What steps do you need to follow to form a company?
Years ago you would go to a formation agent and buy an off the shelf company and re-name it but now its much easy to create a company from scratch using a formation agent. There are many agents out there, but you could use http://www.company-wizard.co.uk where you can form a company from £16.99 or you can do it direct with Companies House.
You will need to know:
- The company name (that hasn’t already been used and isn’t restricted)
- The names, addresses and dates of birth for directors and shareholders
- Registered office address
- You will also need to security information for the directors and shareholders (eye colour, mothers maiden name, place of birth)
The company will often be formed within a day, once you know the company registration number you can open a bank account. To do this you will normally need to visit your bank and show them two forms of ID.
HMRC will send form CT41G to the registered company address.
The CT41G form is issued to newly registered companies. This form includes your company’s Unique Taxpayer Reference .You will need it to contact HMRC. It also tells you what you need to do if your company has become ‘active’ and suggests other tax implications your company may need to consider.
HMRC will also ask if you want to appoint an agent (accountant) and this is done with form 64-8.
To register for PAYE you will need to know:
- name, business name, partner’s name, company name (as appropriate)
- business or home address, including postcode (as appropriate)
- business or home telephone number
- a contact email address
- a contact telephone number
- a name and address to send correspondence to
- the date of your first payday or, if earlier, the first date you made payments of expenses and/or provided benefits to your employees
http://www.hmrc.gov.uk/payerti/getting-started/register.htm
Follow this link if you need to register for the Construction Industry Scheme http://search2.hmrc.gov.uk/kb5/hmrc/contactus/view.page?record=039zI-xtZZw
VAT registration is done on line http://www.hmrc.gov.uk/
steve@bicknells.net
How Legal Aid Barristers cope with Revenue Recognition (UITF 40)
BIM74150 sets out HMRC’s guidance:
Unfortunately, there is no special treatment of cases where a client is legally aided. Work in progress, and anticipated profit costs in completed cases, have to be brought into account notwithstanding that there might be substantial delay in the receipt of fees. However, the solicitor is entitled to exercise a prudent approach where he or she knows that costs are going to be taxed, as to what the realisable value of work in progress, and anticipated profit costs, might be.
But the law society guidance provides more detail:
- The Tax Point is normally payment
- Prudent judgement is required of the value of work done to date
- Payments should not be recognised if it is likely that they may have to be refunded
Other interesting points from the Law Society:
- No Win No Fee – Revenue recognised when the case is won
- Pay at End – either estimate the fees or if uncertain revenue should be recognised when a reliable estimate can be made
- Fixed Fee – use appropriate judgement
steve@bicknells.net
The tax advantages of Troncmasters
If your employees receive tips directly from your customers and are allowed to keep them, then you do not need to do anything for PAYE tax or NICs. There are no NICs due on the money, and the tax due is the employee’s responsibility. Your employees should declare the money to HMRC, who will usually adjust their tax code to collect any tax due.
A tronc is an arrangement for pooling and distributing tips and service charges and the person who operates the tronc is known as a troncmaster. If your employees use a tronc you must tell HMRC who the troncmaster is so that they can set up a PAYE scheme for the tronc.
http://www.hmrc.gov.uk/helpsheets/e24.pdf
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
steve@bicknells.net
Odd VAT rules for Hotels
Tax is made up of bizarre and complicated rules and for accountants that’s a good thing, keeps us in work, but why tax can’t be simplified is beyond me, its a crazy tax world out there.
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.
A guest’s stay must be continuous to qualify for the reduced value rule. For example, if a guest stays for three weeks every month, you must always charge them VAT in full. If another guest stays for five weeks, leaves for a week, and returns to stay for five more weeks, the reduced value rule applies only to the fifth week of each separate stay.
However, a guest’s departure is not seen to end their stay provided the guest:
- is a long-term resident and leaves for an occasional weekend or holiday,
- is a student who leaves during the vacation but returns to the same accommodation for the following term, or
- pays a retaining fee
In these cases the time away is ignored and you only have to charge VAT in full for the first 28 days of the overall stay.
It does not matter whether the guest returns to the same room or not.
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.
If you make an exempt supply such as providing a room for a meeting or a conference and you provide minimal refreshments such as tea, coffee and biscuits, the room and the incidental catering will be treated as a single exempt supply. But, if you serve substantial refreshments such as a meal or buffet, the catering should be treated as a separate supply and you must account for VAT based on the normal charges you would make for such catering.
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. This includes amounts debited from credit cards using details provided at the time of the booking. Where the cancellation charge takes the form of a retained deposit, you can reclaim any VAT already accounted for as an adjustment to your next return.
