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FAQ’s

We’re always glad to have a meeting, without obligation, to see what we can do for you.

In the meantime though, you may have some questions:

New start ups
Decisions to be made:

  1. How do I trade?
  2. Should I be self-employed or trade through a limited company?
  3. Do I have to register for VAT?
  4. VAT Flat Rate Scheme
  5. VAT Is there any advantage of voluntarily registering for VAT before I have to?
  6. VAT – are there any disadvantages of being VAT registered?
  7. VAT – can I claim pre-registration expenses?
  8. Do I have to register for PAYE (Pay As You Earn)?
  9. How long do I need to keep my records for?
  10. What records must I keep?
  11. What expenses can I claim?
  12. How do I keep my books and records?
  13. How much tax do I have to pay?
  14. When do I have to pay my tax?
  15. Do I have to file a personal Tax Return?
  16. What is an audit?
  17. Do my accounts need to be audited?
  18. How are dividends taxed?
  19. Capital Gains Tax – how much do I have to pay?
  20. Do I have to pay inheritance tax?

 

How do I trade?

  • Sole trader
  • Partnership
  • Limited liability partnership
  • Limited company
  • Public limited company
  • Charity

 

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Should I be self-employed or trade through a limited company

 

 
There are many factors to consider:

Factor Self-Employed Limited Company
Liability Personally liable Limited
Status Potential customers may perceive you as small and risky Greater perception of a larger more established business
Taxable profits All profits are taxed at:– 20% basic rate
– 40% higher rate
– 45% additional rateAnd subject to national insurance at 9% and 2%Self-employed individuals are also subject to Class 2 national insurance at £2.75 per week
Company profits are taxed at 20% on first £300,000 and 21% thereafter. If you do not need to extract all the profits, you could retain the profits within the company and avoid paying personal higher rate tax
Set-up Click here to register online.
Or complete form Form CWF1
You must register within 3 months of starting up
More costly, you need to incorporate a company and register it with Companies House and HM Revenue and Customs
Profit extraction All profits are taxed in full Profits can be retained in the company or paid out as dividends – this is a major advantage of companies over self-employment in that dividends are not subject to national insurance or additional tax (for lower rate tax payers)
Tax saving Due to the fact that dividends are not subject to national insurance contributions, there is potential tax savings – see examples below
Accounts Simple accounts required purely to prepare personal Tax Return – do not need to submit the accounts with HM Revenue and Customs More complex statutory accounts need to be prepared and submitted to both Companies House and HM Revenue and Customs

 

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Do I have to register for VAT?
The current VAT registration threshold is £81,000. This means that when your turnover is about to exceed this, then you must register for VAT. You can choose to register prior to your turnover reaching this.

When you are registered, you will have to report your VAT output and input on a quarterly basis to HM Revenue and Customs and pay over any liaibility, by the end of the following month to which the quarter relates.

e.g. your VAT Quarter is January, February and March, you will have to file an online VAT Return Form and make an online payment of any liability by the end of April.

 

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VAT Flat Rate Scheme
Using standard VAT accounting, the VAT you pay to HM Revenue & Customs (HMRC) or claim back from them is the difference between the VAT you charge your customers and the VAT you pay on your purchases.

Using the Flat Rate Scheme you pay VAT as a fixed percentage of your VAT inclusive turnover. The actual percentage you use depends on your type of business.

The Flat Rate Scheme offers simplicity and in many cases tax saving.

Example – Flat Rate Scheme VAT £
Assume:
Standard Rules
Sales (net) of £5,000 1,000.00
Purchase of £1,000 including VAT (200.00)
Net VAT payable 800.00
Flat Rate Scheme
Gross sales (£5,000 + VAT) = £6,000
Assuming a flat rate scheme percentage of 11% x £6,000 660.00
Net Saving 140.00

Additional information can be found at: –
http://www.hmrc.gov.uk/vat/start/schemes/flat-rate.htm#1

 

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VAT Is there any advantage of voluntarily registering for VAT before I have to?
If your customers are VAT registered then it does not make any difference to them if you charge VAT, since they will recover this.

