Laura's Small Business Tips

How will I comply with HMRC's Making Tax Digital requirements?

Wed, 10 Sep 2025 09:47:09 GMT

What do I need to do to comply with making tax digital?

Big changes are coming to the way that sole traders and landlords will submit their self-assessment returns to HMRC, starting from April 2026. The government believe that by requiring business owners to keep their business records digitally, business owners will benefit from more up to date information and the government will also benefit from gathering more accurate data more regularly. Time will tell what the benefits are to either party but the regulations are coming and if you are in the first wave of participants, you need to act now.

Its worth noting here that this does not apply to companies or partnerships.

What am I required to do to comply with Making Tax Digital?

There are obviously more detailed rules but essentially, when Making Tax Digital becomes mandatory for you, you will be required to keep your business records in a digital format. The way in which you do this could involve bookkeeping software or it could be a spreadsheet but you will be required to use digital means. In any case, for each transaction (or you can post daily totals) you need to keep a record of the date, a description and the amount of the transaction.

HMRC will require you to evidence that you have done this via quarterly submissions to them from specially designed software that can connect to HMRC systems. The deadlines for these submissions will be 7 August, 7 November, 7 February and 7 May for quarters to 30 June/5 July, 30 September/5 October, 31 December/5 January and 31 March/5 April respectively.

How will I manage to comply with Making Tax Digital?

Your basic Making Tax Digital plan for a simple business is summarised below. You can use spreadsheets to manage your business but you would need connecting software (called bridging software) to be able to make your submissions if you decide against using bookkeeping software. Bear in mind that you will need to create separate submissions for each business that you operate so if you have a business and are also a landlord, you may have two separate submissions to make.

If you don't already have a separate bank account for your business, this will become almost essential once you have to start making digital submissions to HMRC. It doesn't necessarily need to be a business account, just separated from your day to day personal account.

Once you have your chosen bank account set up, make sure you receive all sales income into that bank account. Bank any cash you receive.

Use that same bank account for all your business payments and only business payments.

Make regular drawings from your business bank account into your personal account for personal spending.

Connect your bank account to your bookkeeping software and post the transactions to the correct categories as you go along.

Make your quarterly submissions to HMRC by the deadline directly from your bookkeeping software.

Obviously not all businesses are as straightforward so you may need to add the following tweaks to this simple outline.

You may choose to use your bookkeeping software to send your invoices.

If you receive and spend a lot of cash, you may need to keep your own (digital) "bank" statement noting date, description and amount each time you spend or receive cash payments. You can then upload this as if it is a separate account to your bookkeeping software.

If you use a second business account you need to be very careful to mark any transfers between accounts as such, rather than your transfers inflating your sales.

If you use a credit card provider or third party payment app, you may need to upload their charges to ensure you include the gross sales in your records.

You could add receipt capture software to help you manage your expenses (and to a lesser extent your income if you are not invoicing from your bookkeeping software)

You may need a separate software licence if you have to report more than one business.

When does Making Tax Digital happen for me?

HMRC are using your 2024/25 tax return to decide when you will be required to comply with Making Tax Digital. Taxpayers will be required to comply with Making Tax Digital in stages depending on their turnover.

What should I do now?

The first thing that you need to do is to get your 2024/25 self-assessment return drafted and submitted so you know when you are likely to be required to comply with Making Tax Digital.

If you know you will be in Making Tax Digital you can opt to join early, which would give you a feel for the submissions before they become mandatory. There are no penalties during the trial period. If you would like to join the trial, talk to your accountant to see if it is a reasonable option for you.

If you are VAT registered, you may wish to adjust your VAT quarter ends to align with the submissions for Making Tax Digital as the review work for one would likely reduce the review work for the other, especially if you use the cash basis for VAT.

I have outlined a plan above to get you onto bookkeeping software. Does it work for you? If so, work towards setting your business up so as to make the reporting as straight forward as possible. Speak to your bookkeeper or accountant to find out what their plan is for dealing with the new reporting requirements.

If you would like to take care of things yourself, this HMRC link will help you find suitable software that will help you comply with the requirements.

What do I do about this email from Companies House asking for ID?

Thu, 12 Jun 2025 12:27:58 GMT

Why do Companies House need to check my passport?

Until now it has been extremely easy to register a company with Companies House with very little in the way of verifying who is setting up the company and where they are based. There have been issues with many companies being set up at the homes of people that are unaware that this was happening, trading fraudulently then moving on. until now Companies House have been powerless to prevent these sorts of things from happening.

Therefore the Economic Crime and Corporate Transparency Act 2023 has been put in place to deliver additional powers to Companies House so that they can more easily control who is registering companies in the first place and ensure that they can deal with any issues and remove any companies that are operating illegally.

Existing directors will have noticed the significant increase in Companies House fees and changes to the annual confirmation statements that came in last year but Companies House is soon to introduce a further series of measures.

The first of these is to biometrically check the identity of every director and Person of Significant Control held by Companies House. This is due to become mandatory in the Autumn, however they are starting to contact directors now so you may receive an email from them asking you to set up an account with them and download an app that will scan your passport or photo driving licence and match it to your face through taking a selfie!

Its worth noting that if you are eligible for a passport or driving licence with biometric tags but you haven't applied until now, you will need to apply for this exercise. For example, if you are eligible for a photo driving licence but still only have a paper version you may find that you need to obtain your new ID before you can confirm your ID.

Instead of using the Companies House app to scan your ID, you may be able to ask your accountant or solicitor to do this for you. However, they must be approved by Companies House to perform ID checks and it is highly likely that they will need to use a very similar app to run the process. As usual, they will charge a fee as well.

If you aren't able to use the app you will need to get your ID verified using an Authorised Corporate Service Provider who is permitted to perform a manual check of you identification. However, if they wish to offer this as a service, Companies House require the individual ACSPs to attend rigorous training in detecting fake ID and its unlikely that your local accountant will be sufficiently qualified to do this!

This is a very new process so there may be teething troubles along the way. However, I have been through the ID check routine for my own business and once I set up the new Companies House account, it was fairly straightforward to run through the ID check process.

Companies House are gradually providing more information as to how the process will work after it becomes mandatory from 18 November 2025.

What else do I need to do?

Once you have verified your identity with Companies House you will be given a personal code. This allows you to confirm your identity has been verified if you are involved with more than one company as it is personal to you. You will need to confirm the personal codes for each relevant company officer or PSC when completing the annual confirmation statement, each role will need to be confirmed separately. If you are both director and PSC, you will need to add your personal code for the two roles separately. You therefore need to keep your code safe and only share it with the person who is completing the confirmation statement for the company.

As a PSC, you must use a separate online service to provide your personal code within 14 days of your company’s confirmation statement date. This service will be available from 18 November 2025. PSCs will also be able to use the service to check their individual 14-day verification due date.

If you are a PSC but not a director, you’ll need to provide your personal code within the first 14 days of your birth month. For example, if your date of birth is 22 January, your 14 day period will begin on 1 January.

How do I find my personal code?

If you verified using the GOV.UK process directly, sign in to Companies House and go to ‘Manage account’ to view your code. You’ll need to sign in using the same email address you used when you verified. If you used an ACSP to verify your ID, your personal code will have been sent to them directly so contact them to access it.

Find out more about your personal code here .

Can my company buy me an electric car to use personally?

Tue, 16 Jul 2024 14:45:14 GMT

When your employer provides you with an asset that you can use personally instead of paying you additional salary, there is usually a tax for doing so. That is no different when the company provides you with a car that you can use for private journeys.

If your company provides you with a traditionally fuelled car for personal use, it can be a very expensive way to fund your vehicle. Find out why I don’t usually advise buying a traditional car for personal use by reading my previous blog on company cars .

However, if your company provides you with an electric car that you can use personally, the tax tends to be substantially lower than for traditional vehicles and there are incentives for the company as well.

What are the tax implications for the company?

What happens in the company tax return if my company uses a loan or HP to buy an electric company car?

If your company either buys or chooses Hire Purchase as a way to invest in your electric car, a 100% first year allowance is available on a new or ex-demonstrator electric car. This means that the full cost of the vehicle can be used to reduce your corporation tax bill in the year in which you purchase the car.

Even if you invest in a second hand electric car, you can claim the capital allowances at the main rate of 18% rather than the special lower rate of 6% for most traditional vehicles.

VAT is not recoverable on the purchase of any car, electric or traditionally fuelled.

What happens in the company tax return if my company leases an electric company car?

When you lease a vehicle, you never own it so there are no capital allowances available in the company. Instead, the company can deduct the full cost to the company over the course of lease, either by charging the actual costs per year for an operating lease or through depreciation and interest for assets held under a finance lease. Note that if you lease a traditional car with emissions >50g CO2 per km then the company can only claim 85% of the cost as a deduction for corporation tax purposes.

If your company is VAT registered then half of the VAT incurred on leasing the electric car is recoverable through your VAT returns.

Can my company pay for charging my electric company car?

The company can also pay for the installation of an electric charging point for you as an employee without triggering a benefit in kind charge.

If you charge the vehicle at home and pay for the electricity yourself you can reclaim the cost from your company if you are able to distinguish the cost of charging your vehicle from your other household electricity charges. Otherwise you would need to stick to the approved mileage rates from HMRC of 8p per mile from 1 June 2024 (this is updated quarterly, find the latest rate here ).

If you want to find out more about how much it costs to charge your electric car at home, the team at GoCompare have built an interactive cost of charging calculator tool, which you can access here .

Remember that the company can also pay for the maintenance and insurance of the company car.

What are the tax implications in my personal tax return?

What tax do I need to pay on the company car?

There is income tax to pay for the employee that gets to enjoy the use of the electric car. This income tax is much lower than it would be if you were provided with a petrol or diesel car personally. The tax on the benefit is set to increase from 2% in 2024/25 by 1% over the next few tax years to 5% in 2027/28 but the income tax you will pay remains at a low level for the value of the benefit provided. It is important to remember that these percentages are applied to the list price of the car, which is the price listed by the manufacturer when new. This may be higher than the price you paid for it.

Don’t forget that tax law can change at any time. Investing in an electric company car may be a good idea just now but be prepared that that may not always be the case.

What is it like to drive an electric car?

From a personal perspective, I started driving an electric car in early 2021 and it has been a favourable experience. If you’ve never driven an electric car before, you’ll find that you don’t lose anything in the feel of the car. In fact, I find it more responsive than a petrol car.

The one thing that people worry about is range anxiety and for longer journeys that is an issue. My car only has a small battery and takes about an hour to recharge if I am able to locate and use a rapid charger. That said, the car I have is not really intended for longer journeys and I only bought it for short range journeys so it has not been a problem for me. If you needed the vehicle to cover longer distances, you would need to invest in a car with a longer battery range and a rapid charge facility. There are plenty of these on the market now and charging facilities are constantly improving.

I think if you are a company owner and you had already been thinking about investing in an electric car then it is a good idea to do so through your company. However, think first about whether you want an electric car. It's not worth switching to an electric car for the sake of it

Meet the team - Andrea Dow

Fri, 05 Apr 2024 15:44:36 GMT

My name is Andrea Dow. I am originally from East Kilbride but moved to Lanark when I got married. Its semi-rural and my husband and I are very happy there. We enjoy all things outdoors – cycling, hillwalking, a bit of scrambling, snowboarding but I also love the gym too. That’s my ‘happy place’ and there’s nothing better after a stressful or tiring day, than to hash it out in one of the xtreme fit classes at my local gym. I come from a big family, my close friends and family are really important to me – I love a good ‘walk and talk’ – then a pint and burger, or better yet, coffee and cake.

I joined Armet in 2021, and I’ve been very happy here. It is a lovely team to work with, and I feel like we have an open, friendly, approachable but professional work environment. I am an ACCA qualified accountant, in my previous role I gained a lot of experience in the production of management accounts for small and medium businesses. I was keen, to develop my taxation knowledge and so when an opportunity came up to work in practice, I jumped at the chance. That was a number of years ago now, but I can say that the move to Armet, has been a really happy and good one for me. It’s been a pleasure getting to know Ursula and Laura, and learn from the wealth of experience they both bring to the table, but it’s also been really lovely meeting our clients.

I co-ran a small online retail business, with my business partner, for about 7 years and it gives me a bit of an insight into how small business owners can sometimes feel. An understanding of how stressful, exhausting, and all-consuming it can be at times. It can be difficult to take a step back, evaluate what we want or need, and figure out what we need to do, to achieve that. Sometimes a wee meeting with your accountant is actually a great opportunity, to take that step back, and get back in control. And if I can help someone to do that, it gives me a real sense of satisfaction and joy.

I’m selling a property, what do I need to do about Capital Gains Tax?

lochmyllie@gmail.com (Laura Arbuckle) — Thu, 01 Feb 2024 10:49:54 GMT

My residential landlord clients would probably tell you that they are fed up of hearing about HMRC’s latest requirements for reporting Capital Gains Tax. At every accounts review meeting I make sure they are fully aware that in the event they sell their residential rental property, they must complete a return and pay any tax that is likely to be due within 60 days of the sale being agreed.

In the last few months, a small minority of my clients that were not landlords have sold residential properties with a capital gain that needed to be reported that I was unaware of until a chance conversation. These were sales of inherited property and therefore that discussion hadn’t been prompted when discussing their affairs. They were unaware that a return was required and I was unaware that they had a property to dispose of. I now want to make sure that as many people as possible are aware of the need for these returns because (you guessed it) there are penalties for failure to complete them.

What is Capital Gains Tax?

Capital Gains Tax is a tax that you pay when you dispose of an asset that has increased in value over time. You only need to pay tax on the gain you have made since purchasing or inheriting the object. It most usually applies to sales of property, shares or businesses. When the gain arises from the sale of a residential property and there is tax to be paid on your gain, you need to submit a tax return to HMRC within 60 days of the sale being agreed (exchange of contracts or completion of missive – usually earlier than the date of the sale).

What if its my home that I sold?

If you sell your only property that you have lived in since buying it, then any gain on sale will be covered by Principal Private Residence Relief. There will be no Capital Gains Tax due and there is no need to report the sale to HMRC.

Its fairly common for people to buy a property and live in it for a while, then they may move out and rent it out for a while before selling it. If you have lived in the property for some of the time, you will be granted principal private residence relief on the portion of the gain that covers the time you lived in the property. There may, however still be a taxable gain on the portion that doesn’t attract the principal private residence relief and this may need to be reported within 60 days of agreeing the sale.

If you have never lived in the property, there is no principal private residence relief available and the whole of the gain will be subject to capital gains tax.

Here is a link to an HMRC calculator that may help you decide whether you need to complete the return.

When did you sell or give away the property? - Calculate your Capital Gains Tax - GOV.UK

Note that if you are in the business of buying and selling properties as a trade, then any profits may be subject to income tax instead. We don’t cover this scenario at Armet Accounting, you should find an accountant that specialises in property taxes.

I need to submit a return, what do I need to do now?

Make sure tha t you gather all the information you are going to need to complete the return. This might include

How much you paid for the property or the market value on the date you inherited it
How much you spent improving the property
How much you spent on fees to purchase the property
Sales proceeds
How much you spent on fees to sell the property
Dates you moved in and out of the property
Dates of purchase and sale of the property
How much you are likely to earn through other sources of income in the tax year you have sold the property

Set up your government gateway account for Capital Gains Tax reporting by clicking on the link below.

Create a new government gateway account

Create a new government gateway account by clicking on create sign in details.

If an accountant is going to submit the return for you, you will need to let them know your account reference number so that they can become authorised to submit the return on your behalf. If you are completing the return yourself, you should populate all areas of the return. It will ask you for the information you have gathered and help you calculate the capital gains tax that may be due.

Once you are happy with the entries, you can submit the return and you will be given a payment reference to enable you to make the payment within the 60 day deadline.

I’ve submitted the 60 day Capital Gains Tax return, what now?

If you are not in the self-assessment regime and the tax that was calculated in the 60 day return was correct then there is no need to submit a self-assessment return as well. Otherwise, you should still report the gain in your self-assessment return and include a note that includes the reference number of the return that you submitted.

If any additional tax is due, for example because you earned more in the tax year than you expected to, then you will need to pay the difference with your self-assessment payment. Beware that interest may be charged on any underpayment. If there is less tax due for example because you made subsequent capital losses that you could set against the gain, it’s a lot harder to get the overpaid funds back from HMRC!

Summary

There is no need to do a return for your home where you have lived in it for the whole time you have owned the property.

There is also no need to do a return if the gain is within your capital gains exempt amount for the tax year in question, although this amount is decreasing over the next few tax years so this will be increasingly rare.

Otherwise, if you dispose of a property you will need to complete a return and pay any tax due within 60 days of the sale being arranged. If you miss this deadline, there will be a £100 penalty and interest will be charged from when you should have paid the tax to the date that HMRC receive the payment.

