Q: How much tax will I have to pay – and when?
A: As a sole trader or partnership you will be subject to income tax. This is payable on or before 31 January following the tax year end, which is moving to 31 March each year. Under the new rules, it is better (simpler and more cost effective) to align your financial year end with the new tax year end. The tax you pay will be determined by your net profits and the various tax thresholds in operation from time to time. The income tax thresholds in Scotland differ from those in the rest of the UK.
There is a ‘payments on account’ regime that HMRC operates for income tax. This often catches out new and growing businesses. In effect, HMRC expects these businesses to pay half of the tax due for the prior year at the end of January and July the following year. This is because by the time you pay your tax you are already 10 months into the following year. These payments on account are a ‘down payment’ towards the tax liability for the tax year ending at the end of March just coming.
There are also national insurance contributions to consider alongside your income tax liabilities. It is important to include these in your calculations as these are generally payable at the same time as your income tax liabilities and can be substantial. The thresholds for National Insurance Contributions are determined at UK level and are the same for all the UK nations.
As a limited company your business is subject to corporation (company) tax. This is calculated on your net profit and is payable by 9 months after your company’s financial year end. Your limited company can have any year end you choose, but generally your company year end defaults to the end of the month in which your company is incorporated (formed).
We generally seek to complete your accounts well before the deadlines above (subject to your diligence in keeping accurate and timeous bookkeeping records) so that we may determine or forecast your tax and national insurance liabilities in good time, so there are no surprises and to give you plenty of notice to plan your cashflow.
Whatever business type your business takes, where you have a VAT obligation (please see above), we will ensure your bookkeeping records are fully and accurately prepared, taking into account both the VAT treatment of different transaction types and your quarter end deadlines.
Q: How do I stay compliant with HMRC?
A: As long as you complete your tax returns and submit these prior to HMRC’s deadlines you will be in a strong position to stay compliant. Of course, you must accurately record your income and expenses and ensure that you only deduct legitimate business expenses in arriving at your net profit for tax purposes.
HMRC has a range of UK wide statistics it uses to determine whether there is a benefit (to HMRC) in an enquiry and / or a compliance visit. If your results are outside the norm for your industry and business type, there is a strong possibility you will receive a letter of enquiry.
We will take care of your accounts and subsequent submissions, from tax returns to VAT returns, ensuring your accounts and returns are properly prepared and that you meet every deadline.
Q: What can I claim as allowable business expenses?
A: Many day-to-day costs are allowable, from office supplies to business mileage.
As a general rule, to be allowable, expenses must be “wholly and necessarily” incurred for the benefit of your business.
Where you do not have a separate dedicated office, it is possible to claim a proportion of your home costs as an eligible deduction from taxable profits. Where you do have a dedicated office, this will not be possible.
Where there is personal usage or benefit or ‘possible’ personal benefit some expenses cannot be claimed at all, whilst others may have to be apportioned between business and personal.
With many years of combined experience, our Team will guide you so that you never miss a deduction.
Q: Can I put my car, phone, or home office through the business?
A: Yes, but there are tax rules to follow, and the rules are complicated. We can undertake an exercise to review your options and calculate what’s allowable under each option. We can ensure you choose the best option given your circumstances.
Q: What records do I need to keep – and for how long?
A: UK legislation requires you to keep most records for six years. In practice, it is generally sufficient to keep records for four years. Nevertheless, we’ll show you the simplest way to store everything digitally, to keep paperwork to a minimum, so that it doesn’t matter how long records need to be kept.
Q: How do I deal with Making Tax Digital (MTD)?
A: Should you wish to complete your own bookkeeping, there are plenty of software options in the marketplace that facilitate the requirement to make quarterly submissions under the MTD legislation. HMRC has a list of compliant software companies from which you can choose MTD compliant software. The guidance page can be found here. Currently available HMRC compliant software is listed here. We can provide advice and guidance on a range of software that is compliant.
Suffice it to say that we use fully MTD-compliant software. If you wish FBD to complete your bookkeeping records on your behalf, we will make sure you stay ahead of HMRC’s requirements.