It is important to be aware of the main basic business structures available if you are considering starting a new business. There are three commonly used forms of business structure.
A sole trader – this is the simplest way of starting and running a business. However, you are personally responsible for your business’s debts. You also have accounting responsibilities.
A limited company – the business is quite separate to you as a person, but there are more reporting and management responsibilities. In most cases you will not be personally liable for business debts, but it also means that you cannot draw money from the business whenever you feel like it without generating tax issues.
Partnership – There are two main types of partnership, a conventional version where you work with one or more partners in the business. This is the simplest way to run a business for 2 or more people. There is also a limited liability partnership or LLP, This more complex structure provides you and your partners with the protection of limited liability, much like a limited company.
Which business structure is best suited to your new business will depend on a number of factors. For example, cash flow, your longer-term plans for the business, whether or not you need the protection of limited liability, your willingness to comply with legal and administrative obligations of companies and LLPs and the nature of any investment you are seeking to capitalise the business.
Planning before you make a start is essential. Please call if you would like to discuss your options. Getting it wrong can be a painful and costly experience.
A joint venture is a commercial enterprise undertaken by two or more parties who otherwise retain their separate identities. The parties to the joint venture usually bring together different resources and areas of expertise to help fulfil a specific project or business activity.
HMRC’s manuals make the point that on close examination many of these associations prove to be partnerships, despite the name applied to them. The manuals state that a joint venture, which is not a partnership, is most likely to be found where parties already carrying on businesses of their own agree to co-operate in a single project, but they do not agree to share net profits or losses. Where they do agree to share net profits or losses, it is likely that a partnership will result even where the parties are already engaged in their own businesses.
For a partnership to exist, there must be a business and that business must be a business that is separate and distinct from any other business that the joint venture parties may conduct on their own account.
Starting up a business can be an extremely stressful time! That’s why we’ve introduced our top 3 tips for accounting, to give you one less thing to be stressed about.
1. Build up a Cash Reserve
Even before you start your business, think about setting up a seperate cash reserve that you can build up whilst your business is running. This is more of a ‘rainy day’ fund, should you require a sum of money at the last minute and don’t wish to take out a loan. Money issues are one of the top reasons startups fail, so it’s important to ensure you always have a back-up supply of money in an emergency.
For advice on your business finances, get in touch with us today on 01392 875391.
2. Analyse Business Transactions
To get ahold of your finances, it is important to track all of your outgoings and incomings from the start. Minor expenses such as team coffees, printer paper and even teabags all build up over time and can easily throw you off track when you check your accounts. Closely tracking your outgoings enables you to not only be careful with spending, but also informs you as to exactly how much you’re spending so you can prioritise budgets more effectively.
Accounting software allows you to keep track of payroll, expense tracking, invoicing, taxes and bills. Our business accounting packages incorporate Xero and Intuit Quickbooks among other reliable and efficient software. Get in touch with us to find out more.
3. Figure out Your Business Structure
This is where things might get complicated if you don’t know what your options are. If you become an incorporated business, your liability if you are sued is limited and enables your business to stand as a seperate entitity, meaning your personal finances are less likely to be impacted than if you are a sole proprietor. However, being a sole proprietor suits some businesses as it is more convenient and allows you to entirely run the business yourself. It’s important to understand the pros and cons before registering your business to enable you to make the right decision. For help and advice, contact us today.
If you’re looking for a trustworthy Accounant based in Exeter, find out more about our startup accountancy services here.
Phishing emails are potentially damaging if you don’t know how to spot them. Fraudsters craft up emails that look very convincing, pretending to be your bank, the HMRC, a virus protection software and many more. The emails will either encourage you to click through to a website that requests information from you, or to download harmful attachments. If you download an attachment in a phishing email, malware is installed onto your computer, giving the scammer access to passwords, card details, and any saved personal information on your computer.
Ensure you protect yourself from fraudulent emails with these top 4 tips!
