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What is a balance sheet?

What is a balance sheet? Watch our latest video now to find out everything you need to know, or alternatively read about it below.

 

The balance sheet, basically, states all of your assets and liabilities at a given point of

time, usually at your year end.

So, it will show everything you own and everything you owe, your own assets, so fixed assets, whether it’s plants or machinery, cars, it’s office equipment.

You’ll have debtors, you’ll have people who owe you money, your customers, and the likes. You might have stocks, if you deal in goods, you’ve bought some stuff you haven’t sold yet, and that’s sitting on your premises.

Cash is also an asset and then, there are people you owe money to, your suppliers. You might have some loans, the bank if you’re overdrawn.

Then, you add all of those up and, basically, at the bottom you get to an amount that your business is worth at this day, so your total assets, less your total liabilities.

Now it’s called a balance sheet because when you get to that figure, that’s actually been funded by something and it’s at the bottom of the balance sheet.

You actually get that figure again but made up of where it came from and that will be the shares in the company. And then usually, the profit/losses made over the years that funded it.

Now, unlike a profit/loss account, which is a movie, a balance sheet it’s a photo. It’s a snapshot at given point in time. And it is mainly facts. Again, there are some accounting assumptions in there, but most of it is fact.

You can go and touch it, so, if it says that you have this amount of cash, there’ll be a bank statement or something to back it up and that’s the same for pretty much every figure in the balance sheet.

 

If you would like to know any more information, please contact us on growth@jondaviesaccountants.co.uk or by phone on 0151 380 8081.

What accounts do I need to file for my limited company?

What accounts do I need to file for my limited company? Find out everything you need to know by watching our latest video or alternatively read about it below.

 

 

Who are the accounts for?

Every limited company must prepare accounts and

a corporation tax return.

Well, firstly, for the shareholders of the company, the owners need to know what the profit loss has been and what assets the company has.

Secondly, for HMRC, how will they know what tax you need to pay if they haven’t seen a set of accounts.

They are also for Companies House, the government body that looks after all companies and the accounts that go to Companies House are actually publicly available for anyone to download and look at.

 

What accounts do I file?

Well, the statutory accounts include a balance sheet, which effectively states the assets and liabilities of the company.

There’s a profit and loss account showing the sales, the expenses, that summarise it down to a profit or a loss, a director’s report, which is a short statement by the directors on how the business is going, and then an auditor’s report, when an independent body, an auditor, actually certifies that those accounts are broadly correct.

Now, you may be able to file abridged accounts, these abridged accounts would only have the balance sheet, profit loss and directors report. You don’t need an audit.

To be able to do this, you need to fulfil two out of these following three criteria:

  • Your sales must be less than £10.2 million in the year
  • You must have less than £5.1 million of assets
  • You must have less than 50 staff

And that, like I say, does cut down on the admin and what you need to file.

If you are a smaller business, you can actually file micro-entity accounts.

To do this, again, there’s two out of three criteria you have to hit:

  • Your sales need to be less than £632,000
  • Your assets must be less than £316,000
  • You must have less than 10 staff

In this instance, your balance sheet is abbreviated even more so, and with both the abridged accounts and the micro-entity accounts, you only file the balance sheet to Companies House, i.e., the general public can only download your balance sheet.

They can’t see your sales for the year or your expenses for the year. So, as well as the admin side, there are some privacy benefits of filing the smaller accounts.

 

When are the deadlines?

If in your first year of trading, you trade for a year, and then your deadline will be 21 months after your date of incorporation.

After that, each year your end passes, and you get nine months after the year end to file your accounts with Companies House and HMRC.

So as an example, let’s say you incorporate your business on the 1st of January 2018.

You trade for a year and then actually your year-end will be the 31st of January 2019, because the default is that Companies House always give you the last day of the month.

But the deadline to file will be on the 1st of October 2019, i.e, 21 months after the date you set the company up.

The following year, your next year end will be on the 31st of January, 2010, but then you do get the nine months to 31st of October, 2010 to file those accounts and the tax return, and that will carry on for every year after that.

 

What happens if you’re late?

Well there are fines. You’re fined £150 by Companies House if you’re late and, broadly, the fines increase every three months after that.

And that fine does get up to £1,500 if you’re more than six months late. So, my obvious advice is get them in on time, to an extent, the earlier, the better.

You don’t have to wait until nine months after the year end. If you can do them early, file them, and in terms of the tax, you know what tax you’ve got to pay.

You still don’t pay it until nine months after the year end, but you know what it is and, if need be, you’ve got time to save for it.

 

If you’d like a chat, please contact us on growth@jondaviesaccountants.co.uk or by phone on 0151 380 8081.

What is a cashflow?

What is Cashflow? If you are unsure and want to find out more then watch our video now or read about it below.

 

What’s included in the cashflow forecast?

Well, this shows the cash movements over a period of time.

So, in

your annual cashflow forecast it will show how much cash and that includes all your bank accounts you have on the first day of the year.

It then shows how much was spent or came in to give you a figure at the end of the year.

It categorises that expenditure between the income expenditure on your trade, income expenditure on buying assets, and also on any other investments or loans.

Again, this is like a movie, i’s a moving picture of the business. But the great thing with the cashflow is that it’s fact. There are no accounting assumptions in there.

The bank balance at the start of the year and the bank balance for the year end, in fact, you can’t play with those.

And for many business owners, the cashflow is the single most important financial statement.

This is because you could be making a profit that have no cash.

You might be making loads of sales with no one’s paying you for them, you’re going to go bust, whether you’re profitable or not.

I know a lot of really clever people who only look at the cashflow and they’ve got great businesses.

 

If you’d like a chat, please contact us on growth@jondaviesaccountants.co.uk or by phone on 0151 380 8081.

Do I need to be an accountant to understand accounts?

Do  I need to be an accountant to understand accounts? To find out everything you need to know watch the latest blog here or read about it below.

 

The simple answer is no you don’t, and you shouldn’t. Every business

owner should understand a set of accounts. If you don’t already, ask your accountant, but for a brief run through, you can watch the rest of this video.

What is a profit and loss account?

Well, basically it shows your sales and expenditure for the period. Usually for a year, it will add up all your sales and all your expenses.

Those expenses will be categorised under different headings, whether that’s office expenses, purchasing goods, so you can actually see where the money’s gone.

At the bottom, it will show you whether you’ve made a profit or a loss for the year.

Think of your profit loss account a bit like a movie because it is moving. It’s over a period of time, so for example, from the 1st of January to the 31st of December, and it has everything that happened during that time.

One thing that you do need to be aware of with your profit loss account is that some of it can be theory rather than facts.

That’s because you get to decide on some of the accounting assumptions that are made on how much of an expense is put into the profit loss account in a given year.

The main example of that would be is if you buy an asset. Let’s say you buying some plant and machinery for £20,000 pounds. You do get to choose in your profit and loss accounts, how much you put in each year. If you think the plant’s going to only last you one year, you put the £20,000 pounds in. If it’s going to last you five years, you put £4,000 pounds in a year.

So, you just need to be aware when you’re looking at profit and loss account of some of these assumptions have been made.

Do you have to make a profit as a business?

Well, it’s preferable and certainly long term you do need to make a profit, and that’s one of the reasons you should be keeping on looking at your profit loss accounts on a regular basis, not just once a year, but preferably monthly.

What is a balance sheet?

The balance sheet basically states all of your assets and liabilities at a given point of time, usually at your year end. So, it shows everything you own and everything you owe, your own assets, so fixed assets, whether it’s plant or machinery, it’s cars, it’s office equipment. You’ll have debtors, you’ll have people who owe you money, your customers and the likes.

You might have stocks if you deal in goods, you’ve bought some stuff you haven’t sold yet and that’s sitting on your premises.

Cash is an asset and then there are people you owe money to, your suppliers. You might have some loans, the bank if you’re overdrawn, and then you add all those up and basically at the bottom you get to the amount that your business is worth at this day, so your total assets less your total liabilities.

Now it’s called a balance sheet because when you get to that figure, that’s actually been funded by something and it’s at the bottom of the balance sheet, you actually get that figure again but made up of where it came from and that will be the shares in the company and usually the profit and losses is made over the years that have funded it.

Now unlike a profit and loss account, which is a movie, a balance sheet’s just a photo, it’s a snapshot at a given point in time and it is mainly facts. Again, there are some accounting assumptions in there, but most of it is fact. You can go and touch it. So, if it says that you have this amount of cash, there’ll be a bank statement or something to back it up. And that same approach for every figure in the balance sheet.

What is a cashflow?

Well this shows the cash movements over a period of time. So, in your annual cashflow forecast, it will show how much cash, and that includes all your bank accounts you had on the first day of the year.

It then shows how much was spent, or came in, to give you a figure at the end of the year.

It categorises that expenditure between the income expenditure on your trade income expenditure on buying assets and also on any other investments or loans.

Again, this is like a movie. It’s a moving picture of the business, but the great thing with the cashflow is that it’s fact. There are no accounting assumptions in there.

The bank balance at the start, the bank balance at the year end, a fact you can’t play with those and for many business owners, the cashflow is the single most important financial statement because you could be making a profit but have no cash.

You might be making loads of sales, if no one’s paying you for them, you’re going to go bust whether you’re profitable or not. I know a lot of really clever people who only look at the cashflow and they’ve got great businesses.

So pulling it all together, you should look at all three financial statements. They do all tie into each other. They’re all interlinked and they’re all important.

As I mentioned with the cashflow is that you need a positive cashflow for your business to survive, but in the long term it does need to be profitable as well, at least have more assets than liabilities.

You can afford for either of them to be bad for a short length of time, but it can’t be long term.

 

How often should you look at your financial statements?

Well legally, you need to prepare them at least once a year, but as a business owner you need to look at them far more often than that. Perhaps quarterly, but preferably at least monthly.

If you don’t know whether you’re making a profit or a loss or whether you’ve got cash, how would you make decisions? How would you prepare those financial statements?

Well, there are lots of options but these days some of the easiest ones are through some of the software that’s out there. Cloud-based software is great, it makes things easier and it’s actually aimed at business owners, not accountants.

You do not need to be an accountant to use the software. It’s even dead easy in terms of getting stuff in there, you can just take photos of invoices these days and that will pull them together.

If you do need help, of course, do speak to an accountant to get them through it for you, but overall, that will give you that scoreboard. You’ll know whether your business is winning or whether you’re losing.

 

If you’d like a chat, please contact us on growth@jondaviesaccountants.co.uk or by phone on 0151 380 8081.

What is a Profit and Loss Account?

What is in a profit and loss account? Find out now by watching our latest video now or read about it below.

Well, basically, it shows your sales and expenditure for the period. Usually for a year you’ll add up

all your sales and all of your expenses.

Those expenses will be categorised under different headings, whether that’s office expenses, purchasing goods, so you can actually see where the money’s gone. And at the bottom it will show you whether you’ve made a profit or a loss for the year.

Think of your Profit and Loss account a bit like a movie because it is moving. It’s over a period of time. So, for example, from the 1st of January to the 31st December, and it showed you everything that happened during that time.

 

What do I need to know?

One thing that you do need to be aware of with the Profit and Loss account is that some of it can be theory rather than fact.

That’s because you get to decide on some of the accounting assumptions that are made on how much of an expense is put into the Profit and Loss account in a given year.

The main example of that would be is if you buy an asset, let’s say you buy some plant and machinery for £20,000 pounds, you do get to choose in your Profit and Loss account how much you put in each year.

If you think that plants can only last you one year you put the £20,000 pounds in. If it’s going to last you five years, you put £4,000 pounds in a year.

So, you just need to be aware when you’re looking at Profit and Loss account of some of these assumptions that have been made.

 

Do you have to make a profit as a business?

Well, it’s preferable and certainly long term, you do need to make a profit.

And that’s one of the reasons you should keep on looking at your Profit and Loss account on a regular basis, not just once a year, but preferably monthly.

 

Further Actions

If your business issues company cars, then it may be worth considering supplying electric cars as there are more tax benefits available to your employee and to you as an employer.

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

What are the benefits of using cloud accounting software?

What are the benefits of using cloud accounting software? Find out now by watching our latest video or read about it below.

Let’s face it, bookkeeping can be tedious. As a business owner, it can suck up far too much

of your time and effort. This doesn’t add value, and it takes the fun out of being in business.

 

So what is the cloud all about?

Think about when you use internet banking. Every time you access this data, you’re using the cloud. The cloud is a platform to make data and software accessible online anytime, anywhere, from any device. Your hard drive isn’t needed.

Some of the issues of traditional accounts software include:

  • There’s a time lag – the data isn’t up to date and neither is the software.
  • It only works on one computer and data bounces around from place to place, for example by email or on a USB drive. This isn’t secure or reliable.
  • It’s a hassle to backup the data. And it can be expensive.
  • The software always needs upgrading – this can be difficult, time consuming and expensive. And it can lead to issues over compatibility with your advisers.
  • Only one person has user access. Key people can’t access financial and customer details.

 

Why are the cloud and accounting software a perfect match?

You can use cloud-based software from any device with an internet connection – computer, phone or tablet.

Online accounting means you stay connected to your data and your accountant. It’s cost-effective and easy to use. And it can link in to loads of other applications.

If you use cloud accounting software, you’ll no longer need to install and run applications over a desktop computer. You pay a monthly subscription for the software and upgrades are done automatically in the background.

 

Is it secure?

As a business owner, you might be worried about the security of your data. But the cloud is actually one of the most secure ways to store information. The software and the data no longer live on your hard drive.

This means that, for example, if you lose your laptop, no one can access your data unless they have a login to the online account.

If there’s a fire in the office, all your information is safely and securely stored off site. As long as you have internet access, you’re back up and running immediately.

In addition to this, you can control the level of access that you give top any other users, whether they’re staff or external advisers. This is far more secure than the old-fashioned way of emailing your files or sending out a USB stick with your data on it.

Cloud-based software companies ensure that security and privacy of data is always airtight. If you use online banking, then you’re already primed to use cloud accounting.

 

Work flexibly and smarter

The best thing about the cloud is the flexibility it gives you to run your business from work, home, or on the go. You can be sure that you have an up-to-date picture of how your business is doing, anytime and anyplace.

Software updates can be delivered quicker and more easily in the cloud. This means you don’t need to worry about constantly installing new versions. You also get access to new features instantly.

With cloud accounting software, you have the option to run your business remotely, from anywhere in the world. When data is fluid and accessible, the possibilities are endless.

 

So, here are five ways that cloud accounting can benefit your business

  1. You’re on top of the numbers. You have a real-time, clear overview of your financial position, available on your phone or tablet as well as your computer.
  2. It saves you lots of time – the software automatically uploads your bank statements and matches invoices to receipts/payments.
  3. It’s easy to collaborate online with your team and advisers – lots of users can log-in at the same time.
  4. It’s all online – you don’t have to install it, you just log-in. And everything is backed up automatically. Upgrades and maintenance are done automatically and in the background…..and for free!
  5. There are no upfront fees. The software is paid through a monthly subscription.

 

How can we help?

We’ve been using cloud software for a few years now. A few years ago, we partnered with Xero, the world’s leading cloud accountancy software. And, in February 2015, we became their first Gold Partner in Liverpool – something we’re pretty proud of.

What this means to you, though, is that we’re well placed to advise you on the specific benefits to your business and, if you’re interested, get you started.

If you want to know more, please get in touch using the details below.

If you’d like a chat, please contact us on growth@jondaviesaccountants.co.uk or by phone on 0151 380 8081.

What are Management Accounts?

What are Management Accounts? Find out now by watching our latest video or read about it below.

 

Management accounts are just another set of numbers, aren’t they? Why would you want them? Well, most successful entrepreneurs swear by them

as they can put you totally in control of your business.

 

What are management accounts?

Management accounts are sets of financial statements that are prepared throughout the year. They’re not a legal requirement – they’re just for internal use – but they give real-time information on how the business is doing.

They can include whatever figures are useful for your business. As a starting point, you’d probably want a Profit & Loss, Balance Sheet and a Cashflow, but you can then tailor them to pick out the key areas for you.

For example, we work with our clients to pick the key drivers and Key Performance Indicators (KPIs) for the business.

For some, this might be new customers but we can then take this back a couple of steps to trace the conversion rates from “Leads” to “Meetings” to “Quotes” to “Customers”. For other businesses, it might all be tied into the website – our software talks to Google Analytics and can pull these figures into the same report.

And it’s good if the management accounts are clear and interesting to look at. We use lots of diagrams/graphs to make the figures easier to read, and trends easier to spot.

 

What are the benefits of management accounts?

There are lots of great reasons to prepare management accounts.

  • Making informed decisions – how can you make decisions if you don’t know exactly where the business is right now? Management accounts give you up-to-date financial information so you can make the best decisions for your business
  • Putting you in control – with the knowledge you have, you’re in full control of your business. Waiting until a year-end can be too late to spot trends and changes that need to be made
  • Tracking your progress – how are you doing in reaching your goals? If you’re not measuring your progress, how are you going to get there? How will you spot if you’re off track? And what tweaks you might need to make to catch up? As well as the standard financials, including your KPIs in the management accounts keeps you on track
  • Tax planning – knowing your profits before the year-end helps plan and minimise your tax bills

 

How do I prepare management accounts?

These days, there’s no excuse for a business owner not to prepare management accounts. With cloud-based software, you can be on top of your business numbers in real time.

Xero can prepare management reports for you or, if you want to step it up a level, there are add-ons that can being in lots of non-financial information as well. For example, we use Spotlight and are proud to be a Spotlight VCFO.

If you’d like to know more about the benefits of management accounts and how you can be in full control of your business, please get in touch.

 

If you’d like a chat, please contact us on growth@jondaviesaccountants.co.uk or by phone on 0151 380 8081.

 

 

 

How do I open a business bank account?

How Do I Open a Business Bank Account? Find out now by watching our latest video here or read about it below.

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.

 

If you’d like a chat, please contact us on growth@jondaviesaccountants.co.uk or by phone on 0151 380 8081.

What is a Confirmation Statement?

What is a Confirmation Statement? To find out now watch our video or alternatively read the blog below.

What is a confirmation statement?

All private limited companies and limited liability partnerships registered in the UK must submit a confirmation statement to

Companies House at least once every 12 months, even if the business is dormant.

The purpose of the confirmation statement is to verify that the data held in Companies House for your company is accurate and up to date.

This data includes:

  • Registered office address
  • Officers
  • Registers
  • Standard Industrial Classifications
  • Share Capital
  • Shareholders
  • People with significant controls

 

When is my confirmation statement due?

You must file your confirmation statement at least once every twelve months. The due date falls on the anniversary of your company’s incorporation. You then have 14 days after this date to submit your confirmation statement to Companies House.

 

How do I submit my confirmation statement?

You can submit your Confirmation Statement in the following ways:

  • Either by post using paper form CS01 or LL CS01 for Limited Liability Partnerships
  • Or online via the HMRC website.

The postal form is the more expensive option costing £40 to file. The online form only costs £13 to file and because it already has your data pre-populated it is much quicker and simpler for you. Therefore, we recommend the online option.

 

What happens if I don’t file my Confirmation Statement on time?

You will not incur a late filing penalty for an overdue Confirmation Statement. However, failure to file your Confirmation Statement is a criminal offence which can result in directors being fined personally. Companies House may also seek to completely strike off your company from the register.

Therefore, it is extremely important that you do it!

If you’d like a chat, please contact us on growth@jondaviesaccountants.co.uk or by phone on 0151 380 8081.

What is a Director’s loan account?

Do you know what a directors loan account is? Watch our video to find out now or continue to read below.

 

When we go through a set of accounts with a client, one of the areas that causes the most confusion

is the Director’s Loan Account.

The common questions we get asked are:

  • What is it?
  • Can I have one?
  • If I do have one, what’s the tax impact to the company?

What is a Director’s Loan Account?

At its simplest, it’s a record of all of the transactions between you, as a Director, and the company itself. The Limited Company is a separate legal entity to you, and its bank account is separate to yours.

When you set up the business, you probably had to put a bit of money in to get it going. That is treated as a loan. A loan from you, the Director of the business, to the company.

As the company goes forward, there are transactions on this loan where, for example, you might buy some things on behalf of the company. For example, if you’re out and about and you use cash to pay for a parking ticket or a taxi. Perhaps you use your own credit card for some purchases. In these instances, you’ve used your money to pay for things for the company. Therefore the company owes money to you, the Director. Therefore, it’s credited to your Director’s Loan Account.

The flip side is, there are times when the company pays for things for you. Perhaps you used the company bank card to pay for a personal meal. The main example is when the company transfers money from its bank account to yours, and that money isn’t already declared as a salary or a dividend. It’s just a cash transfer.

In a small business, this is pretty common. You are the owner and manager of the business and transferring money to and from your own bank account is relatively common. The key thing is that it is all part of the Director’s Loan and it must be accounted for as such.

What we find is that, when clients first come to us, they may see a figure on a Director’s Loan Account at the year-end and not know what it is. However, when they see the individual transactions one by one throughout the year, it usually does make sense. It’s just understanding the concept of the loan.

Are you allowed a Director’s Loan Account?

Yes – you are.

However, you have to be aware of the rules over that loan account. In particular, you need to understand the rules when the Director owes money to the company.

It is fine for the company to owe you money but, generally, you shouldn’t just be taking cash out of the business without it being accounted for properly as a salary or a dividend, or as a Director’s Loan.

What’s the tax impact of a Director’s Loan Account?

If your Director’s Loan Account is overdrawn, ie you owe money to the company, there may be a tax impact.

HMRC doesn’t want you to just take money out of the company, call it a loan, and neither you nor the company to pay tax on it. If you are taking money out of the company, ultimately it should be a dividend or salary, which has a tax impact.

Therefore, HMRC has a few rules on overdrawn Director’s Loans.

Corporation Tax

The first rule is that, if you owe money to the company at the accounting year end, the company should pay corporation tax at a rate of 32.5% on the balance of that loan.

The exception is that, if the loan is repaid within nine months of the year end, you do not have to pay the tax.

As an example, if your year end is 31 December 2018 and you owe your company £10,000, there is a tax charge of £3,250 unless you repay the money by 30 September 2019. Not entirely coincidentally, 30 September 2019 is also the deadline date for filing your accounts and tax for the year.

The reason for this is to stop you running off and not paying any tax.

The good news is that, when you do repay the loan, HMRC will refund the tax to the company. However, there may well be a time lag, ie you may pay the tax in one year’s tax return and then get it back a year later.

But the point is that it’s a way of HMRC stopping you running off without paying any tax. They are happy to pay it back when you put the loan back to zero.

Personal tax

If the loan is more than £10,000, there is actually a tax “benefit-in-kind” on you personally. This is because you’ve had a loan without paying any interest.

HMRC assume that you have avoided paying interest……and want tax on that benefit.They have their own rate This rate is currently 2.5%. On a £10,000 pound loan, they would assume that you’ve got out of paying interest of 2.5%, ie £250, and charge tax on that.

Anything else?

It is worth being aware that, if the company closes, any overdrawn loan needs to be repaid by the Director. The Director remains liable for this personally.

So, that’s how Director’s Loan Accounts work. If you have any queries, please do get in touch.

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  

What expenses get tax relief?

What expenses get tax relief? Find out now by watching our video or read about it below.

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 our video 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 our video 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…

What structure is best for my business?

What structure is best for my business? If you want to find out more information, then watch our latest video now or alternatively read about it below.

 

What structure is best for my business?

You’re one of the 600,000 new businesses

that startup in the UK each year. The most common question of a new business owner is what structure should I use for that business?

There are loads of options out there, but there are three main ones.

 

Sole Trader

The first option is the simplest option, and that’s to be a sole trader. If you do this, you’re the business and the business is you.

There’s nothing special you need to do to start, you just go for it. All you do need to do because the HMRC know that you start your trading.

Now, the way a sole trader works is that you are the business, you sell your services or your goods. You pay your suppliers, whatever’s left at the end is yours. There’d be some tax to pay on that, but it’s all yours.

 

Partnership

The second option is a partnership. A partnership is a sole trader involving more than one person, it could be two people, or it could be 200 people, but it works exactly the same as a sole trader.

It’s simple and easy to get up and running. You just need to register with HMRC to let them know that you’re doing it, and then again, you and your partners are the business.

You sell your services or goods, you pay your suppliers and again what’s left at the end, the profit is split between the partners, and you pay your tax on that.

 

Limited Company

The third option is slightly more complex, and that’s a limited company. Now in this instance, the limited company is actually a separate legal entity to you.

The business is run through the limited company, not through you. You own shares in the company, and also, you’re usually a director of the company, so you run it, but it exists separately to you.

The limited company sells the goods and services to your customers. The limited company pays the suppliers and at the end the limited company makes a profit.

After the company has paid its taxes, it can then transfer what’s left to you either as a salary or as a dividend to the shareholders.

 

Tax savings

For many business owners, the choice of business structure comes down to the tax savings available.

Traditionally a limited company and its owners pay a lot less tax than a sole trader on the same amount of profits.