From a marketing perspective by not being VAT registered you are telling prospective clients that you are a small business – this may put them off using your services if they feel that you are inexperienced and/or would not be able to fulfil their order, due to lack of resources.

 

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VAT – are there any disadvantages of being VAT registered?
Yes – you have to prepare VAT Returns on a quarterly basis and if you are unable to do it yourself, then you will have to pay a bookkeeper or accountant to get it done on a quarterly basis.

Also, if you do not need to be VAT registered because your turnover is below the threshold, then by being VAT registered you are forced to increase your prices, since you have to add VAT on top. If your customers are not VAT registered then your price increase may make you non-competitive and so you may loose the business.

By being VAT registered you can claim back VAT on your expenses incurred.

 

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VAT – can I claim pre-registration expenses?
Yes – you can claim back VAT on any items of equipment and/or stock that are still in existence and use at the balance sheet date, which were purchased up to 4 years prior to registration and you can go back 6 months for services.

 

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Do I have to register for PAYE (Pay As You Earn)?
if you are a sole trader or partnership and do NOT have any employees, then you do NOT have to register for PAYE.
In all other circumstances, including if you are a one man band limited company, then YES.

Once registered you would have to process your payroll on a monthly, fortnightly, weekly or yearly basis, whichever is appropriate. You would issue your employees with a payslip and pay them the net (after employees tax and national insurance). You would then have to pay the amount deducted from the employees, plus employers national insurance (currently 13.8% – which is calculated on gross salary) over to HM Revenue and Customs by 19th of the following month to which it relates.

At the end of the tax year ie 5th April, you will need to make a statutory declaration Employers Annual Return, summarising the total payments and deductions made to all employees during the year. You would also give each employee a P60 certificate, being their own individual summary.

 

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How long do I need to keep my records for?
Seven years to be safe

 

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What records must I keep?
Your basic records will normally include:

  1. a record of all your sales, with copies of any invoices you’ve issued
  2. a record of all your business purchases and expenses
  3. invoices for all your business purchases and expenses, unless they’re for very small amounts
  4. copies of business bank and credit card statements
  5. cheque book stubs and paying-in book
  6. till rolls or other form of electronic record of sales
  7. record of stock on hand at the year end

 

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What expenses can I claim?

  • If you are a limited company, then the expense must be incurred ‘wholly, exclusively and necessarily’ for business purposes.
  • If you are self-employed, then the expense need only be incurred ‘wholly and exclusively’ for business purposes.
  • Can I claim the cost of using my car?
    Limited company – you may claim a mileage allowance – 45p for the first 10,000 miles and 25p per mile thereafter.Self-employed – yes you should keep record of all expenses and when you prepare your Tax Return you will need to disallow the percentage that relates to personal usage.
  • Can I claim expenses for use of home as office?
    Yes – in the event of an inquiry, you would need to be able to prove this cost, which normally equates to the additional costs incurred by running your business from home e.g additional light and heat, telephone, rent etc.
  • Can I claim for business Entertainment expenses?
    No – these are disallowable for tax purposes.
  • What if an expense is used for business and personal usage?
    As with motor expenses above, you would include all the expenses and disallow the personal usage element.
  • Pre-trading expenses – can these be claimed?
    Yes.

 

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How do I keep my books and records?
You can use accounting software such as Quickbooks, Excel (we can provide you with a template) or a manual cashbook.

 

 
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How much tax do I have to pay?
The current tax rates are as follows:

Income Tax Rates 2014/2015
Band Tax Rate
If your income exceeds £100,000 per annum, then your personal allowance of £10,000 is reduced by £1 for every £2 of income
0-£10,000 0%
£10,000 – £41,865 20%
£41,866 – £150,000 40%
+ £150,000 45%

 

Self-Employed National Insurance Rates 2013/2014
Band Class 4 NIC
0 – £7,956 0%
£7,957 – £41,865 9%
+ £41,866 2%

 

Class 2 National Insurance Contributions are also payable by self-employed individuals at a rate of £2.75 per week. You would be exempt from Class 2 NIC if your income is below £5,885 per annum.