I would recommend that you get help completing the return from a qualified accountant, especially if you have lived in the property for some of the time that you have owned it and are therefore entitled to some Principal Private Residence r elief on the gain.

Note that other Capital Gains Tax reliefs are available but are not covered here.

How do I move from a sole trade to a company?

Thu, 17 Aug 2023 15:51:01 GMT

Is it a good idea to trade as a company rather than a sole trader?

How you structure your business is really a personal preference. Find out more about business structures here .

Some of the advantages for moving to a company include the following.

You want to have some protection for your personal assets in the event something goes wrong with your business. Bear in mind that this may be restricted of you offer security over your personal assets to obtain finance. Often insurance can mitigate some of the risks that sole traders face.

You want to be able to manage how much income you are taking in each personal tax year. When you operate through a company you personally are only taxed on what you take out of the company.

You are ambitious and want to grow into a very large business over time.

You intend to sell your business on to a third party in the future. This may be easier to achieve if your business is separated from you.

You may want other people to be involved in running your business, whether now or in the future.

However, there are some trade offs as well.

Your company's accounts must be submitted to Companies House each year and are publicly available. As it stands, only the balance sheet is submitted, although there are plans to extend that to profit and loss account information as well in the future.

These accounts need to be drafted in accordance with the Companies Act and prevailing accounting standards. Therefore, accountancy fees tend to be high er than for a sole trader.

You will be required to submit an annual confirmation statement and pay a £13 fee to Companies House each year.

If you want to withdraw money from your company you need to either take a salary and submit payroll data to HMRC or declare a dividend , which is only available if you have sufficient profits to make a distribution.

If you withdraw too much money from your company without submitting payroll or declaring a dividend, there are hefty penalties in the form of additional corporation tax.

How do I move from a sole trade business to a company?

If you haven’t already, you will need to set up a company. In doing so the company will also be registered for Corporation Tax with HMRC. You can get set up here . You can generally set up a company within 24 hours.

It is essential to set up a bank account in the company name. You can’t continue to trade through a company whilst using a bank account in your personal name. Setting up a bank account can take several weeks and the bank will have a lot of hoops you need to jump through before you can get an operational bank account set up.

Because of the nature of a company being a standalone entity, you will almost certainly need to set up a payroll so that your company can pay you a salary. You may also need to register the company for VAT, especially if you as a sole trader are VAT registered. You would need to charge VAT to the company on transfer of the business unless the company itself is also VAT registered.

When your new company is ready to trade, you effectively sell your sole trade business into the new company. This can create a capital gains tax liability, although it can be mitigated using one of the CGT tax reliefs that are available to businesses. The assets and liabilities (usually not including cash) of the sole trade business will transfer to the company. There may also be some Goodwill in the form of a client list that transfers over, which can be difficult to value and is generally what drives the capital gains tax liability.

On the date of transfer, you would adjust your invoicing to your new business details and bank details and start trading as the company. It is worth informing your customers and suppliers in advance of this change. You may find you need to lend the company some money to get things started, this can be repaid once the company has generated funds of its own.

Finally, you will need to complete a final self-assessment return including your sole trade and notify HMRC that you have ceased to trade. There are some final adjustments that may need to be made, especially if you have moved fixed assets that you have claimed capital allowances on to your new company.

What are the differences after I move to a limited company?

Although the day to day running of your business will feel pretty similar as a company rather than a sole trader, the administration of your business will feel a little different. You will need to submit accounts to Companies House and a Corporation tax return to HMRC each year. You may also have weekly or monthly payroll returns to complete.

You will need to be much more disciplined in how you withdraw money from the company bank account. Taking one larger withdrawal rather than lots of smaller withdrawals is preferable and you must ensure you leave enough behind to make any payments of tax as they fall due.

Your year-end may be different from your sole trade year end. You can choose your company year end but by default it will be the end of the month you set up the company in.

You may continue to need to complete a self-assessment return to declare any dividends you withdraw from your company, but it will be much simpler to draft once your final sole trade set of accounts is complete.

Having decided to move to a company, it is a good idea to talk your decision through with an accountant or business adviser before you start. Although the day to day running of your business won’t change enormously, the valuation of your sole trade business before it transfers is complicated.

How can I get back on track with my tax returns?

Wed, 09 Aug 2023 14:01:09 GMT

Background

William had been an electrical contractor operating as a sole trader for many years. He had built up a reasonable size of business but things started to go wrong after he moved his business into a limited company. He struggled to connect with his then bookkeeper and a few mistakes were made because of the operating differences between a sole trade and a company, especially where CIS deductions were involved.

He felt like he was providing all the information to his advisers but things would get lost in translation and as a result, the various submissions weren’t completed on time. Scary brown envelopes kept landing on the doorstep. He even stopped opening them and was frozen into inaction for some time.

What was the best way for us to help?

William came to speak to us. We weren’t the first accountant he had appointed to try and get things sorted out but he hadn't quite gelled with the previous accountant. We started off by listening to William and trying to understand how he was feeling. He was anxious about what was going to happen if he didn’t make the appropriate submissions and worried about how much tax he may be required to pay.

William brought a box of all the documents he had accumulated over a two year period to his first meeting and left it with us. Just knowing that he had passed the problem on to someone else was quite a relief.

What actions did we take?

The process was not without its challenges. Going back into previous tax years meant that not all of the information was available.

Once the usual anti money laundering checks were out of the way, the first step is always to gain access to the HMRC records so we can understand what has and hasn’t been done already. Once we knew what had already been completed, we could then make a plan as to how to work things through and establish how the different taxes inter-connected.

We then gathered as much business information as we could so that we could work out what was missing and whether we were able to plug the gaps. HMRC were able to send out some payroll information to us to assist with this. Fortunately for William, he had a lot of bank statements, CIS advice slips and some of the payroll and VAT submissions as well as the accounts that had been drawn up by his previous bookkeeper and accountant. William managed to track down enough of the records to allow us to piece together reliable estimates to fill in the missing pieces of the puzzle.

This left us with a list of actions in a sensible order that we could work through one step at a time. Simply having a plan for tackling a big job and working through each step methodically gave William the confidence that we were going to get things sorted out.

Depending on how far behind things get, it may take months to work through all the necessary steps. Once things were drafted, we needed to get William’s approval before we could get things submitted and work out how best to make any outstanding payments. Fortunately, as an electrical contractor William was used to having CIS deducted and was paying HMRC's VAT estimates as they came through so he didn’t have too much to pay at the end. Where a large payment of tax is due, you may be able to arrange a payment schedule with HMRC but the submissions need to be up to date before you can do this.

For William, the whole process took about 5 months to complete from signing the engagement letter to being up to date with all the submissions. This included 6 VAT returns, 2 corporation tax returns, setting up a new company payroll and making the CIS submissions and repayment claims for 4 tax years.

What helped the process move forward?

As always, we enjoy working with a client that is fully engaged and happy to respond to our questions. This sort of work is a two-way process and it works best when you answer questions quickly, even if the answer is that you don’t know something.

You need to find an accountant or adviser that you trust and can communicate with. It’s a very personal relationship so you need the right person. If you don’t find the right person initially, its ok to make a further change.

What was the outcome?

William’s business has now moved onto our usual Armet Accounting processes. You can find out what that looks like by reading the “what can I expect when” blogs for Accounts and Corporation Tax , VAT , Payroll or Self-Assessment .

William's company is up to date with their submissions and payments and there are no more nasty tax surprises. Even if HMRC did decide to challenge things, we are in a position to be able to demonstrate compliance.

William is able to concentrate on growing his business, knowing that both he and the company are meeting all their tax obligations and he has up to date business records that give him a snapshot of what is going on at any time.

If you have got behind with your submissions, the sooner you bring things up to date, the easier you will sleep at night.

Do I need a bookkeeper?

lochmyllie@gmail.com (Laura Arbuckle) — Tue, 04 Apr 2023 16:39:48 GMT

Can I get my mum to help me?

We’ve all seen the adverts from the big players in the bookkeeping arena recently. QuickBooks and Xero are going to do all your business record keeping for you. What they don’t tell you is that even with the help of software, it still needs your input to ensure you get the right answers.

Unless they have previous bookkeeping experience, it can be a false economy to enlist family and friends to maintain the books for you. It also puts family members under a great deal of pressure to get things right, which may strain relationships.

If your accountant has to spend hours fixing the bookkeeping software, they will have to increase your accounting fees to cover the cost of the additional work they need to do to fix your accounting records.

Why do I need bookkeeping software?

In general, you need to keep your business records for 6 years in the UK. For busy businesses that could be a whole lot of paperwork to find storage for.

Your business records don’t have to be kept in paper format, though. Bookkeeping software, together with receipt scanning facilities can be a good option to help cut down on the paperwork.

When your business becomes VAT registered, you will need to invest in good bookkeeping software in order to submit your VAT returns. All VAT registered businesses in the UK are now required to maintain a digital record of their transactions with digital links from the source data into the VAT return that is submitted to HMRC. The easiest way of ensuring these digital links are maintained is by keeping your bookkeeping up to date and submitting the return to HMRC directly from within the software.

Even if you're not VAT registered, maintaining accurate and up to date bookkeeping can assist you when making the decisions that help your business to grow as well as ensuring your business continues to be profitable and you can pay your bills as they fall due.

Doesn't the bookkeeping take care of itself?

After seeing the business adverts, you would be forgiven for thinking that once you download your software and connect your bank account that is the end of the input required and your VAT return or business accounts are spat out at the other end, perfectly correct and ready to be submitted.

Unfortunately, this isn’t the case and someone needs to tell the software how to treat each transaction. There are plenty of automations that can be put in place to facilitate this but it is important that someone with some knowledge allocates each transaction appropriately.

Complicated transactions such as the purchase of a van through a loan or hire purchase can be tricky to get right. The money through the bank almost certainly won’t match the accounting entries that need to be posted manually.

Credit card sales may have charges deducted from the amounts received into the bank. Simply posting sales from the bank receipts understates sales and could mean that you miss having to register for VAT, which is to be avoided at all costs!

What are the pitfalls?

If you are not used to using bookkeeping software, it is very easy to accidentally enter transactions more than once. This happens when you post sales or expenses through your software and instead of matching the bank transactions to those you’ve added, post them again from the bank feed. This leads to overstated sales and expenses in your profit and loss account and overstated debtors and creditors in your balance sheet.

Confusion between similarly labelled P&L categories and balance sheet categories can lead to inaccuracies. For example, computer expenses being added to computer equipment and vice versa.

Even with bank transactions automatically appearing in a daily feed, where you don't have a trained bookkeeper we find that bank account balances in the bookkeeping software often don’t agree to the balance on your bank statement!

Entering transactions with the wrong VAT code could cause fundamental errors in your VAT return, leading to under or overstated VAT payments. Mixing up zero and out of scope VAT codes could make HMRC question why your VAT return looks out of sync with other similar businesses, and they may decide to do a VAT review visit.

What happens if the bookkeeping isn't correct?

You may be charged more by your accountant in the long run to fix the errors before the accounting and tax submissions can be made.

Your bookkeeping software should form the basis for making decisions that are going to change your business. If your bookkeeping isn’t up to date or is incorrect, you either can’t make these decisions or you could end up making the wrong decisions about your business.

In an extreme scenario, you may pay too much tax or be charged penalties or interest by HMRC because your HMRC submissions are late or incorrect.

Is my bookkeeping good enough?

If your bookkeeping is up to date, you should be able to find all sorts of information that helps you with the day to day running of your business. Can you reliably…

Pull up a list of suppliers that are due to be paid so you can manage when you are going to make payments
Print off a list of people that owe you money so that you can chase them
Check how much is likely to be due to HMRC for VAT, CIS or PAYE at any given time.
Answer queries from suppliers or customers as to payments and receipts made
Know what your turnover has been over the last 12 months so that you know when to register for VAT
Know what your monthly/weekly/daily profit was
Know how much dividend you are able to take with a bit of help from your accountant (companies only)
Compare your actual monthly profits to your planned profits
With help, forecast your profits from a sensible starting point to know whether you can take on another employee
Pull up a list of stock held (if you are using your bookkeeping for stock management)

Isn't that the accountant's job?

Your accountant can only pull together the information for your HMRC submissions from the information you deliver to them. The easier you make it for your accountant to do this, the less they are going to charge you for the work they are doing. If you aren’t able to keep the bookkeeping up to date yourself, make sure that the person that you ask to do it is capable and receives enough training to do the job accurately, or it could be an expensive mistake.

What can I expect if I ask an accountant to help me with my self-assessment return?

lochmyllie@gmail.com (Laura Arbuckle) — Tue, 21 Jun 2022 15:30:13 GMT

If you are juggling your work-life balance, we can help you to find more time for yourself by helping you with your self-assessment return. You may be wondering how that might work in practice. I can’t speak for every accountant or payroll operator but in this blog post I describe how the process works at Armet Accounting.

How do we get started?

The self-assessment return encapsulates many different sources of income so everyone’s return is different and so there may be slight tweaks to the basic process that are specific to you. The overall process operates using the following steps.

If Armet Accounting provides you with other services such as VAT , payroll or bookkeeping, you will find there is more frequent contact throughout your financial year than just at the point of completing your tax return.

Initial steps

As part of the process of becoming a client, we will have a discussion about the sources of income that you need to declare on your tax return. You can arrange a discussion by booking a discovery call here . This will allow us to send you a quote for the services you need.

If you choose to go ahead, we will send you an engagement letter that will set out what we will do for you and what we need you to do for us. We will also ask you for personal information that will allow us to request authorisation from HMRC and complete our anti-money laundering process, find out more about the anti-money laundering process here .

Once the end of the tax year has passed

If we don’t have regular access to your records through bookkeeping software, we will request your documents for the year which could include bank statements, invoices, receipts and any records that you have kept through the year. We stagger these emails to ensure that we maintain a manageable workload. We base the timing of these requests roughly on when the information was provided in the previous tax year. There is no need to wait until you hear from us, you can send over any information you have whenever you are ready.

We will use the information you send us to produce a set of draft accounts (if you have a self-employment) and tax return or to produce a list of additional documents that we need you to provide us with.

We will upload the draft accounts and tax return to a file sharing website for you to review and invite you to book a meeting to discuss the accounts.

Once we have processed your information

We will have a meeting to review the accounts and tax return, discuss any options available to you and we can answer any questions you have on the accounts or about anything for the year ahead.

The return may need some further tweaking after this stage. Following the meeting, a finalised return will be uploaded for approval. If a further meeting is required, we will be back in touch.

Once we are ready for submission

You will approve the return, which includes confirming that you have declared all of your income for the tax year in question. At the moment this is usually by electronic approval, although paper copies and physical signatures can be arranged if you wish.

We will submit your self-assessment tax return to HMRC. Once the return has been submitted, we will send you information regarding how much tax to pay, when and how to pay it.

If you have not been on a monthly payment plan we will send out our invoice, which will be due for immediate payment once the return is submitted.

What do we need you to do?

We need you to provide information for all sources of income, it is your responsibility to declare everything that is required. If you are in any doubt as to whether something is taxable, you should speak to us about it. Sensitive documents should be uploaded to your client portal as far as possible.

The quicker you respond to information requests, the quicker we can draft your tax return and give you as much notice as possible of you tax payments.

What can you expect from Armet Accounting?

Along with the usual expectations of an accountant (confidentiality etc), you can expect us to have a first look at your tax return as quickly as we can and revert to you with any questions we have. We aim to complete your self-assessment return within 6 weeks of you providing your information to us, often sooner. This is dependent on you responding to our communications quickly.

We will try and communicate with you using your preferred option (email, WhatsApp, Messnger etc) but our main communication method is email. We use secure document sharing websites to share sensitive information and documents.

What are the changes to self-assessment coming up?

You may be aware that HMRC are in the process of moving towards a more digital method of delivering self-assessment returns. It is likely that in the future, taxpayers will be required to maintain digital records of their income for each tax year. This will be likely to take the form of a list of transactions either in a spreadsheet or in bookkeeping software. Submissions to HMRC will then be made to HMRC on a quarterly basis via software with an annual adjustment to bring the year to a closing position.

As it stands at the moment, this will be starting for some taxpayers from April 2024, starting with sole traders and landlords with income over £10,000. Full guidance is not yet available, and our processes will be updated as and when we have a better understanding of what the requirements are likely to be and when they come into play.

If you have any questions regarding your self-assessment return, use the button below to book a call with Laura.

What can I expect when my accountant completes my VAT return for me?

lochmyllie@gmail.com (Laura Arbuckle) — Wed, 20 Apr 2022 10:08:09 GMT

How do we get started?

When you ask someone else to produce your company accounts and tax return for you, you may wonder how that might work in practice. I can’t speak for every accountant or payroll operator but in this blog post I describe how the process works at Armet Accounting. You can also find out more about other services such as payroll or company accounts .

