Blog Archives - Emma Stevens Accountancy

HMRC Basis Period Reforms for the Self-Employed and Partnerships

26/01/2024 By Emma Stevens

For clients who submit ‘self-employed’ or ‘partnership’ tax returns, HMRC will be bringing in ‘Basis Period Reforms’ affecting those whose accounting period does not end on the 31st of March or April the 5th.

The changes will mean that everyone who is registered as self-employed or as a partnership will effectively have to change their year-end to the 31st of March (or the 5th of April) in order to align with HMRC’s tax year.

The period in which this will need to be done starts from the 2023/24 tax year and is likely to lead to higher tax burdens during this period, for those who need to extend their accounts in order to fit this new basis period.

Photo of a UK self-employment tax form, the deadline for the tax year is 5th April as shown by the calendar.

To help reduce this additional burden, ‘overlap profits’ -which would have been created when these businesses started submitting their first tax returns- can be relieved against the extended accounts. Added to this, there will also be the option of paying the additional tax on any additional/’transitional’ profit to HMRC over 5 years.

For those affected by this change, we will be providing additional advice over the next year on this issue and also trying to track down/calculate your ‘overlap profit’ figures if you started out with a different accountant to ourselves.

All data and information provided in this advert is for informational purposes only and is not intended to substitute for obtaining accounting, tax, or financial advice from a professional accountant. Emma Stevens Accountancy Ltd makes no representations as to accuracy, completeness, correctness, suitability, or validity of any information in this ad and will not be liable for any errors, omissions, or delays in this information or any losses, injuries, or damages arising from its display or use. All information is provided on an as-is basis.

Did you know?…… Use of home as office

08/12/2017 By Emma Stevens

As a limited company director, you can claim money from the company for use of home as office. You, personally, will not need to pay tax on this money and the company can claim tax relief for paying it.

You can claim for things to do with your work e.g. business telephone calls or the extra cost of gas and electricity for your work area. You can’t claim for things you use for both private and business use such as rent or broadband access.

You do not need to provide evidence for claims of up to £4 a week (£18 a month). For claims over this amount you will need to provide evidence of what you spent and how you calculated the proportion charged to the company.

For more details on use of home as office and other tax savings you can make contact Emma Stevens

All data and information provided in this advert is for informational purposes only and is not intended to substitute for obtaining accounting, tax, or financial advice from a professional accountant. Emma Stevens Accountancy Ltd makes no representations as to accuracy, completeness, correctness, suitability, or validity of any information in this ad and will not be liable for any errors, omissions, or delays in this information or any losses, injuries, or damages arising from its display or use. All information is provided on an as-is basis.

My company is VAT registered – what do I need to do now?

29/05/2017 By Emma Stevens

If you’ve made the decision to become VAT registered, there are a few changes that you’ll have to start making straight away to the way you run your business. The obvious one is that you’ll need to add an extra 20% to the price of your goods or services.

There are exemptions to this rule like food, books, newspapers and magazines, young children’s clothing and footwear which don’t attract VAT, so if you also sell any of those products, you won’t add anything to the price.

You need to start charging VAT from the day you register for VAT, too. Don’t wait for the certificate to arrive as this can take some time, and you’ll have a shortfall in what you pay and what you charge your customers if you wait for the certificate.

If you send out sales invoices, while you wait for your certificate, you can still add the VAT but you’ll need to show a total figure including sale amount and VAT as one amount. When you receive the certificate with your VAT number on it, you can reissue your invoice with the correct details, separating VAT from sale price, and this allows your customers to claim back the VAT they pay you.

Filing VAT Returns

Being VAT registered means extra paperwork. Every quarter you’ll have to complete a VAT return for HMRC – it can be done online these days which makes it easier. The return needs to show your ‘output’ tax, which is the total amount of VAT you’ve charged to your customers. You also include any VAT you’ve paid on things you’ve bought for your business that you want to reclaim – this could be your stock, supplies or anything business related. This is called ‘input’ tax.

