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Company Accounts

In need of help with your company accounts? Read our articles for advice or call on 0800 135 7157 for help.

Is your small business reclaiming all of the VAT it could?

So many freelancers and contractors approach Freelancer Accounting (http://www.freelanceraccounting.com) over worries about Value Added Tax (VAT), unsurprising given its reputation as a very complicated tax that is easily misunderstood. Without the assistance of the right PCG accountant, you may struggle to manage your VAT – and now, a study commissioned by Sage shows that significant cash savings are being missed by more than a third of smaller businesses as a result of their failure to claim back the tax, often due to a lack of understanding of the associated rules.

The study found that many of those running smaller businesses are unaware of every item on which it is possible to recoup VAT, resulting in at least half of all owner-managers estimating that they miss out on more than £500 each year. Although business owners tended to be aware that they could deduct tax for everyday office items like stationery and printer ink, they weren’t as likely to know that the same rules applied to certain other purchases, such as petrol. This may explain travel – including that by car – topping the list of the greatest expenses for owners, followed by “food and refreshments” which, like fuel, could also have VAT reclaimed on them in a business context.

Managing director of Sage’s small business unit, Lee Perkins, warned that businesses failing to claim back the VAT to which they were entitled were putting themselves at a competitive disadvantage, adding that “Despite being around for 40 years, the ever-changing nature of VAT has put many business owners off from digging into VAT and fully understanding what can be refunded.” This news suggests the potential value to small traders of enlisting the help of the accountants in Canary Wharf of Freelancer Accounting.

The findings showed that 36 per cent of owner-managers missed out on savings due to the complexities around VAT reclaiming, while 52 per cent think that they and their businesses are down by hundreds of pounds each year as a result of such negligence. It’s all the more of a shame, given the highly efficient and cost-effective VAT service offered by the accountants for contractors of Freelancer Accounting, encompassing the preparation of VAT returns, ensuring that the client is on the most appropriate scheme, representation of the client in meetings with HMRC, dealing with all HMRC correspondence and assistance for the client with registering for VAT.

As a highly regarded provider of fixed fee accountancy services, Freelancer Accounting (http://www.freelanceraccounting.com) can ensure that small traders across London and the South East of England benefit from the most informed and tailored advice on their VAT situation. Contact us now for the help that you need to better understand the reclaiming of VAT.

What directors need to know about personal taxation

If you are the director of a limited company, then it’s vital to remind yourself that you and your limited company are separate legal entities. This makes the taxation situation for limited companies different to that for an individual. A limited company’s director and employees pay income tax via the PAYE system, as well as employees’ National Insurance Contributions (NICs). Our accountants in Richmond and the wider Surrey area here at Freelancer Accounting (http://www.freelanceraccounting.com) can provide advice relating to all aspects of personal taxation for directors.

The directors and employees of limited companies have taxable income on which they must pay income tax. HMRC has a system for the collection of income tax from directors’ and employees’ pay as they earn it, known as PAYE (Pay As You Earn), with the tax being deducted monthly. It is the responsibility of the employer to deduct income tax and NICs from the pay of its employees, before submitting the deductions to HMRC. The 19th of each month is normally the deadline for this, although quarterly payments may be possible if your average monthly payments are not likely to reach a minimum of £1,500.

As a prospective or current client of our accountants in Surrey, you should also be aware of the taxation of directors and employees on benefits in kind, such as medical insurance or a company car. Employers are also required to pay class 1A NICs on benefits, with a form P11D being used to declare them on an annual basis.

Freelancer Accounting can assist with all aspects of personal taxation

All freelancers have their own tax responsibilities in the form of personal income tax and employees’ NICs, in addition to business taxes, and the small business accountants of Freelancer Accounting can provide any advice that you require on aspects of personal taxation. You may require advice on the Self Assessment system, for example, within which most freelancers fall. This makes necessary the submission of a personal tax return for each tax year ending 5th April, and it needs to be correct and submitted in time if you are to avoid being charged interest and penalties.

Clients of our accountancy services typically need to complete a tax return due to being a director of a limited company, a sole trader or a freelancer. Generally speaking, you’ll need to complete an annual tax return if you have tax to pay outside of ordinary employment, pension income and small amounts of investment income – and you are responsible for informing HMRC on an annual basis if you need to complete a return.

When it comes to Self Assessment, our accountants for freelancers can give you advice on when to fill in the form, the consequences of failing to file a tax return on time, what actually appears on the form and even personal tax on dividends. Contact Freelancer Accounting (http://www.freelanceraccounting.com) now if you are a limited company director who requires the highest standard of tailored advice.

Distinguishing between allowable and non-allowable business expenses

When you are running a freelance business, it’s vital to distinguish between allowable and non-allowable business expenses with regard to tax treatment – and yet, doing so can be fraught with anxiety. That’s why, in today’s blog from accountancy services provider Freelancer Accounting (http://www.freelanceraccounting.com), we consider the basic rules.