That’s because the owner of a limited company doesn’t usually pay any national insurance. However, the rules did change back in April, 2016, which did narrow that gap.

There are still tax savings, but they’re not as big and your profits need to be quite large before those savings outweigh the costs.

Having said that, as the owner of a limited company, you have more flexibility about the timing that you take your money out of the company through dividends and salary, and that does give you a lot more opportunity for tax planning, which ultimately reduces your tax bill.

 

Other options

So aside from the tax savings, what are the other differences between the structures?

Let’s make it slightly simpler and just concentrate on a sole trader and a limited company because the partnership is really just a type of sole trader. Now the first difference is that the set up costs, every business has set up costs common across all the structures, whether that’s your website, setting up an office or a premises. But in terms of accounts and taxation, the difference in setup costs is that with a sole trader you just get up and go. You need to register with HMRC to let them know that you’re doing it, but aside from that, there’s nothing else.

However, with a limited company, because it’s a separate legal entity, there are some setup costs and admin in doing that. You need to register the company with Companies House and pay them a small admin fee to do that. You then need to register the company for taxation as well, and that could be corporation tax but also VAT and PAYE if you have employees. Therefore, there is more time in setup and potentially costs because it often makes sense to get someone to do that for you. The next thing tied into that is the administration of actually running those different structures as you go forward.

The sole trader, the only accounts and taxation admin bit is that the owner, i.e. you, each year needs to a personal tax return. The personal tax return year runs every year from the 6th of April to the 5th of April, and then you get nearly 10 months until the following 31st of January, to do a tax return showing the sales, the expenses, and therefore the profits which gives the tax you need to pay to HMRC by that following 31st of January.

If you have a limited company though as the owner off that limited company, you do need to do a personal tax return. But on top of that, the limited company needs to do its own set of accounts, and those accounts go to Companies House, the government body that looks after companies and also to HMRC. The company also sends to HMRC its corporation tax return that again summarises its sales, its expenses, its profits, and its tax bill.

In addition, a limited company also has to file each year a confirmation statement. This is a relatively simple form that goes to Companies House confirming the name and address of the company, the name and address of the shareholders. You will have to pay an admin fee to Companies House of £13 to do that, it’s a simple form, it’s quite cheap, but it’s one that Companies House take very, very seriously and if you don’t do it, they close your company down.

One of the biggest differences between the structures and for lot of business owners a big driver in their decision is the limitation of liability, and this is what happens if something goes wrong. Now, now we don’t necessary want to think about this as we set up a business because it’s all happy and exciting, but you do just have to think about what could go wrong.

This could involve owing people money that you can’t pay, whether that’s your suppliers or a loan. It could involve if you mess something up in delivering a service or goods, and somebody makes a claim against you.

Now ordinarily you would try to have insurances against a lot of these things. But what happens if you’re not insured or if it’s over a debt?

Now, if you’re a sole trader, you are the business and the business is you. So, if somebody comes after you for money, they’d not just coming after the business, they’re coming after you, which means all of your personal assets are at risk whether that’s your house, car, or anything else you own.

Whereas with the limited company, somebody can only come after the assets of the company. You are separate, your house, your car, all the other stuff you own is safe.

All that is at risk for you is anything you’ve put into the company and anything the company owns.

So that can be a huge decider if you’re working in a sector where you do feel is a little bit risky. That limitation of liability, taking some of the risk away can be a huge thing and a huge factor in your decision over the structure.

 

Credibility

The next difference is credibility. Now, this is a funny one because it’s not correct, but when enough people believe it becomes correct.

A lot of people just feel with that limited liability company looks more credible than a sole trader to customers, to suppliers, to the outside world.

Now, it doesn’t actually make any difference, but if people start to believe it, it kind of does, and I’ve got a lot of clients who’ve ultimately actually picked a limited company because of that, because of who they’re doing business with and having limited after the name just makes them look better.

 

Pensions

The next difference is pensions. If you have a limited company, there are just a lot more options for your pensions.

Now I’m not a pensions expert and I don’t want to be a pensions expert, so it’s worth speaking to an independent financial advisor about that. But just be aware there are differences.

 

Tax

Going back to tax, one specific thing, particularly in the year one is the treatments of any losses you might make in a new business.

Now, a new business often does have a lot of setup costs, particularly for your premises, and that means you might make a small loss in the first year.

If you’re a sole trader, one advantage is you can set that loss off against any income you made from, say, your job before you started the business and actually get a tax rebate.

Whereas in the limited company you can’t do that, it’s back to that thing where the limited company’s its own separate legal entity. Its losses can only be used by the limited company, and what happens then is any loss is used against the profits the following year.

Now there is a short-term difference in year one, but it’s worth thinking about.

 

What if I want to close or sell the business?

The last of the differences I just want to touch is that the exit. What happens when you want to close the business or particularly if you want to sell the business.

It can be easier to sell a limited company, and that’s because it is its own entity, it’s something that could be ring-fenced. You can see what you’re selling and the buyer can see exactly what they’re buying.

If you’re sole trader, it can just be a little bit more difficult. You can still do it, but it’s just that thing of actually what exactly are you selling? What is the business? Where does it end and you start?

There are also, again, just different tax treatments of the exits on the different structures.

So those are the main differences. I hope that’s useful. The key thing is though that actually which structure you choose does depend on your circumstances and your business, and therefore it’s well worth getting proper advice before you choose.

 

So, if you’d like any advice, please do get in touch. I’d love to hear from you, please contact us on growth@jondaviesaccountants.co.uk or by phone on 0151 380 8081.

Should I Be a Ltd Company?

Should I be a limited company? To find out everything you need to know, please watch our latest video here or read about it below.

 

Should I be a Ltd Company?

So, you’re currently a sole trader, but the business is

starting to grow, and perhaps people are saying to you, “Why don’t you become a limited company?” But what does that mean to you and to your business?

Well, let’s have a look at the three options for how you structure your business and the pros and cons of each of them.

 

Sole Trader

The first option is the simplest option and that’s to be a sole trader. If you do this, you’re the business and the business is you.

There’s nothing special you need to do to start, you just go for it. All you do need to do is let HMRC know that you started trading.

Now, the way a sole trader works is that you are the business, you sell your services or your goods, you pay your suppliers, so whatever is left at the end is yours.

There’d be some tax to pay on that, but it’s all yours.

 

Partnership

The second option is a partnership. A partnership is a sole trader involving more than one person.

It could be two people, it could be 200 people, but it works exactly the same as a sole trader.

It’s simple and easy to get up and running. Again, you just register with HMRC to let them know that you’re doing it. And then again, you and your partners are the business.

You sell your services or goods, you pay your suppliers and again what’s left at the end, the profit is split between the partners and you pay your tax on that.

 

Limited company

The third option is slightly more complex and that’s a limited company.

Now in this instance, the limited company is actually a separate legal entity to you. This means that the business is run through the limited company, not through you.

You own shares in the company and also, you’re usually a director of the company, so you run it, but it exists separately to you.

The limited company sells the goods and services to your customers and the limited company pays the suppliers, and at the end the limited company makes a profit.

After that company’s paid its taxes, it can then transfer what’s left to you either as a salary or as a dividend to the shareholders.

 

Tax savings

For many business owners, the choice of business structure comes down to the tax savings available.

Traditionally, a limited company and its owners paid a lot less tax than a sole trader on the same amount of profits. And that’s because the owner of a limited company doesn’t usually pay any national insurance.

However, the rules did change back in April 2016, which did narrow that gap. There are still tax savings, but they’re not as big and your profits need to be quite large before the savings outweigh the costs.

Having said that, as an owner of a limited company, you have more flexibility about the timing that you take your money out of the company through dividends and salary, and that does give you a lot more opportunity for tax planning, which ultimately reduces your tax bill.

 

Other Options

So, aside from the tax savings, what are the other differences between the structures?  To make it slightly simpler, I’ll just concentrate on a sole trader and a limited company, because the partnership is really just a type of a sole trader.

The first difference is the setup costs, as every business has set up costs across all the structures, whether it’s your website, setting up an office or a premises.

In terms of accounts and taxation, the difference in setup costs is that with a sole trader, you just get up and go. You need to register with HMRC to let them know that you’re doing it, but aside from that, there’s nothing else.

However, with a limited company, because it’s a separate legal entity, there are some setup costs and admin in doing that. You need to register the company with Companies House and pay them a small admin fee to do that.

You then need to register the company for taxation as well, and that could be corporation tax, but also VAT and PAYE if you have employees.

Therefore, there is more time in set up and potentially costs because it often makes sense to get someone to do that for you.

The next thing tied into that is the administration of actually running those different structures as you go forward.

The sole trader, the only accounts and taxation admin bit is that the owner each year needs to do a personal tax return.

The personal tax return year runs every year from the 6th of April to the 5th of April and then you get maybe 10 months until the following 31st of January to do a tax return showing the sales, expenses and therefore the profits which gives the tax you need to pay to HMRC by that following 31st of January.

 

If you have a limited company though, as the owner of that limited company, you do need to a personal tax return. But on top of that, the limited company needs to do its own set of accounts and those accounts go to Companies House, the government body that looks after companies and also to HMRC.

The company also sends to HMRC, its corporation tax return that again summarises its sales, its expenses, its profits and its tax bill. In addition, a limited company also has to file each year a confirmation statement.

This is a relatively simple form that goes to Companies House confirming the name and address of the company, the name and address of the shareholders, and you have to pay an admin fee to company’s house of £13 pounds to do that.

It’s a simple form. It’s quite cheap, but it’s one that Companies House take very, very seriously. If you don’t do it, they close the company down.

One of the biggest differences between the structures and for a lot of business owners a big driver in their decision is the limitation of liability, and this is what happens if something goes wrong.

Now we don’t necessary want to think about it as we set up a business because it’s all happy and exciting, but you do just have to think about what could go wrong and this could involve owing people money that you can’t pay, whether that’s your suppliers or alone.

It could involve if you mess something up in delivering a service or goods and somebody makes a claim against you. Now ordinarily you would try to have insurances against a lot of these things, but what happens if you’re not insured or if it’s over a debt?

Now, if you’re a sole trader, you are the business and the business is you. So, if somebody comes after you for money, they’d not just come after the business, they come after you, which means all of your personal assets are at risk, whether that’s your house, car or anything else you own.

Whereas with the limited company, somebody can only come after the assets of the company. You are separate. Your house, your car, all the other stuff you own is safe.

All that is at risk from you is anything you’ve put into the company and anything that the company owns. So, it can be like a huge decider, if you’re working in a sector where you do feel is a little bit risky, that limitation of liability, taking some of the risk away can be a huge thing and a huge factor in your decision over the structure.

 

Credibility

The next difference is credibility. Now, this is a funny one because it’s not correct. But when enough people believe it becomes correct.

A lot of people just fail with that limited liability company looks more credible in the sole trader to customers, to suppliers, to the outside world.

Now it doesn’t actually make any difference but if people start to believe it, it kind of does and I’ve got a lot of clients who ultimately have actually picked a limited company because of that, because of who they’re doing business with and having limited after the name just makes them look better.

 

Pensions

The next difference is pensions. If you have a limited company, there are just a lot more options for your pensions. Now I’m not a pensions expert, I don’t want to be a pensions expert and it’s worth speaking to an independent financial advisor about that. But just be aware there are differences.

Going back to tax, one specific thing particularly in year one is the treatment of any losses you might make in a new business.

Now, new business often does have a lot of setup costs, particularly if you have premises, and that means you might make a small loss in the first year.

If you’re a sole trader, one advantage is you can set that loss off against any income you made from say your job before we started the business and actually get a tax rebate.

Whereas in the limited company you can’t do that. It’s back to that thing where the limited company is its own separate legal entity. Its losses can only be used by the limited company. And what happens then is any loss is used against the profits the following year. Now there is a short-term difference that’s only in year one, but it’s worth thinking about.

 

What if I want to finish the business?

The last of the differences I just want to touch on is the exit.

What happens when you want to close the business or particularly want to sell the business?

It can be easier to sell a limited company and that’s because it is its own entity. It’s something that could be ring-fenced. You can see what you’re selling, the buyer can see exactly what they’re buying.

If you’re sole trader, it can just be a little bit more difficult. You can still do it, but it’s just that thing of actually, what exactly are you selling? What is the business? Where does it end and you start?

There are also again, just different tax treatments of the exits on the different structures.

So those are the main differences. I hope that’s useful. The key thing is though, that actually, which structure you choose does depends on your circumstances and your business, and therefore it’s well worth getting proper advice before you choose.

If you’d like a chat, please contact us on growth@jondaviesaccountants.co.uk or by phone on 0151 380 8081.

What financial records do I need to keep?

What financial records do I need to keep? Find out more now by watching our latest video here or read about it below…

What do I need to know?

As a business owner, you need to keep financial records. As without

them, how can you actually manage your company? How do you know whether you have made a profit, or a loss? How do you know how much to pay your suppliers, or to chase your customers for the debts?

You also need to keep financial records, for any finance providers, like if you’re going to try and get a loan. And also, you need to get financial records for statutory purposes.

HMRC need you to have them, for your corporation tax, income tax, VAT, your PAYE.

If you are a limited company, then company’s house needs you to keep financial records.

 

What records do I need to keep?

To be safe, you should keep everything, bank statements, sales invoices and contracts, purchase receipts and contracts, your stock records and your payroll records.

You need to able to back up all the figures in your accounts, and the tax returns. That includes all the sales, all the expenses, and also records for any assets you may own.

Whether that’s plant machinery, office equipment, cars, to be able to back up all the debtors, i.e people who owe you money, so customers. And all the creditors, the suppliers you owe money to, the loans, HMRC themselves, and to also back up any stock you might own, goods you’ve bought that are still on your premises.

 

What software should I use for record keeping?

We could just keep it simple and keep all the paper. That’s absolutely fine, but it’s better to use some software, something that adds all that paper up, and summarises it into a useful format.

This can be Excel, everyone’s usually got Excel, so you would have probably already paid for it so it’s free, and it can do everything you need.

But even better would be some cloud software, you can access it from anywhere, and it’s easier and less messy than say, Excel.

This is because it’s set up specifically to produce accounts and financial records. So, you don’t have to do the adding up yourself, the software will do it all for you.

 

What are the benefits of cloud software?

Cloud software is great because you can access it from anywhere as long as you can get an internet connection, on your phone, your iPad, on a laptop or PC.

It also, as well, ties in nicely to making tax digital, which is HMRC’s new initiative, where all business owners are going to have to provide all their accounts and financial records digitally.

You can also do some great things with cloud software. My actual favourite is called Receipt Bank, where rather than having to type everything in manually, you just take photo of your invoices, and it’s all done automatically for you.

Legally, you need to keep your records for six years after your year end. And this is just to give HMRC a chance to look at them later.

 

What happens if you don’t keep financial records?

Well, first of all, it makes your life harder. As I said earlier, how will you know what your profit and loss is? How do you know what to pay suppliers? How do you know what to ask your customers to pay you?

But separately, you actually could be fined £3000 by HMRC, if you don’t keep proper financial records.

If you’ve got limited company, you can actually be disqualified as a director.

 

So, my simple advice is, just do it. If you’d like a chat, please contact us on growth@jondaviesaccountants.co.uk or by phone on 0151 380 8081.

3 numbers that every business owner should track

3 numbers that every business owner should track – Watch our latest video now to find out more or read about it below.

Hi I’m Jon Davies. Today I’m going to tell you about 3 numbers you must track in

your business.

I know I’m an accountant and a bit biased, but these numbers are not the standard stuff. I want to make you think a bit differently about the numbers.

I could pick loads of really technical ones to make you think “I really need an accountant”, but these are numbers you can pretty much do yourself and will help you make your business hugely successful.

You see, lots of businesses do have a feel for their overheads, but have no idea on the cost of marketing.

And they do think of it as a “cost”, ie spend what’s left after everything else. Some of these numbers help you turn that on its head and see it as an investment to grow your business. After all, what’s more important than getting and keeping customers?!?

So, why do so few businesses work out the business maths of that?!? Free marketing can be rubbish marketing. Expensive can be as well, but you need to understand the maths and make an informed decision.

The key is you must understand them and be crystal clear on all of them. Without that, you’re always going to struggle against the super smart business owner who does get it.

OK, so what are these numbers?

Well the first one actually is your profit.

And I apologise, I did I said it wouldn’t be the normal numbers, but I can’t overlook this one,

You really do need to know what your profit was last week, last month, last year…………..and also next week, next month, and next year ’cause once you know that……..you’ve got solid grounding for making decisions.

If you don’t know your profit, it’s like flying a plane without the instruments – you don’t know where you’re going and you can’t make decisions on what to do.

So once you’ve got that all sorted, you can move onto the good stuff.

The second number I’m gonna talk about is how much it costs you to get a customer.

And I can break that down into a couple of steps,

First – how much does it cost you to get a lead?

So, whether that’s a face-to-face meeting or somebody onto your website, you should be able to track that by each source of marketing that you do.

As an example, if you use, say, Google AdWords, you can actually track how much it costs for each click-through to your website…… and that’s the cost of a lead.

Or, if you join a networking group, you might pay an annual membership. Therefore, divide that by the number of referrals to get the cost per lead.

But then you need to take it one step further to find out how much it costs to get an actual paying customer. A lead is great….but you want a customer.

So what’s the conversion rate? Google AdWords might be quite cheap to get a lead, but the conversion rate isn’t as good, perhaps, as a networking group. So the cost per customer may be higher. That’s what you need to know.

Once you get to the end of that you’ll know how much it cost you to get each customer by each source of marketing you do.

And that’s the second of my three numbers.

 

The third number is….what’s that customer worth to you? What’s their overall value?

Firstly, it is worth knowing what you spend straight away ’cause that helps with your cash flow,

So on that first purchase, if you’re a restaurant – that first meal. Online retailer – first purchase.

I’m an accountant, and most of my clients pay me monthly – so how much was spent in the first month?

Because that does help with cash flow.

But a more important number is how much they spend over the whole relationship.

My clients might pay me monthly, but I know on average they’ll stay with me a number of years. Let’s say it’s five years, I can multiply that out to see how much they’re worth to me over the length of the relationship.

Now if you can’t track that directly through your database, a good estimate would be……what was your total sales in the last three years and the total number of customers?

That will give you a good estimate of how much each customer is worth to you overall.

And, of course, you do need to take that one step further through to the profits.

Once you take your profit over those three years divided by the total number of customers, that gives you your profit per customer.

Now once you’ve got those three numbers……particularly the second and third one, of how much it costs to get a customer, and what they’re worth to you, you start to make some pretty clever decisions on what you’re gonna spend and what you’re willing to spend upfront on your marketing to actually get those customers through the door.

I’ll just give an example of this of somebody who uses this really well – Sky TV

Sky for years now have had an offer on that if you refer in one of your friends who signs up to Sky TV, they’ll give you some vouchers, and some to your friend as well.

Now the value has changed over time, but at the moment it’s £75 to you and £75 for your friend……so they will spend £150 to get a customer…….and that sounds really generous.

But Sky are clever – they’ve thought about this.

If you think about it, what does the average person spend on Sky?

I don’t know the exact number but it must be about at least £50 each month, and they’ve got you for a minimum of 12 months, so normally £600 per year.

On average people stay with them five years, so actually Sky spend £150 up front to get a £3,000 customer…….. and that’s pretty good business maths.

So just to recap there, the numbers you need to know are:

  • your profits so you can make decisions,
  • how much it costs to get a customer,
  • and how much that customer is worth.

You need to have real clarity on these numbers, and as I said, they’re not that hard to work out,

You could do it yourself, but you need to track them for each source of marketing as well.

So there are my top three numbers.

If you’d like a chat, please contact us on growth@jondaviesaccountants.co.uk or by phone on 0151 380 8081. Or come and visit us at our Liverpool office.

How do you measure your business performance?

How do you measure your business performance? Watch our latest video here to find our read out it in the blog below.

With our every changing world and market conditions it is increasingly important to measure your business’ performance on

a regular basis. Knowing your business’ strength and weaknesses will help you manage it efficiently. This video will cover the areas you should monitor to measure performance and the tools and techniques to help you do this.

 

Finance

The first area is finance. One of the biggest challenges for any business is ensuring there is always enough cash to meet your expenses when they are due.

 

Cashflow

Regularly reviewing and updating your cashflow forecasts will show the money flowing in and out of your business. This is usually done on both a monthly and an annual basis. Updating your forecast regularly with actual figures should help you identify any potential problems in advance.

 

Profitability

Every business hopes to increase profits. Measuring profitability should highlight areas for potential growth or underperforming aspects of your business. Things to look at include:

  • Gross Profit Margin – gross profit taken as a percentage of sales
  • Break-even – the volume of sales needed to start making a profit
  • Net profits – total sales less all costs including overheads, interest and tax
  • Return on assets – the level of profit in relation to net assets.

 

Accounting Ratios

There are several key ratios in managing a business and give you a greater insight into your business’ performance;

  • Liquidity ratios – measure your business’ ability to pay its debts, to calculate this you divide current assets by current liabilities
  • Efficiency ratios – measure how well you are utilising your business assets, there are a variety of ratios you can use including debtor’s turnover, creditors turnover and stock turnover
  • Gearing ratios – measures your business’ financial leverage, which is the level of long-term debt compared to capital in the business.

 

Customers

Another important area to consider is customers.

Retaining existing clients is as important as attracting new customers. Reviewing your sales data as well as getting customer feedback is important to help you assess client satisfaction. Social media offers a platform to engage with customers and a website should also offer several ways for customers to get in touch. If your business is performing poorly clients may take the opportunity to formally complain but others will simply switch provider.

Engaging with clients can help your business identify how customers needs are changing and where improvements need to be made to products, services, staff or business procedures.

 

Staff

A key part of any business is its staff. The more successful a business becomes the more staff you are likely to employ. Measuring their performance becomes an important consideration. Informal meetings and annual appraisals can offer practical ways to measure, monitor and develop staff. Targets and incentives can help ensure your teams are working efficiently. Another thing to consider is whether your staff reflect the ethos of your business, particularly in their dealings with customers on a daily basis.

 

Benchmarking 

Benchmarking measures your company’s performance against rival companies. It enables you to find ways to improve performance, understand different approaches to achieve best practice or keep up with market trends.

Membership of a trade association may give you access to industry-wide statistics or you could purchase benchmarking data from industry-related groups. It is important to identify your main competitors and to measure your business’ performance against theirs. Benchmarking can help you identify what is driving success in your industry, it might be pricing, customer service or targeted marketing.

Strategic benchmarking goes one step further and looks at best-in-class performance in other industries and aims to transfer best practice to drive up standards in your own business sector.

 

Measurement methoods

The two most commonly used measures are:

 

Key Performance Indicators or KPI’s:

These help you measure your business performance against key objectives. However, a word of caution, there are thousands of KPIs to choose from so it is vital to select the right one for the task.

KPIs are most commonly used to measure financial metrics such as profits, costs and sales. The key is to limit the number of KPIs to a manageable figure and focus on monitoring the ones that are vital to your business achieving its goals.

 

SWOT analysis

This measures four aspects of your business

  • Strengths – what are you doing well?
  • Weaknesses – identify areas in which you are not performing well
  • Opportunities – are there any developments you can use to your advantage?
  • Threats – factors which can have a negative effect on your operations

As markets evolve you need to regularly review and update your SWOT analysis. This can help you assess your business strategy to identify whether external factors contributed to business performance for example is poor performance the result of a downturn in market conditions.

To summarise the main areas to consider are:

  • Finance
  • Customers
  • Staff
  • Benchmarking and
  • Measurement methods.

You can do all of these yourself, or you can ask your accountant to help you. I hope you found that useful. If you have any queries, please get in touch with us on growth@jondaviesaccountants.co.uk or by phone on 0151 380 8081.

 

What are the Five Top Marketing Tips

What are the five top marketing tips? Watch our video to find out more or read the blog below.

Most small businesses lose opportunities as they do not understand what ‘good’ marketing is. Therefore, I am going to tell you

about five top marketing tips that you should be using to practice ‘good marketing’.

 

Market Research 

Firstly, do your market research to define who your target market is and understand what they want from your business.

It is key, that when conducting your market research, you understand how you can differ from your competitors and their services or product offerings.

This can potentially mean that you should investigate expanding upon your current products or services as this will be beneficial for you to stand out on the market and create your unique selling point.

Therefore, if your competitors offer a free telephone consultation, you might also offer this but additionally offer a free face- to-face consultation.

 

Positioning of your brand

Secondly, to create your ideal positioning, you should centre this around what you want the marketplace’s perception to be of your brand.

Your positioning should be different and better than your competitors.

Therefore, using the previous example of offering a face-to-face consultation as well as telephone to fit around the client’s needs.

This will allow customers to identify not just what you do, but why you are the best fit for them.

If a business effectively understands and advertises their brand positioning this will result in a rise of enquiries and calls.

