 May. This will show your pay, the tax deducted and usually the final tax code operated.  It is always worth checking you tax code to make sure it is correct.

If you leave a job during the tax year your employer will issue you with a P45 which shows your pay and the tax deducted for the tax year to date.  You give this to your new employer when you start another job.

What is National Insurance?

National insurance contributions are payments based on your level of earnings. They help to fund the UK social security system. You pay National Insurance contributions to qualify for certain benefits and the State Pension.

Who pays National Insurance?

To pay National Insurance you need a National Insurance number.  You have a National Insurance number to make sure your National Insurance contributions and tax are recorded against your name only.  It’s made up of letters and numbers and never changes.

If you don’t have a National Insurance number you can request one.

You pay National Insurance if you’re 16 or over and either:

  • an employee earning above £162 a week
  • self-employed and making a profit of £6,205 or more a year

How much National Insurance will I pay?

There are different types of National Insurance (known as ‘classes’). The type you pay depends on your employment status, how much you earn, and whether you have any gaps in your National Insurance

Employees pay Class 1 National Insurance contributions of 12% on wages between £702 to £3,863/month, and 2% on wages above this.  Contributions are collected by payroll deductions.  As well as their own contribution employers also make a National Insurance contribution on behalf of their employees.  Both these contributions are paid over to HMRC monthly.

If you’re self-employed you pay Class 2 National Insurance of £2.95/week if you have profits of £6,205 or more a year.  If you make profits of £8,424 or more a year you pay Class 4 National Insurance of 9% on profits between £8,424 and £46,350 and then 2% on profits over £46,350.  Most self-employed people pay their National Insurance through their Self Assessment Tax Return.

If you have gaps in your national insurance records you can voluntarily pay Class 3 contributions to make up the shortfall.  The main reason for doing this would be to ensure you have 30 qualifying years of contributions so that you receive the full state pension on retirement.

What is VAT?

VAT is an indirect tax on spending and is charged on certain categories of goods and services sold in the UK.  Certain types of good and services are exempt from VAT – the most common ones are

  • Insurance and finance
  • Education and training and
  • Charity fundraising.

How much VAT do I pay?

For goods and services that are taxable there are 3 rates of VAT charged;

  • Standard rate charged at 20% is the most common and covers supplies not specifically included in one of the other categories
  • Reduced rate charged at 5% on for example children’s car seats and home energy costs
  • Zero rated which as the name suggests is charged at 0% applies to for example non luxury food, children’s clothes, books and publications.

Do I have to pay the VAT to HMRC?

If you are an individual the answer is no, although you are paying VAT when you buy goods and services you are not directly responsible for paying it to HMRC.

If you operate a business with Vatable turnover greater than £85,000 in a 12 month period, the business is required to register for VAT.  The business must then charge VAT on items it sells at the appropriate VAT rate for the category of goods or services.   This VAT is collected when payment is received from customers and accounted for to HMRC on a quarterly basis.  The business must pay HMRC the net of the VAT on its sales after deducting the amount of any VAT it has paid on business purchases.   Any VAT due must be paid to HMRC within one month and 7 days of the end of the VAT quarter.  If the business has paid out more VAT on purchases than it has received on its sales it can request a rebate payment from HMRC.

 

If you have any queries on any of the taxes, please get in touch with us.  We’d love to help.

If you would like to watch our video follow this link.

What is VAT?

To find out more, you can either watch Claire explain it on our video here or read about it below.

 

VAT is an indirect tax on spending and is charged on certain categories of goods and services sold in the UK.  Certain

types of good and services are exempt from VAT – the most common ones are

  • Insurance and finance
  • Education and training and
  • Charity fundraising.

How much VAT do I pay?

For goods and services that are taxable there are 3 rates of VAT charged;

  • Standard rate charged at 20% is the most common and covers supplies not specifically included in one of the other categories
  • Reduced rate charged at 5% on for example children’s car seats and home energy costs
  • Zero rated which as the name suggests is charged at 0% applies to for example non luxury food, children’s clothes, books and publications.

Do I have to pay the VAT to HMRC?

If you are an individual the answer is no, although you are paying VAT when you buy goods and services you are not directly responsible for paying it to HMRC.

If you operate a business with Vatable turnover greater than £85,000 in a 12 month period, the business is required to register for VAT.

The business must then charge VAT on items it sells at the appropriate VAT rate for the category of goods or services.   This VAT is collected when payment is received from customers and accounted for to HMRC on a quarterly basis.  The business must pay HMRC the net of the VAT on its sales after deducting the amount of any VAT it has paid on business purchases.

