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Abacus Accountants
2 George House,
Princes Court
Nantwich,
Cheshire,
CW5 6GD
Frequently Asked Payroll and Accounts Questions
Click on questions below for the answers:
Can I put car expenses through the business?
Can I claim for using my home as an office?
Should I start up as a sole trader use a limited company?
What do I need to do when starting up?
How much tax will I pay and when?
Should I be VAT registered?
Do I need an accountant?
Do I need an audit?
How much does an accountant cost?
How can I save tax?
Does changing accountants cause problems?
Which records do I need to keep?
Can I do my own bookkeeping?
How do I register as self employed?
How do I register as an employer?
Do I need to give pay slips to my employees?
What will an accountant do for me?
How do I pay myself from my limited company?
Am I likely to get a tax enquiry?
What can I claim as a business expense?
What can't I claim against tax?
1. Can I put car expenses through the business?
Yes, to the extent that car expenses are wholly and exclusively business expenses or at HMRC published rates per mile.
In general you can claim 40p per business mile for the first 10,000 business miles travelled per year and 25p per mile thereafter. This rate covers all aspects of car running costs and no further car costs can be claimed.
Alternatively you may be able to claim for the actual cost of running your car and apportioning the total cost between personal and business use. For example repairs, MoT, servicing, insurance and fuel could be split 75 % business and 25% personal and claimed accordingly.
Records need to be kept in all cases to justify business expenses for example a record of each business journey undertaken.
Capital allowances can be claimed subject to restrictions and personal use adjustment. Some cars are more tax efficient than others so get advice first.
2. Can I claim for using my home as an office?
Yes, but the method of claiming expenses will differ depending whether you are self employed or have a limited company. In all cases the amount of expense will be determined by your household costs, the number of usable rooms in your house and the amount of time a particular space is dedicated to business use. The household costs may include:
§ council tax; § mortgage interest; § home insurance; § water rates; § repairs and maintenance (e.g. exterior decoration or roof repairs); § rent; § cleaning; § heat, light and water; § telephone (business calls plus a proportion of the line rental), and § internet (apportioned on the same basis used for telephone).
Take care not to use a space in your home for business purposes 100% of the time to avoid possible complications with capital gains tax on the sale of your home and business rates.
3. Should I start up as a sole trader use a limited company?
In very rough terms sole trading is more straight forward, easier to set up and cheaper but has the disadvantages of risking your personal assets and can be less tax efficient.
A limited company protects the business owner(s) personal assets (unless there is a separate personal guarantee), can be more tax efficient but have more administrative requirements and are therefore more expensive to run and set up.
There is nothing to prevent you starting out as a sole trader and then convert to a limited company when the risks become greater. This approach can also be the most tax efficient depending on your previous earnings.
It is essential to get good advice from the outset which is why we have developed a package including free advisory services for the first six months in business.
4. What do I need to do when starting up?
This depends on the legal format of your business. If a sole trader you will need to call the self employed helpline on 0845 915 4515 within three months of commencement of trade to avoid penalties.
Limited companies need to register with HMRC within three months via form CT41G which is sent to the registered office address on formation.
Thereafter further registrations will be required for PAYE and VAT when applicable.
One of the first tasks to undertake is to open a business bank account. Note that you will need your company registration number if opening a company bank account. Company bank accounts can take more than a week to open so allow plenty of time.
5. How much tax will I pay and when?
Small limited companies pay corporation tax at 21% (from April 2008) which is due 9 months after the end of their financial year. A small company is one with profits under £300,000. Sole traders and partners pay income tax by 31 January and 31 July based upon profits from their business. If the total tax and NI payable is less than £1,000 there is only one payment date on 31st January following the end of the tax year (5th April).We will advise you how much tax to pay in good time of your tax liability.
6. Should I be VAT registered?
If your business sells mainly to the public or other non-VAT registered businesses you should avoid registering until you are required to do so. The VAT registration threshold can be found at rates and allowances.