Other tax rates: http://www.hmrc.gov.uk/rates/index.htm

 

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When do I have to pay my tax?
Self-employed – tax is payable twice a year, 31st January and 31st July

Limited companies – tax is payable, 9 months and 1 day following the accounting year end.

 

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Do I have to file a personal Tax Return?

If you answer ‘yes’ to any of the following questions then you will have to complete a tax return for the tax year 6 April 2014 to 5 April 2015.

  • Were you self employed or a partner in a business at any time in that year?
  • Were you a company director?
  • Did you receive income over £100,000?
  • Did you receive more than £10,000 in savings and investment income?
  • Did you receive more than £2,500 in untaxed income?
  • Did you receive income from letting out property?
  • Did you receive foreign income liable to UK tax?
  • Are you an employee claiming expenses or professional subscriptions of £2,500 or more?

 

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What is an audit?
An audit provides an annual health check, which not only gives assurance to the company’s shareholders, but also to existing and prospective customers and suppliers, the banks and employees.

Our audit procedures enable us to advise and recommend system improvements, identify and make recommendations with respect to opportunities and threats that your business faces. In addition to this, the mere fact that external individuals come in and test systems and transactions acts as a deterent against internal theft and fraud. Hence audits often have a very positive effect on your business, in a proactive way.

Once the audit is completed a audit report will be included in the statutory accounts which will include a statement that the accounts show a true and fair view and that they have been prepared in accordance with relevant legislation, or a statement to the contrary if this is not the case.

 

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Do my accounts need to be audited?
Most small companies do not have their accounts audited. Unless you are required to have an audit by another body e.g. Financial Services Authority (FSA) or Charities commission.

To qualify for audit exemption as a small company, the company must have at least 2 of the following:

  • Qualify as small,
  • Have a turnover of not more than £6.5 million, and
  • Have a balance sheet total of not more than £3.26 million.
  • 50 or fewer employees on average

 

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How are dividends taxed?
– Dividends are paid from distributable profits (profits after tax)
– Dividends are paid net and come with a notional 10% tax credit

  £    
     
Company profits 1,250  
Corporation tax @ 20% (250)  
Distributable profits 1,000  
     
Net dividend 1,000.00 Physical cash received
Tax credit 111.11  
Gross dividends 1,111.11  
     
Gross dividends tax rate       
       
Basic rate tax payers 10%  
Higher rate taxpayers 32.50%  
Additional rate taxpayers 37.50%  
     
Example: £1,000 net dividend received  
     
Tax band Basic Rate taxpayer   Higher Rate taxpayer Additional Rate taxpayer
 
20% 40% 45%
 
Gross dividend received 1111.11 1111.11 1111.11
     
Tax payable 111.11 361.11 416.67
Less notional tax credit (111.11) (111.11) (111.11)
Additional personal Tax due 0.00 250.00 305.56
       
Gross profit before tax 1,250 1,250 1,250
Corporation tax payable @ 20% 250 250   250
Additional personal tax 250 305.55
Total tax paid 250 500 555.55
Effective rate of tax paid 20% 40% 44%

NB. 18/9/12 thi s i s just a guide and various assumptions have been made

 

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Capital Gains Tax – how much do I have to pay?
When you dispose of an asset and you make a gain, you may be liable to capital gains tax.

The annual exemption is currently £11,000 and you will suffer CGT at a rate of 18% or 28% depending on whether you are a higher rate taxpayer or not.

 

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Do I have to pay inheritance tax?
Inheritance tax is payable on the value of your net estate over and above £325,000 at a rate of 40%.

 

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Professional Advisors:
Quick Books Acca