Your quarterly return needs include all income invoices you’ve raised during the quarter, not just the money you’ve actually received. HMRC then tells you whether you need to pay them any VAT, based on whether your inputs are more than your outputs.

The Cash Accounting Scheme

If you don’t want to pay your VAT until you’ve been paid for your goods or services, you might qualify for the cash accounting scheme. You can only use this scheme if your annual turnover is less than £1.35 million.

The scheme is similar to standard VAT returns, except that you won’t claim or reclaim the VAT on unpaid invoices. If you invoice a customer in March but you aren’t paid until May, that business is included in a later tax return, not the return you would file at the end of the March quarter

The benefit of using the cash accounting scheme is mainly that it makes your business cash flow a little easier. You’ll only have to pay HMRC their VAT once you’ve actually received it from your customers, so you won’t have to find large amounts on unpaid bills.

You will, of course, not be able to claim anything back on your purchases until it’s paid. If you decide to leave the scheme, you won’t be able to do so until you’ve paid any outstanding VAT to HMRC.

For advice on VAT and other accounting issues, contact Emma at Emma Stevens Accountancy for a friendly chat.

The New Business Checklist – Setting up a New Business

16/11/2015 By Emma Stevens

Once you’ve made the decision to start your new business, the next decision is what type of business you’re going to be. Whether you opt to be a sole trader, set up a partnership or incorporate your business as a limited company, there are steps you’ll need to take to ensure everything is properly set up from the start.

Setting up as a sole trader

Step one is to register yourself as self-employed for tax and National Insurance purposes with HMRC (Her Majesty’s Revenue and Customs). They can send you a form to do this or you can complete the information online.
If your business is likely to be liable for VAT registration (the current threshold is £82,000), register with HMRC and file any information. You can also register voluntarily if you want to reclaim VAT on business expenses.
If you will be employing anyone else, register with HMRC for PAYE.
Set up a bank account. There’s no obligation to have a separate account for your business income and expenditure but it will make things easier. It doesn’t have to be a specialist business account.
Check out an accountant – you might feel you can undertake your tax returns yourself but it is always worth checking you are doing everything correctly. Most accountants offer an free initial meeting. To book a meeting with Emma Stevens Accountancy check out this page.
Contact your local council to find out which permits, certification or inspections you need for your type of business.
If you take on premises you will have to register for business rates. There’s more information about those on the Business Rates page at GOV.UK.
Make sure that your insurance covers you – you’ll need employers’ liability insurance if you employ anyone else, and if you intend to offer any form of professional advice you will also need to take out professional indemnity insurance. You could also need public liability or product liability, depending on your type of business.
Don’t forget your domestic insurance if you will be working from home – if you have to claim and you haven’t told your insurer, you may find that your policy is invalid.

Setting up a partnership

Every partner should register with HMRC as self-employed.
Draw up a ‘Deed of Partnership’ – this specifies the amount of capital every partner will put in, how any profits or losses will be split between partners and what each person’s role is within the partnership.
Set up a bank account for the partnership. You’ll need a separate account to make accounting simpler.
Decide if you are liable for VAT (as for sole traders) and register with HMRC if necessary.
Register for PAYE with HMRC if you will be taking on any other employees.
Obtain any permits, certificates or inspections necessary as for sole traders.
If you take on premises you will have to register for business rates. There’s more information about those on the Business Rates page at GOV.UK.
Make sure that you have the appropriate insurances, employer’s liability, professional indemnity, public liability, buildings insurance and any other.
Make sure that any business stationery or software displays the names of all of the partners.
Consider investing in accounting software and/or an accountant. Most accountants offer an free initial meeting. To book a meeting with Emma Stevens Accountancy check out this page.