Trading with other VAT registered businesses will normally provide the opportunity to gain from voluntarily registering for VAT. This is because your customers will be able to reclaim VAT and it is therefore irrelevant to them. Voluntary registration enables you to recover VAT paid on purchases which could prove beneficial.
There are also special rules for claiming VAT on purchases of goods and services prior to commencement of trade. Contact us for more information and guidance on VAT related issues.
Legally no, there is not an obligation to hire an accountant. If you can prepare a set of accounts to the required standard and understand tax rules sufficiently to recognise where you could mitigate your tax payments then there is nothing to stop you from doing so.
An underlying principle to our business as an accountancy practice is that we need to justify our existence by adding value to our clients' businesses. This means more money in your pocket than you pay us in fees. Apart from avoiding costly penalties and unwanted visits from HMRC we actively look to use the tax rules to your advantage wherever we can and advise accordingly.
Just as importantly we are there to help you keep your business running smoothly. There are always questions that arise from our clients and we are glad to answer them as part of the service because we realise that business is about sharing mutual success and not just about charging for minutes of our time. We run a free helpline for our clients who find this invaluable and time saving.
It is important to know that you are getting good advice and one indicator of this is appropriate accountancy qualifications. Anyone can call themselves an accountant so look for the word ‘chartered' for reassurance of quality.
Some of the things an accountant can do for you in setting up a new business include: Save tax Offer business advice Reduce your operating costs Help exploit selling opportunities Plan for succession and exit from the business Assist with sourcing funds Set up accounting system
Not unless your company has turnover of more than £6.5 million and net worth of more than £3.25 million or more than 50 employees.
Audit is an often misused term especially from financial institutions when assessing credit risk. What they usually mean is accounts prepared and signed off by a suitably qualified accountant.
9. How much does an accountant cost?
Not as much as you might think! Accountants have always been viewed as very expensive but recent developments in computer systems mean that we can benefit from efficiency savings and pass these on to the client without compromising standards that you would expect from a member of a chartered institute.
Beware - some accountants have kept the efficiency savings for themselves, so if you have been with your accountant for a number of years and their fees always increase, the chances are that you will get better value by switching to another.
The simple answer is to seek the advice of an accountant. Business owners can help a great deal by keeping their bookkeeping records in good order so that the accountant has more time to look for ways to save tax rather than preparing accounts from a jumble of receipts.
11. Does changing accountants cause problems?
There is a formal process between accountants called ‘professional clearance' which is designed to ensure that clients to not suffer disruption whilst changing accountants. Client's records are passed between accountants so that the service can continue seamlessly. This normally works well between members of chartered institutes but if you use an unqualified accountant they are not bound by these obligations.
12. Which records do I need to keep?
Businesses must retain financial records for six years.
The better records you keep, the more your accountant can do for you to identify opportunities to save money. Accurate and complete records can be proven by reconciling to bank statements. This will help you identify any errors (everyone makes mistakes!) and correct them.
Common problems we have with record keeping include:
Incomplete set of bank statements. Leaving cheque book stubs blank. Not detailing cheques banked in the paying in book. Missing direct debits/regular monthly payments from records Losing supplier invoices.
We will recommend the most appropriate method of bookkeeping for your business depending on your skills and preferences. The important thing is that you understand what you are doing. The method can be ‘simplex d' type books to spreadsheets to Sage or Quickbooks software or internet accounting systems. We have expert knowledge in most systems available and will help you maintain your records accurately.
It is essential to maintain accurate records to keep track of your finances and money owed and is particularly important when VAT registered.
13. Can I do my own bookkeeping?
Yes you can but as with most things, it is not as easy as you may think. To maintain accurate records you must be able to prove that your bank balances by checking it against your bank statement. This often causes problems and many hours can be spent in a fruitless search for where the problem lies.
We often come across family member or friend that have been used to do ‘the books' as a favour. Often problems arise when there is an issue with the timeliness or accuracy of record keeping but the business owner does not want to upset the family member/friend because they are doing them a favour. Also they can not take the work away for fear of upsetting them, so they put up with poor work which ends in resentment.
