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Derek Kelly, Managing Director of ClearSky Accounting on accountancy fees.
HMRC has recently announced it will be imposing fines of up to £3,000 on small businesses that fail to manage their books properly. This could be a crippling amount for small businesses and new start-ups so here, Derek Kelly, Managing Director of ClearSky Accounting, the business start up specialist, discusses how doing what you love, and letting the experts look after the things you hate can make all the difference to a successful business.
As the UK starts to feel the effects of the VAT threshold rising from 17.5 per cent to 20 per cent on the 4th January 2011, there are some positives to take from it for limited company contractors.
From an admin point of view, the impact of this has been fairly simple as contractors have had to amend their invoices accordingly.
The good news is that this change in flat rate VAT could leave limited company contractors and micro business owners better off in the New Year.
The rate changes vary depending on their sector or type of business. For example, for IT contractors, this changes from 13 per cent to 14.5 per cent.
You can see a table of all the rate changes on the HMRC website by clicking here.
The flat rate scheme was introduced to reduce the administrative burden imposed when operating VAT. Under the scheme a set percentage is applied to the turnover of the business as a one-off calculation instead of having to identify and record the VAT on each sale and purchase you make.
If you aren’t already registered for VAT you must submit a form VAT1 at the same time.
Using traditional VAT accounting, the VAT you pay to HMRC or claim back from them is the difference between the VAT you charge your customers and the VAT you pay on your purchases. Using the Flat Rate Scheme however, you pay VAT as a fixed percentage of your VAT inclusive turnover.
You can join the Flat Rate Scheme for VAT and so pay VAT as a flat rate percentage of your turnover if your estimated VAT taxable turnover – excluding VAT – in the next year will be £150,000 or less.
Your VAT taxable turnover is the total of everything that you sell during the year that is liable for VAT. It includes standard, reduced rate or zero rate sales or other supplies, however, it excludes the actual VAT that you charge as well as VAT exempt sales and sales of any capital assets.
Under the Flat Rate Scheme you generally don’t reclaim any of the VAT that you pay on purchases, although you may be able to claim back the VAT on capital assets worth more than £2,000.
Once you join the scheme you can stay in it until your total business income is more than £230,000.
Our guide to VAT gives a bit more information here, and if you are ClearSky client, or just want to pick our brains anyway, get in touch with us now.
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The Government finally sounded the death knell for Employee Benefit Trusts (EBTs) after the Finance Act 2011 was published last week, and it’s fair to say that the announcement surprised no one. HMRC has been quite aggressive in its language when discussing tax avoidance of late and the clamp down was expected, particularly so when you consider that the additional tax take for HMRC as a result is conservatively estimated at around £500 million a year.
And whilst EBTs had a place when those using the schemes were made fully aware of the risks involved and knew exactly what the scheme was and how it worked, thousands of contractors when facing investigation by HMRC, will have felt they were mis-sold to.
Contractor accountant companies such as ClearSky, and our sister umbrella company Parasol, have worked hard to raise standards and encourage best practice in the contractor services industry over the years. However, not all service providers shared this vision and this has ultimately been to the contractors’ cost. Not many will now shed a tear for EBTs.
There will be a large number of contractors looking at alternative options for running their business now as the clock ticks down to the implementation of the Finance Act in April and we’ve already had a large number of phone calls from contractors and freelancers asking us to explain the new legislation and discuss the options that are open to them.
We’ve been directing them to some of the online guides that are available as well so here is the link again for anyone who would find them useful.
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It’s been flu jabs time again in the office recently and it got me thinking about one of the downsides to contracting – what do you do when you are ill and unable to work.
Amongst all the talk of defence budgets, public sector spending cuts and social housing budgets, the Government also announced proposals that could significantly impact on how we save for retirement last week.
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October 1st, 2010 by adminThere has been a lot of talk in the news recently about the coalition governments pledge to review the controversial IR35, although what form any review will take and any subsequent changes that will result remain unclear.
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