In order to assist us in keeping our costs as low as possible you can help by ensuring that we have all that we need to prepare your accounts. Here are some general pointers:
- • File your purchase and sales invoices and correspondence in order
- • Record and analyse all your cash, bank, and credit or charge card transactions
- • Make sure you sub-total each page of your cash records and day books, providing totals at the end of each month. This may well be automatic if you are using accounting software.
- • Reconcile your payment analysis records with your bank and credit card statements
- • Make sure you have a copy of all your bank statements – these may need to be downloaded
- • Reconcile PAYE, NI, and VAT account balances with amounts due to HMRevenue & Customs
- • List and total your year end creditors. Retain your suppliers statements for the last month of your trading year and also the for the first month of your new year
- • Reconcile your primary control accounts including sales, purchases and bank accounts
- • List and total your year end debtors
- • Provide us with a record of any debts which are either irrecoverable or ones that you think may not be paid
- • List your fixed asset additions and disposals made during the year. We would like to see copies of your fixed asset purchases – on occasions we find that clients have retained these in a separate file
- • List and total your year end stock at cost price
- • We require a valuation of your work in progress. This is an aspect of valuation that we will need to discuss with you
- • Keep back ups of your computer records
- • Please provide us with copies of any new hire purchase, leasing or loan agreements entered into during the year
- • Please retain a copy of each of your electronic VAT submissions
- • Please advise if you are using any VAT scheme
- • Are you using any spreadsheets that are integral to your accounts? If so, would you please let us have copies of these files
- • If in the construction industry please retain your CIS returns, or if a contractor, your CIS statements
- • All income is recorded and banked promptly
- • All recorded expenses are authorised and valid
- • All recorded debts are recoverable
- • All your liabilities are identified and recorded when they are incurred
Is there opportunity to improve your accounting systems:
Does the structure of your business minimise our accounts work? We are required to report on each active company as a separate legal entity. It is normally more cost effective to structure an expanding business as a company with branches or divisions rather than as a group of separate companies.
STARTING YOUR BUSINESS
Before you consider starting a business there are some questions you should consider before you start:
- • Any business without a business plan will not work.
- • What are my prospects given that the economy remains a very difficult one?
- • Have you any funds you can put into the business?
- • Are you familiar with the legal requirements that will be placed on you as a business proprietor?
- • Have you considered how much you will earn during your first year?
- • Do you need help raising finance for your business?
- • After business expenses, including taxation and national insurance, have you estimated what your salary and profit are likely to be?
- • What are your income requirements?
- • How will the new cash basis for calculating tax help me?
- • Taking your personal needs into account, is the business going to be viable?
- • Have you considered how you can minimise your tax liability so that you keep more of what you earn?
- • Have you considered how technology can benefit your business?
- • Have you decided how the internet can be used to your advantage?
- • Do you have a social media strategy for promoting you and your business?
Costs to consider when starting any business
- • Advertising, Marketing
- • Communications – Telephone, Internet, VOIP
- • Fixtures and Equipment
- • Insurance
- • Office Stationery
- • Professional Fees
- • Product Development and Initial Stock
- • Research and Development
- • Website Development
- • CRM, Shopping Cart, Hosting Costs
- • Delivery Costs
Your accountant is normally someone whom you trust, hence it makes practical sense to have the same person as your business advisor, not just as a professional trained in traditional accountancy and tax compliance.
In addition to routine accountancy related duties, a large part of an accountant’s day is spent advising clients on their budgets, ideas to improve profitability, potentially operational procedures and host of other value adding business opportunities.
Contact Us today.
LIMITED COMPANY vs SOLE TRADER / PARTNERSHIP
Below is a basic guide to the key differences between a business run as a Limited Company managed by its shareholder / director and a business run by a sole trader.