1. Always Look at the Sender’s Email Address
It is important to check the email address for the domain name. Fraudsters trick users by displaying a fraudulent display name such as Google or HMRC, so you think the email is from a legitimate source. The reality is that you can have any display name you want and anyone can change their name to Google or HMRC. In order to spot fraudulent emails, check the domain name in the email address. No organisations will email you from a personal email account that ends in @gmail.com or @aol.com. Most organisations will have their own email domain, which matches the domain name when you search for the organisation on a search engine. For example, PayPal’s domain name is paypal.com, therefore emails from PayPal will always be from @paypal.com.
The domain is @paypall.com rather than @paypal.com, signifying a fraudulent email.
If you’re ever unsure about a suspicious email, visit the Action Fraud website for information about the email you have received.
It is also important to note that HMRC will never contact you via email about tax refunds. You will receive a letter to your home address about any tax refunds. If you do receive an email pretending to be the HMRC, forward it to phishing@hmrc.gsi.gov.uk and delete it.
2. Watch out for Grammar Mistakes
Many scammers won’t be from the same country as you, so although spelling might be correct, sentences won’t read very well and words may appear in the wrong context. Sentences such as “contact we to find out more” or “you receive a tax refund” are examples of some mistakes you can spot in a phishing email.
3. Never Download Attachments or Click on Links
Phishing emails often contain harmful attachments or links directing you to a website that will request information from you. A popular example is where the sender attaches a bogus invoice and is vague in the email, which encourages the victim to download the attachment to find out more. After the user has downloaded the attachment, it is too late and data on the computer may be compromised. In some cases, you may recieve a notice before downloading the file about it being harmful to your computer. Never download an attachment unless you are 100% sure of the legitimacy of the sender.
Another approach is to include a link such as “Verify your account”, which will request log in details to an account of some sort. It is important not to click any links or enter log in details unless you are certain that the email is from a safe and legitimate sender. You can see where the link goes by right-clicking on it. For example, a legitimate link will read “www.apple.com/” as opposed to “www.customersupportapple.net/”
4. Watch out If the Email Seems Alarming and Urgent
Many scams will encourage you to act immediately in order to avoid a made up consequence such as an account being permanently locked. Alternatively, scammers will try to fool you by mentioning money, which will be a believable amount. For example, if a fraudster states that you could be refunded £100,000 tax, then you know that this isn’t at all possible if you haven’t earned enough to be owed this, but a smaller amount such as £400 is more plausible and is still rewarding enough to entice you to click the link.
If you are ever unsure about a finance-related email you have received, give us a call on 01392 875391 and talk to a member of our helpful team.
Value Added Tax is the amount of tax added to the value of services or goods you buy. VAT-registered businesses must charge VAT for any products or services that are sold. The standard rate of VAT is 20%, meaning that 20% of the price of the product/service is added on top, which goes directly to the government. However, not all products and services will have VAT. For example, educational services and books are exempt or zero rated, with some goods being sold with a lower rate of 5% VAT.
If your sales exceed £82,000 per year then you must register for VAT. However, there is still good reason to register for VAT if your sales don’t exceed that amount as it improves credibility, giving the impression that your business has been operating longer than it has. Registering for VAT also offers the opportunity to take advantage of the Flat Rate Scheme, whereby your business pays a fixed rate of VAT on your gross turnover, as opposed to on each product/service sold. The fixed rate varies from industry to industry, with some industries paying 14.5% VAT to HMRC. Your business will still charge 20% on products/services, however the amount you pay to HMRC is the amount set by them. Since you are then able to keep the difference, it is a viable option for businesses with low expenditure.
If you can’t claim back VAT, then it is evidently not worth registering for VAT. Give us a call today on 01392 875391 to get advice on VAT, what it means for your business and whether you should register.
