1) Should I Be Self-Employed Or Trade Through A Limited Company?
This really does depend on individual circumstances. Depending on how much your net profit totals, you may be better off trading through a limited company. However, speak to us before you decide so we can help you look at this for all aspects.
2) Do I Have To Register For VAT?
The answer is simple, if your annual turnover is likely to exceed £77,000 2012/13) then yes. HM Revenue & Customs will insist that you do register for VAT. However, if you do not turnover this amount it may work in your favour to register for VAT. Call us now to arrange a free consultation to see whether registering for VAT could make some tax savings.
3) VAT Flat Rate Scheme Advantages & Disadvantages
What is the Flat Rate Scheme for VAT?
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.
Benefits of using the Flat Rate Scheme
Using the Flat Rate Scheme can save you time and smooth your cash flow. It offers these benefits:
- You don’t have to record the VAT that you charge on every sale and purchase, as you do with standard VAT accounting. This can mean you spending less time on the books, and more time on your business. You do need to show VAT separately on your invoices, just as you do for normal VAT accounting.
- A first year discount. If you are in your first year of VAT registration you get a one per cent reduction in your flat rate percentage until the day before the first anniversary you became VAT registered.
- Fewer rules to follow. You no longer have to work out what VAT on purchases you can and can’t reclaim.
- Peace of mind. With less chance of mistakes, you have fewer worries about getting your VAT right.
- Certainty. You always know what percentage of your takings you will have to pay to HMRC.
Potential disadvantages of using a Flat Rate Scheme
The flat rate percentages are calculated in a way that takes into account zero-rated and exempt sales. They also contain an allowance for the VAT you spend on your purchases. So the VAT Flat Rate Scheme might not be right for your business if:
- you buy mostly standard-rated items, as you cannot generally reclaim any VAT on your purchases
- you regularly receive a VAT repayment under standard VAT accounting
- you make a lot of zero-rated or exempt sales
4) VAT – Is There Any Advantage Of Voluntarily Registering For VAT Before I Have To?
You may be thinking, why would there be benefits to charging extra costs to my customers? But there is always a silver lining.
- Being VAT registered means you can reclaim the input tax you have been charged when buying goods for your company-There are some goods and expenses which you will incur where you have not been charged VAT. There is no VAT on insurance, finance, credit, education, training and fund raising events, the majority of other goods you will be charged VAT.
- Being VAT registered adds more credibility to your business, making it appear larger than it possibly is.
- Some companies only deal with VAT registered companies-this will give your company more opportunities to deal with more suppliers.
- Customers/clients that are VAT registered can reclaim the VAT you charge them-not necessarily an advantage for you but again it creates a more professional image and the customer may then be more inclined to use you again in the near future knowing you are both VAT registered and that they can possibly reclaim their input tax also.
5) VAT – Are There Any Disadvantages Of Being VAT Registered?
With registering to be VAT registered there are some disadvantages.
You will have to complete regular VAT returns to HMRC. This would mean completing either Monthly, Quarterly or Annual returns depending on the size of your firm and which scheme you decide to use.
Some of your customers may be put off dealing with you as they will have to bear the extra cost of VAT if they are not VAT registered.
Call us now to discuss your best option on 0208 903 9538.
6) VAT – Can I Claim Pre-Registration Expenses?
One of the key questions businesses ask in VAT registration situations is regarding pre‐registration input tax
There are separate rules for goods and services. For goods to qualify for input tax recovery they must have been
purchased for the purposes of the business and not supplied onwards or consumed before the date of registration,
and finally the VAT must have been incurred within three years of the date of registration.
For services for qualify, the cost must have been incurred for business purposes and the VAT must have been incurred
within six months of the date of VAT registration.
In both situations the input tax recovery is subject to being supported by an appropriate VAT invoice. Also, the input
VAT would be claimed through the businesses first VAT registration.
7) Do I Have To Register For PAYE (Pay As You Earn)?
When you need to register.
As soon as you first employ someone, you will need to register as an employer with HMRC if one or more of the following is true:
- you’re paying them at or above the PAYE threshold
- the employee already has another job
- they are receiving a state, company or private pension
- you’re paying them at or above the National Insurance Lower Earnings Limit
- you’re providing them with employee benefits
If you need to register you can do so up to four weeks in advance of the first pay day.
Bear in mind that you might need to register as an employer even if you’re the only person working in your business. If you run a one-person limited company, you’ll be both an employer and an employee. So if any of the conditions above apply to you as an employee you’ll need to register.
8) What is Real Time Updates and how does it affect my business?
Real Time Information, or RTI, is a new system that HMRC is introducing to improve the operation of PAYE.
PAYE information will be collected more regularly and more efficiently as employers submit their regular payroll submissions, rather than with their end-of-year tax return.
RTI will be introduced to most employers in April 2013, and by October 2013 all employers will be enrolled into RTI.
- Why is HMRC introducing RTI? HMRC is introducing RTI for a number of important reasons.
- To simplify the PAYE process, making it less burdensome for both HMRC and employers.
- To enable a more efficient response to PAYE errors such as under or over payments.
- To simplify the employee starting and leaving process.
- To support the introduction of Universal Credits, which will streamline benefits into one payment.
