Category: News

The Government have announced a further scheme for small firms who are struggling to access existing financial support and have been affected by the coronavirus outbreak.

• Fast-track loan scheme with a 100% government-backed guarantee with loans of up to £50,000
• The loan will be interest free for 12 months
• No repayments required for 12 months
• To apply, an easy and short online application will be required with cash reaching businesses within days
• The scheme will launch for applications on Monday 4 May at 9am

For further information please see the link below:

https://www.gov.uk/government/news/small-businesses-boosted-by-bounce-back-loans

For businesses struggling to access any of the previously announced support schemes, this micro-loan may be very useful. However, it remains to be seen how successful banks will be at making the scheme work following the problems that many businesses have experienced accessing the Coronavirus Business Interruption Loan Scheme.

If you wish to apply you can do so using the following link on Monday 4 May:

https://www.gov.uk/guidance/apply-for-a-coronavirus-bounce-back-loan

The Government have provided further updates to the Coronavirus Job Retention Scheme (CJRS) as of 15th April 2020.

You can make a claim up to 14 days in advance, so if your pay period runs to the last day of the month, your claim can be submitted 14 days before.

This will help many with cashflow issues. HMRC’s new online portal to submit claims is due to launch on 20th April.

Employers can now also claim for furloughed employees that were employed and on their PAYE payroll on or before 19 March 2020, previously it was 28 February 2020.

The Government have provided updated guidance on the basis of how grants will be calculated for the Self Employed and the definition of ‘trading profits’ as of 14th April.

HMRC will use figures on previously submitted tax returns for your total trading income and then deduct allowable business expenses and capital expenditure.

Capital expenditure effectively reduces trading profits by making a capital allowances claim on your tax return and you will then pay less tax.

For example, if you have trading income of £20,000 for the year and you’ve incurred business expenses (i.e. rent, telephone, material purchases etc) of £10,000, your trading profit for the year is £10,000.

If you’ve also invested in capital expenditure during the year, for example you’ve purchased a van for £10,000, your profit is reduced to nil and you pay no tax. Whilst this has always been an advantage of capital expenditure in terms of lowering tax bills, it is actually a disadvantage when HMRC calculate your profits for the purpose of the Self Employed Income Support Scheme.

The full guidance can be found here:

https://www.gov.uk/guidance/how-hmrc-works-out-total-income-and-trading-profits-for-the-self-employment-income-support-scheme

When starting up a small business for the first time, many people opt to retain their full-time job and get things moving on a part-time basis but what does this mean for their tax situation?

As an employee, you pay tax through Pay As You Earn (PAYE) and National Insurance Contributions (NIC) which are deducted from your pay by your employer. Your employer calculates the necessary PAYE and NIC for you and pays this to HMRC (HM Revenue & Customs) on your behalf.

If you decide to set up a part-time business whilst in employment, you must notify HMRC. You can do this through the HMRC website and you must do this as soon as you start trading or you could face a financial penalty!

The tax that you are required to pay through self employment is dealt with separately to employment earnings. At the end of the tax year in which you commenced trading you must complete a Tax Return including a Self Employment section. Profits for the period up to 5 April after you started (and subsequent annual accounting periods) will be subject to Income Tax and National Insurance Contributions.

Self employed people pay different types of National Insurance contributions. As a self-employed person you will pay the Class 2 contribution, which is currently £2.95 a week (2018/2019). If your profits are below the threshold for the ‘small earnings exception’ you do not have to pay Class 2 National Insurance. However, you may wish to pay Class 2 anyway, in order to preserve your pension entitlement and certain other State Benefits. In addition, if your taxable profits are above £8,424 (2018/2019) you will also pay Class 4 National Insurance contributions. These in effect are an addition to your tax bill. You pay them together with your income tax to HMRC each year as part of your tax return.

Self employed payments of Tax and Class 4 National Insurance Contributions are required twice yearly – by 31 January and 31 July. You should remember to set aside a percentage of your business income to pay for the tax and NIC liability. This is best done by transferring, say 20/25 per cent to a separate bank account.

You will need to refer to your contract of employment with your current employer in case you are subject to a Restrictive Covenant which would prevent you from setting up your business while continuing to work for your current employer.

Yes, January is upon us already and for those that haven’t submitted their self assessment tax return yet, you have until 31st January to do so in order to avoid a financial penalty!

As well as filing the tax return, you are obliged to pay any tax that you may owe by 31st January. Due to the limited amount of time available, the most effective method of ensuring that HMRC receive your tax payment on time is by internet or telephone banking. Further details can be found on the HMRC website.

We’re currently helping a number of clients regarding setting up their own business. It’s important to get it right and there are a number of aspects to consider.

When a business starts up there are a number of different structures under which it can operate. Each has its own implications and their suitability depends on a number of factors. There isn’t a universal answer to what is the best form of legal or tax structure to use and there are advantages and disadvantages with each option. As always with a decision as important as this for your business, you should take professional advice from a qualified accountant before making a commitment.

