Accounting Frequently Asked Questions
The purpose of this section is to answer some of the most common questions asked of accountants. If you have any general enquiries or questions, feel free to contact us.
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If you want to start working as self-employed, you must register with HM Revenue & Customs, but first make sure you have a National Insurance Number. After the registration, you will receive your Unique Taxpayer Reference (UTR) and HMRC will set up the right tax and National Insurance contributions records. You should keep your UTR safe because you will need it when completing your Self Assessment tax return.
This depends upon what your contract says or what your working arrangements are. You can be employed and self-employed at the same time. When defining your employment status, you should refer to the following questions:
a) A self-employed person:
– Runs own business and decides about the type and time of its work
– Bears responsibility for the success or failure of the business
– Have more than one customer at the same time
– Can hire people
– Takes care of the main equipment needed to perform business activities
b) An employed person:
– Has to perform the tasks imposed on their own
– Is told how, where and when to do your work
– Works within fixed hours
– Work for just one person at a time
– is not in charge of the business nor takes responsibility for it, that is the employer’s task
– is paid a regular wage or salary
You may need to register for VAT if you are doing business in the UK as an individual, a partnership, a company, an association, a charity, a local authority or any other organisation or group of people acting together under a specific name.
Registration for VAT is compulsory if your annual turnover exceeds £79,000 or you expect the turnover to be higher than that amount in the next 30 days. However, it may happen that your turnover has exceeded the registration threshold temporarily. In that case, you may apply for exception from registration. This applies for entrepreneurs supplying goods or services within the UK. If you take over a VAT registered business, your VAT taxable turnover over the last 12 months must be added to the turnover of the business you are taking over when checking if the registration threshold has been exceeded. And if you have received goods from other countries in the EU, registration for VAT is compulsory if the total value of the goods acquired has gone over £79,000 in the current year since 1 January.
Note that you cannot register for VAT if you sell only goods or services that are exempt from VAT or you are not in business according to the HMRC’s definition.
If you are doing business in the UK but your turnover is below the threshold for registration, you may register for VAT voluntarily. Remember to regularly check if your turnover has exceeded the threshold and you need to register.
You may find it beneficial to be able to charge VAT on your sales and claim back VAT on your purchases in various ways. By way of example, if there is a zero VAT rate for the items you sell but you buy standard-rated items, HMRC will give you a VAT refund. Note that if you voluntarily register for VAT, you have the same rights but also responsibilities as in the case of compulsory registration.
If you need to close your business you should plan it carefully. First of all, it is important that you inform HMRC of your intent. Only then will you be able to settle matters related to tax and National Insurance. In some circumstances it is possible to extend the deadlines for payments or even to claim back some tax or National Insurance.
• Self-employed and business partners click here to complete an online form.
• Shareholders may still have to file Company Tax Returns and pay Corporation Tax while closing the business. You will need to account for any capital gains made in the closing process through your Company Tax Return.
• Employers must also submit a final Full Payment Submission (FPS) when running their final payroll, in addition to the standard procedure. It is important that you pay all outstanding PAYE tax and National Insurance deductions on a timely basis.
• VAT-registered businesses will need to deregister from VAT.
CIS stands for the Construction Industry Scheme. CIS regulates the procedures of making payments to subcontractors by contractors in the construction industry. However, businesses outside the industry which involve in construction in the way that they spend much of their funds on construction may also fall under CIS.
CIS comprises businesses which are active in the construction industry in the United Kingdom in the form of a partnership, a company, a limited liability partnership (LLP) and also self-employed sole traders.
However, CIS is not limited to businesses whose core activity is construction. If you spend over £1 million a year on average on constructions within three years, HMRC may consider you a ‘deemed contractor’ and you will have to register with CIS. It may happen if your business is a housing association, another ‘arms length’ management organisation (ALMO), a local authority, a government department or another public body etc.
CIS also comprises businesses that are not based in the UK but operate in the UK or UK territorial waters.
A Company Tax Return is a document which is filed for each accounting period by companies liable for Corporation Tax. A company has to file a return each month, even if it has not made any profit.
Capital Gains Tax is a tax you pay when you make a profit by way of selling assets (e.g. shares or property). Your Capital Gains Tax may be reduced by a tax-free allowance and some additional reliefs. There are also some circumstances under which no capital gain tax has to be paid.
In most cases you do not have to manage your finances on your own. You may authorise an accountant to act for you. In fact, some entrepreneurs find it too complicated or time-consuming to deal with financial matters by themselves. You can avoid many misunderstandings or mistakes if you authorise an accountant to do it for you. HMRC requires a special form for this purpose. You can find the form here. Note that you are still responsible for your own tax affairs at all times.
Online businesses have seen considerable growth over the past 5 years. A trend which has caught the eye of many and resulted in private business booms across the world.
How do you start an online business?
Like any other business you have to consider your online setup as the same kind of entity. You will need a business plan, competitor research, geographical target zone and survey your service or product to ensure it is in demand.