Expert bookkeeping can be done in a fraction of the time and accurately. This frees you to spend more time on your business with the knowledge that you finances are kept on track and you can rely on information provided by you accounting system.
Outsourced bookkeeping is extremely good value. Our services dovetail seamlessly with your accounts and tax work meaning that you get the best service possible.
14. How do I register as self employed?
Simply call HMRC on 0845 915 4515 with the following information ready:
name address National Insurance Number date of birth contact telephone number contact email address the date your self employment commenced the nature of your business business address
15. How do I register as an employer?
Call HMRC's New Employer Helpline on 0845 60 70 143. Note that you may not need to register straight away. Speak to us first.
16. Do I need to give pay slips to my employees?
No matter how much or how often you pay, you must give a written pay statement every time you pay weekly or monthly wages. Along with information about how much you've been paid, the pay slip must show how much tax and National Insurance has been deducted and tax code.
17. What will an accountant do for me?
Apart from making sure that you do not suffer penalties and fines imposed by HMRC, your accountant more importantly should be your right hand man in business. As a small business owner there is a never ending list of things to be done and you just don't have time to try and learn how to comply with the rules. An accountant not only knows the rules but can advise how to use them to your advantage. It could be the difference between you and a poorly advised competitor.
18. How do I pay myself from my limited company?
As a director of a limited company, you are treated as an employee. As such, any remuneration should be withdrawn as a salary or dividend. There are usually tax benefits to paying yourself a combination of salary and dividend, depending on your personal circumstances, and we would discuss the different options with you.
19. Am I likely to get a tax enquiry?
No-one can say when an enquiry will happen for sure but if you are late filing your returns, pay late or are in a cash based business then the chances are that you time will come sooner rather than later.
20. What can I claim as a business expense?
Allowable business expenses are those that are incurred 'wholly and exclusively' in the course of running your business. The following list will give you an idea of the type of expenses that can and can't be offset against tax:
- Wages and salaries for staff are allowed but not drawings for sole traders.
- Employers' National Insurance contributions can be offset against tax but sole traders can not claim for their own tax and national insurance payments.
- Loan or overdraft interest and hire purchase interest along with arrangement fees are allowable as are costs of renting equipment.
- Business insurance is allowable.
- Mortgage interest is allowable if it has been taken out to buy property for business use.
- All business premises costs such as heating, lighting, rent, rates, telephone, postage, advertising, insurance, special uniforms or protective clothing and repairs, are allowed. If you are running your business from home, you can claim for part of the expenses associated with this - get advice from your accountant about what is permissible.
- Stock for re-sale and materials purchased are allowed.
- Packing, postage or delivery costs are allowable.
- Printing, stationery, marketing and advertising are allowable.
- Travel, accommodation and subsistence expenses for trips or visits to undertake work are allowable, but travel to or from a fixed place of work on a day-to-day basis isn't.
- Car costs (including fuel) used for business purposes can be claimed and apportioned if the vehicle is used partly for business and partly for private use.
- Legal costs, bank charges and professional fees in connection with your business can be claimed.
- Membership subscriptions of business related organisations can be claimed for.
Entertaining of staff including an annual event to the value of £150 per head subject to conditions. Note that entertaining customers or suppliers is not allowed. Costs related operating a canteen are allowable if made available to all employees.
21. What can't I claim against tax?
Some expenses incurred in the course of business cannot be claimed back - these include entertainment and corporate hospitality, home to work travel and personal medical expenses, proprietor's drawings, goods taken for own use, national insurance contributions of partner(s)/proprietor, depreciation and personal use element of telephone and car.
Of course, it is important to keep a record of expenditure on all these items for accounting purposes, but they cannot be used to obtain tax relief.
Company registration number 05727671 in England and Wales.
Registered office: 2 George House, Princes Court, Nantwich, Cheshire CW5 6GD.