The cash basis scheme helps many sole traders and other unincorporated businesses to manage their financial affairs. The scheme is not open to limited companies and limited liability partnerships. Using the scheme, allows qualifying businesses to use the cash basis when recording income and expenditure.
You must have a turnover of £150,000 or less to join the scheme and you can continue using the scheme until your turnover reaches £300,000. However, certain small businesses are more suited to using the case basis than others. The scheme is most suitable to relatively modest businesses especially those that provide services.
If you are using the cash basis scheme, then capital expenditure is usually treated as an allowable business expense with the following exceptions:
The acquisition or disposal of a business or part of a business
Education or training
The provision, alteration or disposal of certain non-depreciating assets, assets not acquired or created for continuing use in the trade, land, non-qualifying intangible assets and certain financial assets.
In addition, if you buy a car you can claim the purchase as a Capital Allowance on the condition that the business mileage rate has not been claimed on the car. This is because the rate already contains an element to allow for depreciation.
The Making Tax Digital (MTD) process will affect all businesses by 2020 (except those exempt), and it’s important to prepare for the switch. Due to inaccurate tax records being kept and incorrect amounts of tax being paid to the HMRC, a new system is being introduced, whereby accounting and tax collection will be digital. The system aims to prevent the £9bn per year losses being made as a result of avoidable tax calculation mistakes that have occured during non-digital tax collection.
Making Tax Digital for businesses will begin in April 2019, with VAT-registered businesses with turnover above the threshold of £85k being the first to submit VAT returns and tax records via a digital software such as Xero and Quickbooks. This will make tax administration easier, with businesses being able to pay the correct amount on time. With the new system, you will be able to keep records of your accounts and expenditure via your device, enabling you to send quarterly financial updates to HMRC through their software or accounting app.
You can find out more about the rules and requirements for Making Tax Digital for VAT via the Gov.uk website or just give us a call.
MTD Timeline
**Companies who fall into at least one of the following categories will be deferred for 6 months:
Trusts
‘Not for profit’ organisations that are not set up as a company
VAT divisions or groups
Those public sector entities required to provide additional information on their VAT return (Government departments, NHS Trusts)
Local authorities
Public corporations
Traders based overseas
Those required to make payments on account and annual accounting scheme users
Changing how you manage your accounts can be stressful, and we are here to make the switch easier.
The assessment of self-employed or partnerships profits is usually relatively straight-forward if the accounting date, to which accounts are prepared annually, falls between 31 March and 5 April. However, overlap profits can arise where a business year end date is not coterminous with the end of the tax year.
Overlap profits can happen in the first 3 years of the business or in any year in which there is a change of basis period because of a change of accounting date.
For example, if your business is incorporated on 1 January 2018 and your chosen year end date is 31 December 2018, your basis periods are:
2017 to 2018, 1 January 2018 to 5 April 2018
2018 to 2019, 1 January 2018 to 31 December 2018
The portion of accounts from 1 January 2018 to 5 April 2018 is therefore taxed twice and is known as overlap profit.
Overlap profits relief can be used to reduce the profits on the final tax return when the business ceases trading or if the accounting period changes. Overlap relief is a mandatory deduction. The full amount of the relief available for a particular tax year must be given as a deduction for that tax year. No part of the deduction can be waived.
If overlap profits were created some time ago, and profits have been declining in recent years, it may be prudent to consider a change of accounting date closer to, or at the end of, the tax year. In this way, the overlap profits can be deducted, and tax liabilities reduced at a beneficial time for the business or partnership. There can also be Income Tax and National Insurance savings.
It can be very difficult for small businesses to know what options are available when their customers owe them money. This can arise when business owners are uncomfortable chasing a debt for fear of upsetting their customer and losing valuable business.
The Government has been working to tackle this issue as nearly a quarter of UK businesses report that late payments are a threat to their survival.
After a business has continued to chase payment unsuccessfully, there are a number of options available. This includes: using a mediation service, initiating court action, sending a statutory demand or registering a claim to money from a bankrupt person or company.