If you are starting an online business from home then your first year or 2 may not see sufficient return to register for VAT. VAT registration is required in the UK once your threshold reaches or exceeds £73,000.
Getting your website up and running will be the first jump. Finding a good web designer can be a daunting task, but Google search makes this easier. Look at portfolio’s and functionality. Remember the cheapest option is probably not the best option if you are going to rely on your website to make a living. The web is saturated and you need to stand out, so find a company who past designs fit the needs and functionality of your website.
Search engine optimisation (SEO) will be the crux of your online demand. Imagine if you had a shop in some narrow backstreet of London. You would need to hire people to give out leaflets, pay for ad space at the bus stop and other things so people could find you right? SEO does that for you, but online. Seek out a good SEO company to assist you in your website launch and consider that you may need to retain them for maintenance and continued work.
Online shops are a bigger development. Be sure to look for a company who has experience in building this as there are many things to consider. You will need storage space for your products, pricing variables for shipping, you will need to be able to manage your stock availability on your website easily so you don’t get purchases for items you don’t have.
If you are only selling a few products then you can easily do this with PayPal or WorldPay. Most large UK banks also offer payment gateways so that you can receive all online payments directly to your account.
Protecting your website is a must. Much like a shop, you need security. Websites can be vulnerable to vicious attacks and your entire business could be taken away in a single day. Ensure you demand from your designer that you have secure hosting, that the code has the correct “permissions” so only they can access them and that any information you store on your site (client contacts, payment information and more) is not accessible.
Getting British Business Online is an initiative which helps small businesses understand the full scope of online business. Run by Google and BT, it has a small subscription fee, but will help you get off the ground.
Your business plan will help you flesh out your idea and get a better feeling of whether you are ready to go ahead. Taking time to complete a thorough business plan before you start your business will reduce the risk of you missing something.
A plan will also be required by your bank and other lenders before they offer you credit, business loans or overdraft facilities.
It is important to outline all of the main points to give you and others a clear snapshot of your business idea, or where your business is heading.
Completing the plan will help you think methodically and sharpen your ideas about your business concept.
The plan will also enable a stranger to grasp your business idea without getting bogged down in unnecessary details.
Templates are available on various websites.
The following is not exhaustive but a thorough business plan will normally include the following:
Business Overview comprising brief history of your business or why you have decided to start one, purpose of the business, products and services. Your current position, competitive advantages, strengths and weaknesses of your competitors, a brief overview of your plans to grow the business.
Business Strategy for the next year/3/5 years, your specific objectives and goals, tactics, steps you need to take, resources you will need. Outline strategic threats or opportunities in the short to medium term and outline the business core values.
Marketing – market research undertaken and marketing plans, how you will reach your customers, how you will use technology, how you will actually promote your business to clients, your marketing budget and how you will build credibility.
Team and management – structure and experience, external advisors, management systems.
Financial budgets and forecasts – Cash flow forecast, profit & loss forecast, balance sheet forecast, capital expenditure budget
Many potential start-up businesses are daunted by the prospect of writing a business plan. But it is not a difficult process – and a good business plan focuses the mind as well as helping to secure finance and support.
The business plan will clarify your business idea and define your long-term objectives. It provides a blueprint for running the business and a series of benchmarks to check your progress against. It is also vital for convincing your bank – and possibly key customers and suppliers – to support you. See our Business Plan page for more information.
– There are no formation costs
– Sole traders are not required by law to have annual accounts nor to file accounts for inspection. However annual accounts are necessary for tax returns
– Sole traders are unrestricted in the amount and purpose of borrowings (but cannot create floating charges)
– Losses generated by a sole trader can be set against other income of the year or carried back to prior years.
Tax make-up of a Sole Trader
– For a sole trader, tax is generally paid by instalments on January 31st in the tax year, and July 31st following the tax year. For an ongoing business, tax for 2011-12 is payable: first payment on January 31st 2012, second payment on account on July 31st 2012, with any final due on January 31st 2013
– Profits are taxed at 40% on taxable income in excess of £35,000 and at 50% over £150,000 (2011-12).
If you wish to trade and do not use a limited company you will be personally liable for the debt of your business. If you have assets or savings they are vulnerable to a claim made against you.
By trading through a limited company you are literally placing a limit on your liability. That limit is the value of the company, including any money you may have invested in, loaned to or are owing to the company.
The company has a separate legal identity from its owners and directors and unless they sign a personal guarantee for its debts they are not liable for these
There are a number of advantages in becoming a limited company, such as :-
- You can give a share of the business to others eg family.
- It may be easier to attract people to invest money in your business.
- Obtaining bank loans may be easier.
- There is no higher rate tax bands.
- In the event of a partner leaving or somebody dying it is easier to continue the business.
- It is easier to sell the business.
- You have better standing in the public eye.
- It can assist in the protection of a name.
- People have more confidence in your business as they can check up on your company on the public records at Companies House.
- Subcontractors and agency workers will find it easier to obtain work.
The main disadvantages of becoming a limited company are the extra costs of preparing of annual accounts and some loss of financial privacy.
For more information on setting up a Ltd company, go to this page.