September 26, 2017

Have you got 31st July in your diary?

tax, self-assessment, HMRC, 31st July, accountant, herefordshire, monmouthshire, gloucestershire

Have you got 31st July in your diary?

 

We may all have put this matter to one side, filing the reminder letter in the unshrinking in-tray, but staying on top of our taxes is vitally important to all small businesses and those who are self employed.

The key is to not fear them or forget them!

 

I know you are busy, time so often our enemy and much better spent delivering our goods and services, but time has to be taken to keep our business affairs in order and avoid any nasty penalties. And if you don’t have the time, engage with someone who has both the time and the expertise.

Diary dates.

So, let’s start by reminding ourselves of the key dates for your diaries regarding taxes:

  • 5th October – registration date for individuals who are self-employed
  • 31st October –paper tax returns completed submission deadline
  • 31st January – online tax returns submission deadline
  • 31st January – deadline to pay taxes you owe
  • AND if you paid more than £1,000 tax on 31st January 2017, you may have more to pay by 31st July 2017.

How do you know if the July 31st deadline is applicable to you?

HMRC state this: ‘If you are self employed and earn enough to pay over £1,000 in tax and you have not already settled all tax due for the year to 5th April 2017, you will need to make a payment by 31st July this year.’

Also, if you have rental income or large amounts of investment income such as dividends, you may also be affected.

There is further information on the gov.juk website, or if you are unsure talk to your/an accountant.

You still have time.

If you haven’t already completed your tax returns, don’t panic! You can still avoid HMRC’s late filing penalties just start taking action now.

  • Gather together all your receipts, bills, bank statements, mileage logs, sales invoices and takings summaries
  • If you have already entered these into a spreadsheet or accounts software, such as QuickBooks Online, well done. It will make your life easier, and you will have a better handle on how the business is doing.
  • Gather other details of income such as bank interest, rental income (and related expenses), P60s and P45s and P11ds from any employment or pension you have. Also pension payments if you can deduct those from your tax bill
  • If you are married, discuss with your spouse whether there is benefit in reallocating some of the personal allowance to the other spouse (10% can be moved although some rules apply)

Decide if you are going to feel brave and prepare your own tax return. If so

And if you would rather have help making sure you are declaring everything and claiming all you can, call me and we can get things sorted.

Penny Lowe, Wellington Consulting

Visit my website to find out more about how I can help you and your business >

Business Advice from Berkshire – Cost of working at home

gravatarIf you work from home, how do you calculate how much you can claim from the taxman? Over recent weeks, one of my clients has been experiencing a tax investigation. I am glad to say that he got the all clear, but in the meantime, I have had the opportunity to chat with a current tax inspector. When I thanked him for sharing some of the Revenue’s view of allowable expenses and what they look for, he said it was all part of the education process. Whatever the reason, I would extend a thank you.

One area we spoke about was the claim for ‘use of home as office’. He took quite a tight rule on this. He was looking to see if other members of the family also used the room, whether the children had their own access to the internet or used the business computer. How much of the home was taken up with storing papers (or was everything scanned in and only taking up space on the computer). Were there outbuildings for the storage of materials and large equipment used in the business, or were they full of push bikes, lawn mowers and other domestic items.

Although he was asking simple questions, you can see that the Inspector is only trying to establish the truth. Considering whether you are crossing the line between tax avoidance and tax evasion. If you issue one or two invoices a month for working at client’s premises, and it’s a long term contract so you are not spending hours surfing the internet for the next client, what percentage of internet/computer use is actually for work? How would you justify 100% business use?

HMRC have recently brought out an option for claims like this called simplified expenses. You can use them only if a sole trader or partnership. If you want to claim use of home, HMRC will expect you to work for more than 25 hours per month from home. If this is all you do, you can claim £120 per year, 100 hours per month, and it goes up to £216 per year and 200 hours per month is £316. So, instead of the flat rate, you can start to calculate exact components, but this involves square feet, number of people, number of working hours etc. If you have staff coming in with their own key, this adds to the justification.