 

Be personal

Sometimes advertising just isn’t enough and customers want a personal experience and want to meet face-to-face before purchasing your product or service.

So, offer potential clients the opportunity to come in for a chat or simply take the time to have a phone call with them.

Let them understand you and your business, as essentially it is all about the time and effort you put in to getting to know your clients.

If they decide to come in to the office to meet you, offer something personal and different that will make them remember your brand.

It will promote that your business is not just mediocre.

Even by just taking the time and effort to meet the client at reception, rather than just waiting for them to knock at your office door, demonstrates that you care.

 

Promoting your market positioning effectively 

This can be done through many forms of advertising such as; leaflets, google AdWords, ads in newspapers, newsletters and signs.

Newsletters and leaflets are an easy option to create a personal approach, just by simply posting it to them and including their name throughout so they know that it is personal to them not just sent out to one mailing list, this will make them feel special and important.

Social media is an effective and affordable way to promote your product and service.

This is a great way to attract your target audience by posting regular pictures on Facebook, Linkedin, Instagram and Twitter.

 

Network to enhance relationships

For small businesses especially, creating and building a personal relationship is key to enhance customer relationships.

Look at local networking events that fit in with your business and register to attend them.

Create a pitch and have business cards available and make sure to promote your businesses and services whenever the opportunity presents itself.

Introduce yourself to other local business owners and get to know them as this can be beneficial for referrals and gaining expertise on the effectiveness of other marketing methods.

 

Summary

In summary, market research, positioning your brand, being personal, promotion and networking are essential easy marketing tips that you should consider.

I hope you found this useful, if you have any questions then please get in touch with us on growth@jondaviesaccountants.co.uk or by phone on 0151 380 8081.

How do I set goals for my business?

How do I set goals for my business? Find out by watching our video or reading about it below.

So, you’ve been back in work for over a week and Christmas seems like a distant memory. And, how about those

New Year’s Resolutions? Still going, or are they also a distant memory?

Far better than resolutions are definite goals for the year. Even better is to have a plan to achieve them. But a plan is no good unless you actually do it! You need deadlines for each task so you can measure your progress…..and some accountability to make sure you keep on track.

Here are our steps to business success this year:

 

Step 1 – Start with the big stuff

At its simplest, ask yourself “Where do I want to be at the end of the year?”

  • Start with the personal stuff – “I want a new car” or “I want to spend more time with the family”.
  • Make sure it’s specific – ie those two would become “I will have a Batmobile Model XYZ to be delivered on 1 December” or “I will take the whole of December off work”.

The reason you start with the personal is that it’s more exciting and motivating than a business goal.

 

Step 2 – Link it to the business

You can then work out what the business needs to do this year to support the personal goals.

Those two might become “The business will pay me £x in cash by 1 September to pay the deposit on the car and £y on 30 November for the balance” and “The business profit will increase to £x per month by 30 September so I can hire a trusty sidekick on 1 October”.

 

Step 3 – How will you get there?

What do you need to do to get there? And when?

For example, do you need more customers so that you can meet your goals? If so, how many new customers? And how many quotes do you need to do to get that many customers? And how many leads will generate that amount of quotes. And, where will those leads come from? By when?

This can take some time but it’s well worth it as you get a definite plan, with timescales and deadlines. [You do really need to know your numbers, though – something we can help with.]

 

Step 4 – Break it down in manageable chunks

So, you need 123 new customers by 31 December to reach that goal. Which means 1,000 leads from Google plus 50 leads from current customers, etc, etc.

That can still seem daunting. So, break it down month by month. And focus on this month’s tasks. Or, even better, this week’s tasks.

I was lucky enough to hear Chris Hoy speak last year. With 6 gold medals, he is Great Britain’s most successful ever Olympian. He said he had a long-term plan to win those golds, but it was broken down into tiny chunks. For example, he talked about his training camp in Australia, where he’d get up, have breakfast, cycle to the track, train until he was physically sick, cycle back, have lunch, etc, etc. He said that the only way he could carry on was by focusing on one thing at a time and doing it.

If he was doing 2 hours of hard training and also thinking about doing it again that afternoon, he’d have given up! He just had to focus, do it, and then move on to the next step, knowing it all fitted the big plan and the ultimate goal to get a gold medal.

 

Step 5 – Do it!

This is the hardest bit. Like those New Year’s resolutions, it can be easy to make a plan, but hard to follow through.

In this case, you do have definite actions and deadlines, but implementing can be hard.

Getting someone else involved can be a massive help. Once you’ve shared your plan with someone else and made a commitment to them, you’re more likely to do it. Nobody likes letting someone else down.

We have a business coach who gives us a kick, and we take on this role for many of our clients.

But, ultimately, it’s all down to you! That’s why those personal goals in Step 1 need to really excite and motivate you. When it gets hard, you need to remember why you’re doing this. When you really, really want them, you’ll do the work to get there.

 

If you’d like any help in achieving your goals, please let us know as we’d be happy to help. We can do a goal setting exercise to pull all your thoughts together into a plan…….and then keep you on track to make sure you have a your most successful year yet!

 

What should I consider when launching my startup business?

What should I consider when launching my startup business? Watch our video to find out more or read about it below.

If you have a bright idea and you think that you have spotted a gap in the market, testing,

preparing and assessing all the risks involved and the potential opportunities will give your business the best chance of survival.

Here are a few things that you should consider on your journey to setting up your own business:

 

Testing your Idea

The first thing that you should do before even thinking about launching your product is testing your idea. This can save you a lot of money and time if your plan doesn’t work out as planned.

To enable you to be able to gauge the interest of your product, or service, and see how much customers may be willing to pay for it, conducting market research will give you a clearer indication about this.

Living in the increasing digital age means that you’re able to conduct the majority of your market research online, saving you money and time. The internet enables you to look at the websites of potential rivals, trade groups and industry publications for useful statistics all for free. Doing this is also an ideal way of identifying your ideal customers and think about their needs and habits.

 

Setting up a business structure

There are around 6 million private sector businesses operating within the UK, with sole traders accounting for 60% of those.

Opting to become a sole trader means that you are entitled to keep all of your businesses profits but also mean that you carry any losses made.

You must pay income tax and national insurance tax on any profits that you make by completing a self-assessment tax return each year.

Partnerships and limited companies define the liability of the partner’s debts. Profits are generally shared between partners who are then responsible for paying the tax on them.

Being in a partnership will mean that you can be personally responsible both for the partnerships debts and managing the business. The partners will also be taxed just the same as the sole traders, through a annual self-assessment tax return.

Operating as a limited company keeps the businesses finances and your personal finances separate, meaning that your personal assets are protected if the business ever get in any financial trouble.

Being a limited company director comes with a few more responsibilities as you have to register the business with Companies House, submit annual confirmation statements to Companies House and complete tax returns each year. However, you will not be personally taxed on the profits that you don’t extract from the company.

With all the of the business structures, once your income exceeds £85,000, then you will have to register your business for VAT.

 

Writing a business plan

By writing a good business plan it can potentially help you sell your business idea to investors or banks, whilst also enabling you to think strategically through every detail for every eventuality.

Considerations when writing up your business plans can include:

  • What your business will sell or supply
  • Your business structure
  • How you are going to sell your products / services
  • The price you are going to sell your products / services at
  • Your short-term and long-term targets
  • Timelines for meeting them

 

It’s a good idea to when possible, analyse your competitors’ customers. Think about:

  • Who are they?
  • Where are they based?
  • How much does your product differ and appeal?
  • How do you attract these customers?

You should also include financial forecasts as this will set them out clearly for you and help you with potential investors. Things like profit and loss, projected sales, cashflow and any marketing contingency plans.

 

Naming your business

With millions of businesses already registered, thinking of a company name might not be as easy as you thought as each business name must be unique. You can do a quick check on Companies House for any business names that are already being used.

It is also a good idea to check that there is a suitable web domain available for the business name you have in mind.

If you are wanting to sell your products or goods globally, then you must also check that the name you want to choose for your business does not have another meaning in another country.

You will also need to check that the name is not trademarked, and does not resemble a trademark.

Certain words and phrases are also not allowed to be used in company names, for example those suggesting endorsement by the government. Also, words such as ‘optician’ or ‘architect’ are restricted to use for only the people with the appropriate qualifications.

 

Managing your business

How you manage your business within the first 100 days of operating will go a long way in determining how successful your venture is going to be. Here are a couple of areas to consider:

  • Business insurance – protecting you against potential mistakes, damage to stock and premises, and legal costs.
  • Have a medium-term goal and stick to it! This should support your long-term business plan.
  • Pay attention to your customer early. Using a social media platform is a beneficial way of doing this.
  • Decide how you are going to handle your customer care early on is also vital
  • Understanding your businesses cashflows – knowing exactly how much money is coming in and out of the business will help you keep an eye on finances. The easiest way to do this is to keep digital records of everything.

 

Finally, think about how much tax the business will potentially be paying and make sure that you are going to be taking advantage of any reliefs or benefits that you are eligible for. If in doubt, ask an accountant!

If you’d like a chat, please contact us on growth@jondaviesaccountants.co.uk or by phone on 0151 380 8081.

How do I use deadlines to boost my business?

How do I use deadlines to boost my business? Watch our video now to find out or read the blog below.

What’s the most important minute of your life? The last minute! It must be – it’s when we all

get everything done!!!!

Take the transfer deadline. Months to work out who your club wants to buy, and then they’re trying to rush a medical at five to midnight on a multi-million pound transfer.

It’s the same with the personal tax return deadline. We all have 10 months from the end of the tax year until the 31 January deadline. That’s 10months!

But, HMRC announced last year that, out of the 11 million due, over 4.5 million were still outstanding. Over 40% have left it until the last two weeks.

Last year, half a million people left it until the last day…….and 20,000 until the last hour.

The point is that we all leave things until the last minute. It’s human nature.

So, how can we use this in our businesses? Well, if you only do things just before a deadline, why not set deadlines for everything you do?

Some deadlines are “Real” – client deadlines, submission deadlines, etc. And they force you to get stuff done.

But you can create your own. We set deadlines for all of our tasks. And, when we sit down to do them, we set a time limit to finish them. It almost becomes a game or a race to hit the deadline.

Now, the problem is that often the easiest person to let down is yourself. So, you do need to be disciplined…… or get someone involved and to keep track of your progress. If you tell someone else you’ll do a task by Friday, it’s more likely to get done. We don’t like to let other people down, or admit we’ve not done something.

If you struggle to stick to your own deadlines, get someone else involved and you’ll start to meet them.

The overall lesson, though, is that deadlines force you to get stuff done. So use them in your business.

If you’d like a chat, please contact us on growth@jondaviesaccountants.co.uk or by phone on 0151 380 8081.

What do I need to consider when taking on employees?

What do I need to know when taking on employees? Find out more by watching our latest video or read about it below.

To grow your business and reach your goals, you need help. And help can often be found

in employing people. But what do you need to consider when you take on a team member?

1 – Salary
One of the big problems with staff is that you actually have to pay them! So, the first step is to decide how much. Obviously, you want to have a salary that’s attractive to them, while not sending you bankrupt.

You also do need to be aware of the national minimum wage, or the living wage if they’re aged over 25. If they’re under 25, there are a number of different rates depending on their exact age. You can find them all on the Gov.uk website.

You may also want to talk to some experts, perhaps some recruitment agents, and look at some job adverts to see what other people are paying for a similar role. This will help you find a market salary.

2 – Legal Checks
There are actually a few legal checks you should make on your new employee. Firstly, you should check they’ve got the legal right to work in the UK. If you’re working in certain sectors, for example working with vulnerable or young people, you might also need to do a DBS check on them.

3 – Insurance
Tip three is that, as an employer, you do legally need to have employer’s liability insurance. This insurance must cover you for at least £5 million, and it must be from a proper, authorised insurance company.

If you don’t comply with this, you can be fined £2,500 per day, so it is well worth getting it!

4 – Contracts
You need to have an employment contract if you’re employing someone for more than one month. Aside from the law, it makes sense for you and your employee. It makes the terms and conditions that will go with the job clear to both of you.

We actually use an HR adviser to help us with all our employee contracts, staff handbooks, monitoring holidays, absences……and even all the good stuff like appraisals and staff development, too!

To me, it’s well worth it. It’s really good to actually have an expert make sure you’re absolutely covered for all of this stuff and, actually, the staff appreciate it too because it shows that we care about them and their development.

5 – HMRC
If you’re a new employer, you do need to tell HMRC and register as an employer. It can take up to three or four weeks, so you do need to think in advance.

Each time you run the payroll, you’ll need to submit forms to HMRC and pay the PAYE/NI over. There’s lots of free software you can use to do this…….or you can ask an expert accountant!

In terms of the taxes, don’t forget the Employers NI. This is paid in addition to the salary, so you do need to budget for it. It’s currently at 13.8% on any salary over £680 per month. For example, if you pay someone £1,680 per month, you’ll have to pay £138 of Employers NI (ie £1,000 @ 13.8%) in addition to the £1,680.

The good news is that you do get the first £3,000 of Employers NI free at the moment so, if you only have a couple of staff, you might not need to pay any.

6 – Pensions
The last of my tips is that, as an employer, you need to set up a workplace pension scheme and automatically enrol your staff. You may well have seen or heard the adverts about this on the TV or radio. You get a few months grace before you need to do this but, if you don’t comply, the fines can be very big.

Again, it’s well worth getting proper advice from an expert on your options and how to do it.

So those are my top six tips for taking on an employee. If you do need any help, please get in touch. We can look after some of these areas, or put you in touch with an Insurance, HR or Pensions expert.

 

How do I set up a limited company?

To find out more, you can either watch our video 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…

 

 

Are you ready for Making Tax Digital?

Are you ready for Making Tax Digital? Watch our video to find out everything you need to know or read about it below.

I want to make you aware of a big change that’s coming for businesses in 2019.

A big

change that’s going to affect the tax and accounts for your business. But a big change that most business owners don’t seem to be aware of…despite the fact it’s going to impact all of them from 1 April 2019.

You see, we’ve made it our mission to make sure that, not only all of our clients, but also as many other businesses as possible, are fully aware of the changes that are coming next year.

 

What is the change?

The change is called Making Tax Digital. As the name suggests, this is all about moving all your accounting, and specifically tax records, into digital software.

And that digital software must be able to talk to HMRC systems, so it’s quite specific. It can’t just be any old software. It can’t just be Excel.

HMRC recently said that only 12% of businesses use software to submit their VAT returns. As there are 2.1 million VAT-registered businesses, that means over 1.8 million aren’t ready for Making Tax Digital!!

And if you’re not ready, it’s going to cause a lot of trouble because you must submit your VAT returns via Making Tax Digital compliant software from April 2019. And if you can’t, then you’re likely to be fined.

You have a great business, and you’re busy running that business. It’s not your job to obsess about the details. I run a business, I don’t spend my time obsessing about employment law, or GDPR, or Brexit. I pay someone else to do that.
And in this instance, it’s not your job to obsess about Making Tax Digital – that’s my job, and I can help you.

 

How can we help?

Now, I could go to a lot of detail on this video, but what would be more useful is to have a chat because, like I said, we’ve made it our mission to be experts in Making Tax Digital and making sure business owners are compliant.

We’ve spent the last few years working with cloud software, and the software we use is 100% ready for Making Tax Digital. Therefore, we know what you need to do. We’d be happy to sit down and have a free meeting with you to make sure you that you know what you need to do. And, if it would be useful, to help you get there.

Because it’s not something you can just do in April. You can’t just flick a switch and be compliant – you need to prepare beforehand.

We can make sure you are compliant before it’s too late.

If you’re not ready for a chat right now, we do have a series of videos, so take a look.

But we don’t want you to get caught out. So, if you would like a chat, please contact us on growth@jondaviesaccountants.co.uk or by phone on 0151 380 8081.

 

How do I get ready for Making Tax Digital?

How do I get ready for Making Tax Digital? Find out now in our video or read about it below.

Making Tax Digital is coming and it starts in April 2019. So you need to be ready, or potentially face

a fine. Now, many businesses don’t know about Making Tax Digital yet, and certainly aren’t ready. So if you are one of those, what do you need to do?

Well, here are our top tips.

 

Understand the deadline for going digital

If you’re a VAT-registered business with annual sales over £85,000, you’ll have to use Making Tax Digital from 1 April 2019.

What this actually means is that your first VAT return for the quarter that starts after April 2019 will be submitted via Making Tax Digital.

So if, for example, your quarters end on 30 April and 31 July, it will be the 31 July VAT return that must be submitted via MTD.

If you’re not VAT registered, or even if you are VAT registered with sales less than £85,000, you don’t need to go digital yet. It will be coming, but the exact timescale hasn’t yet been confirmed.

And for those who must comply, it’s only VAT returns in 2019. Corporation Tax and Income Tax will follow in 2020.

 

Find the right software

The whole point of Making Tax Digital is that you will have to use HMRC compliant software to submit your returns.

According to HMRC recently, only about 12% of VAT returns are currently filed using software. That means that, of the 2.1 million VAT registered businesses, over 1.9 million aren’t using software that will be compliant for Making Tax Digital.

So, if you are about to leap into the digital and find some software, you need to look at your alternatives. You can get a list of all the compliant software from the Gov.UK website.

But there’s a lot of solutions out there, so do take a look, and find the best one for you.

At this point it’s probably worth speaking to an expert. For example, an accountant who uses digital software.

 

Start to move your records to digital

The next thing is actually to start the move across.

It does make sense to do this in advance of the first time you need to do it legally, just to make sure that you’ve got all the little teething problems out of the way.

You might also pick a date that is more suitable to you. For example, your accounting year end, just so you actually pick a definite point to move across.

What is key, though, is the date you move across must of course include the first date of that first VAT return that you’re going to be filing and Making Tax Digital.

 

View it as a benefit

The next tip really is to embrace it. It may actually be forced upon you, but actually there are loads of benefits of using digital software.

We’ve used cloud or digital software for a number of years now, and our clients love it. At first, they might think “It’s different to Excel or paper or desktop software” but, once they use it, they see there’s so many benefits.

So, what are the benefits of cloud software? Well, the first one is just that – the fact that it is in the cloud. That means you can access it from anywhere where you have the internet, whether that’s on PC laptop, a tablet, or phone. It’s not just stuck on one desktop.

That also means that your team can access it if you allow them to and, importantly, your accountant. If you are working and liaising with your accountant, you’d be looking at the same screen at the same time.

All in all, cloud software also helps you keep on top of your numbers in real time.

And cloud software saves you lots of time – it can speak to your bank account, and automatically download all of your bank statements. And, in terms of purchase invoices, most of the digital software allows you to just take photos of purchase invoices, and then automatically analyses them into your accounts, and into your tax return. You’ll never have to spend time typing again!

Also, the security of cloud software is really good. Think of it like using online banking and everything’s backed up securely.

So, it’s absolutely secure, it saves you time, makes things easier, and gives you your numbers in real time, as well as getting you ready for Making Tax Digital. So, don’t see it as a hassle – see it as benefit!

 

So, those are our top tips of getting ready for Making Tax Digital. If you do need any help though, please do get in touch. And if you want to know more about Making Tax Digital and the details involved, then you can find out more by watching our other videos.

 

What is Making Tax Digital?

Find out all about Making Tax Digital in our video, or read about it below.

Making Tax Digital (MTD) is a key part of the government’s plans to update the way businesses record and report their tax information to HMRC.

In

the long term it is planned businesses will move across to digital record keeping and regular reporting for all their taxes.  However, it is being implemented in stages.

The first stage applies to all businesses with a turnover above the VAT threshold, which is currently £85,000.   Small businesses below the threshold can choose to comply with the scheme voluntarily.  From April 2019 they will have to keep digital records but only for VAT purposes. Businesses will not be asked to keep digital records or submit information for other taxes until at least April 2020.

What does this mean for my business?

From April 2019 VAT registered businesses with taxable turnover above the threshold must do the following;

  • Keep records in a digital form; and
  • File their VAT returns via Making Tax Digital enabled software

From April 2020 if the digital records are held in more than one place or piece of software, HMRC will require there to be a digital link between the pieces of software used.  A digital link allows data to be imported and exported between programs without the need for manual intervention.

Those reporting under the VAT flat rate scheme will not have to report under Making Tax Digital, except for purchases relating to capital goods with a VAT inclusive value of £2,000 or more.

If you currently submit VAT manually through the post or online (using the existing Government Gateway tool), from April 2019 these forms of submissions will no longer be accepted by HMRC.

What are the first steps I need to take to comply with Making Tax Digital for VAT?

Existing customers that use accounting software will have to check their current provider is Making Tax Digital ready.

For businesses needing to use digital software for the first time, there are a number of providers that will offer this on a subscription basis with packages tailored to your company’s size and structure.  Your accountant should be able to advise you on suitable software packages.

For businesses using spreadsheets, these are a valid digital record.  To comply with Making Tax Digital you will need to ensure that your spreadsheet is either

  • API enabled which will mean you can submit your VAT return to HMRC via an API link
  • or it has a digital link to other Making Tax Digital enabled software.

Are there any benefits to my business from Making Tax Digital?

There are several benefits to moving across to digital records.

Compared to manual methods, digital record keeping takes less time and is more efficient. This will free up time which can be focused on managing and growing the business.

By automating tax submissions Making Tax Digital will assist businesses in managing their tax affairs.  This will help them keep on top of their tax liability and reduces the chance of error and incurring penalties.

What records do I need to keep as part of Making Tax Digital for VAT?

The records you need to keep fall into three categories.

1              Business data: you will need

  • The Business name
  • The Address of your principle place of business
  • Your VAT registration number, and
  • A record of any VAT accounting schemes used

2              Supplies:

For each supply you make you must record;

  • The time of supply
  • The value of the supply, and
  • The rate of VAT charged.

For each supply you receive you must record;

  • The time of supply
  • The value of the supply including any VAT that is not claimable, and
  • The amount of input tax that you will claim.

3              Your VAT account, which is the link between the individual business records and the VAT return.  This will include

  • The output tax due on sales
  • The output tax due on acquisitions from other EU member states
  • The tax payable on behalf of your supplier under a reverse charge procedure
  • The tax that needs to be paid following a correction or error adjustment
  • The input tax claimable from business purchases
  • The input tax allowable on acquisitions from other EU member states
  • The tax reclaimable following a correction or error adjustment and
  • any other necessary adjustment required by VAT rules

Are there any exemptions for businesses which have a turnover above the VAT registration threshold?

You will not have to follow the Making Tax Digital rules if HMRC are satisfied that:

  • your business is run entirely by practicing members of a religious society whose beliefs are incompatible with the requirements of the regulations (for example those religious beliefs prevent them from using computers) or,
  • it is not reasonably practical for you to use digital tools to keep your business records or submit your returns, for reasons of age, disability, remoteness of location or for any other reason, or
  • you are subject to an insolvency procedure. In this case businesses should contact the VAT Helpline to discuss alternative arrangements.

What if I go over the threshold temporarily?

Once you have reached the VAT registration threshold you will need to comply with the requirements of Making Tax Digital.  These requirements still apply even if your turnover subsequently falls below the threshold, unless you meet one of the other exemptions.

Will there be penalties for not complying with Making Tax Digital?

Yes, failure to comply with Making Tax Digital will incur penalties. The specific details of how the penalty regime will work has not yet been finalised.  Options include a points-based penalty system where an accumulation of points will incur a fine.

 

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

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

How do I avoid an HMRC investigation?

How do I avoid an HMRC investigation? Find out now by watching our latest video or read about it below.

Nobody wants an HMRC investigation. But they’re getting more and more common as HMRC looks to clamp down on tax

avoiders.

As well as being bad news for Jimmy Carr and Take That, this also has an impact for ordinary tax payers and business owners like you and us. After all, we haven’t got the money for a fancy lawyer to defend us.

I’m Jon Davies and I’m going to help you avoid having HMRC turn up to look at your accounts.

The best way to avoid an investigation is to understand what HMRC looks at. To help you, we’ve listed our top 5 causes for investigations below.

  1. Private expenses – HMRC doesn’t allow private expenses to be claimed by a business. The expense must be “wholly and exclusively” for the benefit of the business.
  2. Private proportions – linked to the above, HMRC looks closely when you’ve allocated a proportion of a cost to the business, for example motor vehicle costs or household bills. It’s safer to use the HMRC approved flat-rate for household bills if you do work from home.
  3. Travel costs – HMRC want to see detailed records of any travel expenses. Make sure that any mileage is logged with detail of the trip, and receipts are kept for any other travel expenses, eg rail tickets. And make sure that the dates agree to your calendar!
  4. Employment status – are you a business, or are you an employee? This is particularly relevant for contractors and consultants – HMRC would prefer you to be classed as an employee as it leads to National Insurance contributions. Therefore, they will look to argue that contractors/consultants who work for one client for long periods are actually employees. The rules on this (the “IR35” legislation) are being constantly updated, so it’s worth checking your status.
  5. Loan accounts – do you have an overdrawn Director’s loan? Have you taken more cash from the business than is available, ie profits after tax? Were dividends correctly paid? If not, HMRC can treat the cash as a salary, and ask for PAYE/NI.

