Proactive

Payroll - One off fees and monthly fees

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Posted on 6 Apr 2010 by The Proactive Accountant Dot Com

HMRC gets it wrong with PAYE coding notices

I have too much profit, what can I do about it?

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A welcome dilemma indeed!

This is a fantastic question and we hear it quite often “I have too much profit, what can I do about it?”

It is however a coded version of something else, and it can mean either:

• I don’t have enough profit. I know that, because I have drawn all the money out of my business and I have nothing left to pay my tax bill.
• I have ridiculously large sums of money floating around, even after paying my tax bills, and I’m in danger of taking up a ludicrously expensive hobby!

Depending on which statement is the closest to your true circumstances, then the solution is either:

• Make more profit and manage your tax reserve on a weekly or monthly basis. In the short term, borrow some money so that you can pay your tax bill. See Zopa for more details of how you can borrow modest amounts of cash at reasonable rates.
• Become a business angel. Invest! There are entry level ways of doing this, even if the pool of cash is as low as £500. See Zopa for more details of how you can become an ultra cautious business angel.

If you need to make more profit, you need good business advice. Call us and we’ll put you in touch with an excellent business coach. Or start looking at Don’t Read My Blog.

If you have a quarter of a million to spare and want to invest, call us and we can put you in touch with the professionals in this field too!

Posted on 5 Mar 2010 by The Proactive Accountant Dot Com

Why are capital allowances different to depreciation?

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Often there’s little logic in tax law

If you ever look closely at your accounts and tax return (you do look closely, don’t you?) you may notice that they include depreciation and/or capital allowances. And you may notice that the bottom line figure for depreciation and/or capital allowances is usually different.

That’s because depreciation is calculated based on established accounting practices, and capital allowances are based on the rules set out in the Taxes Acts. And no matter which method you are following, these rules only apply to the major items in your business, the things that last for a few years. That means things like motor vehicles, furniture and computers.

Generally speaking, accountants will take the cost of a capital asset (like your new £2,500 super computer) and spread the cost equally over 4 years. Whether or not that truly reflects the depreciation of this item the accounts will show a depreciation figure of precisely £750 in each and every one of the consecutive 4 years.

HM Revenue and Customs do things differently. So at the outset, they ignore the depreciation figure in the accounts and treat the accounts as if that amount wasn’t there. This is called “adding back the depreciation”. Then they take off the capital allowances.

Capital allowances are currently calculated on a 20% reducing balance system. There are a few other special rules (as you might have guessed), but for now we’ll take that £2,500 super computer and write off 20% of it. That gives you a capital allowance in year 1 of £500 and a balance of £2,000. In year 2, the 20% allowance will then be £400 and so on.

Under the capital allowances method, you never quite get down to Zero. With depreciation you know you’re going to hit a value of Zero after 4 years.

And if you ever wanted to compare the capital allowances figures to the depreciation figures, you would need to do a reconciliation every year, starting with year one of the business. The records should be there in all the copies of the accounts and the tax returns. Alternatively, you could just trust your accountant!

Posted on 2 Mar 2010 by The Proactive Accountant Dot Com

VAT changes for 2010

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VAT rate updated to 17.5%

With effect from 1 Jan 2010 the VAT rate returns to the once customary level of 17.5%. It was temporarily reduced to 15% on 1 Dec 2008 as part of the government’s financial stimulus.

All VAT registered businesses will need to charge VAT at 17.5% when appropriate on invoices raised from 1 Jan 2010.

VAT returns on line - soon to be compulsory

In their recent VAT update leaflet, HM Revenue & Customs have told us that all VAT returns will (in future) have to be submitted electronically. We’re not going to wait for the rule to start in 2010/11, we’re going to make progress now! We have three months to go before the end of the 2009/10 tax year and we are writing to the affected clients now. If you’re not yet a client and you want to understand what’s involved with online VAT, check this earlier article.

