Is National Insurance payable if you are self-employed?

You only pay National Insurance contributions (NIC) between the ages of 16 and state retirement age. You can find out your state pension age by using the calculator on GOV.UK.

You currently pay two different classes of NIC if you are self-employed – Class 2 and Class 4. If you are a married woman or widow, who is entitled to pay reduced rate contributions, you do not need to pay Class 2 NI. There are special rules relating to share fishermen and volunteer development workers, which you can read about on GOV.UK.

 

When will I receive my self assessment return?

These are sent out after April 6th each year. You need to check that you have been sent all the relevant schedules in order to complete the return. If you have a professional advisor who has previously produced an electronic copy, then the Revenue will not send you a return but instead you will get a reminder to contact your advisor.

When does my company need to be Audited?

You may not need to get an audit of your private limited company’s annual accounts.

Most small private limited companies only need an audit if their articles of association say they must or the shareholders ask for one.

For financial years that begin on or after 1 January 2016

Your company may qualify for an audit exemption if it has at least 2 of the following:

  • an annual turnover of no more than £10.2 million
  • assets worth no more than £5.1 million
  • 50 or fewer employees on average

For financial years beginning between 1 October 2012 and 31 December 2015

Your company may qualify for an audit exemption if it has at least 2 of the following:

  • an annual turnover of no more than £6.5 million
  • assets worth no more than £3.26 million
  • 50 or fewer employees on average

For financial years beginning before 1 October 2012

Your company may qualify for an audit exemption if it has both:

  • an annual turnover of no more than £6.5 million
  • assets worth no more than £3.26 million

Shareholders owning 10% or more of the issued share capital may request an audit by depositing a notice in writing at the registered office not later than one month before the end of the financial year.

As Registered Auditors, we are skilled and experienced to carry out audits on all types of businesses including insurance brokers, motor dealerships, property development, travel agents and all forms of general commercial trading.

What are the tax implications if I rent out a room in my home?

The Rent a Room Scheme lets you earn up to a threshold of £7,500 per year tax-free from letting out furnished accommodation in your home. This is halved if you share the income with your partner or someone else.

You can let out as much of your home as you want.

How it works

The tax exemption is automatic if you earn less than the threshold. This means you don’t need to do anything.

You must complete a tax return if you earn more than the threshold. From 6 April 2016, this is £7,500. For the 2015 to 2016 tax year, the threshold was £4,250.

You can then opt into the scheme and claim your tax-free allowance. You do this on your tax return.

You can choose not to opt into the scheme and instead record your income and expenses on the property pages of your tax return.

When do I have to register for VAT?

– When your turnover (that is all the income, not just the profit) from your business exceeds the VAT registration threshold. The current VAT registration threshold is £85,000 but this tends to increase every year.

– At any time you have reasonable grounds to expect that the value of your taxable supplies will be more than the current registration threshold (£85,000) in the next thirty days alone. These rules also apply when you take over a business as a going concern (see Notice 700/9 – Transfer of a business as a going concern). It doesn’t matter whether the last owner was registered; if the business is trading at a level above the limit then you will need to register and your date of registration will be the day you take over the business.

– Another common reason why a business may be forced to register for VAT is if it takes over an existing business that is VAT-registered. The test is if the taxable turnover of the purchaser for the last 12 months added to the turnover of the business being purchased is over the VAT registration threshold – if the answer is yes, then the business is obliged to register.

Failure to register on time may lead to late registration penalties and/or ‘failure to notify’ penalties. What’s more, surcharges and interest are likely to be charged for late payment if the business has a VAT liability. If your business’ turnover exceeds the VAT registration threshold temporarily, you can ask HMRC for an exception from registration.

Why should I register for VAT voluntarily?

Some businesses do this just to look larger than they are! Also, if you do not have to charge VAT because what you produce is zero-rated, then you may want to register in order to reclaim the VAT on what you have purchased.

When does the tax need to be paid?

Any tax owing for the year in question needs to be paid by 31 January (the same date as above)

If the tax owing is more than £500 (and has not been coded into a future year as explained above), then two equal payments on account are due on 31 January and 30 July, each amounting to half of the tax due. These are payments towards the tax liability for the following year. If your income is expected to be lower in that year then it is possible to apply for the payments on account to be reduced but there are interest penalties if you reduce them too much.

