Guide to saving tax

The A-Z guide of expenses  

We all have to pay our taxes, but we don't have to pay a tip as well. Click here to see the Essential guide to saving tax: The A-Z guide of expenses. 

Tax Incentive

Kick starting the British Economy 

Seed Enterprise Investment Scheme - SEIS

This is a new and very generous tax incentive scheme where it is possible to save £78 for every £100 invested or looking at it another way £22 would buy you £100 shares in a start-up company.

How does the scheme work?

• The scheme is effective from 6th April 2012.
• The maximum investment by an individual is £100,000 per annum.
• Income tax relief is given at 50% irrespective of the individual’s tax rate for the year.
• The individual cannot hold more than 30% shares in the company.
• The investment must be made in a start-up company with no more than 25 employees and assets less than £200,000.
• The companies must be trading companies and not investment companies.
• Under the scheme there is a capital gains tax holiday in the first year only (2012/2013). For example if a capital gain is realised, this gain will be exempt under the SEIS. 
• If the individual holds shares in a SEIS for more than three years, any gain realised on the gains will be exempt from tax.
• Start-up companies can raise up to £150,000 under this scheme.

Why?
The intention is to stimulate economic recovery by attracting additional business investment in new British start-ups.  The intention is to attract funding to parts of the market that have been traditionally too risky for banks.

Caution
It is recommended that you do extensive research before investing in such a scheme. Studies show that 50% of new businesses fail in the first year and 95% go out of business by the fifth year. An attractive tax break will not turn a bad investment into a good one. 

Tax Planning

Tax planning tips for the 2012 tax year

It seems that no sooner have we filed 2011 tax returns that March 2012 is upon us. There are a number of things that you may wish to consider before you file your 2012 return.

1. File on time
You can save yourself £100 by filing on time. The filing date for the 2012 tax return is 31st January 2013 (if filed on line). Interest is calculated on outstanding tax as well as a 5% penalty. If you don’t file on time penalties of £10 a day are also charged (from April 2012).

2. Personal allowances
You can save tax by ensuring that you have used your personal allowance (and your family – children have allowances too). The allowance for 2011/12 is £7,475. You can also make sure that you use basic rate tax band of £35,000 and the capital gains tax limit of £10,600.

3. ISAs
You can use your maximum ISA allowance of £10,600. You can open a cash ISA which is a tax-free savings account that every UK adult can put £5,340 per tax year in. Once in, it remains tax-free year after year. But if you don't use a year's allocation, you lose it.

4. Dividends
If you have a family company, you can use dividends to distribute surplus profits. This depends on your rate of tax and advice should be taken.

5. Pension
You may wish to take advice concerning contributions to your personal pension scheme before 5th April 2012, especially if you are a higher rate tax payer. This is most relevant if you earn over £100,000 as part of your income is effectively taxed at 60%. For those in this position a gift aid donation will attract tax relief at 60%.

6. More adventurous tax investments
You may wish to take advice if you are a more adventurous investor and consider investments such as Enterprise Investment Schemes (EIS) and Venture Capital Trusts (VCT).

7. Childcare Vouchers
You may wish to investigate the use of childcare vouchers if childcare costs are relevant to your personal circumstances.

If you would like any advice in this area or any other areas of accounting or tax, please contact me on 07834988638 or mail@sjhaccounting.co.uk.  Please also feel free to visit my website at www.sjhaccounting.co.uk. Sarah Hamilton takes every care in preparing material to ensure that the content is accurate and up to date.  However, no responsibility for loss to any person acting or refraining from acting as a result of this material can be accepted by Sarah Hamilton. You should always ask your accountant to give you specific advice which is tailored to your personal and business circumstances.

Let me entertain you! Essential guide to entertaining costs.

I have a client that has a very successful business in The City and the vast majority of new work has been generated through recommendations and word of mouth. My client strongly believes in building solid long- lasting  client  relationships and they work very hard at cultivating new business relations and nurturing existing customers. Their secret is listening to customers and making a point of getting to know them and their business. The company do not advertise or spend on PR or engage in any form of social media, just lots of  old fashion meetings with clients and prospects over lunch or an evening meal.

So what are the accounting and tax implications of this? My client's entertaining costs are a crucial, integral part of the business. The costs can be paid for legitimately through the business and we track the costs by customer  just to gauge how much the company is spending on each client. However, the company cannot recover VAT on the costs and the cost of client entertaining is disallowed for Corporation Tax purposes. So VAT cannot be claimed on client entertaining and the cost cannot be offset against income for Corporation Tax.

Business entertainment and VAT

Generally you cannot claim back the VAT on business entertainment expenses. Business entertainment is defined by HM Revenue & Customs (HMRC) as any form of free or subsidised entertainment or hospitality.

It makes no difference whether the person being entertained is an existing customer, a potential customer or any other person who is not an employee. The following are not employees for VAT business entertainment purposes, and so if any of these are present at an entertainment or other event, it is considered to be business entertainment and you cannot claim back the VAT:       pensioners and former employees, job applicants and interviewees and non-employee shareholders. 