Reclaim Overpaid VAT
If you have overpaid VAT you can now go back up to 4 years and reclaim it.
steve@bicknells.net
What is a Pool Car? can you reclaim VAT? will it be tax free to drive?
Pool cars must meet the following conditions:
- used by more than one employee
- not ordinarily used by one employee to the exclusion of others
- not normally kept at or near employees’ homes
- used only for business journeys – private use is only permitted if it is merely incidental to a business journey (for example, commuting home with the car to allow an early start to a business journey the next morning)
Provided all these conditions are met, you have:
- no reporting requirements
- no tax or NICs to pay
To back this up it would be worth having:
- A written ‘no private use policy’
- Business Only insurance
- A mileage log to show that there’s no private mileage
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 as one of the following:
- exclusively for a business purpose
- a taxi, for driving instruction or self-drive hire
http://www.hmrc.gov.uk/vat/managing/reclaiming/motoring.htm
The following are VAT cases relating to Pool Cars and support the reclaiming of VAT Input Tax:
Masterguard Security Services Ltd VTD 18631
A business provided cars to the security guards that it employed. It was allowed to recover input tax on the cars because it banned the employees from using the cars for private use. It was able to show that all the employees had their own cars which they used privately.
Peter Jackson Jewellers Ltd VTD 19474
A company that had four shops bought a car. The tribunal allowed input tax to be recovered on the car. The company had evidence to show that the car was used to transport stock and that private use of the car was prohibited.
http://www.hmrc.gov.uk/manuals/vitmanual/VIT64690.htm
What counts as private use?
Private use that is not merely incidental to business use should in practice be ignored in deciding whether the vehicle comes under the protection of either Section 167 ITEPA 2003 (cars) or Section 168 ITEPA 2003 (vans) where such private use is:
- small in extent and infrequent and
- consists of either or both of:
-
- use limited to meeting the immediate need for transport in an emergency where the use of the vehicle is provided on compassionate grounds
- use for the purposes of the provision of another benefit that does not itself give rise to a tax charge where the use of the vehicle is merely incidental to the provision of that other benefit.
Small in extent and infrequent will generally be not more than 5% of the vehicle’s annual mileage on occasions that are neither regular nor protracted.
Use meeting the immediate need for transport in an emergency where the use of the vehicle is provided on compassionate grounds covers the kind of case where an employee is taken ill at work, or learns at work that a member of his or her family has been involved in an accident. It does not apply where an employee’s normal vehicle breaks down and the pool vehicle is used as a substitute.
Use for the purposes of the provision of another benefit that does not itself give rise to a tax charge where the use of the vehicle is merely incidental to the provision of that other benefit might apply in a number of different situations. One example would be the use of a pool vehicle to take employee-provided equipment, such as a table tennis table, to an employer-provided sports facility. (Subject to various conditions, employer provided recreational facilities do not give rise to a tax charge.)
http://www.hmrc.gov.uk/manuals/eimanual/eim23460.htm
Type of Car
You could have any car as a Pool Car and some businesses might decide to have a luxury car as the Pool Car befitting of the company image, but makesure you can prove that it hasn’t had more the a small (5%) amount of private use (as noted above).
So you could have a personally owned car to get to and from the office and then use the Company Pool Car during business hours.
Change of Use
If the car stops being a Pool Car and gets allocated to an employee you will need to do a self-supply charge for VAT at the time of change. Basically this means you account for the VAT on the ‘current value’ of the car at the time of change.
VAT Act 1994 Section 56 (9) – Fuel rules
(9)In any prescribed accounting period a vehicle shall not be regarded as allocated to an individual by reason of his employment if—
(a)in that period it was made available to, and actually used by, more than one of the employees of one or more employers and, in the case of each of them, it was made available to him by reason of his employment but was not in that period ordinarily used by any one of them to the exclusion of the others; and
(b)in the case of each of the employees, any private use of the vehicle made by him in that period was merely incidental to his other use of it in that period; and
(c)it was in that period not normally kept overnight on or in the vicinity of any residential premises where any of the employees was residing, except while being kept overnight on premises occupied by the person making the vehicle available to them.
steve@bicknells.net
Feed your innovative soul!
I am getting very excited about going to the Entrepreneurs’ convention at the Birmingham International Convention centre next week.
I am going along primarily to support a client for whom it will be excellent but I cannot help thinking I will get a terrific amount out of it too.
The programme over the two days looks exhausting and very interesting. As well as covering areas I am pretty comfortable with I am sure I will be taken well out of my comfort zone as well.
I think this is really important!
As business people we cannot afford to get stuck in a rut. We need to continue to be innovative if we want our businesses to be successful in the future – the only way to be innovative is to keep the inquisitive and inquiring sides of our brains exercised.