Why should I register for VAT voluntarily?

Some businesses do this just to look larger than they are! Also, if you do not have to charge VAT because what you produce is zero-rated, then you may want to register in order to reclaim the VAT on what you have purchased.

When does the tax need to be paid?

Any tax owing for the year in question needs to be paid by 31 January (the same date as above)

If the tax owing is more than £500 (and has not been coded into a future year as explained above), then two equal payments on account are due on 31 January and 30 July, each amounting to half of the tax due. These are payments towards the tax liability for the following year. If your income is expected to be lower in that year then it is possible to apply for the payments on account to be reduced but there are interest penalties if you reduce them too much.

When does it have to be returned?

The key dates are as follows:

30 September Initial Deadline for sending in your tax return.

If you want the Revenue to work out your tax bill, you should fill in your return and send it in by 30 September following the end of the tax year. They will still calculate your tax bill after this date but cannot guarantee to tell you how much to pay by the end of January. Be warned however that some tax offices have only a 50% success rate for correct calculation!

For those with PAYE income, you should also send in your tax return by 30 September, if you want any tax you owe (less than £2,000) included in the following year’s tax code.

31 December – Deadline for inclusion in tax code if filed electronically.

If the return is filed electronically and you want any tax you owe (less than £2,000) included in the following year’s tax code, then this deadline is extended until the end of the calendar year.

31 January – Final deadline for sending in your tax return.

This is the final date for submitting your return with the calculation completed.

What makes my accounting costs go up?

The major reasons why costs are in excess of those we estimate are as follows:

We receive incomplete records, which necessitate time spent in chasing the missing papers (often bank statements) and then returning to the accounts at a later time, which makes for inefficient working.

Major issues are introduced at a late stage which lead to a revision of the accounts already largely prepared.

Purchase invoices are not marked with method of payment which necessitate time spent on matching with cheque payments, credit cards payments or cash.

By all means ask us for advice on how we can help you keep your records more efficiently.

What is Corporation Tax?

Corporation Tax is the tax that limited companies and unincorporated associations (such as clubs) pay on their profits. It’s a tax on the profits of the company which includes interest and capital gains.

What if I get a VAT Inspection?

The question these days is, ‘When’, rather than ‘If’! This will happen at some stage and does not necessarily mean that you have done anything wrong. You will need to have all your records available when you are inspected and be able to answer questions about specific entries. If you have an accountant who does your bookkeeping and completes your VAT returns, then you can elect to have your records inspected at their premises – often saving yourself stress and worry!

What does my accountant need?

We must have:

-All records of invoices and receipts for the period in question, including items received or paid for by cash.

-A full set of bank statements for the period.

-Similar statements for any credit cards.

 

It will work out cheaper for you if we have any or more of the following:

-All information required relevant to your business for the period under consideration.

-Everything properly sorted and recorded.

-Monthly bank reconciliation completed.

-A trial balance completed.

What are the tax rules if I am employed outside the UK?

If your employment abroad is full-time, spans a complete tax year and you actually carry out all your duties abroad, you are normally treated by concession as a non-resident from the date of leaving and as a new resident when you return. If you don’t attain non-resident status, you will therefore be a UK resident throughout.

If you visit the UK, to retain non-resident status your visits must not add up to 183 days in any tax year, or average 91 days per tax year over a four-year period. Overstepping these limits will result in you being treated as a resident and ordinarily resident in the UK.

The benefit of attaining non-resident status is that you escape UK tax on all of your earnings abroad.

What are the tax implications if I let out furnished accommodation?

If you receive income from furnished lettings, it is taxed under Schedule A, i.e. income from UK land and property.

If you provide laundry, meals, domestic help, etc. for your tenants, then you may be able to claim that you are running a self-employed business – as you usually can if you are providing holiday lettings (see below). The advantage of running your property enterprise as a business means that there are usually more expenses you can claim against tax, and you may be able to use part of any annual surplus to provide yourself with a pension.

What about the VAT Flat Rate Scheme?