Initial steps

As part of the process of becoming a client, we will ask you for information about your business that will allow us to be able to submit your quarterly VAT return to HMRC. This information is now collected using an online portal once you have agreed to become a client.

Our initial discussions will involve a discussion around the nature of your business. This will help us to advise you on the correct rate of VAT for your sales or whether there is merit in using the flat rate scheme to calculate your VAT.

The HMRC authentication process is now by “digital handshake”. This requires you to be able to sign into your online VAT account via a link that we send you and then agree to authorise Armet Accounting to act as an agent for VAT.

After your VAT quarter end has passed

We will contact you by email to request information to allow us to draft, review and then submit your VAT return. Depending on your records, this may simply be confirmation that you have completed your bookkeeping for the period in question. For smaller businesses, it may be that we need you to send us copies of bank statements and your purchase and sales invoices for the quarter.

VAT returns are due to be submitted 1 month and 1 week after the end of the period. The sooner you can provide this information, the sooner we can provide you with the draft return and the longer lead time you have for making the payment.

On receipt of your information, we will process it as far as we can. All businesses are now required to comply with Making Tax Digital so in order to compile the VAT return we need to produce a list of transactions (date, description and amount) which we then summarise to produce the return that is sent to HMRC. The return must now be submitted using software to connect to HMRC.

Once we have such a list, we then work our way through our internal review process to ensure that the entries in your VAT return are correct.

When we have processed your information

At the first review, we are usually left with a list of questions that we need to speak to the business owner about. This could range from asking for specific documents or confirming our understanding of specific transactions or events that may affect the VAT return.

We will communicate the list of any questions to you. In the even that the questions are straightforward we may send them by email or if there is anything more complex or more urgent, we may try and speak to you over the phone.

Your answers to these questions will allow us to complete our review process, which will ensure that your VAT return is correct before submission to HMRC.

Once we are ready to submit the return

A copy of the information that we are submitting on your behalf will be posted to your client portal for you to review and approve, along with any additional information you need to be able to approve the return.

Is this process the same for every client?

Every VAT registered business is now required to comply with HMRC’s Making Tax Digital rules. This means that the VAT return needs to be compiled from a source of information that holds at least daily data about your business. For larger businesses, this may be a point of sale system with a digital link into your accounting software. For smaller businesses, this may be a list of transactions in an excel spreadsheet.

The fundamental process is similar for each business, although as your business grows in size and complexity it may take longer for us to ensure that your VAT return is ready to submit.

What do you need me to do?

We need you to provide your information as soon as possible after the quarter end and respond to any questions quickly. The VAT deadlines are very tight and we need to plan our work accordingly.

If it is not possible for us to complete our full process review before the deadline, we will not submit your return.

What can I expect from you?

Along with all the usual expectations of an accountant (such as confidentiality), you can expect us to be starting to work on your VAT return once the quarter end has passed. Even if you haven’t heard from us we may be reviewing what is contained in your bookkeeping software. We commit to submitting your return on time, where you have provided information to us at least a week before it is due.

If you have questions at any point along the way, you can call us or drop us an email.

What goals should I set for myself?

Wed, 23 Mar 2022 17:41:11 GMT

We all see those posts at the start of the year that tell us we should be setting goals and they should be “SMART”, that is Specific, Measurable, Achievable, Realistic and Timebound ( or even SMARTER if you are going to Evaluate and Review them). I’ve never been very good at setting my goals down, although I certainly have them. One goal I do always try and set for myself is how many books I would like to read in the year ahead. I use Good Read s to record the books I read and I add my goal to the reading challenge each year. I love reading so I usually aim for about 30 books in the year. On the whole, this goal helps me to pick up my book when at times when I might otherwise revert to Netflix instead. It also helps keep me going with more challenging reads.

I find each year that as I get further towards November and December I adjust my reading habits, though and not necessarily in a way I really find productive. This goal of reading 30 books in a year qualifies as a SMART goal. However, for 2022 it is not the best goal I can set for myself because I have realised that it won’t help my make the decisions that will get me where I want to be.

Why isn't this the right goal for me?

In the last few years, I have enjoyed reading the first two books of the Wolf Hall trilogy by Hilary Mantel about the court of Henry VIII as told through the eyes of Thomas Cromwell. I was in the supermarket a few months ago and I came across the third book in the series, The Mirror and the Light. Since I’ve enjoyed the first two books and I have been waiting for the concluding third book to come out, I jumped at the chance to buy it. I made my purchase, brought it home and placed it by my bed in readiness for me to pick up and read. Although I enjoyed the first two books, I didn’t find them an easy read. None of the books are short, the third one has 875 pages and is fairly weighty. It felt like a real investment of time to get started with it so it continued to sit next to my bed without moving for several months!

When I bought the book, we were approaching the end of the year and I realised that although I wanted to read it (I wouldn’t have bought it if I didn’t) if I started to read it at the end of 2021, I wouldn’t achieve the goal that I had set for myself. I am good at being self-accountable and if I tell myself I am going to do something, I am going to do my best to get on and do it. I realised that if I read this book that I had bought for myself, I wouldn’t hit my target of reading 30 books in 2021.

Every time I finished reading a book, I chose to go for a book that I knew I could read more quickly. I’m not saying that I deliberately chose short books but I was definitely avoiding the 875-pager and as time went on I realised I was choosing books that I knew I would be able to read more quickly! The longer I looked at the book next to my bed waiting to be read, the more I realised that my goal wasn’t helping me to achieve what I really wanted it to.

What should I have done instead?

In 2022, I have decided to reduce my reading challenge for 2022 to 20 books. This means I can choose longer or more challenging books to read and even now that I have chosen to pick up The Mirror and The Light, I won’t be feeling that I have to try and rush through it because I have allowed myself breathing space this year. I'm now on page 675 and enjoying the story and the characters. It's well worth reading the series if you are prepared to invest in the time to do so!

Goals are useful and do help us achieve what we want to, however the wrong goal can push us in the wrong direction and so we need to keep making sure we are on the right track.

What would have helped me reach the right results sooner?

I have realised that setting a smaller goal over a shorter timescale would have been a good idea. Deciding to read 2.5 books per month would have given me the space to moderate my book target more quickly. I could have decided there was going to be one or two months when my target was reduced to just 1 book. By breaking a goal into smaller chunks it can seem more achievable and allows us to adjust it quickly if we need to.

Alternatively, I could have counted the 875 pages of The Mirror and the Light as if it was 3 or 4 books. That would have allowed me to maintain my book goal for the year but given me the credit for all that extra reading time.

Obviously, my reading goals are just for fun but it is also worth considering whether our business goals are really driving the right behaviours as well. In 2019, I set myself the goal of writing a new blog post every week. I started my business in 2017 and whilst I had a few clients, I also had some capacity so it seemed like a really good target to set, and I achieved it. My business has moved on now though and I no longer have the time to devote to this level of blogging, continuing to set a target to blog every week is counterproductive and means that I can have lapsed and in recent times have hardly written any blogs at all! A more moderate goal of a single blog post per month seems much more achievable and may get me back to it (watch this space).

I’d love to hear from you whether there any goals that you have set for yourself that are not helping you to achieve what you want. Hit the buttons below to get in touch!

How do I start a business?

lochmyllie@gmail.com (Laura Arbuckle) — Wed, 01 Dec 2021 17:20:46 GMT

If you’ve never been a business owner before, it can be a daunting prospect to set up on your own. It can be hard to know where to start. It's actually not hard to set up a business, but there are a few things that you need to consider in order to get your business up and running and stay compliant with HMRC.

What structure shall I use?

There are a few options for the business structure you use to operate your business and it comes down to a personal choice to decide how to operate. The simplest way to operate is as a sole trader (or a partnership you are planning to go into business with someone else).

Alternatively, you might prefer to operate as a company. If you do decide a company is the right structure for you, I would recommend speaking to an accountant to ensure that you are clear on how a company operates. Running a company generally (although not always) requires you to run a payroll to extract your income from your company in a tax efficient manner.

You can find out more about the different options here .

Having made your decision, you do need to register either your sole trade, company or partnership. Sole Traders can register here whilst companies can register her e.

Setting up a partnership is slightly trickier as you need to register the partnership and lead partner online and then send a paper form to register the remaining partners. Register the partnership here and any additional Partners her e.

What records do I need to keep?

It doesn’t matter what format you choose to operate your business, you must ensure you are keeping sufficient records to be able file your accounts with Companies House or submit your tax return to HMRC.

It is not essential for you to immediately invest in bookkeeping software. Contrary to what the adverts for Xero and QuickBooks will tell you, the software doesn’t do everything for you although much of it can be automated in some way to make the process easier.

There are a few options available to you to help you maintain your records. You can find more information about in one of my earlier blogs here .

Do I need a separate bank account?

A company always needs its own bank account as the income doesn’t belong to you until you either run your salary through a payroll or declare a dividend. You can find out how to declare a dividend here .

Whilst there is no legal requirement to open a business bank account for a sole trade or partnership, I would strongly recommend using a separate account to run your business. It is much easier to separately identify your business transactions when you do your tax return if they are all neatly recorded for you by your bank. In fact downloading your bank statements into a .csv format can form the basis of a good set of business records if you are not using bookkeeping software.

There is merit in having two bank accounts as you can put money aside to pay your year end taxes (and possibly payments on account as well). If you do go down this route, remember that transactions between the two accounts aren’t business income or expenses and should be ignored for the purposes of working out your profits for the year. This goes for PayPal, credit cards and other payment methods that hold a balance for you as well.

Do I need to register for VAT?

You don’t have to register for VAT immediately, although some people choose to. VAT registration becomes mandatory 30 days after your rolling 12 month turnover breaches £85,000 if you are making taxable supplies.

You may choose to register for VAT before this if you

Want your business to appear bigger/more professional
Expect your turnover to grow quickly
Expect to breach the VAT threshold soon but want to manage the transition
Sell zero rated products as you may be able to reclaim VAT without charging your customers

Retail and trade businesses tend to hit the VAT threshold sooner than service based enterprises. Find out more information about VAT registration in this post .

Do I need an accountant?

I would always recommend enlisting the help of an accountant when you operate as a company. This is because company accounts and tax returns are more formal than sole trade accounts and you are required to present your accounts using financial reporting standards. In addition, you can’t log in to HMRC and fill in your tax return without having appropriate software.

On the other hand, the self-assessment return is designed to be submitted by individuals. Until such time as HMRC bring in Making Tax Digital for Income Tax (now delayed until at least 2024) with a bit of care, you can simply log into your HMRC account and populate the return yourself. Here is my guide to how to get started doing your own return.

Some people prefer to simply hand over the self-assessment return to an accountant and there are times when it can be beneficial to ask an accountant to complete the return for you. You can find out more her e.

Speak to an accountant when

You no longer feel confident dealing with your tax return or have a lot of different sources of income and it gets complicated
You find you have made a loss and you don’t know what to do with it
You are expecting to need finance or a mortgage
You want more detailed information on a more regular basis to help you make business decisions

Accountancy fees vary from firm to firm but if you are interested in working with Armet Accounting, prices start from £360 for a sole trader set of accounts and tax return, from £440 for partnerships and from £540 for a company. If you want to discuss this further and get a tailored quote for your business, book a discovery call here .

What else do I need to think about?

Once you have your business idea, you will probably want to have a think about a business plan. A business plan helps you set out your thoughts on your business and how you are going to make it work. You should think about your ideal customer base and how you will attract them, a consideration of any initial and ongoing expenses you may have, the equipment you will need to get started as well as a forecast of your income and expenses so that you know how much funding you will need to provide to your business in order to make it into a success.

So there you have it, setting up a business is straight forward enough and whilst you have other (in my opinion much harder) challenges ahead, ensuring you comply with your initial tax and accounting obligations is no longer one of them!

Meet the team - Ursula Hogan

Mon, 10 May 2021 09:37:05 GMT

Well, what a year it’s been for sure! Who would have thought this time last year, when we were clapping for the NHS and queuing for toilet roll, that a year later we would be in a somewhat similar situation (although thankfully the grocery hoarding seems to be not so much of a thing!)

Covid brings new tasks in the office...

At Armet Accounting we have been kept busy trying to keep up with the new rules so we can give advice regarding Government grants available etc., not to mention all the complexities of the furlough scheme.

Before 2020 most of us had probably only heard the word furlough in old films or books if at all, and now it is commonly a subject for discussion!

Often, we have felt saddened to witness first- hand the struggles that small, medium, and indeed large businesses have gone through in order to keep afloat in these strange and difficult times, but as in everything, there are winners and losers and sometimes, ‘thinking outside the box’ will have created opportunities to carry forward as we begin to return to some sort of normality.

I guess when looking back on the Covid 19 pandemic we will remember some things with horror, but hopefully we will also all be able to think of something that was better in some way than it usually was, or something that we managed to do or learn during the various lockdowns that we didn’t know we could do before. For parents this may be the fact that you managed to somehow get through endless weeks of home schooling whilst often attempting to work from home at the same time!

...and new hobbies at home

For me, my biggest surprise was, (after receiving an artist’s set for Christmas from my husband), that I could actually paint a picture of sorts and could get so absorbed when doing so, that I was able to switch off from everything else that was going on around about me and in the world at large. I will never win the Turner prize or be anything but a very amateur painter, but it is something to carry forward as a new hobby as and when time allows.

So, here’s to us all as we begin to be allowed to socialise more and restrictions begin to be lifted. We've survived somehow, and to echo the words of the wonderfully inspirational Captain Tom Moore “tomorrow will be a better day".

Can I claim super-deductions when I buy equipment?

Mon, 22 Mar 2021 15:55:19 GMT

The Government is very aware that Covid 19 has had a severe effect on business and one way they hope to kick-start the economic recovery is to encourage investment. In other words, they want us all to start spending again!

In order to motivate businesses to do this, the Chancellor introduced a new ‘super-deduction’ allowance which is arguably the most attractive tax incentive for business investment ever offered by a British government.

So how does it work?

Between 1 April 2021 and 31 March 2023, companies investing in new qualifying plant and machinery will be able to deduct 130% of the costs of the asset from their profits before calculating their corporation tax, significantly reducing the amount of corporation tax they are due to pay. The asset must be ordered and paid for within these dates.

Note that this new super deduction only applies to Companies, not unincorporated businesses.

Which purchases qualify?

HMRC state that the super-deduction can be claimed on ‘qualifying main rate plant and machinery investments’. Most new assets bought for use in the course of a business will qualify. The main exception is that cars do not qualify. HMRC gives examples of the sorts of assets that do qualify as:

• Solar panels • Computer equipment and servers • Tractors, lorries, vans • Ladders, drills, cranes • Office chairs and desks, • Electric vehicle charge points • Refrigeration units • Compressors • Foundry equipment.

The ‘super-deduction’ cannot be claimed against the purchase of used or second-hand assets, only new items.

Assets acquired through hire purchase contracts qualify for the allowance, but there are additional considerations for assets acquired through other types of leases.

What are the draw-backs?

Whilst this scheme is attractive, there are some things that you should consider first

Can you afford to buy a new asset as opposed to a second-hand one?

Is it the right thing to delay the purchase of essential items that you need in your business?

If your financial year end on the 31 ^st March 2021, delaying purchase of the asset until April may mean an increased corporation tax liability in the current tax year.

What happens when I see the asset?

When you sell assets on which the super deduction has been claimed, the proceeds will be taxable in the year of disposal by way of a ‘balancing charge.’ At this point, the disposal proceeds that are subject to tax are multiplied by 130% and added back to your corporation tax liability. Therefore, the relief can be substantially clawed back when the asset is sold.

If you would like to chat through how this new allowance may be of benefit to your business, please get in touch using the buttons below.

When do HMRC think a van is actually a car?

Fri, 25 Sep 2020 13:57:13 GMT

I have previously written about the onerous tax position for personal use of company cars as opposed to vans (you can read about the tax treatment here ). The question of whether a vehicle is a car or a van has recently been subject to challenge by HMRC through the UK court system.

Given the hugely different tax treatments, it is important to know whether you are buying a car or a van, especially if you are using it for personal journeys!

The recent case law has centred on whether crew-cab vans that have been adapted to carry a second row of seats behind the driver should actually treated as cars for benefit in kind purposes. Coca-cola had provided some of its workforce with vans that they were also permitted to use for private journeys. The employees had to pay tax on this benefit in kind and coca-cola held reported the benefit in kind using the van rates rather than the car rates. The vans provided had been fitted with a second row of seats behind the driver and the courts were asked to decide whether these seats meant that the higher rate of benefit in kind for cars should be used instead.

What is the definition of a van for benefits in kind?

A van is defined as a goods vehicle with a design (laden) weight of 3.5 tonnes or less. A car is defined as a vehicle that isn’t a goods vehicle, in other words if these vehicles don’t fall within the definition of a van, they are then deemed to be a car.

A goods vehicle is designed as a vehicle of a construction primarily suited for the conveyance of goods or burden of any description.

What does it mean by “of a construction”?