 

Put simply, allowable expenses are those that are incurred wholly and exclusively for the purpose of earning business profits, which is why you can either fully or partially deduct them from your turnover for the purpose of reducing the business’s tax liability. Examples of such allowable expenses include goods that you have bought for resale, although for closing stock, an adjustment will need to be made. The likes of wages, rent, lighting, heating and repairs are also allowable expenses.

 

There are also costs, however, that you incur for a non-business purpose, and which our small business accountants would advise you to class as non-allowable. Examples include your own personal expenses or drawings, capital costs and costs which are recoverable under insurance, although neither of these aforementioned lists is exhaustive.

 

In general, we would advise that an expense paid by the company is not allowable unless it has been incurred wholly and exclusively for purposes of trade. An expense is normally deductible for the company if it results in a benefit in kind for an employee. If the business has sole trader or partnership status, then there is a restriction to the amount of expense that is allowable for tax purposes as a result of any private use by the owners. Expenses that the employee has paid are only allowable if they have been wholly, exclusively and necessarily incurred in the performance of the office or employment’s duties.

 

When you are determining whether a particular expense is allowable or non-allowable, you will need to consider all manner of factors on which our accountants for contractors can advise you in greater detail. Consider, for example, whether any given expenditure has a dual purpose element, as it will not be allowable for taxation if it does. For example, although you may buy a suit or dress to wear at work, the fact that you need to wear clothing anyway renders it a non-allowable expense.

 

For many business expenses, there is some ambiguity as to whether certain elements may, or may not be allowable. With regard to legal and professional fees, for example, fees for preparing your company accounts relate to your trade, and are therefore allowable. However, if you incur legal fees on taking on a new lease, their relation to capital means that you will not be able to claim tax relief on them.

 

We could continue in much more detail, but really, when you have a core business to focus on, it can be a significant benefit to have a PCG accountant from Freelancer Accounting (http://www.freelanceraccounting.com) by your side to take the hard work out of making these distinctions. Get in touch now to find out more.

A guide to employer’s liability insurance for freelancers

Even the best-prepared client of Freelancer Accounting’s (http://www.freelanceraccounting.com) accountants in Richmond and the wider Surrey area will occasionally get something wrong – it’s just a fact of life, and it’s why insurance exists to provide some peace of mind and financial compensation for any mistakes made that necessitate it.

 

There are types of insurance, such as IR35 insurance, income protection insurance and business interruption insurance, which may only apply to certain freelancers or be an optional extra rather than essential. But which insurance is it essential for freelancers to have? Well, it’s difficult to see past employers’ liability insurance. With employers having legal responsibility for the health and safety of their employees while they are at work, employers’ liability insurance covers the cost of any compensation and legal fees for workers who can attribute an injury or illness to their work for you.

 

Not only is it morally imperative for you to take out employers’ liability insurance as a freelancer, but it’s also legally required, with some exceptions. You will not need to take out this cover if you are exempt from the Employers’ Liability (Compulsory Insurance) Regulations 1998. One example of an exempt business is a limited company that employs only its owner, who has more than 50% of the issued share capital. Nor are family businesses required to take it out, as long as all employees are close relations of the owner, such as husband, wife, civil partner, mother, father, son or daughter – although this exemption is not applicable to those family firms incorporated as limited companies.

 

It may have crossed your mind to engage a substitute or enter into a contract with a substitute clause, in which case it is vital to accurately clarify whether, for the duration of the contract, this substitute may be considered as your employee. A legal practitioner should be able to assist you with this.

 

Our accountants in London would always urge clients to ensure that they have met the minimum legal requirements – or more specifically, that insurance covers at least £5 million of employers’ liability insurance, courtesy of an approved supplier – of which the FCA maintains a list. It is also necessary for an employer to display their employers’ liability insurance so that all employees can see it – whether in electronic or physical form.

 

The Health and Safety Executive (HSE) urges businesses to maintain a complete record of employers’ liability, given the potential for diseases to develop decades after exposure to their cause, possibly leading the worker to make a claim against their employer at the time. Clients of our accountants for freelancers should also be reminded that at any time, HSE inspectors can request to see their certificate of insurance. Fines can be imposed for lack of insurance or the failure to produce a certificate.

 

For more freelancer-related advice, visit the website at http://www.freelanceraccounting.com).

Unlimited fines for Companies Act offences

There are a wide variety of offenses which a Director could incur a penalty with Companies House, these fines and penalties are currently capped at £5000, they generally arise through non submission of annual accounts or annual returns or failing to report company secretarial matters.

This is all about to change as a result of the Legal Aid Sentencing and Punishment of Offenders Act 2012 (LASPO) fines which are currently capped can now be unlimited, leaving the ability for judges to impose more pertinent fines on wealthy individuals or corporates.