3 May 2021
There’s so much to think about when running a small business and you can’t do it alone forever. For one thing, handling the financial side of your business is a full time job in itself and you really can’t afford to take your foot off of the gas for any length of time. Without external help, it’s all too easy to lose control of your finances and this can prove disastrous.
Many small businesses put off hiring an accountant for a later date, but in actual fact it pays to do this sooner rather than later. Your business is most likely to fail in its early days, and during this time any unnoticed accounting or bookkeeping errors could compound and devastate your budding enterprise.
A good accountant truly is an investment in the financial health of your business, both now and in the future. Of course, every business owner has a unique set of needs and circumstances, so here’s how to tell if it’s time for you to hire an accountant and get back to doing what you do best.
1. You’ve Made Mistakes Before
It’s no secret that accounting isn’t exactly simple. Innocent oversights and slight miscalculations are all too easy to make, but difficult to undo if they go unnoticed for too long. If you’ve made accounting or bookkeeping errors in the past then you’ll already know just how much time and effort is required to rectify them. Furthermore, mistakes on your tax return could result in huge fines. If you’re struggling to manage your accounts and keep accurate records, then it’s definitely time to seek help before these mistakes damage the financial health of your business or halt your growth.
2. You’re Short on Time
Running a business is time-consuming and there are always a hundred and one issues demanding your attention. With everything else going on, it can be difficult to find time to balance the books and ensure you’re on top of your finances. However, it’s really important to do this in order to maintain accurate records for tax returns, credit applications and financial planning. If you don’t have time to look after your finances, you need to seek the help of a professional accountant who can.
3. You’ve Got an Audit Coming Up
If an audit is looming, you may be in for some sleepless nights. It’s important to make the process as smooth as possible, so your accounts and records need to be squeaky clean and perfectly organised. Otherwise, you’ll be facing a barrage of work trying to straighten things out. Furthermore, any innocent mistakes you’ve missed could result in a hefty fine. Therefore, it’s worth enlisting the help of a quality accountant who can get your affairs in order, find and fix any mistakes you’ve made and ensure that you pass your audit with flying colors. It will save you money not just in fines, but potentially in therapy fees, too.
4. Your Business is Growing
As mentioned, it’s never too early to hire the help of a professional accountant but when your business is going rapidly, it’s most definitely time to give up the DIY approach.
Rapid growth means new customers, new hires, more investment opportunities and many more demands on your time. However, this is certainly not the time to overlook your accounts. Hiring an accountant can help you to choose potential investors wisely, manage your cash flow and use your extra income wisely.
As your business grows, new financial challenges will arise and it’s best to have an expert on hand to deal with them when they do. Growth is fantastic, but it can lead to instability and the right accountant can help to keep your business on the path to financial success. Summary If your business ticks any of the above boxes, it’s time to invest in an accountant to protect and improve the financial health of your business. Chartered accountants train for many years in order to receive their qualifications, so don’t make the mistake of thinking you can manage your small business’ accounts by yourself forever. In order to create a successful business, you need to treat it like business, and that means taking your finances seriously and investing in the financial health of your organisation.
4 Nov 2020
As a construction business you might be getting materials and tools for your business from other countries in the EU. If you are still unsure what are basic requirements post Brexit keep reading.
Transitional period related to Great Britain leaving the EU is coming to an end on the 31st of December 2020. On 1st of January 2021, new regulations come into force. If you import or sell your goods outside the UK, an EORI number will be necessary for you.
What is EORI?
EORI stands for Economic Operator Registration and Identification, it is a registration number and at the same time an identification number of each economic entity trading with countries outside of the EU.
More simply – it’s a unique code used to track and record customs information within the EU. Before Brexit, it was necessary only for those businesses who traded with countries outside the European Union, such as China or USA. From 1st of January it will be required for all trades within the EU.
Who will need an EORI number from January 1?
Each company that ships or imports goods from countries outside the European Union for commercial purposes should have an EORI number. This applies to both sole traders and LTD.
