Showing posts with label self-employed. Show all posts
Showing posts with label self-employed. Show all posts

Monday, April 16, 2012

Top tax saving tips for the self-employed

The most frequent question I get when I meet clients starting their new business is how to reduce their taxes. Obviously this is a loaded question and most of the work we do is geared towards insuring that our clients pay their fair share but not more! There are hundreds of ways you can reduce your tax liability but if you can do just 5 things, here they are:

1. Incorporate

When you start your own business, you have basically 2 options: run your business as a sole trader (or a partnership) or setup a limited company. The sole trader option can seem quite attractive since it's quite simple to administer. However, using a limited company can bring significant tax savings since companies are not subject to National Insurance. As a matter of fact, for a company with annual profits of £80,000 the overall tax savings can be as much as £5,000 per year.

Monday, February 27, 2012

Ease of doing business: UK slips

The world bank has just published the new rankings of its yearly study on ease of doing business and the UK has gone down by one notch to #7 compared to last year. The report compares the regulation for domestic firms in 183 countries and ranks them based on the following 10 factors: starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting investors, paying taxes, trading across borders, enforcing contracts and resolving insolvency.

The top 4 remain the same this year again with Singapore, Hong Kong, New Zeland and the US taking the top spots. While the UK drops a notch, it remains high on the chart thanks to continuous efforts to reduce red tape.

Tuesday, September 27, 2011

Is IR35 regulation worth the hassle?


The tax yield generated through reviews using the UK's controversial intermediaries legislation amounted to around GBP200,000 last year, HM Revenue and Customs has said, figures a leading freelance body says demonstrates that the difficulties caused by the system are 'completely unnecessary'. The legislation, generally referred to as IR35, was introduced in April, 2000, and was designed to combat the avoidance of tax and national insurance contributions (NICs) through the use of intermediaries in circumstances where an individual would otherwise, for tax purposes, be regarded as an employee of the client.

In a report published earlier in the year, the Office for Tax Simplification suggested that reforms, including the merger of the income tax and NIC systems and a reduction in the differential rates applicable to different incomes and legal forms, could remove much of the pressure on the employment and self-employment boundary and should result in the IR35 legislation becoming obsolete.

Friday, September 16, 2011

Late tax returns: new penalties this year

As we are approaching the deadline for self-assessment tax returns (SATR), it's worth remembering that this year, there will be changes in the penalty regime for late filed returns. As a reminder, the filing deadline for paper returns is October 31st, and the one for online returns it is January 31st.

The changes were announced in the FA2009 and FA2010 Budgets legislation and included in the relevant Finance Acts. They are mostly:
  • The removal of capping a penalty 
  • Automatic fixed £100 penalty immediately the return is late (ie no longer a tax geared penalty for individuals and trustees) 

Thursday, September 8, 2011

The Tough Times Business Checklist

With business conditions deteriorating for a lot of firms, now could be the time to review the way you run your business.

With the help of consultancy group 2020 we have put together a "tough-times business checklist" that will allow you to ensure that you stay on the right track during the turbulent times ahead:

  • Review your Budgets and set realistic and achievable targets for the year. 
  • Get rid of can’t pay/won’t pay customers. 
  • Review debtors list and chase up overdue invoices. 

Sunday, February 27, 2011

What is IR35?

The IR35 legislation was introduced by HMRC in April 2000 and is intended to combat tax avoidance. Any contractor that is deemed to be employed (rather than self-employed) is said to fall under IR35. In that case the contractor is required to extract all the money out of his limited company as salary (instead of dividends) and to pay both the employee and employer Class 1 National Insurance (23.8% of gross salary, to increase to 25.8% next year). Moreover, since April 2007, after the introduction of the Managed Service Company (MSC) legislation, contractors can only receive dividends if they operate their own personal Limited Company. If they receive payment through an intermediary then they can only receive payment via PAYE, which means paying income tax and both employee’s and employer’s national insurance, even if they fall outside of IR35.

It's easy to understand why a number of contractors want to ensure that they do not fall inside of IR35. HMRC has put together a number of simple questions that one can answer which will help determine the IR35 status. If you answer "yes" to the following then it is likely you will be deemed a "disguised employee" and will therefore fall inside IR35:
  • Do you have to do the work yourself?
  • Can someone tell you at any time what to do, where to carry out the work or when and how to do it?
  • Will you work a set amount of hours?
  • Can someone move you from task to task?
  • Are you paid by the hour, week or month?
  • Will you receive overtime pay or bonus payment?

Sunday, February 13, 2011

How to choose the right accountant

Choosing the right accountant is more difficult than choosing the right camera. You don't have reviews you can refer to. And what works for some companies will not work for others. So here are 10 tips to get you on the right track.

1. Ask around

This is not necessarily different than with anything else. While past performance is no guarantee of future results, happy clients is always a good sign. Beware however that asking friends or family is not the same as hiring them. Because someone if your wife's nephew, it is no guarantee that you will get great service. And if things go wrong, your personal life will be impacted as well. Not a good idea!

2. Check qualifications

There are a number of valid accounting qualifications: ACA, ACCA, CIMA, ICAEW etc... But don't discount experience. Someone who went to Cambridge, with past CFO experience but without a formal accounting qualification will definitely be a better option than someone fresh out of school! Also remember that not everyone in a practice will have the same qualifications and that most probably the junior staff doing your work won't be qualified at all. Also look at specific business knowledge. Do they have clients in your line of business?