Book coverThe truth is, it is not easy to be accurate, but you must feel confident that you can justify the figure. This is a time when talking these things through with an accountant – and then documenting the method applied can be very useful.

Have a look at your last set of accounts. Talk to your accountant before signing off this year’s. Remember it is your signature even if the accountant has calculated the figures!

Please share your thought on this subject.

How to reduce your Accountancy bill

When you get actually pay your accountancy bill, do you know what you are paying for? Does your accountant discuss with you how it might be reduced either in total, or as a percentage of sales? Would you be happier to pay more to your accountant?

For some types of services you purchase, there is an element of flexibility in the price, depending what you are prepared to do so that the supplier does not need to. I know I tidy up before my cleaner comes so that I am not paying her to put things back in the room they belong. I mow the lawn, so that the person that helps with the garden can concentrate on the flower beds. My horse is at DIY livery so that I can look after my horse and the yard owner can look after the fields and fencing. In the last example, I could pay more and ask them to also look after my horse. The down side would be that I would not have such an intimate knowledge of how my horse was on a day to day basis. If I had a competition coming up, I would have to pay extra for the preparation – or I might not know if he was fit enough. This is also true of your business. You need to know what is important to you and your business. What you can outsource and what needs to be done or monitored by you.

If you outsource all your book-keeping and accountancy functions, they should be done to a high standard, but how do you know? Do you look at the results – or just keep paying the money? Have you ever thought about sitting down with your accountant and discussing what you need to run your business on a day to day basis?

The original comment was how to reduce your bill – or at least as a percentage of turnover or profit. My answer is to understand what you need to run a profitable business. Put systems in place to allow you to monitor this on a monthly basis (at least). Ensure that the figures you are relying on are accurate and complete. Then, when you get to the end of the year, the figures will all be there and ready for the accountant to produce the annual accounts and calculate your tax bill.

The added benefits are that you will be better able to manage your business allowing you to increase your turnover and profits. You will know your tax bill well in advance of the due date. Most importantly you will see what needs to change during the year while there is time to have an impact rather than getting to the end of the year and realising you should have done things differently. You will see and understand what your accountant has done to help you grow your business.

Want to discuss your options? Contact me for a consultation.

Poor Planning leads to..

Have you ever worked late into the night? When did you last feel you could have done a better job if you had had more time? Have you ever missed a deadline? Its all about planning.

Recognising what needs to be done and by when allows you to prioritise your tasks. Your finances should be planned in the same way. You have limited time and know it is down to you how you spend it. Treat your business funds in the same way.

You should have two types of plans which are different views of the same thing. One is a budget which sets out your planned sales, costs of sales and expenses. This may be by month in the coming year and annually for the next couple of years. In addition, you also need a cash flow statement. As it says, this is cash flowing in and out from the business with dates. This type of plan will keep you within overdraft limits, or indicate when you can take a dividend from the business (remembering to leave the money for the tax bill in the business).

A simple example of the difference is sales in a budget may show as £50,000 per month for three months. If your terms are 30 days, the cash flow would show nothing coming in during month one, £60,000 in months two, three and four and cash out of £20,000 also in month four. Where do these figures come from?

The nil in month one is down to £50,000 of sales but no one has paid you yet. Months two, three and four are £60,000 per month being £50,000 of sales plus 20% VAT) paid by your customers for sales in months one, two and three. What about the £20,000 out. This is the VAT you have collected on behalf of the taxman and received in months two and three. That is what I mean by leaving some money in the bank. Don’t forget, you have another tax to save up for as well, being the tax on business profits. Although not due yet, this would be another £30,000 due to go out. (being say 20% corporation tax on £50,000 for 3 months).

With these chunks of money due out, it is important to know, not only what you current bank balance is, but what you need to keep money back for. Even if it is only a rough idea, planning is better than penalties.

Need any help? Contact me.

How to reduce your Tax Bill

As we approach the end of the tax year – 5th April 2013, what can you do to reduce your tax bill? Although you have left it a bit late, you still have a couple of days to act.

