Accountants have seen it all before

Sitting there and panicking about falling behind with your accounts will only make the problem worse. There is no need to feel ashamed as accountants and bookkeepers will have seen it all many times before. You may have to pay some fines to HMRC and Companies House, but these cannot be avoided and you certainly won’t be the only one to have filed your accounts late. Your accountant can talk you through what is likely to happen and they can get your messy piles of old statements and receipts into some kind of order, no matter how chaotic it may seem to you.

Updating is good, backdating is bad

Accountants can do a lot for you, but there are limits to what they are able (and allowed!) to do. For example, bringing your accounts up-to-date is totally different to ‘backdating’. The latter implies that dates of payments would be changed, which is unlawful. This is because some people will attempt to shift important transactions around the calendar year for various reasons. These may include trying to manipulate a tax bill by shifting costs and invoices around or withdrawing money to stop creditors accessing it. As you may imagine, there are rules governing backdating accounts, so talk to an accountant to find exactly where you have to draw the line. For example; making up transactions that never happened will definitely be unlawful, while adding legally required information that has been accidentally omitted from your accounts is usually OK.

Even if there is vital paperwork that has gone missing altogether, you would not be the first person that this has happened to. You can order old statements from banks or your lenders and it also possible to ask other businesses you have dealt with for help with finding transactions involving you and your company. In short, there is usually a way out of an accounting mess, no matter how lost things may seem!

How you can help get your accounts up to date

There are one or two things that you can do to help your accountant to make the procedure of sorting out your books as quick and as cheap as possible. The first thing to do is to search through all your paperwork to find anything that may be relevant. This may include receipts, invoices, contracts or just about anything else that could possibly be of interest to an accountant. The second way you can help to get your affairs in order is to sort all this paperwork into date order. This will make your accountant very happy!

What to do once you are back on track

Once you are back in control of your finances, you need to keep in touch with your accountant. If you employ the services of a proper accountant or bookkeeper then you will avoid getting into this unpleasant situation again. It means that you can relax and concentrate on doing business without having to panic about your neglected books.

If ever you find yourself failing to keep up with your accounts again, avoid the panic and dread by getting professional help as soon as possible. Don’t just sit there saying “my accounts are late” – come and see your local accountant such as the team right here at PL Accountants Liverpool.

Will your business grow into a full company?

If you believe that your sales will hit a level where you will need more than just a partner or occasional freelance help, then it is likely that the best route for your business is to become a limited company. The aim of almost anybody who is setting out in business is to be able to employ others and that usually involves becoming a limited company. This is because there are different responsibilities that an employer needs to think about, something that a limited liability company is ideally suited to.

How much profit are you making?

If the company will make more than £20,000 a year then incorporating as a limited company will almost certainly save you money in tax. Although you may have slightly higher accounting costs, it should be possible to make up these extra costs and a lot more besides from the potential tax savings you can make.

In 2013 you can be paid up to £9,440 before paying tax and up to £7,700 before you pay national insurance. However, a limited company pays tax on all its profits, which is why it is only worth the hassle and costs involved if you are likely to earn more than £20,000 a year from your business.

Do you mind having slightly more complex accounts?

Being a limited company increases your fixed costs slightly, which means that no matter how much business you generate, you will still need to pay out a certain amount. This includes setting up the company, which typically costs up to £100. There is then a fee of up to £30 to keep your company registered at Companies House. It is also likely that you will need more help from an accountant than you would do if you are self employed.

Of course this may mean slightly higher accountant’s fees, but it will be well worth spending if it means that you can have the company structure that you need while also easing the headaches of having to sort out your business finances alone. It’s likely that an accountant can save you money in the long term by making sure that you are paying the right level of tax and that you use your money wisely. For most businesses, this advice pays for itself.

Will a limited company make you more credible?

If you are an actor it is unlikely that you would want to become a limited company on your own, however if you are the production company employing the actor then it is likely that you would want to be incorporated as a company. This is both because of the issue of liability (a production company is responsible for a lot more than an actor would be) but it is also because a company will instil more faith in those that trade or invest with them. For example, presenting your business as a limited company can be helpful when applying for a business loan.