Posted on 29 Dec 2009 by The Proactive Accountant Dot Com

A fixed asset register

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Claiming tax relief on the big things

All businesses can claim tax relief on business expenses. That can include items that you bought before the business started! Do you have a laptop, and any other IT kit? Is your office equipped with a desk, a chair and a book case? Here’s a typical list of things that you might be introducing. There may be things on this list that you should ignore, and there may be other special things (in your line of business) that we haven’t thought about.

All of these things are “the big things”, the sorts of things that will serve the business over a number of years, and not be used up all in one go. Use this list as a guide, and please compile your own. The descriptions under “model” and “serial number” should be sufficiently clear so that one Dell laptop can be distinguished from the next Dell laptop that you buy, if you see what we mean!

Once your list has been prepared, please send a copy to us.

Posted on 9 Dec 2009 by The Proactive Accountant Dot Com

New company reference numbers

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Updating our systems

When a new company is incorporated, both the Revenue and Companies House will issue reference numbers. This may take between 14 and 28 days. In order to submit documents electronically, we need to ask you to let us know the reference in each case.

HM Revenue & Customs call it a Unique Taxpayer Reference or a UTR, or sometimes just a reference. Companies House talk about an authentication code. Examples of the tax office form and the Companies house letter are shown below. In each case, please let us know the reference or code. We don’t need the letter, just a simple email with the reference or code, thanks.

Once we have the reference number from the form CT41G we will complete the form using our own electronic proforma, and submit it on your behalf. You need not do anything with the original paper form. Put it in the confidential waste!

If you get too many letters from HM Revenue & Customs and Companies House, and you need any help please let us know.

Posted on 5 Dec 2009 by The Proactive Accountant Dot Com

This is what we do

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A High Level Overview

In simplistic terms, this diagram sets out the flow of information. With sufficient information at every step in the process, things work beautifully.

We’d like to be able to help you to keep things this simple!

The quarterly and the annual checklists set out the types of records that are needed.

Posted on 1 Nov 2009 by The Proactive Accountant Dot Com

The correct postal address for The VAT Controller

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The prepaid envelope has a hopeless address

We send correspondence to the Revenue and the VAT office by Special Delivery. Even when we do that, Royal Mail can still sometimes fail to deliver as per our earlier report!

Whilst most VAT returns are submitted by us electronically, some still have to go in on paper. We posted 4 VAT returns by Special Delivery on 30 Jul 2009 within a guaranteed delivery date of 31 July 2009. If you were affected, the tracking number was ZW 2614 4011 7GB. The letter apparently arrived at the VAT Central Unit on 3 Aug 2009. We are still trying to resolve the fallout from that, and Royal mail have refused the claim for the refund of the Special Delivery fee as (they say) the post code was wrong!

Having raised this with the VAT central unit, we will no longer use the address on the envelopes:

• VAT Controller
• VAT Central Unit
• BX5 5AT

And, instead we will be using the full postal address (and recommend that you do the same):

• HM Revenue & Customs VAT Controller
• Accounts Office
• Salts Mill Rd
  
• Shipley
• Bradford, BD98 1YY

Let’s see if that helps Royal Mail to do things properly.

Posted on 31 Oct 2009 by The Proactive Accountant Dot Com

What’s the difference between the Companies House Annual Return and a Corporation Tax Return?

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Companies House and HM Revenue & Customs use different systems

Each year, different reports have to be submitted to different Government departments.

The Companies House Annual Return

The Companies House Annual Return is a report which sets out a list of the Directors, Company Secretaries and Shareholders of a UK limited company. It also shows the registered office address. The form is due once per year and normally, the reporting date is on the anniversary of incorporation, and the due date is 28 days after that.

The HMRC Corporation Tax Return

The HMRC Corporation Tax Return normally accompanies the annual trading accounts. Accounts in an abbreviated form are due at Companies House nine months after the end of a trading period. The Corporation Tax Return and a copy of the full accounts are due at HMRC twelve months after the end of a trading period.

That means that the accountant may end up working on different reports at different times of the year and with different deadlines!

Posted on 31 Oct 2009 by The Proactive Accountant Dot Com