As you can imagine, there’s a lot of detail to be considered for each of these, so please get in touch if you have any queries.

We’ll do everything we can to keep your tax bill down……legally. We know the rules and keep your bill down by using  the tax allowances, efficiencies, and planning in advance.

If you’d like more business tips, please do subscribe to our YouTube channel.

If you’d like a chat, please contact us on growth@jondaviesaccountants.co.uk or by phone on 0151 380 8081.

What are the benefits of using cloud accounting software?

What are the benefits of using cloud accounting software? Find out now by watching our latest video or read about it below.

Let’s face it, bookkeeping can be tedious. As a business owner, it can suck up far too much

of your time and effort. This doesn’t add value, and it takes the fun out of being in business.

 

So what is the cloud all about?

Think about when you use internet banking. Every time you access this data, you’re using the cloud. The cloud is a platform to make data and software accessible online anytime, anywhere, from any device. Your hard drive isn’t needed.

Some of the issues of traditional accounts software include:

  • There’s a time lag – the data isn’t up to date and neither is the software.
  • It only works on one computer and data bounces around from place to place, for example by email or on a USB drive. This isn’t secure or reliable.
  • It’s a hassle to backup the data. And it can be expensive.
  • The software always needs upgrading – this can be difficult, time consuming and expensive. And it can lead to issues over compatibility with your advisers.
  • Only one person has user access. Key people can’t access financial and customer details.

 

Why are the cloud and accounting software a perfect match?

You can use cloud-based software from any device with an internet connection – computer, phone or tablet.

Online accounting means you stay connected to your data and your accountant. It’s cost-effective and easy to use. And it can link in to loads of other applications.

If you use cloud accounting software, you’ll no longer need to install and run applications over a desktop computer. You pay a monthly subscription for the software and upgrades are done automatically in the background.

 

Is it secure?

As a business owner, you might be worried about the security of your data. But the cloud is actually one of the most secure ways to store information. The software and the data no longer live on your hard drive.

This means that, for example, if you lose your laptop, no one can access your data unless they have a login to the online account.

If there’s a fire in the office, all your information is safely and securely stored off site. As long as you have internet access, you’re back up and running immediately.

In addition to this, you can control the level of access that you give top any other users, whether they’re staff or external advisers. This is far more secure than the old-fashioned way of emailing your files or sending out a USB stick with your data on it.

Cloud-based software companies ensure that security and privacy of data is always airtight. If you use online banking, then you’re already primed to use cloud accounting.

 

Work flexibly and smarter

The best thing about the cloud is the flexibility it gives you to run your business from work, home, or on the go. You can be sure that you have an up-to-date picture of how your business is doing, anytime and anyplace.

Software updates can be delivered quicker and more easily in the cloud. This means you don’t need to worry about constantly installing new versions. You also get access to new features instantly.

With cloud accounting software, you have the option to run your business remotely, from anywhere in the world. When data is fluid and accessible, the possibilities are endless.

 

So, here are five ways that cloud accounting can benefit your business

  1. You’re on top of the numbers. You have a real-time, clear overview of your financial position, available on your phone or tablet as well as your computer.
  2. It saves you lots of time – the software automatically uploads your bank statements and matches invoices to receipts/payments.
  3. It’s easy to collaborate online with your team and advisers – lots of users can log-in at the same time.
  4. It’s all online – you don’t have to install it, you just log-in. And everything is backed up automatically. Upgrades and maintenance are done automatically and in the background…..and for free!
  5. There are no upfront fees. The software is paid through a monthly subscription.

 

How can we help?

We’ve been using cloud software for a few years now. A few years ago, we partnered with Xero, the world’s leading cloud accountancy software. And, in February 2015, we became their first Gold Partner in Liverpool – something we’re pretty proud of.

What this means to you, though, is that we’re well placed to advise you on the specific benefits to your business and, if you’re interested, get you started.

If you want to know more, please get in touch using the details below.

If you’d like a chat, please contact us on growth@jondaviesaccountants.co.uk or by phone on 0151 380 8081.

Accountants for consultancy businesses

Do you want to work with an accountant who specialises in working with consultancy businesses? Find out more now by watching out latest video or read about it below.

Hi – I’m Jon Davies. I’m going to tell you how

you can do just that.

You might be an IT consultant or an Architect. A Quantity Surveyor or a Business Coach, or any other type of consultant.

What you have in common with all consultants is that you’re selling time and expertise, not products. This leads to different issues than other businesses – issues we understand very well.

So, what are the issues you’re facing?

  • Are you sure you have the right business structure for your business? Sole trader, Partnership, LLP, Limited Company – the list goes on. There are many different structures available to consultancy businesses. Getting it wrong could be costing you thousands of pounds.
  • Do you have enough clients? You might be an expert in what you do, but you need to someone to pay the bills.
  • Are you charging the right fee or hourly rate? Is it too low or too high? Are you making the right profit?
  • Are you using the right VAT scheme for your business? There are a number of schemes available – choosing the wrong one can cost you a lot of money. Even if you don’t need to register for VAT, you may save a lot of money by doing so.
  • Do you know all of the expenses and tax reliefs you can claim? And what reliefs are available when you’re ready to close the business?
  • And do you know your profits last year? Or last month? Or last week? What about next week, month or year?

That’s why it helps to have outside help to look after the financial side of your business – your clients know that it makes sense to get your expert advice, and you also need expert advice on accounts and tax.

 

How can we help you?

We specialise in helping consultants with their business numbers – we really do understand the issues you’re facing right now. After all, we’re a consultancy business too!

We work with you, not for you. We don’t want to just work with you at the year-end as a deadline closes in – we want to help you keep on top of your cash and your tax bills at all times. After all, do you only advise your clients when they’re in a mess, or do you help them plan in advance?

We can help you find, and keep, more clients – the most important things for any business owner. And work with you on your pricing – there are loads of strategies and we can help you choose the best one for your business.

 

We provide cutting edge online software – Xero and Receipt Bank – which allows you to be on top of your numbers at any time, any place. And, as it’s online, we can look at the same screen as you and answer any queries you might have.

We’ll talk to you regularly so we understand your business and provide advice throughout the year, helping you before you make key financial decisions to increase your sales and profit, and then take your cash out as tax-efficiently as possible.

By understanding your goals, we sometimes plan years in advance with you to maximise profits and reduce tax. After all, why would you want to hear our advice after the event?!?

 

All in all, we can work with you to help your consultancy business become more successful and put more cash in your bank account.

If you want to know more, take a look around the website and download one of our handy business guides, or sign up to our email newsletter that’s full of tips to boost your consultancy business.

If you’d like a chat, please contact us on growth@jondaviesaccountants.co.uk or by phone on 0151 380 8081.

 

 

What Does an Accountant Do?

What does an accountant do? Find out now by watching our latest video or reading about it below.

At its core, an accountant will help a business owner to undertake the preparation of the set of accounts and the tax

returns for the business. These are legal requirements.

If you’re a limited company, you need to do these once each year – you need to file a set of accounts at Companies House and a Corporation Tax return with HMRC within nine months of your year end.

If you’re a sole trader, the accounts and tax return are filed each year for the year ended 5 April and you get until the following 31 January to file them and pay any taxes.

So, at its simplest, an accountant helps you do just that.

However, an accountant can do so much more.

A good accountant will be there for you when you need them – for financial advice, to help you grow your business, and to help to keep your tax bill as low as legally possible.

Many accountants will offer many different services, and it’s up to you to choose which are most appropriate for you and your business.

 

Compliance Services

When you start out, it may be that you do want just the basics – what some accountants call Compliance Services – these would be a set of accounts, a tax return, VAT returns (if you are registered for VAT), and also running a payroll. Often this would also include your personal tax return, either as the sole trader or as the director of a limited company.

These services keep you legally compliant.

 

Launching Your Business

An accountant can help you launch your start up. There’s a lot of administration around that.

An accountant can help you set the business up, form a limited company, introduce you to a bank for a bank account, and also just make sure you have a solid foundation.

 

Bookkeeping

Accountants can also help with the bookkeeping. The bookkeeping is actually taking your financial records and turning that into a set of accounts. So you might have, for example, paper purchase invoices, bank statements, and sales invoices. Your accountant can process them and turn them into a set of accounts.

These days, much of this is done using cloud software. So, rather than typing in purchase invoices, you’ll take a photo or scan an email of the invoice and the software will process it. Similarly, cloud software can talk to your bank account and pull the bank statements in directly without the need for any paper. You can raise your sales invoices in the software and email them to your debtors, and also chase them for payment as and when you need.

 

Saving Tax

A good accountant will always help you save tax. Often this comes by meeting you regularly and planning – by understanding your circumstances and talking to you because, although some tax reductions can be done after the fact, many need to be done in advance.

 

Management Accounts

As you grow, you might need much more than that and find it very, very useful.

A lot of business owners find it useful to have management accounts throughout the year. These are prepared on a regular basis, and actually give you a small set of accounts at regular intervals, so you can track your business and see how it’s doing.

Many management accounts will also include non-financial key performance indicators as well. That might be the number of customers, the number of new sales, your reviews or customer satisfaction – all of the figures that are important to you to help keep your business on track and make sure you’re getting your business to where you want it to be – to help you meet your business and personal goals.

 

Budgets and Forecasts

Some of the other services that accountants can provide include budgets and forecasts.

When you start your business, you want a business plan. An accountant can help you with that and also help with the numbers to support it. But then it’s useful to keep preparing budgets each year.

What are your budgets for the year? What are you forecasting your business to do? Again, so that you know your goals and you can track yourself to see whether you get them.

 

Cash Flow

A really important thing is actually looking at your cash flow and, as well as preparing cash flow forecasts, this means actually working with you on how best to manage your cash.

Whether it’s over the speed you pay your creditors, or many ways of helping you get paid quicker by your customers, an accountant knows these – they do this all the time and they can work with you to help you put more cash in your bank account.

 

Support

A lot of my clients say to me that, sometimes, it’s just the fact we’re there to listen and to support them. A client of mine used to say that having me there was like speaking to a counsellor because it can be a lonely place running a business. If your friends and family don’t run businesses, they don’t understand what it actually means and what it entails. So, having someone to talk to who gets it can be really important. An accountant gives you that.

 

So, an accountant can help with so many things from the core functions of keeping you legally compliant, making sure your accounts are done correctly and on time, to saving you tax, to supporting you, to helping your business grow, and making sure you meet all of your business and personal goals.

There’s a lot to it!

If you’d like a chat, please contact us on growth@jondaviesaccountants.co.uk or by phone on 0151 380 8081.

How Do I Register a Limited Company?

How do I register a Limited Company? Watch our latest video here or read about it below.

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.
  2. A company address – what address do you want to be on the public records?
  3. 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.
  2. 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.

If you would like any more information, then we would be happy to help.

If you’d like a chat, please contact us on growth@jondaviesaccountants.co.uk or by phone on 0151 380 8081.

What are the Five Top Marketing Tips

What are the five top marketing tips? Watch our video to find out more or read the blog below.

Most small businesses lose opportunities as they do not understand what ‘good’ marketing is. Therefore, I am going to tell you

about five top marketing tips that you should be using to practice ‘good marketing’.

 

Market Research 

Firstly, do your market research to define who your target market is and understand what they want from your business.

It is key, that when conducting your market research, you understand how you can differ from your competitors and their services or product offerings.

This can potentially mean that you should investigate expanding upon your current products or services as this will be beneficial for you to stand out on the market and create your unique selling point.

Therefore, if your competitors offer a free telephone consultation, you might also offer this but additionally offer a free face- to-face consultation.

 

Positioning of your brand

Secondly, to create your ideal positioning, you should centre this around what you want the marketplace’s perception to be of your brand.

Your positioning should be different and better than your competitors.

Therefore, using the previous example of offering a face-to-face consultation as well as telephone to fit around the client’s needs.

This will allow customers to identify not just what you do, but why you are the best fit for them.

If a business effectively understands and advertises their brand positioning this will result in a rise of enquiries and calls.

 

Be personal

Sometimes advertising just isn’t enough and customers want a personal experience and want to meet face-to-face before purchasing your product or service.

So, offer potential clients the opportunity to come in for a chat or simply take the time to have a phone call with them.

Let them understand you and your business, as essentially it is all about the time and effort you put in to getting to know your clients.

If they decide to come in to the office to meet you, offer something personal and different that will make them remember your brand.

It will promote that your business is not just mediocre.

Even by just taking the time and effort to meet the client at reception, rather than just waiting for them to knock at your office door, demonstrates that you care.

 

Promoting your market positioning effectively 

This can be done through many forms of advertising such as; leaflets, google AdWords, ads in newspapers, newsletters and signs.

Newsletters and leaflets are an easy option to create a personal approach, just by simply posting it to them and including their name throughout so they know that it is personal to them not just sent out to one mailing list, this will make them feel special and important.

Social media is an effective and affordable way to promote your product and service.

This is a great way to attract your target audience by posting regular pictures on Facebook, Linkedin, Instagram and Twitter.

 

Network to enhance relationships

For small businesses especially, creating and building a personal relationship is key to enhance customer relationships.

Look at local networking events that fit in with your business and register to attend them.

Create a pitch and have business cards available and make sure to promote your businesses and services whenever the opportunity presents itself.

Introduce yourself to other local business owners and get to know them as this can be beneficial for referrals and gaining expertise on the effectiveness of other marketing methods.

 

Summary

In summary, market research, positioning your brand, being personal, promotion and networking are essential easy marketing tips that you should consider.

I hope you found this useful, if you have any questions then please get in touch with us on growth@jondaviesaccountants.co.uk or by phone on 0151 380 8081.

What should I consider when launching my startup business?

What should I consider when launching my startup business? Watch our video to find out more or read about it below.

If you have a bright idea and you think that you have spotted a gap in the market, testing,

preparing and assessing all the risks involved and the potential opportunities will give your business the best chance of survival.

Here are a few things that you should consider on your journey to setting up your own business:

 

Testing your Idea

The first thing that you should do before even thinking about launching your product is testing your idea. This can save you a lot of money and time if your plan doesn’t work out as planned.

To enable you to be able to gauge the interest of your product, or service, and see how much customers may be willing to pay for it, conducting market research will give you a clearer indication about this.

Living in the increasing digital age means that you’re able to conduct the majority of your market research online, saving you money and time. The internet enables you to look at the websites of potential rivals, trade groups and industry publications for useful statistics all for free. Doing this is also an ideal way of identifying your ideal customers and think about their needs and habits.

 

Setting up a business structure

There are around 6 million private sector businesses operating within the UK, with sole traders accounting for 60% of those.

Opting to become a sole trader means that you are entitled to keep all of your businesses profits but also mean that you carry any losses made.

You must pay income tax and national insurance tax on any profits that you make by completing a self-assessment tax return each year.

Partnerships and limited companies define the liability of the partner’s debts. Profits are generally shared between partners who are then responsible for paying the tax on them.

Being in a partnership will mean that you can be personally responsible both for the partnerships debts and managing the business. The partners will also be taxed just the same as the sole traders, through a annual self-assessment tax return.

Operating as a limited company keeps the businesses finances and your personal finances separate, meaning that your personal assets are protected if the business ever get in any financial trouble.

Being a limited company director comes with a few more responsibilities as you have to register the business with Companies House, submit annual confirmation statements to Companies House and complete tax returns each year. However, you will not be personally taxed on the profits that you don’t extract from the company.

With all the of the business structures, once your income exceeds £85,000, then you will have to register your business for VAT.

 

Writing a business plan

By writing a good business plan it can potentially help you sell your business idea to investors or banks, whilst also enabling you to think strategically through every detail for every eventuality.

Considerations when writing up your business plans can include:

  • What your business will sell or supply
  • Your business structure
  • How you are going to sell your products / services
  • The price you are going to sell your products / services at
  • Your short-term and long-term targets
  • Timelines for meeting them

 

It’s a good idea to when possible, analyse your competitors’ customers. Think about:

  • Who are they?
  • Where are they based?
  • How much does your product differ and appeal?
  • How do you attract these customers?

You should also include financial forecasts as this will set them out clearly for you and help you with potential investors. Things like profit and loss, projected sales, cashflow and any marketing contingency plans.

 

Naming your business

With millions of businesses already registered, thinking of a company name might not be as easy as you thought as each business name must be unique. You can do a quick check on Companies House for any business names that are already being used.

It is also a good idea to check that there is a suitable web domain available for the business name you have in mind.

If you are wanting to sell your products or goods globally, then you must also check that the name you want to choose for your business does not have another meaning in another country.

You will also need to check that the name is not trademarked, and does not resemble a trademark.

Certain words and phrases are also not allowed to be used in company names, for example those suggesting endorsement by the government. Also, words such as ‘optician’ or ‘architect’ are restricted to use for only the people with the appropriate qualifications.

 

Managing your business

How you manage your business within the first 100 days of operating will go a long way in determining how successful your venture is going to be. Here are a couple of areas to consider:

  • Business insurance – protecting you against potential mistakes, damage to stock and premises, and legal costs.
  • Have a medium-term goal and stick to it! This should support your long-term business plan.
  • Pay attention to your customer early. Using a social media platform is a beneficial way of doing this.
  • Decide how you are going to handle your customer care early on is also vital
  • Understanding your businesses cashflows – knowing exactly how much money is coming in and out of the business will help you keep an eye on finances. The easiest way to do this is to keep digital records of everything.

 

Finally, think about how much tax the business will potentially be paying and make sure that you are going to be taking advantage of any reliefs or benefits that you are eligible for. If in doubt, ask an accountant!

If you’d like a chat, please contact us on growth@jondaviesaccountants.co.uk or by phone on 0151 380 8081.

Can I Benefit From Employment Allowance?

Can I Benefit From Employment Allowance? Find out now by watching our video or read about it below.

How does it work?

As an employer you could potentially reduce your National Insurance bill by £3,000 each year. This means employers with

a liability below £3,000 would have no liability to pay and employers with a liability over £3,000 would have a reduced National Insurance bill.

This allowance applies only to the Employers National Insurance bill. You do still have to pay the Employees National Insurance.

For example, if your contribution in one month is £750, you would pay nothing, and the balance carried forward would be £2,250. This cycle will continue until the allowance has been used up and then the liability must be paid in full for the rest of the year. If the balance is not used up in any year it is lost and cannot be carried forward into the following year.

 

Who qualifies?

Not all businesses are entitled to the employment allowance. This includes one-person companies where the sole employee is the director.

The allowance is also not available to employers who employ people for personal or domestic work such as gardeners and child minders.

 

How do you claim employment allowance?

If you are eligible you can just claim through your payroll software. You only need to claim for Employment allowance once. It will continue until you stop it. However, do make sure you are claiming as it is not automatic.

 

I hope you found this useful. If you would like to know anymore information then please contact us on growth@jondaviesaccountants.co.uk or by phone on 0151 380 8081.

Does My Accountant Work For Me Or HMRC?

Does My Accountant Work For Me Or HMRC? Watch our latest video to find out now or read our blog below.

This is a question I’ve been asked quite a few times over the years because some people think that

an accountant represents HMRC and is basically working on their behalf to make sure that you, the client, pays tax on time and pays as much tax as possible.

In reality, though, an accountant works for you. You pay the accountant. An accountant is there to help you.

So, what does that actually mean? As a director or shareholder of your business, you have a responsibility to your business to make sure it’s as profitable as possible, but also that it keeps as much of its income and cash as possible.

This, therefore, means paying as little tax as legally possible. And that’s the key word there, legally possible.

HMRC, on the other hand, have a responsibility to the government to collect as much tax as possible.

Therefore, on the face of it, you and HMRC have opposite objectives.

You want to reduce your tax bill. HMRC wants to increase it.

 

What does your accountant do?

Your accountant is there to help you, to help you reduce that tax bill and pay as little tax as legally possible.

Often, that involves knowing what you can and can’t claim as an expense to reduce your profit. It involves knowing the reliefs that are available. Perhaps you were unaware that you could claim a research and development credit or some of the capital allowances that are available. Or even, as a small business, just the rules about working from home.

As an accountant, we help you reduce that tax, while knowing precisely the rules that HMRC have. We make sure that we are using those rules to your advantage.

We are not breaking the rules. We are simply applying the rules that are there. And these are rules that you, as a business owner may not know about. To be honest, it’s not your job to know about them. You’re busy running your business.

 

Why is my accountant an agent for HMRC?

When we deal with HMRC, we’re dealing with them on your behalf.

Your accountant will usually ask you to sign a form, or get an online code, so they can act as your agent for HMRC.

Sometimes people think that means that we’re an agent working on behalf of HMRC but no, we’re not.

We’re an agent working on your behalf.

What the form does is authorise us to speak to HMRC on your behalf. After all, you and HMRC don’t want just anyone to be able to ring up and ask about your tax affairs.

The benefit to you ise that we can get any information from HMRC that we might need about your tax affairs. If you do need to speak to HMRC, we can do it on your behalf, saving you the stress, and also the time of doing it.

 

What if I have an HMRC investigation?

Every now and then, HMRC will investigate businesses. This might be for a specific reason. Often, before there is a large tax rebate, they’ll want to investigate you before writing the cheque. If you think about it, that’s quite reasonable. Perhaps you’ve submitted returns, or paid, late. Often, it’s purely random. They do genuinely pick businesses randomly to look at.

If you are investigated is the case, your accountant will actually represent you in the investigation. Your accountant will work for you, and liaise with HMRC to make sure that everything is correct – all the expenses you’ve claimed are allowable, whether that be for corporation tax or VAT, and have been accounted for correctly.

If there are any changes to be made, your accountant will liaise with HMRC to minimise the impact on you.

 

Ultimately, an accountant’s job is to help you, the client, pay as little tax as legally possible, but to do this within the rules allowed by HMRC.

Therefore, we do speak and liaise with HMRC to make sure we’re on top of those rules and that, if they ever investigate you, you’re absolutely clean, and that there is no additional tax owed.

One of my clients said to me a little while ago when he moved his business to us, “I didn’t know an accountant could work for me. I thought they all worked for HMRC,” because he felt with his previous accountant was actually pushing his tax bill up all the time. We’ve worked with him to bring his tax bill down, but we’ve done that by using the rules and the reliefs as allowed, and just understanding his business and knowing exactly what can be applied.

The problem with the previous accountant, really, was not that they were trying to increase his tax bill. They just didn’t understand his business and some of the reliefs he could claim to reduce that tax bill.

So, there you go. To be absolutely clear, your accountant works for you, not HMRC. They’re there to help you, and protect you from HMRC, and make sure you’re doing everything correctly to keep that tax bill down.

If you have any queries, please do get in touch with us on growth@jondaviesaccountants.co.uk or by phone on 0151 380 8081.

How do I move from Sole Trader to Limited Company?

How do I move from Sole Trader to Limited Company?  Watch our video now to find out or read the blog below.

How do I move from a Sole Trader to a Limited Company?

As a sole trader you may consider

changing your business structure and form a Limited company. This will mean that the company is a separate legal entity to you, the finances are separate from you, and the company keeps any profits it has made after tax.

 

What you will need to do?

To set up a Limited company, you will need to register with Companies House. You will need:

  • A suitable company name
  • An address for the company
  • At least one director
  • Details of the company’s shares
  • To check what your Standard Industrial Classification code is – this identifies what your company does.

You will also need:

  • The shareholders to agree to create the company and the written rules
  • The details of people with significant control over your company

Once you have all of these details you will have to pay £12 to register online with Companies House. Alternatively, you can register via post but this costs £40 and can take longer to process.

When you receive a certificate of incorporation, your company can then begin actively trading.

 

Do I need a company bank account?

If you don’t already have a bank account setup in the name of your limited company, then this tends to be the next step. As your Limited company is a separate legal entity, it needs a separate bank account. It also makes things much easier when having to undertake accounting processes when your limited company has commenced trading.

 

Do I need to contact HMRC?

At the earliest opportunity you should inform HMRC that you have stopped, or intend to stop, working as a sole trader.

You will still have to submit a personal tax return the following year as a director and shareholder.

 

How do I register for Corporation Tax?

You must register with HMRC to pay corporation tax within three months of doing business.

This means if your business has made purchases, sales, done any advertising, rented a property or, employed someone. Ensure that you do register otherwise you may face getting fined.

To register you will need your Unique Taxpayer Reference. This will have been posted to you when you incorporated your business. You will also need your company registration number, the date you started trading and, the date your accounts are made out to.

You will then receive a deadline to pay your corporation tax.

 

Do I need to keep records?

It is really important that you keep accurate records for preparing account and paying corporation tax. And with the looming prospect of Making Tax Digital it may be worth considering the use of Cloud Accounting.

You need to make sure you keep all receipts, expenses, sales, and purchases. And you will need records of any company assets and liabilities. You will need to keep these for six years after the tax year that they relate to.