What is the next step?

Talking to your local accountant is the next logical step, so give us a ring to discuss our company formation service that takes the hassle out of getting your business and your ideas off the ground.

In the UK, most companies or self-employed individuals are not required to have an accountant by law. However, there are exceptions to this rule.

What the law expects

You may not be legally required to have an accountant, but it is a legal requirement that you accurately prepare your accounts and file them on time. This is the most important thing you have to remember when you are running a business, so if you have even the merest doubts that you can handle this responsibility then you should speak to an accountant. Would you trust yourself to work on your own car? Or fly the airliner when you go on holiday? There is nothing wrong with letting a professional take the controls.

The exception to the rule is when a Limited Company exceeds a certain size and it is audited by HMRC. An audit of this kind will need to be handled by an accountant, whether you have used one previously or not. A full audit will only be required if the company has a turnover of more than £6.5 million a year or it holds assets worth more than £3.26 million.

An official audit needs to be reviewed by an accountant as a matter of law. Although it is unlikely that a company of this scale would not already have an accountant, even smaller companies can be audited under certain circumstances. All public companies will be audited, as will companies that work in certain industries, most notably the financial sector.

Why businesses have accountants

A good accountant should save you money, rather than cost you money. An accounting professional can ensure that you never pay a penny more in tax than is necessary and they should keep you from being fined by HMRC, so a good accountant should more than pay for themselves. Indeed, you can think of them as adding value rather than them simply being an empty cost.

Business is all about doing what you excel at, so employing an accountant allows you to concentrate on the work you need to do. There are many things that you can attempt to do for yourself, but it is worth knowing when the services of a specialist would be best.

Accountants help with investments

Having your company accounts prepared by a professional is usually essential if you are expected to present business plans and records in order to secure finance from a bank. There are other funding sources that would also expect an accountant to be involved in the company’s finances. This is simply so they can trust the figures being put in front of them; if the finances are dependent on previous results or on a future business plan, it is reassuring to see that it has been organised by an independent accountant.

What is an annual return?

The employer end of year return is how you tell HMRC exactly how much you and your employees have taken home as salary. It will also show the amount of tax and national insurance paid from those wages on behalf of the employees.

There are two separate forms, P14 and P35. Together, these forms detail every penny of tax and national insurance that your employees have paid from their wages. Any details of expenses and benefits paid to employees needs to be submitted on a separate form called a P11, which needs to be submitted during July.

Will I need to file a company tax return in 2014?

2013 is the final time you will need to submit this form. From now on, all PAYE (Pay As You Earn) information about employees will be reported in ‘real time’. This means that HMRC will already know all the information that would usually be found in an annual return, rendering the old annual return pointless. Instead, the information will be sent digitally to HMRC every time employees are paid. This should make things an awful lot easier for everybody in the long term.

You should already have real time information (RTI) set up for your business. Real time reporting to HMRC started on or before April 6th 2013 (the start of the new tax year); if for any reason you do not have this facility, make sure you contact your accountant immediately. Accountants like ourselves can help you to set up real time reporting with HMRC to make sure that you are fully legal and ready to do business. Please get in touch if you need help setting up RTI for your business; we offer this along with other payroll services.

What to do next

You can download the forms from HMRC’s website, although your accountant should be able to deal with your annual returns with little or no input from yourself.

If you don’t return this form by May 19th 2013, you could be liable to a £100 fine, which can rise if you are more than a month late or if you have a larger business. While this may not seem like a major amount of money to some larger companies, there is no need to make accounting any more expensive than it needs to be!

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Corporation tax cut

By 2015 there will be a Corporation tax cut of 1%, bringing the rate down to 20%. Barely a year ago the rate was at 24% and it is heading down quicker than some may have expected. To put this in perspective, the US charges a whopping 40% for their equivalent tax and we were charging 28% in the recent past. So, why is the UK’s rate going to be lower than Luxembourg, the small country perceived by many as a tax haven?