Tuesday, February 8, 2011

SMEs face potential penalties on accuracy of records

HMRC are planning a programme of checks that will review the adequacy and accuracy of records kept by small and medium-sized enterprises. The programme will use existing law regarding both record-keeping requirements and penalties for failure to comply, with sanctions imposed for significant failures. The Revenue says it conducted a random enquiry programme that indicated poor record-keeping is a problem for 40% of SMEs. The department has issued the consultation document Business Records Checks to discuss the implementation of a new programme. The campaign would begin in the second half of 2011, with around 200,000 small businesses being selected for one of the new checks. HMRC expect to raise £600 million over its first four years.

Sunday, January 23, 2011

Extracting profits from your company

One of the benefits of running your own company is that it gives you a lot of flexibility when it comes to extract profits from the firm. As a sole trader, whatever profit you make is taxed immediately at a rate that depends on the amount of profits but that can now be as high as 58% if we include Class 4 National Insurance Contributions.

If you own a limited company however you have a lot more flexibility and if you are not needing the cash now, you can reduce your tax considerably. In most cases it's just a matter of following those simple steps:
  1. If, as a director, your only revenue comes from your company, you can extract up to the personal allowance without paying personal taxes and that cost is tax deductible for your company. That amount is currently £6,475 but it should increase up to £10,000 in the next few years. Keep in mind however that if your annual salary is £5,715 or more you will incur some national insurance contribution costs. This is why most directors extract just that amount every year: no tax, no NI and allowable expense for the company.

Thursday, December 16, 2010

What tax relief for use of home?

This is a common question and unfortunately, it's a bit more complex than most people think.

Depending on your legal setup, the steps to take to recover some of your personal expenses on use of home are different. For a sole trader, the process is quite straightforward but for a limited company there is a bit more work and paperwork required:

You are a sole trader


You can just deduct a portion of the home cost. The calculation is done as a two step process. First you calculate the total running cost of your home:
  • Utilities (Water, Gas, Electricity)
  • Insurance
  • Rent or Mortgage Interest
  • Council Tax
  • Maintenance
  • Internet and Phone

Sunday, November 14, 2010

Top 10 tips for better time management

Another top 10. It's not because I can only count to that! But I feel that summarizing and ranking issues on a given subject makes it easier for a blog reader to glance at and decide if it's worth going into the details.

Today's top 10 is on a subject that is only remotely connected to tax or accounts but that is so critical when you start up your own business that I thought it deserved some attention. It's about time management and because entrepreneurs are known to have way more daily work than a day can fit in,  it's critical that they do everything they can to optimize their day.

So here is the list:
  1. Plan. If you fail to plan then it usually means that you plan to fail! You probably have a business plan. How often do you review it? Have you set long term goals, short term deliverables, how do you measure your progress against those? Everyone is different, every business has specificities but it is critical to setup goals and measure yourself against them, readjusting along the way. Your long-term objectives need to be split into short-term deliverables, all the way to the daily todo list. And you need to make sure that the objectives are specific and measurable, realistic and yet challenging. 

Friday, September 10, 2010

The 10 key steps to creating your business - part II

I wrote in a previous post about what you should do when starting a business. That post talked about what you need to do before or right at the start of your new venture. This post now discusses what you should do right after that and picks up where the previous article left off:
  1. Get an address and a phone. For the office there are a lot of brokers out there that will be happy to find the right office for you. Some people start from home, and use serviced offices when and as required. Regus has some very flexible plans that allow you to use their premises when needed for business meetings. Another option is to check some of the self-storage companies such as Access Storage that also provide offices for rent at very competitive rates. You can also share an office with an existing business. Gumtree is a good place to start if this is what you are looking for. As for the phone, having just a mobile number on your business card is not a good idea. Fortunately, most VOIP vendors can provide you with local numbers (including fax lines forwarding faxes to your email) that you can easily use wherever you have a broadband connection. Be careful though as some vendors can lock you in since there is no automatic number portability for fixed line numbers. Some brokers can help find the right solution at not cost for you and you should use them. Skype is also a viable solution, even though it is not based on open standards like SIP.

Monday, September 6, 2010

10 tips to improve your Credit Control

We all know that there is only one way to go bust: lack of cash. Cash-flow management is therefore just as important as profit monitoring when it comes to manage your business. And the best way to do that is to keep a close eye on what accountants call the Aged Debtors list: those clients who have been billed but have not paid yet.

So how do you do it? Here are 10 tips you should follow to become a pro at managing your cash-flows:
  1. Don't extend credit. This one is obvious: if you can avoid offering credit, you don't have a problem to solve any more. Unfortunately there are very few businesses that can afford to not offer credit. In most cases you will have to offer some level of credit. If that's the case, read on.
  2. Do not invoice manually. With many systems to choose from, some for as low as £10/month, you should not invoice clients using Microsoft Word. Whether it's Kashflow, FreeAgent, Xero or Sage, all allow you to specify your standard terms and will alert you when a bill is overdue. They will also produce the Aged Debtors automatically. Lastly they will allow you to keep notes so that you know why the bill has not been paid next time you call to follow up.

Sunday, July 18, 2010

The 10 key steps to creating your business - part I

You have decided to start up a new business. It's a lot easier to do in the UK than in some other Europeans countries. Yes I am thinking of France and its famous red tape. However, while it's easy to start a new business it's also easy to make the common mistakes that cause 1 in 3 start-up businesses to fail in the UK.

So if you don't want to be in that 30% bucket, what are the top 10 things you should do as soon as possible when you create your own business?
  1. Choose a name for your business and protect it. If you intend to build your brand you need to trademark it. The name does not have to be the same as the one of your company. As a matter of fact, if you are a sole trader, your legal name would be "John Doe trading as Amazing Widgets" for example. 
  2. Decide on the legal structure. Sole Trader, Partnerships or Limited Companies all have benefits and drawbacks. Make sure you understand all the implications (and costs) before you decide on a given structure. Most accountants will be happy to provide a free consultation to help you out. We at TaxAssist Accountants certainly do.