The reason why most people set up a company and trade through it is to save tax, this is perhaps the most important reason for setting a company up and could save you thousands of pounds in tax every year as opposed to trading as a sole trader or a partnership.
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Why should I use a company for my business structure?
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How to choose a business bank account?
What should I look for in a business bank account?
Providing you have a good banking record and have managed your personal bank accounts well then you should have a lot of choice when you are opening your business bank account.
Aspects to consider when choosing a provider are:-
Bank charges and interest
As a freelancer or contractor you will be attractive to a bank as you will generally have money in your account and will not require a lot of banking resources such as business loans, cash handling facilities etc.
You should look for an account which offers free banking for as long a period as possible.
Company debit/credit card
A company credit or debit card would be useful as it will enable you to totally separate business and personal expenses, it is best to always keep your business and personal banking separate, unless it is totally unavoidable.
On-line banking and telephone banking
Anything that will add to your convenience and save you time is worth considering. As a freelancer or contractor your time is a valuable commodity as you can be using it to earn money as opposed to spending it queuing down the bank.
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Can I be a sole trader?
A question we often get asked is ’ I am thinking about contracting and what structure should I choose, can I keep it simple and be a sole trader?’
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Should I insure myself against a tax investigation?
Should I insure myself against a tax investigation?
A tax investigation can take years to sort out and if it goes through the courts then it can cost thousands of pounds in professional fees, not to mention the tax and penalties that might be at stake if you are found to be at fault.
Plus a HMRC investigation will cause you untold emotional costs, for both you and your family.
If you decide to fight an HMRC investigation then you should have professional help as fighting inspections and rulings by HMRC is not for the faint hearted, it is also technically demanding in terms of procedures and legislation.
Most contractors/freelancers will have some sort of insurance cover, which as a minimum will cover the professional fees incurred by an investigation.
As an addition many have policies which cover to a varying degree the tax liability at stake.
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What are the benefits of being a contractor?
A question we often get asked is ‘I am thinking about going contracting, but am unsure about how to start my research and what are the benefits and drawbacks of operating this way?’
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Am I eligible for a state pension?
A question that we often get asked from freelancers or contractors, especially new ones is that “now I am working through my own limited company will I still be entitled to a state retirement pension?”
The answer is complicated and it will depend on the amount of years of contributions made by the person, but to maintain entitlement to the state retirement pension, directors should always pay themselves a salary of at least the amount of the ‘lower earning limit’ for national insurance purposes.
If there is only enough profits in the company to take the lower earnings limit then it makes sense to take a salary as opposed to a dividend to maintain entitlement to a state pension.
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Are HMRC coming knocking?
HMRC’s task forces initiative started in May 2011, its aim is to attack business that have deliberately evaded tax.
HRMC’s intention is to have twelve task forces which would be geographically split and involve targeted and intensive bursts of compliance activity into specific high risk trade sectors.
The first of three task forces became operational across Scotland, London and the North West in May and June 2011, and from HRMC’s perspective have been successful with a significant amount of tax found and prosecutions to follow.
There have been six further tax forces announced over the last few weeks, one of which is for tax payers in the South East who are failing to submit their statutory returns across corporation tax, income tax self assessment, PAYE and VAT.
Typically HMRC are using the legislative powers contained within Schedule 36 of the Finance Act 2008 to conduct a task force visit, and specifically using paragraph 12(2) (b) which authorizes an officer of HMRC to make an authorized visit subject to the approval of an authorized officer of HMRC or a first tier tribunal.
It is vital that businesses now more thatn ever keep their compliance and business records up to date and accurate. HMRC is determined to collect additional revenue from compliance based activity, the Government has tasked HMRC with collecting an additional £7bn per year by 2014/15 (This is additional revenue on top of the £13bn which HMRC already expects to collect from routine compliance work).
Thus it may be a prudent new years resolution to make for your business, to get your business records and compliance in shape before HMRC come knocking at your door.
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Dog ate the tax return?
The deadline for your 2010/2011 Personal Tax return is fast approaching, the deadline being 31 Jan 2012.
It makes sense to submit your return on time as late submission will result in an automatic fine of £100 which will increase steeply until the return is submitted, interest will also be due.
You may think that you have a reasonable excuse for a late submission, such as the dog ate my online password, or I had a last minute business meeting in New York, excuses like these might be genuine, but they will not wash with HMRC.
The taxman will let you off if you have a reasonable excuse. Reasonable excuse has not been defined by the tax man but it involves an exceptional event which is beyond the control of the taxpayer and prevented the completion and return of the tax return by the due date. It is unlikely that a valid excuse would be allowable as reasonable by HMRC.
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What do you think of the personal tax system?
HMRC are currently asking for comments on ‘Modernizing the administration of the personal tax system’ comments are invited by the 24th February 2012.
The Government wants to hear views on how increased awareness and understanding of how the system works. The aim of which is ultimately to improve the system to make it easier for customers and agents to work with.
HMRC are interested in finding out which aspects of the personal tax system which creates the most difficulty for tax payers and agents, I would imagine that they will obtain some interesting answers on this.
They are also interested in how they can use technology to allow clients to get a better understanding of their individual tax position and the tax they pay.
The consultation document is available on HMRC’s website at:
http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageLibrary_ConsultationDocuments&propertyType=document&columns=1&id=HMCE_PROD1_031736
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Review of Business Record Check pilot
HMRC have announced they intend to review the Business Records Check (BRC) pilot. The BRC has attracted criticism from Accountants and Taxation experts, who whilst supporting any initiative to help businesses keep good records, are concerned that the Business Records Check sole intention is a money making exercise to swell the Governments coffers.
The Business Record Check program allows the taxman to visit businesses where they are concerned that adequate records are not being kept and issue fines of up to £3000.
It is expected that the Business Record Check program is here to stay, but the review may address some of the concerns that have been raised.
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