Services and Advice at Hughes Collett

• Starting a Business
• Accounting Records - What is Involved and How We Can Help
• Forming a UK Limited Company
• Personal Tax Compliance
• Personal Tax - Inheritance Tax Planning
• VAT - What's it all About?

So you have decided to start a business - what do you have to do?

Firstly, you need to decide whether you should trade as a limited company or as a self-employed person. This decision ought to be dictated by commercial considerations as well as by tax concerns. For example, do you think you will be able to market your business and to gain new customers more easily if you are a director of a limited company? In other words do you think your potential customers will be more likely to buy from you if you trade as a limited company?

There is no single answer to this and only you can decide.  However, trading as a limited company can have some real financial benefits.

Assuming you think there will no real difference and you have the freedom to decide how to carry on business we would advise starting as a self employed person or partnership. We say this as there is greater flexibility when trading in this way - for example any losses you suffer in the early years can be offset against your other income in the three years before you start self employment, including your salaried income. This usually means a repayment of the PAYE Income Tax suffered whilst you were employed - plus interest.

In addition there are some extra costs to be paid when you start business as a limited company, such as the formation costs, and accountancy costs tend to be higher because there is a need to prepare accounts in accordance with company law.

Then, once your business has been trading for a year or two you can incorporate the business as a limited company, perhaps to take advantage of the lower rates of tax on retained profits in the limited company.

Form CWF1 can be obtained by contacting us and asking us to send you a form. Alternatively it can be obtained directly from the Inland Revenue’s WebSite

If you are concerned about keeping proper accounting records we can take away the worry. We already help clients save valuable time by keeping their accounting records - and by making use of email we can send you reports on a regular basis so that you (and your bank manager if required) can see how your business is getting on.

Other clients maintain their records and then send them to us regularly via email so that we can then import and read in our office. We then report back to our clients providing comfort that the accounting records are in good order.

Whether you are self employed or in business as a limited company, we think you should take professional advice on the preparation on your business records. The Inland Revenue has made clear that there is a requirement to maintain records that confirm and verify the figures sent to them. In general terms we think a basic system should comprise:

• A separate business bank account - a must for limited companies
• Accounting records prepared using computer software - we recommend QuickBooks who offer free trial software - and are pleased to maintain the records ourselves if you wish, as mentioned above.
• Noting the cheque number on your paid purchase invoices and then keeping the paid invoices in cheque number order.
• Copies of invoices sent out to customers should be kept in invoice number order.
• A record of unpaid sales/fee invoices should be kept and updated regularly so that old accounts can be identified and followed up easily and quickly - this record can be the sales ledger maintained on accounting software, or a separate record on a spreadsheet. Remember cash is the lifeblood of your business and you need to be firm but fair in dealing with people who owe you money.

These are the "bare bones" of the records you will need - every business is different - but if you need any assistance send us your details and we will be pleased to talk with you.

You may be an overseas business looking to set up in the UK, or you may be starting out as a self-employed person and need some support with your accounting. If you need some guidance on what you should be doing contact us. We’re sure you’ll be surprised at how easy it can be and of course we’ll be pleased to help.

It's easy to form a limited company isn't it? All you do its contact a formation agent who will do all the work for you.

But how do you know whether you've got the correct structure? In other words, one that will provide flexibility in the future that will help you to keep your tax bills low whilst still putting funds into your pocket?

In our view getting the structure right at the outset is much more preferable than changing things once the business has been trading for a while - the Inland Revenue have anti-avoidance powers that mean careful consideration to detail is needed if you want to alter the share structure after the business has started.

For example, with family companies we would consider:

• Dividing the shares between spouses - not necessarily equally.
• Using different classes of shares to enable different rates of dividend to be paid, thereby enabling funds to be drawn up to the higher rate tax threshold. This is particularly valuable in the case of spouses where, for example, one spouse is spending the main part of the week working for the business and is making use of a salary/dividend mix to enable pension contributions to be paid.
• The use of Trusts with minor children or grandchildren as the beneficiaries.
• Other structures, such as limited partnerships, or general partnerships with a limited company as partner.

