10 things a Business Accountant will tell you when you start your own business
According to Government figures, there has been a net increase of 146,000 businesses in the past year, taking into account all start-ups, closures, takeovers and mergers. It means more businesses have started than closed.
The Business Population Estimates also show the number of businesses that employ people has grown for the second year running, with 35,000 more at the start of 2015 than in 2014.
Small businesses continue to make up 99.3% of all businesses and generate over £1 trillion turnover for the UK’s economy.
Business Accountants (Association of UK Accountants) are Chartered Management Accountants (CIMA) and when you start your new business they are will tell you:
- Choose the right business structure for your business – most businesses start out as sole traders but once they start making profits convert to limited companies, this is because sole traders pay more tax than company structures
- Choose the best VAT Scheme
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Extra 3% Stamp Duty on Buy to Lets – but what if you have a property company?
A 3% surcharge on stamp duty when some buy-to-let properties and second homes are bought will be levied from April 2016.
This means it will add £5,520 of tax to be paid when buying the average £184,000 buy-to-let property. The new charge would have hit 160,000 buyers if it had applied last year.
George Osborne said the new surcharge would raise £1bn extra for the Treasury by 2021.
But, commercial property investors, with more than 15 properties, are expected to be exempt from the new charges.
Stamp Duty on Selling Shares is 0.5% so why aren’t more investors buying property into companies and then selling the shares in the company!
See my blogs, click to read
5 reasons why you need a Property Investment Company!
10 ways to pay less Property Tax (Investors)
steve@bicknells.net
Accountants – Would an auto enrolment pre-assessment tool be useful?
Auto Enrolment is now in full swing and starting to affect small and micro employers. Many of these employers do not understand auto enrolment and do not want any ongoing involvement with the process. A key concern for small and micro employers is how much auto enrolment will actually cost their business.
With auto enrolment, employers are faced with additional ongoing costs, including the employer contributions each pay period. What is the easiest and most accurate way for an employer, or a bureau on their behalf, to calculate these costs?
BrightPay have developed a pre-assessment tool, which enables users to automatically prepare a pre-assessment report. This report is useful to send to clients 6 months in advance of their staging date, giving the employer a preview of what auto enrolment will look like when they reach their staging date.
The pre-assessment tool uses employee details from the current pay period to provide an estimate of what auto enrolment might look like at the time of staging. The report will include details of each employee’s auto enrolment worker category, along with their pensionable pay, qualifying earnings, employee contributions and employer contributions. Watch BrightPay’s Pre-Assessment video.
PDF Example: Pre-assessment Report
The amounts are subject to change, depending on non-eligible or entitled workers choosing to join the scheme and fluctuations in employee pay.
The report can be exported to PDF and also includes some general information about employee assessment, including definitions of worker categories, qualifying earnings and minimum contribution rates.
This is an ideal document to send to clients in advance of their staging date, giving them an idea of how much auto enrolment will cost them at each pay period thus allowing them to plan accordingly. For example, the report may show that the employer has no eligible jobholders, and so is not required to set up a pension scheme.
BrightPay will also allow you to create a post-assessment report. After staging, the assessment report will give you a snapshot of what auto enrolment looked like on the staging date, highlighting the assessment date, the employee worker categories and postponed employees.
PDF Example: Post-assessment Report
Video: You can see how BrightPay’s pre-assessment tool works here.
BrightPay Payroll and Auto Enrolment Software
Do you make it easy for clients to pay you? or have to chase payment!
Slow payment is major issue for small business.