If you would like any advice in this area or any other areas of accounting or tax, please contact me on 07834988638 or mail@sjhaccounting.co.uk, www.sjhaccounting.co.uk. Sarah Hamilton takes every. care in preparing material to ensure that the content is accurate and up to date.  However, no responsibility for loss to any person acting or refraining from acting as a result of this material can be accepted by Sarah Hamilton. You should always ask your accountant to give you specific advice which is tailored to your personal and business circumstances.

Filing requirements for Limited Companies; which documents to file and when

This is a frequently asked question and if over-looked can lead to serious consequences. A Limited Company is obliged to file the following:

1) Annual Return (Form 363)

What is it?
An Annual Return is a summary of the business data of a Limited Company. It essentially includes details of the company directors and company secretary along with a description of the main business of the company. It also shows shareholder and issued share capital details.

When should it be filed?
The Annual Return 'made-up date' refers to the date when the information in the return must be correct. This date is one year after the incorporation of the company.

What are the consequences of late/not filing?
Failure to file an Annual Return within 28days of the made-up date is a criminal offence. Companies House may also remove the company from the register of companies.

2) Statutory Accounts

What are they?
The Directors of every Limited Company are responsible for filing accounts for each financial year. Accounts should include a Profit and Loss Account, a Balance Sheet and Notes to the accounts and a Directors' report.

When should they be filed?
The time normally allowed to file company accounts is nine months after the Year End.

What are the consequences of not filing?
Not filing company accounts is also a criminal offence. In additio, late filing penalties are charged by Companies House as follows:


Not more than 1 month late                      £150
Between 1 month and 3 months late          £375
Between 3 months and 6 months late         £750
More than 6 months late                        £1,500

The penalties are doubled if a company files its accounts late in two years running.

3) Corporation Tax Return (Form CT600)

What is it?
The Company Tax return is a calculation of the amount of Corporation Tax the company is liable for based on the taxable profits of the business. A company that is liable for Corporation Tax must register with HMRC and file a Company Return on time. It is important to note that a company must register even of it is dormant or if there is no Corporation Tax to pay. It is important to register with HMRC within three months of starting a new limited company.

Unlike Tax Self-Assessment or VAT, where filing dates and payment dates are the same, the payment deadline is before the filing deadline.

When is the payment deadline?
Assuming company profits are less than £1.5m, Corporation Tax must be paid nine months after the end of the Financial Year. So, if the the year end is 31st March 2010, the Corporation Tax for that year must be paid by 1st January 2011.  


When should it be filed?
The Corporation Tax return should be filed within 12 months of the Financial Year end.

What are the consequences of late filing?
If a return is filed late there will be a penalty even if there is no liability to Corporation Tax.

Late filing will result in a penalty of £100. HMRC will charge another £100 if the return is more than three months late. If your company return is late three years running, the penalty is £500 plus another £500 if it is then more than three months late.

For the purposes of this blog, a 'company' is defined as a Small audit exempt company with a responsibility to file abbreviated accounts. 

If you would like any advice in this area or any other areas of accounting or tax, please contact me on 07834988638 or mail@sjhaccounting.co.uk, www.sjhaccounting.co.uk. Sarah Hamilton takes every. care in preparing material to ensure that the content is accurate and up to date.  However, no responsibility for loss to any person acting or refraining from acting as a result of this material can be accepted by Sarah Hamilton. You should always ask your accountant to give you specific advice which is tailored to your personal and business circumstances.

Sarah Hamilton - SJH Accounting - My journey as a Freelance Accountant

This Blog is written for Motivating Mum UK (www.motivatingmum.co.uk 
Twitter: @motivatingmumuk ).
It is about my journey as a Freelance Accountant. I'm still at the beginning of my journey but I've already learnt a lot along the way including:

1)  You can never network enough
In my experience joining networking groups has been an extremely worthwhile investment in my business. Networking has provided me with some fantastic leads to generate new business and more importantly has given me access to a wonderful team of experts to help my business grow. I would recommend investing as much time and money in networking activity as you can. Make sure that you update all of your contacts efficiently and that you have face to face meetings with people who you connect with. Collecting a pile of business cards is a waste of time and effort. The more you reach out and connect with others, the more you will benefit. You will also learn so much from others who are further along their business journey.

2) Support others as much as you can and you will reap the rewards
In the early stages of your journey, be prepared to give advice and support  others wherever you can. Use every opportunity to demonstrate your expertise. Run free workshops, prepare useful, insightful blogs and always be on the end of the phone to support others. Also, be prepared to listen to others and take an interest in their business. Your business interests may not be aligned, but never under-estimate the connections other people may have.

3) Perseverance
As a one-person business, you will encounter more challenges than you could could ever imagine. My advice is to persevere and stick with it and eventually your efforts will be rewarded.