The courts decided that we need to look at the van after any adaptation by the customer, not as it left the factory. Even if the seats can be removed, they should still be considered as part of the construction of the vehicles. Therefore, any modifications to the vehicle such as fitting a second row of seats must be taken into consideration as to whether the vehicle is a car or a van.

What does it mean by “primarily suited”?

Primarily suited for the conveyance of goods means that the vehicle needs to be clearly more suitable for carrying goods than for anything else. The courts decided that where the van is equally suitable for carrying both goods and passengers, the vehicle would not be a van and therefore falls into being a car and attracts the higher benefit in kind rate if used personally. With an extra row of seats fitted, these types of vans now fall within the definition of a car and need to be treated as such for tax purposes.

What about double-cab pickups?

There has been specific guidance from HMRC for some time now that they regard double cab pick-ups as vans for VAT as long as they have a payload of greater than 1 tonne. HMRC are likely to extend this treatment to benefits in kind as well. However, even modifying the pickup by putting a cover on the back may change the payload to under 1 tonne and make it into a car!

What does this mean for other taxes?

The definitions of car and van are different for other taxes.

Capital allowances

When deducting the cost of a van from your accounts, vehicles classed as vans are treated as plant and machinery and are eligible for annual investment allowance (meaning that you can deduct the full cost of the vehicle in the first year of owning it). The amount you can deduct for a car in your accounts is based upon the carbon dioxide emissions and the expense is deducted much more slowly over several years.

T he definition for capital allowances is slightly different. A vehicle is a car unless it is

A motorcycle
A vehicle of a construction primarily suited for the conveyance of goods or burden of any description or
A vehicle of a type not commonly used as a private vehicle and not suitable for such use.

Given this definition that ties in with the one for benefits in kind, it would be hard to argue that such a van was a car for benefits in kind but treat it as a van for capital allowances.

VAT

VAT can be recovered on the purchase of a van but is generally blocked on the purchase of a car. The definition of a car for VAT purposes is a vehicle that has seats behind the driver together with side windows. There are however exclusions to that definition and if the vehicle can carry a payload of one tonne or more, it is not a car for VAT purposes. It is therefore possible that the vehicle may be classified differently for benefit in kind, capital allowance and VAT purposes!

What do I need to think about now?

It is important that you understand the tax treatment of the vehicles in your business. The type of vehicle that you invest in needs to work primarily for the business. However, business owners with these types of vehicles may be best advised to avoid personal use to avoid a big unexpected tax bill!

What can I expect if I ask an accountant to help me with my accounts and Corporation Tax?

lochmyllie@gmail.com (Laura Arbuckle) — Fri, 31 Jul 2020 16:02:08 GMT

How do we get started?

Every business is slightly different and there may be slight tweaks to the basic process that are specific to your business, but the overall process operates using the following steps. If I provide you with other services such as VAT, payroll or bookkeeping, you will find there is more frequent contact throughout your financial year than if you don’t require other services.

Initial steps

After an initial discovery call which you can book here , I will send you a quote. If you indicate to me that you would like to go ahead with this quote, there are few further steps that we will need to run through to get up and running.

I will draft an engagement letter for you, which will set out what I will do for you and what I need you to do for me and invite you to book a meeting. Before Covid I would arrange for you to come into the office for a meeting. Having a face to face meeting helps to develop a relationship with your accountant and also helps with the mandatory anti money laundering processes . Since Covid, I have have moved to initial meetings by Zoom. I hope to get back to face to face meetings once the circumstances allow.

As part of the process of becoming a client, I will ask you for information about your company that will allow me to be able to submit your accounts to Companies House and your tax return to HMRC. This information is now collected using an online form , a link to which will be sent out when you book your Zoom meeting.

Your engagement letter will be uploaded to a file sharing website for your approval. You will also be able to upload a copy of your passport or driving licence here to enable me to complete electronic ID checks to comply with anti money laundering requirements.

Once your year end has passed

If I don’t have regular access to your records through bookkeeping software, I will request your documents for the year which would include bank statements, invoices, receipts and any records that you have kept through the year. I will use this information to produce a set of draft accounts or to produce a list of additional documents that I need you to provide me with.

I will liaise with you until we have enough information to produce a good first draft of accounts and tax return. I will then upload draft accounts and tax return to a file sharing website for you to review and invite you to book a meeting to discuss the accounts.

Once I have processed your information

We will have a meeting to review the accounts and tax return, discuss any options available to you and I can answer any questions you have on the accounts or about anything for the year ahead. The accounts may need some further tweaking after this stage.

I will upload a final set of accounts for your approval or if a further meeting is required, I will arrange it with you.

Once we are ready for submission

The filing of your accounts and tax return legally remains your responsibility and therefore it is essential for you to approve the accounts before I can submit them. This is usually by electronic approval, although paper copies and physical signatures can be arranged if you wish.

Once the accounts are approved, I will submit accounts to Companies House and both accounts and tax return to HMRC. I will also send you information regarding how much tax to pay, when and how to pay it.

If you have not been on a monthly payment plan, you will receive my invoice once the accounts have been approved, which will be due for immediate payment.

In February/March each year

For many businesses, we will have ongoing discussions throughout the year and so dividends will already have been declared well before the end of the tax year. This is not always the case, though and if you haven't already used your dividend allowance of £500 for the year I will contact you in February or March to discuss whether a dividend can be taken before the end of the income tax year.

Is this the process for every company?

Depending on your business, we may be able to simplify this process, but the general steps still apply. A slightly different process operates for businesses that don't operate as a company. If you add additional services such as payroll , there will be additional contact with your accountant throughout the year.

I aim to complete year end accounts within 4 months of the year end but this is largely dependant on you as the client providing all the information I need to prepare the accounts and responding to questions well within this timescale.

If you have any questions regarding the accounts and corporation tax service, please use the button below to book a call with Laura.

Does the reduction in the VAT rate apply to my business?

lochmyllie@gmail.com (Laura Arbuckle) — Wed, 15 Jul 2020 15:22:53 GMT

Last week the Chancellor announced a temporary reduction in the VAT rate for hospitality, holidays and attractions in order to try and encourage consumers to spend their money and help get small businesses back on their feet again.

Which supplies are affected?

The reduced rate applies to food and non-alcoholic drinks sold for consumption on premises, hot takeaway food (cold takeaway food and drinks are zero rated) and non-alcoholic beverages, sleeping accommodation and entry fees for some attractions. You can find the full list in the guidance here .

When do I need to charge the reduced rate?

The reduced rate of 5% kicks in from 15 July 2020 and will remain in place until 12 January 2021. If date of supply falls between these dates you should apply the reduced rate. After 12 January 2021 the rate will revert back to the standard rate of 20%.

When the supply takes place depends on whether you are supplying goods or a service. For goods, the time of supply is the point at which the goods are sent, collected or made available. For services, the time of supply is when the service is completed.

How do I record the reduced rate?

The reduced rate of 5% is already in use for women’s sanitary products and some energy bills so your bookkeeping software should already have the reduced rate available to use. All you need to do is select the appropriate rate when invoicing.

If you use am electronic point of sale system, you should be able to adjust the rate of VAT charged by product to ensure the correct rates are used.

Can I claim any tax relief for the extra expense of working from home?

lochmyllie@gmail.com (Laura Arbuckle) — Fri, 22 May 2020 08:50:30 GMT

For many people, the last 2 months have been spent working from home where they normally wouldn’t. I thought it would be useful to review the types of costs that you can claim when you are an employee working from home. As ever, the rules are different if you are self-employed so if you aren’t certain you should seek additional advice.

Usually an employee would not be entitled to claim for tax relief on working from home expenses if the employer provides a suitable place to work. However, in recent months, employers have been unable to provide such a workspace safely and it is likely that HMRC would permit claims for working from home as a result.

How do I claim expenses for working from home?

Usually, the first port of call for working from home expenses is your employer. The employer is permitted to reimburse the employee for some of their working from home expenses without it becoming taxable income or a benefit in kind.

If your employer doesn’t reimburse your expenses for working from home, then the process is slightly more complicated as you will need to demonstrate that your home is a workplace before you can make a claim. To do this you need to be able to demonstrate that

You are performing substantive duties from home

You don’t have access to appropriate facilities on the employer’s premises

You have not just agreed with your employer to work from home or chosen to work from home voluntarily, rather that it is necessary for you to work from home

You can claim your tax relief by phone, post or there is an online link here . Alternatively, you can use your self-assessment return to claim your expenses if you submit one.

What expenses can I claim when I work from home?

The general principal is that you can claim for expenses that you have incurred over and above your normal living expenses.

In order to quantify the maximum expenses your employer can reimburse, you can either use the simplified expenses set down by HMRC or you can calculate it by taking the proportion of your actual expenses that you have incurred through work. This depends on how much of your home you are using to do you work and for how long. Your employer will tell you which method to use.

The simplified expenses are paid at a flat rate of up to £6 per week (£4 per week prior to 5 April 2020) or £26 per month (£18 per month prior to 5 April 2020). There is no need for you to provide receipts to justify the payment if your employer uses the simplified expense rate.

It may be possible for you to claim a higher amount by using the actual additional costs of working from home. The additional cost of expenses such as the cost of heating and lighting the home, additional insurance and phone charges can be claimed.

Unlike self-employed individuals working from home, employees are not usually able to reclaim rent, mortgage interest or council tax as there is no additional expense incurred as a result of working from home.

Similarly, if the employee already has broadband provision in place, this cannot be claimed unless there has been an uplift in the cost of the service as a direct result of working from home.

What about equipment I have bought because I work from home?

As long as there isn’t a significant proportion of private use of equipment, the employer can provide the employee with equipment such as office furniture and computer equipment without giving rise to a taxable benefit in kind.

Usually the reimbursement of employees for the purchase of such equipment would be a taxable benefit in kind for the employee. However, in the light of the increase in homeworking as imposed by the government in the coronavirus pandemic this rule has been relaxed temporarily. At the time of writing, it is therefore currently allowable for employees to be reimbursed for such purchases. It would be sensible to discuss such purchases with your employer before making them to ensure they are happy to reimburse you!

If the cost of equipment hasn’t been reimbursed by your employer, you will need to see if your equipment can qualify for capital allowances. However, unless you actually use these items in the performance of your duties (eg computer) rather than to improve your comfort whilst performing your duties (eg a new chair) then you may not be able to claim relief.

It seems that many of us will continue to work from home for the foreseeable future and may suffer an increase in the cost of running our homes as a result. As long as employer premises remain unavailable for employees to use there may be some tax relief available for home workers.

Photo from the Pixistock Blue Chic Collection

What happens when my accountant runs my payroll?

Fri, 24 Apr 2020 13:57:29 GMT

My payroll blog here describes how you would go about operating your own payroll. Alternatively, there are many reasons that you may prefer to get a professional to run it for you.

When you ask someone else to run your payroll for you, you may wonder how that might work in practice. I can’t speak for every accountant or payroll operator but in this blog post I describe how the process works at Armet Accounting. You can also find out more about other services such as VAT or company accounts .

The process

Every business is slightly different and there may be slight tweaks to the basic process that are specific to your business, but the overall process operates using the following steps.

Initial steps

Gather the relevant information from your employees for including in the payroll software. This is gathered using the HMRC starter form here . After the initial set up, this step will only be relevant for any new starters in the period.

A couple of days before payroll is submitted

You tell me how much to pay your employees in each period, either as a monthly salary or as an hourly rate.

I will add new employees and send through any pension letters that are required to be delivered.

I will update the amount each employee is due to be paid

Based on the pay for that period, I will assess whether any additional employees need to be enrolled in the pension scheme.

A couple of days before the payroll is due I will send you a draft of the payroll showing the net amount to be paid to each employee, the amount of tax and National Insurance due to be paid to HMRC and the amount due to the pension scheme. I will also provide details of how to make the payment to HMRC and your pension scheme and when. At this point there will be an opportunity to discuss whether any changes are required.

On the day the employees are paid

I will send out the appropriate pension letters and enrol any additional employees in the scheme.

I will make the submissions to HMRC and the pension scheme.

I will send out password protected payslips for your employees either to you for distribution or directly to the employees if you provide me with their email addresses.

You will arrange the payments to employees, HMRC and pension scheme as required, following the instructions I send you.

Year-end tasks

In addition to the process above, I will also send out password protected P60s and draft P11D returns (if required) at the end of each tax year.

Is this process the same for every client?

Depending on your business and the number of employees, we may be able to simplify this process, but the general steps still apply .

What do we need you to do?

Payroll submissions need to be submitted on or before the day your employees are paid. We therefore require the information from you the day before the payroll is due to be submitted. The key to getting the payroll submissions correct on time is good communication of any changes.

What can you expect from us?

Along with all the usual expectations of an accountant (such as confidentiality), you can expect us to prepare and submit your payroll on the day we have agreed, subject to receiving the information the day before.

If you have questions at any point along the way, you can call us or drop us an email.

How will I get through Coronavirus financially?

Sat, 28 Mar 2020 11:59:12 GMT

Time is moving fast just now and the world feels like a very different place than it was just a few short weeks ago. Since writing my blog post last week, the government has announced more financial help for both employees and the self-employed. Despite this, some people will still slip through the cracks and find themselves with little help through this. Here is just a summary of the help that might be available to you.

Maximise your cashflow

This advice hasn’t changed. Getting through the weeks until any government funding you are eligible for may be reliant on maximising your short term cashflow.

Speak to your customers, especially those to whom you have extended credit terms. You need to know whether they can make their payments earlier or whether they will be able to make them at all. Whether it’s good news or bad, the information can be used to make decisions for your own business.

Speak to all your suppliers and see whether there is any leeway to reduce your payments or even pay over a longer period of time. Remember that they may be struggling financially and grappling with difficult decisions themselves.

Make sure you cancel payments for anything that you are not actively using. This is a good time to review your costs generally to see if any savings can be made.

What help is available to me?

Employees, including directors

If you are an employee, you are entitled to Statutory Sick Pay if you are unwell. The employer is usually responsible for paying this, but the government are now reimbursing up to 2 weeks Statutory Sick Pay from the first day of illness. The mechanism for reclaiming this hasn't yet been ironed out.

If you are a key worker or are able to work from home, you should continue to do. For many people this is not possible. Where your employer can no longer provide you with work they have the option to either offer you redundancy or furlough, but employers are encourage to furlough staff where possible. There is a 3 week minimum furlough period.

Under new provisions, the government will provide funding to your employer to cover 80% of your salary. Furloughed workers may not undertake work for the employer whilst on furlough, although they are not prevented from performing voluntary work whilst on furlough. For salaried individuals, the amount that is reimbursed will be based on your February 2020 earnings.

This option is also available to directors as well whilst on furlough they must not work for their company other than to fulfil their statutory duties as a director, which can be found here . The scheme only covers salary and does not extend to any dividend payments that may have been withdrawn from their company.

HMRC are working to set up the mechanism by which the reimbursement of furloughed worker salaries will be reclaimed. It is unlikely to be available until the end of April and businesses should consider loan funding to help with short term cash flow problems. More details about the provisions can be found here .

Self-employed

If you are self-employed or don’t earn enough to be eligible for statutory sick pay, you may be able to claim Employment and Support Allowance here if you are ill.

The government has also announced help for the self-employed. There aren’t yet many details but the outline of the provision can be found here. There are many self-employed individuals that will not be able to benefit from the scheme, including anyone that has become self-employed since 6 April 2019.

You will be eligible for the scheme if you submitted a tax return in 2018/19 and have traded since. However, if your average profits between 2016/17 and 2018/19 are above £50,000 you will not be eligible. If you are eligible, HMRC will contact you and invite you to apply. Payments are not expected to be available until June.

People that are not eligible for either scheme

Many people are may receive little or no help from the government under these offerings. If this is you, you should consider applying for Universal Credit or look out for local key worker job offerings.

Reception to Universal Credit has not been positive over the last few years since its introduction but it may be worth considering applying for it now, especially if you have lost or reduced your income significantly as a result of the Coronavirus epidemic. There are restrictions but you can take a look at eligibility and apply here.

Of course, if we are all unable to leave the house our living costs will also reduce. We won’t be spending money on travel, meals out or any of those little luxuries we all took for granted. Children’s sporting endeavours may have temporarily ceased but so should the payments! Now is a good time to scrutinise your household costs and ensure any long-standing subscriptions are still relevant.

During this challenging period, it is more important than ever to keep lines of communication open so that you can understand how your stakeholders can work with you and support you. Everyone is facing huge challenges and changes, and that means there is also a huge potential for empathy amongst your stakeholders.

What help is available to my business?

Loan funding

The government is releasing loan funding to small businesses in the coming weeks. The details of how to apply are now available on this link .

These loans are made by banks and other lenders and the government partially guarantees the loan and pays the interest on the loan for the first year. This facility is available for loans from £25,000 up to £5m.