Remember that if you do not have an EORI number in a few months, you will have to suspend your business as your goods will not be able to “cross” the UK border. It can have a serious impact for your business, if you are buying materials for your construction projects from the EU.
EORI number and shipment to the UK
The EORI number from January 1, 2021 will be mandatory not only for companies registered in the UK and selling to the EU. All entrepreneurs who buy or sell their goods from or to the Islands will also need it.
What details to prepare for the EORI application?
In the application, you will have to provide, among others company data, data on VAT, if you are a payer, and necessary information about your goods. If you complete the application correctly, you should receive your number by email within three business days.
Remember to give your EORI number to the courier or forwarder – it will be necessary for them when submitting customs declarations on your behalf.
What happens if you do not have an EORI number and you import or export goods outside the EU?
If you do not have an EORI number, you cannot import or export goods from the European Union legally. As we mentioned, from January 1, 2021, this also applies to Great Britain.
22 Oct 2020
If you are a self employed construction worker you are probably raising your invoices.
Below are reminders for you, what should be included on your CIS invoice.
As any invoice, it should have all basic information that we can find on any other invoice, that includes:
- Unique invoice number
- Invoice Date
- Invoice Due Date
- Name of your company
- Your UTR number (unique tax reference)
- Your contact details
- Description of services you provided for client
- Subtotal (the amount due before taxes)
- Total due to be paid (the amount due after taxes and other deductions)
Without this information, your invoice is not considered as an official, legal document, so double-check that every invoice contains all of the necessary details.
There is an extra catch coming with CIS invoices, you need to provide details of CIS deduction.
We have three rates of CIS deduction:
- 20% – registered subcontractors
- 30% – unregistered subcontractors,
- 0% – subcontractors with ‘gross payment status’.
You need to qualify for gross payment status, it means that contractor you work for doesn’t need to make deductions from your pay, so you don’t have to add information about CIS to your invoices.
However, if you use either the 20% or 30% rate, you need to ensure that your invoice templates include:
- The CIS deduction rate
- The total amount that is eligible for CIS deductions (i.e. the cost of labour)
- The total amount to be deducted
VAT & CIS invoices
Let’s have a look at this tricky part.
- If you have just registered for VAT and you are CIS contractor, you’re probably wondering how do you include VAT element on CIS invoices.
- You need to remember that CIS is calculated based on the net price of labour only.
- You also need to know that VAT applies to both labour and supplies; you should therefore calculate VAT using the total price of materials and labour before CIS deductions.
21 Oct 2020
It’s the time of the year when you need to file your self assessment and the deadline to do it is quickly approaching. Here are a few tips to take into consideration while preparing to file your return.
The deadline for the online returns is 31st of January and for paper ones it is 31st of October. After submitting your return you will need to pay the tax you owe. The deadline for it is usually 31st of July. However, due to the COVID, the government postponed the deadline for tax payments till January 2022.
1. Who needs to file a tax return?
- Every self employed trader, earning above 1,000 a year
- directors of a limited company have to file their tax returns before the deadline, being 31 of January each year.
2. You also need to file a return if you have income from:
- Renting out a property
- Tips and commissions
- Savings, investments and dividends
- Foreign income
3. What tax will I need to pay from self assessment?
- Income Tax – you pay this tax along with National Insurance contributions through self assessment
- Tax on dividends – if you’re a director of limited company
4. There is some basic information you’ll need to complete your return.
- Your UTR number (this is a reference number that’s assigned to you, when you register as self employed
- All information about your total earnings for a year
- Information about your business expenses
It’s important that you keep a record of all your income and expenses such as invoices and receipts.
You can file your return using your HMRC Gateway or using one of the bookkeeping software that is integrated with HMRC.