Any VAT due must be paid to HMRC within one month and 7 days of the end of the VAT quarter.  If the business has paid out more VAT on purchases than it has received on its sales it can request a rebate payment from HMRC.

 

If you have any queries on any of the taxes, please get in touch with us.  We’d love to help.

If you would like to watch our video follow this link.

Who do I need to tell about my new business?

To find out more, you can either watch Billie explain it on our video here or read about it below.

 

What are the first steps to take?

The main body that needs notifying straight away is HMRC, whether it be for taxes, National

Insurance Contribution or VAT.

If you are setting up a Sole Trader or a Partnership, then you must notify HMRC by registering online. This will have to be done before the 5th October following the end of the tax year in which the business has started.

If you are registering as a Limited Company, then Companies House will notify HMRC for you. HMRC will then send your newly formed company a form that must be completed and returned within three months.

 

Is there anyone else I need to notify?

Depending on what type of business you have decided to set up, there are possibly several people that you should inform.

If you have decided to set your business up from home, then firstly you may have to notify the local council. There you will be assessed on whether you’re required to pay any business rates.

You may need to notify your mortgage company, or at least just check that your mortgage allows a business to operate from the mortgage premises.

If you rent your property, then you may just want to check your contract as some tenancy agreements prohibit running a business from home. Sometimes it can just be a matter of courtesy to let your landlord know about what you’re planning on doing.

Then, lastly, check your house and contents insurance companies. You can then check to see if they can offer you any cover for the business assets so that everything is protected.

 

We hope you have found this useful. If you’d like to know more, please get in touch. We’d love to help.

If you would like to watch our video follow this link

How do I set up a limited company?

To find out more, you can either watch Billie explain it on our video here or read about it below.

 

You’ve finally made the decision to set up your own company and you want to know the best way to get started.

Everything needs to be done quickly as there seems to be a lot of admin to get through, but you want to make sure that you do it efficiently and do it correctly.

These are our 6 easy steps to set up your new company:

  1. Registering the company
  2. Registering for PAYE
  3. Registering for VAT
  4. Opening a business bank account
  5. Business insurances
  6. Finding an accountant

How do I register a Limited Company?

This is something you can simply do online through several websites but the easiest is to use Companies House as they’re the government body that monitors all Limited Companies.

To set your company up, you’ll need to think of a few details first:

  1. A company name – Something simple, could be your initials or just something memorable.
  1. A company address – what address do you want to be on the public records?
  1. Director’s details – have you decided who the directors are going to be?

If your setting up the business on your own, then this will just be you and therefore you’ll just need to fill out all your own personal details (date of birth, nationality, etc.)

  1. Shareholders – you want the company to be limited by share capital so that you can take out the profits tax-efficiently. The shareholders own the company and receive dividends. As with the director, you can start with you as the sole shareholder and you can chose the number of shares that you want. If it’s just you, one £1 ordinary share is enough.
  1. A credit card – it costs £12 to register the company on Companies House.

After you have done all this, Companies House will process the application. This can take a few days and then they’ll send you your Incorporation Certificate, which your clients may need to see before signing a contract.

You will also receive a 6-digit authentication code through the post – keep hold of this. You will need this code whenever you want to sign into Companies House in the future.

HMRC will then automatically be notified of your new company. They will write to you with your company’s Unique Taxpayer Reference which you will need to be able to file a tax return next year as well as for some of the steps we will take today.

Registering for PAYE

The most efficient way of taking money from the company is by paying yourself a small salary each month and then taking the rest as dividends.

Where do you do this?

You will need to register a payroll with HMRC through the Employers section of the HMRC website.

What you need to do it?

You will need all the company details including the Unique Taxpayer Reference, and also your personal details again.

You will then need to submit payroll documents to HMRC monthly. You can so this online, through a payroll software, or by using an accountant.

Registering for VAT

You must register for VAT is your VAT taxable turnover is over £85,000 in a 12-month period. Even if your business turnover is below £85,000 you can register voluntarily for VAT.

If you’re not sure whether to do this, you may want to get some expect advice for an accountant.

Where do you do this?

Again, you can do this on the HMRC’s website – it’s the same place for registering for PAYE, so you can do it at the same time.

What do you need to do it?

You will need all the company’s details again, including the Unique Taxpayer Reference and your personal details.

You will then submit VAT returns to HMRC, usually quarterly. You can do this through an accountant or through your government gateway on HMRC’s website.

How do I open a business bank account?

