Accountant info...need advice please!

[TheBigCheese]

Hi guys

I'm a bit stuck, it's the weekend so I can't ring anyone official (i.e. Inland Revenue) for info, so I'm turning to you worldly wise bods for advice!

Basically..

I run my own business (sole trader), I'm now in a position to move into excellent premises close by which will allow me to expand into other areas and I'm looking at taking on at least one employee to do the day to day stuff.

Anyway...

I've been looking on the Business Link website and going through the checklist of all the things I need to consider...tax, VAT, employee PAYE info etc etc...the list is almost endless and there must be people who can do it all for you, I realise it will cost a lot but it's worth it in the time saved and peace of mind that it's more likely to be correct than if I do it.

Would I be right in thinking that an accountant would be able to:

Sort out taking on a new employee, regarding tax PAYE system, pension scheme etc.

Organise and setup registering for VAT and all the associated legwork (and paperwork!) that goes with it.

(Hopefully) Reduce the amount I am paying in tax etc.


There are probably 101 other things I would need someone to do but I'm too knackered to think of them at the moment, I think I've covered the main points above.

If I'm on track with looking at an accountant...how do I go about finding a good one...I'm sure finding a good one isn't as simple as opening the Yellow Pages.


Thank you in advance for any help anyone can provide, I think I'm a bit overwhelmed with it at the moment.

 

[JAzz]

Sort out taking on a new employee, regarding tax PAYE system, pension scheme etc.

Organise and setup registering for VAT and all the associated legwork (and paperwork!) that goes with it.

(Hopefully) Reduce the amount I am paying in tax etc.

Yes to all those points and if the accountant isn't helping reduce your tax bills then he/she isn't doing a very good job Tax avoidance is perfectly legal but tax evasion isn't so he should be able to help structure your company in a way which is tax efficient.

If I'm on track with looking at an accountant...how do I go about finding a good one...I'm sure finding a good one isn't as simple as opening the Yellow Pages.

Thank you in advance for any help anyone can provide, I think I'm a bit overwhelmed with it at the moment.

You know anyone else personally who is self employed and has an accountant? Probably at the moment with you best to go with one who is recommended by someone you know, then when you have been using one for a while you have a better idea of what you expect from them and then you can go ask a few others. Maybe if you know your bank manager well you could ask him or maybe one of your suppliers?

 

[Participant]

I'm an accountant. Whereabouts do you live / work? What's your turnover / estimated revenue for this tax period? You may not actually have to register for VAT. Employing someone doesn't automatically make you liable for VAT though registering may save you money if you make a lot of zero rated sales.

Regarding PAYE etc it's actually fairly simple if you go down the checklist and follow the instructions. Look at HMRC's website, it's excellent. However it's also fairly time-consuming so employing someone to do it might be wise.

The other issue you have is corporation tax and calculating your taxable expenses i.e. what to exclude from your taxable profit figure and what to include.

Regarding corproration tax avoidance, when you're a small business this is unlikely to make much difference. We're talking big businesses trading multinationally that legally move money to their subsidiaries in low tax envinronments, thereby paying less tax on their profits. however there are other ways you can save money - in terms of VAT for example you can claim VAT back on any item purchased that could possible be perceived to be a business expense (once VAT registered).

 

[Guv]

As mentioned an accountant can sort all that out for you. Best way to find a good one is personal recommendations from family/friends.
If you don't know anyone using an accountant pick a few out the yellow pages and go and meet with them to see what they're like - most won't charge for an initial short meeting.

Just to clarify so you don't get confused... as you're self employed and not registered as a limited company you won't actually have any corporation tax to pay.
You could ask an accountant to work out if you'd be better off running a limited company though.

 

[TheBigCheese]

Hi guys

Thanks very much for the posts, it's all very helpful!!!

The VAT issue is a bit of a cloudy area for me...I've done the Q&A test on the HMRC website and it says that I don't need to register for VAT, and they base that on turnover for the previous 12 months and the next 30 days.

That's confused me a bit as I thought it was based on what's going to happen once you hit the 'magic' VAT threshold. I'm 95% sure that if I expand and take on staff then I will go over the VAT limit, but going by that website you are looking at what you did previously rather than what you will do...???

As you say Robbie G it is all laid out in a helpful way when you are taking on someone but it does take a while to do and a lot of faffing about learning what to do with it...I'd prefer to pay to be able to hand it over to someone else and get everything back completed.
We're based in Lancashire, are you anywhere nearby and fancying taking on a new client?

Guv's comment has confused me slightly...I thought that everyone had to pay corporation tax on their profits, once you take out all expenses, rent, wages etc etc. Anything left over after that will be taxable? Does that only apply to limited companies then? If so, what happens to that profit for a sole trader, do you just stick it in a high interest business savings account?

As you can probably tell I'm getting more confused the more I get into it...bah

*Edit* I'd also be interested in getting your opinions on becoming a limited company, what are the advantages / disadvantages to it (financially or otherwise)...I guess that would involve a heck of a lot more paperwork though!

 

[Guv]

Hi guys

Thanks very much for the posts, it's all very helpful!!!

The VAT issue is a bit of a cloudy area for me...I've done the Q&A test on the HMRC website and it says that I don't need to register for VAT, and they base that on turnover for the previous 12 months and the next 30 days.

