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How long to keep your records

As a general rule, you should keep your records for a minimum of six years. However,

if you are:

• an employer, you need to keep Pay As You Earn (PAYE) records for 3 years

(in addition to your current year)

• a contractor in the Construction Industry Scheme (CIS), you need to keep your CIS

records for 3 years (in addition to your current year)

• keeping records to complete a personal (non business) tax return, you only need to

keep them for 22 months from the end of the tax year to which they relate.

If you need to keep records for other reasons, for example the Companies’ Act

requires limited companies to keep specific records and you also use those records

for tax purposes, you need to be aware that there may be different time limits for

retaining them. Be careful not to destroy any records you also use for tax purposes

too soon.

 

niall@odfinancialservice.co.uk

Life after submitting a tax return

You’ve completed your tax returns, you think you can now breathe a sigh of relief, but can you?

HMRC can inspect any taxpayer’s records under Schedule 36 by FA08, FA09 and FA10. They can check the tax records for:-

Pay as You Earn (PAYE)

Value Added Tax (VAT)

Income Tax (IT)

Capital Gains Tax (CGT)

Corporation Tax (CT)

Insurance Premium Tax (IPT)

Inheritance Tax (IHT)

Stamp Duty Land Tax (SDLT)

Stamp Duty Reserve Tax (SDRT)

Petroleum Revenue Tax (PRT)

Aggregates Levy (AGL)

Climate Change Levy (CCL)

Landfill Tax (LFT) and

Bank Payroll Tax (BPT)

 

The technical term for the inspection is a Compliance Check. They will check that the tax payer has:-

  1. Complied with their obligations
  2. Paid the correct amount of tax and at the right time
  3. Claimed the correct reliefs and allowances

 

 

 

The inspection

This can be completed by anything from a short telephone call to confirm a single fact, to a detailed investigation of a person’s entire financial affairs over a period of years.

HMRC may undertake checks by either asking for information or documents or by arranging a meeting or visit.

They may:

  • Require taxpayers by notice in writing to provide information and produce documents (a “taxpayer notice”)
  • Require third parties by notice in writing (for example a supplier or bank) to provide information and produce documents (a “third party notice”)

 

The caveat being that these requirements are reasonable for the purpose of checking a tax position. The generic term for these types of notice is information notice.

 

The recipient has the protection of a right of appeal to, or prior approval by, an independent tribunal. There is no right of appeal however where the notice only refers to information or documents that form part of a taxpayer’s statutory records, or any person’s records that relate to:

  • The supply of goods and services
  • The acquisition of goods from another member state, or
  • The importation of goods from outside the European Union (EU) by a business

 

If the taxpayer is not forthcoming with the information, HMRC may invoke their statutory powers to obtain them.

 

They may also request assistance with aspects of a tax check from other government departments.

 

This could include a situation where there is reason to believe that a taxpayer:

  1. did not notify chargeability to tax
  2. did not register for VAT if required, or
  3. is operating in the informal economy

Restrictions on Information Powers

The taxman is not all-powerful; some safeguards have been installed, set out in the law and with guidance so that in carrying out compliance checks

  • HMRC’s powers are used reasonably and proportionately
  • Taxpayers are clear about when a compliance check begins and ends
  • Officers have no right to enter any parts of premises that are used solely as a dwelling, whether to carry out an inspection or to examine documents produced under an information notice. They can, however, enter if invited
  • FA09 adds to Sch 36 FA08 a power to inspect all property for the purpose of valuation (for direct taxes purposes). This requires either the taxpayer’s agreement or Tribunal approval
  • Unannounced visits will only be made where agreement has been given by an authorised officer

Other safeguards include the fact that officers can’t require certain things to be provided:

  1. Information relating to the conduct of appeals against HMRC decisions
  2. Legally privileged information
  3. Auditors or tax advisers advice to a client about their tax affairs
  4. Information about a person’s medical or spiritual welfare
  5. Journalistic material

Time constraints

  • Information over six years old can only be included in a notice issued by or with the approval of an authorised officer
  • HMRC cannot give a notice in respect of the tax position of a dead person more than four years after the person’s death

 

The Power to Visit Business Premises and Check Assets and Records

Inspection powers allow an officer of HMRC to enter business premises and inspect the premises, business assets and statutory records.

 

If an information notice has been issued earlier, the documents required in that notice could be inspected at the same time.