Your business will need its own bank account as it is a separate legal entity. You can then use this bank account to pay for all your business bills and transactions, for example:

  • Your salary
  • Dividends
  • Payments to HMRC for VAT, Corporation Tax and PAYE/NI
  • Repaying your personal expenses, e.g. mileage
  • Paying other business bills, e.g. mobile phones and travel expenses

How do you choose your bank account?

It may be easier using the bank that you already have your personal account with, but that doesn’t always mean the best solution. Here are a few things you should consider:

  • Bank Charges – Usually free for the first year then you pay monthly fees and charges depending on transactions.
  • Online Banking – Check you can get online access to statements and can make payments online without extra charges.
  • Phone Banking – Can be convenient if you aren’t near your local branch but have enquiries.
  • Location and bank manager – Having a face-to-face approach, asking about any other enquiries. A helpful bank manager can be very useful.
  • Interest paid to you – Check the rates you’ll receive back on any cash in your account.

When you’ve chosen the bank, you can set up the account.

Where do you do this?

You will usually need to go into the bank to do this as there are some security procedures that you’ll need to follow. However, ring first or apply online as there is often a delay in getting an appointment as start-up managers deal with a lot of businesses.

What do you need to do it?

You’ll need all the company details, Certificate of Incorporation that Companies House issued you, your Memorandum, Articles of Association and Share Certificates – you’ll have received all of these when you registered the company.

The bank will also need to do some security checks on you personally – they’ll need to see some photographic ID (passport or driving licence) and proof of address.

Insurances

Depending on your nature of work and your clients, you may need some insurance.

Even if your clients don’t require it, you should at least consider Professional Indemnity Insurance which will cover you against any claims from your clients.

You may also want to look at Public Liability Insurance for the company and now you’re self-employed, you might want to check insurances for loss of earnings if your unable to work, due to illness for example.

Finding an Accountant

You can do all the bookkeeping yourself and submit the relevant returns to Companies House and HMRC – these can include accounts, Corporation Tax returns, VAT returns and payroll submissions.

Or you might want to concentrate on what you do best and use an accountant for all the other stuff. You will also be able to get advice from your accountant to make sure your company and personal finances are as tax-efficient as possible. They should help you fully understand all the numbers, should be available throughout the year and of course making sure you meet all the HMRC requirements and deadlines.

How do you choose an accountant?

There are a number of things to consider. These include:

  • Size of firm – Apple wouldn’t pick a one-man band accountancy firm in Liverpool. And a global firm of accountants wouldn’t be right for a small business in Liverpool. It makes sense to pick an accountancy firm that works with businesses of your size.
  • Their experience – do they have experience with your type of business and in your sector? Make sure they’re able to give you relevant advice.
  • Fees – cheapest isn’t always best.
  • Recommendations – if anyone that you know has used them, ask their opinion. Otherwise, check out testimonials on their website or ask them if you can speak to a current client.
  • Relationship – make sure that you can work with this person on a day to day basis, trust them and value their advice.

What do you need to do it?

It is possible to speak to an accountant before you set up the company. They will need to do some of the same security checks as a bank, so you’ll need photographic ID and proof of address.

If you already up and running, you’ll also need all the company details so that they can start work.

What can go wrong when I set up a Limited Company?

There are a number of common pitfalls in setting up a Limited Company:

  • Getting the share capital wrong – this can be costly as the tax efficiencies are based on shares.
  • Getting the salary wrong – most companies pick a whole round number, eg £1,000 a month and pay more tax than necessary.
  • Choosing the wrong VAT scheme – there are lots of different schemes. You need the one that’s best for you.
  • Delaying VAT Registration – some customers like to see your VAT registration before you start a contract.
  • Setting up a PAYE scheme but missing a monthly submission to HMRC – fines can add up quickly.
  • Underestimating the waiting time for a bank account – can be a que for a few weeks to meet with a start-up manager.
  • Not getting correct insurances – we all hope that nothing is going to go wrong but sometimes it does and its useful to be covered.
  • Failing to claim for the allowed expenses to reduce your tax bill– an accountant can help you with this.

 

Hopefully, you now feel confident enough to set up your limited company and start trading. But, sometimes, it does pay to get expert help. If you do need anything, please do get in touch with us using the details below.

If you would like to watch our video follow this link.

How do I file a VAT return?

To find out more, you can either watch Sarah explain it in our video here or read about it below.

You can submit your VAT return online through your government gateway account, by entering the figures into the correct boxes provided, or

by using an accounting software.

HMRC provide a list of accounting software that allow you to submit your VAT return directly without having to enter all the figures separately in the correct boxes –This saves time and avoids any discrepancies.

At Jon Davies Accountants, we use Xero to submit the majority of our VAT returns.