Allowable expenses:
- office costs such as stationery or phone bills
- travel costs such as fuel, parking, and some train or bus fares
- clothing expenses such as uniforms
- staff costs such as salaries or subcontractor costs (CIS)
- things you buy to sell on such as stock or raw materials
- financial costs such as insurance or bank charges
- costs of your business premises such as heating, lighting, and business rates
- advertising and marketing such as website costs
You can still claim business premises costs, but only as a percentage. You can claim back for things like:
- heating
- electricity
- Council Tax
- mortgage interest or rent
- internet and telephone use
There are some upcoming changes on how we’ll be filing our tax returns. As part of the Making Tax Digital initiative, in 2022 the government will introduce quarterly tax returns and remove the paper copy returns. It is worth starting to think now about how to keep all your records efficiently (bookkeeping) and invest in software integrated with HMRC. That will allow you to keep all your records digitally and be in line with the government requirements for MTD.
5 Oct 2020
It’s hard to keep up with all new legislation, when you’re busy running your business. Below are key points to the upcoming changes. Take advantage of the next few months and prepare for change that will affect you.
Vat reverse charge starts on the 1st of March 2021
It’s a major change that will affect the construction industry. It will affect you if you are VAT registered and if you supply or receive services under the construction industry scheme. What does it mean to you? In short:
- You will no longer pay VAT to HMRC, it will be the end customer who will pay the VAT directly to HMRC instead of paying it to the supplier. Customers will be able to recover the VAT under the normal VAT recovery rules. Your VAT returns will change.
- This will reduce the money coming into your business and directly affect your cash flow, so plan ahead if you require extra funding.
- Your invoices will need to show the right information, and you will need to collect additional paperwork from your clients.
When to apply the reverse charge
As mentioned before the new rules start on 1st of March 2021, after that day you will need to apply to the new rules. All services carried out before 1st of March 2021, should be charged accordingly to normal VAT rules.
Only apply new reverse charge if you provide specified services under construction industry that includes:
- Constructions, altering, repairing or demolishing buildings
- Internal cleaning of buildings – if part of constructions
- installing heating, lighting, air-conditioning, drainage or similar systems
- Internal or external painting or decoration of buildings
- If your clients are not the end user or intermediate supplier, you will need to apply new VAT reverse charge
- You’ll need to apply reverse charge if you provide your services at standard or reduced rate
However, as there are exemptions, do not apply new rules if:
- If you apply 0% VAT charge for your services.
- If your client is not VAT registered in UK
- It will not affect all the services you supply, if you provide employment services, you will not have to apply new rules to your invoices.
- If your client is not registered for CIS
- If your client is an end user of the services, in this case you will need a written confirmation from the customer, that they are end users.
Here, you will find a handy flowchart provided by HMRC: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/878587/Annex_1_-_VAT_domestic_reverse_charge_for_building_and_construction_services.pdf
How the reverse charge will affect your business?
As you no longer charge VAT on your services, that means it will reduce the amount of the money coming into your business, at this point you will need to consider your cash flow. You will no longer have to pay the VAT to HMRC, that was due usually on your sales invoices. It also means that you may become a frequent VAT repayment trader if you usually buy substantial amounts of materials to carry out work for main contractors. If that’s the case, you may want to consider preparing your tax return on a monthly basis instead of usual quarterly to improve your cash flow.
What to show on the invoice?
There are specific conditions to meet on your invoicing after 1st of March 2021 to reflect the changes and you may need to consider upgrading your accounting software to meet new requirements.
Your invoice should show the percentage of the VAT due, but you also need to show on the invoice, that VAT is a subject to reverse charge. You also need to make clear that customers need to pay VAT to HMRC, not to you. Do not show the amount of the VAT that is due to HMRC.
ERROR?
Don’t worry, for the first six months from the beginning of the new rules, HMRC will apply a light touch period if any genuine errors occur and you act to correct them and act in good faith to comply with new rules. You will be charged penalties if you deliberately take advantage of new rules and not account for them. As soon as you find out about any error, act quickly as it will be very difficult to correct and recover any overpayments made to HMRC. For that reason, upgrading your software will help you to comply with new rules and send your VAT returns in a timely manner.
- Will my subcontractors apply the VAT reverse charge? Will I have to pay the VAT to HMRC instead of them?