With this scheme, you pay a flat rate to HMRC at a fixed percentage of turnover according to your business sector, but without deducting VAT on purchases and services. This can be beneficial in some industries but you need to be aware of the facts before you decide.

I’m working from home; how do I estimate the proportion of relevant utility bills that I can offset against tax?

Work out the area of your home taken up by your business; apply that as a percentage.

How long do I have to keep records of my accounts?

You are legally required to keep your records for six years.

How is Corporation Tax assessed and paid?

Corporation Tax is accounted for in 12-month periods, unless the accounting period from its commencement to the first accounting date, or the last period of operation, is less than 12 months. (You may already be thinking that it’s time to consult a professional accountant and, in our view, if you have a limited company and you are dealing with Corporation Tax you should certainly seek professional advice.)

Every company has to fill in an annual Corporation Tax Return (Form CT600) and this Return has to be submitted by the company secretary or the directors within 12 months of the end of the accounting period. However, tax has to be paid, assuming we are dealing with a small company, nine months after the end of the accounting period. Big companies have to pay Corporation Tax at more frequent intervals.

How does VAT work?

Basically, the VAT you pay on invoices for your purchases is deducted from the VAT you charge and the difference paid to HM Revenue & Customs. This is done by completing a quarterly VAT return.

How do I work out how much tax I have to pay and when to pay it?

If you have to complete a Tax Return, included in the package will be a tax calculation guide for you to follow. The main thing to bear in mind is that if you get your Tax Return submitted by 30 September each year, the Inland Revenue will work out for you how much tax you have to pay and when you have to pay it.

In principle, you make two payments a year. On 31 January each year you will pay the balance of the previous year’s tax still owing plus one half of the previous year’s tax liability as a payment on account for the following year. On 31 July each year you will pay the second half of last year’s tax liability. On 31 January following, you will find yourself paying any balance of tax that is due plus one half of next year’s tax liability based on this year’s total tax bill and so on.

How do I register for VAT?

You need to complete the form VAT 1 (plus VAT 2 for partnerships) which is available from the Revenue & Customs website (www.hmrc.gov.uk).

How can I take money from a limited company?

There are three main ways in which money can be drawn from a limited company – repayment of a director’s loan, salary and dividends – but there are key issues to understand regarding each of these. It is important to organise the balance of these three items (when they are all available) in order to minimise your tax liability. However, the basic fact will remain – the more profit the company makes, the more tax you are likely to pay. There is no magic scheme for removing all tax liability!

Repayment of director’s loan

If you have put your own money into the company, then this is recorded in the director’s loan account which totals the money the company owes you. You can draw from this at any time without any tax liability, but you will need to make sure that the cash flow of the business can support this. While it sits in the company, you are entitled to charge the company interest. The interest rate is determined by the Board of Directors and should be at a reasonable commercial rate. The interest you receive must also be declared on your personal tax return as it will be subject to tax. However, if the director’s loan account becomes a loan from the company to you, then you need to be careful, as you should not owe the company more than £10,000. If you exceed this you must notify HMRC of the loan and pay 25% of the loan account balance. This tax is however refunded as soon as the loan balance is reduced.

Salary

Remember that the company is a separate legal individual to you. So it can pay you a salary just as would happen in any job, tax and national insurance (NI) must be deducted before you receive your pay. The company also pays 12.8% of the salary in NI contributions and is responsible for paying this and the employee’s tax and NI deductions to the Revenue. So there are significant additional costs in the company paying you a salary. However, as everyone receives an annual tax personal allowance you can take a salary of £8,788 (for 2020/21). You should at least take this annual allowance in salary.

Dividends

These are a distribution of profits, so it goes without saying that the company must be making a profit before dividends can be paid. If there is no profit then repayment of director’s loan and salary are the only routes. The directors decide on the distribution of profits in dividends and must be voted on and minutes drawn up before the year-end. Remember that there should be a board resolution with the date of distribution recorded. Dividends are taxed but at present at least, are not subject to NI, so saving both employers and employees NI payments.

Complexities

It is important that you grasp the principles but the issues are sometimes complex and we recommend that you take professional advice on these matters. Remember too that governments do change the rules so exercise caution.

How can I protect my business against identity fraud?