Research shows that British SMEs are having to wait an average of 41 days longer than their original agreed payment terms before invoices are paid. (source: BACS)
To get paid faster why not include a pay now button on your invoice
http://www.sagepay.co.uk/our-payment-solutions/get-paid-faster
https://www.paypal.com/paypalme/grab
steve@bicknells.net
10 ways to pay less VAT
Here are my top 10 ways to pay less VAT
1 Choose the best VAT Scheme for your business
Standard VAT Scheme – on this scheme the VAT is based on tax points from invoices
Flat Rate Scheme – try our calculator
VAT Cash Accounting Scheme – if your turnover is below £1.35m you can account for VAT on a Cash basis, this is particularly helpful if your customers pay you on slower terms than you pay your suppliers
Annual Accounting Scheme for VAT – if your turnover is below £1.35m you could join the Annual Scheme and complete one return for the year but you make either 9 interim payments or 3 quarterly interim payments
Retail VAT Schemes – These are specific schemes aimed at mainly at shops and help to overcome the issues of mixed vat rate goods
VAT Margin Scheme – The margin scheme relates to second hand goods and accounts for VAT on the margin, for example on the sale of cars
2 Claim Pre-registration VAT
When you register for VAT, there’s a time limit for backdating claims for VAT paid before registration. From your date of registration the time limit is:
- 4 years for goods you still have, or that were used to make other goods you still have
- 6 months for services
Be careful not to over claim – see this blog for details http://stevejbicknell.com/2015/06/24/preregistration-vat-confusion/
3 Property Investors might benefit from a Development Company
Property Development is a trade, where as Property Investment isn’t – renting out a residential property is a VAT exempt supply.
If you are planning significant building work, setting up a Development Company or using a building contractor might save VAT.
Assuming you employ a builder…
The VAT Rules are in VAT Notice 708 Buildings & Construction
Your builder may be able to charge you VAT at the reduced rate of 5 per cent if you are converting premises into:
- a ‘single household dwelling’
- a different number of ‘single household dwellings’
- a ‘multiple occupancy dwelling’, such as bed-sits, or
- premises intended for use solely for a ‘relevant residential purpose’
As your builder will be VAT registered, they reclaim the VAT they are charged and then charge you VAT at 5%.
If your business is property rental and you do the work yourself, you can’t take advantage of the 5% rate.
If your Development Company is VAT registered you can reclaim all the VAT.
4 Do you need to charge VAT on Intercompany Charges
There are situations where one company is VAT registered and other related companies are either partially exempt or not registered for VAT, so in these circumstances not charging VAT is an advantage.
The following are not Taxable supplies for VAT:
Common Directors – Notice 700/34 (May 2012)
Joint Employment – Notice 700/34 (May 2012)
Paying a Bill on behalf of an associated business
Insurance
5 Use VAT Groups for Business Acquisition Costs
Basically HMRC disallow Input VAT relating to Investments.
The most well known example of this was when BAA purchased Airport Development Investments Limited in June 2006, the decision was upheld by the Court of Appeal in February 2013.
The BAA VAT group sought to recover the VAT (£6.7m) incurred on the acquisition costs but recovery was refused by HMRC on the basis that they considered ADIL had not made onward taxable supplies, had not demonstrated any intention to make taxable supplies and was not a member of the VAT group at the time costs were incurred.
BAA used an SPV (Ferrovial) to purchase ADIL but did not bring the SPV into the BAA VAT Group until September 2006, 3 months after the acquisition.
The lessons to learn from this are:
- Once you have successfully made the acquisition join a VAT Group immediately and make it clear in correspondence that the SPV intends to join the VAT Group at the earliest opportunity
- Consider not using an SPV
- Buy the Assets instead of the Shares
- Show that the SPV will make taxable management charges
- Consider the scope of the advisors work, HMRC may disallow advice focussed on passively holding shares
6 How Hotels save VAT
Here are some VAT examples for Hotels – HMRC Reference:Notice 709/3 (October 2011) :
The Long Stay Rule
If a guest stays in your establishment for a continuous period of more than 28 days, then from the 29th day of the stay you should charge VAT only on that part of the payment that is not for accommodation.
VAT Exempt Meeting Rooms and Refreshments
Hiring a room for a meeting, or letting of shops and display cases are generally exempt, but you may choose to standard-rate them by opting to tax, see Notice 742A Opting to tax land and buildings.
VAT on Deposits
Most deposits serve as advanced payments, and you must account for VAT in the return period in which you receive the payment. If you have to refund a deposit, you can reclaim any VAT you have accounted for in your next return.
Normally, if you make a cancellation charge to a guest who cancels a booking, VAT is not due, because it is compensation.
7 VAT on Pool Cars
When you buy a car you generally can’t reclaim the VAT. There are some exceptions – for example, when the car is used mainly as one of the following:
- a taxi
- for driving instruction
- for self-drive hire
If you lease a car for business purposes you’ll normally be able to reclaim 50 per cent of the VAT you pay. But you can reclaim 100 per cent of the VAT if the car is used exclusively for a business purpose.
