Articles in Category: VAT advice

Things to think about when you are starting your own business

on Wednesday, 13 June 2018. Posted in Making Tax Digital MTD, Startup Advice, Accountancy Advice, Business Advice, Cloud Accounting, Tax Advice, VAT advice

Did you ask your accountant everything that concerned you?

Plan for your first meeting with your accountant

 

As an accountancy practice that specialises in start-ups, contractors and entrepreneurial Small and Medium-sized Enterprises (SMEs), our first meeting with a new business-owner often covers the following areas:

  • Which trading vehicle to use: generally this boils down to being self-employed or incorporating the business into a limited company.
  • Company name: is the name you want to use available and does it contain sensitive words that you may not be allowed to use?
  • VAT registration: and now that covers the impact of Making Tax Digital (MTD) and the rules for recording all transactions digitally.
  • Corporation tax – how it is calculated and when it needs to be paid by.
  • Income tax – self-assessment and the 31 January deadline. Clients are also warned about the delights of Payments on Account. In essence beware of the £1,000 tax level but there is an exception!
  • Cloud Accounts Apps: our favourite is Xero but others to consider are FreeAgent, KashFlow and Intuit QuickBooks.
  • IR35– be aware of this ever-changing regulation.
  • The timing differences between PAYE that an employee suffers versus having your own company: just because there is £1 left in the business account it doesn’t mean you can take it!
  • We like to think of ourselves as the friendly approachable accountant. We always encourage clients to contact us about anything that is troubling them, there is no such thing as a stupid question.

If you would like to find out more about setting up your own business, about being an entrepreneur, then wherever you are: whether in Leeds, Bradford, Wakefield, Harrogate, Wetherby or elsewhere in the country or even overseas and thinking of setting-up in the UK, please get in touch.

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The Business Start-up and VAT

on Wednesday, 20 June 2018. Posted in Making Tax Digital MTD, Startup Advice, Accountancy Advice, Business Advice, Cloud Accounting, VAT advice

VAT registration

Should a start-up immediately become VAT registered?

 

Warning: The World of VAT is constantly changing, so if you are reading this blog any time after the day it was published then you should doublecheck that the rates, limits and rules are still correct!

VAT Registration limit: All businesses with turnover (or invoiced sales) of more than £85,000 per annum should be registered for VAT. If you expect your turnover will go over the VAT registration limit then you should register. The year to review is any rolling 12 months. It does not matter if your existing business has been trading for years, per the annual accounts, at £80,000. What matters is that if you add up any 12 month period will the turnover be less than the registration limit? There is currently a consultation taking place about whether to reduce this registration limit to a lower amount.

Voluntary registration: Some new businesses chose to immediately register for VAT. This could be a good idea if your customers are all likely to be VAT registered themselves as it will give the impression that your new start-up company has a turnover of over £85,000 and is therefore a “proper” business. Many limited companies do like trading with businesses that aren’t VAT registered. But if the general public are your customers then they would rather save the 20% VAT and buy from non-VAT registered businesses.

VAT invoices: once registered for VAT the business needs to make sure that certain information is on every VAT invoice, for example your VAT registration number. Businesses may not be able to reclaim VAT if the purchase bill is incorrect, therefore to protect themselves they may not pay your business until the VAT invoice is correctly drafted.

VAT Schemes: You need to also consider the many VAT schemes that are available. It is outside the scope of this short blog to discuss all these. Generally for service organisations the Flat Rate Scheme is no longer viable but all businesses with a turnover of less than £1.35 million should consider the Cash Accounting Scheme (or the Flat Rate Scheme equivalent). As the name implies VAT only then becomes due to HMRC when customers have paid (and input VAT can only be deducted once it has been paid out). This helps the smaller end of the SME sector with their cashflow.

Making Tax Digital or MTD. Currently from April 2019 HMRC are planning to make all VAT registered businesses with a turnover greater than the VAT registration limited to record all their transactions digitally and to file their VAT returns not via the Government Gateway but electronically via an accounting programme or online accounting app. There will be the possibility of using spreadsheets to record the transactions and then filing the VAT return via APIs, but when this blog is being published there has been no information about the APIs. This is just the starter of MTD and VAT – expect these requirements to start to cascade down to smaller entities.

Get in touch: to discuss VAT more fully with Aysgarth then please email us via the contact page and we will arrange to meet-up with you to discuss your new enterprise and VAT.

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Cloud Accounts Apps

on Tuesday, 24 July 2018. Posted in Making Tax Digital MTD, Startup Advice, Business Advice, Cloud Accounting, VAT advice, Contractors

Recording financial transactions and meeting your legal duties

For Cloud Accounting we recommend Xero

 

Your new business is named and ready to start trading but how are you going to record its financial transactions and meet your legal duties?

In our recent blog on “VAT and the start-up enterprise” we referred to Making Tax Digital (MTD) and the new VAT rules. These proposed regulations confirm the centrality of the digital recording of accounting transactions. Unless you have a very simple and small business this means using an accounting programme. Desktop Apps are rather dated and inflexible. If you have to email backups there will be GDPR issues to consider.

The obvious solution is to use an online accounts app. These Cloud based programmes are brilliant. You, your staff and your accountant can all be working on live data. Most have Apps for phones or tablets, so as long as you can access the internet you could be sat on the beach and still be sending out invoices, reconciling your bank account or posting last month’s depreciation!