- Yes, if all conditions are met subcontractors are required to apply the reverse charge. If the subcontractor does not apply VAT or is not registered for VAT.
- What if I’m not registered for VAT? What if my customers not registered for VAT
- Do not apply the reverse charge unless both of you are registered for VAT.
- Do I apply the VAT reverse charge even if I’m paid gross for CIS?
- Yes, whether the constructor is paid gross or net, it doesn’t affect the VAT reverse charge. If all conditions are satisfied constructor apply vat reverse charge.
- What if I use the VAT cash accounting Scheme or VAT Flat Rate Scheme?
- Apply usual rules for VAT reverse charge. Do not use the above.
- How do I know my customer is an end user?
- Ask them and get confirmation in writing (via email or paper), you may want to prepare template with specific wording on the confirmation
For more details please refer to the HMRC website: https://www.gov.uk/guidance/vat-domestic-reverse-charge-for-building-and-construction-services
25 Sep 2020
Although being employed as Self-Employment is the most popular way of doing business in the UK, there are significant advantages to running a Limited Company.
Being self-employed is the most popular way of doing business in the UK. However, there are significant advantages to running a Limited Company.
Below are listed some of the advantages that Limited Company owners enjoy:
1. Tax
For many people, one of the biggest advantages is the fact that running a company as a Limited Company allows you to pay less taxes than as a self-employed person.
Profits are then subject to the “UK Corporation Tax”, which is currently 19%. If you are a director and shareholder of a Limited Company, you can take a small salary and earn most of your income from dividends. You can thus minimize National Insurance Contributions (NICs), as dividends for Limited Company are not subject to NICs.
2. Separate legal entities
The Limited Company is completely separate from the private life of its owners. Everything from a bank account to ownership of shares, tenders and contracts is a purely business venture and is not associated with specific individuals.
However, in the case of a self-employed person, both the owner and the company are treated as one entity in terms of paying taxes and administrative activities.
3. Limited Liability
Running a company as a Limited Company literally means that you have the certainty of “limited liability.” If there has been no fraud in running your business, your “limited liability” means that you will not be personally responsible for any financial loss suffered by your company. It is therefore a way of additional protection in case something goes wrong.
Self-employed people are personally responsible for all debts and obligations of their company.
4. Professionalism and trust
In some enterprises and industries, having a Limited Company can provide a more professional image. If you do business with larger companies, you may find that they prefer to deal only with limited liability companies rather than with self-employed people. That gives you potential to engage in bigger projects and increase income.
5. Funding
Finding funds to start a business can be difficult for all new companies. However, due to the fact that the Limited Company is separate from its owners, it may be easier to secure the company’s finances compared to self-employed people.
6. Name
When you register your company with Companies House, your company name is protected by law. No one else may use the same name or anything deemed too similar.
As a self-employed person, you may find that someone else does business with the same data (name?). You can’t do anything about that, although it could harm your company’s name by association. The only way to overcome this problem would be the expensive and time-consuming procedure of changing the company’s name.
7. Shareholders
The Limited Company generates various types of shares. So, you can easily sell shares in the company or transfer ownership of shares. If your company has more than one shareholder, you should get a Shareholder’s Agreement that sets out the responsibilities of the shareholders. Such an agreement is also useful for specifying what people with shares can do and help if any of them wants to leave the business. If a shareholder wants to retire, sell his share or dies, it is much easier to transfer ownership of the Limited Company to another person.
8. Costs
Many people think that setting up a company as Self-Employment is much less costly in terms of start-up and operation. Establishing a Limited Company is not as difficult and expensive as one might imagine. Contact us for further assistance.
Nowadays, most of the matters related to the administration and running of a company can be dealt with online. Keeping online accounting will allow you to deal with your business matters much simpler and faster!
9. Pension
A Limited Company may finance the employee retirement pensions of its employees as a reasonable business expense. This means that pension contributions can be made before tax settlement.
This is another significant difference to self-employed people in terms of paying tax.