The only exceptions to submitting your return online are if:

  • Your business is subject to an insolvency procedure
  • You can’t use a computer due to religious reasons, your age or disability; or
  • You simply don’t have access to the internet

You can contact HMRC when you register for VAT to get help with submitting your VAT returns through paper filing.

What do I need to submit my VAT return online?

When you registered for VAT you should have set up a government gateway account with HMRC. You will need the log in details for this, your VAT number and your VAT calculations.

When do I need to submit my VAT return?

If you are registered for quarterly VAT returns, you have up to 1 month and 7 days after the end of the accounting period.

For example, if you VAT return runs from 1 January 2018 to 31 March 2018, you have until 7 May to submit your return and pay any liability.

You should leave enough time for HMRC to receive the payment in this period, therefore we recommend getting your VAT returns in as quickly as possible – especially if you’re due a rebate!

The deadline if you’re on the Annual accounting scheme is different. You make advanced payments towards your VAT bill throughout the year either based on your last return, or estimated if you’re new to VAT. You’re VAT period is 1 year and you have up to of 2 months after the end of the accounting period to submit your return.

For example, if your VAT return runs from 1 January 2018 to 31 December 2018, you have until 28 February 2019 to submit your return. When you do submit your return, you will have either overpaid VAT throughout the year or underpaid. Therefore, you will either pay the outstanding amount over to HMRC or reclaim any overpaid VAT.

Always remember to note the reference number you receive when you submit your return as proof of your submission.

What happens if I submit my VAT return late?

HMRC will record a default on your account if you miss your submission deadline or you fail to make a payment on time and you will enter a ‘surcharge period’ of 12 months. If you default for a second time within this 12 month period the surcharge period is extended for a further 12 months and you may have to pay a fine on top of the VAT you owe. This fine is based on a percentage of the VAT outstanding and increases every time you default.

Surcharges can be as high as 15% of your annual turnover. Therefore, don’t miss the deadlines!

If you deliberately understate or overclaim on your VAT return, HMRC can also charge you a penalty of 100% of your tax. Any errors to your VAT return must be reported to HMRC.

How do I reclaim VAT?

If you have paid more VAT than you have reclaimed, then you are due a VAT rebate. You need to provide HMRC with your bank account details – even if you have a direct debit set up for VAT returns. You should receive your rebate within 10 working dates of HMRC receiving your Return.

In summary, it is important to make sure you submit your VAT return on time to avoid any fines. We also encourage using an agent or accountant to submit your return for you to make sure you are reclaiming as much VAT back as you can. You can give them authority via your online account.

We hope you have found this useful. If you have any queries, please get in touch. We’d love to help.

If you would like to watch our video follow this link.

Can I claim VAT on buying or leasing a car?

To find out more, you can either watch Sarah explain it on our video here or read about it below.

 

If you buy a new car within the company you can’t reclaim VAT. The exception is only if it is used 100%

for business purposes. The car must not be available for private use and this must be stated in your employment contract. Remember travelling from home to your normal place of work is classed as private use. Therefore, it is rare to reclaim the VAT.

 

However, you can reclaim the VAT if your business is:

  • A taxi driver
  • A driving instructor
  • Self-drive hire

If you lease a car you can usually reclaim 50% of the VAT or 100% if the car is used purely for business purposes and not available for private use.

If you hire a car you can reclaim all the VAT as long as you hire it for less than 10 days, its used only for business and not available for private use.

You can also reclaim VAT on business related maintenance or accessories added to the car.

 

Fuel

For business cars you can either reclaim the VAT on fuel for business trips and keep a detailed mileage record or reclaim all the VAT and pay the right fuel scale charge for your vehicle.

 

We hope you find this useful. If you have any queries, please get in touch. We’d love to help.

If you would like to watch our video, follow this link.

What happens if I submit my VAT return late?

To find out more, you can either watch Sarah explain it on our video here or read about it below.

 

HMRC will record a default on your account if you miss your submission deadline or you fail to make a payment on

time and you will enter a ‘surcharge period’ of 12 months. If you default for a second time within this 12 month period the surcharge period is extended for a further 12 months and you may have to pay a fine on top of the VAT you owe. This fine is based on a percentage of the VAT outstanding and increases every time you default.

Surcharges can be as high as 15% of your annual turnover. Therefore, don’t miss the deadlines!

If you deliberately understate or overclaim on your VAT return, HMRC can also charge you a penalty of 100% of your tax. Any errors to your VAT return must be reported to HMRC.

 

We hope you find this useful. If you have any queries, please get in touch. We’d love to help.

If you would like to watch our video, follow this link.

VAT

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Business Growth

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Switching Accountants

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