Goldwins :: Chartered Accountants



				There are many questions that we get asked time and time again. The purpose of this section of our website is to give general guidance on these. We will be building up this list over the coming months, so do keep coming back to this page. Please be aware, however, that the answers provided here should not be viewed as dealing with individual circumstances, and you should always contact us for specific advice on how these issues affect you. Goldwins and you What can a Chartered Accountant do for me? Tax and accounting records I have recently become self-employed. What does the Self-Assessment tax regime require me to do? What accounting records do I need to prepare and how long do I need to keep them for? Business and employer tax rates and rules As an employer, what are my obligations for sending payroll forms to the Inland Revenue? As a self-employed actor, what expenses can I deduct against my income? How do I work out what tax rate applies to my company must pay tax? Incorporation Should I incorporate my business (i.e. form a limited company)? Charities What are the advantages of becoming a charity? I am in the process of preparing for our forthcoming audit. As the finance director, I am aware that the auditors have certain issues that are more important to them when they are auditing in the not-for-profit sector. Could you outline what these are? Goldwins and you Q: What can a Chartered Accountant do for me? A: Advice from a chartered accountant can be invaluable. Whether you are faced with business or personal financial issues, no-one is better qualified to help you than a chartered accountant. Setting up in business - Speak to a chartered accountant BEFORE you start your business - they can help you make the right decisions right from the start. Complying with the law - Nowadays, there are many forms to fill and returns to make to statutory authorities: a chartered accountant can advise you what needs to be submitted and when. Keeping informed - Such as advice on the suitability of a computer system for your particular business and to ensure that proper audit controls are provided. Planning for profit - A chartered accountant has the professional experience to examine your business ideas and evaluate profit potential. He/she can also help you work on break-even analysis, business ratios, budgets, etc, which can be used to set realistic financial targets. You will then be able to plan ahead and compare forecast figures with actual results. Financial needs - The way your business is financed has an important effect on profitability, especially when interest rates are high. Should new capital equipment be leased or purchased? Should money be raised by share capital, loans or overdraft? What are the tax implications? Can any spare cash be invested temporarily? All these considerations affect working capital requirements, the cost of financing the business and, of course, profits. Obviously not decisions you should make without professional help. Raising finance - Whether by short-term overdraft, longer-term bank loan, government or EU assistance, may provide financial assistance in some circumstances. You will need to present a convincing picture of your business's financial condition and future prospects. A chartered accountant knows what information is required and how it should be presented to have the best chance of success. Buying, selling or merging your business - The difficulty in purchasing or selling a business, or merging with another one, is knowing how much to pay since there is rarely a market comparison available. Even when a public company is for sale, the quoted share price may not reflect the real worth of the business. Thus it is advisable to get expert advice on valuation and negotiation from a chartered accountant. Minimising business tax - The dates chosen for starting or ending a business and for its accounting year end can make an important difference to the tax position and cash flow. Similarly, the timing of important transactions or purchases of capital equipment, the tax-deductibility of different kinds of expenditure, the structure of your companies and the decision to expand overseas can have a significant effect. It pays to consult a chartered accountant before committing yourself to a decision on timing, since you may be able to save tax or delay the payment of tax. Agreeing tax liabilities - Filling in tax forms can be complicated. Whatever the tax assessment involved - income tax, corporation tax, VAT, etc, a chartered accountant can help to collate the necessary information and prepare the return on your behalf. Similarly, where there is a dispute over a tax liability, a chartered accountant can handle the negotiations with the Inland Revenue or Customs & Excise on your behalf, even to the extent of appealing to the Commissioners if necessary. Personal and family finances - house purchase, insurance and retirement planning, investments, wills. We all have to deal with these subjects at some point in our life, and it will almost always be beneficial to have expert tax and accountancy guidance. You can obtain further guidance on all of these topics at www.icaew.co.uk Q: Do you give any service guarantees? A: Our work is guaranteed to your complete satisfaction. If you are not completely satisfied with our services we will, at your option, either refund the price in full or accept a proportion of the price that reflects your level of satisfaction. Tax and accounting records Q: I have recently become self-employed. What does the Self-Assessment tax regime require me to do? A: Our work is guaranteed to your complete satisfaction. If you are not completely satisfied with our services we will, at your option, either refund the price in full or accept a proportion of the price that reflects your level of satisfaction. This system puts the onus on you, the individual taxpayer, to: Notify the Inland Revenue within specified time limits of having a liability to Income Tax Request the correct Income Tax forms for completion and then submit the forms by the due date Pay any tax due at the correct time Keep adequate records for the Inland Revenue to verify your figures Q: What accounting records do I need to prepare and how long do I need to keep them for? A: All businesses need to keep records. They can be maintained by hand or computerized, but they should contain details of payments, receipts, credit purchases and sales, assets and liabilities. The books and records are used to produce the accounts. If the records are well kept, it will be easier to put together the accounts. Accounts must be prepared for the Inland Revenue. Additionally, if a company is formed, there are strict legal requirements as to their format. The Inland Revenue and HM Customs and Excise require you to keep your accounting records for 6 years. Modern software systems do not force you to print out your records so it's especially important to ensure that you have a complete printout of each year's accounting records. Business and employer tax rates and rules Q: As an employer, what are my obligations for sending payroll forms to the Inland Revenue? A: Within 14 days of the end of each tax month you must pay your Accounts Office all the amounts due for that tax month in respect of Income Tax Pay As You Earn (PAYE) deductions from subcontractors Student Loan Deductions National Insurance contributions (NICs) As the tax month ends on the 5th, you make payment by the 19th. Quarterly payment option for small employers - if your average monthly payments of PAYE, deductions