If you have taxable profits of up to £1.5m, your corporation tax payment will be due 9 months after your company year-end to avoid any fines. If your profits are above this threshold you will pay the tax in installments.

 

What accounts do I need to prepare?

You will need to prepare a set of accounts annually. These are submitted to Companies House within nine months of your company’s year-end.

 

I hope you found this useful. If you would like a chat, please contact us on growth@jondaviesaccountants.co.uk or by phone on 0151 380 8081.

Can I transfer my Marriage Allowance?

Can I transfer my Marriage Allowance? Find out now by watching our latest video or read about it below.

There are more than 4 million married couples and 15,000 civil partners are eligible to a tax break worth up to

£238 in 2018/19. It is designed for couples where one partner pays the basic rate of income tax and the other partner pays none.

Millions of couples are entitled to the tax break but not many people know about it. Here is a breakdown of everything you need to know on Marriage Allowance ensuring you claim if you are eligible.

 

Marriage Allowance entitlement

Whichever person doesn’t pay tax is eligible to reduce their personal allowance by £1,190 and then able to transfer it over to their husband, wife or civil partner. This therefore enables the tax paying spouse to increase their tax-free personal allowance to £13,040.

You may benefit from the Marriage Allowance if:

  • You partner has chosen to reduce their personal allowance and transfer it to you
  • You’re a basic rate taxpayer in 2018/19
  • You meet the residence requirements and have the right to claim personal allowance
  • Neither you nor your partner submits a claim to the married couples allowance in      2018/19

However, you can only benefit from one tax reduction in any tax year.

 

Personal Allowance

You can choose to reduce your personal allowance as long as you have been married or in a civil partnership with the same person for the whole or part of the tax year at the time the claim is made.

You only have 4 years to elect to use the marriage allowance, after the end of the tax year, and it will remain there until you give notice to have it withdrawn. But remember, an election made after the end of the tax year only applies to the year of election. This is the easiest way for your allowance to be operated as it can be made when your tax return is prepared.

 

Separation and Divorce

There is a slight chance that you will lose you eligibility if you and your spouse or civil partner separate between the end of the tax year and the date that your return is due.

Cancelling the marriage allowance will usually take effect from the next tax year unless the marriage or civil partnership has come to an end through:

  • Divorce
  • Order of judicial separation
  • Decree of nullity
  • In the case of a civil partnership, a dissolution order. Order of nullity or order of separation

The marriage allowance can be backdated to the start of the tax year in these circumstances.

 

Death of a Partner

It is possible to make a backdated claim for the marriage allowance if a spouse or civil partner dies. This would be providing that the deceased spouse or civil partner was eligible for it when they were alive.

A claim can be made for any tax year in which you were both alive, including the tax year of death, although no claim can be made thereafter.

 

How does it work?

Will is on an annual salary of £16,000 a year and is married to Amy who works part time and earns £5,000 a year.

Amy has elected to reduce her personal allowance, which is then transferred when Will claims the marriage allowance. The benefit is 10% of the personal allowance rounded up to the next £10.

The transferable amount is then £1,190 giving them tax savings of £238 and this transfer will not impact on Will’s national insurance contributions.

 

I hope you found this useful. If you would like to know more, then please contact us on growth@jondaviesaccountants.co.uk or by phone on 0151 380 8081.

Can I get Tax Relief on Training Costs?

Can I get Tax Relief on Training Costs? To find out more information please watch our latest video now or read the blog below.

Tax on training Costs to businesses can vary a great deal. It can depend on whether

the costs are being incurred personally by the employer or the employee and whether you are trading as a sole trader or a company.

 

Training paid by the Employer
You can get tax relief on training which enables the employees to do better at their jobs. The employees are not taxed on the value of their training, as long as it relates to their work. This will even include general training, which might not always have an immediate impact on their work.

 

Training paid for by the Employee
Tax relief will not usually be given to the employee if they pay for the training themselves, even if it is to help them improve their jobs.
If the training is ‘wholly, exclusively and necessary incurred’ tax relief will be given. For example, if the training was carried out as part of their job not just to prepare them to do the job.
It is possible for the employee to be reimbursed by the employer for the cost. However, this will be counted as a ‘benefit in kind’ which will then be taxable.

 

If you are Self Employed
The tax situation is again different for self-employed workers. The training costs are currently classified as either a capital expense or a revenue expense. A revenue expense relates to the individual topping up their already existing skills. This is tax deductible from your income.
A capital expense relates to when the individual is training in learning new skills, outside of their current occupation. This is not tax deductible from your income.

I hope you found this useful. If you would like to know more, please contact us on growth@jondaviesaccountants.co.uk or by phone on 0151 380 8081.

What is the difference between an Accountant and a Bookkeeper?

What is the difference between an Accountant and a Bookkeeper? Watch our video now to find out or read the blog below.

 

As you can imagine, there’s a lot of overlap between the two areas.

Bookkeeping

is about accurately recording the financial data in a business. An accountant then picks up that financial data and actually reports on it, and interprets it, and often then tries to make it better.

 

What does a bookkeeper do?

At its simplest, bookkeeping involves taking all of the records of the business and processing them into some financial software.

So, for example, a bookkeeper would ordinarily raise the sales invoices for a company, and process any purchase invoices or expenses.

A bookkeeper would then chase the debts, make sure that payments are made to suppliers, and often complete the payroll.

And, by recording all those transactions, they would put together the fundamental core of a set of accounts.

There will be a General Ledger. There would be a list of all the debtors and amounts outstanding. A list all the suppliers and amounts outstanding.

These are the figures needed to then prepare a set of accounts.

 

What does an accountant do?  

An accountant would pick up those figures and put them into a set of accounts.

Step one would be to take the bookkeeper’s figures and actually prepare some adjusting entries that aren’t involved in the bookkeeping. These might be accounting transactions, or things where there wasn’t actually a cash movement but need recording in the set of accounts.

An accountant will take the figures and put them into actual financial statements – a detailed Balance Sheet, Profit and Loss, and a Cash Flow.

And then the accountant will analyse them – they’ll talk to the business owner about what those numbers mean and how could they be made better.

An accountant will prepare the statutory financial statements and the tax returns.

And, again, we’ll look at those to say “how can we make things better?”

An accountant will work with the business owner to fully understand the impact of all of their numbers.

 

Is there any crossover?

There can be a lot of crossover between the work of a bookkeeper and an accountant.

A lot of accountants do bookkeeping. And a lot of bookkeepers will prepare some of the accounts and returns.

Both are incredibly important to any business.

What we find is that a number of our clients can do the basic bookkeeping themselves, particularly with some of the software that’s out there now, like the Cloud based software.

We use a software called Xero, which is really for bookkeeping – it takes a lot of the technical side away and makes it as simple as possible for a business owner to do. You can take photos of purchase invoices to put them into accounts. If you raise the sales in Xero, you can just click go and send an email to your debtors to chase those figures. It’s absolutely great.

Where we often come in as accountants, is to pick those figures up and turn them into detailed reports, and of course, ask “what if?”. “How can we make them better?”

So that’s the difference between accountants and bookkeepers.

Of course, the other thing to note about bookkeepers is that, it is the only word in the English language with three consecutive double letters. So there you go. That’s your really interesting fact for the day.

Unfortunately, there’s nothing interesting about accountants!

If you’d like any advice, please contact us on growth@jondaviesaccountants.co.uk or by phone on 0151 380 8081.

What do I need to consider when taking on employees?

What do I need to know when taking on employees? Find out more by watching our latest video or read about it below.

To grow your business and reach your goals, you need help. And help can often be found

in employing people. But what do you need to consider when you take on a team member?

1 – Salary
One of the big problems with staff is that you actually have to pay them! So, the first step is to decide how much. Obviously, you want to have a salary that’s attractive to them, while not sending you bankrupt.

You also do need to be aware of the national minimum wage, or the living wage if they’re aged over 25. If they’re under 25, there are a number of different rates depending on their exact age. You can find them all on the Gov.uk website.

You may also want to talk to some experts, perhaps some recruitment agents, and look at some job adverts to see what other people are paying for a similar role. This will help you find a market salary.

2 – Legal Checks
There are actually a few legal checks you should make on your new employee. Firstly, you should check they’ve got the legal right to work in the UK. If you’re working in certain sectors, for example working with vulnerable or young people, you might also need to do a DBS check on them.

3 – Insurance
Tip three is that, as an employer, you do legally need to have employer’s liability insurance. This insurance must cover you for at least £5 million, and it must be from a proper, authorised insurance company.

If you don’t comply with this, you can be fined £2,500 per day, so it is well worth getting it!

4 – Contracts
You need to have an employment contract if you’re employing someone for more than one month. Aside from the law, it makes sense for you and your employee. It makes the terms and conditions that will go with the job clear to both of you.

We actually use an HR adviser to help us with all our employee contracts, staff handbooks, monitoring holidays, absences……and even all the good stuff like appraisals and staff development, too!

To me, it’s well worth it. It’s really good to actually have an expert make sure you’re absolutely covered for all of this stuff and, actually, the staff appreciate it too because it shows that we care about them and their development.

5 – HMRC
If you’re a new employer, you do need to tell HMRC and register as an employer. It can take up to three or four weeks, so you do need to think in advance.

Each time you run the payroll, you’ll need to submit forms to HMRC and pay the PAYE/NI over. There’s lots of free software you can use to do this…….or you can ask an expert accountant!

In terms of the taxes, don’t forget the Employers NI. This is paid in addition to the salary, so you do need to budget for it. It’s currently at 13.8% on any salary over £680 per month. For example, if you pay someone £1,680 per month, you’ll have to pay £138 of Employers NI (ie £1,000 @ 13.8%) in addition to the £1,680.

The good news is that you do get the first £3,000 of Employers NI free at the moment so, if you only have a couple of staff, you might not need to pay any.

6 – Pensions
The last of my tips is that, as an employer, you need to set up a workplace pension scheme and automatically enrol your staff. You may well have seen or heard the adverts about this on the TV or radio. You get a few months grace before you need to do this but, if you don’t comply, the fines can be very big.

Again, it’s well worth getting proper advice from an expert on your options and how to do it.

So those are my top six tips for taking on an employee. If you do need any help, please get in touch. We can look after some of these areas, or put you in touch with an Insurance, HR or Pensions expert.

 

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! Watch our video to find out more or read about it below.

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?

What expenses get tax relief? Find out now by watching our video or read about it below.

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 our video 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 our video 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 our video 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 our video 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…

How easy is it to change accountant?

How easy is it to change accountant? To find out everything you need to know watch our latest video now or read about it below.

If you’re thinking of moving accountant, of course your new accountant will say it’s easy

to change. Your old accountant will tell you it’s really hard.

The truth is it’s somewhere in between, it is relatively easy, but there’s a process there with admin, and what you have to do is be careful not to let anything slip through the cracks.

If you think about it, if you’re moving bank accounts, the banks will actually do all of the work for you. They’ll move the direct debits, but you just have to keep an eye on the fact everything has been transferred across; and you’ve made all your payments that month.

It’s similar with accountants. The accountants will do all the hard work. You just have to make sure you know where one ends and the new one starts. Also, if you do move accountants, there’s a little bit of just getting to know each other. They don’t know your business inside out on day one. That can be good because it’s a fresh pair of eyes, but it’ll just take a little while to get up to speed.

What do I need to do?

At its simplest, tell the new one and they do the rest. They’ll liaise with your old accountant to get all the information from them, and they are ethically obliged as members of accounting policies to do this. But if you think about politeness you should really speak to the old accountant, perhaps tell them why you’re moving. It might give them a chance to actually fix it if there’s a problem. Think about it. What would you expect one from one of your customers, if they were leaving you, and treat your accountant in the same way.

What is the process?

The first thing your new accountant will send is what’s called a professional clearance letter to your old accountant. They’re ethically obliged to do this by their institute. But, it gives the old accountant a chance to say if there’s any reason why the new accountant should not accept you as a client. Now this is very rare, it would be something like they know that you’re fraudulent and they’ve kicked you out.

Your new accountant will then need a lot of information. They need your accounts, tax references, passwords, and codes of company’s house. Now they got lots of this from the old accountant, and they ask that in that professional clearance letter. The old accountant, again, will send that across unless there’s a good reason not to do so. In this instance it could be because you owe them money. They’re allowed to keep hold of your records until you’ve paid all of your bills.

But then some of the information the new accountant will ask you for, that includes identification. Your accountant legally has to money laundering checks, which includes making sure that you are who you say you are. They’ll do this by getting a copy of your passport or driving licence and a utility bill, something to prove your address.

Your new accountant will also prepare some engagement letters. This is the contract with you, and it protects both you and your accountant. It makes it really clear what they’re doing for you, what the fees are and who’s responsible for which bits. You agree a start date as well. I’m going to mention the falling through the cracks. This is really important. Your old accountant should at least know when they’re finishing and the new one’s starting; and that the obvious example, this is payroll. If you’ve got payroll to run at the end of this month, who’s doing it? Somebody needs to do it, and it needs to be clear.

Usually then you will have a kick-off meeting with the new accountant to get going. Now, most of this stuff could be done electronically, or your new accountant would get it from the old accountant; but the kick-off meetings just gives a chance to just get those bits which actually need your pen on a bit of paper.

We find when we’ve taken a new client, the key really is that kick-off meeting. We should have loads of the stuff from the old accountant by then, but then we can sit down together and make sure it’s all there. Get all that information together and basically talk about how we’ll work together.

Each client has slightly different ways of working and different preferences, so the kick-off meeting lets us understand that. It also lets us understand your goals and where you want your business to get to so we can help you get there. We can put all in writing, so it’s all clear.

So, overall then how easy is it’s change accountant? Well it’s easy-ish, but it does take a bit of work from all parties, and you do have to be aware of that.

 

If you’d like a chat, please contact us on growth@jondaviesaccountants.co.uk or by phone on 0151 380 8081.

How much does a good accountant cost?

How much does a good accountant cost? If you are unsure and want to find out more, then please watch our latest video here or read about it below.

 

Well the simple answer is less than a bad one. A

good accountant will help you avoid fines or help you boost your profits and will help you proactively reduce your tax bill.

In reality, of course, it just depends. I think for accountancy fees, it’s like buying a car, you buy a secondhand car for £1,000 pounds or spend £100,000 pounds on a sports car. Fundamentally, they do the same thing. It’s just how they do it.

Sometimes the difficulty as a business owner is that few accountants actually show their prices on the websites and that’s because they do vary so much, even within the same firm.

For example, our fees are based on the size of your business, the structure of your business.

So, are you a sole trader or a limited company? The records you keep, are you bringing us in a big pile of paper that we need to process. Have you already done the bookkeeping? And then the level of service you want.

So, as an example, do you want VAT returns prepared for you? Do you want a payroll run for you, or personal tax done? Or perhaps you want management accounts and meetings throughout the year. And of course, the fee can come down to your budget.

 

What should I expect to pay?

Well it does depend on what you want and need. I have a client who came to me and his wife actually pays £200 pounds a year to an accountant, that’s because she has a very small business, it’s almost a hobby, really. It doesn’t make much profit and there’s no tax to pay.

So, she adds up all her own figures, gives them to the accountant and all they do is take those figures and put them into a tax return. That £200 pounds gets her everything she wants and needs.

However, he uses me and pays over 10 times as much as that because he has quite a sizable business and he wants advice throughout the year.

Someone cleverer than me though, actually came with a great rule of thumb. He told me that you should look to pay about 1.5% of your turnover, over for your finance functions, to include your accountant and perhaps a bookkeeper.

As you grow, that 1.5% might include an internal finance person as well, because it reflects the fact you’re going to need more support.

So, if your sales for the year are say £100,000 pounds, you’re looking at probably £1,500 pounds in accountancy fees. If your sales go up to a million pounds, you pay about £15,000 pounds in accountancy fees or for your internal finance people.

I do think that’s a really good rule of thumb that gives you an idea. Of course, it does depend on the exact service you need, but hopefully that helps you get an idea of what you’ll pay.

So that gives you an idea of what you should pay a good accountant. If you want to know anymore, just get in touch.

 

If you’d like a chat, please contact us on growth@jondaviesaccountants.co.uk or by phone on 0151 380 8081.

If I use you as my accountant, will I be foisted off on a junior?

If I use you as my accountant, will I be foisted off on a junior? Find out more by watching our latest video now or read about it below.

If I use you as my accountant, will I be foisted

off on a junior?

What dominates our approach at Jon Davies Accountants is to always do the best thing for you, as our client.

What that means is that, at different times, different people will do different pieces of work for you.

The last thing you want is to have the Senior Partner spending an hour filling in an HMRC form for you. It’s not cost effective, and would be a really dumb thing to happen!

Any accountant who promises to do every task for you is, to be frank, a little bit bonkers.

At Jon Davies Accountants, you’ll be assigned a Client Manager who will be your constant point of contact. They’ll be available to answer all of your questions and make sure that everything gets done on your account, and that the best person does each piece of work. The Client Manager will then send that work to you.

I focus heavily on building a quality team with the same ethics and values that I have. All of them are highly skilled. Some are qualified accountants, some are part-qualified, and others look after the admin on your account. We make sure that, every time, the right person with the right skills does the piece of work for you.

I’ll always be available to email, speak, or meet with you if you need me. I’ll also be doing some of the work. I’ll certainly be making sure that the quality of the service is what you’d expect and want of a quality accountant.

So, you’ll never be foisted off on a junior. You’ll always have the best person for the service you want or need.

If you’d like a chat, please contact us on growth@jondaviesaccountants.co.uk or by phone on 0151 380 8081.

Accountants for consultancy businesses

Do you want to work with an accountant who specialises in working with consultancy businesses? Find out more now by watching out latest video or read about it below.

Hi – I’m Jon Davies. I’m going to tell you how

you can do just that.

You might be an IT consultant or an Architect. A Quantity Surveyor or a Business Coach, or any other type of consultant.

What you have in common with all consultants is that you’re selling time and expertise, not products. This leads to different issues than other businesses – issues we understand very well.

So, what are the issues you’re facing?

  • Are you sure you have the right business structure for your business? Sole trader, Partnership, LLP, Limited Company – the list goes on. There are many different structures available to consultancy businesses. Getting it wrong could be costing you thousands of pounds.
  • Do you have enough clients? You might be an expert in what you do, but you need to someone to pay the bills.
  • Are you charging the right fee or hourly rate? Is it too low or too high? Are you making the right profit?
  • Are you using the right VAT scheme for your business? There are a number of schemes available – choosing the wrong one can cost you a lot of money. Even if you don’t need to register for VAT, you may save a lot of money by doing so.
  • Do you know all of the expenses and tax reliefs you can claim? And what reliefs are available when you’re ready to close the business?
  • And do you know your profits last year? Or last month? Or last week? What about next week, month or year?

That’s why it helps to have outside help to look after the financial side of your business – your clients know that it makes sense to get your expert advice, and you also need expert advice on accounts and tax.

 

How can we help you?

We specialise in helping consultants with their business numbers – we really do understand the issues you’re facing right now. After all, we’re a consultancy business too!

We work with you, not for you. We don’t want to just work with you at the year-end as a deadline closes in – we want to help you keep on top of your cash and your tax bills at all times. After all, do you only advise your clients when they’re in a mess, or do you help them plan in advance?

We can help you find, and keep, more clients – the most important things for any business owner. And work with you on your pricing – there are loads of strategies and we can help you choose the best one for your business.

 

We provide cutting edge online software – Xero and Receipt Bank – which allows you to be on top of your numbers at any time, any place. And, as it’s online, we can look at the same screen as you and answer any queries you might have.

We’ll talk to you regularly so we understand your business and provide advice throughout the year, helping you before you make key financial decisions to increase your sales and profit, and then take your cash out as tax-efficiently as possible.

By understanding your goals, we sometimes plan years in advance with you to maximise profits and reduce tax. After all, why would you want to hear our advice after the event?!?

 

All in all, we can work with you to help your consultancy business become more successful and put more cash in your bank account.

If you want to know more, take a look around the website and download one of our handy business guides, or sign up to our email newsletter that’s full of tips to boost your consultancy business.

If you’d like a chat, please contact us on growth@jondaviesaccountants.co.uk or by phone on 0151 380 8081.

 

 

What’s the difference between a good accountant and a bad accountant?

What is the difference between a good accountant and a bad accountant? Find out now by watching our latest video or read about it below.

Well, a generally bad accountant misses deadlines, they cost you fines and they never get

back to you.

I suppose it’s rare to get a bad accountant. It’s more common to get a mediocre accountant who just does the minimum and only when you ask. But a good accountant will depend on you and your business.

At its core, a good accountant is reliable. A good accountant’s responsive. A good accountant is proactive. They explain the numbers to you in language that makes sense to you. You should understand your accounts and tax. It’s up to your accountant to explain them in plain English.

Beyond that, all businesses are different, and many have different needs, so good accountants can mean different things to different business owners.

If you’re new or a small business, you might just want compliance from your accountant. The stuff that keeps you legal and keeps your tax bill down. So, the set of accounts, the tax return, the VAT, the payroll, perhaps processing your records.

But, if you’re on a growth path, you might want to get your accountant to be actively monitoring, provide you management accounts, key performance indicators, with advice on your marketing as well.

You might want an accountant who specialises in your sector and therefore can give you specialist advice. As you grow near larger profits, you might need more detailed tax advice. And also as you grow, it might be more complex over strategy and also the different tax things that happen in your business.

Now a good accountant understands you and understands your business. They’re going to send you goals and they’ll help you get there. They’ll give you the right services at the right time for you, and they’ll adapt as your business develops.

So, as you are a start-up, they’ll give you support to get going, but realise you only need compliance services.

As you grow, they’ll start to give you more support, help with your business plans, and then as you’re larger they’ll start to give you monthly meetings, act as a non-executive director for your business, there for you whenever you need them.

Now that level of service is probably too much for a start-up. The semi-large client needs more than just the compliance.

So, a good accountant does depend on what you’re looking for and a great accountant will explain what you need now and then look ahead to what can help you in the future.

They’ll then develop the services with you to make sure that you get what you want from your business. That’s more profits, less tax, and most importantly, they’ll help you hit your business and your personal goals.

 

If you’d like a chat, please contact us on growth@jondaviesaccountants.co.uk or by phone on 0151 380 8081.

What Does an Accountant Do?

What does an accountant do? Find out now by watching our latest video or reading about it below.

At its core, an accountant will help a business owner to undertake the preparation of the set of accounts and the tax

returns for the business. These are legal requirements.

If you’re a limited company, you need to do these once each year – you need to file a set of accounts at Companies House and a Corporation Tax return with HMRC within nine months of your year end.

If you’re a sole trader, the accounts and tax return are filed each year for the year ended 5 April and you get until the following 31 January to file them and pay any taxes.

So, at its simplest, an accountant helps you do just that.

However, an accountant can do so much more.

A good accountant will be there for you when you need them – for financial advice, to help you grow your business, and to help to keep your tax bill as low as legally possible.

Many accountants will offer many different services, and it’s up to you to choose which are most appropriate for you and your business.

 

Compliance Services

When you start out, it may be that you do want just the basics – what some accountants call Compliance Services – these would be a set of accounts, a tax return, VAT returns (if you are registered for VAT), and also running a payroll. Often this would also include your personal tax return, either as the sole trader or as the director of a limited company.

These services keep you legally compliant.

 

Launching Your Business

An accountant can help you launch your start up. There’s a lot of administration around that.

An accountant can help you set the business up, form a limited company, introduce you to a bank for a bank account, and also just make sure you have a solid foundation.

 

Bookkeeping

Accountants can also help with the bookkeeping. The bookkeeping is actually taking your financial records and turning that into a set of accounts. So you might have, for example, paper purchase invoices, bank statements, and sales invoices. Your accountant can process them and turn them into a set of accounts.

These days, much of this is done using cloud software. So, rather than typing in purchase invoices, you’ll take a photo or scan an email of the invoice and the software will process it. Similarly, cloud software can talk to your bank account and pull the bank statements in directly without the need for any paper. You can raise your sales invoices in the software and email them to your debtors, and also chase them for payment as and when you need.

 

Saving Tax

A good accountant will always help you save tax. Often this comes by meeting you regularly and planning – by understanding your circumstances and talking to you because, although some tax reductions can be done after the fact, many need to be done in advance.

 

Management Accounts

As you grow, you might need much more than that and find it very, very useful.

A lot of business owners find it useful to have management accounts throughout the year. These are prepared on a regular basis, and actually give you a small set of accounts at regular intervals, so you can track your business and see how it’s doing.

Many management accounts will also include non-financial key performance indicators as well. That might be the number of customers, the number of new sales, your reviews or customer satisfaction – all of the figures that are important to you to help keep your business on track and make sure you’re getting your business to where you want it to be – to help you meet your business and personal goals.

 

Budgets and Forecasts

Some of the other services that accountants can provide include budgets and forecasts.

When you start your business, you want a business plan. An accountant can help you with that and also help with the numbers to support it. But then it’s useful to keep preparing budgets each year.