8 Use a Tronc for Tips
Tips are outside the scope of VAT when genuinely freely given. This is so regardless of whether:
• the customer requires the amount to be included on the bill
• payment is made by cheque or credit/debit card
• or not the amount is passed to employees.
Restaurant service charges are part of the consideration for the underlying supply of the meals if customers are required to pay them and are therefore
standard rated.
If customers have a genuine option as to whether to pay the service charges, it is accepted that they are not consideration (even if the amounts appear on the invoice) and therefore fall outside the scope of VAT.
Further information is available from: Notices 700 The VAT guide and 709/1 Catering and takeaway food
9 Get your TOGC right – Transfer of a Going Concern
Normally the sale of the assets of a VAT registered or VAT registerable business will be subject to VAT at the appropriate rate. A transfer of a business as a going concern for VAT purposes (TOGC) however is the sale of a business including assets which must be treated as a matter of law, as ‘neither a supply of goods nor a supply of services’ by virtue of meeting certain conditions. Where the sale meets the conditions then the supply is outside the scope of VAT and therefore VAT is not chargeable.
It is important to be aware that the TOGC rules are mandatory and not optional. So it is important to establish from the outset whether the sale is or is not a TOGC.
The main conditions are:
- the assets must be sold as part of the transfer of a ‘business’ as a ‘going concern’
- the assets are to be used by the purchaser with the intention of carrying on the same kind of ‘business’ as the seller (but not necessarily identical)
- where the seller is a taxable person, the purchaser must be a taxable person already or become one as the result of the transfer
- in respect of land which would be standard rated if it were supplied, the purchaser must notify HMRC that he has opted to tax the land by the relevant date, and must notify the seller that their option has not been disapplied by the same date
- where only part of the ‘business’ is sold it must be capable of operating separately
- there must not be a series of immediately consecutive transfers of ‘business’
The TOGC rules are compulsory. You cannot choose to ‘opt out’. So, it is very important that you establish from the outset whether the business is being sold as a TOGC. Incorrect treatment could result in corrective action by HMRC which may attract a penalty and or interest.
10 Choose the best time to register for VAT
You may decide to voluntarily register to reclaim VAT you have paid out to set up you business or you might decide to wait till you have to register to gain a competitive advantage.
You must register for VAT if:
- your VAT taxable turnover is more than £82,000 (the ‘threshold’) in a 12 month period
- you receive goods in the UK from the EU worth more than £82,000
- you expect to go over the threshold in a single 30 day period
steve@bicknells.net
5 million paid the wrong tax last year – is your tax code right?
As reported last year by the Telegraph –
Five million people may have been billed incorrectly by HMRC.
You’ll find your tax code on:
- your pay slip
- your PAYE Coding Notice – you usually get this a couple of months before the start of the tax year and you may also get one if something has changed but not everyone needs to get one
- form P60 – you get this at the end of each tax year
- form P45 – you get this when you leave a job
Among those most likely to be affected are veterans who have taken a civilian job after leaving the Armed Forces, but who also draw a military pension. Pensioners with two pensions and those who have continued to work part-time after retirement are also more likely to be hit.
Taxpayers, who must complete their self-assessment tax returns before Jan 31, are being warned to check their paperwork again to make sure they are not affected.
Problems arise because various tax offices around Britain are failing to share information about taxpayers’ incomes on a central database.
People with more than one income, whether from pensions, PAYE employment or a mixture of the two, are being allocated their personal tax-free allowance multiple times. It means the tax codes issued for their various income sources are incorrect, so not enough tax is taken. Often the mistakes are discovered by HMRC years later, leading to unexpected tax demands. Telegraph
If you think your Tax Code is wrong you should tell HMRC as soon as possible using online form P2
https://online.hmrc.gov.uk/shortforms/form/P2
You can check how your tax using this HMRC link
https://www.gov.uk/check-income-tax
The most common tax code for tax year 2015 to 2016 is 1060L (£10,600 being the annual income tax free allowance for 2015/16) – in 2014 to 2015 it was 1000L. It’s used for most people born after 5 April 1938 with one job and no untaxed income, unpaid tax or taxable benefits (eg company car).
steve@bicknells.net
How would you implement a new accounting system?
Implementing a major accounting system is big undertaking which needs a lot of planning.