For many small businesses, this is more than they realistically need or want to take so the scheme may not be the right route for them. However, banks and other lenders are also trying to make small loans and overdrafts available to businesses more easily as well. This may be a better option for your business if you need a quick cashflow boost to cover furloughed workers salaries or your outgoings whilst waiting for more help if you are self-employed.

Bear in mind this would be in the form of a loan and it would still need to be repaid in the future. You should only take on a loan if you can afford the repayments.

As you can imagine, banks are overloaded with applications at the moment so there may be a long wait to speak to your bank and enquire about the best option for you.

Deferral of tax payments

If you have VAT payments that are due to HMRC between 20 March and 30 June, these have automatically been deferred until 31 March 2021. You don’t need to do anything to claim the deferral, it will happen automatically. However, if you make VAT payments by direct debt your do need to cancel your direct debit to prevent HMRC taking the money automatically.

More recently, it has been announced that the payments on account for the self-employed that were due by 31 July 2020 have also been deferred to 31 January 2021. Again, there is nothing that you need to do to claim this.

If you have money due to HMRC for other taxes and you don’t expect that you will be able to make the payment, it is worth speaking to their Time to Pay team to arrange longer to make your payments. You can see my blog post here for details. Bear in mind that they are likely to be overwhelmed with calls and you may have to wait to get through. Don’t leave it too close to the deadline as the agreement needs to be in place to avoid a penalty.

Business Grants for those businesses with premises

If you have business premises, the taxable one-off grant of £3,000 has now been increased to £10,000 to help with ongoing business costs. In Scotland, application forms can be found on your local council website. See my Facebook post here for the links to the forms for councils that are local to Armet Accounting.

You should also check the terms of any insurance you might have in place to see if you are eligible for any assistance.

Get in touch

I hope that you and your family continue to be healthy and that you come through this tragedy relatively unscathed. We are all struggling to adjust to the world around us at the moment and we all need to support each other as best we can through the next few weeks.

If you would like to chat through what the new rules mean for you, please send me an email using the buttons below and we can arrange a call.

What do I do now?

Thu, 19 Mar 2020 11:44:37 GMT

I don't know about you but, I’m feeling terrified…terrified but fascinated at the same time. We are living through a time of so much uncertainty and I don’t know what to do about it. So, I’m doing the only thing I can do, which is to keep going. I’m going to keep putting one foot in front of the other, making one decision at a time and eventually I will make it through this difficult period somehow.

In the meantime, the government is trying to help and there are some practical things you can do to try and keep things going for as long as possible. You can find a link to the government announcements here .

Maximise your cashflow

Make sure you cancel payments for anything that you are not actively using. This is a good time to review your costs generally to see if any savings can be made.

What help is available to my business?

The government is releasing loan funding to small businesses in the coming weeks. The details aren’t yet available, but it is expected that the government will offer guarantees for up to 80% of a business loan, which will assist with obtaining funding. Bear in mind this would be in the form of a loan and it would still need to be repaid in the future. You should only take on a loan if you can afford the repayments.

If you have money due to HMRC and you don’t expect that you will be able to make the payment, it is worth speaking to their Time to Pay team to arrange longer to make your payments. You can see my blog post here for details. Bear in mind that they are likely to be overwhelmed with calls and you may have to wait to get through. Don’t leave it too close to the deadline as the agreement needs to be in place to avoid a penalty.

If you have business premises that are under the small business rates relief threshold, you may also be able to benefit from a one-off grant of up to £10,000 to help with ongoing business costs. If you are eligible, your local authority should contact you directly. The funds won't be available until early April. Larger businesses in the hospitality, leisure and retail industries will receive a business rates holiday for the whole of 2020/21 and/or may be entitled to grants of up to £25,000.

Also, check the terms of your insurance to see if you are eligible for any assistance.

What help is available to me?

If you are a director of a company, you may be entitled to Statutory Sick Pay if you are unwell. The company is usually responsible for paying this, but the government are now reimbursing up to 2 weeks Statutory Sick Pay from the first day of illness.

If you are self-employed or don’t earn enough to be eligible for statutory sick pay, you may be able to claim Employment and Support Allowance here .

Reception to Universal Credit has not positive over the last few years since its introduction but it may be worth considering applying for it now, especially if you have lost or reduced your income significantly as a result of the Coronavirus epidemic. There are restrictions but you can take a look at eligibility and apply here .

If you own your own home, you may be able to get a three-month mortgage payment holiday. The interest on your mortgage will continue to accrue if you don’t make your usual payments but this would improve your cashflow in the short term. If you are renting, you should speak to your landlord about postponing rent payments if your funds run low.

We shouldn’t forget that people may be feeling a whole range of emotions. Instead of sending an email, pick up the phone. Instead of phoning, set up a Zoom or Skype call.

There are some positives as well

The next few weeks and months are going to be difficult for everyone and we are going to have to actively look for the positives in the situation. We need to remember that others are suffering too and act with compassion. Here are a few positives I can take from the situation.

The planet is going to breath a sigh of relief as planes are grounded and vehicles are used less. On my morning walks I have taken to stopping and taking in the sounds of birds and the gentle trickle of the stream and counting my blessings (yes, there are still lots of things to be thankful for).

This is happening at the start of spring when we may be able to at least feel the benefit of (hopefully) warmer weather and we won’t have to heat our homes all day every day.

We may find new and better ways of interacting with each other. It won’t replace face to face gatherings, but it is definitely a chance to be creative over the internet!

We will all be flocking to bars, restaurants and hotels at the end of this and your business may be busier than ever!

What positives can you think of?

Can my company buy a car for me to use?

Thu, 20 Feb 2020 15:04:27 GMT

Having access to a company car was once considered a status symbol. In recent years however, having use of a company car for private journeys has become less popular because of the high levels of tax that the employee is expected to pay.

The use of a company car is a benefit in kind and therefore the employee (or director) enjoying use of that car is taxed on the value of the benefit each year. The value that must be used is set by HMRC and an additional calculation is required if the company pays for fuel that is used for personal journeys. It doesn’t really matter how you extract funds from your company, you will be taxed on it regardless!

For a long time now, getting your company to buy a car for you has been one of the highest taxed methods of profit extraction. Yes, the cost of the car and its running costs are an expense of the company and therefore reduce the amount of corporation tax that the company will suffer. However, the tax you pay personally in order to use the car for personal journeys often outweighs the savings unless you reimburse the company.

How is the value of the car calculated?

The value of the benefit of having the use of the car is based on the list price of the car when new along with the CO2 emissions for the vehicle. You can find out some information including the CO2 emissions about your car by entering your number plate on the DVLA website here . Broadly speaking the value of the car for is likely to be in the region of a third of the list price of the car every year. This value is treated as if it were additional salary received by the employee and is therefore taxed at your prevailing income tax rate.

What about fuel costs?

If your company also provides you with fuel for personal journeys, you will also be deemed to have received a benefit in kind. Again, the value is calculated using the CO2 emissions for the vehicle to work out the relevant percentage but this time, the percentage is applied to a fixed amount set by the government, for 2019/20 this was £24,100. This value is again taxed at your prevailing income tax rate. If you are only using a small amount of fuel, then the tax incurred could be well in excess of the value of fuel you have made use of.

If you reimburse the company completely for the fuel that has been used for private journeys then there is no tax to pay and nothing to report to HMRC.

One way of avoiding the fuel charge is to purchase all the fuel for the car personally and to claim business mileage from the company when your personal car is used for business.

What is the easiest way to calculate the tax?

The easiest way to work out the tax you will need to pay on your company car is to use the HMRC calculator here or the Parkers calculator here . The Parkers calculator handily includes the list price of many models of car, which can be difficult to track down if your company owns an older vehicle but the HMRC calculation also incorporates a calculation when you have only had access to the car for part of the year.

Would I be better buying an electric car?

Yes! For the 2020/21 tax year, the value of the benefit in kind you receive on fully electric company cars is 0%, meaning the employee has no tax to pay for private use of the car. This rate increases to 1% in 2021/22 and 2% in 2022/23 but this is a substantial reduction on the rate for other cars. At these percentages, it may be worth considering the provision of a company car for your employees again.

What about vans?

Vans are not taxed nearly as heavily as cars as they are less desirable as a vehicle for personal use. No benefit in kind arises if you use your van only for business journeys or provide a pool van that any employee can use. Even if you do use the van for personal journeys, the value of the benefit in kind is a fixed rate of £3,430 whilst fuel is taxed on a fixed value of £655. This is considerably lower than the rate for cars.

Because of the way the calculation takes place, the tax on a company car is particularly penal if you have use of an older car as the tax continues to be based on the list price of the car when new. If you are buying an older car it is almost certainly preferable to either buy it personally or even take additional salary to cover the cost of buying a car rather than the company buying it for you.

If you are considering buying a company car, it could be a good time to invest in an electric car so as to enjoy favourable tax treatment for the next 3 years.

Photo by Dominik Martin on Unsplash

A day in the life at Armet Accounting

Fri, 07 Feb 2020 12:35:29 GMT

My name is Bailey and I’m a very experienced office dog. Mum seems to think she’s in charge so sometimes I need to remind her who’s the boss! I’ve seen her writing these blogs and I think I have plenty to contribute. How hard can it be?

8.50am

I’ve just seen the last of the children off to school. Once the children have left the house, I like to try and give mum her daily exercise by running away while she tries to get me to wear a harness. I mean, why do I need that thing on anyway? If it was up to me, we’d never leave the safety of the house in the morning. The thought of having to go outside with all that cold, wind and rain as well as those scary cars is enough to send me into hiding!

9.00am

I feel like I’ve already exercised mum after finally letting her get the lead on, but she seems to think that having a walk in the local park before she starts work is a good idea for some reason. I’ll show her where all the good places to sniff are and she can have a think about all her plans for the day ahead.

10.00am

Well, we’ve made it into the office. Once mum has filled up my water bowl and I’ve had a good drink, I’ll start with some important jobs while mum sets up the computer and checks her emails so that she can respond to people’s queries.

My first job of the morning is to check around all the corners of the office to make sure it’s safe for mum to be in. Then I need to pick out the perfect spot for my first snooze of the day. Even though I have a lovely comfy bed, I prefer to find a spot where I’m not going to be forgotten. At the foot of one of those wheely chairs is perfect! By selecting my location carefully, I can ensure that I maximise the opportunities for cuddles. Between you and me, mum can’t move her chair very easily when I lie there so eventually, she gives me a cuddle and encourages me back to my bed!

11.00am

I don’t believe it, I was having a crazy dream about chasing squirrels and I’ve just been woken up by the phone. Mum is having a pretty in-depth conversation with someone talking about something called IR35. It seems pretty complicated to me, but mum seems to know all about it. In fact she recently wrote a blog about it, look it’s here . It’s so boring, my blog is much more fun. While I’m awake, I think I’ll take mum outside to the little dog’s room so she can get a quick break. She’ll probably make another cup of coffee while she’s on her feet and I’ll just do a quick sweep for any biscuit crumbs.

12.00pm

Mum has just got started on her latest set of boring accounts that she’s working on, so it looks like I’ll have to nudge her to have a quick cuddle. If I look cute enough, she might get me my lunch. I know all about looking cute, it’s quite an important part of the job I need to do each day.

12.30pm

I’ve been woken up again. Honestly does no one appreciate the effort that goes into getting a good day’s sleep around here? This time mum is on the phone to one of her clients to talk them through a set of accounts that she’s just finished. She seems to spend a lot of her day talking to people and making sure they understand why their accounts are as they are. I’ve taken a look myself and they are pretty much gobbledygook to me. No wonder it takes her so long to explain them to people. This time they seem to want to declare a dividend, don’t they know they can just follow the method using the blog here ? I think I’ll just go and snooze under the desk for a while.

1.00pm

Mum’s having her lunch now. Hang on, isn’t there a bit for me? It’s at least half an hour since I’ve eaten anything. I’m wasting away!

1.30pm

I’ve been looking over mum’s shoulder and she’s now playing with a thing called QuickBooks. It seems that she’s using it to work on someone’s VAT return. No doubt there’ll be another phone call in half an hour and I’ll be dragged from my slumber by the dog and bone yet again.

She seems to spend an awfully long time checking invoices and making sure that everything is as it should be. Sometimes it takes lots of extra phone calls and emails with the clients. She says its particularly important to get the VAT returns right and she doesn’t let the clients claim the VAT back unless they have a special type of invoice that shows how much they can claim. There’s another one of her boring blogs that tells you all about it here …yawn!

4.00pm

It’s time to go home at last. I’m so exhausted, what a busy day. Mum still has to take the children to their various activities, and I’ll need to take her for another walk later on. But my work here is done for the day. It’s a hard life being the top dog in an accountant’s office but I think I’m doing a good job!

I'm an employee - is my travel an allowable business expense?

Fri, 24 Jan 2020 16:27:17 GMT

In my last blog post I considered how and when sole traders can claim travel expenses as an expense of their business. The rules for employees (including directors working for their own company) operate in much the same way. However, there are also a couple of extra rules that apply only to employees that you need to consider.

Neither sole traders nor employees are able to claim back the cost of travel between home and a permanent workplace. If your company does make payments to you to cover the cost of this sort of travel, it would be treated as additional salary (and is therefore taxable).

Is my travel necessary

An employee can only claim the cost of their travel if it is necessary for the performance of their duties.

Is my travel to a temporary workplace?

If you are travelling to a temporary workplace, you may be able to claim the cost of the travel as an expense from your company.

The definition of a temporary workplace is when an employee travels to a location to perform a task of limited duration or for a temporary reason.

You might think that this would include regular travel to a temporary role. However, if you work as a temporary employee and you travel to a single workplace throughout the time you hold that employment, it would be considered a permanent workplace. This travel would therefore be a commute and therefore the cost cannot be claimed.

How long have I been travelling to this temporary workplace?

If the nature of your employment is such that you are expected to work in different places at different times, then you will be able to claim your travel costs back from your company without these payments being taxed.

However, if you are expecting to work for more than 40% of your time at a workplace on a contract lasting longer than 24 months then the workplace is no longer considered a temporary workplace. As soon as you believe the contract will run beyond this, the travel would immediately fall under the definition of a commute.

It is not a specific location or role that determines the 24 months, instead it is the area to which you travel that is important. If you change your workplace but there is no substantial impact on the journey that you make or the expense of the journey, the change in workplace doesn’t count as a change when considering the 24-month rule.

I regularly work from home so can I claim travel expenses from my home?

Assuming that you don’t fall foul of the 24-month rule, the next thing we need to consider is where your base is. If a location is considered the base of the employee, then it becomes a permanent workplace and the travel expense cannot be claimed. Indicators of a site being an employee’s base are regular attendance there because it’s the main place where the you work, and are allocated or perform tasks.

Even if you work from home, this does not necessarily mean that you can claim travel expenses for every journey. An employee’s base can only be their home where the home has been equipped with facilities to allow the employee to perform their work from home and the employer hasn’t provided any other facilities that the employee could use.

For example, I work from home regularly but my company also has an office, which is my base of operations. Any travel that I do from home to my office would not be claimable despite me regularly working from home.

I regularly travel around a certain area, can I claim all of my travel?

Some employees do not have a single site as a permanent workplace but instead have an employment for which their duties are defined by a particular geographical area. For these employees the whole of that geographical area is treated as their permanent workplace and travel into the area in which they work is considered a commute. Once you reach the area that you operate in, any additional travel would qualify as business travel.

What can be claimed from your company for travel can be a complex area and sometimes it may not be obvious what can and can’t be reclaimed from your company. If you’re not sure, it’s worth speaking to someone who can help you.

I’m a sole trader - is my travel an allowable business expense?

Fri, 10 Jan 2020 13:15:20 GMT

When I meet business owners for the first time, I am frequently asked about whether their travel expenses can be claimed as an expense of the business or not. You would think that this would be a simple question to answer, but it is often a bit more complicated – here’s why.

Is my journey a business expense?

As with any other business expense, in order to be able to deduct travel expenses from your business profits, they must have been incurred wholly and exclusively for the purposes of running your business. If a journey is made either entirely for personal reasons or for a mix of both personal and business reasons where you can’t separate out the two elements, then you can’t deduct the expense in your self-assessment return.

If your business is such that you perform your duties in different locations for a short period at a time, you can generally claim your travel expenses between your business premises (or home if you don’t have premises) and the location of your work. For example, a heating engineer will travel to many different locations to service their customers’ boilers. This travel to different locations is wholly and exclusively for the business. Therefore, the cost of these journeys is deductible in their self-assessment return.

If instead you travel to your business premises regularly, this is considered commuting and is not an allowable expense. Only travel that is out of the ordinary can be claimed. It is even possible to have more than one location that you regularly commute to. For example, a physiotherapist may regularly attend to customers in clinics in a few different locations. In these cases, the travel to each clinic is also a regular commute and would not be an allowable expense of your business.

How much do I deduct in my tax return?