|LIMITED COMPANY||SOLE TRADER|
|The business is a separate legal entity||You are the business|
|You are a shareholder; you hold all or a proportion of the company’s share capital||You are the owner|
|You serve the company as its officer as a director||You are the manager|
|A Director is an office holder.||You are self-employed; you cannot be your own employee.|
|Company liability to any creditor is limited to the assets in the Company.||Liabilities are not limited to the assets of the business.|
|Tax on profits:The company pays corporation tax on its taxable profits. Company tax rates are lower than higher rates of Income Tax.Employees and office holders are subject to PAYE and NICS on their earnings and benefits from employment ..Shareholders who are higher rate taxpayers will pay additional tax on dividend income.When IR35 provisions apply, the company must deduct PAYE and NICs on its income.||Tax on profits:You pay Class 2 & 4 National Insurance and Income Tax on the taxable profits of your business, or your share of profits, if you are in partnership|
|The company can offset its trading losses against its other income, but not against your income as an individual||You can offset your trading losses against your other income.|
|You are taxed on:Any income withdrawn from the company. If it is a distribution it is taxed as a dividend. If it is earnings it is under PAYE and subject to NICs.Most employment benefits received by you or your family and household are taxable.Shares or securities in the company which are given to you at less then market value.||Extracting profitsYou may withdraw cash from the business without tax effect.|
|AccountsYou must prepare annual accounts under the provisions of the Companies Act, these can be abbreviated for filing with Companies House.HMRC require full accounts for Corporation Tax which must be submitted using its own or specialist software.Accounts must be prepared in accordance with accounting standards.Most companies must submit their accounts online in iXBRL.||AccountsThere is no requirement that you prepare accounts for tax purposes. However you may find that it is difficult to keep on top of your business, collect debts and work out profits without keeping accounts.From 2013/14 you have the option of Cash Accounting.You may need annual accounts to complete your personal tax return which includes a balance sheet section.Your taxable profit under Self Assessment must be prepared in accordance with Generally Accepted Accounting Practices (GAAP) for tax purposes unless you are cash accounting.|
LIMITED COMPANY AND TAX
From 1 April 2014 the main rate reduces to 21 per cent and will be 20 per cent with effect from 1 April 2015. The small profits rate remains at 20% (there are exceptions where companies are controlled by the same persons).
Companies are required to calculate their Corporation Tax on self assessment basis as part of their return and account for the self assessed liability. The Corporation Tax return (CT600) must be accompanied by accounts and computations, which form part of the return. The return has certain supplementary pages, and some companies may be required to include extra information such as loans to shareholders. These must generally be filed online with few exceptions.
A flat rate penalty of £100 will be charged for late submission of CT600, with a further £100 if you file more than three month late. This rises to £200 if the failure continues for a further three months. The third consecutive late return will attract penalties of £500. Note penalties apply even if there is no tax due.
The advise here is to submit on time and avoid penalties.
This is charge on the profits of the business after taking into allowable expenses including all salaries. Hence paying a salary reduces profits and hence reduces the corporation tax bill.
Firstly dividends may only be paid out of profits for the year, or any undistributed profits from the previous years. It is important to ensure appropriate documentation and minutes are raised to support the dividend to ensure that this is declared legally and correctly.
A shareholder is entitled to a dividend in proportion to the number of shares held. This means that all shareholders participate in any dividend declared. A dividend carries with it a 10% tax credit, and for a basic rate taxpayer there is no further tax to be paid. A higher rate taxpayer will have to pay further income tax equal to 22.5% of the gross dividend
WHAT IS IR35
IR35 relates to legislation intended to apply a PAYE and NIC charge on earnings from a company which is termed an “intermediary.” Is purpose is to prevent the lower rates of tax which would normally apply employment
It is important to understand the rules and how they impact on your business. It is an area we can give you guidance. Given the impact of IR35, it is essential that you seek our advice on your specific circumstances. Do please email us or call, we would be pleased to meet with you to ensure that your IR35 planning reflects the very latest approach to IR35.
Introduction to IR35
For many years, people leaving jobs to become self-employed were advised to instead set up one man companies to provide their services; offering the security of a limited liability company and significant national insurance savings. The rules aim to identify individuals whom, by placing an intermediary between himself and his employer, gain some tax (including National Insurance Contributions) advantage.
The rules target circumstances where a worker would be treated as an employee of the client, if it were not for the existence of the intermediary. Where this is a limited company, the worker can take money out in the form of dividends instead of salary. Dividends are not liable to NICs so the worker would therefore pay less in NICs than either a conventional employee or a self-employed person.
Contracts Inside IR35
Workers who think they may be inside IR35 should consider their position carefully, and consider renegotiating their contracts to navigate engagements outside the rules. Particular items that need to consideration are as follows:
- • A move away from rates based on a hourly rate
- • Creating flexibility in the manner in which the work is done
- • Ensuring the client is willing to accept a substitute replacement worker
Care is also required where you are provided work through an agency, the contract between agency and their client can affect your status for IR35 purposes.