There is an argument that lower corporate tax can increase investment, giving UK-based businesses more incentive to invest while encouraging more spending from overseas. This has been key to the government’s strategy to boost growth for some time now, although improvements in GDP have so far been very modest during this time.

Changes to how you and your employees are taxed

A tax-free allowance of £10,000 will be brought forward to take effect in 2014. This is only a year earlier than originally planned, so it is hardly a radical step. However, it will still be welcomed by many low paid employees and those who are self employed.

The other headline change is to national insurance. Around 450,000 small businesses will pay no national insurance for their workers. For the rest, it will mean £2,000 less is paid out annually.

Fuel duty

Fuel duty is a real issue for businesses and the public alike, so the news that fuel duty will be frozen is certainly another good move, especially when a rise was due later this year.

What will the freeze in fuel duty mean to you? Logically, it means that you will find your next fill-up will cost a similar amount, but the reality is that there are few products on sale that are as sensitive to world events as the price of oil. The current level of tax on fuel is approximately 58p per litre, which is not far off half the price that you are charged for petrol. This all sounds extortionate until you look at the cost of other liquids such as alcohol or the ink in your printer!

Tax avoidance

The Channel Islands and the Isle of Man are entering into agreements that are aimed at getting £3bn back in unpaid taxes, but it is yet to be established if this will be effective.

How will the 2013 budget affect my business?

If you are unsure of how your tax bill or your business will be affected, contact your accountant who will be able to break it all down for you.

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National Insurance for actors abroad

This is where an experienced media and entertainment industry accountant can really pay for themselves. It’s all too easy to pay more national insurance than you need to. In fact, you may not need to pay any national insurance at all during your time working abroad.

Your accountant should help you to fill in form A1 (previously form E101 was used) which should make you exempt from paying national insurance during your time working abroad. All you need to do is provide your personal details and provide a copy of your contract for the work you will be doing. However, filling in the form inaccurately or returning it late may result in you having to pay more than you should. That is why it is so important that you get professional help if you feel that you may need it.

If you are registered as self employed, as many people in entertainment and the arts will be, then you have to fill out a different form; but the principle remains the same. The most important thing about this is that you must be able to demonstrate that you regularly do self employed work at home in the UK. This may require you to show invoices, bank statements or the accounts that you submit to Companies House.

When expenses are not expenses

An even greater reason to have a professional helping you out is the strange world of expenses. In the UK, this is often complex enough, but in America it can be even harder to get your head around what constitutes a legitimate business expense and what doesn’t.

In our experience, the US authorities are generally stricter on expenses than their UK counterparts. For this reason, we would suggest that you run all your expenses past an experienced accountant first. It is far better to have a predictable accountant’s bill rather than receiving an unexpected tax bill from the IRS, that is for sure!

As you can see, a dream Hollywood job can produce an accounting nightmare, but that is not something you need to have entirely on your own shoulders. Get in touch with the team at PL Accountants if you are lucky enough to be working abroad and we will help guide you through the minefield of accounting overseas.

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One of the most important things that we have learned about going over to the USA to work is that you will need some help with your tax returns for sure! If you don’t get help from a professional, you could end up being taxed twice, which is the last thing you need!

Paperwork, paperwork, paperwork

Yes, there will be a fair amount of paperwork to deal with if you get a job in the US of A. If you fail to get the right forms back at the right time you could be taxed on both sides of the Atlantic. In the USA you are taxed at source, which sounds normal until you realise that if you are a UK citizen, you will also get taxed on your overseas earnings back at home! But don’t panic; there is no reason to be paying over the odds.

If you are working in the USA for any meaningful amount of time, you will automatically be taxed on your earnings, at a rate that is likely to be above your tax band at home. You will need to register with the IRS and get yourself a Social Security Number to get any reduction in this rate, but it is still unlikely to be as cheap as what you will be charged in the UK. That’s the bad news; the good news is that you should be able to claim back anything that you overpaid once all your paperwork has been processed, so it’s in your interests to get your forms filled out as soon as possible. This is why we would always recommend having an experienced UK entertainment accountant on your side!