If you have a pension scheme and some money to spare, you could pay some extra money into your pension scheme. Just remember to tell your accountant that you have made extra payments. If you do your tax return yourself, you need to include this extra payment.

Another option is to invest some money in an ISA. Although the rates of interest are not high, you will not have to pay tax on the interest earned, so if you are a higher rate tax payer, this could almost double the actual rate of interest.

If your year end is 31st March, have you declared all the dividends the company can afford to pay? This is where you need to monitor your profits as there is no point putting yourself into the highest rate of tax, when this is due to reduce from 6th April 2013. If you are not sure, speak to your accountant and tell them you need to know whether to do something before 5th April.

Other lesser ways to reduce your tax bill is to ensure that your business is being charged for all the amounts you pay out on its behalf. A client today, realised that she hadn’t charged the company for the mobile phone she used for business for the last 6 months. I personally know I need to put a mileage claim in for last month and this. How up to date are you with such claims? If you do not put your claims in, not only will your business pay more tax, but the costs you consider for your business will not be accurate and may distort your planning and cash flow plans.

If you haven’t done so before, sit down this weekend and make sure that you – and any other member of staff eligible – have caught up with your expense claims

Should I buy a Company Car ?

If you are a director of your own company, there is the opportunity for you to put the purchase, running costs and fuel for a car through the company. The down side is that HMRC will view this as a perk of the job and tax you on the benefit received, on their calculation. This calculation is linked to the full retail price of the car plus accessories (not the purchase price you paid) multiplied by a percentage based on the CO2 emissions. There is then another benefit of the fuel with the same percentage used on a prescribed figure for fuel for the year. If you then multiply this benefit by your highest rate of tax, you may appreciate that it will depend on the amount you use the car and the CO2 levels as to whether you wish to pay the extra tax.

 

Other considerations are that you cannot claim the VAT back on the purchase of the car unless you are a taxi or a driving school i.e. it is a tool of the trade. You may have to pay extra for insurance as if owned by the company, it must be insured in the company’s name. The company may not yet have any no claims discount. Insuring it through the company may also affect your no claims. If you have company insurance for a number of years, your personal no claims discount may expire. Depending on how you intend to finance the vehicle, leasing companies and finance houses may want to have a close look at the accounts for the last three years.

 

When I had a company car, my company took out a bank loan to fund it and my insurance company (NFU) looked at real life so there were no insurance implications. They did not just tick boxes on a form/computer screen. Any car used for business should have appropriate cover, particularly if you are using it to deliver goods to customers as the goods need to be insured ‘in transit’.

 

By all means get a company car, but calculate (or get someone else to) how much it will add to your tax bill up before you sign on the dotted line. Fuel can be treated separately so don’t assume if you have a company car, you have to get the company to pay for all your fuel. You can put in a claim per mile which is much less than 45p per mile as you use your personal car.

 

The alternative is that you own and fund the car yourself, making sure you include business within the insurance cover. You can then claim your 45p per mile and get the company to pay you at that rate.

 

The situation is different if you are a sole trader – but I will leave that for another day… If you are looking to make a decision and need assistance – contact me

How do I choose a Good Accountant ?

What is your definition of good? For the person I was with today it included: someone who understood QuickBooks accounting software, has experience of factoring, doesn’t just delegate to junior staff, was prepared to ask questions and communicate. The last accountant but one got the sack – having worked with the firm for a day I would suggest much of this was due to poor communication rather than poor work. The last one walked out at the end of the first day. This was because the ‘books’ needed sorting out before he could move forward. The last 4 months they have tried to manage without, so there is some sorting still to do. I am sure they will be back on track within a month. What will they do then?

 

Last summer I was asked to profile my perfect client. When I showed the list of good points to the first few people, they agreed that I was describing their ideal customer. Clear on what they wanted, quick to pay, kept to an agreed timetable, refer new business your way etc.. However, they went on to say, that they would not fulfil all my criteria. It reminds me of the saying ‘do unto others as you would have done to you’. If you profiled you perfect client, would you fulfil your own criteria?