There isn't one single formula that applies - each case needs to be considered on its own merits.

If you'd like us to help contact us with your details.

Or you may already know what you want to do - if so, let us know and we'll return a form for you to complete. We'll even check your proposed name is available free of charge.

As you are probably aware you must send completed tax returns to the Revenue by 31 January followng the year of assessment, and the correct amount of tax to the Revenue by the specified dates if you are to avoid the automatic penalties and interest charges that are a feature of self-assessment.

We recommend you make a start on your Tax Return at the earliest opportunity as it is only too easy to put the form to one side. We encourage our clients to provide the information needed for the preparation of their Tax Returns as early as possible, with a view to submitting the completed forms to the Inland revenue by the end of September. This places the onus on the Revenue as they are then under an obligation to process the Return before Statements of Account are sent out at the end of the year.

When sending the Tax Return to our clients for approval we also let them know of opportunities for reducing the tax bill. Typically this will include advising them of available pension reliefs, and in the case of those with capital gains of ways they can roll-over the gain through available reliefs.

If you have a Tax Return to complete and the above sounds what you are looking for contact us - we'll be very pleased to help.

When invited to meet someone for the first time we typically ask whether they have made a Will. It never ceases to amaze us how few have, and of those that have it seems little thought has been given to Inheritance Tax aspects.

This seems rather unnecessary to us - even with some rather basic advice the amount of IHT borne by the beneficiaries can be reduced.

Consider these pointers:

• Gift early to make use of the Potentially Exempt Transfer regime (while it lasts)
• Make use of the annual exemption - £3,000 per donor per tax year, plus last year's exemption if unused
• Can a gift be considered to be "normal expenditure out of income"? If so it may be exempt from IHT.
• If a married couple have available assets leave an amount equal to the nil rate band to children, probably via a Trust if they are not yet 18 years old. This can be during the couple's lifetime or on the death of the first spouse - note that the settlor and his/her spouse can also be trustees
• Are life policies maturing on death written in Trust?
• What sort of Trust would be appropriate - interest in possession, discretionary, accumulation and maintenance, or non-resident?

We have many years of experience advising on planning using Wills and the use of Trusts, and have personal appointments as Trustees of family settlements. If you want to know more contact us and we will be pleased to talk to you about how we can help.

VAT is a complex subject administered by H M Customs & Excise and all we can do here is to give some brief guidelines to follow if you are starting a business in the UK, or have been in business a while and are worried you should be registered.

If your taxable supplies are below the turnover limit you can voluntarily register. This could be worthwhile as being registered will enable you to claim back the VAT you suffer on your costs. Also, if your customers are VAT registered, there will probably be no difference to their net cost if you are also registered as your customers will recover the VAT you charge on your invoices.

If you have not yet started in business but are intending to do so you can still apply for a VAT registration but you must show that you genuinely intend to make taxable supplies in the future. In practice a completed VAT registration application showing business bank account details and accompanied by a letter from a firm of accountants is sufficient to enable an intending trader registration to proceed.

Application for a VAT registration is dealt with via form VAT1 (plus form VAT2 for partnerships) which can be obtained from your local VAT Office or contact us and we can help with your VAT registration.

Once registered you will be required to complete a VAT Return, normally quarterly, of the VAT on your sales/monies received ("outputs") and on your purchases/amounts paid ("inputs"). The difference between the two is payable to/by Customs with the Return to be with Customs within 1 month of the end of the quarter.

Accounting records must also be maintained to support the figures on the Return and there are penalties for not doing so.

Other issues to consider at an early stage and to be kept under review are whether to adopt the cash accounting scheme - this allows automatic bad debt relief and means you do not have to pay VAT on your sales until you receive payment of your invoices - and accounting for VAT on private petrol paid by the business.

Top