Meeting new and interesting people can also trigger leaps in creativity. Just talking to successful people can lead us to reach for goals we previously thought were unobtainable – because if they can do it why can’t I?
This is why I think training whether it is in the form of attending conventions and conferences such as the one above, or individual seminars and workshops; reading books or magazine articles; or just taking note of the things around us that we can emulate, is vital to any business owner.
The cost to your business could be the couple of hundred pounds it costs to do the training, or the thousands of pounds it could cost your business because you DON’T do it!
Fiona 🙂
Fiona Bevan Financial Management
I’ve won a prize, is it taxable?
HMRC doesn’t regard lottery winnings as income, so all prizes are tax free, hooray!
But the problems start when you give the money away, as reported in the Guardian in 2012
The cash will form part of your estate and be liable for 40% inheritance tax (IHT) if it takes the value of your estate above the current threshold of £325,000.
Gifting millions will not save you from paying IHT either: HMRC will tax you on a sliding IHT scale should you die within seven years of gifting any cash to friends and relatives – a 20% reduction in tax if you die between three and four years after gifting, a 40% reduction between four and five years, etc). You can get around this by making sure the recipient signs an agreement that they will pay any IHT due if you do die within seven years.
The IHT issue also applies where you have a syndicate without a syndicate agreement.
The solution to this is to have a syndicate agreement , then you can look forward to spending your fortune.
The reasoning behind HMRC’s thinking goes back to the case of Graham v Green [1925] 9TC309 and concerned a man whose sole means of livelihood came from betting on horses at starting prices.
The basic position is that betting and gambling, as such, do not constitute trading. Rowlatt J said in Graham v Green [1925] 9TC309:
A bet is merely an irrational agreement that one person should pay another person on the happening of an event.
This shows that having expertise or being systematic (“studying form”) is not enough to create a trade of being a ”professional gambler”.
Some ”professional gamblers” do carry on a trade, for example, where they receive appearance money for appearing on television programmes. They are providing a service to a customer (the television production company) for reward. Whether their gambling winnings are proceeds of that trade would depend upon the facts. BIM22017
The other problem for HMRC is that if you tax ‘winnings’ you would have to allow tax deductions for ‘losing’ and there are more losers than winners.
Things get complicated when it comes to sporting events, in general, amateur sporting prizes are tax free, here are HMRC’s examples for Community Amateur Sports Clubs:
Clubs may wish to arrange prize competitions where the nature of both the competition and the prize is such as to promote participation in the sport. In strictness there is nothing to permit this but where the value of prizes, are commensurate with amateur participation in the particular sport these would not prevent club from being registered. Competition prizes of sufficient value to attract professionals or such frequency that could be equated with payment to players would preclude qualification as a CASC.
Example 1 A Cycling club promotes races in which members and others, particularly local juniors, are encouraged to participate. Modest cash prizes are awarded and funded from entry fees and local sponsorship. This would be acceptable.
Example 2 A Golf club holds regular competitions for members throughout its season. Although individual events may be limited by gender or handicap, all members are able to participate in some of the competitions. Prizes of golf equipment, for example bags, shoes, balls or vouchers redeemable at the club shop are awarded. Again, this would be acceptable.
Example 3 A Bowling club organises frequent competitions for club members with cash prizes subsidised by a brewery. Senior players derive significant benefit from these arrangements. A club that subsidised its members in this way would be unlikely to qualify as a CASC.
When it comes to professional sporting events the tax can be significant and has led to problems attracting sporting stars.
Like most countries, the UK charges tax on appearance fees and prize money when non-resident athletes compete in Britain but, unlike many other countries, it also seeks to tax the athlete’s global endorsement income.
Based on the number of days spent competing in the UK, Her Majesty’s Revenue and Customs charges tax on a percentage of the athlete’s income earned elsewhere.
“It’s like me asking you to come to work today and pay three times in tax what you’re getting”
As reported in the Telegraph in February 2013.
steve@bicknells.net
Are you ready for an HMRC Employer Compliance Check?
HMRC check 30,000 UK businesses each year for Employer Compliance Checks, will it be your turn next. HMRC usually find something wrong, lets face it with the best will in the world mistakes happen – HMRC have collected £20.7bn overall in record compliance as shown in this infographic.
Why not ask a CIMA Accountant to check on Status/Employer Compliance matters we can:
- Discuss areas of concern with you
- Prepare new procedures
- Apply for Dispensations
- Help you disclose errors and reduce penalties
- Carry out a Full Risk Assessment & provide Recommendations
You never know you we might even find errors in your favour and be able to get a refund.
steve@bicknells.net
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
Business Accountant 