Once you have identified that a journey is an allowable business expense, you need to work out the cost of that journey for inclusion in your self-assessment return. Where you have incurred the cost of public transport, hotels, hire cars, parking or taxis (amongst other things) for the purposes of business it is easy to measure - you simply record the actual cost incurred. There is no necessity to use the cheapest method of transport to make your journey, so long as the journey qualifies as business travel. You are free to select the method of transport that suits you best.

It is not so easy when you use a vehicle that you use for both business and personal journeys. In these circumstances there are two ways of measuring the cost of your travel. You can either:

• Measure the whole cost of use of the vehicle and then apportion the costs between your personal and business miles covered or

• Use the simplified rate per mile, stipulated by HMRC (see below).

Either way, you need to keep a detailed mileage record so that you can calculate your travel costs.

If you use your vehicle more for personal than for business use, you may be better off using the simplified mileage rate, currently 45p per mile for the first 10,000 business miles you cover and 25p per mile after that. This rate covers both fuel and maintenance of the vehicle. Using this method will save you time. You may end up claiming a higher amount because the mileage rate includes an element of maintenance for the vehicle as well.

Conversely, if you cover more business miles than personal, you may be better off calculating the full cost of using the vehicle including fuel, insurance, road tax, MOT, repairs and maintenance. Unless you use your vehicle solely for business purposes, you will need to know how many business miles and how many personal miles you have travelled in the tax year to ensure you can work out how much you can claim in your tax return.

Once you decide on a method for a particular vehicle, you need to stick with it. You can’t move between the two methods.

It is worth noting that fines and penalties incurred are not allowed to be claimed.

What do I need to do to evidence my journey?

Make sure if you are claiming travel expenses that your journey qualifies as business travel and you can quantify it correctly. Keep invoices for any costs associated with travel and maintain a detailed mileage log. If you like, you can use an app such as MileIQ or TripLog. I use a simple notebook, kept in my car and whenever I make a business journey I note down the date, the reason for the journey and the miles travelled.

Do I need to fill in a self-assessment return just because I get child benefit?

Fri, 20 Dec 2019 11:00:47 GMT

What is child benefit?

One of my early memories is tagging along with my mum as she queued at the Post Office every few weeks to pick up the child benefit she was entitled to. The process has moved on a little since then as it’s now paid straight into your bank account every 4 weeks.

How much will I receive?

When you have a baby or become responsible for a child, the government gives you a financial helping hand. The idea is that this sum of money (£20.70 per week for the first child and £13.70 per week for subsequent children at the time of writing) helps towards the cost of feeding and clothing your child.

Does everyone get child benefit?

Child Benefit used to be universal, meaning that anyone responsible for a child under the age of 16 or under 20 but in full time education would receive it. Unfortunately, this changed in 2013 and now if either you or your partner earn more than £50,000 in a given tax year, the higher earner will be required to pay some of all of the benefit back through their self-assessment return.

How do I calculate my income?

It is the adjusted net income that drives whether you or your partner will need to repay child benefit. This includes your salary, benefits, profits from sole trade or partnerships, dividends and pension income but is net of any gift aid donations, trading losses and pension contributions that have not attracted tax relief. The child benefit calculator here can help you work it all out!

Who pays the child benefit charge?

You pay the child benefit charge if you are living with someone who claims child benefit and you are the higher earner. It doesn’t matter whether the children are yours or your partners and it doesn’t matter if you are married or not, you will still be required to pay the charge.

The higher earner pays back 1% of your child benefit for every £100 more than £50,000 you earn so by the time you earn £60,000 the full amount is clawed back. This is operated through your self-assessment return. You will need to register once your income hits £50,000. You can do so here .

Do I have to submit a self-assessment?

If you prefer, you can elect to not receive child benefit by filling out the form here or by speaking to the Child Benefit office on 0300 200 3100. It is still a good idea to go through the initial application process, though. By applying for child benefit you ensure you receive credits for the state pension and it also helps your child to receive their National Insurance number when they turn 16.

It’s very easy to miss the time at which you need to start to pay the child benefit charge. If you need help working out whether you need to pay it, book a call and we can have a chat.

It's nearly Christmas, what can I do to treat my staff and customers?

Fri, 13 Dec 2019 10:24:18 GMT

The festive season is right around the corner and everyone is gearing up for the big day so I thought it would be useful to give a quick round-up of ways in which businesses often indulge a little – and what this means from a tax perspective (bah humbug!)

Can I throw a Christmas party?

Unfortunately, entertaining your clients with a party is never an allowable expense. However, as long as you meet the criteria below, entertaining your employees is. What’s more, the employees themselves don’t have tax to pay on the benefit. In order for the party to qualify, it must be an annual event (so it doesn’t necessarily have to be Christmas) that is open to all staff and costs under £150 per head. If the cost ends up being more than £150 per head, the whole thing will become taxable. If you are VAT registered, you can also claim back any VAT suffered on your employee Christmas party so long as you invite employees only.

You do need to be a little bit mindful of the definition of employees. This means someone who is currently on your payroll and being paid a salary. It does not include shareholders, contractors or former employees.

Despite them being employees, HMRC don’t allow entertainment just for directors so if your only staff are directors, then your Christmas party event is never an allowable expense. Similarly, sole traders and partners are not employees and therefore can’t claim this type of expense for themselves.

Can I give my employees a Christmas gift?

HMRC make a provision for giving trivial benefits to your employees which you can use to purchase Christmas gifts. The gift must cost under £50, it must not be cash, not stated in the terms on the employee contract and not a reward for work or performance. If all these requirements apply, the gift is an allowable expense and isn’t a benefit in kind for the employee.

Can I send Christmas cards to my customers?

Sending a Christmas card to your clients is an allowable expense so long as the card features your logo or some other kind of advertising alongside it.

Can I give my customers a gift?

Similar to your employees, you can send your clients a small Christmas gift of a value up to £50. However, in order for a gift to someone that is not your employee to be an allowable deduction, the gift must not be food, drink, tobacco or a voucher and it must carry a visible advert for your business.

Can I buy some Christmas decorations for my workplace?

So long as you don’t work from home, even decorating your office for the festive season is an allowable expense so there’s no excuse for a drab office this year!

With the above in mind, hopefully you are clearer about what you can do, and the tax consequences of doing it. Now that we’ve sorted that out – mince pie anyone?

What does a company secretary do and do I need to appoint one?

Fri, 06 Dec 2019 11:19:18 GMT

What does the company secretary do?

When you set up a company it is no longer a legal requirement appoint a company secretary, but it is something that you should consider.

The company secretary role for a small company tends to be that of ensuring that all the company administration work is kept up to date. The main tasks include maintaining the statutory books and records of the company and often the company secretary signs off the balance sheet.

In large public companies the role is generally filled by someone with a legal background that understands the legal requirements of such large companies. In a smaller company a legal background certainly isn't a necessity.

Do I need a company secretary?

It's not something we ever want to think about, but I have occasionally been forced to have conversations with a few of my clients about the potential for their illness or death. If you are the sole director and shareholder of your company, it is worth taking the time to have a think about what might happen if you are no longer able to manage your company.

Even if you are aren’t there, the company will still have to meet all the requirements of Companies House and HMRC. There may also be financial commitments or significant assets within the company that need to be dealt with. If these requirements or commitments cannot be met, it can create financial or legal challenges, not to mention distress for surviving family members.

The circumstances that prevent you from managing the company will dictate who will subsequently need to fulfil the necessary requirements. It may fall to the shareholders to appoint a further director in order to make company decisions. However, in the event of your death where you haven’t made a will there may be legalities that make it difficult to determine who inherits the shares and therefore who the new shareholders are. With a company secretary in position, they can immediately appoint a new director despite the lack of shareholders, keeping the company operational.

Can I pay my company secretary a salary?

The secretary role can be a paid role, although it doesn't have to be. If you are paying family members a salary from your company, the amount paid should be in line with the services performed. Being the company secretary and having the responsibility that comes with that role adds credence to any salary payments made.

Who should I choose to appoint as my company secretary?

In addition to having additional people able to operate your company in your absence, you should also make sure that the individual you choose knows how to perform this role should they need to. Here is a link to last week's blog that discussed the types of administrative information that you need to keep safe and accessible so that you can operate your company. Your delegate should also know where to find this information should they need it.

It would be an advantage (although not a necessity) to have someone capable and well organised enough to be able to navigate the requirements of HMRC and Companies House, although your company’s accountant should be able to guide you or your company secretary through any administrative hurdles as they arise.

As well as giving them access to the workings of the company, if you are able to find someone you trust enough, you may also consider granting them some sort of access to the bank account in order that they can continue to make company payments if needed.

Being the sole director for a company can also be a lonely business. You might also consider appointing a company secretary that can take a more active role in the business and act as a sounding board for you when it comes to making those difficult decisions.

Given the importance of the responsibilities that you are about to hand over, you really to make sure that the person you appoint as company secretary is someone you trust to make the right decisions and hand back the reigns when you are able to take over. If your relationship with that person changes, you may need to act quickly to remove their appointment.

Here is a short blog from Companies House describing how to keep the company operational in the event of the sole director’s death. It mentions that personal representatives of the director can appoint a new director to take over the running of the company. This may take time to put in place and by having someone else involved with your company already can take the pressure off them at what can already be a difficult time.

Hopefully there will never be any need for the company secretary to step up in your company but it's a good idea to be prepared, just in case.

Help! I can’t access company information at Companies House and HMRC!

Fri, 29 Nov 2019 10:51:25 GMT

It is not unusual for people to get their accountant or a company formations site to set up a limited company for them. They may even choose to have their registered office address at their accountant’s office so that their home address is not on the public record. When this is the case it is especially important that you have the means to maintain your company information yourself.

While you may outsource this work to your accountant, you need to prepare for the possibility of them not being available when you need them. This is an unlikely scenario, but if it does arise, you may not get much warning – ill health, family emergency or a breakdown in your relationship with them could arise.

If you don’t maintain the ability to access your own company, then you may find it difficult to move to a new accountant or service HMRC and Companies House requirements yourself should you need to.

There are some key pieces of information that you need to keep accessible, to safeguard for this eventuality.

Keep your Company Authentication code safe

Your company authentication code is the 6-character code that allows you to keep everything for your company up to date with Companies House online. Without this code you won’t be able to log in online to file your annual confirmation or send in your accounts easily.

If you lose the code, you can ask Companies House to send it out again, but they will send it to your registered office address, which you may not be able to access.

If you no longer have access to the mail at the registered office address, you will need to change the address using the form here. Only once the change has gone through after approximately 2 weeks will you be able to request the authentication code to be sent out to you again.

Maintain online access to all your company taxes through your own Government Gateway account

Once you have managed to regain access to your company at Companies House, you will need to ensure that you can access all your corporation tax information at HMRC.

If you set up your own company you will set up a Government Gateway account as part of the process. If someone else sets it up for you, you will need to register for an account here. Once you register for an account, HMRC will send out a code that you need to use to activate your account. The code will be sent to the registered office address.

You can add in VAT and PAYE so that you can access it all from the one account. However, all of this takes at least 2 weeks to arrange so it is a good idea to set it all up when you register the company and keep the login details safe. This way you are able to ensure that you are able to take control of the company yourself if need be, even if you choose to delegate it to someone else.

If you don’t know your UTR number, you can ask HMRC to send it out to you using the link here. Again, it will be sent to your registered office address so ensure you have access to the mail. HMRC will update the registered office address from Companies House but it may take a week or two to transfer over. This means that by the time you change the address and request the UTR to be sent out it could take several weeks to receive a note of your UTR number from HMRC.

Keep a note of all your company tax reference numbers

Your new accountant is going to need a lot of information from you before they can get up and running. This includes the company unique taxpayer reference number, the VAT registration number, your PAYE reference number and your accounts office reference number. You need to make sure that you have a note of all these pieces of information so that you have them to pass to your chosen accountant, so be sure to keep them safe and accessible.

If you don’t have a note of your tax references, you can log in to your Government Gateway account to get them. Again, if you don’t have an account it will be a 2-week process to set one up and possibly even longer if you need to change the registered office address first.

On receipt of these reference numbers, the new accountant can request authorisation from HMRC. HMRC then send out a code to your registered address for you to pass to the accountant. When you pass the code to them, they can use the code to become authorised. Only at this stage can they submit tax returns for you.

Delegate but maintain access

Running a company is not an easy task and most people choose to delegate the administration of it to an accountant. Your relationship with your accountant can break down for many reasons including illness or even death. Directors should ensure that they are able to access the both Companies House and HMRC to ensure they can take control quickly if they need to.

If you don't already have access to these pieces of information for your company, speak to your accountant and make sure you can access everything you need to.

Why should I measure statistics about my business?

Fri, 22 Nov 2019 12:43:17 GMT

In common with many of us, up until a few months ago I was using a fitness watch to measure my daily steps, sleep pattern and exercise. Unfortunately, the watch strap broke and I couldn’t wear it anymore. I had a quick look online and couldn’t see a new strap that I could easily order and after that it slipped my mind.

On thinking about Christmas presents, my husband decided he would replace the strap for me and he found one for only a few pounds so he decided to give it to me early so that I could get the use of it again.

A few weeks ago I wrote about losing my motivation to go swimming. When I got back in the pool this week with my fitness watch back on my wrist I realised that one of the things that had perhaps contributed to my malaise was that I had stopped measuring my progress.

I was reminded that measuring performance is a good thing to do because it helps you to focus on the things that really matter. Not only that, it can help you to recognise the small victories that can club together to become even bigger wins.

There are lots of different key performance indicators (KPIs) that you could be measuring to help ensure that your business remains on track. This is a selection of things that you may find useful to track over time, but there are loads more – and you can even create your own.

Check your bank balance daily

Having enough cash to keep going is important in any business. I check my bank balance every morning and I know that each month I am working towards the amount I need to have available to pay all my expenses as they fall due. If my bank balance is looking a little low, I can take steps to improve the position.

Having a business plan can also allow you to look ahead to where your cash position might be in the future, allowing you to pinpoint any future period where the business might be at risk of running out of cash.

Review your profit monthly

My business is still growing and I check my profit at the end of each month as a minimum to ensure it keeps going the way I want it to. I compare the profit each month to my financial plan to see if I am on track.

By measuring, I keep my focus on the things that I can do to improve the position if need be. It’s also a chance to spot patterns in the turnover of the business, such as seasonality. If I can identify quieter periods I can work out why they happen and make sure that I put funds aside to keep my business moving.

How much invoiced income has yet to be received?

One of the most frustrating things for small businesses is not getting paid quickly enough whilst having to pay your own debts up front. This can place a lot of pressure on the cashflow of the business, which (if not managed successfully) can cause real difficulties for any enterprise. Monitoring the size of the debtor balance regularly can help you to focus on any necessary corrective action in order to avoid any issues with your bank, or other creditors.

The debtor days ratio is a common measurement used to express the number of days of income that is tied up in debtors – put simply, if you allow your debtors 30 days to settle their dues, you would expect your debtor days ratio to be no higher than 30.

Keeping a consistently low debtor days ratio is a good sign your debtors are adhering to the terms you have set out.

Check your marketing statistics

If you are focused on growing your business, then it is a good idea to measure the things that you are doing to market your business. What you decide to measure depends on the marketing strategy you are employing in your business but is likely to include some non-financial information.

Again, the act of measuring focusses your attention on the numbers that matter to you, helping you to identify successes and failures. Identifying the things that are not working is as useful as identifying the things that are.

My own marketing efforts are based on content marketing. The things that I measure on a monthly basis are therefore based around the content that I share in order to attract new customers. Numbers of website visitors, social media followers and number of new clients in a given month are amongst the things that I record and look for trends.

There are many things that you could measure that will help you keep tabs on how your business is doing. What you decide to measure should be tailored to your own business and to your particular focus or priorities, given where you are in your business’s lifecycle.

I’m really pleased to have my watch back. At a very basic level it means I don’t have to count my laps of the pool anymore! And if I want to analyse the statistics further, I can work out know whether I have exercised enough to justify that piece of cake I have my eye on.

If you’d like to understand more about what statistics mean for your business, give me a call.

Can I change my accountant?

Fri, 15 Nov 2019 11:01:11 GMT

Having been fortunate enough to have gained a number of new clients from other firms I thought it would be useful to reflect on the customer’s experience.

There are many different reasons why you may wish to change your accountant. These include feeling that you are not getting the best experience or perhaps feeling like you are naturally outgrowing your existing accountant. If you do want to make a change, it should be a fairly simple process (although occasionally it can take a little while to work through it!) – here’s how.

Find a new accountant that is suitable for your needs

The nature of your relationship with your accountant is such that you can end up sharing very personal information with them, as well as your hopes and dreams for your business. Therefore, you need to make sure that you feel comfortable working with the accountant you choose.