 

FA09 incorporates into Schedule 36 inspection powers in respect of the:

  • business premises of Involved third parties
  • valuation of premises for Income Tax or Corporation Tax

These inspections:

  • must only be undertaken where it is reasonably required to establish the tax position and
  • will normally be by prior arrangement, the date and time being convenient to the taxpayer

The Power to Visit Business Premises and Check Assets and Records

Inspection powers also allow any officer to enter any premises when they believe the premises are to be used in connection with taxable supplies of goods or taxable acquisition of goods from Member States, and such goods or documents relating to such goods are on the premises.

There is no right of appeal against an inspection but the occupier can refuse entry and prevent the inspection from being completed.

The occupier can be penalised for such obstruction, where the inspection has been approved by a Tribunal.

There may be occasions when a pre-arranged visit will be inappropriate, for example where there is a strong risk that the taxpayer would move the business or remove stock or other assets. In such cases, an unannounced visit may be undertaken subject to prior agreement by an authorised officer.

If a formal statutory approach is needed, and it has not been possible to agree the time of inspection and give written confirmation, the inspection must be approved by a Tribunal and 7 days written notice of the time of the inspection given. The application for approval must be made by, or with the approval of, an authorised officer.

When a Penalty can be charged where a person:

  • Fails to comply with an information notice
  • Conceals, destroys or otherwise disposes of documents required by an information notice
  • Conceals, destroys or otherwise disposes of documents that they have been notified are, or are likely to be, required by an information notice
  • Deliberately obstructs an inspection that has been approved by the Tribunal.
  • In complying with an information notice provides inaccurate information or produces a document that contains an inaccuracy,
  • Fails to comply with a notice requiring contact details of a tax/duty debtor to HMRC.

These rights are covered in sections 38 FA 08 and 09

 

Types of Penalties

There are four types and amounts of penalty:

  • An initial penalty of £300
  • A daily penalty of up to £60 for every day that the failure or obstruction continues after the date the initial penalty is assessed
  • A tax-related penalty
  • A penalty not exceeding £3000 for providing inaccurate information or documents in response to an information notice

A tax-related penalty is in addition to the initial penalty and any daily penalties. The amount of the penalty is decided by the Upper Tribunal having regard to the amount of tax which either has not, or is unlikely to be, paid by that person.

 

A person is not liable to a penalty if they have a reasonable excuse for:

  • Failing to comply with an information notice, or
  • Providing inaccurate details or documents, or
  • Deliberately obstructing a tribunal approved inspection

If they correct their failure as soon as the excuse ends, the excuse will then be treated as continuing until the correction is made.

Normally, daily penalties will not be assessed after the failure has been remedied.

Record Keeping

Schedule 37 of FA08 amended existing record keeping legislation in respect of PAYE, VAT, IT, CGT and CT, whilst Schedule 50 to FA2009 extends this approach to IPT, SDLT, AGL, CCL, and LFT with BPT being included from 8 April 2010. Following consultation it was accepted that SDRT and PRT did not require separate statutory provisions, whilst IHT will be addressed through guidance.

These provisions are aimed at alignment and clarification.

This approach is designed to be flexible across a range of business and non-business taxpayers.

There are penalties for failure to keep adequate records.

The basic requirements in relation to record keeping have not changed but rules have been aligned on how long records are kept.

 

niall@odfinancialservice.co.uk

10 expenses that will trip up PAYE workers

  1. Mobile telephone – if the contract is in your personal name you can only claim business related call costs.
  2.  The £8,500 trap – if an employee earns below this amount but receives benefits in kind taking them over the limit, A P9D has to be submitted.
  3.  A director has to submit a P11D no matter what they earn and complete a self-assessment.
  4.  Pensions – pension contributions are limited to a maximum of £50,000. This will reduce to £40,000 next year subject to an employee’s pay exceeding this amount.Watch out for the 3 year rule.
  5.  Pension pots – the fund will be reduced by £250,000 to £1,250,000 from the 6th April 2014
  6.  All expenses claims must be wholly and exclusively incurred in the performance of their duties, otherwise not allowable.
  7.  Working lunches – are only allowable if all the company get fed.
  8.  Watch out for the Christmas party – an employer is only allowed to claim £150 per annum for entertaining staff and their families.
  9.  Tax free mileage allowances – most people know the limits and allowances. Don’t forget to keep records of journeys made.
  10.  If your employer buys clothing for work it must display the company logo, even if it’s an Armani suit