What are your budgets for the year? What are you forecasting your business to do? Again, so that you know your goals and you can track yourself to see whether you get them.

 

Cash Flow

A really important thing is actually looking at your cash flow and, as well as preparing cash flow forecasts, this means actually working with you on how best to manage your cash.

Whether it’s over the speed you pay your creditors, or many ways of helping you get paid quicker by your customers, an accountant knows these – they do this all the time and they can work with you to help you put more cash in your bank account.

 

Support

A lot of my clients say to me that, sometimes, it’s just the fact we’re there to listen and to support them. A client of mine used to say that having me there was like speaking to a counsellor because it can be a lonely place running a business. If your friends and family don’t run businesses, they don’t understand what it actually means and what it entails. So, having someone to talk to who gets it can be really important. An accountant gives you that.

 

So, an accountant can help with so many things from the core functions of keeping you legally compliant, making sure your accounts are done correctly and on time, to saving you tax, to supporting you, to helping your business grow, and making sure you meet all of your business and personal goals.

There’s a lot to it!

If you’d like a chat, please contact us on growth@jondaviesaccountants.co.uk or by phone on 0151 380 8081.

Do You Want A Liverpool Accountant?

Do you want a Liverpool Accountant? Watch the video here or read about it below.

Many people think most Liverpool accountants are boring. And, you know what? Many are!

That’s a bit harsh but, more importantly, 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 and life better?

I spent over 12 years working in global accountancy firms. Hitting a deadline and getting the figures “correct” was a given. With Jon Davies Accountants, I wanted to do something extra.

Therefore, my team and I like to understand our clients and what matters to you. We can then work together to achieve it.

 

We look forward, not backwards. That’s one of the problems with traditional business accountants – everything is about looking at last year’s figures. We know that you want to look more at the present, and at the future, so that’s what we focus on.

 

We’re tech savvy – we use Cloud software to make your life easier and give you access to your business numbers anywhere and anytime. And we’re doing our best to get rid of having paper records everywhere – these days you can take photos of your receipts and automatically upload them into our software.

 

We use lots of tools to give you far more relevant numbers than a legal set of accounts – for example, our management accounts can include your website data as our software speaks directly to Google. And we can present the figures for your business in graphs and diagrams to make them easier to understand and to see the trends over time. When did you last see that in a set of accounts?

 

We also like to challenge the way things are done – in our business and in yours. For example, we’re always looking at new software and systems that help us do our job, and help your business too. We’ll challenge you too – we’ll sometimes ask tricky questions that will change the way you think about your business!

 

We also don’t want to ever, ever be thought of as stuffy and boring. We want you to look forward to coming to see us – it should be fun. (Well, almost!) We do believe that you’ll get a warm, friendly greeting and, after any meeting with us, you should leave feeling pleased that we’ve really helped you with your business.

 

Would you like to meet?

If you think we sound like the right Liverpool business accountant for you, we’d love to meet up.

If you’d like to chat, please give us a ring on 0151 380 8081 or email us at growth@jondaviesaccountants.co.uk.

Does My Accountant Work For Me Or HMRC?

Does My Accountant Work For Me Or HMRC? Watch our latest video to find out now or read our blog below.

This is a question I’ve been asked quite a few times over the years because some people think that

an accountant represents HMRC and is basically working on their behalf to make sure that you, the client, pays tax on time and pays as much tax as possible.

In reality, though, an accountant works for you. You pay the accountant. An accountant is there to help you.

So, what does that actually mean? As a director or shareholder of your business, you have a responsibility to your business to make sure it’s as profitable as possible, but also that it keeps as much of its income and cash as possible.

This, therefore, means paying as little tax as legally possible. And that’s the key word there, legally possible.

HMRC, on the other hand, have a responsibility to the government to collect as much tax as possible.

Therefore, on the face of it, you and HMRC have opposite objectives.

You want to reduce your tax bill. HMRC wants to increase it.

 

What does your accountant do?

Your accountant is there to help you, to help you reduce that tax bill and pay as little tax as legally possible.

Often, that involves knowing what you can and can’t claim as an expense to reduce your profit. It involves knowing the reliefs that are available. Perhaps you were unaware that you could claim a research and development credit or some of the capital allowances that are available. Or even, as a small business, just the rules about working from home.

As an accountant, we help you reduce that tax, while knowing precisely the rules that HMRC have. We make sure that we are using those rules to your advantage.

We are not breaking the rules. We are simply applying the rules that are there. And these are rules that you, as a business owner may not know about. To be honest, it’s not your job to know about them. You’re busy running your business.

 

Why is my accountant an agent for HMRC?

When we deal with HMRC, we’re dealing with them on your behalf.

Your accountant will usually ask you to sign a form, or get an online code, so they can act as your agent for HMRC.

Sometimes people think that means that we’re an agent working on behalf of HMRC but no, we’re not.

We’re an agent working on your behalf.

What the form does is authorise us to speak to HMRC on your behalf. After all, you and HMRC don’t want just anyone to be able to ring up and ask about your tax affairs.

The benefit to you ise that we can get any information from HMRC that we might need about your tax affairs. If you do need to speak to HMRC, we can do it on your behalf, saving you the stress, and also the time of doing it.

 

What if I have an HMRC investigation?

Every now and then, HMRC will investigate businesses. This might be for a specific reason. Often, before there is a large tax rebate, they’ll want to investigate you before writing the cheque. If you think about it, that’s quite reasonable. Perhaps you’ve submitted returns, or paid, late. Often, it’s purely random. They do genuinely pick businesses randomly to look at.

If you are investigated is the case, your accountant will actually represent you in the investigation. Your accountant will work for you, and liaise with HMRC to make sure that everything is correct – all the expenses you’ve claimed are allowable, whether that be for corporation tax or VAT, and have been accounted for correctly.

If there are any changes to be made, your accountant will liaise with HMRC to minimise the impact on you.

 

Ultimately, an accountant’s job is to help you, the client, pay as little tax as legally possible, but to do this within the rules allowed by HMRC.

Therefore, we do speak and liaise with HMRC to make sure we’re on top of those rules and that, if they ever investigate you, you’re absolutely clean, and that there is no additional tax owed.

One of my clients said to me a little while ago when he moved his business to us, “I didn’t know an accountant could work for me. I thought they all worked for HMRC,” because he felt with his previous accountant was actually pushing his tax bill up all the time. We’ve worked with him to bring his tax bill down, but we’ve done that by using the rules and the reliefs as allowed, and just understanding his business and knowing exactly what can be applied.

The problem with the previous accountant, really, was not that they were trying to increase his tax bill. They just didn’t understand his business and some of the reliefs he could claim to reduce that tax bill.

So, there you go. To be absolutely clear, your accountant works for you, not HMRC. They’re there to help you, and protect you from HMRC, and make sure you’re doing everything correctly to keep that tax bill down.

If you have any queries, please do get in touch with us on growth@jondaviesaccountants.co.uk or by phone on 0151 380 8081.

What is the difference between an Accountant and a Bookkeeper?

What is the difference between an Accountant and a Bookkeeper? Watch our video now to find out or read the blog below.

 

As you can imagine, there’s a lot of overlap between the two areas.

Bookkeeping

is about accurately recording the financial data in a business. An accountant then picks up that financial data and actually reports on it, and interprets it, and often then tries to make it better.

 

What does a bookkeeper do?

At its simplest, bookkeeping involves taking all of the records of the business and processing them into some financial software.

So, for example, a bookkeeper would ordinarily raise the sales invoices for a company, and process any purchase invoices or expenses.

A bookkeeper would then chase the debts, make sure that payments are made to suppliers, and often complete the payroll.

And, by recording all those transactions, they would put together the fundamental core of a set of accounts.

There will be a General Ledger. There would be a list of all the debtors and amounts outstanding. A list all the suppliers and amounts outstanding.

These are the figures needed to then prepare a set of accounts.

 

What does an accountant do?  

An accountant would pick up those figures and put them into a set of accounts.

Step one would be to take the bookkeeper’s figures and actually prepare some adjusting entries that aren’t involved in the bookkeeping. These might be accounting transactions, or things where there wasn’t actually a cash movement but need recording in the set of accounts.

An accountant will take the figures and put them into actual financial statements – a detailed Balance Sheet, Profit and Loss, and a Cash Flow.

And then the accountant will analyse them – they’ll talk to the business owner about what those numbers mean and how could they be made better.

An accountant will prepare the statutory financial statements and the tax returns.

And, again, we’ll look at those to say “how can we make things better?”

An accountant will work with the business owner to fully understand the impact of all of their numbers.

 

Is there any crossover?

There can be a lot of crossover between the work of a bookkeeper and an accountant.

A lot of accountants do bookkeeping. And a lot of bookkeepers will prepare some of the accounts and returns.

Both are incredibly important to any business.

What we find is that a number of our clients can do the basic bookkeeping themselves, particularly with some of the software that’s out there now, like the Cloud based software.

We use a software called Xero, which is really for bookkeeping – it takes a lot of the technical side away and makes it as simple as possible for a business owner to do. You can take photos of purchase invoices to put them into accounts. If you raise the sales in Xero, you can just click go and send an email to your debtors to chase those figures. It’s absolutely great.

Where we often come in as accountants, is to pick those figures up and turn them into detailed reports, and of course, ask “what if?”. “How can we make them better?”

So that’s the difference between accountants and bookkeepers.

Of course, the other thing to note about bookkeepers is that, it is the only word in the English language with three consecutive double letters. So there you go. That’s your really interesting fact for the day.

Unfortunately, there’s nothing interesting about accountants!

If you’d like any advice, please contact us on growth@jondaviesaccountants.co.uk or by phone on 0151 380 8081.

What details do I need to include on a Sales Invoice?

What details do I need to include on a Sales Invoice? Find out now by watching our latest video or read about it below.

You must clearly display the word ‘invoice’ on the document.

You must include:
• a unique identification number

your company name, address and contact information
• the company name and address of the customer you’re invoicing
• a clear description of what you’re charging for
• the date the goods or service were provided (supply date)
• the date of the invoice
• the amount(s) being charged
• VAT amount if applicable
• the total amount owed

Sole trader invoices
If you’re a sole trader, the invoice must also include:

• your name and any business name being used
• an address where any legal documents can be delivered to you if you are using a business name

Limited company invoices
If your company is a limited company, you must include the full company name as it appears on the certificate of incorporation.
If you decide to put names of your directors on your invoices, you must include the names of all directors.

VAT invoices
You must use VAT invoices if you and your customer are VAT registered.

The extra information needed is:
• Price per item excluding VAT
• Quantity of each item
• Total amount excluding VAT
• Total amount of VAT
• Total amount including VAT

If you need any help, just get in touch and we will do everything we can to help.

What qualifications should my accountant have?

What qualifications should my accountant have? To find out now then please watch our video or read about it below.

 

Believe it or not, you can call yourself an accountant and set up an accounting practice without having any qualifications

at all.

It’s not like being a doctor or a solicitor, where legally, you need to have the correct qualifications to do so. Generally, anybody can set up an accounting practice tomorrow.

That means, though, when you’re picking your accountant, you want to be confident they really know what they’re doing. There are some perfectly good accountants out there who have never actually sat the exams, but they’ve been doing it for years and years and have all the experience to actually do a good job.

But generally speaking, an accountant with the correct qualifications will give you more comfort. They’ll do a better job, and also their accounting body will give you somewhere to go to if anything goes wrong.

So, what are the main accounting qualifications? The main thing to look out for when picking an accountant, is that they’re a member of one of the following bodies.

The first would be the AAT. This stands for the Association of Accounting Technicians. It’s a UK qualification. Often it’s done by people when they first get into the accounting profession. It’s kind of the stepping stone. It’s very much around the bookkeeping and the first steps, so a really good qualification to get as a grounding.

After that, many accountants then move onto one of the higher professional qualifications, and the three main ones would be CIMA – Chartered Institute of Management Accountants.

This is a great qualification to have for actually working in business and preparing management accounts. CIMA accountants have a really good idea of how businesses work.

Then there is the ACCA, which is the Association of Chartered Certified Accountants. That’s a global body, and certified accountants often start off in practise, ie working at an accounting firm. Before they go out and work within a business.

Then there is the ICAEW, the Institute of Chartered Accountants in England and Wales, which is, I guess, the oldest, most traditional qualification. Some would say most prestigious. To be called a Chartered Accountant, you must be a member of this Institute.
However these days, to be perfectly honest, there isn’t a huge difference between the different qualifications. And I say that as a Chartered Accountant myself!

They all have a different slant. They do things slightly differently, but at its core, if your accountant’s a member of any of those bodies, it can give you comfort they’ll do a good job.

And as I say, it means they’ve sat through the exams, they’ve done the qualifications, they have the accreditation
And it is important that there is a body behind them. Firstly, that body helps your accountant in keeping up to date with what’s going on, any change in legislation, change in tax.

But also, if anything goes wrong, you do have a body to go to, to take your complaint.

So those are the qualifications you should look for. It is worth taking a look when picking your accountant.
Hope that was useful if you need any more information, then please just get in touch.

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.

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Why do I need an accountant?

To find out more, you can either  watch our video 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.

Who are the best accountants in Liverpool?

Who are the best accountants in Liverpool? Find out in our video, or read about it below.

 

Well this is a hard one to answer because it’s hard to define the “best”.

For example, think about cars. If you were to

ask an expert what the best car in the world is, they may say a Ferrari. But, if you use your car every day to drive around three kids and a dog, a Ferrari’s no good for you. And then you might not be able to afford it either.

It’s the same with accountants – the “best” will mean different things to different people.

I’ve actually got a separate video about how to choose the right accountant for you, and it’s worth just recapping a couple things from that video now.

For example, one of the first things you should be looking for when you’re picking the right accountant for you, and the best accountant for you, is the size of the firm. You should also be looking for relative experience to you and your sector, and looking at the fees and whether they’re right for you and your budget.

If you think about it, if you’re a huge global firm like Apple, you’re not going to use a one-man band in Liverpool to do your accounts. But, similarly, if you’re a one-person business based in Liverpool, you’re not going to use PwC, a global firm of accountants with 100,000 staff.

Therefore, in picking the best accountants in Liverpool. I’m going to talk about a few of them that could be relevant to you. And, basically, when I’m looking at the best accountants in Liverpool I’m looking at accountants that provide accountancy services for small to medium size businesses.

And, for each one of them it will depend on you, because a good firm will offer the services you need at the time you need them.

Accountants for larger businesses

I’m going to start with a largish firm – a firm that is part of a global network. A firm called RSM.

We actually use RSM to outsource some work for our clients when there’s some complex tax international work – we bring them in to help with us on jobs so, when I recommend them, I’m recommending them as someone who has used them.

One of the big strengths of RSM is they can handle pretty much anything, and also advise you if you have overseas operations. They have offices all around the world as part of their network.

They are a really good firm aimed at larger businesses. They can give you that all-in service and they do it well. They’ve got a good Liverpool office with lovely views if you go and visit them – you can look down on the Liver Building but, I’m recommending them for the service rather than the view!

Accountants for medium-sized businesses

If you’re a medium-sized business, a firm I think is very good is BWM. Until recently, they were called BW McFarlane.

They’re a Liverpool firm based in the city centre. They’ve been trading for the best part of 100 years now.

I’ve got to give a mention to BWM because, I’ll admit, my wife actually uses them to do some accounts! My wife’s the Treasurer of a Trust, and they use BWM to do their accounts. They’ve always been very happy with the service. They’re a decent sized firm that’s based in Liverpool and has a good level of resource and expertise to service a medium-sized business.

Another firm in that middle tier would be Wilson Henry. Another good Liverpool firm based on Edge Lane who at small to medium business, and can give all services across the board. Again, they’re a firm I’ve had quite a lot to do with over the years and have spent some time in their office.

Small to medium businesses

There is the best part of 100 firms across Merseyside looking after small to medium businesses – businesses from start-up to annual turnover of, say, £5 million.

This is where “best” really does come down to what you’re looking for from your accountant.

A firm I really respect is Jonathan Ford & Co. They’re a very progressive firm of accountants – they’re really into cloud software and Xero, and have been at the forefront of these new technologies that really enhance the services they can provide to their clients.

As well as working for some global accountancy firms, Jonathan himself was FD of Mersey TV, so they do specialise in the creative sector. They’re a really good, really forward-thinking firm. They’ve got lots of experience – the firm’s been going for nearly 20 years – and a strong team of around 10 accountants. They can give you everything you need if you’re a smallish business and, particularly in that creative sector, they’d be an excellent choice.

Going slightly further afield, to the Wirral, is Woods Squared. They major on business growth and pride themselves on a 100% success rate in raising funding for clients. I first met Alan Woods as part of a network of accountants committed to providing more to their clients than just the standard stuff – really helping the clients to make their businesses better, and Alan really does believe in doing that. They’ve also won a lot of awards. Shame they’re on the wrong side of the water, but you can’t have everything!

Another firm I should mention, with perhaps a different expertise, is actually my ex-firm – MJF Accountancy. Where MJF are really, really good is providing straight-forward help and making sure all of the basics are done……and done very well. They’ll make sure you hit every deadline and don’t have to worry about the financial requirements of running a business.

They do give good advice on tax reduction, but in some ways it’s more of a no-frills service, but an excellent service at that. They’re absolutely reliable and, if you have a big pile of paper that needs sorting, they will fix it. They’ll sort it out, get it into a set of accounts, and then get you fixed going forwards.

Summary

I hope that gives you a feel for some of the best accountants in Liverpool. It really does depend on exactly what you’re looking for.

RSM are excellent if you’re a largish business and have a lot of complex transactions going on, perhaps tax-wise or R&D Credits. BWM and Wilson Henry are aimed at medium-sized firms, but with a good level of resource based in Liverpool.

And then the likes of Jonathan Ford, Woods Squared and MJF Accountancy are more aimed at smaller businesses and will give different levels of services depending on what sector you’re in and what you want from your accountant.

To summarise, though, it does depend on you and also the size of your business and the fees. As a general rule of thumb – the larger the firm, the larger the fees.

That’s not always the case – some of the small firms have real experts and are actually based on the value they provide – but it’s a decent rule of thumb.

And it does often make sense to look for a firm that, in terms of size is not dissimilar to yours, because they understand your business a bit better. It’s back to that thing – Apple wouldn’t use a one-man band, but neither would a small business in Liverpool want to use a global firm. They don’t really understand you and your numbers.

 

I hope you found that useful. If, you have any queries, please do get in touch. It’d be great to hear from you. Thank you.

 

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Any questions?

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

How do I choose an accountant?

How do you choose the best accountant for your business? Take a look at our video, or read about it below.

A good accountant should be a vital part of your business if you want to be successful. They should

help you fully understand all of the numbers so that you can make decisions to help your business grow.

They should be available throughout the year to work with you and give you advice before you make any big financial decision.

And that’s on top of the basic stuff, ie making sure you meet all your HMRC requirements and don’t get fined for being late. They should take away all the worries of the financial requirements so that you can get on with running your business.

So, how do you choose an accountant? Here are my top 5 tips.

1. Size of firm

There are all sizes of accountancy firms, serving all sizes of business. I’ve worked for global firms, medium firms and now have my own. Often, it makes sense to work with a firm that’s a similar size to yours……and understands businesses that are a similar size to yours.

But you do have to ask “can they grow with me?”. A large firm may have higher fees, but they may also have additional expertise. But then a small firm will give you more time with the partners/owners.

There’s no right or wrong – it will depend on what you want and need

2. Relevant Experience

Do they understand your sector? You’ll get far more from your accountant if they understand your business. There are lots of common factors across different business sectors, but it can be a real advantage if they understand what you do, and know any specific rules about what you do. For example, a building firm has some different tax rules to a restaurant.

How do you check this out?

  • Look at their website, either for specific pages or in the testimonials. Do they have clients like you?
  • Ask them!

3. Fees

What are you going to have to pay?

Now, the cheapest isn’t usually the best – it’s well worth paying for quality advice, and to get proactive advice throughout the year. But you should have absolute clarity on what you’re getting so that you can assess the value.

For example, are you getting charged for phone calls and ad hoc advice? Is the personal tax return included?

Rather than charge by the hour, most accountants will agree a fixed fee for a task, or even the annual service.

Ultimately, you should pick the accountant who gives you everything you want. The price should be secondary as a good accountant is an investment in the growth of your business

4. Qualifications

Setting up an accountancy firm isn’t like setting up a doctors or a solicitors. Anyone can actually call themselves an accountant – you don’t legally need any knowledge or qualifications to do so.

Therefore, it’s worth checking that they do actually have an accountancy qualification so that you’re confident that they can do the job. The main bodies are the ICAEW, ACCA and CIMA.

As well as the comfort of knowing your accountant has the relevant qualifications, membership of these institutes gives you somewhere to go if you do have any problems.

5. Recommendations

If anyone you know has used them, ask. If not, check out testimonials or reviews.

Or ask them to put you in touch with a client, preferably one with a business similar to yours.

And, as a bonus tip….

6. Can you work with them?

This is key. You should have a close relationship with your accountant, so you do need to get on with them. You don’t have to be best friends, but there has to be a rapport there. This also makes it important to be clear on who you’re dealing with. It’s no use having a great relationship with the partner……if you end up dealing with someone else

So, there are my top tips on how to choose an accountant. I hope you found them useful.

 

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Any questions?

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

6 Ways To Tell Your Accountant Is Costing You Money

6 Ways to tell your accountant is costing you money? Find out now by watching our video or read about it below.


 

 

 

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

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Accounts & Tax

…Content coming soon…

Switching Accountants

…Content coming soon…

What expenses can I claim against tax if I’m working from home?

What expenses can I claim against tax if I am working from home? To find out everything you need to know, please watch our latest video now or read about  it below.

 

If you’re running a business and you work

from home, you can claim tax relief on some of the expenses. That’s whether you spend all your time working at home or just part of the time, perhaps doing the admin, raising the invoices.

 

What can you claim tax relief on?

Well the general rule is that any expense you claim tax relief on must have incurred wholly and exclusively for the purposes of the business, that’s HMRC’S phrase.

So, if part of it’s for private use, you can’t have tax relief, but in reality, you can actually apportion some. So, an example would be your phone line, if you are using the phone to make business and personal calls, you can have some of it.

 

What can I claim?

Well basically anything that ultimately you’re using for part of the business. So, to give some examples, phone and broadband.

Your home phone and your home broadband, you can apportion part of it as business use.

The heat, light and water, you need to have the lights on, you need to have the heating on if you work from home.

Part of the rent if you’re in a rental property, if you own the property, part of the mortgage interest.

Council tax, insurance, but only if the insurance actually does relate to the business, not just your standard home insurance.

Repairs, maintenance and decoration for the bit of the house that you’re using to actually run the business from. So, if you’re using a bedroom as a study or as an office, any repairs, maintenance, decoration to that room.

Home improvements though can’t be claimed unless they are specifically, again, for that area you’re using. You’ve just put an extension on, or painting the whole building, you can’t claim.

 

How do I apportion the costs?

For some of the costs it’s quite clear and easy, so your phone bill will detail who the calls were to.

If you’ve had to take out extra insurance because you’re running a business, it will be the extra bit. But for some of the other costs that cover the whole house, like the heat, the lighting, you actually put a portion of it through your tax return.

How would you actually portion that? We’ve got a few options, one of which is actually to look at the square meterage of the room that you use, divide that by how much is in the whole house and put that fraction through.

You could also just count the rooms, which can be a little bit easier.

The one problem with that though is there is a slight can of worms because if you own the house, and if you effectively said one room of the house is a business asset, you’re actually liable to tax on any profit you make when you sell the house, so do be careful.

Sometimes it can be simpler to use some flat rates, HMRC apply these flat rates for people who do work from home, so you don’t actually have to add up the costs yourself.

They just basically take an average of what they think is reasonable. These rates depend on the hours that you spend working from home each month. So for example, you can claim £26 per month if you work more than a 100 hours at home.

So those are the costs you can claim tax relief on if you work from home, I hope you found that useful.

If you’d like a chat, please contact us on growth@jondaviesaccountants.co.uk or by phone on 0151 380 8081.

How do I avoid an HMRC investigation?

How do I avoid an HMRC investigation? Find out now by watching our latest video or read about it below.

Nobody wants an HMRC investigation. But they’re getting more and more common as HMRC looks to clamp down on tax

avoiders.

As well as being bad news for Jimmy Carr and Take That, this also has an impact for ordinary tax payers and business owners like you and us. After all, we haven’t got the money for a fancy lawyer to defend us.

I’m Jon Davies and I’m going to help you avoid having HMRC turn up to look at your accounts.

The best way to avoid an investigation is to understand what HMRC looks at. To help you, we’ve listed our top 5 causes for investigations below.

