The question is very topical, as a number of companies are in the headlines for not paying an appropriate amount.
Whether you read the small print in the autumn statement, or the New Testament, there is a view on how much tax is right for everyone.
The answer to “how much tax” is due depends on your position:
The shareholder wants to pay as little tax as possible to maximise the return on their investment, the tax man wants as much tax to be paid as possible to pay the country’s bills, the government wants to keep the voter happy.
If the company was you, what would be your answer? To pay as much, or as little as possible? Or do you believe that “some” is the right answer? Who are you trying to please? Your neighbour, the person on benefits or the pensioner who depends on your contribution?
I met a prospective client a couple of days ago. He is starting a business based on his many years experience and contacts in his specialist field. We met on the basis that he needed an accountant, and could I help?
The word Accountant has become a much overused description of someone who provides financial assistance to a business. Calling yourself an Accountant implies expertise in a wide range of disciplines:
Business Tax (Corporation, CGT, VAT)
Personal Tax (NI, PAYE)
I believe that every business needs all of the above, just not necessarily all at once, or all the time. When choosing someone to be your “Accountant”, are you paying for all the above services “just in case”, or being quite precise about what kind of support you need?
If you manage your business well, you will be able to select when and who provides you with “Bookkeeping” (needed on a regular basis) separately from your “Auditor” (only needed once a year); be able to pay for “Tax” or “Investment” advice only when you need it. You should ask for general support and guidance from a “Finance Director” only as and when you need to.
The various functions of Accountancy can (and often are) outsourced. Accountancy is a big pool with all sorts of fish in it. As a business owner you should dip into the pool only for what you need, when you need it.
Does my prospective client need an Accountant? No. His needs are far more subtle and demanding than a generalist. Are yours?
This seems like a simple question. However, particularly at this time of year as they submit their tax return, many people find out that what they thought was a business expenses, isn’t.
The answer to the question is not defined by you, but by the tax office.
Take your telephone bill as an example. The tax office is happy to accept a telephone bill, even a mobile phone bill, as a business expense if you are a limited company, but not if you are self employed. If you are self employed and have a mobile phone, the tax man will assume that the contract is mainly for personal use. To prove your business use you need an itemised phone bill and details of which calls were for business, and which were personal.
Another area that often causes confusion is food and drinks (entertaining). Meals and drinks bought by a limited company can usually be called a business expense, but only very rarely if you are self employed.
If you are unsure about what is or isn’t a business expense, ask a professional, and then make sure that you understand what they tell you. I heard a story recently about someone who thought they knew what was allowed, only to find that their accountant had disallowed some items on their tax return (and not told them).
The logic behind the tax office’s decision on what is (and isn’t) a business expense may be archaic or confusing, but when the tax man knocks on your door and asks to see your accounts, the argument becomes irrelevant, as all that matters is the law.
If you would like to know more, or have questions, please ask.
With thanks to Martins Money Tips (www.moneysavingexpert.com) , welcome to the new tax year, here is a brief summary of thehighlights (last year’s figures are in brackets).
Personal allowance UP! Every man, woman and child can now earn £6,475 (£6,035) before paying income tax. For those aged 65-74, it’s £9,490 (£9,030), and for over-75s, £9,640 (£9,180).
Basic rate tax threshold UP. You now pay 20% tax on the first £37,400 (£34,800) over the personal allowance, meaning under 65s hit the higher 40% rate at £43,875 (£40,835).
National insurance start point UP. You now need to earn £110 per week (£105), before paying for NI, usually 11%.
State pension UP. It’s £95.25 (£90.70) a week for a single person.
Pension credit UP. The minimum guaranteed income’s now £130 for single pensioners (£124.05), and £198.45 for couples (£189.35).
New Health in Pregnancy Grant. All pregnant women will get a non-means-tested £190 in their 25th week.
Inheritance tax threshold UP. You can leave £325,000 (£312,000) tax-free.
And the not so good:
Fiscal drag. This isn’t Alistair Darling in women’s clothes, it’s when increased allowances aren’t as generous as they seem. If wages and/or inflation increase by more than the allowances, effectively the government gets more tax revenue anyway, and the real value of the increase is less.
National insurance upper earnings UP. You will pay 11% NI on earnings up to £43,888 a year (£40,040) and 1% above that.
ISA limits. No change. Yet again, the amount savable tax-free hasn’t increased with inflation or earnings.
Child Tax Credit family element. No change. Many families get this, and the freeze at £545 is an effective cut. Yet the means-tested element has increased to £2,235.
Remember to take proper advice before making any decisions…