Setting up a Limited Company

Register your company with Companies House. You can do this yourself if the company meets certain criteria (check the Companies House website for details) or use an agent/accountant to organise the paperwork for you.
Inform HMRC that you’ve set up a limited company and create an online account at the same time on the HMRC Website.
Set up a business bank account. By law this must be separate for limited companies. You’ll need your certificate of incorporation and other documents to do this.
Register for VAT if appropriate, as above.
Get insured – you’ll need employers’ liability insurance if you employ anyone, plus professional indemnity if you offer advice as part of your business services. Some occupations use specialist insurers so it’s worth finding out about that, as well as public or product liability insurance.
If you take on premises you will have to register for business rates. There’s more information about those on the Business Rates page at GOV.UK.
Find an accountant – yes you could do it yourself, but a good accountant will take the stress out of the details that can keep small business owners awake at night! Invest in bookkeeping software to make it easier to keep track of finances, payroll and pensions. Most accountants offer an free initial meeting. To book a meeting with Emma Stevens Accountancy check out this page.

With all new businesses it is always useful to prepare a business plan and cash flow estimate. This will help you be clear on what you want from your business and what you need to achieve it.

Bookkeeping basics for small businesses

19/10/2015 By Emma Stevens

Bookkeeping is one of the areas of business that many business owners struggle with, and unfortunately, some people find it all too daunting and end up getting into hot water with HMRC as a result. Getting yourself organised and staying on top of the paperwork doesn’t have to be such an onerous task, if you start with a good system and make sure you have all the right information in place.

Keep accurate financial records

It’s worth talking to an accountant to make sure that you’re keeping the records you need for your specific type of business, but in general, all businesses need to keep records of:.

Sales Invoices – You need to keep a copy of every invoice you send, either in Word, using an online accounting tool or computer package. Each invoice must have a separate reference number and you’ll probably find it’s easiest to store them in chronological order
Purchase orders/invoices – Keep notes of how and when all invoices are paid, and either print them off or keep them electronically in chronological order.
Bank statements – See at a glance which payments have come into your account and keep an eye on what’s going out. If you update this regularly it soon becomes second nature, and you can also use it to help forecast peaks and troughs

Keep your receipts

Any business can be subjected to a VAT or tax investigation, and the better your paperwork (and accountant) the less you have to worry about.

If you buy something online, save or print the invoice, and keep your receipts for anything you buy in person.

Keep your accounts clean – and keep your business and personal expenses separate.

(Also remember that if you run a limited company, technically the business’s money is not your own, and even if you’re the only director you can only spend company money on legitimate business expenses.)

If you’re self-employed, it’s advisable to keep a separate bank account, and keep your personal finances separate. This doesn’t need to be a business account, a separate standard current account is sufficient.

Check your business bank statements regularly

Ideally, go over your business bank statement every month. It’s a great habit to get into, and not only do you spot any errors straight away, it also gives you an idea of the general cash flow, which helps if you need to give financial forecasts or apply for finance.

Do your bookkeeping regularly

Try and set aside a half day or few hours a week to sort out invoices, receipts and cash records. If you need to do this outside of your normal working hours, make it a regular day and get into a habit of doing it. Don’t just put it off…it only gets harder the longer you leave it!

Consider investing in bookkeeping software to make life easier – some online systems let you store invoices and receipts in the Cloud so you never have to worry about losing paperwork.

Think about hiring a bookkeeper or an accountant. A good accountant will save you time and money in the long run. An expert bookkeeper will be able to get to grips with your business finances in no time, and while they are sorting the numbers out for you, you can be earning money doing what you’re good at.

The Institute of Certified Bookkeepers has a list of qualified bookkeepers, or you can find someone suitable via word of mouth recommendation. When you’re looking for an accountant, look for someone who is registered with the ACCA.

Budgeting Tips for Small Businesses

12/10/2015 By Emma Stevens

Budgeting is a vital skill for all small business owners; it helps you see whether you have enough money coming in to cover every day and larger expenses, whether you’re in a position to expand your business, or whether you need to look at ways of generating more income.