  1. Private expenses – HMRC doesn’t allow private expenses to be claimed by a business. The expense must be “wholly and exclusively” for the benefit of the business.
  2. Private proportions – linked to the above, HMRC looks closely when you’ve allocated a proportion of a cost to the business, for example motor vehicle costs or household bills. It’s safer to use the HMRC approved flat-rate for household bills if you do work from home.
  3. Travel costs – HMRC want to see detailed records of any travel expenses. Make sure that any mileage is logged with detail of the trip, and receipts are kept for any other travel expenses, eg rail tickets. And make sure that the dates agree to your calendar!
  4. Employment status – are you a business, or are you an employee? This is particularly relevant for contractors and consultants – HMRC would prefer you to be classed as an employee as it leads to National Insurance contributions. Therefore, they will look to argue that contractors/consultants who work for one client for long periods are actually employees. The rules on this (the “IR35” legislation) are being constantly updated, so it’s worth checking your status.
  5. Loan accounts – do you have an overdrawn Director’s loan? Have you taken more cash from the business than is available, ie profits after tax? Were dividends correctly paid? If not, HMRC can treat the cash as a salary, and ask for PAYE/NI.

As you can imagine, there’s a lot of detail to be considered for each of these, so please get in touch if you have any queries.

We’ll do everything we can to keep your tax bill down……legally. We know the rules and keep your bill down by using  the tax allowances, efficiencies, and planning in advance.

If you’d like more business tips, please do subscribe to our YouTube channel.

If you’d like a chat, please contact us on growth@jondaviesaccountants.co.uk or by phone on 0151 380 8081.

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

Can I get tax relief for food, travel and accommodation? Find out more now by watching our latest video or read about it below.

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.

 

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

[If you’re an employer, you’re not obliged to pay the flat rate to your employees – it’s your choice.]

 

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.

 

If you’d like a chat, please contact us on growth@jondaviesaccountants.co.uk or by phone on 0151 380 8081.

 

 

What tax relief can I claim on expenses I use for business and personal use?

What tax relief can I claim on expenses I use for business and personal use? Find out now by watching our latest video or read about it in the blog below.

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.

Can I claim tax-relief on Business Entertaining?

Can I claim tax relief on business entertaining? find out now by watching the video now or reading about it below.

Can I claim tax relief on Business Entertaining?

The answer to this question depends on who the business is entertaining.

 

What

if I am entertaining Employees?

If you are entertaining an employee of the business the answer is yes. You can reclaim the VAT and claim tax relief on the expense. The reclaiming of VAT only applies if your business is VAT registered.
HMRC has strict rules on who is an employee. Former employees don’t qualify, nor do subcontractors or shareholders who don’t work in the business. As a guide HMRC are looking for an employee to be on the business payroll and being paid a salary.

You can reclaim the VAT and claim tax relief on an annual staff entertainment event such as a Christmas party if all staff are invited and the cost per head doesn’t exceed £150.
If a number of small events are held during the tax year and the total staff entertainment costs more than £150 per head, you can still claim the VAT and tax relief. The functions totalling less than £150 are non taxable but any other functions will be assessed for income tax on the employee as a benefit in kind and they may have additional tax to pay.

 

What if I am entertaining anyone else?

If you are entertaining a client, customer, supplier or anyone else the answer is no. You can record the expense in your accounts as business entertaining, but you can’t reclaim the VAT element or claim tax relief on the expense.

What happens if my business has only directors and no other employees?

HMRC state that if the entertainment is only for directors then it doesn’t qualify for tax relief or a VAT deduction. The only time meals for directors qualify for tax relief and a VAT reclaim is if they take place when the director is travelling on business away from their normal place of work. The same rules apply to tax relief for sole traders and partnerships.

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

If you’d like a chat, please contact us on growth@jondaviesaccountants.co.uk or by phone on 0151 380 8081.

What is the Most Tax Efficient Salary in 2018/19?

What is the Most Tax Efficient Salary in 2018/19? Watch our latest video to find out more or read about it below.

One of the main priorities for you and your limited company should be working out the most efficient

way to draw down income from your company. This blog will guide you through what your optimum salary in 2018/19 is.

 

Limited Company Directors

Having flexibility over when and how much you are going to pay yourself is one of the advantages of being a limited company director.

Most limited company owners take income in the form of dividends and a small salary. Taking dividends has a huge benefit as you do not pay any National Insurance Contributions (NIC), whereas on a salary you do. As a result of this, an average limited company owner might save a lot of money each year.

 

What is the optimum directors’ salary level for 2018/19?

Here are two options to choose from when working out your optimum salary level, and possibly that of your spouse if applicable:

 

Option 1 – £8,424 per annum

If you are entitled to the full personal allowance and your salary doesn’t cross the threshold, you will not pay any income tax. You will also only start to pay Employee’s and Employer’s National Insurance Contributions if your salary reaches the £8,424, meaning that this is the most tax efficient salary to draw.

There are no legal requirements to pay yourself the national minimum wage, unless you have a contract of employment with your own company that states otherwise, although this is very uncommon. This salary is also above the Lower Earnings Limit for National Insurance required in order to qualify for the state benefits.

You need to make sure that you include any other possible income you have already received in the year.

 

Option 2 – £11,850 per annum

A tax efficient way to pay yourself more than the £8,424 is to claim the Employment Allowance. This is only applicable if you are not the sole director/employee of your company earning over the Secondary Threshold.

If this is the case, you can pay yourself up to £11,850.

First introduced in April 2014, the Employment Allowance will refund any employees NICs your company pays, up to £3,000. You will be able to check if you are eligible through your accountant.

Paying yourself this amount during the current tax year means that you will pay no income tax at all. The salary is deducted against your company’s corporation bill , and you’ll pay £411.12 in Employees’ NICs and this will be refunded through the Employment Allowance scheme.

Overall, you will be around £250 better off per year as a result of Corporate and personal tax savings meaning you are better off paying yourself an £11,850 salary during 2018/19, if you are eligible.

 

How do I take the rest of the cash?

You want to earn more than this minimum salary. And, hopefully, your company has more cash it can pay you. You will take this as a dividend.

A dividend is a sum of money that is paid by a company, to its shareholders, out of its profits or reserves. There is now also a dividend allowance, which allows you to take the first £2,000 of dividends tax free each year.

So, the optimum way to take cash out of your business is to take a salary of £8,424, and then take the rest as dividends. If you’re not the sole director or employee, your able to take a salary of £11,850 by claiming Employers Allowance and then the rest as dividends again.

If you’d like a chat, please contact us on growth@jondaviesaccountants.co.uk or by phone on 0151 380 8081.

When will I pay my first tax bill?

When will I pay my first tax bill? Watch our video to find out now or read about it below.

When starting up your own business, you want to make sure that you pay all your taxes on time.

When it

comes to paying your first tax bill, the date will depend on:
• Your chosen format of the business
• The accounting date of the business
• What your profitability is like
• And any capital expenditure you have purchased, such as your office equipment

 

Paying tax as a Sole Trader or Partnership

If you have started your business up as a Sole Trader or as a Partnership, you will declare your revenue, all your expenses, your profits, and your capital expenditure on your Self-Assessment Tax Return each year.

For a Sole Trader or Partnership, your year will always run from 6 April to 5 April.

You will then have until 31 January the following year to submit your tax return online and pay your liability.

If you want to submit your return by paper, you will only have until 31 October following the year end to file the return. So it’s best to do it online!

So, how does that work in practice? For example, if you started trading on 1 May 2018, your first year of trading would run until 5 April 2019. You will then have until 31 January 2020 to submit your return online and pay your liability.

 

Paying tax as a Limited Company

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.

 

File your returns as soon as possible

Whether you have set up as a sole trader or a limited company, it is always best to prepare your accounts as soon as you possibly can after the end of your financial year, so you can prepare for any liabilities.

In summary, you want to be prepared with your tax returns as early as possible to avoid any fines. You should save these submission deadlines in a calendar and make sure you are aware of any additional expenses you can claim for tax relief.

If in doubt, ask an accountant – it is what they do on a daily basis.

If you’d like some advice or a chat, please contact us on growth@jondaviesaccountants.co.uk or by phone on 0151 380 8081.

How Often Should I Take Dividends and When are Dividends Taxed?

How Often Should I Take Dividends and When are Dividends Taxed? Watch our video to find out now or read the blog below.

Since the 2016 dividend tax increase, many limited company owners have been interested in keeping their tax

as low as possible. The timing of the dividend declaration is a very important part of this strategy.

 

When I declare dividends, are they taxed at the date they are declared or when they are actually paid?

They actually are not taxed at either point! A dividend will be included on your tax return according to the date that it was declared and become payable, regardless of the date that it was actually paid.

For example, if you declared a dividend on 1st April 2018, payable on the 7th April 2018, this will be included as income in your 2018/19 tax year because the 7 April is in that year. If for any reason the dividend was paid on the 4th April, then it would be regarded as a loan until the 7th April. It wouldn’t change the tax year of the dividend.

You should keep all the copies of the dividend vouchers and minutes that support the dividend just in case HMRC investigate – you’ll have something for proof. Your accountant may be able to provide you with a template to use, or complete them for you.

For tax planning opportunities, you can declare a dividend immediately payable with the intention of taking the cash at a later date. You can do this if you don’t want to pay yourself a dividend at a set point in time, but you have some of your basic rate tax band remaining and the company has sufficient profits. This will ensure that the dividend falls into an earlier tax year and then will allow you to fully utilise your tax allowances.

Currently, you can receive £2,000 of dividends tax free each year and, therefore, it is advantageous to take at least £2,000 in the tax year, no matter what tax rate band you fall into.

 

How often should I pay myself dividends?

We recommend paying yourself dividend monthly or quarterly, although you can actually pay yourself whenever you like.

Having all the correct paper work, including the dividend vouchers and the minutes, and proof that the company has the sufficient profits to cover the distributions means you are safe from HMRC arguing that the dividends are a salary. You don’t want HMRC to think that your dividends are a salary as this won’t be tax efficient to you.

Overall, there are great advantages to paying yourself dividends such as them being tax free up to £2,000. As long as your business has the available profits to issue the dividends, you can pay yourself dividends whenever you want.

If you’d like a chat, please contact us on growth@jondaviesaccountants.co.uk or by phone on 0151 380 8081.

How Do You Beat the SATR Deadline?

How do you beat the SATR deadline? Find out now by watching our latest video here or by reading about it below.

 

How do you beat the SATR deadline?

You may be getting anxious if the Self-Assessment deadline is fast approaching

and you still haven’t submitted yours. You may be thinking you don’t have enough time to complete everything in time but don’t despair.

Here are 5 easy ways to ensure that you are able to get your Self-Assessment Tax Return in on time every year.

 

Don’t Panic

It may feel like you have a lot to prepare and a lot to do, but in fact you don’t. There is no need to rush as you have from April until January to file it so the earlier you start doing it, the easier and better it will be for you.

And if you are organised and follow the rest of our steps, it’s not that difficult.

 

 

Register as soon as possible

If this is your first year of filing, then you must register with HMRC before you start the process of the SATR. To do this you are going to need your activation PIN and your Unique Tax Reference (UTR) to complete and submit the return.

HMRC are not able to give you this information over the phone, they will only send it out by post. This means you if you haven’t already done this yet then you need to do it as soon as possible as it can potentially take a week or more for them to do.

 

 

Double check your data

When you are completing each section, make sure that you are inputting all the information correctly. Leave yourself plenty of time to be able to go back through and double check all the information before you submit it. Making a simple mistake such or omission, such as missing a check box, could result in your application being rejected and possibly receiving a fine.

If you’re not feeling 100% comfortable with submitting your own tax return, the it might be a good idea to hire an accountant to do it for you. They will be able to file your SATR quickly and efficiently, ensuring that everything is double checked for errors.

 

 

Don’t leave anything out

You have to include all information about any money that you have received or earnt from anywhere during that tax year. This will include:

  • Your P60 which will show your salary and your tax for the previous tax year.
  • If your employer gave you a P11D, showing any expenses or benefits that you received, you’ll need this too.
  • Any interest you have received on any of your bank accounts as well as how much tax was taken off.
  • However, this does not include any ISAs you may have as the interest on them are free. Although, this means that you also will not be able to claim tax relief on bank interest you had to pay on a non-business bank account.
  • If you are a director of a limited company, make sure that you do not put any interest on the company’s bank account into your own tax return.
  • If you are a sole trader or a partnership, you will need to know your businesses income and expenses.
  • Any dividend income on any shares that you own, whether they be in your company or another.

 

 

Don’t break any rules!

Make sure you are up to speed with all the rules and regulations for your business tax before you start as these can be complicated.

Be especially careful if you are a sole trader or a partnership, when you are adding all your income and expenses up as, unless you are on the cash basis, you will have to count any income depending on when you did the work, not when the customer paid you.

Make sure that you also understand all the rules and regulations around your business expenses, making sure you are clear on what you can reclaim and cannot reclaim. This especially applies to food and drink, entertainment, travel, accommodation, clothing and the business use of your home.

You can do this simply by checking your proposed expenses against the information on HMRCs website.

Still if you are unsure about any of this information, then it may be worth wiles getting in touch with an accountant who will be able to guide you through the process, making sure everything is correct.

Overall, making sure that you submit your SATR on time is nothing to worry about. By following these easy steps, getting all your information together and submitting it before the deadline will be easier than ever.

 

If you’d like a chat, please contact us on growth@jondaviesaccountants.co.uk or by phone on 0151 380 8081.

How Do I Register a Limited Company?

How do I register a Limited Company? Watch our latest video here or read about it below.

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.
  2. A company address – what address do you want to be on the public records?
  3. 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.
  2. 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.

If you would like any more information, then we would be happy to help.

If you’d like a chat, please contact us on growth@jondaviesaccountants.co.uk or by phone on 0151 380 8081.

When Do I Pay Tax as a Sole Trader?

When do I pay tax as a sole trader? To find out more watch our latest video here or read about it in the blog below.

If you have started your business up as a Sole Trader or as a

Partnership, you will declare your revenue, all your expenses, your profits, and your capital expenditure on your Self-Assessment Tax Return each year.

For a Sole Trader or Partnership, your year will always run from 6 April to 5 April.

You will then have until 31 January the following year to submit your tax return online and pay your liability.

If you want to submit your return by paper, you will only have until 31 October following the year end to file the return. So it’s best to do it online!

So, how does that work in practice? For example, if you started trading on 1 May 2018, your first year of trading would run until 5 April 2019. You will then have until 31 January 2020 to submit your return online and pay your liability.

If you’d like a chat, please contact us on growth@jondaviesaccountants.co.uk or by phone on 0151 380 8081.

Can I claim tax relief on our work Christmas Party?

Can I claim Tax Relief on our work Christmas Party? Watch our latest video now, which explains all about it or read the blog below.

With December always fast approaching, getting organised for Christmas is always top priority; especially when

it comes to the Christmas party. The question is, can I get tax relief on the Christmas party and is it tax free for guests as well? Basically yes! The costs of the staff party are eligible for tax relief and tax-free for all the staff!

However, there is a limit on how much you can spend. The cost per head is £150 which is actually very generous. You do have to be careful, though, not to go over the £150, even by a penny. If you do, none of the cost will get tax relief ie you even lose the tax relief on the first £150.

 

How is the cost per head calculated?

At its simplest, it’s the total cost divided by the number of guests. There is, though, just two things that are worth taking note on this:

  • The total costs include all the costs ie this must include the function itself, plus any travel, accommodation and any other costs.
  • The number of guests isn’t restricted to the staff. If you have ten members of staff and each of them bring a partner, then there will be twenty guests meaning you can spend three thousand pounds.

 

Can I have more than one party?

Yes, you can. As long as the total cost per person is £150 per year. The £150 can be spread across however many parties you wish to have, up until the limit is reached.

As an example, you could have three parties costing £70, £70 and £60. The first two are OK as they total £140.

However, the third isn’t allowable for tax as it goes through the £150 limit. For each event, it’s all or nothing – the £60 event is entirely disallowed. You can’t claim the first £10 and disallow the rest!

 

One more rule

One last thing – to be allowable, the event must be open to all staff (or at least all at a specific location).

 

What happens if I go over the £150 limit?

If you do go over the limit, the staff can be taxed on the value as if it’s part of their salary. Alternatively, you, as the employer, can choose to pick up the tab.

 

I hope you found this useful. If you would like to know more, please get in touch using the details below.

You can contact us on growth@jondaviesaccountants.co.uk or by phone on 0151 380 8081.

Can I Get Tax Relief on Christmas Presents?

Can I get Tax Relief on Christmas Presents? Watch our latest video here which explains all about it or read below.

 

Can I get tax relief on Christmas presents?

Christmas is on its way and I’m sure you have already started

shopping for presents. The question is, can you ask the taxman to help buy any of them? The answer is, yes you can. You can get tax relief on presents for your customers, team members and even for you and your family.

 

Can I give gifts to customers?

As a general rule you can’t claim tax relief on gifts as they are classed as Entertaining. This isn’t allowable for tax purposes. However, there is an exception if the gift ticks these three boxes.

  • The gift has a conspicuous advert for your business
  • The gift isn’t food, drink, tobacco or vouchers
  • You don’t give gifts worth more than £50 per person per year

 

Can I give gifts to employees?

You cannot claim tax relief on a gift to an employee if it is not deemed to be a ‘Trivial Benefit’ this means it has to fit these criteria:

  • The gift cost less that £50 per person
  • It isn’t cash or a cash voucher
  • It cannot be a reward for their work or performance
  • It isn’t in the terms of their contract

 

Can I give gifts to me and my family?

The good news is that if you are a director of a Limited Company and if your family members are employees, you are eligible for up to £300 per person per year.

Each individual gift must be worth less than £50 and is subject to the same rules as gifts to staff. However, you can give a number of gifts during the year, adding up to no more than £300 per person. This means your business gets tax relief and you don’t pay any tax personally.

These rules extend to:

  • Directors
  • Office holders for example, a company secretary
  • Family members of those directors and officers just as long as they’re an employee of the company

You will need to keep a record of the gifts to each person to prove you’re sticking to the rules.

Its also worth mentioning that this is all in addition to the Christmas party!

If you’d like to know more, please contact us on growth@jondaviesaccountants.co.uk or by phone on 0151 380 8081.

Does a Limited Company Director need to file a tax return?

Does a Limited Company Director need to file a tax return? Watch our video to find out or read about it in the blog below.

 

The HMRC guidance on Directors’ responsibilities states that a director must register for Self-Assessment and

submit a personal Self-Assessment Tax return every year.

HMRC also state under the Self Assessment rules that if you were a company director in the last year then you must submit a tax return. Unless it was for a non-profit organisation and you didn’t get any pay or benefits, for example, a company car.

This can be seen as quite misleading, and here is why:

 

What does the Law say?

A director doesn’t legally have to register for Self-Assessment. However, they must notify HMRC if they have a higher rate tax liability. This is highlighted in Section 7 of the Taxes Management Act 1970. If a director has been issued with a notice to file a return under section 8 of the Act then they must submit their Self-Assessment.

A director whose only income has been taxed under PAYE, or has no taxable income at all, is not required to register or submit a Self-Assessment Tax Return.

 

Here’s an example

In a real life example, a director of a property company received no pay and no dividends and they didn’t register for Self-Assessment. HMRC registered them for Self-Assessment in December 2014 and stated that they sent them a notice to file a Self-Assessment for 2014/15 on 6 April 2015.

The director declared that they did not receive the notice to file the return and that it was unexpected due to all of their income being subject to PAYE. The director incurred late filings penalties totaling £1,200. The outcome was that the court was not convinced that HMRC sent the notice to file a return to the correct address, hence the penalties were overturned.

In this case, HMRC were relying on guidance rather than the law and due to outdated records, a penalty was given unnecessarily.

 

Conclusion

The law states that, if you had no untaxed income, you do not need to submit a personal tax return. This is despite HMRC stating you do. However, to be safe, and to avoid the hassle of appealing, it’s probably worth doing one. It’s quick and easy, and will save you time in the long run.

If you’d like to know more information, please contact us on growth@jondaviesaccountants.co.uk or by phone on 0151 380 8081.

How Do I Take The Profits Out Of My Business Tax Efficiently?

How do I take profits out of my business tax efficiently? Watch our video to find out more or read about it below.

People run businesses for a variety of reasons, but making a living is high up the list

for most people.

 

How do you go about drawing profit from your business in a tax efficient way?

If your business operates as a partnership or sole trader, you are taxed on the profits it makes, adjusted for any expenses which aren’t tax deductible.

It makes no difference to your tax bill whether the profits are held in the business or extracted for your personal use.

When you work through a limited company, the total tax paid by the company and the shareholders will depend on the methods used to extract profits, and the amount withdrawn.

The tax rates and thresholds used in the following examples apply to the two thousand and eighteen/nineteen tax year.

 

Paying yourself a salary

Paying yourself an annual salary of between six thousand and thirty two pounds and eight thousand four hundred and twenty four pounds counts towards the state pension and other state benefits, but neither you or your company have to pay any national insurance contributions (NICs).

Any salary above eight thousand four hundred and twenty four pounds would result in employer’s NICs being payable at thirteen point eight percent.

Employees’ NICs would also be payable above this amount at twelve percent up to a limit of forty six thousand three hundred and eighty four pounds. Above this threshold the rate of employees’ NICs payable falls to two percent.

Your employer’s NICs liability can be set against the three thousand pounds employment allowance, if your company employs more than just you as the sole director and pays each of those additional employees more than eight thousand four hundred and twenty four pounds.

 

Employing a family member

This can be a good way to spread the income from the business around the family, and use all available personal allowances and lower rate tax bands.

However, the wage paid to a family member must represent a market rate for the work performed – for example you shouldn’t pay your son a senior executive’s salary if he’s working on reception.

 

Paying Dividends

The company must have sufficient reserves before the directors authorise a dividend to be paid.

If there are insufficient reserves available, any dividends paid may be re-categorised as loans to the recipients.

Each individual is entitled to an annual tax free dividend allowance of two thousand pounds.

Dividends received above this limit are taxed according to the tax band the income falls into:

These tax bands can be expanded if you make pension contributions or gift aid donations out of net income.

Spreading dividend income among your family members can allow them to use their two thousand pounds tax free dividend allowance. However, those family members need to first hold shares in the business which entitles them to receive the dividends.

Dividend income is taxed at the following rates

For Basic-rate taxpayers the rate is seven and a half percent

For Higher-rate taxpayers it is thirty two and a half percent and

Additional-rate taxpayers pay tax at thirty eight point one percent.

You can give away shares to your spouse or civil partner with minimal tax implications, but do seek advice before doing this.

To be effective for tax planning purposes the shares should carry a full quota of rights, including the right to vote, receive a variable dividend and share in the capital of the business on a winding up.

Shares given to employees can be subject to income tax as employment-related securities, but there’s a general exemption from that legislation for gifts made as part of a family relationship.

As an alternative to giving shares, family members could subscribe directly for new shares to be issued by the business.

 

Pension contributions

Where the business pays pension contributions as your employer, those payments are tax deductible for the business, so long as your total remuneration package is reasonable for the work you perform for the company.

Where the total pension contributions paid by you or on your behalf lie within your annual allowance, usually forty thousand pounds a year, there is no tax charge when the contributions are paid.

If you’ve already taken some pension benefits, or your annual income is one hundred and fifty thousand pounds or more, you may have a restricted annual allowance.

Seek expert advice before investing in a pension scheme.

 

Benefits-in-kind

You can take advantage of tax-free benefits up to the following limits:

  • non-cash gifts up to fifty pounds per item
  • one mobile phone per employee
  • loans worth up to ten thousand pounds per person and
  • employer-provided training on which there is no monetary limit.

The non-cash gifts can be items such as wine, flowers, chocolates, vouchers or a gift card, but it must not be given as a reward for services or be in any way contractual. Vouchers and gift cards must not be exchangeable for cash.

Company directors and their family members can receive up to three hundred pounds of tax-free gifts from the company in total per tax year.

 

Loans from the company

You can borrow money from your company, if this is permitted by the company’s articles and by company law, but there are tax implications to consider.

Where the loan exceeds ten thousand pounds at any point in the tax year, you will be taxed on deemed interest calculated at three percent of the total loan, less any interest you actually pay. The company will also pay thirteen point eight percent NICs on that net deemed interest.

A loan of any value will generate a corporation tax charge at thirty two point five percent on any amount still outstanding more than nine months after the end of the accounting period in which the loan was advanced.

This tax is payable by the company, but it can be reclaimed once the loan is repaid subject to certain rules.

Where the loan repayments are made out of taxed income, the loan is not treated as a continuous loan.

Be aware that loans to an employee through a third party, such as an employment trust, may be categorised as disguised remuneration and be subject to PAYE and NICs as if the loan was salary.

 

Lending to the company

If your company owes you money, perhaps as undrawn dividends or salary, it can pay you interest on those funds at a commercial rate. Such interest is tax deductible for the company, if it uses the funds for business purposes.

You should draw up an agreement between yourself and the company to formalise the payment of interest, which sets the interest rate and terms for the loan repayment.

The downside is the company must deduct twenty percent tax from the regular interest payments, and report and pay those deductions to HMRC on form CT61 each quarter.