The two most common trading vehicles are discussed below:

Sole Trader

A sole trader is a type of business entity that legally has no separate existence from its owner. The law makes no distinction between the business and the sole trader – they are one and the same.

If you start to trade as a sole trader, you should inform HM Revenue & Customs (HMRC) straight away and register for self assessment. The very latest you can register is by 5 October after the end of the tax year for which you need to file a tax return.

Advantages

• As a sole trader you will only need to prepare basic accounts and a self assessment tax return. Consequently the accountancy fees tend to be lower for a sole trader as there is reduced administrative burden.
• Many businesses are initially loss making. If you leave a job to become self-employed, and make a loss, you can offset that loss against your previous employment income. If you have other income such as savings interest, dividends, or rental income, then again, the sole trader losses can be set-off against these. This can result in a repayment of tax in the early period of trading. With a limited company, losses cannot be offset against your personal income.
• As a sole trader, you only need to submit information to HMRC. Your sales income, profits and tax affairs are private between you, your accountant and HMRC. Limited companies must file accounts with Companies House which are in the public domain for anyone to see, although the amount of financial information available is usually limited.

Disadvantages

• Because there is no legal separation between the individual and the business, a sole trader is liable for all the business debts and this can put at risk not only assets used in the business but also personal assets too.
• A sole trader business usually ceases on the owner’s retirement or death.
• Options for raising finance are more restricted for a sole trader.

Limited Company

Sole traders and partners can be held personally liable for all business debts but a limited company is a legal entity separate to its directors and shareholders. As a separate corporate body, a company can own property, incur debts, sue and be sued in its own right. Any business dealings are made on behalf of the company so the owners are normally liable only for the amount invested as shareholders. There must be at least one director to manage the business.

Advantages

• Limited liability status provides some protection for you as a director if the business is not successful. In simple terms if a company cannot afford to pay all its debts the directors will not normally be personally liable for them.
• Shares in a company can be created and transferred to divide the ownership subject to company law and the company’s constitution contained in a document called the Articles of Association. Careful consideration must always be given to the tax consequences of any share transfers.
• A company as a separate legal entity survives the retirement or death of its owners.
• A limited company can be perceived as having more credibility making it easier to raise finance. Financing options such as debentures and invoice discounting are available to companies which are not available to sole traders.
• A company can pay dividends to shareholders which can be advantageous in reducing the overall tax payable compared with income paid as salary which is subject to tax and both employee’s and employers National Insurance (NI).
• Limited companies are taxed on their profits at corporation tax rates (typically lower than personal income tax rates) and can offer tax advantages.
• Some business customers may feel more comfortable trading with a limited company rather than a sole trader. They may have a perception that a limited company will be a more established business, and therefore more reliable. The reality of course that creditability is more to do with how you market and present your business and ultimately how effective you are at meeting the needs of your customers.

Disadvantages

• Annual accounts are more complicated to prepare and specific details and disclosures need to be filed with the Registrar of Companies. This usually makes it necessary to use a qualified accountant to prepare accounts for the company.
• Information about the business will be in the public domain for anyone who is interested to see.
• Directors are treated as employees for any salary that they draw and so are subject to income tax and NI on their salary from the company. In addition, the company must also pay employer’s NI on the directors’ salaries.
• Shareholders and directors may have to personally guarantee contracts entered into with lenders or suppliers so personal liability can still arise.
• It can be more difficult and expensive to close or wind-up a company compared to a sole trader or partnership business.
• A company director is more at risk of civil or criminal proceedings or penalties which can arise for late filing of accounts or from breaches of insolvency rules such as those relating to wrongful of fraudulent trading.

Other things to consider:

• Depending on your trade or sector, you may need some form of statutory licence to run your business.
• You must have adequate insurance for the business. If you have employees, you must have employers’ liability insurance.
• Notify HMRC when you begin trading and use an accountant to help you keep your tax, NI and VAT affairs in order.
• You must ensure your premises comply with regulations. If your business is based at home, you need to consider whether your title deeds, mortgage or tenancy agreement places any restrictions on this.
• If part of your home is treated as non-residential there may be tax implications.

If you would like more information regarding setting up your own business, please get in touch, we’ll be delighted to hear from you.

It never fails to amaze me how so many small businesses fail to recognise the real importance of keeping accurate financial records. It is a legal requirement!!

You must update the information regularly – penalties have been introduced for not taking reasonable care with records and tax returns, so you need to keep accurate records. It also helps when obtaining finance and preparing tax returns.

Here’s my Top 10 Tips of how to make lighter work of the bookkeeping:

1. Make sure you obtain or provide an invoice or receipt for every business transaction. If you’re VAT registered, make sure it is a valid VAT invoice or receipt.

2. Get organised. Keep all of your invoices, receipts and bank statements in tidy order. It doesn’t have to be expensive! A simple filing system will do the job. We provide our clients with our own ‘File-It’ folder and there is a section for each type of document and this works very well. Simple.

3. Staple! Many till receipts, such as fuel receipts, are two-part and produce two pieces of paper. It’s a good idea to staple these together so that they don’t get lost. Keep delivery notes and the respective invoices together too.