That's confused me a bit as I thought it was based on what's going to happen once you hit the 'magic' VAT threshold. I'm 95% sure that if I expand and take on staff then I will go over the VAT limit, but going by that website you are looking at what you did previously rather than what you will do...???

HMRC look at it on a rolling 12 months basis, so every month you should check back 12 months and see if you're over the threshold. Once you hit that magic threshold you must register for VAT.

They will also look at what you're going to do in the next 30 days - so if in the next 30 days only you expect your turnover to exceed the threshold you must register now.

Guv's comment has confused me slightly...I thought that everyone had to pay corporation tax on their profits, once you take out all expenses, rent, wages etc etc. Anything left over after that will be taxable? Does that only apply to limited companies then? If so, what happens to that profit for a sole trader, do you just stick it in a high interest business savings account?

To clarify..

Corporation tax is paid by companies.
Income tax is paid by individuals - sole traders/partnerships
Therefore you would pay income tax and national insurance on your profits rather than corporation tax.


Feel free to ask any other questions you have

 

[Guv]

*Edit* I'd also be interested in getting your opinions on becoming a limited company, what are the advantages / disadvantages to it (financially or otherwise)...I guess that would involve a heck of a lot more paperwork though!

It will all depend on your personal circumstances.
For tax purposes, you really need to look at your turnover/profits and get someone to calculate how much tax you'd pay for each option.

There is a bit more paperwork and an accountant will charge a bit more. The accounts layout is different, accounts and annual returns have to be filed with companies house by the deadlines.
Like with individuals companies also file a tax return.

Search google for the advantages of limited company and I'm sure you'll find some answers.

 

[Mickey]

Just a quick question about the VAT registration. I'm aware that I should be registering soon (if not already ).

As a sole trader, how do HMRC look at my income? You say it's a rolling 12 months, but I only submit a tax return once a year, should I take the average over the tax year or the actual monthly incomes? I tend to go months without much coming in then get large lump sums. If that makes sense.

 

[Guv]

Just a quick question about the VAT registration. I'm aware that I should be registering soon (if not already ).

As a sole trader, how do HMRC look at my income? You say it's a rolling 12 months, but I only submit a tax return once a year, should I take the average over the tax year or the actual monthly incomes? I tend to go months without much coming in then get large lump sums. If that makes sense.

It's really up to you to know when you should register for VAT.
If your previous tax returns are showing turnover less than the VAT threshold then HMRC won't know you should be VAT registered.

When you're looking at your income you should take the actual monthly income. So if you look at it today, take from October 2006-September 2007 and then next month look at November 2006-October 2007. Also if you expect large income in the next 30 days that is above the VAT threshold you must register now and not when you look back at your 12 months next month.

EDIT: If you reaslise you should have been VAT reigstered, say 6 months ago, you should really back date the registration and fill in a VAT return including that period. If you ever had an inspection and they found this out but you registered from today they would make you pay the VAT+charges.

 

[Mickey]

...

OK I'm confused Any chance of some MSNage? mick AT mick-adams DOT co DOT uk

 

[Participant]

I'm in the Midlands so it doesn't help you if you require a face-to-face relationship with your accountant. However I do offer remote support and I'd be glad to do your income statement and balance sheet from your posted receipts, invoices and bank statements etc. With payroll accounting also I'd be glad to help, but it's sometimes good to have someone on your doorstep in case there are any issues.

One great thing about being registered as a ltd company is that you can play with salary and dividend payments to minimise your tax burden. Declare all your petrol costs etc as business expenses at 40p a mile and take chunks out of your taxable profit. Corporation tax on profits up to £10k is zero and you get better relief if / when you make a loss. The other thing about being ltd is that you have limited personal liability, and your personal wealth won't be damaged if your company for example defaults on a loan (aside from any capital you invested in the business). Also, "XYZ ltd." just sounds better than Joe Bloggs, fly by night cash in hand lovely jubbly sole trader! Oh and another thing - you can pay yourself dividends and they're not subject to national insurance contributions! Woo-hoo! [Though you can't deduct these when calculating corporation tax].

Although the financial reporting side is more complicated as a ltd, you'd class as a small business (<£1m turnover) and would have very minimal reporting requirements, as well as not having to have the accounts audited, assuming your business area is not classed as very heavily in the public interest. UK financial reporting is very much balance sheet focused, and you'd literally only have to submit this and an income statement with a few supporting notes. You'd also have to submit the articles and memorandum of association which basically describe how your company will be run and who the shareholders are etc. Aside from financial reporting however you've got a corporation tax return, your own self-assessment tax return, and a PAYE salary system to run.

 

[TheBigCheese]

Hmmmm, really REALLY interesting reading thanks guys!

I'm a lot less stressed reading about it now than I was typing the initial post at 1AM this morning!

I need to digest (read - get it into my head) some of the more complicated bits but one of the main things that pops into my head is I do need an accountant!

Unfortunately Robbie G I would really want to be able to have a face to face, the thought of posting all my documents through the post sends shivers down my spine!

Could you give me an idea of how much I could expect to pay for an accountancy service? Based both on what I've described as a sole trader and also the conversion and ongoing costs if my business became a limited company.

Thanks!