- To reduce fraud and ensure people receive the benefits they’re entitled to.
- To provide the Department for Work and Pensions with up-to-date information about each claimant’s employment income more efficiently.
- Changes to Payroll Year End RTI will change the way Payroll Year End works. Although you will still be required to provide your employees with P60s and complete P11D and P11D(a) forms for taxable benefits and expenses, there will be some tasks you no longer need to complete, these include P14 and P35 submissions and P38A returns for casual employees.
Call us now to see how this could affect your business or refer to our PAYE services page.
9) How Long Do I Need To Keep My Records For?
if you’re self-employed you must keep business records such as your accounts, evidence of tax that’s been paid and other records relating to your income and outgoings. You’ll need these to help you complete your tax return or to answer any questions from HM Revenue & Customs (HMRC) about a return you’ve completed.
As a general rule you should keep your documents for a minimum of 6 years.
If you have to send HMRC a tax return, you should keep all the records and documents you need to enter the correct figures. If HMRC needs to check your return, they may ask to see the records you used to complete it.
If you don’t keep adequate records or if you don’t keep your records for long enough, you may have to pay a penalty.
10) What Records Must I Keep?
Keeping up-to-date and accurate records from the start is important for your business. It makes it easier to complete your tax return. A good record system helps you keep track of your expenses. If you do not keep adequate records or complete your tax return correctly or on time you may have to pay a penalty.
All businesses are different and there are many specific types of detailed records that you may need to keep. Some examples of records you may need to keep include:
- cash book
- petty cash book
- sales and purchase ledger
- wages book
- invoices and receipts issued and received
- electronic records of sales or till rolls
- details of items not rung through the till
- details of incidental or miscellaneous income – for example rent for accommodation owned by the business
- hire purchase and leasing details
- an inventory of stock on hand at the end of your accounting year
- bank and building society statements, pass books, cheque stubs and paying-in slips which include details of business transactions
- details of any money taken out of the business for your own or your family’s personal use
- details of any private money brought into or taken from the business
All this information will be useful for completing your Self Assessment tax return and answering any questions that HMRC may have about it.
You’ll need to keep business records for up to six years – or longer if HMRC starts a check.
11) What Expenses Can I Claim?
There is no set list of expenses you can claim. Here at Livingstones we taylor individual returns to what our client has expensed throughout the year. As a general rule, if you have occurred an expense through your day-to-day business running then chances are you can claim for it!
Talk to us today to discuss your business needs – 0208 903 9538.
12) How Do I Keep My Books & Records?
Well this really is a matter of preference. We would recommend that you choose a reputable software package to control your business. Why not have a look at our online bookkeeping package and see how this compares to your current way of record keeping?
HM Revenue & Customs do not have a ‘preferred’ method of record keeping.
13) How Much Tax Do I Have To Pay?
This is the most frequently asked question and also the only question we do not have an answer to!
This simply depends on how your business is structured, if your business is incorporated and if there are exemptions available.
To discuss your individual tax bill please call us on 0208 903 9538 or leave us a message above.
14) When Do I Have To Pay My Tax?
Again this is different if you are incorporated or not.
If you are self employed and file a tax return then your tax year runs from 6 April – 5th April. You will have to pay your tax (if due) by 31st January the following year otherwise HMRC will add 5% to your tax bill.
If you trade through a limited company then you must pay your corporation tax 9 months and 1 day after your accounting year end. This is normally three months before the deadline for filing a return with HMRC.
15) What Are The Current Tax Rates?
Please see our tax rates and allowances page.
16) Do I Have To File A Personal Tax Return?
You can see the most common reasons for needing to fill in a tax return below.
If you’re self-employed (including being a member of a partnership) you have to complete a return each year.
You’re a company director, minister, Lloyd’s name or member
You must complete a return if you’re any of the following:
- a company director (unless you’re a director of a non-profit organisation, for example a charity, and don’t receive any payments or benefits)
- a minister of religion (any faith)
- a name or member of Lloyd’s
Your annual income is £100,000 or more
If you receive total income of £100,000 or more you’ll need to complete a tax return. You may have higher or additional rate tax to pay that hasn’t been collected through your tax code.
You have income from savings, investment or property
If you are an employee or a pensioner and already pay tax through a PAYE code, you can sometimes ask for tax that you owe on income, such as savings and property, to be collected through your code number. You’ll need to complete a tax return instead if the income you receive is:
- £10,000 or more from taxed savings and investments
- £2,500 or more from untaxed savings and investments
- £10,000 or more from property (before deducting allowable expenses)
- £2,500 or more from property (after deducting allowable expenses)
You’re 65 and receive a reduced age-related allowance
If you receive a reduced age-related allowance, you’ll usually need to complete a return if your income is over a certain level (£24,000 for the 2011-12 tax year, and £25,400 for the 2012-13 tax year). But there are exceptions, for example if your tax affairs are very straightforward.
You’ve lived or worked abroad or aren’t domiciled in the UK
Residency is a complex issue speak to a member of our team to discuss your options further.
You have Capital Gains Tax to pay
If you have Capital Gains Tax to pay, for example you’ve sold, given away or otherwise disposed of an asset such as a holiday home or shares, you’ll need to complete a tax return and the Capital Gains Tax pages.