We find that with these Cloud products you get what you pay for. If the accounting system is free or cheap then it will be free or cheap for a reason. Our advice is to invest a few more pounds each month – it will save you time and probably money in the long term.

This is why we recommend Xero. It isn’t perfect but in general it is better than the other Cloud packages.

It will email your quotes, invoices, credit notes and statements out to customers. You can attach pdfs, pictures or other documents to transactions. If you have a query you could call us up, we would log on to your data and we could talk it through with you, making sure that everything is posted correctly.

But the best bit is the interaction with bank accounts. An increasing number of banks have direct bankfeeds with Xero (for example Santander and HSBC), other banks have indirect bankfeeds via a third party provider (for example Lloyds, NatWest and Barclays) but some banks you have to download the statement and then upload it into Xero. With the direct bankfeeds yesterday’s bank transactions just appear on Xero the following morning. And once the information is in Xero, then with one click of a mouse you can reconcile the bank account and record a sales invoice as being paid. This is so efficient.

Over the years we have written a number of blogs on cloud accounting but if you want to know more and see how we can work with you on this important topic then please get in touch.

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Tax Timing Differences

on Saturday, 18 August 2018. Posted in Startup Advice, Accountancy Advice, Business Advice, Tax Advice, VAT advice, Contractors

Don't spend that last pound!

Don't be caught out with tax timing differences

When you start your own business you move into a different way of being taxed – everything is deferred, your payment of tax is delayed.

As an employee you receive a payslip that details the PAYE and National Insurance (NI) that has been deducted from your gross salary to arrive at your net salary. There will, probably, be other deductions like pension contributions. As long as your tax code is correct then your PAYE should be calculated correctly – as we have warned before: all employees should regularly check their tax codes.

When an employee is paid, their tax and NI has already been deducted and usually will never need to pay any more tax in the future, errors aside.

If you are self-employed or have your own company, both you personally and the company will pay tax in the future. These taxes are based on the taxable profits of the business.

The company has to pay corporation tax 9 months and 1 day after the end of its accounting year. Therefore if the year end is 31 March the corporation tax is due to be paid on the following 1 January. You can read more about corporation tax here.

If an individual has untaxed income: property rentals, self-employment profits or company dividends, these have to be declared on their self-assessment tax return, which covers a tax year: 6 April to the following 5 April. The tax and NI due from the tax return is due to be paid by the following 31 January. Therefore the tax due for the tax year 6 April 2018 to 5 April 2019 needs to be paid by 31 January 2020.

As payments on account have already been discussed in this startup series, you can read about them here. Payments on account are paid each January and July.

If your business is VAT registered then the VAT should be paid one month and a week after the end of the VAT quarter or if you pay by direct debit it will be taken out one month and 10 days after the end of the VAT quarter. Read more about VAT here.

All this means is that you and your business have tax liabilities (for Income Tax, NI, Corporation Tax and/or VAT) to pay an undefined amount of tax in the future. You must set aside some money to pay these future costs. HMRC have to collect these taxes and usually they are very good at collecting them. This is the tax timing difference you must be aware of and is why we warn clients that just because everyone else has been paid and there is £1 left in the business bank account at the end of the month, unless you have set aside some money for tax, you cannot touch that £1!

If you need help with your tax affairs then please do not bury your head in the sand but do something constructive – get in touch with us.

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VAT and the startup business

on Monday, 11 March 2013. Posted in Startup Advice, Accountancy Advice, Tax Advice, VAT advice

VAT1 Application for VAT registration

One of the many issues we discuss with people starting out in business for the first time is VAT, the dreaded Value Added Tax.

Should your new business be VAT registered? Consider your expected sales levels and who your customers are. Also think about the expenditure you will be incurring. When you register for VAT you can reclaim VAT on any services incurred in the previous 6 months or any assets that are less than 4 years old that you still have: i.e. fixed assets and stock.

Consider one of the many VAT schemes. Cash accounting is great if you sell to other businesses and have to charge VAT. VAT is only accounted for as you receive the cash or pay it over. However only small businesses can use this scheme – you have to plan for the cash flow issue of when your business out grows the scheme.

The flat rate VAT scheme can be useful but it depends on the rate that has been allocated to your sector and how much VAT you think you will suffer. The scheme is wonderfully simple and there is an additional 1% reduction in the flat rate during the first year of trading. Be careful because many accountants over look this scheme.

Also be careful of property and VAT, which can be a minefield. Talk to an experienced qualified accountant about this area.

The VAT registration limit increases each budget and there is a trap here that everyone must be aware of. The VAT limit covers a 12 month period. This year is any 12 month period. Your accounts might show that in each of two years you kept below the current registration limit, however if your sales were not incurred evenly but were bunched together at the end of one accounting period and at the start of the next then you may quite easily have gone over the limit. This can be a disaster if you get it wrong. If you cannot go back to your customers to recover the VAT then you must pay it out of your profits, and there will also be penalties and interest to pay.

If you wish to discuss VAT further please get in touch.

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xero-certified-advisor-logo-hires-RGB cashflow-logo

 

We love Cloud Accounting and think it is the way forward for most businesses. We are Silver Partners with Xero Online Accounting Software and Certified Partners of IRIS’s KashFlow. Please contact us for more information on Cloud Accounting and also read our blog.