Steve J Bicknell Tel 01202 025252
Helpful Comments on Tax and Finance – Bicknell Business Advisers Limited www.bicknells.net
A business plan helps you to:
The problem with Business Plans is that they are time consuming to produce, so business owners put off doing them.
But new Apps might change this and make it much easier to produce high quality Business Plans.
http://www.enloop.com/features
There are other Apps too for example..
steve@bicknells.net
Click here to access the spreadsheet
What is a Limited Company?
A limited company is an organisation that you can set up to run your business – it’s responsible in its own right for everything it does and its finances are separate to your personal finances.
Any profit it makes is owned by the company, after it pays Corporation Tax. The company can then share its profits.
What is a Sole Trader?
If you start working for yourself, you’re classed as a self-employed sole trader – even if you’ve not yet told HM Revenue and Customs (HMRC).
As a sole trader, you run your own business as an individual. You can keep all your business’s profits after you’ve paid tax on them.
You can employ staff. ‘Sole trader’ means you’re responsible for the business, not that you have to work alone.
You’re personally responsible for any losses your business makes.
The key Advantages and Disadvantages of Companies are shown below.
How do you form a Limited Company?
You can form your company directly with Companies House for £15, it normally takes 24 hours
You’ll need:
Personally, I find it easier to use a formation agent such as Company Wizard for £16.99
Often using an agent will mean the company is formed quickly, sometime within a couple of hours.
What are the next steps?
Once your company has been formed you need to:
steve@bicknells.net
There are 2 key reason why small businesses expect more from their accountant.
So what are accountants doing differently?
The Virtual FD
According to Accounting Web….
Half the firms entering the Practice Excellence Awards this year (PEA15) offer management information as part of their service for business clients – up from 33% in 2014. One reason for this jump is that the approach has been shown to have a very beneficial effect on client satisfaction and practice profitability. Probably because it serves a fundamental client need.
Many smaller businesses and SME’s can’t afford a Full Time (or even in some cases a Part Time FD) but they need help with:
Virtual FD’s fill this gap because:
But here is the key question you should ask your accountant – Have you actually ever worked in business or been an FD?
It seems bizarre to me that so many accountants offer this service and yet have no experience as an actual FD
Weekly Management Reports
Accounting Web reports…
While many practices are becoming the finance team that puts together monthly reporting packs for company managers, Receipt Bank founder and CEO Alexis Prenn argues that monthly management accounts are not the future of accountancy. Cloud technology has changed the dynamic of accounting so much that advisers should be thinking more creatively about what they could do with this information.
What if accountants and businesses could get their hands on transactional data even more quickly and efficiently? Why not produce weekly management accounts?
In a scenario that is familiar to accountants on the Australian accounting conference circuit, specialist bookkeepers are now doing this for Antipodean coffee houses and eateries. “Cafés can run up costs very quickly – if you have three unprofitable weeks, you’re sunk. With online tools and transaction capture, the café can close its books on Sunday and get the weekly management accounts by Tuesday,” Prenn said.
I can see this being of great value in some businesses and cost effective with cloud accounting.
Business Planning and Forecasting
steve@bicknells.net
There have been many creative schemes promoted to contractors, entertainers and sports stars, basically using a limited company to make loans to connected parties to avoid tax.
HMRC have been attacking these schemes for years, for example the Boyle case
Philip Boyle v HMRC [TC03103] 2013
On the 16th September HMRC published Spotlight 26: Contractor Loan Schemes – Too good to be true
Contractors and freelancers are bombarded by promoters who make claims that they can help individuals take home as much as 80% to 90% of their income. Sounds too good to be true, that’s because it is.
So why is this considered to be tax avoidance? These promoters use schemes to reduce the amount of tax you pay on your income by making payments which purport to be ‘loans’ from a trust or a company. Normally, a contractor would receive the contract income directly and pay tax on it. These arrangements artificially divert the income through a chain of companies, trusts or partnerships and pay the contractor in the form of a ‘loan’. The ‘loans’ are claimed to be non-taxable because they don’t form part of a contractor’s income. However, in reality the ‘loans’ aren’t repaid and the money is used by the contractor as if it were his or her income.
HM Revenue and Customs (HMRC) view is that these schemes don’t work and strongly advises any contractor or freelancer who has used such a scheme to withdraw and settle their tax affairs. People who settle with HMRC avoid the costs of investigation and litigation and minimise interest and penalty charges on the tax which should have been paid.
Don’t be fooled by promoter websites..
The promoters’ websites and promotional literature claim that they are fully compliant and are HMRC approved. HMRC doesn’t view these arrangements as compliant and never approves any schemes.
Contractor loan schemes, of the sort described above, must be declared under the Disclosure of Tax Avoidance legislation. The promoter is required to pass the scheme reference number (SRN) to all the users who must put this on their tax return. A failure to show the correct SRN on your tax return will lead to additional penalty charges.
