If you are trading as a sole trader, as opposed to a limited company, your business profits will be declared and taxed as part of “self-assessment.”

Most people know the deadline for submitting this tax return is the 31 January AFTER the tax year end.  (so, for 20010/11, the self-assessment tax return is due by 31 January 2012).

The unfortunate thing that catches many people out is the payments on account system and a 50% payment on account for the current tax year is ALSO DUE by 31 January.

Mike began trading on 6 April 2010 and has been lucky enough to make a profit, during 2010/11, and his Tax and Class 4 National Insurance bill comes to £1,000

So, total to pay by 31 January is £1,000  right?
WRONG!
Because Mike also has to pay his first “Payment on Account” in respect of 2011/12, and that is estimated as 50% of his 2010/11 tax bill, he actually has to pay £1000+£500=£1500 on or before 31 January 2012.

His second Payment on Account for 2011/12 is due on or before 31 July 2012 and will be another £500.

If his tax and NI for 2011/12 comes out as £1200, his final payment for 2011/12, which would be due on or before 31 January 2013, would be £200.  However, now he has to make a 50% payment on account for 2012/13, which would be £1200 x 50% = £600.
So, the total he would have to pay by 31 January 2013 would be £200+£600=£800
(and so it goes on)

If you have reason to believe that your profits in any year are lower than the previous year’s, you may make an application to reduce your payments on account.

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So, you’ve set up a new limited company… what next?

When you incorporate a new company, Companies House pass that information onto HMRC.

So, within a few weeks, HMRC will automatically send you a CT41G form.
This asks for some standard information on your new company, such as it’s year-end date, it’s registered number, directors details (which usually triggers a personal self-assessment tax return for the director)

A form 64-8 is also included, and this allows you to tell HMRC your accountant’s details (if you’ve appointed one).  HMRC require a 64-8 form before they will discuss your affairs with an accountant.

Do you know how you are going to pay yourself?
It’s very often appropriate to register as an employer, which can be done online or over the phone.  This is so that you can pay yourself a basic salary.
You also need to know when you can pay dividends, how much, and be able to deal with the required dividend minutes and vouchers.

Depending on your business, and your target customers, it may also be appropriate  to register for VAT – and that involves considering which VAT scheme might be most suitable.  VAT registration can be done on paper, or online, and normally takes a few weeks to come through.

Decide how who will do your bookkeeping (will it be you, or somebody else?), what software to use, and how you are going to organise your files.  (You will need good, regular bookkeeping, as well as keeping tabs on your business, you will need to know how much you can take in dividends)

If you have incorporated your sole-trader business, there will be even more considerations – such as goodwill valuation.

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So, you’ve decided to engage The Happy Accountant.  What can you expect?

Well, after the formalities of the anti-money laundering checks (which every accountant and bookkeeper must carry out) and the signing of the engagement letter (a condition of our professional body, CIMA – and a good sign that your accountant is above board!), you can expect an initial telephone chat (or via email or instant messaging, if that suits you best) at a time to suit you.

We’ll cover the basics of things like:

• all the forms and paperwork from HMRC (and Companies House, if you’re running a company)
• statutory requirements
• personal tax (and if you are running a company, how best to pay yourself)
• PAYE
• VAT
• bookkeeping
• dividend minutes and vouchers (if a limited company)
• tax deductible expenses and allowances.

So that you have a general overview and can start to make some informed decisions about your accounts and tax.

We’ll talk about your specific circumstances, and how you and your business work best.  Every business has it’s quirks, so we don’t just send you generic “how-to guides”, we actually talk to you about how you specifically handle a particular matter or what to do in a certain situation.

On an ongoing basis, you’ll have a landline phone number, mobile phone number and email, so you can use whatever suits you best.  You’ll be able to contact us at no extra charge to discuss day to day bookkeeping and accounting matters.  If your call is not answered straight away, we will call you back as soon as possible.  You can even send us a quick text, if that’s best for you.

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If you work from home, consider charging business rent to your limited company (you’ll need to set up a rental licence agreement between yourself and your company).  If you set the rent figure to be the same as the actual costs, then there will be no personal tax to pay, (although both the rental income and the actual costs still go on your tax return)

Remember to include any dividends that you have received from your company on your tax return. (Also make sure that you have only paid dividends from after tax profits. Check that your dividends are properly minuted, even if it’s just you in the company AND that you have dividend vouchers)

The majority of business expenses should be going through your company’s accounts.