from subcontractors, Student Loan Deductions and/or NICs for the current year are likely to be less than £1,500, you can choose to pay your Accounts Office quarterly rather than monthly. Where tax credit payments are known or can be reasonably estimated these should be taken into account in your calculations. The tax quarters end on 5 July 5 October 5 January 5 April which means that payments are due within 14 days of each of these dates. In most cases, the payments will be calculated for each month/quarter by: in the case of PAYE adding together all the tax that you have deducted from/refunded to your employees deductions from payments made to subcontractors Student Loan Deductions made from your employees, and subtracting any tax credit payments made. in the case of NIC adding together all the employee's and employer's NICs due, and subtracting any SSP you are entitled to recover SMP / SPP / SAP and/or NIC compensation you are entitled to recover NIC holiday claimed. Q: As a self-employed actor, what expenses can I deduct against my income? A: The law provides that any expenses incurred wholly and exclusively in the performance of your professional activities are allowable. In practice, the Inland Revenue usually permits the apportionment of certain items between private and business use - items such as motor expenses, hairdressing, and use of home as office. Each case will be decided on its merits, so it is not possible to give any hard and fast rules. Q: How do I work out what tax rate applies to my company must pay tax? A: The Inland Revenue will compute the amount of tax you pay by comparing your 'profits' to 'profits limits'. First limit £10,000 Second limit £50,000 Third limit £300,000 Fourth limit £1,500,000 If the company's profits are equal to or below the first limit, then it pays tax at the starting rate (0%). If the company's profits are above the first limit, but equal to or below the second limit, then it pays tax at the small companies rate (19%), and also gets 'marginal starting rate relief'. If the company's profits are above the second limit, but equal to or below the third limit, then it pays tax at the small companies rate (19%). If the company's profits are above the third limit, but equal to or below the fourth limit, then it pays tax at the Corporation Tax full rate (30%), but with 'marginal small companies relief'. For all other cases, the company pays tax at the Corporation Tax full rate (30%). The position is, however, complicated if you have any 'associated' companies - this will lower each of the above thresholds. These depend in part upon the number of companies 'associated' with your company. A company is associated with another company if they are under common control. (In most cases, two companies are under common control if one owns the other, or the same people own them both or are able direct the affairs of both of them.) Incorporation Q: Should I incorporate my business (i.e. form a limited company)? A: Corporation tax rates are lower than personal income tax rates. It may therefore be beneficial for a self employed individual to trade his/her business through a Limited Company. The benefits accrue to businesses with low levels of profits (for example, £15,000), who can make use of the £10,000 Company tax exemption as well as higher earners, who can save higher rate personal tax by extracting money from their companies in a more tax-efficient manner Each case must be examined on its merits, we will consider these and advise on the most appropriate structure for the business in question. Charities Q: What are the advantages of becoming a charity? A: There are several advantages: charities are exempt from income or corporation tax, capital gains tax and stamp duty (not VAT). legacies to charities are deductible for inheritance tax purposes. there are valuable tax incentives for those who donate gifts of land and quoted securities to charities, as well as Gift Aid tax relief for both the individual donor and charity for cash gifts. because of their public benefit commitment, charities can appeal for voluntary funding from the public, as well as from grant-making trusts and foundations, more easily and credibly than can non-charitable bodies. charities are entitled to at least 80% business rates relief on the buildings they occupy to further their charitable purposes, with a further 20% relief at the discretion of the local authority. Q: I am in the process of preparing for our forthcoming audit. As the finance director, I am aware that the auditors have certain issues that are more important to them when they are auditing in the not-for-profit sector. Could you outline what these are? A: It is certainly true to say that auditing in the not-for-profit sector requires a different emphasis from the point of view of the commercial audit process. Often in the commercial sector there is the transfer of goods and services by the entity. However, in the not-for-profit sector this is not necessarily the case. In this sector, the main aims and objectives are to fulfil the needs of the beneficiaries. As such, it is difficult to gauge a charity's effectiveness in pure financial terms. With this in mind, a charity audit bears certain distinctive features, which include the following: DISTINCT NATURE OF INCOME The voluntary sector suffers from unpredictable income flows. There exists greater inherent risk within the audit and there is less opportunity for the auditor to carry out analytical review procedures. The concept of a gross profit margin does not exist either. The fact that this income is often in cash means that there is a lack of documentation and recording of the income as a result. Therefore, validating the completeness of the income cycle is problematic for auditors. RESTRICTED FUNDS A charity's accounts are based on the fund accounting principle. As part of the audit, the auditor needs to be aware of whether certain funds have been received for specific purposes. The restriction may result from the donor's wishes or, alternatively, from the nature of a public appeal. The auditor needs to be receptive to this as the accounts must reflect the restrictive nature of these funds. TRADING ISSUES Charities receive advantageous tax treatment through ICTA 1988 section 505, whereby the application of income for charitable purposes removes the charity from the tax net. The auditor must, however, ensure that any trading activities are for a primary purpose of the charity, or are carried out by beneficiaries and are therefore considered as charitable trading. Auditors need to ensure that, should the charity become involved in other forms of more commercial type trading, the need for a separate trading subsidiary is considered. PUBLIC INTEREST The not-for-profit sector is at the forefront of public opinion. Sometimes charities have been accused of building up excessive reserve levels. They must now explain and justify these in their accounts. The ratio of administration costs to income levels is closely scrutinised within the charity sector. The auditor needs to be receptive to this concern and aware of it during the audit process. It can be seen from the above points that the audit of a charity has different risks from the commercial audits. To audit a charity's accounts successfully, it is important to focus on the key risk areas to ensure a cost-effective audit. It will not be possible to audit the financial statements without understanding the original internal control process upon which the accounts are based.

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