Don’t be tempted, HMRC are closing in on unpaid tax, they will find you!
steve@bicknells.net
On the 15th September HMRC issued the following announcement…
Depending on the level the Scottish Parliament sets the rate at Scottish taxpayers may pay a different rate of Income Tax to the rest of the UK.
Some of the Income Tax collected under the Scottish rate will fund the Scottish government and the rest will fund the UK government.
The Scottish rate of Income Tax doesn’t apply to income from savings such as building society interest or income from dividends. This rate will stay the same for all taxpayers across the UK.
The Scottish government is expected to announce the proposed Scottish rate of Income Tax for the tax year 2016 to 2017 in its autumn 2015 draft budget.
HM Revenue and Customs (HMRC) will collect the Scottish rate of Income Tax on behalf of the Scottish government.
Identifying Scottish taxpayers
It’s where you live, not where you work, that decides whether you’re a Scottish taxpayer.
You’ll pay the Scottish rate of Income Tax if:
- you’re resident in the UK for tax purposes, and
- your main residence for most of the tax year has a Scottish postcode
HMRC will contact potential Scottish taxpayers before April 2016. If the address HMRC holds for you is in Scotland you’ll be classed as a Scottish taxpayer. It’s your responsibility (not your employers’) to notify HMRC if you change your address.
Your April 2016 tax code will begin with the letter ‘S’ to show you’re a Scottish taxpayer.
If you pay your Income Tax through your wages (known as Pay As You Earn) HMRC will advise your employer to treat you as a Scottish taxpayer so you don’t need to do anything.
The Scotland Act 2012 contains the full definition of a Scottish taxpayer but where residency is not straightforward these examples of ‘close connection’ will help you.
National Insurance contributions are unaffected by the introduction of the Scottish rate of Income Tax.
According to the Telegraph in August
Nicola Sturgeons’ rhetoric suggests she is planning to revive Labour’s ailing fortunes in Scotland, where it was all but wiped out in the general election, by veering Left and attempting to regain the party’s traditional working class support.
Among the policies she said she supported were a 50p top rate of income tax for people earning more than £150,000 and removing independent schools’ charitable status.
But the Tories said her blueprint would “send Scotland back to the 1970s” and warned it would merely result in an exodus of “wealth creators” south of the Border.
It will be interesting to see what the Scottish Parliament does to tax rates and whether or not its a success for Scotland.
steve@bicknells.net
The UK saw the fastest growth in self-employment in Western Europe in 2014, according to the Institute for Public Policy Research (IPPR).
The number of self-employed workers rose by 8%, faster than any other Western European economy, and outpaced by only a handful of countries in Southern and Eastern Europe.
The IPPR’s analysis shows that the UK – which had low levels of self-employment for many years – has caught up with the EU average. If this growth continues, it says, the UK will look more like Southern and Eastern European countries which tend to have much larger shares of self-employed workers.
You’re responsible for:
You can use your own name or trade under a business name – read the rules for naming your business.
You must include your own name and business name (if you have one) on any official paperwork, like invoices and letters.
Often business owners wait too long before they realise that they need help from an accountant.
Key reasons are:
– not understanding the difference between a book keeper and an accountant
– thinking that an accountant will just be an extra cost – the reality is that most accountants will save the business many times their cost
– thinking that accountants are just bean counters.
But if you choose a qualified and experienced accountant they can bring huge benefits: management tools to improve profitability, cost controls, tax savings, growth strategies, business planning, business structures and much more. So don’t wait too long – getting an accountant should be a priority for all businesses!
First off – not having a separate bank accounts. Many start ups try mixing business and personal transactions in their personal bank accounts, its a total nightmare, don’t do it, get a business bank account. Mixing things up will almost certainly have tax implications.
Not registering for tax or filing returns is another one. Getting things right at the beginning is extremely important and a CIMA Accountant can make sure that you choose the right business structure and will help you register for VAT, PAYE, CIS and other taxes. Choosing the right VAT scheme will save you tax. Not registering and filing returns will have severe consequences and lead to fines and penalties.
Also – contract mistakes. Ask your Accountant to review your contracts, they will be able to give you lots of useful tips.
Running out of cash: draw up a Budget and Cashflow and forecast how much cash you will need to run the business, looking at your cash cycle and managing it will be vital. If you need funding ask your Accountant for help, they will be able to look at all the options and help you choose the option that’s best for your business.
Accounting – many start ups fail to keep control of their accounting, by working with an accountant and using Debitoor or Sage One you can avoid this problem.
steve@bicknells.net
It’s not uncommon for Directors personal expenses to get mixed up with business expenses, for example the director is out buying things for the company and picks up some items for themselves at the same time and it goes on the same bill.