Using a mediation service can help two sides find a solution to a dispute, and is usually cheaper and less stressful than going to court. The fee for using mediation is usually based on how much is owed. If mediation doesn’t work, you can still take a case to court.
A court claim can be made online if the money owed is less than £100,000 and owed by no more than two people or two organisations.
You can also use a statutory demand to ask for money you’re owed from a person or business. This can result in making an individual bankrupt or forcing a company into liquidation. It is important to be aware that any legal process can take many months, and there is no guarantee that you will get your money back whilst incurring additional costs.
The Chancellor announced a number of measures to help many failing high streets up and down the country, as they face a real threat to their existence as footfall continues to be impacted. The growing use of online shopping has caused many large retailers to close down or reduce the number of stores they run, especially in smaller towns and villages across the country.
One of the measures introduced by the Chancellor, has been designed to help provide new rates relief for smaller retailers based in England. These small retailers are at the heart of many high streets and will grow ever more important as the big retailers focus on major city developments and online portals. From April 2019, small retailers occupying shop premises in England with rateable values under £51,000, should benefit from a cut of one-third in their business rates bills for 2 years. However, no reliefs for larger retailers were announced.
The Chancellor commented in his Budget speech that this will result in ‘an annual saving of up to £8,000 for up to 90% of all independent shops, pubs, restaurants and cafes’. This change will run until the next rates revaluation in 2021 when rateable values will be adjusted to reflect changes in rental values.
It was also announced that the Government will provide £675m of co-funding to be spent by councils on improvements to: transport links, the redevelopment of under-used and unused retail space into residential and office accommodation, and the repurposing of building with a historical value.
Following the publication of new government research which shows that fewer than half of businesses are aware of forthcoming new data protection laws, the government has urged businesses to act to make sure the personal data they hold is secure and that they are fully prepared for the EU General Data Protection Regulation (GDPR) and the new Data Protection Act 2018.
According to the new government research which covered 1,500 businesses, only 38% of businesses said they had heard of the GDPR, which is the foundation of the UK’s new Data Protection Act 2018 and will come into force on 25 May 2018. Awareness was particularly low amongst micro-businesses with less than 10 employees. Among those businesses that were aware of the GDPR, only just over a quarter (27%) had already made changes to their operations in response to the GDPR’s introduction and, of those that had made changes, just under half (49%) said their changes included those to cyber security practices. Creating or changing policies was the most common cyber-security change recorded, followed by additional staff training or communications.
As well as a wealth of free guidance and a telephone advice line being available from the Information Commissioner’s Office, including a Guide to the GDPR and a GDPR checklist, free guidance on cyber security is available from the National Cyber Security Centre (NCSC), including Cyber Essentials and the Small Business Guide.
The European Commission has also just published an online practical tool on the GDPR dedicated to SMEs.
The cash basis scheme helps many sole traders and other unincorporated businesses benefit from a simpler way of managing their financial affairs. The scheme is not open to limited companies and limited liability partnerships. It allows qualifying businesses to use the cash basis when recording income and expenditure. However, some small businesses are more suited to using the cash basis than others.
If you fall within any of the following categories, the cash basis may not be your best option:
want to claim interest or bank charges of more than £500 as an expense
run a business that’s more complex, e.g. you have high levels of stock
need to get finance for your business – a bank could ask to see accounts drawn up using traditional accounting to see what you owe and are due before agreeing a loan
have losses that you want to offset against other taxable income (‘sideways loss relief’)
In a nutshell, the scheme is most suitable for straight forward businesses especially those that provide services. You must have a turnover of £150,000 or less to join the scheme, and you can continue using the scheme until your turnover reaches £300,000.
Planning note
If you are thinking of using the scheme, we would be happy to help you consider your options and to crunch the numbers to see if the cash basis scheme is a suitable option.
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