Top Tips for System Implementations:
- Start by drawing up a specification of your requirements – what do you want to achieve with the new system, what is the scope of the system, where will cost savings be made, how could more information lead to better decision making?
- Get Buy In – its really important that the system gets the support of the Senior Management Team and that key staff are given the chance to put forward their ideas and are involved in the project. People are often resistant to change and getting them involved early will breakdown barriers to change.
- Rationalise – changing systems is an ideal chance to look at how can you do things differently and stop doing things that don’t add value, this will also reduce potential customisation requirements
- Allocate time to the project – If you don’t allocate time to the implementation project you will regret it later but that doesn’t mean you need to do everything yourself, budget to bring in temps and consultants to help
- Measure the savings and benefits – make sure you achieve your goals
By using simple project management processes, tools and techniques you can achieve the best results.
Formal methods of project management offer a framework to manage this process, providing a series of elements to manage the project through its life cycle. The key elements consist of:
• Defining the project accurately, systematically clarifying objectives
• Planning the project by splitting it up into manageable tasks and stages
• Executing the project by carrying out actions
• Controlling the project through its stages using project definition as a baseline
• Closing/Handing Over the Project
Beware of letting your accounts become a shambles
It’s not uncommon for Directors and Senior Employees to get behind with their expense claims and paperwork, they are busy people trying to build their businesses and sometimes the paperwork gets put to one side.
But lets consider the recent HMRC case against the Directors of RSL (NorthEast) Ltd. Mr White was Director of RSL and he had a company credit card which he used for business and personal expenses, he travelled extensively on company business. Unfortunately RSL became insolvent, so HMRC assessed Mr White on credit card expenses as a benefit in kind.
Mr White appealed on the basis that he had lent the company large amounts of his own money and any credit card expenses were just a reimbursement.
HMRC argued…
- “Section 203(2) ITEPA does not grant any right to retrospectively make good a benefit. Income tax is an annual tax, and the value of the benefit depends upon what is made good in that tax year.”
- “Any “rewriting” [to reflect the money reimbursed to RSL] would have a retrospective effect on the Company accounts.” HMRC implied that this would not be allowed.
HMRC won the case, but mainly because the accounts were in a terrible shambles!
What can we learn from this?
- Keep good records, don’t put off doing your accounts!
- If you do get behind you do a have a ‘reasonable time to make good’ as noted in HMRC’s manuals http://www.hmrc.gov.uk/manuals/eimanual/EIM21121.htm
How do you switch over to Sage One?
So you’ve made the decision, its time to move to Cloud Accounting and you’ve choosen Sage One, what do you need to do to move your accounts to Sage One?
You need to start by deciding the best time to move, it could be your Year End or the end of VAT Quarter, but its likely to be on the 1st of a month.
Get some help, why not find a Sage One accountant and ask them to help you set up your Sage One, they might even offer you a deal and include your other accounting and tax needs.
Then you need to create your Contacts – Customers & Suppliers.
Then you enter opening balances – for example unpaid supplier invoices.
You also need to set up your Bank Feeds
http://uk.sageone.com/bank-feeds/
http://help.sageone.com/en_uk/accounts/extra-bank-feeds.html
To set up bank feeds
1. Banking > click the required bank account.
2. Manage Bank Account > Connect to Bank.
You enter your closing Trial Balance from your old accounting system on the last day of the month before your Sage One start date.
Keep the records and prints from your old accounting system for reference.
Then you are ready to get started, its all very easy and straightforward, nothing to worry about.
steve@bicknells.net
How do you calculate holiday pay for occasional workers?
Almost all workers are legally entitled to 5.6 weeks’ paid holiday per year (known as statutory leave entitlement or annual leave). An employer can include bank holidays as part of statutory annual leave.
Self-employed workers aren’t entitled to annual leave.
But what if your workers work irregular hours, or are part time, or are casual occasional workers, how can you work out how much paid holiday they are entitled to, well actually its not as hard as you think, its based on an accrual of 12.7% per hour worked, here is a spreadsheet to help you calculate it.
Calculating average hourly rate
To calculate average hourly rate, only the hours worked and how much was paid for them should be counted. Take the average rate over the last 12 weeks. If no pay was paid in any week, count back a further week, so that the rate is based on 12 weeks in which pay was paid.
steve@bicknells.net
Business Accountant 