In a perfect world the Director would just repay the cost of personal purchases to the company, but we don’t live in perfect world, so what are the options?
Directors Loan Account
You could post the cost to the Directors Loan Account. These accounts are normally repaid when the Director is paid either salary or dividends.
If the loan is not cleared by year end then the company will have to pay a temporary corporation tax charge of 25% and reclaim the tax when the loan is repaid using form L2P
There may also be a notional amount of interest (4%) charged as a benefit in kind on the loan.
Benefit In Kind
You could have the expenses as a benefit in kind, some benefits may even be tax free, here is a list of my favourite tax free benefits
Private Use of Company Assets
It may also be worth considering private use of company assets.
steve@bicknells.net
Before 1st January 2015 all businesses supplying telecommunications, broadcasting and e-services such as downloaded ‘apps’, music, gaming, e-books and similar services to private consumers located in other EU Member States (referred to as ‘B2C’ supplies) were taxed where the business supplier was established, which is simple to understand and implement.
Since 1st January 2015 VAT is now charged in the country where the customer has ‘use and enjoyment’ of the services.
So lets say you are an American (normally zero rated) on holiday in France, even though you pay with an American credit card and buy from a UK supplier because you are reading your ebook in France, French VAT will apply. Sounds like a nightmare, doesn’t it.
To help with this HMRC introduced the VAT MOSS (Mini One Stop Shop).
Overview
If your business supplies digital services to consumers in the EU, you can register with HM Revenue and Customs (HMRC) the VAT Mini One Stop Shop (VAT MOSS) scheme. There are 2 UK VAT MOSS schemes that operate in an almost identical way:
- Union VAT MOSS scheme for businesses established in the EU including the UK
- Non-Union VAT MOSS scheme for businesses based outside the EU (for example, the USA, Canada, China)
By using the VAT MOSS scheme, you won’t have to register for VAT in every EU member state where you make digital service supplies to consumers.
Once you register for a UK VAT MOSS scheme HMRC will set you up automatically for the online VAT MOSS Returns service.
You need to submit a single VAT MOSS Return and payment to HMRC each calendar quarter. HMRC will then forward the relevant parts of your return and payment to the tax authorities in the member state(s) where your consumers are located. This fulfils your VAT obligations.
Unless businesses opt to register for MOSS, businesses that make intra EU B2C supplies of telecommunications, broadcasting and e-services will be required to register and account for VAT in every Member State in which they have customers. MOSS will give these businesses the option of registering in just the UK and accounting for VAT on supplies to their customers in other Member States using a single online MOSS VAT return submitted to HMRC. This will significantly reduce their administrative burdens.
Fiscalis conference (7th to 9th September 2015)
Representatives from all EU finance ministries were at the Fiscalis conference in Dublin last week to discuss the implementation of the new EU VAT rules, and how they have been working since their introduction in January 2015.
Accounting Web reported …
One of the key takeaways from the consultation was a general agreement that there should be a threshold to exempt smaller businesses from the rules. The commission stated that it intends to propose legislation for a threshold beneath which companies will be VAT exempt, but did not confirm a figure.
There was also a general agreement that above this threshold there should be what many are calling a ‘soft landing’: A simplified version of the rule for businesses that does not create a financial cliff for those who hit the threshold.
Let’s hope that an exemption can be put in place very soon and ideally as proposed in the EU VAT Action Campaign below
EU VAT Action Campaign (started 28th August 2015)
Please circulate this article as widely as possible, as soon as possible, with as many of your business contacts and other networks.
Write to your national tax authority and finance ministry, to your MPs, MEPs, other elected representatives and to any business organisations which you belong to, insisting that the EU act immediately to:
1. Introduce a threshold of €100,000 for cross-border trade (i.e. based on how much you’re selling digitally to the rest of the EU, outside of your home country). As far as your domestic turnover is concerned, your own country’s VAT rules will still apply.
2. Simplify the rules for all micro businesses (i.e. sub-€2m turnover) to allow ONE piece of data as evidence of place of supply, instead of the current 2-3, with that piece of data being the customer location as supplied by the payment processor to businesses using all levels of their services, not just to those purchasing premium options.
3. Immediately suspend these rules for micro businesses, so that they can revert to their domestic VAT rules and pay taxes according to those regulations during the 2 years it could take for the agreed idea of a VATMOSS threshold to become law.
4. Amend the legislation so that all Member States are legally required to direct their VATMOSS communications through the business’s home tax authority for all micro businesses, to remove the threat and fear of receiving demands and ‘system error’ letters from 27 different tax authorities.
One last thing; please take the few extra minutes to contact these people direct rather than using a bulk-emailing service. These websites have become a victim of their own success in flooding inboxes, so letters coming via these routes are increasingly ignored. You can still send the same letter to them all but you will need to copy and paste and send it individually to be most effective.
steve@bicknells.net