4. Invest in bookkeeping software that suits the needs of your business. There are many options on the market so have a look around and select what is best for you. The size of your business, business type and whether VAT registered or not will have an impact on your purchase. Software isn’t necessarily expensive and there are some great options available.

5. Training. Make sure you have an idea of what you’re doing. If you’re using software, make sure you understand how to use it and process your bookkeeping entries correctly otherwise you will end up in a mess. Seek help from your accountant, especially when it comes to entering higher value items such as computers.

6. Post all your bookkeeping transactions on a regular basis – little and often is easier than catching up every 6 months and it will make life easier at the end of your financial year. You’ll always have an accurate financial picture of your business throughout the year too, rather than just at the end of the year.

7. When paying an invoice, make sure you make a note of how and when it was paid on the invoice including date, amount and cheque number if applicable. It is important that you can easily trace back how expenses have been paid. If paying by cheque, make sure you enter all the details of the payment onto the cheque book counterfoil too.

8. Keep a clear record of any transactions that cannot be wholly charged to the business because there is also an element of personal use too. Keep a note of this as you should be able to reclaim the business element.

9. Keep business and personal transactions separate. It is advisable to open a separate business account for the business. Many banks offer free business banking for small businesses and this is certainly worth looking into.

10. Reconcile your bank account to ensure all of your bank entries have also been recorded into the accounts.

11. Yes, I know this is No. 11 but it is very important. Make sure you keep your records for at least 6 years in case HMRC need to inspect them for any reason in the future.

As a business owner, keeping on top of the books may not necessarily be the best use of your time. If this is the case, you should ensure that you seek professional bookkeeping support. Keep your records in good order and filed neatly – the less work to be done by the bookeeper, the less money it will cost you!

Finally, HMRC offer some good advice on their website about record keeping and is most definitely worth reading.

Self assessment can be pretty daunting for the newly self employed or even for those who have been self employed for some time and have muddled through! Make sure you’re claiming for all expenses that can be offset against your trading income in order to minimise your tax bill.

Generally, you can claim for expenses incurred that are “wholly, necessarily and exclusively” for the purposes of your work. Even if they’re not incurred exclusively for the business because there is a mix of both personal and business use, you may be able to claim the business proportion – check with your accountant.

Here are some general guidelines:

1. Use of Home. You can claim £4 per week for the additional costs that are incurred by running your business from home. Alternatively, you can claim a proportion of the actual household expenses.

2. Mileage. You can claim 45p per mile (for the first 10,000 business miles) that you travel in your own car. Alternatively, you can claim capital allowances (a form of tax relief spread over a number of years) and a proportion of motor running costs including fuel, insurance, servicing and repairs in accordance with business usage.

3. Telephone. Many self employed individuals utilise their home telephone lines in their business. You can claim a proportion of the line rental and broadband costs in accordance with the level of business usage. Also, keep a note of the telephone calls made and you reclaim the calls as an expense too.

4. Year end accruals. At the end of the tax year, you may have received goods and services within your business that you haven’t actually paid for so they aren’t recorded in your accounts. Keep a record of these expenses as you will be able to charge these to your accounts for the year – this increases your expenditure and therefore reduces your tax liability.

5. Trading Losses. It is normal for new business to make losses in the early years of trading. These losses can be offset against future profits to reduce your tax liability. Other options are available for relieving losses so discuss these with your accountant to establish which is most effective for your personal circumstances.

6. Expenses. Many business owners don’t realise that they can reclaim all expenses that are incurred wholly for the business – these include advertising, accountants fees and office supplies. Business expenses incurred up to seven years prior to trading actually commencing can be claimed too if these expenses were solely for the future business purposes.

7. Capital expenditure. When you purchase expensive items such as tools, equipment, vans or computer equipment, although you cannot claim the purchase cost as an expense, you can obtain capital allowances which will reduce your tax liability. Capital allowances are a form of tax relief which are spread over a number of years.

8. National Insurance Contributions. You will be required to pay Class 2 National Insurance contributions of £2.95 per week when you’re self employed (2018/19) and if your profits are over £6,205. If you’ve been both self employed and employed for a period of time, check that you haven’t overpaid Class 1 national insurance contributions as you may be able to defer Class 4 contributions.

9. Avoid Penalties! Your annual accounts and self assessment tax return should be prepared in advance of the tax return filing deadline which is 31 January. Late returns and tax payments are subject to penalty fines and interest charges and should be avoided.

10. Seek professional advice. Take advantage of the skills of a qualified accountant, with their experience they may be able to find legitimate ways for you to pay less tax and save you money. You may find that the tax savings obtained outweigh the accountant fees. Also, you’ll avoid the risk of incorrectly calculating the tax due and missing the tax return filing deadline!

There are many advantages to operating a limited company but this trading vehicle may not necessarily suit all so make sure you’re aware of the responsibilities before taking the plunge! Be aware that accountancy costs will also be considerably more than a sole trader business.