 

So, in summary, decide what you want from an accountant, discuss this with them and, most importantly, give them a chance to do it. If you or your accountant haven’t yet filed your tax return, give them all the information and help they need. If you need to get an accountant, or are going to change, start the process today as they will want to get authorisation from you to speak with HMRC and this takes time. Remember, you are not the only client they have.

Like to chat a little further ? Im happy to advise

What will you do differently in 2013 ?

I have just finished completing my mileage claim for last month. If you drive for work, how do you keep your mileage log up to date – and remember to put the claim in?

 

Whether you are employed as a director of your own company, employed by someone else, or are a sole trader or partner who claims mileage, you need to keep a log of miles you do for work. I recently saw a client who was paid 40p by his employer. He was good at keeping a log but did not realise that, if he did under 10,000 claimable miles a year, he could claim the difference between 40p and HMRC approved rate of 45p. By claiming 5p times 9,000 miles he could claim an expense of £450. As a higher rate tax payer, when you multiply this by 40% it works out to £180 of tax he could get back. If he was reimbursed at 25p, the refund would have been £720 of tax – a nice payout.

 

The other thing to check is that your car insurance covers the business miles you do. A simple check and often there is no extra charge to have business listed on the certificate.

 

So, whether you run your own business, or are employed, it is worth noting the mileage and other expenses you pay out on and ‘forget’ to log at the moment. The important point to remember is the more legitimate expenses you claim, the smaller your tax bill and the more money you will have.

 

May 2013 bring you every success, happiness and money.

Do you enjoy working online ?

The government is trying to encourage greater use of computers. This may be a move to efficiency, but is it what you like to do?

This might sound a bit rich, as you are reading this on line, but do you do it by choice? What happened to the old days of piles of papers?

As an accountant, I still deal with piles of paper. Most departments at HM Revenue and Customs cannot communicate by e-mail. They are improving, but having tried to deal with things over the telephone, including call backs to then be told to write in can be a little frustrating. What compounded the issue for me was the first chap I spoke with didn’t know the answer so I suggested writing in. I was told not to do that, as it would not be looked at for at least three weeks. This is much better than some departments a couple of years ago, where they had a three month backlog of post. So things are improving.
Can we help ?
If you have an outstanding issue, by all means ask your accountant to chase it, but the more information you can give them, the more they can give HMRC, the more likely you are to get an answer. If you have an outstanding tax return for 2011/12, get it moving now so you know how much tax you will have to pay by 31st January 2013. If you are due a refund, there is still a chance you could get it by Christmas – if you act now and let them simply put the money in your account. If only one could just get all customers and client to ‘simply put the money in your account’, life would be wonderful!

When did you last claim expenses ?

There are 3 good reasons why you should put in an expense claim:

1. You have paid out money on behalf of the firm so they owe it to you
2. The firm needs to know what it has paid out/costs it has incurred otherwise it is working with an incomplete picture
3. If expenses are to be recharged to the customers. They should be included before the customer forgets they agreed to pay for them.

Whether you work for someone else, or yourself the same three rules still apply. The sooner you put the expenses in, the sooner you can be paid and the firm knows it has a liability.

You might trade as a sole trader and the concept of expenses seem strange. The same rules apply. If you pay parking of, on average, £2 per day and record it for 45 weeks of the year that amounts to £450 worth of costs. So, if you pay 20% tax and 9% NIC that is £130.50 extra you would need to pay in taxes if you didn’t make the claim.

For many small expenses such as parking, you cannot always get a receipt. HMRC understand this providing you are making notes and claims as you go rather than inventing a lump at the end of the year. It may be that your bank statements show when you had to park to go to the bank. As well as the parking, don’t forget to claim the mileage unless the business owns the car and pays for your petrol.

Other amounts often overlooked are postage, paper (when bought from Tesco’s with the week’s shopping), car washes and charity donations. All are allowable and some do have receipts, others don’t. If some of the items on the receipt are business and some not, then include the receipt and just mark which you are claiming for – at least you have proof that the money was spent.

The important thing is to do it while you still remember – Happy to chat things through with you if I can be of help