Put your mobile phone into your company’s name (this also means it wouldn’t go on your personal tax return)

Work out whether it’s better to have a company car or to claim mileage.

Remember your personal savings and investment income

There may be more, depending on your individual circumstances.

Keep all your receipts and invoices.
Also keep your household bills, if you are charging business rent to your company.

Unfortunately, Company Directors cannot normally use the “short” tax return.

If you don’t want to complete your own tax return, contact Louise on 01604 288024.

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Things to Claim for a sole-trader self-assessment tax return

• Cost of all your materials
• Cost of things like advertising, promotion
• Business Assets/Capital Expenditure*
• Office Equipment, computer, printer*
• Use of home (either a flat rate charge of £3 or a proportion of your household expenses, as appropriate to your circumstances)
• Mobile phone
• Stationery & office supplies
• Telephone/broadband (take a proportion for your business use)
• Travel expenses (keep a diary or record of mileage), train fares and so on.
• Newspapers etc…

*Remember – Capital expenditure (eg buying a van, equipment and so on) and depreciation on those assets are not tax-deductible in the same way as normal business expenses.
Instead you claim Annual Investment Allowance and/or Capital Allowances on these items.

Keep the receipts and invoices for everything you buy
Keep all your bank statements

If your turnover is less than £70,000 you can probably get away with filling in the “short” employment pages and putting a total figure for your business expenses. If not, or your business/tax affairs are more complex, then you’ll have to use the “full” employment pages. If your turnover is more than £70,000 you’ll have to enter some more detailed information about your business expenses.

If you’re not sure which sections and pages of the self-assessment tax return apply, get in touch – always glad to help.

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If you receive a letter from HMRC telling you to send in a tax return, you will, at some point need to send it in.  There’s no point in putting your head in the sand (however tempting that may be) There are penalties for late returns.  There are also penalties for inaccuracies and errors – so beware!

You need to gather together all your records, which might cover self-employment, employment, pensions, savings and investment income.  (Hopefully, you will have kept all these nicely together, so as to avoid the all-to-common, annual hunt-for-the piece-of-paper;)

Here’s a list of the general paperwork you’ll need:

• Your P45 or P60
• P11D (expenses & benefits)
• Redundancy or termination payments
• State benefits/social security benefits
• Pensions information
• Dividend vouchers
• Bank interest, Savings & Investment income
• Business expenses you’ve paid for out of your own pocket.
• Exceptional income
• Property Income
• Foreign Income
• Your sole-trader business accounts

(the list goes on, and not all of the above will apply to everyone)

Here are some common mistakes, if you’re submitting your tax return on paper:

• Not signing & dating it
• Not including any supplementary pages needed
• You’ve downloaded the form but not written your UTR (unique tax reference) number on it
• You’ve downloaded and used the form for the wrong year

The self-assessment form has additional pages which you may or may not have to complete – this is dependent on your circumstances.  Each of the main sources of income has a section on the tax return or it’s own separate page.

If you complete your tax return online, if you answer the introductory questions correctly, it will automatically include the relevant pages.

Important:- - if you file a paper tax return after the 31 October deadline, there is an automatic £100 fine, because you’ll have missed the deadline for paper returns. Even if you subsequently try and submit one online, the penalty still applies.
(A specific minority of people are unable to file  their tax return online.  If this exception applies to you, then the £100 fine will not apply, and you will hve until 31 January to file your tax return on paper)

If you don’t want to complete your own tax-return, call Louise on 01604 288024 for help, or use the online form.

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So, who must fill in a self-assessment return? Well, amongst others, you’ll need to complete this annual task if:

• You are self-employed
• You are a company director
• You have savings & investment income above a certain level
• You have property income above a certain level
• You receive an annual trust or have settlement income
• You have income from the estate of a deceased person.
• You have overseas income that’s liable to UK tax.
• You have a very high income
• You need to claim certain expenses or reliefs
  (the list goes on)

If you need to complete a tax-return, you’ll need to register with HMRC and get a UTR (Unique Taxpayer Reference).