Identity fraud is an ever-increasing problem in the UK. According to the Home Office, the annual cost is now £1.7bn, with businesses shouldering around £50m of the burden.

The problem of individual identity fraud is relatively well-publicised. Known methods used by criminals to obtain sensitive information include searching through rubbish bins to find discarded bank statements; intercepting mail; copying credit cards during a transaction; and so-called ‘phishing’ scams, which involve sending emails which look as though they have come from a bank or similar organisation, and asking customers to ‘confirm’ their details by return email.

But businesses are also at risk, and as well as the potential financial damage, corporate identity fraud could ruin a company’s reputation.

Corporate hijacking

There is a growing trend of corporate ‘hijacking’, with fraudsters registering as company directors at Companies House and then purchasing goods and services from suppliers, which they have no intention of paying for.

A common method used by the criminals involves accessing registered company records, changing the details of the company directors and registered address, and using the stolen identity to order goods, which are then intercepted at the fake address. Criminals can also make use of publicly available company bank account details and signatures for fraudulent purposes.

Reducing the risk

Clearly, it makes sense to minimise your exposure to an identity fraud risk.

Businesses can help to protect themselves by putting in place the following procedures:

Storing sensitive documents in a secure place.

Shredding documents before disposing of them.

Checking their registered company details at Companies House regularly, to ensure that they have not been changed.

Registering for the ‘Monitor’ email alert system with Companies House (part of the Companies House Direct service, available at www.companieshouse.gov.uk), to receive notification whenever their company details are changed.

Ensuring staff are aware of the issues surrounding identity fraud, and limiting access to sensitive information to key staff.

Checking customers’ credentials before extending credit to them.

Reducing the risk of electronic hijacking by ensuring that firewall and anti-virus software is up-to-date, and only opening legitimate email attachments.

Keeping key company bank account details out of the public domain.

How can I organise my book keeping records?

As a business owner you have a responsibility to keep accurate records. Sole traders can be fined up to £3,000 for not doing so and company directors have serious legal responsibilities. However, it is not difficult to retain all relevant records if you have proper systems for doing so. And you can either send the records to us to prepare the accounts and VAT returns, or employ a bookkeeper yourself (but you should make sure that they are competent and experienced), or keep the bookkeeping records yourself. Whatever option you choose, it would be wise to ensure that there is good communication with your accountant.

How can I identify and prevent fraud in my business?

It is estimated that fraud costs UK businesses as much as £5 billion a year. Are you certain your business is not a victim?

 

Employee fraud

Broadly speaking there are two types of employee fraud – fraudulent financial reporting and misappropriation of assets. The former is usually committed by senior officials or management and involves altering financial statements. The latter is far more widespread and can be committed at any level by any employee – and in many different ways.

 

Other areas in which fraud commonly occurs are through personal and company cheques. There are numerous fraudulent schemes involving personal or company cheques. For example, an employee writes a cheque payable to cash and posts the debit to an expense account. He or she then discards the cancelled cheque when it arrives with the bank statement and reconciles the statements by attributing the debit to an expense account, direct cost, or purchases account that is written off at the year-end. Another example might be an employee taking money from the petty cash and replacing it with a personal cheque. The cash box is always balanced but the cheque is not deposited into the company bank account.

 

To prevent these kinds of fraud:

-Examine bank reconciliations thoroughly.

-Scrutinise bank statements and cancelled cheques for cheques made out to cash, employees or unusual suppliers.

-Instruct the bank to send company statements to your home address for your attention.

Can I register for VAT voluntarily?

Yes. You can choose to register for VAT before your turnover reaches the threshold or even if it is never likely to.

When does the tax need to be paid?

Any tax owing for the year in question needs to be paid by 31 January (the same date as above)

If the tax owing is more than £500 (and has not been coded into a future year as explained above), then two equal payments on account are due on 31 January and 30 July, each amounting to half of the tax due. These are payments towards the tax liability for the following year. If your income is expected to be lower in that year then it is possible to apply for the payments on account to be reduced but there are interest penalties if you reduce them too much.

Registered as auditors and regulated for a range of investment activities in the United Kingdom by the Association of Chartered Certified Accountants

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