You need to select someone that is sufficiently competent to serve your needs and also the needs of your business. Perhaps surprisingly, you don’t need to hold a professional qualification to call yourself an accountant so you should do a little research to ensure that the accountant you choose is capable of doing the work to a high enough standard for you. Look out for members of professional bodies such as ICAS, ICAEW, ACCA, CIMA, CIPFA and AAT.

You should also choose an accountant that is able to provide a service at the level or volume that you are looking for. If you have a large company with many staff, you may need more attention than a sole practitioner can provide. Conversely, if you are a small business, you may feel like you are not getting a personalised service from a larger firm of accountants.

Tell your existing accountant that you wish to switch

If you are switching accountants, you need to tell your existing accountant that you wish to move your business elsewhere. This serves two purposes.

Firstly, it is good practice and indeed courteous for them to hear directly from you that you have made that decision and to understand why you have come to that decision.

And secondly, the existing accountant can only release information to your new accountant once they have received permission from you. Your existing accountant may have a particular format that they need to receive this permission in, for example by post or by email.

Your new accountant will write to your existing accountant

This is an essential part of the anti-money laundering process and is in place to stop criminals from moving accountant regularly in order to avoid the ongoing scrutiny of transactions.

Not only that, your accountant will hold information that has been used to produce the accounts and tax returns as well some information such as capital gains tax values that may not be used until you come to sell an asset. Without this information it would be impossible to produce accurate accounts for you in the future. Your outgoing accountant should pass on all the information the new accountant needs to be able to service your requirements.

Anything else?

Once the new accountant has received professional clearance from the existing accountant, they can request authority to act for you with HMRC (if appropriate).

What next?

The process can take anywhere from a few days to a few weeks. The length of the process generally depends on the speed with which the outgoing accountant can send information through - you can assist the process by providing your permission for the old accountant to contact the new accountant. You should allow plenty of time between return submissions, just in case.

It is a fairly straightforward process to change your accountant and the new accountant will take care of the hard work for you. All you need to do is to decide who you’d like to move to!

Why do HMRC keep asking for more money?

Fri, 08 Nov 2019 13:45:22 GMT

The role of an accountant is often not as simple as preparing endless sets of accounts and tax returns, but also requires good problem-solving abilities. Here’s a simple example of how I was able to help save my client over £1,000.

Background

I was recently asked to help a new client after he was left exasperated by his previous accountant. He kept receiving demands for additional money from HMRC in respect of his 2018/19 payroll.

Having asked his previous accountant about the situation a couple of times, they still weren’t able to provide him with any answers. They tried to fix the problem but instead made it worse and by then my client had decided that he would prefer to change accountant.

He asked me to work with him and to help him solve the problem.

What was the best way to help?

Having been provided with incomplete payroll data, the first thing I did was to recreate the payroll entries that had been made previously. By understanding what had already been sent to HMRC, I was better placed to be able to work out how to fix the problem.

I used a combination of what had been sent through and what was shown on the HMRC account for the company to recreate what had been sent in. In this case I was also able to speak to HMRC regarding the individual employees so that I could get the tax codes that were used, and also confirm the tax codes that should have been used.

Once I had worked out what had been submitted before I took over the work, I was then able to work out what should have been sent in and also come up with a plan to make the necessary adjustments .

What was the problem?

I was able to identify two problems for my client.

Only half the submissions for the year had been made for one of the employees. In trying to fix this problem, the full salary for the year had then been submitted, leaving the employee with a salary 1.5 times higher than it should have been.

The Employment Allowance for the year had been claimed initially but was subsequently terminated, leaving the Employers National Insurance bill as an additional liability on the HMRC account.

These two problems had caused HMRC to issue demands for extra payments to my client. Armed with the knowledge of what had happened and how I could fix it, I was able to relieve my clients worries regarding these unexpected demands.

What was the fix?

Since these two problems arose in the previous tax year, a special submission called an Earlier Year Update (“EYU”) was required. These submissions are fiddly and an attempt to submit an EYU by the previous accountant had exacerbated the first problem identified above.

The easiest way to send in the EYU is by using HMRC’s own payroll software. The EYU requires you to tell software all the details that are already held by HMRC for the employee in question and then tell them what should have been sent in. The software then calculates the difference and sends that to HMRC in an attempt to fix the underlying record.

The previous accountants had instead used the EYU to send the employee’s full salary for the year, simply adding to the problem.

At the same time as sending in required EYU, I used the software to generate and send in the Employment Allowance claim again.

What was the outcome?

Having made the submissions to HMRC, I made sure that the changes flowed through to the payroll record correctly. Once the changes took effect, my client was delighted to find that the company’s PAYE bill reduced by £1,200.

It is much easier to get HMRC submissions correct the first time, but inevitably problems sometimes arise. If you think something isn’t quite right with your own tax position, you can book a discovery call using the button below to see if I can help you.

How do I motivate myself to get things done?

Fri, 01 Nov 2019 09:44:13 GMT

I haven't written a swimming-based blog for a while, so I think we are overdue one! I'm really struggling to motivate myself to go swimming at the moment. I know it's good for me but right now, I just can’t get excited about it. Maybe it’s the darker evenings? Whatever the reason, I need to try and give myself reasons to get in the pool.

What happens if I don’t get it done?

I constantly try and remind myself about the impact of not going swimming. My job is mostly office based and whilst I'm often out walking Bailey at lunchtime, I still need another way to keep active. My enthusiasm for swimming may be low at the moment but it's still much higher than my eagerness to do any running, especially now that the evenings are darker and colder!

What positives can I take from it?

When you start to lose the motivation for a task of any kind, it’s good to take a step back and look for the positives in a situation. As a member of the local swimming club, I go swimming at designated times with a group of likeminded swimmers. It’s not just exercise, it’s a chance to meet up with friends and be sociable as well. I also know that I will feel great after finishing my swim so I try and focus on that feeling to keep me going.

It also doesn’t hurt that I pay to be a member of the swimming club either. Paying for something always makes you value it more! It certainly doesn’t make sense for me to pay to be a member and then not swim.

By using the local facilities, I am also playing a small part in keeping the pool open and available to the local community. The local council are trying to make cutbacks and are looking to make savings on their leisure provision at the moment. The busier the pool, the easier it will be to justify keeping it open.

Have I made a plan?

I always make sure I have a plan in place before I turn up to training. It’s much easier to work through a set of shorter swims than to just get in and just swim for a set time or distance. I have a booklet that I keep in my swimming bag, so I’ve always got something to hand. If you are looking for to plan a swim for yourself, you can download something off the Speedo website here or download my favourite swim set here !

Despite being an accountant, I find that I quickly lose count of how many lengths I’ve swum. By planning in advance, I don’t even need to count to more than a handful of lengths at a time and I still know how far I’ve swim. The big challenge is converting my 25m sets to a 20m pool!

Have I set any goals?

It’s always a good idea to set yourself some goals as well. I think one of the reasons I have lost my motivation a little this year is because I haven’t participated in any races. This is partly because one of my favourite events (the Great Scottish Swim) was cancelled this year but I could have found a different event to take part in.

Next year I am considering the River Spey 10k Whisky Swim, which is twice the distance I have swum before. Entering the swim now would force me to get in training and might just bring some of my motivation back.

What is my reward?

At the end of my swim I am always looking forward to relaxing with a snack of some kind – I feel like I’ve earned it. After a Friday night swim, I often have a glass of wine as well. It’s a good idea to reward yourself for completing a task that you didn’t really want to do. It certainly helps to keep my momentum going and makes me more inclined to repeat the task if I need to.

How do I make myself accountable?

My swimming session often coincides with that of my children, so I know that if I don’t go or show the right attitude, it sets a bad example to them. Sharing my commitment with other people also helps to create motivation to keep me on track.

Anything else?

If you do find yourself procrastinating over something, prioritise it! Just tackle it head on and get it done and out of the way so that you can move onto something that interests you more.

Of course, all these motivation techniques work for me if I am feeling demotivated at work as well. To recap, if you find yourself demotivated:

Remind yourself why you are doing it
Look for the positives
Make a plan
Set some goals
Give yourself a reward on completion
Tell people that you are going to do it and keep yourself accountable
Just get it done!

If it’s your accounts or tax return you’re procrastinating over, there is one further option! Click one of the buttons below to delegate the process instead!

What do I need to do if I haven't used my company?

Fri, 25 Oct 2019 09:30:36 GMT

Following on from last week's blog, the one situation when it's not too difficult to prepare your own limited company accounts is when your company hasn't yet traded and you can therefore file “dormant accounts”.

However, just to make life more interesting, the definition of a dormant company is subtly different between Companies House and HMRC. Companies House allow you to submit dormant accounts if you have no significant transactions during the period whereas HMRC consider your company to be dormant if the company is not trading.

How do I file my dormant accounts with Companies House?

You can simply log on to the Companies House website and fill out the information to complete dormant accounts. Generally, your dormant accounts will simply show your share capital and either your bank account with the share capital in it or a current liability showing that the shareholders have yet to pay the share capital into the company.

You need your company authentication code to be able to submit your accounts online. If you don’t have one, you can ask Companies House to send it out to your registered office address by working through the steps here .

Do I need to send a tax return for my dormant company to HMRC?

Don’t forget that HMRC may still be expecting you to do a tax return.

If your company hasn't traded in the financial year you don't usually need to send in a return but you MUST speak to HMRC and make sure that they are aware that your company is not trading. They will confirm whether or not they require you to send them a return. They may need you to send a nil return if you have already been asked to for one.

You can call them on the Corporation Tax helpline, details here . You will need your company UTR number to hand, which you should be able to find on any HMRC correspondence.

What else do I need to do for my dormant company?

The last thing you will need to remember to do each year is complete your annual return on the Companies House website. This is a simple confirmation of all of the administrative details for your company and your annual fee of £13 is due at the same time.

How do I get rid of a company I no longer need?

If you no longer need your company, take a look at my striking off blog here for instructions as to how to close down the company. Otherwise, make sure you remember all the steps above to avoid penalties from both HMRC and Companies House.

If you are unsure about any of the requirements, please get in touch by clicking one of the buttons below. Armet Accounting offers a simple dormant account filing service for a small fee.

Do I need an accountant or a bookkeeper?

Fri, 18 Oct 2019 09:42:13 GMT

If you have just started a business, you may be wondering whether you need to either appoint an accountant or a bookkeeper. The chances are that while your business remains small, you aren’t required to appoint either. However, there are some circumstances when it may be a good idea to get an accountant to help you. I’ve set out some of these situations below.

Accrual accounting is the method of accounting that records revenues and expenses when they are incurred, rather than only when cash is exchanged. In summary, if you are required to produce accrual accounts rather than using the cash basis, I would suggest that you would benefit from appointing an accountant of bookkeeper.

Limited companies benefit from having an accountant

If you operate your business as a limited company, I would strongly recommend getting an accountant. Limited companies that are not dormant have to submit a full set of electronically tagged accrual accounts following accountancy standards (they can be found here , although they’re not exactly bedtime reading) along with their annual tax return. There is also a smaller set of accounts that needs to be submitted to Companies House.

Whilst it is not impossible to produce these yourself, I would strongly recommend getting an accountant to do the work as different transactions need to be treated correctly. Third party software is required to produce both the accounts and the return so if you wish to fulfil your obligations yourself, be prepared to invest in the software to do so.

If your company is dormant, you can read my blog post here to see how to manage a dormant company yourself.

Sole traders can manage themselves but may benefit from an accountant

The self-assessment system is set up in such a way that it is straightforward enough for sole traders to complete their own returns, in fact here is a link to my blog post from last year describing how to do just that.

If your business turnover is under £150,000 then you can use the cash basis to calculate your income and submit your tax return yourself. There is more information on the HMRC website here . This is a simple method, so depending on your circumstances you may not always get the best result for you.

Even if you are eligible for the cash basis, these are some of the occasions when it is a good idea to ask an accountant or bookkeeper for help.

If you have interest or bank charges of more than £500

You need to complete fully accrued accounts to be able to claim more than £500 of bank charges or interest as a deduction.

When you expect to need a mortgage or finance

You may find your lender wishes to see accrual accounts produced by an accountant before making any finance available to you.

If you make losses

If you make losses (especially if losses arise in the first few years of a business) then there are a few different options available to you. It is a good idea to speak to an accountant or bookkeeper so they can guide you through the options. Most of these options are only available upon the production of accrual accounts. You may find that your loss is quite different under the accrual accounting method, especially if you hold a lot of stock.

Partnerships can manage themselves but need the software

Partnership returns are based on the same rules as sole traders, so it is perfectly possible to produce and submit your own partnership return (which then cascades into the partners individual returns). However, it is not possible to submit partnership returns without third party software so be prepared that you will need to find a suitable way to submit the return if you decide not to appoint an accountant or bookkeeper.

If you would like to spend more time on other things, get an accountant or bookkeeper

Of course, you may decide to appoint an accountant or bookkeeper simply because you don’t wish to do the return yourself ! Outsourcing your accounts and tax return to an accountant or bookkeeper can allow you to focus your time and energy on other parts of your business!

What changes are happening for contractors?

Fri, 11 Oct 2019 12:41:06 GMT

Expected changes to off-payroll working working rules

If you are currently acting as a contractor through your own limited company you may be aware of the changes that are expected to come into force from 6 April 2020. Although not completely pinned down into law yet, we now have a reasonable idea as to how the new rules are likely to be operated.

Does this apply to my contract?

The first thing to think about is whether the changes will apply to you. If you are serving a contract with a small business , then the existing regulations will continue to apply and you remain responsible for deciding whether your contract falls under the off-payroll working rules. You can find out more about the current rules for making such a determination here and these rules aren’t changing. Otherwise, the new regulations will apply to you.

A company is considered a small business if it meets two of the following three conditions. For sole-traders and partnerships, only the first of these conditions applies.

Annual turnover of less than £10.2 million

Balance sheet total under £5.1 million

Fewer than 50 employees

What happens if the changes apply to me?

Under the existing rules, you are responsible for determining your own employment status for each contract your company is involved in. As noted above, the rules for determining that status can be found here and they are not changing.

What is changing is that responsibility for deciding whether your contract falls under the off-payroll working rules or not will move from your company to your client. The client that has engaged your services will write to you to tell you whether your contract has been deemed an employment and the reasons behind this determination. The client is also responsible for communicating the status determination to any intermediary that is involved in hiring you. If your contract is deemed to be an employment, then Income Tax and National Insurance contributions (NICs) will be deducted from any income you receive in the performance of duties.

You can appeal this decision by writing to your client, setting out the employment status determination and your reasons for disagreeing with it. The client has 45 days to respond, however in the intervening time they will continue to deduct Income Tax and NICs from any payments made.

What income will I receive if my contract falls under the off-payroll working rules?

Instead of receiving your payments gross from your client, your client (or the agency) will deduct Income Tax and NICs from your income and pass this to HMRC. If your company receives payments that have had Income Tax and NICs deducted, you should not deduct tax again when you pay your company’s employees. Your client will also be expected to account for employers’ National Insurance. Be aware, this change will make your contract more expensive to your client so they may try to reduce your rate of pay to accommodate this additional cost to them should your contract fall within the revised rules.

The agency is not responsible for statutory payments such as sick pay or maternity pay, student loan repayments, automatic enrolment or holiday pay. This responsibility will remain with your company where applicable.

Should I continue to work if my contract falls under the off-payroll working rules?

If your contract is determined to be treated as an employment for tax purposes, you may wish to reconsider the structure of such an “employment”. Employees generally pay more tax than contractors in return for additional rights that contractors don’t receive the benefit of (including but not limited to holiday pay, sick pay and pension contributions). If you are taxed as an employee, you may prefer to work as an employee so as to gain access to these workers rights.

Remember however that each contract is assessed on a standalone basis so if your existing contract is deemed to fall under the off-payroll working rules you may be able to find another contract that isn’t deemed to be an employment.

It remains to be seen whether private companies move towards employing people directly or continue to engage contractors. In any case, as a contractor it is going to be essential to maintain communication with your client and your accountant in the run up to 6 April 2020.

What do I need to think about when investing in my business?

Fri, 04 Oct 2019 11:11:06 GMT

Its exciting times at Armet HQ because this week I’ve moved into an office for the first time. I am not the best at snap decision making, preferring instead to mull over things ad infintum, thinking through all the pros and cons. That’s all well and good but sometimes a snap decision is required.

Luckily the decision to move into my office wasn’t one I needed to make in a hurry! I changed my mind many times and the decision-making process was quite protracted but ultimately it came down to whether the value gained by moving to an office outweighed the cost of providing it.

It can be particularly difficult for small businesses and start-ups to make the decision to invest in their businesses when every penny needs to be accounted for. Here are a few suggestions of things to think about when investing in your business.

Can my business afford to pay the ongoing costs involved?

This is where your financial planning comes in. Before you commit to spending any large amount of money on your business make sure you work out what it will cost you and the timing of the expense, including any associated costs.