To register, you’ll need your National Insurance number, contact details (and details of your business, if self employed), your UTR if you have previously been issued with one. The date your circumstances changed.

You can send a tax-return on paper up to 31 October (after 5 April) and you have until 31 January (after 5 April) to submit your tax return online.

If you decide to send you tax return in online, then you need to also register for HMRC’s online services (you’ll then receive a government gateway ID and an activation pin number in the post – so allow plenty of time for these to arrive)

If you have an accountant, you can appoint them to act on your behalf and they’ll do all the forms on your behalf.

If you don’t have an accountant, but need one, call Louise on 01604 288024 or use the online form.

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Every now and again, someone posts in a business forum to say that they are not happy with their accountant for various reasons, such as: not getting any support or advice from their accountant, unexpected bills from their accountant, they’ve asked a question and they don’t understand the accountant’s answer and so on…

For example, in the exchange here, the original poster (OP) has received advice from their accountant that they don’t quite understand:
Someone else posts:If your accountant has offered you the advice wouldn’t he/she be prepared to explain their advice?
OP: True. But I cant expect them to provide free lessons on PAYE to me.
My comment:

Why not? You’re paying them to advise you. If you don’t understand the advice they are giving you, of course you can expect them to explain it again, so that you do understand what they mean.

Which brings me on to…

Signs that you need to change your accountant:

• You aren’t getting the support you need
• You aren’t getting the advice you need
• You don’t understand what on earth your accountant is talking about
• Their fees are too high
• You receive unexplained bills from your accountant, and you don’t know what they’re for.
• Your accountant never calls you back or returns your emails
• You accountant doesn’t seem interested in you or your business
• Your accountant misses deadlines even though you gave them all the info in good time.
• Your accountant makes a mistake which they don’t rectify.
• Your accountant doesn’t do what you want or need them to do.
• You are unhappy with their service

If you can think of any others, please feel free to add them, below.

If you think you need to change accountant, please get in touch or give Louise a ring on 01604 288024

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Sometimes, it easy to get pulled in by cheap fees, particularly if the headline figure is very low.

• Make sure you are comparing “like with like.”  If you are a limited company, with sizeable transaction numbers, then obviously, your fees will not be as low as a sole-trader who raises one or two invoices a month.
• What looks like a low monthly fee, can actually still be a sizeable annual fee, when multiplied by 12.
• Make sure you adhere to all the conditions in order to achieve the cheapest fees (eg, use the required software, keep your bookkeeping up to date, do your own bank reconciliations, adhere to the deadlines).
• Expect additional fees for bookkeeping (and provide the information within the given timescales).
• Expect additional fees if your business or personal affairs are more complex. Be prepared to do without the face-to-face contact
• Check for professional qualifications.  Anyone can call themselves an accountant, even the man down the pub.  Every accountant has heard of horror stories of accountants disappearing into the sunset (sometimes taking a clients records with them). Generally, a qualified accountant can bring some extra reassurance (by way of - additional knowledge and experience, mandatory professional standards, mandatory complaints procedure – ultimately to a professional body, PII)

A Note about Fixed Fees
It’s now very common to see accountants (& bookkeepers) offering fixed fees, as opposed to hourly rates.  Indeed, Figurate Ltd offers fixed fees too, as clients like to have the reassurance that the final bill will be the exact figure they’ve told.  Fixed fees do eliminate the “surprise invoice”.  However, quoting fixed fees often involves making a best estimate of the work and there’s normally a small allowance in case the work is more complex or takes longer than expected.  But sometimes, hourly rates can work out a little cheaper than a fixed fee.

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If you have decided that you really cannot afford your accountant fees but you really don’t want to do everything yourself.  What are your choices?

• If you are otherwise happy with your accountant, ask them if there is anything that you could do yourself that would reduce their fees.
• Move to a cheaper accountant
• Use the software that the accountant recommends/prescribes.
• Do your own bookkeeping/Payroll/VAT returns.
• Do your own bank reconciliation accurately and ensure it reconciles on the last day of your accounting period.
• Do as much as you can online/remotely.
• Get everything to your accountant early.  (January is an accountant’s busiest month, due to the self-assessment deadline.  November and December are also quite busy.  The summer months are the quietest)

Also, look at the earlier blog on How to Save Accountants Fees

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