12 really quick and easy tax tips for PAYE workers

  1. Child care vouchers –  if you have children attending a nursery or looked after by a professional childminder, your employer can join a Childcare voucher scheme. This allows for £55 of the weekly cost to be deducted free of tax and NI if you are a basic tax rate payer, or £28 if you are a higher rate tax payer.
  2.  Pensions – if you pay into a work pension scheme, 20% tax is automatically deducted. For high rate tax payers, you can claim additional relief either by declaring it on your Self-Assessment or calling the taxman.
  3.  Company cars – are a pain and the tax is huge BUT if you have a company van, the benefit in kind is capped at £3,000 so for a basic rate tax payer the cost of driving is only £600 or £1,200 for a higher rate payer.
  4.  Professional membership fees – your membership to a recognised trade or professional body it is a deductible expense, but not for your hobbies.   
  5.  Share incentive schemes – there are loads of schemes that allow either NI or Capital Gains Tax to be saved, you don’t have work for a listed company either.
  6.  Giving your work colleagues a lift to work – if your employer encourages car pooling you can claim 5p a mile for the passenger without incurring any additional tax charge.
  7.  Cycle to work – get your employer to provides a bike both for travel to work and play, it’s not considered as a benefit in kind.
  8. Then after a time you can buy it off them at market value.
  9.  Season ticket loans – your company can advance the cost of an annual season ticket up to £5,000, much cheaper than buying a ticket weekly.
  10. From April 2014 this increases to £10,000 (not really sure if that’s a blessing?)
  11. Electric Cars – from April 2015 there’s no benefit in kind.
  12.  Working from home – it is becoming increasingly more common for staff to work from home. You can claim £4 a week allowance without having to produce receipts.

Any questions contact the author at niall@odfinancialservices.co.uk

Cloud Accounting Software

Over the last few years, the way businesses record their data and keep their books has changed considerably. In the good old days they would have a server in a dedicated room with AC and miles of cables, with computer screens taking up half your desk, but no more. In a relatively short time, the accounting software houses have gone virtual.

All the software packages still have desktop versions, but frankly why bother? You can be on the beach drinking pina coladas and still keep your finger on the pulse running the business. Better still, with cloud software if there’s a problem your accountant or IT person can go straight in and have a poke around.

But with loads of solutions out there (most of which I’ve used), how do you make a decision?

Taking the top sellers in the UK market, I have broken down their main attributes based on functionality, feel and price. I’ve also tried not to be biased. A lot of the software is you will see does the same thing. Which software to choose comes down to personal preference and the needs of the business at the time. Luckily the software is generally quite portable, so if a solution is no longer adequate you can easily move on.

Industry / Sector

All the software I’ve reviewed will work across most sectors from retail to the service industry. I have a couple of online retailers who obviously use various versions. They wouldn’t be suitable though for construction, manufacturing or tourism and hotel businesses.

Modules

So what can they do?

On a first view they all pretty much do the same thing. To try and find some differences one has to look at the GUI.  They all say they are intuitive, but my view is that some are more so than others.

FreeAgent, Freshbooks, Kashflow and Xero all look the same; they have very similar colour schemes (what’s the thing about the blue?) and layouts. It can be confusing switching between them. Quickfile uses a white background. Both Quickbooks and Sage 50 have the traditional look you find on the desktop versions which unless you’re an accountant is awful to navigate.

Quickfile

FreeAgent

Freshbooks

Kashflow

Xero

Quickbooks

Sage 50 Professional

Sales

Y

Y

Y

Y

Y

Y

Y

Sales Order processing

Y

N

N

Y

Y

Y

Y

Quotes

Y

Y

Y

Y

Y

Y

Y

Purchases

Y

Y

Y

Y

Y

Y

Y

Purchase Order Processing

N

Y

N

Y

Y

Y

Y

Stock

N

N

Y

from AUS$10

Y

Y

Y

Payroll

N

N

N

+ £420 p.a

Y

£42 p.m package

N

VAT returns

Y

Y

Y

Y

Y

Y

Y

Reporting

Y

Y

Y

Y

Y

Y

Y

Annual accounts

Y

N

N

Y

Y

Y

N

Platforms

Interestingly, they all have versions for iPhones and iPads as well as android except Quickfile and FreeAgent.

Interfacing

They all have interfaces with banks allowing CSV files to be downloaded and by tagging can allocate to invoices, be that customers or suppliers. In fact if there isn’t a matching invoice they will set it up, brilliant!

Another handy function is the customer receipts. They all will allow you to take payments from PayPal and often other platforms including Sagepay. Just like the bank download these can be tagged.

What I really like is that you can file returns with HMRC. Why is that great? Audit trails: you can download or refer back later.

Dashboards

This for me is the best reporting tool. It’s the home screen when you go into the software, so sometime needs to ensure that only the pertinent information is shown. I like to see bank balances, debtors and creditors, and key dates for tax returns. Most will do this to a greater or less extent but my least favourite has to be Sage.

Pricing

I know that’s what it’s about but don’t be fooled. Are you’re getting what you pay? Watch the cost of add-ons these can be expensive.