Here are a few tips to make sure you don’t lose sight of the money situation and find yourself in a difficult financial position.

Always keep up to date with cash flow

If you don’t know what’s going on with your business accounts, you could find that your business venture is short lived, even if your business idea is brilliant. Keep actively involved in the cash management, and keep a close eye on the books, even if you have a book keeper or accountant doing all your paperwork.

The main thing to stay aware of is the basic cash flow – keeping an eye on the money that comes in and goes out of your business on a weekly, monthly or even a daily basis. If the cash flow is positive, it means that your business is in good financial health, but if you notice that there’s more going out than there is going in, you can take action before the situation gets out of hand.

Being aware of what’s owed, and owed to you is also useful knowledge – you can see if there are any outstanding debts that need to be chased or plan in advance for big bills and purchases.

Keep an eye on your businesses balance sheet and list all the assets and liabilities – it’s useful to be able to see what your business owns and what it owes creditors at any given time.

Don’t be afraid to chase bad debts

At some point, all businesses will have a bad debt or two to deal with. Familiarise yourself with the procedure for chasing unpaid invoices – standard reminder letters, interest rates, letters before action and court action are all things that can be done online and don’t necessarily need a solicitor’s advice or representation.

Keep personal expenses separate

Despite the temptation to dip into the business accounts to pay personal bills, don’t do it. Mixing the accounts can cause all sorts of headaches for you, and any book keeper or accountant you employ. It can also cause problems when it comes to your tax returns.

There’s no obligation for sole traders to have a separate business account, but it really does help keep things in order. If you have set your small business up as a limited company, you absolutely should not take money from the business to send on personal bills, as legally the money doesn’t belong to you.

For sole traders, the temptation to combine the personal and business accounts can be tempered if the personal accounts are treated with as much importance as the business accounts. If you anticipate needing credit in the future, keep your personal accounts in order and make sure your personal credit is good, with all bills paid on time. Keeping an eye on the personal finances will set you in good stead for making sure the business accounts are spotless.

Stay on top of your taxes

This can prove to be one of the most difficult parts of being self-employed and running your own business. Being responsible for your own tax bill is something many business owners neglect and then when it’s time to file a tax return and pay the dreaded bill, it can come as a surprise.

If you’re not sure how much you should be paying or can’t tell one end of a tax return from another, it pays to ask for the help and advice of a professional. Some small businesses handle the day to day accounts themselves, but ask an accountant to calculate and file their tax returns so that they claim everything that’s owed to them and pay all the necessary tax and national insurance on time.

A good accountant may also be able to help you save hundreds and sometimes thousands of pounds of tax by advising you on the most tax efficient structure of your business.

Get into the habit of keeping a percentage of your income in a savings account to cover your tax bill and you shouldn’t get any nasty surprises at the end of the tax year. As a guide around 15-20% of your income should be reserved towards your tax bill.

Why go limited? The pros and cons of becoming a Limited Company

28/09/2015 By Emma Stevens

One of the most common questions accountants are asked by small business owners is whether it’s worth forming a limited company, and if so, how to go about it.

The two most popular trading options for small businesses are sole trader and limited company, and which one suits you best will depend very much on the type of small business you run. It’s also worth remembering that if you start out as a sole trader, it’s relatively simple to change your trading status to limited company – but not as easy to change it back again.

What are the advantages of converting your business to a limited company?

It can seem more official to people you want to do business with – the term ‘limited’ gives the company a bit more weight. If you’re looking for investors, they will be more likely to oblige if you are a limited company, as their investment is protected, whereas if you are a sole trader or partnership there’s nothing to protect any money they put into the business.

Banks also prefer limited companies when offering loans and finance, as they can take out extra security so that if the terms and conditions of the loan are broken the bank can take some of the company’s assets.

The costs of setting up the limited company will probably be outweighed by what you save in tax, as you pay tax as an employee and can set quite a low salary. You also pay tax on ‘dividends’ the company pays you as a shareholder, but not any National Insurance.