Where the total interest you receive in a year is less than your saving allowance of one thousand pounds (or five hundred pounds for higher-paid individuals), you can reclaim the tax deducted through your tax return.

If your annual income exceeds one hundred and fifty thousand pounds you are not entitled to a savings allowance.

In addition to the savings allowance, there’s the starting savings rate which owner-managed businesses can take advantage of. In the two thousand and eighteen/nineteen tax year this allows another five thousand pounds of tax free interest if you earn less than eleven thousand eight hundred and fifty pounds.

 

Rent

If you own a property which is used by the company for its trade, the company can pay you rent. The property can be anything from a factory to part of your own home and in every case, the terms of the arrangement should be set out in a lease or licence agreement.

Always seek legal advice on land-related agreements, and be careful not to give the company exclusive use of any part of your home, as this could restrict your capital gains tax exemption relating to that property.

The rent paid is tax-deductible for the company, and it does not attract NICs for you or the company.

You need to declare the rent on your tax return alongside any relevant expenses, such as insurance or mortgage interest. The one thousand pound property income allowance cannot be set against rent received from your own company.

In the long-term, receiving rent for a commercial property can restrict the availability of entrepreneurs’ relief on gains made on the eventual sale of that property.

We hope you found that useful. If you have any questions please get in touch with us on growth@jondaviesaccountants.co.uk or by phone on 0151 380 8081.

Can I Benefit From Employment Allowance?

Can I Benefit From Employment Allowance? Find out now by watching our video or read about it below.

How does it work?

As an employer you could potentially reduce your National Insurance bill by £3,000 each year. This means employers with

a liability below £3,000 would have no liability to pay and employers with a liability over £3,000 would have a reduced National Insurance bill.

This allowance applies only to the Employers National Insurance bill. You do still have to pay the Employees National Insurance.

For example, if your contribution in one month is £750, you would pay nothing, and the balance carried forward would be £2,250. This cycle will continue until the allowance has been used up and then the liability must be paid in full for the rest of the year. If the balance is not used up in any year it is lost and cannot be carried forward into the following year.

 

Who qualifies?

Not all businesses are entitled to the employment allowance. This includes one-person companies where the sole employee is the director.

The allowance is also not available to employers who employ people for personal or domestic work such as gardeners and child minders.

 

How do you claim employment allowance?

If you are eligible you can just claim through your payroll software. You only need to claim for Employment allowance once. It will continue until you stop it. However, do make sure you are claiming as it is not automatic.

 

I hope you found this useful. If you would like to know anymore information then please contact us on growth@jondaviesaccountants.co.uk or by phone on 0151 380 8081.

What are the best tax savings for businesses?

What are the best tax savings for businesses? Watch our video to find out now or read our blog below.
As a business owner your tax bill at the end of the year can sometimes be daunting, but it doesn’t

always have to be.

Here are a few simple things that you can do to keep your tax bill as low as possible.

Buying Gifts for the Directors

Each year, HMRC allows up to £300 worth of gifts to be bought for the directors of each company, and calls them ‘Trivial Gifts’. The whole amount of the tax is deductible, and the VAT can also be fully reclaimed. You can also spend £300 on any family members as long as they are an employee.

However, just remember that HMRC always like to have proof of everything so whenever you buy anything, make sure that you keep accounting records that clearly show the £300 exempt amount has not been exceeded.

 

Buying Gifts for Staff and Customers

Buying gifts for both staff and customers is tax deductible as long as you meet the certain criteria for them both.

For Staff Members:

  • The amount spent per employee has to be less than £50 each.
  • The gift is not allowed to be either cash or vouchers.

For Customers:

  • The Amount spent per Customer is £50 or less.
  • The Gift is not allowed to be alcohol, tobacco or food.
  • Your company name is clearly visible on the gift itself.

 

Staff Entertaining

Throughout the year, you are able to spend up to £150 per person for your employees and the whole of the amount is tax deductible. You can also reclaim the VAT. The amount is not just limited to one event either, such as the Xmas Party. You can have as many parties and nights out as you want, as long as the total amount for the year doesn’t exceed £150.

 

Use a Tax Software

By using an Accounting software, it is able to prepare and file your returns online whilst also backing up the filing with accuracy. This enables you to to relax that all your tax is being calculated right and protecting you with the proof. This may relieve the stress and the pressure of working it all out yourself, giving you more time to work on the things that you are good at and that you enjoy.

 

Putting your children on the payroll

In small businesses especially, there are always little jobs that need to be done. These can will be carried out by family members and their children. If they are ages 13 or older you can save tax by adding them to the payroll.

 

Use of home as office

If you work from home, then you’re eligible to claim a tax deduction to cover part of your home running costs. HMRC allows a £4 a week allowance without asking for any evidence, however if you think this should be higher for you, depending on the amount of time you spend working at home, then you are able make a bigger claim. As always though, make sure that you are able to prove it.

 

Claiming Mileage

By running your own vehicle costs and then claiming back the mileage using HMRC’s mileage allowance you are able to save more rather than just claiming back the petrol you have paid. If you are a limited company, this will also help you avoid higher tax on company cars. The rate is 45 pence per mile for the first 10,000 miles each year and then 25 pence after that. What a lot of people don’t know is that you can also claim VAT on this!

 

All in all, there are a lot of savings. And, as an accountant its our job to make sure you get them all.

I hope you found this useful. If you would like a chat, please contact us on growth@jondaviesaccountants.co.uk or by phone on 0151 380 8081.

Can I transfer my Marriage Allowance?

Can I transfer my Marriage Allowance? Find out now by watching our latest video or read about it below.

There are more than 4 million married couples and 15,000 civil partners are eligible to a tax break worth up to

£238 in 2018/19. It is designed for couples where one partner pays the basic rate of income tax and the other partner pays none.

Millions of couples are entitled to the tax break but not many people know about it. Here is a breakdown of everything you need to know on Marriage Allowance ensuring you claim if you are eligible.

 

Marriage Allowance entitlement

Whichever person doesn’t pay tax is eligible to reduce their personal allowance by £1,190 and then able to transfer it over to their husband, wife or civil partner. This therefore enables the tax paying spouse to increase their tax-free personal allowance to £13,040.

You may benefit from the Marriage Allowance if:

  • You partner has chosen to reduce their personal allowance and transfer it to you
  • You’re a basic rate taxpayer in 2018/19
  • You meet the residence requirements and have the right to claim personal allowance
  • Neither you nor your partner submits a claim to the married couples allowance in      2018/19

However, you can only benefit from one tax reduction in any tax year.

 

Personal Allowance

You can choose to reduce your personal allowance as long as you have been married or in a civil partnership with the same person for the whole or part of the tax year at the time the claim is made.

You only have 4 years to elect to use the marriage allowance, after the end of the tax year, and it will remain there until you give notice to have it withdrawn. But remember, an election made after the end of the tax year only applies to the year of election. This is the easiest way for your allowance to be operated as it can be made when your tax return is prepared.

 

Separation and Divorce

There is a slight chance that you will lose you eligibility if you and your spouse or civil partner separate between the end of the tax year and the date that your return is due.

Cancelling the marriage allowance will usually take effect from the next tax year unless the marriage or civil partnership has come to an end through:

  • Divorce
  • Order of judicial separation
  • Decree of nullity
  • In the case of a civil partnership, a dissolution order. Order of nullity or order of separation

The marriage allowance can be backdated to the start of the tax year in these circumstances.

 

Death of a Partner

It is possible to make a backdated claim for the marriage allowance if a spouse or civil partner dies. This would be providing that the deceased spouse or civil partner was eligible for it when they were alive.

A claim can be made for any tax year in which you were both alive, including the tax year of death, although no claim can be made thereafter.

 

How does it work?

Will is on an annual salary of £16,000 a year and is married to Amy who works part time and earns £5,000 a year.

Amy has elected to reduce her personal allowance, which is then transferred when Will claims the marriage allowance. The benefit is 10% of the personal allowance rounded up to the next £10.

The transferable amount is then £1,190 giving them tax savings of £238 and this transfer will not impact on Will’s national insurance contributions.

 

I hope you found this useful. If you would like to know more, then please contact us on growth@jondaviesaccountants.co.uk or by phone on 0151 380 8081.

Can I get Tax Relief on Training Costs?

Can I get Tax Relief on Training Costs? To find out more information please watch our latest video now or read the blog below.

Tax on training Costs to businesses can vary a great deal. It can depend on whether

the costs are being incurred personally by the employer or the employee and whether you are trading as a sole trader or a company.

 

Training paid by the Employer
You can get tax relief on training which enables the employees to do better at their jobs. The employees are not taxed on the value of their training, as long as it relates to their work. This will even include general training, which might not always have an immediate impact on their work.

 

Training paid for by the Employee
Tax relief will not usually be given to the employee if they pay for the training themselves, even if it is to help them improve their jobs.
If the training is ‘wholly, exclusively and necessary incurred’ tax relief will be given. For example, if the training was carried out as part of their job not just to prepare them to do the job.
It is possible for the employee to be reimbursed by the employer for the cost. However, this will be counted as a ‘benefit in kind’ which will then be taxable.

 

If you are Self Employed
The tax situation is again different for self-employed workers. The training costs are currently classified as either a capital expense or a revenue expense. A revenue expense relates to the individual topping up their already existing skills. This is tax deductible from your income.
A capital expense relates to when the individual is training in learning new skills, outside of their current occupation. This is not tax deductible from your income.

I hope you found this useful. If you would like to know more, please contact us on growth@jondaviesaccountants.co.uk or by phone on 0151 380 8081.

What do I need to know about my Self-Assessment Tax Return?

You can find out everything that you need to know about your Self-Assessment Tax Return by watching the video or reading the blog below.

You may need to submit a Self-Assessment Tax Return if you have self-employed earnings, income from

property or untaxed income such as tips or commission.

It is better to finish your return early to avoid the last-minute rush at the end of January. The thought of sorting through your old receipts and working through confusing tax calculations can completely put you off, but were here to help.

 

What is a Self-Assessment Tax Return?

For most employees, tax is automatically deducted through your PAYE but when you are self employed it is up to you to notify HMRC. Through your Self-Assessment Tax Return you’ll let HMRC know what you have earned in the year and the tax you owe.

You will need to submit a self-assessment if you had:

  • Income from self-employment that’s more than £1,000
  • More than £2,500 income from rental property
  • More than £2,500 on other untaxed income, such as tips or commission
  • Income from savings or investments of £10,000 or more
  • Income from dividends from shares of £10,000 or more
  • Profits liable to capital gains tax

You’ll also need to complete a return if:

  • You were a company director; or
  • If you claimed child benefit, and you or your partner’s income was more than £50,000.

 

What do you need to do?

Step 1 is to register with HMRC

When you have registered, you’ll receive a unique tax payer reference number which you will use to sign up to HMRC for their online services. HMRC will then send you a pin shortly after in the post, which you can use to access the online services and file your return.

 

Completing your return

Each personal tax return year ends on the 5 April.

The deadline for paper returns each year is 31 October following the year-end, and online returns must be filed by 31 January, ie nearly ten months after the year end.

If you are registered as self-employed, you’ll need the following records:

  • All your business expenses
  • Records of any sales or income
  • PAYE records if applicable
  • VAT records if applicable
  • Records of your personal income

If your employed or a company director for a limited company then you may also need:

  • P45, P60 and P11D forms
  • Certificates from a taxed award scheme
  • Information about any redundancy or termination payments
  • Information about income and benefits of your job

 

When do I pay my bill?

This will include your first payment on account towards the following year, if applicable, and any tax that you might owe from the previous tax year.

The deadline for the payment is the same deadline for submitting the return, by midnight on the 31 January.

 

What are the penalties if your late?

You will be fined if you submit late, even if you are only one minute after the deadline at midnight on the 31 January.

The initial penalty is £100 if you are up to three months late, but this will then increase the longer you leave it.

After three months, ie from 1 May – you will receive additional penalties of £10 per day, with a maximum of £900.

After six months – a further penalty of 5% of the tax due, or £300 charge. Whichever is higher.

After twelve months – another 5% or £300 charge, again depending on which is higher.

If you pay your tax bill late then you could face additional penalties of 5% of the unpaid tax at 30 days, six months and twelve months.

However, if you filed your tax return late but you do have good reason, then you’re able to appeal the penalty. The circumstances can include:

  • If a partner or close relative passed away prior to the deadline
  • Serious illness
  • Emergency hospital stay
  • Unexpected delay in post
  • An IT, hardware or software failure
  • External causes such as fire, flood or theft preventing you from completing the return
  • Issues with HMRC

It has to be a genuine, serious reason. You can’t just claim the dog ate it.

What are the common mistakes?

Here are some of the common mistakes that people make when filing their return and ways to avoid them.

  1. Missing out on tax relief

Remember to make sure that you are claiming back tax relief where you are eligible for it. This includes charitable donations that you have made, pension contributions and work expenses.

  1. Not declaring all your income

All of your taxable income needs to be deaired on your self-assessment, including:

  • Earnings
  • Dividends
  • Pension payments
  • Interest on your bank account
  • Capital gains
  • Rent from a buy-to-let property

 

  1. Late or incorrect filings

Rushing through your numbers last minute increases the chances of you either overlooking something or putting something in wrong. If you have realised that you have made a mistake then you can amend your tax return within the first year of the 31 January deadline.

There is still a chance that you could face penalties if HMRC decide that you did not take reasonable care in providing the right information.

 

Alternatively, to avoid any of these issues from the very start, speak to an accountant to ensure that it is all completed accurately and on time.

I hope you found this useful. If you would like to know more, please get in touch using the details below.

How much tax do I pay on my dividends?

Do you know how much tax you should be paying on your dividends? You can find out by watching our video or reading about it below.

 

How much tax do I pay on my dividends?
If you are an owner of

a limited company, the most tax efficient way to pay yourself is through a small salary, with the rest in dividends.

What are the tax rules for the 2018/19 tax year?

The dividend allowance is £2,000. This means that the first £2,000 of dividends that you extract are tax free.

The personal allowance is £11,850. If any of this allowance has not been used it can be allocated against your dividend income.

What rate will my dividends be taxed at?

Dividends in the basic tax band which is up to £46,350 of income will be taxed at 7.5%

Dividends in the higher tax band which is between £46,350 and £150,000 of income will be taxed at 32.5%

Dividends in the higher tax band which exceeds £150,000 of income will be taxed at 38.1%.

What do you need to consider?

If you have any other income such as employment or property income, you need to remember that dividends are taxed last. This means you will have to factor in your other income first before you work out which tax band your dividends fall in to.

 

I hope you found this useful. If you would like to know more, please get in touch using the details below.

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

 

What does my Tax Code mean?

What does my Tax Code mean? To find out more watch our video now or read below.

What does my tax code mean?
The letters that you have in your tax code relate to how much you are entitled to, or

not, as an annual tax free personal allowance. Your tax codes are updated annually and they keep employers up to date on how much tax to deduct from your employees pay packets.

What Tax codes are there and what do they mean?
L – you get the basic rate of personal allowance if you are born after 5 April 1948.

In 2018/2019 the most common tax code is 1185L. The number in your code reflects how much tax free allowance you get, ie 1185L shows a personal allowance of £11,850.

OT – with this code you are given no personal allowance. This can happen when you don’t provide your employer with your P45, you don’t give them enough details for them to work out your tax code, or you have used up all of your personal allowance in a previous income.

BR or DO – all your pay on this code will be taxed at either the basic rate if you have BR or at the higher rate if you have DO. This may be because all your allowances have been used up which may happen if you have a second job or receive a pension whilst working.

D1 – all of your pay will be taxed at the additional rate which is 45%. This will be because you have used all of your allowance already – for instance you may have another job.

K – Your total benefits in kind exceed your allowance. For example, if you have a company car with a deemed benefit more than your personal tax free allowance. To get the tax, HMRC add an amount onto your salary before calculating it. You will be given a K code to ensure you pay tax on the excess.

M – this means that you are benefitting from the Marriage Allowance.

N – you have elected to use your marriage allowance, transferring 10% of unused personal allowance to your partner or civil partner.

NT – No tax is payed on this income.

S – You live in Scotland and you pay the Scottish Rate of Income Tax

T – this one is used when the tax office needs to review your tax code. For example, if your tax affairs are complex, or your estimated income is more than £100,000, which could affect your personal allowance.

W1 or M1 – These are emergency tax codes, standing for one week or one month depending on whether you are paid weekly or monthly. This indicates that you are not being taxed cumulatively, but just on the amount that you have earned in that particular pay slip.

Checking your Tax Code
It is always important to check your tax code to ensure the correct information is being used as HMRC can occasionally get it wrong.
If you have been on the wrong code then you can notify HMRC and they will amend it for you. You will be refunded if you have been over paying or may need to pay more if you have been underpaying.

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  

Are company cars tax-efficient?

Are company cars tax-efficient? To find out watch our latest video or continue reading below.

One of the most common questions we get asked is whether or not to put a car through the business. Is it tax efficient? Well,

the answer depends on a few things.

The key drivers are:

  • Whether to lease or buy
  • The CO2 emissions of the car and
  • Your personal tax rate.

Let’s take a look at how the tax is calculated, starting with the company.

COMPANY TAX

Your limited company can claim tax relief on a car – it’s just a question of how much. Let’s look at the two main scenarios:

Purchased cars

The standard rule for cars is that you can claim a taxable expense each year called the writing down allowance. This is claimed as a percentage of the cost of the car.

The writing down allowance depends on the CO2 emissions of the car. If these are over seventy five grams per kilometre, the rate is eighteen percent. Over one hundred and thirty grams per kilometre and the rate is eight percent.

If you buy a low or zero emission car, you can claim the full cost of the car as an expense in the year that it’s bought. To qualify, the car must have CO2 emissions of seventy five grams per kilometre or less, and must be a new car.

The company can claim corporation tax relief on the writing down allowance.

You claim VAT on the purchase of a car.

LEASED CARS

If your company leases a car, it can claim corporation tax relief on the full annual lease payment.

The company can reclaim fifty percent of the VAT on the lease payments.

The expense for corporation tax is the lease payment net of VAT.

For example:

Your Limited Company leases a car for five hundred pounds plus VAT per month, which is six thousand pounds plus VAT each year.

The Company can reclaim fifty percent of the VAT for the year which is six hundred pounds.

The Company can also claim corporation tax relief on the lease payment of six thousand pounds. At the Corporation Tax rate of nineteen percent, this reduces the Companies tax bill by one thousand one hundred and forty pounds each year.

PERSONAL TAX

As an entrepreneur, you’re the business owner and the employee. Your business has had tax relief on the car, but what about you?

Unless the car is only used for business trips and is left at the business premises every night, you will be taxed as having a “benefit in kind” for the private use of the car.

For personal tax, it’s irrelevant whether the car has been leased or purchased. It’s also irrelevant how much private use there is – it’s all or nothing!

The value of the benefit is based on a percentage of the list price of the car. Importantly, this is the list price of the car when it was new. The actual price you paid, or the fact you bought it second hand, will not affect this list price.

The percentage then depends on the CO2 emissions of the car. The percentage is low for an electric car, and high for a fuel guzzler. The range is from seven percent to thirty seven percent.

For example:

If you are a higher rate taxpayer you will pay tax at forty percent on the list price of your car multiplied by the CO2 emissions percentage. If you buy a car with a list price of thirty thousand pounds and CO2 emissions of one hundred and twenty grams per kilometre your tax bill will be three thousand pounds.

So, if your personal tax bill is significantly higher than the tax saving made on the car purchase by the company then you’re better off buying the car yourself.

HOW ABOUT FUEL?

If the company pays for fuel, it can reclaim VAT and claim corporation tax relief on the net cost of the fuel.

However, you’re taxed on the fuel benefit. This is calculated using the same CO2 percentage as the car benefit in kind. HMRC sets a standard value for fuel, called the fuel multiplier, that the CO2 percentage is applied to. In the tax year two thousand and eighteen/nineteen, the value is twenty three thousand four hundred pounds. As with the car benefit, the number of private miles you actually drive is irrelevant – it’s all or nothing.

For example:

If your company pays for all of your fuel, the car has CO2 emissions of one hundred and twenty grams per kilometre and you’re a higher rate taxpayer your tax bill for fuel will be two thousand three hundred and forty pounds for the year.

Even allowing for claiming the VAT back, the company’s gross fuel bill would have to be at least seven thousand two hundred pounds to get tax relief of two thousand three hundred and forty pounds. So unless you’re doing a lot of miles, it’s likely the personal tax bill will be greater than the company tax saving.

SHOULD THE COMPANY BUY/LEASE THE CAR?

It does all come down to specifics – whether you lease or buy, the CO2 emissions, and your personal tax rate.

However, it is often more tax efficient to simply purchase the car yourself. You can then charge the company for business mileage at forty five pence mile (dropping to twenty five pence per mile after ten thousand miles each year). This is tax deductible for the company…..and tax-free for you.

ARE THERE ANY EXCEPTIONS?

The obvious exceptions are low emission cars. As an example, if you have an electric car the benefit in kind rate is only seven percent…..and there’s no fuel benefit.

We recently looked at a Tesla for one of our clients. The list price was sixty thousand pounds and the company would get tax relief on the full amount in the first year, ie it would cut the corporation tax bill by eleven thousand four hundred pounds.

As the benefit in kind rate is only seven percent, the personal tax for the higher rate taxpayer was one thousand six hundred and eighty pounds. In this case, it was very tax-efficient to purchase the car through the company.

SUMMARY

Tax on company cars is complex, so it’s always worth asking an expert before you buy.

I hope you found this useful. If you have any questions please get in touch with us at Jon Davies Accountants.

 

How are company cars taxed?

How are company cars taxed? To find out more watch our video or read about it below.

A company car can be a really good benefit to give to your team members. But how is it taxed?

So, you’re travelling a

lot with work and your employer has given you a car to use. That’s great isn’t it? Yes it is, as long as you’re aware of the fact that you might have to pay some tax.

You see, using the car for work is OK. But, if you do any personal mileage in the car, HMRC will look at the use of the car as a form of salary…..so they’ll want some tax on the “benefit in kind”. And that’s even if you only drive one mile all year!

What is a benefit in kind?

A benefit in kind tax charge arises when a company car is also available for private use. The amount of private use is irrelevant – the car either is or isn’t available.

The value of the benefit in kind is based on a percentage of the list price of the car. Importantly, this is the list price of the car when it was new. The actual price you paid, or the fact you bought it second hand, will not affect this list price.

The percentage then depends on the CO2 emissions of the car. The percentage is low for an electric car, and high for a fuel guzzler. The range is from seven percent to thirty seven percent.

How am I taxed?

You’ll pay tax on the benefit in kind at your highest rate of tax. So, the tax you pay will be:
The List Price times the CO2 percentage times your Tax Rate

For example a higher rate taxpayer using a company car with a list price of thirty thousand pounds and CO2 emissions of one hundred and twenty grams per kilometre would pay tax at forty percent times thirty thousand pounds times twenty five percent which is the appropriate percentage for the CO2 emissions. Their tax bill would be three thousand pounds for the year.

What happens if I get fuel paid for?

If your employer pays for your fuel, you’ll also be taxed on that.

The fuel benefit is calculated using the same CO2 percentage as the car, applied to the fuel multiplier, which is a standard value for fuel set by HMRC. In the tax year two thousand and eighteen/nineteen, the value is twenty three thousand four hundred pounds. Like the car benefit, the number of private miles you actually drive is irrelevant – it’s all or nothing.

The tax you pay will be:

The Fuel multiplier times the CO2 percentage times Your Tax Rate

For example a higher rate taxpayer using a car with CO2 emissions of one hundred and twenty grams per kilometre who has all their fuel paid for by the company would have tax to pay of two thousand three hundred and forty pounds. Which is twenty three thousand four hundred pounds times twenty five percent times forty percent tax.

So, is it worth it?

Well….it depends. If you have a new company car and do a lot of private miles in it – yes. If your company car is getting on a bit and you only drive a few miles away from work, perhaps not. It comes down to your personal circumstances.

As an example, I was recently speaking to a client who has a company car. The car was bought second hand and, living in London, he hardly uses it for private use. Using the figures in my example, is it worth a tax bill of five thousand three hundred and forty pounds?

In his case, he is now going to have the company car but no private fuel – instead he’ll pay for all fuel and claim a tax-free allowance per mile to cover the work journeys. This ranges from four pence to twenty two pence per mile depending on the fuel type and engine size of the car. He now has to pay for his petrol for personal use….but avoids a two thousand three hundred and forty pounds tax bill, which would cover a lot of petrol!

I hope you found this useful. If you have any questions please get in touch with us at Jon Davies Accountants.

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

If you travel for business, you can claim tax relief on the expenses. Find our how by watching our video or read about it below. 

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

[If you’re an employer, you’re not obliged to pay the flat rate to your employees – it’s your choice.]

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! Watch our video to find out more or read about it below.

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?

What expenses get tax relief? Find out now by watching our video or read about it below.

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 our video 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 supp