In the case of taking on the expense of an office, it wasn’t only the rent that I needed to bring into my forecast. Insurance and broadband needed to be considered as well – not to mention the all-important coffee machine.

I plotted all the forecast income and expenses that I had already committed to and then slotted in the costs associated with the taking on the office to ensure that the business could sustain the additional cost.

It’s important that you identify if there are times when the business is likely to run low on cash to cover ongoing bills so that you can make arrangements to fill those gaps with either additional funding or cost savings.

What value is the expenditure bringing to my business?

When you take the decision to invest in the business you usually do so in the anticipation that there will be a positive impact. That impact may not always be primarily financial in nature. Deciding to spend money in order to directly increase your income or cut costs can be a straightforward decision.

It may feel like a harder decision to invest in your staff to improve morale or as a reward for good work, or to save yourself some time that can be spent doing something else that will benefit your business. In these cases, the impact on the finances of the company may be less obvious.

I am expecting that my decision to move into my office will also result in some cost and time savings. Up until now I haven't had premises, so I usually travel to my clients for meetings. Not only did I have the cost of travel to consider, I was also spending a considerable amount of my time travelling. Whilst I am happy to travel to clients when necessary, I hope that most meetings will now take place in my office where I also have immediate access to everything I need to help my clients efficiently. It also means that if I decide to expand my business in the future, I have the space available to bring in a member of staff and house a second filing cabinet!

What decision does my heart want me to make?

I’m a logical person so I tend to make decisions based on facts and figures, but we all have a tendency to listen to our hearts over our heads sometimes. This reminds me of a book I read whilst still a teenager called Dirk Gently’s Holistic Detective Agency . In the book, one of the characters has made his fortune by designing a piece of software that lets you tell it the decision your heart wants you to make. The software then works backwards to justify that decision to you. Make sure that you aren’t operating this same process without noticing!

Of course, going with your gut instinct can have its place but you should also try to rationalise what your heart is telling you. Could it be that you want to make your decision because it will make your working life better or more enjoyable? If so, this may also be a way to gain value out of your investment and your gut decision may align with logic after all.

Speak to an accountant

If you are considering an investment in your business, speak to your accountant before you do so. There are many things that they may be able to help you with.

Accountants are well placed help you with forecasting your income and expenses to ensure that your business can afford to make the investment

An accountant may be able to support you raising additional funding to enable you to invest in your business

An accountant may have suggestions of tax savings that can be made by tweaking the type of investment you are making. For instance, if you decide to invest in a van for your business rather than a car you will receive better cashflow due to a more favourable tax treatment.

Or they may have seen an alternative solution that has worked well elsewhere.

Of course, you may be on your way to a great decision and you may have it all under control, but it’s always worth checking in for a second opinion and it’s always possible that an accountant could save you more money than it costs for them to do the work!

Which payroll software should I use?

Fri, 27 Sep 2019 09:19:02 GMT

Whether you are a limited company director needing to run a payroll to take a salary or a sole trader running a payroll for your staff, payroll is one area that I believe it is possible to learn to do yourself.

Having decided to run your payroll yourself (if you’re still not sure, read my blog here ), next you will need to decide which piece of software you are going to use to send your submissions to HMRC. When you are setting up your payroll for the first time you may not even be sure what you need the software to be able to do. To help you decide, I have given my thoughts on three pieces of software that I have used to make payroll submissions for different employers. There are many other options available, but this is my personal opinion of the three I have experience of. For a much longer list of both free and paid for software, you can look at the HMRC website here .

Basic PAYE Tools is a good place to start

Unlike Corporation Tax and VAT, HMRC still provide free software that you can use to send in your payroll submissions. You can download the software for free here . The software isn't bad and does complete most of the tasks that you would need the software to do with the one glaring omission being the production of payslips. It is a legal requirement to provide your employees with payslips, so you do need to find a way to draft them. You can do this by typing the required information into a Word or Excel template or by using the payslip functionality on the Disability and Tax website here . Neither of these solutions take too long once they’re set up.

The navigation around the software is a little awkward and takes a bit of getting used to but it works fine once you get the hang of it. On this package, you can have up to 10 employees during the year. If you have more than this, you will need to look for different software or think about outsourcing your payroll. It’s worth thinking ahead because it’s harder to change software mid-year than at the start of a new tax year.

The software sits on your computer rather than being cloud-based so if you need to be able to log in from more than one location this is not the software for you.

It's worth noting that if you make a mistake with your payroll and need to change the data from a previous year, you may need to use Basic PAYE tools to send earlier year adjustments in to HMRC because many of the other pieces of software available are not able to make corrections to previous years. The software can be used alongside your usual software to make the required adjustments.

Basic PAYE Tools is actually not bad as a piece of software and it does what it needs to do. If you are happy to draft your own payslips and manually upload data to your pension provider, it’s definitely worth considering.

QuickBooks Payroll can have more than one user

I found that navigating my way around the payroll part of QuickBooks was trickier than that of the bookkeeping software itself, although with regular use it would certainly become easier. At £1+VAT per employee per month (on top of the QuickBooks monthly subscription), it’s fairly reasonably priced although this can mount up fairly quickly if you have a lot of employees.

One big advantage that QuickBooks Payroll has over Basic PAYE Tools is that it not only provides payslips, but it can also email them straight out to your employees (as long as they are happy for you to do so).

As with the bookkeeping software, QuickBooks payroll is not resident on your desktop so you can log in and process your payroll from anywhere. However, it is important to remember that payroll data is one of the most sensitive types of data you can hold in your business so you must take care of your data, making sure you comply with GDPR requirements. You should certainly restrict access to payroll data to as few people in your organisation as possible.

A further downside of QuickBooks payroll is that manual intervention is still required to ensure that the pension data is submitted to the pension provider. Unlike Basic PAYE tools, you can download a submission file but, in my experience, the dates don’t always match up perfectly and need to be adjusted before they can be successfully uploaded to the pension provider website.

Moneysoft Payroll Manager is my favoured software

Like Basic PAYE tools, Moneysoft Payroll Manager is a piece of software that sits on the hard drive of your computer. Depending on how many employees you have on your books, at £72 +VAT per year it can be more expensive than QuickBooks but for me the ease of use you get, including employee contract templates and autoenrolment assessment is worth the extra cost. Similar to QuickBooks, payslips can be produced and emailed directly from the software as well as many other reports.

Once your payroll details are populated, it's very easy to add in the employee payments, especially regular payments that can be copied down to each pay period. You can also ask the software to target a net salary amount, which is particularly useful for directors of small companies.

Of the three pieces of software reviewed here, Payroll Manager provides the most seamless integration with pension providers as well. The software can be used to make submissions to some providers directly, rather than having to download a return and upload manually to the pension provider website.

There are lots of different options for payroll software out there. Of the three that are looked at here, my preference is for Moneysoft Payroll Manager as it has loads of functionality for the price and the smooth integration with the pension providers website can save a lot of time. If you aren't sure which software to use, please get in touch to go through the options. I'd love to hear from you with your thoughts on any other options that you have used yourself, just click the email Laura button below to get in touch.

Can I claim Employment Allowance?

Fri, 20 Sep 2019 12:18:30 GMT

Whilst I am happy to run your payroll for you, I have also written about payroll being something that you can accomplish yourself fairly easily. You can find that blog here . It sounds really scary but in fact once you get it set up, it’s actually not too difficult and the software does a lot of the work for you. One of the first questions the software is going to ask you about is whether you would are eligible to claim the Employment Allowance. This short blog post will help you decide whether or not you should claim it.

What is Employment Allowance?

The Employment allowance is an annual £3,000 reduction in the employers National Insurance Contributions that are payable to HMRC. For small businesses, this can be a huge saving and helps to make employing someone more viable.

Am I eligible to claim Employment Allowance?

There are a few circumstances in which you are not eligible to claim the allowance.

If a single director is the only employee of the company on the payroll then the company is not eligible to claim.

You can’t claim Employment allowance if you are employing someone in a domestic role such as a gardener or a nanny unless your employee is solely providing personal care to someone due to age or illness.

Public bodies and businesses where more than half of the work is in the public sector cannot claim the allowance.

Companies that are connected can only claim Employment Allowance for one of the companies.

From 6 April 2020 only small companies with Employers NICs under £100,000 in the preceding year will be eligible.

How do I claim the Employment Allowance?

In order to claim the allowance, you need to tell your payroll software that you are eligible and the software will then generate a submission for you to send to HMRC. Each piece of software is different but by opening up the employer details you will probably find a box or something similar that can be ticked to claim the allowance. The link here describes how to make the claim if you use Basic PAYE Tools to submit your payroll. You need to claim the allowance at the start of each tax year. Once you have made the claim, your payroll software should do the rest of the hard work for you. When your £3,000 allowance has been used up your software will indicate that you should start to pay Employers National Insurance.

What if I have claimed Employment Allowance when I shouldn’t have?

If you have claimed when you shouldn’t have done, you should untick the box in the same way as you claimed it in the first place. The software will generate another submission for you to send in. Doing this will reverse the claim and any benefit you have had will be removed. You will be expected to pay any employers National Insurance that becomes due.

If you cease to be eligible during the year because an employee leaves, don’t untick the claim until the start of the new tax year as the benefit will be taken away (and you were entitled to the benefit whilst you had an employee). At the start of the next tax year, don’t claim the employment allowance if your employee hasn’t been replaced.

Running a payroll can seem like a daunting proposition but it is achievable and gets easier with practice. If you have any questions about running your payroll, make sure you get in touch!

What do I need to know about VAT?

Fri, 13 Sep 2019 10:56:22 GMT

VAT - the basics

I thought it was about time I tackled the thorny topic of VAT. As the name suggests, VAT is all about taxing the value added at each step of the development of a product, whether the end product is goods or services. The intention is that only the end user of the goods or services pays the full amount of VAT, rather than the (potentially) many businesses involved in producing it for market. This is achieved by registered businesses charging VAT on their outputs and reclaiming the VAT on their inputs. At each stage, HMRC collects tax and then hands it to the next business in the chain, only keeping the tax when it is paid by a business or person that is not registered.

Businesses are simply acting as the collectors, the VAT you receive from your customers never belongs to you, you are simply collecting it on behalf of HMRC. It's not a bad idea to have a separate bank account to transfer the VAT you collect on sales into. That way, it's always there to make the payment when you need it and you can avoid a potentially nasty cash flow issue, not to mention the fines there may be if you don’t make the payment on time!

When do I need to register?

You must register for VAT when your turnover for the previous 12 months is higher than the VAT registration threshold, which is £85,000 at the time of writing. Find out how you measure turnover for VAT here . If your turnover is lower than this, you may register voluntarily if you wish. This may be a good idea if you have large capital items on which you would like to reclaim the VAT, you make zero rated sales and want to reclaim VAT on your inputs, or you want to pre-empt breaching the threshold. Some contractors are expected to register for VAT before they start work. You can register for VAT here .

Some businesses are likely to breach the VAT threshold more quickly than others. For example, a heating engineer with a high volume of materials that are then sold on to customers would reach £85,000 of turnover more quickly than an accountant where there are no such materials charged as part of the sales process. If you are in a business that uses a high volume of materials, you may prefer to register for VAT from the start and avoid problems later if you fail to register when you should have done.

There are also businesses that should not register for VAT. If you make exempt supplies such as health or education services (amongst others) you cannot register for VAT.

If I need to register for VAT, what happens?

If your turnover is over £85,000 you will be expected to make digital VAT submissions from the outset. You will be expected to maintain digital records, including the underlying transactions with the date, amount and a description with digital links through to your tax return from the first day of being registered. You really need to keep a close eye on your turnover so that you can prepare in advance and be ready to make your first submission without having to enter many lines of data into bookkeeping software in order to submit your returns. The easiest time to start to use bookkeeping software is at the start of a new financial year as you will have all the opening balances available from completing your accounts and tax returns.

If you have registered for VAT voluntarily and your turnover is still below £85,000, you can log into your HMRC account and fill out the VAT return online to submit it. You can find out what you should put in each box of the VAT return here .

What can I reclaim?

You can only claim VAT on your purchases if you hold a VAT receipt. HMRC do occasionally perform VAT inspections and they will expect you to produce a receipt for every amount claimed. The easiest and safest way to draft your VAT return is by entering the data exactly as it is shown on each receipt. There are now products that make this easier so that you can scan your receipt and it will automatically identify the appropriate data and post it to your records.

What are the pitfalls?

Beware the difference between zero-rated , exempt and out of scope . Whilst none of these items have any VAT on them, zero rated and exempt sales and purchases should be shown in boxes 6 and 7 of the return, whilst out of scope items do not.

If you make a mix of VAT-able and exempt sales, you may end up being restricted in the amount of VAT you can reclaim in your expenses. For example, an osteopath may work with both humans making an exempt supply and animals, which would be standard rated. In this case, the amount of VAT you can reclaim is proportional to the amount of standard-rated supplies you make.

There is some debate as to whether purchases from non-VAT registered businesses should be classed as exempt or out of scope, personally I mark them exempt and include them in box 7.

Are there any other options?

HMRC do offer some schemes to assist with the preparation of VAT returns for small businesses. Those businesses on the cash accounting scheme only account for VAT when the cash changes hands. The flat rate scheme allows businesses to account for VAT using a single rate applied to their sales. In this case, VAT can’t be reclaimed except on large capital items.

VAT is a complex area of tax and it is not unusual for businesses to get caught out if they are not expecting to need to register, or fail to reclaim VAT for everything they are entitled to. Make sure you know if and when you will need to register for VAT. If you are in any doubt, make sure you ask!

VAT in the Construction Industry

Fri, 06 Sep 2019 11:27:42 GMT

Since releasing this blog, HMRC have delayed the start date for the reverse charge in the construction industry from 1 October 2019 to 1 March 2021. The rules aren't expected to change but there is longer to implement the changes.

How does it work just now?

At the moment, if you are a VAT registered business working in the construction industry you operate in exactly the same way as any other business in that you collect VAT on behalf of HMRC from your customers, see here for more details. You can reclaim any VAT you have incurred on your purchases and the net amount is passed to HMRC, usually on a quarterly basis.

What’s changing?

In an attempt to prevent fraud, HMRC are moving the construction industry to a reverse charge mechanism for VAT reporting with effect from 1 October 2020.

For many contractors working under the new rules, the reporting itself will be simpler although there will be an impact on the cashflows into the business. If your contract falls under the new rules, responsibility for accounting for and paying VAT moves from the supplier to the customer.

Simply put, it means that rather than charging your customers VAT and collecting it to pass onto HMRC, the customer themselves is responsible for the VAT.

What determines whether my contract falls under the new rules?

To work out whether you need to apply the reverse charge you need to consider the following issues.

1. Decide whether your work is part of the construction industry.

The HMRC definition of the Construction Industry work follows the same rules as the CIS scheme for payments (see the link here to find out the types of work that are included). Note that the supply of goods and materials is also caught under these rules, unlike the CIS scheme for services when the cost of materials is deducted from the invoice before the tax deduction is made.

2. Check whether your customer is VAT registered.

If your customer is not VAT registered, you should account for VAT in the normal way. You can check whether a customer’s VAT registration is valid here .

3. Decide whether your customer is an end-user or an intermediary

The end-user tends to be the person or business that has asked the main contractor to do the work, often the owner of the land or property on which you are working. Intermediaries are similar to end-users but are generally groups of businesses that may be working in partnership to obtain construction services. You may need to have a conversation with each of your customers to decide whether they are either an intermediary or an end-user of the services or not.

If your customer is not the end user, the reverse charge is applicable and the customer would be responsible for reporting the VAT to HMRC. Otherwise, VAT is charged in the normal way.

If the reverse charge applies, what does this mean for my invoices?

As well as showing all the usual things that go on a VAT invoice , your invoice also needs to give the following information:

A note that clearly tells the customer that the reverse charge applies and that they are responsible for accounting for the VAT due in their own VAT return.

Either the amount of VAT that should be included in the reverse charge or the rate that should be used. Either way, the VAT should not be included in the amount due by the customer.

And what goes in my VAT return?

If you are the supplier, only the VAT you have charged to end-users or intermediaries is reported in Box 1 on your VAT return. The net sales figures are included in Box 6.

The customer then accounts for the VAT by including it in both Box 1 and Box 4, leaving a tax neutral position. The net purchases that you have made under reverse charge are stated in Box 7.

As demonstrated in the illustration above, the information and payment that HMRC receives remains the same, the reverse charge simply reduces the cash movements in the industry. The hope is that this reduction in cash movements will reduce the instances of fraud.

If your business falls under the new rules, you should be talking to your customers now to ensure that you are ready to account for VAT in the correct way from 1 October. You may also wish to consider whether you may be better to complete monthly VAT returns if you are likely to consistently reclaim more VAT than is payable to HMRC. Sage has a well-written blog here that contains good advice for both contractor and subcontractors. Here are the HMRC details in all their glory!

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