Quickfile

Freeagent

Freshbooks

Kashflow

Xero

Quickbooks

Sage 50 Professional

Customer

Free

£15-£25

$0 to $39.95 p.m.

£18 p.m.

£12 –  £24 p.m.

£9 -£29 pm

£1,400 p.a

(£117 p.m.)

Accountant

“Affinity” dashboard  £94.90 p.a. per client +VAT (up to 10% volume discount)

Has to log on as user

Has to log on as user

“Orbit” client manager – free

“Practice Studio” – free

“QuickBooks Online Accountant” – free

N

I really like Quickfile for its simplicity but have a problem with their pricing module, why charge the accountant for passing business their way. The competition often pay us accountants to introduce, oops, did I let that slip.

From FreeAgent to Quickbooks, there’s not much in it. Although FreeAgent, Freshbooks and Sage don’t have Accountants’ portals.

The drumroll goes to Sage: it’s not even web based, it’s a hosted service.

Payroll costs seem to be wildly different. Some providers have in-house solutions others have partnerships.

Finally

We’ve helped loads of businesses migrate to the cloud. It’s not just about price but what is right for the business.

When making the move, don’t try doing it without professional assistance. If you mess it up it can be extremely costly to fix.

Testimonial from one of our clients, Carl Hughes of IT Hound

ODFS really has the knowledge in the cloud accountancy sector. I manage my business completely online and I wanted a product that could compliment this so I could do all my invoicing, sales and accounting in a browser and not have to install a program on my computer.

ODFS recommended Quickfile and helped me setup invoicing templates and a way of working so that I could manage outstanding invoices, use reports to give me a picture of how my business was doing and at the same time understand the various accountancy terms with ease.

I don’t feel the above could have been done as quickly using a traditional desktop accountancy program and the fact that ODFS could log in to my online account saved the endless emailing of reports and spreadsheets.

Its unusual to find an accountant who has such a vast knowledge of how to do finances in the cloud; so if you are looking for an efficient company to help you manage your accounts I highly recommend ODFS.

xerosageQuickFile-invoicingquickbookskashflowdownload

DUE DILIGENCE

Buying, selling or thinking of setting up a business always do your research, known in the trade as due diligence.

The holy trinity of due diligence is always the customers, the company, and the management.

The fundamental question is there a demand for the service or product?  Don’t base it just on hunches or observations. Who are already out there doing it? For very little money Companies House  or try Company Check can be a great starting point, it’s amazing what information you can get, even for a small company.

Don’t forget pricing, premium products and services command premium pricing try and pull off anything less will fail. The adage is true “You can’t fool all the people all of the time”.

What is the USP (Unique Selling Proposition) why would somebody want to trade with this business? Recognise it, flaunt it.

The company has to be sound, fit for purpose. There has to be clarity on costs, know the suppliers. Is there sufficient support, think about staff, IP, premises and systems, benchmarking, QA?

Thirdly, the management, no man is an island. The most undervalued asset in any business is the staff. It is often unlikely a person holds all the skills to perform all roles and responsibilities.  Identify the key skills and resource.

Whether you are buying selling or setting up a business it always takes longer than first estimates and you can’t forecast for all events.

Covering the bases these are some generic points to be going on with.

Customer 1.       Market Research
2.       Customers’ Profile
3.       Competitors’ Profile
4.       Managing Market Risks
5.       Pricing
6.       Promotion and Advertising
Company A.       Running the Business
1.       Staff
2.       Key Suppliers
3.       Equipment
4.       Managing Operational Risks
5.       Legal Requirements
B.       Finances
1.       Start-up / Selling Costs
2.       Breakeven Analysis
3.       Funding options and Tax incentives
4.       Cash Flow Forecasting
5.       5 Year Plan
6.       Profit & Loss Account
7.      Balance Sheet
Management 1. Job descriptions
2. Contracts
3. Remuneration

HOW LONG TO KEEP YOUR RECORDS?

As a general rule, you should keep your records for a minimum of six years. However,

if you are:

• an employer, you need to keep Pay As You Earn (PAYE) records for 3 years

(in addition to your current year)

• a contractor in the Construction Industry Scheme (CIS), you need to keep your CIS

records for 3 years (in addition to your current year)

• keeping records to complete a personal (non business) tax return, you only need to

keep them for 22 months from the end of the tax year to which they relate.

If you need to keep records for other reasons, for example the Companies’ Act

requires limited companies to keep specific records and you also use those records

for tax purposes, you need to be aware that there may be different time limits for

retaining them. Be careful not to destroy any records you also use for tax purposes

too soon.

 

Niall O’Driscoll FMCA CGMA

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