"The secret of life, though, is to fall seven times and to get up eight times."
— Paulo Coelho (The Alchemist)


4) Be prepared to move out of your comfort zone
Your work will no longer be handed to you on a plate. You will have to reach out and bring in new clients. You will also be responsible for all aspects of your business from IT to Marketing. You will need to ensure you have the best support your budget allows in these essential areas of your business.

Be prepared to move out of your comfort zone!


'I used to have a Comfort Zone,
Where I knew I couldn't fail,
The same four walls of busy work
Were really more like jail........

I couldn't let my life go by
Just watching others win
I held my breath and stepped outside
To let the change begin'...........

Anonymous

5) Be resourceful
It is amazing what you can do to kick-start your business on a shoe-string budget. Be resourceful; look out for free training courses (also a good networking opportunity), free software and even answer questionnaires to gain rewards such as free subscriptions for different services and products. Sign up for newsletters provided by support networks such as Motivating Mums UK. There is a wealth of free advice on all aspects of business available from this website.

6) Use Social Media - it's free!
Get connected for free on Twitter and Linked In. This will enable you to connect with others and demonstrate your expertise.

These are my 'Pearls of Wisdom' that I have gained along my journey. I still have a long way to go and I'm still learning. Good luck. You will never look back!

Sarah Hamilton - SJH Accounting
E: mail@sjhaccounting.co.uk

6 reasons why every business should have a 'Business Plan'

Every business should have a business plan no matter where the business is in its' business journey. It is just as important for an established business to have a business plan as it is for a new start up venture. A business plan  should essentially include an outline of the goals of the business, a strategy to achieve the goals, credentials of key personnel along with projected financial information (projected Profit and Loss, Balance Sheet and Cash Flow).


Business Plans do not have to be set in stone. A good business plan can be amended as much or as little as necessary and goals can be re-set to reflect changing circumstances of the business or to reflect different business scenarios. A number of plans can be created to reflect 'what if?' or different scenarios. For example: 'What if the business adds another service or product line?' or 'What if the business takes on 10 new staff?' or 'What if prices are increased by 5%?'. The business plan will show the impact on profitability and cash flow under the different scenarios.


The financial information is based on a number of assumptions (best estimates based on known information/estimated information) and should include a forecast Profit and Loss account measuring the profitability of the business, a balance sheet measuring the net worth of the business along with a cash flow forecast. This information is vital for the smooth running any business. For example, a cash flow forecast is vital for seasonal or cyclical businesses. A cash flow will highlight peaks and troughs in the business cash flow and will identify when cash is most constrained. This will enable a business to plan in advance to cope with this and to arrange a short-term overdraft if necessary.


So why is it so important to have a Business Plan?


1) Goal setting
Every business should have clearly defined goals. We cannot measure success or failure without setting clearly defined goals; both financial and non-financial. We need our business to have direction and structure and to be able to monitor progress by comparing actual performance versus the business plan.


2) Start up finance
The majority of new businesses will require a capital injection of some kind to kick-start the business. A business plan is a pre-requisite for obtaining any kind of start up finance.


3) Setting price structure
A business plan should be the starting point for establishing price structure. It is vital to set a price structure which is competitive in the market and one that ensures that adequate profit is achieved. (Particularly relevant to businesses selling to consumers with the recent increase in VAT. Businesses on tight margins have not been able to absorb the VAT increase and have had to increase sales prices).


4) Break Even Point of Business
A business plan should reflect how much the business needs to turnover in order to cover fixed costs.This can be measured in headline financial terms, so £10,000 per month or in unit terms, so 20 IT consultations per month or 10 marketing packages per month. This information is vital and can be used to drive the business forward every month.


5) Measuring actual performance against a forecast
A business plan is the perfect tool to measure goals set against actual performance. Actual performance can be compared to the business plan at regular intervals (monthly, quarterly, six monthly) and shortfalls in profitability/turnover can be analysed and addressed earlier rather than later. Also, positive variances can be analysed (for example, income better than forecast, costs less than forecast) and improved upon where possible. 


6) Platform for Expanding a Business
A business plan is vital for established businesses too. If an opportunity to expand the business occurs, for example, a joint venture proposal, receiving a large offer for new business, the plan can be updated to show the impact on profitability, margins and to indicate whether additional finance will be required. A business may fail due to 'over-trading' which is expanding too quickly and not having the necessary working capital in place to cope with growth.  


To summarise, a good business plan will ground a business and help steer it through the ups and downs of its' business cycle. It can be used as a planning and decision making tool and can be revised to give clarity to the business at uncertain or difficult times. The initial investment in preparing a business plan will pay off in the long-term for the above six reasons.  


If you would like any advice in this area or any other areas of accounting or tax, please contact me on 07834988638 or mail@sjhaccounting.co.uk, www.sjhaccounting.co.uk. Sarah Hamilton takes every. care in preparing material to ensure that the content is accurate and up to date.  However, no responsibility for loss to any person acting or refraining from acting as a result of this material can be accepted by Sarah Hamilton. You should always ask your accountant to give you specific advice which is tailored to your personal and business circumstances.