The disadvantages of converting to a limited company

Your money isn’t technically your own any more. You can’t just make withdrawals from the business as you can if you’re a sole trader, and although it might be better for you in terms of paying tax, it does make your finances more complicated. As well as this banks will still require personal guarantees from the directors, which means that the directors can still be liable for the company’s debt.

As a result, your accountancy fees are likely to go up, as the accounts for a limited company aren’t as simple as those of a sole trader.

When you start trading as limited company all of your accounts are made public, and you must keep and file accurate records of everything because if you don’t there can be penalties.

How to make the change

The process of changing to a limited company is relatively straight forward – you can do it yourself or go through an accountant/agent. The paperwork is more daunting than the cost (it’s perfectly possible to set up a limited company from as little as £4.99 online).

If your business makes a profit of at least £20,000 a year it could be worth converting it to a limited company. You should allow for costs of about £500 to £800 in your first year after setting up a limited company, and you’ll have to remember to file your accounts and send an annual return every year (which you can also do online). You can hire an accountant to take care of all the paperwork for you if you want to be absolutely sure you don’t miss anything.

Tax and National Insurance Contributions

This is where a limited company finances can start to get confusing. Once you convert to a limited company, you become a director, a shareholder and an employee of the company, and you have to set up PAYE to pay yourself as an employee.

As a director and shareholder, you enhance your basic salary with dividends, which is where your tax advantage comes from, as you won’t pay National Insurance Contribution (NIC) on dividends. Tax and NICs have to be deducted via a company payroll, which you will have to set up. You also have to pay tax and NIC’s for other staff members if you employ them.

The amount of income tax you have to pay depends on what you pay yourself as a salary as an employee of your company, and the tax bands are the same as an employed person’s income tax, including the personal allowance of £10,600 (2015-16).

Corporation tax of 20 per cent also has to be paid on any of your company profits. You (or your accountant) will have to work out how much Corporation Tax you owe and pay HMRC within nine months of company year-end.

Dividends

If your limited company makes a profit, the money can be shared out equally among the shareholders. This is called a dividend. Technically, even if there’s only one shareholder, and that’s you, you have to hold a board meeting to agree any dividend declaration, and record the minutes of the meeting in company records. It’s more a paperwork exercise than anything else but you still need to do it. It’s this sort of paperwork that can put sole traders off, but a good accountant will be able to advise you what to do.

You must keep paper records of all the board meeting minutes, as you may need to produce them if you’re subject to an HMRC investigation.

Emma Stevens Accountancy is a chartered certified accountants based in Bovingdon, Hemel Hempstead, Hertfordshire and covering Hemel Hempstead, Chesham, Kings Langley, Watford and the surrounding areas in Hertfordshire & Buckinghamshire. If you are looking for a friendly informative approach to your business and accountancy needs I am the accountant for you!

Starting a new business – sole trader vs limited company

01/04/2015 By Emma Stevens

As a new business one of the first choices faced is whether to run as a sole trader or a limited company.

Sole trader

You maintain complete control over the business and all profits after tax belong to you. However, there is no legal distinction between yourself and your business, so you will bear legal and financial responsibility as an individual.

You must inform HMRC of your new business activity on commencement of trading. You will then be required to complete and file a personal tax return detailing your income and expenditure for the year. Tax will be charged at 20 per cent of profit after deduction of your personal allowance and you will also have to pay nine per cent class 4 National Insurance Contributions.

Limited Company

A limited company is a separate legal entity from its directors and shareholders, therefore limiting liability should the business face any financial or legal issues. However, setting up and running a limited company is more restrictive and requires more administration.

A limited company can be more tax efficient. The company’s profits are taxed at 20 per cent and the profit belongs to the company. You as the director are paid as an employee and then in addition can withdraw dividends as a shareholder. These are taxed at a more favourable rate on the individual. You will still be required to complete a personal tax return.