Get yourself a UK entertainment accountant

To get registered correctly for tax in both America and Britain will require filling out several forms, presenting certificates and a whole lot more. This also goes for getting your National Insurance in order, while deductible expenses are another potential minefield for the inexperienced.

To see the kind of services we offer, take a look at our Entertainment Accountants page right here. If you head out to the USA to work, you won’t be alone with the team at PL Accountants backing you up!

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What is inheritance tax?

Inheritance tax is charged to the estate of somebody who has passed away. Usually it is paid by the family from the proceeds of selling property, although there can be other ways to pay it, such as by inheriting a trust fund. If a home is inherited and then sold for more than £325,000 it will incur inheritance tax. This tax is usually charged at a high rate of 40%, although the first £325,000 of the sale remains tax-free.

Confusingly, this £325,000 is per person, which means that a married couple will usually be able to combine their inheritance tax thresholds to make for a £650,000 threshold. This means that a vast majority of people will never need to worry about paying this tax, although for those with larger estates it can be a concern.

Why the fuss?

This issue is back in the news due to the government announcing that it will be freezing inheritance tax at the current thresholds. This is causing concern amongst the middle-classes, so why are the Conservatives pushing ahead with this change of tack? After all, tackling an inheritance tax limit that was seen as too low, was one of the key policies that the Tories used in the run up to the election. Indeed, they described passing on un-taxed assets as a “basic human right”, so this is quite the volte face. The logic behind an inheritance tax is that it helps to spread wealth outside well-off families, something that the government now seems keener on.

Why such a dramatic change? It has been decided that keeping the inheritance tax threshold low will result in more money that can help fund deficits in the welfare state – particularly with regards to looking after the elderly.

So what does all this mean to me?

The answer to that depends on exactly how much your family home is worth. “For many people, it will have very little affect on their lives,” says Andy Pollard from PL Accountants in Liverpool, “because many of us will never have property worth more than the thresholds for inheritance tax.”

For those that do inherit a valuable property or trust fund, they would have little to fear if they only just crept over the inheritance tax threshold. “Somebody who is inheriting a £700,000 home would find themselves having to pay £20,000 in inheritance tax. While this is a very significant sum, it is less than three percent of the overall value of the property.”

So, it seems that you would need to inherit a very large amount to get anywhere near paying 40% on the whole sum. Despite that fact, there are still those who could stand to save many thousands of pounds by seeking out some inheritance tax advice from their accountant. “For those who are lucky enough to have an estate worth a lot of money,” Andy clarifies, “it is essential to write a proper will with the assistance of a solicitor and to speak to an accountant about how inheritance tax may affect you.”

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It is especially hard to know what you can and can’t claim for if you are new to the world of self employment. If you are contracting while working in the office of a larger company, you will have different allowances to somebody who has their own premises. In turn, there are other costs that will be deductible from your profits if you do your work from home. You may be missing out on a big saving when it comes time to send in your tax returns; or you may not pay enough tax and land yourself in trouble.

What can contractors claim as a business expense?

There are so many different costs that you may or may not be able to claim; it is essential that you speak to an accountant, such as the lovely people here at PL Accountants, if you are unsure about what you can claim for.

Amongst the most common business expenses are…

Cost of stock
Rent
Utility bills
Uniform
Travel costs
Bank charges and other financial costs
Advertising and promotion
Safety equipment
Insurance

The costs that you can claim as business expenses will vary according to several other factors; particularly where you do your work. Business expenses for contractors with their own premises are slightly different to those who work from home.

Some of the most common business expenses for a business based in its own premises are rent, heating, lighting, corporation tax and maintenance to the property.

Business expenses for contractors who work from home

These bills are similar to the ones that you would include if you were to work from home, although there are some key differences. For starters, you can only claim for a small portion of costs such as household utility bills. Equally, any claims you may wish to make against either rent or mortgage interest will have to be a relatively small proportion. For example, if you only use one room for your business out of six rooms in the house, then you will need to cut down the claiming of business expenses accordingly.

Business expenses for contractors who travel to another place of work

Whether you can consider this as a legitimate business expense is entirely down to how frequently you travel to the same place of work. If you travel there on a regular basis, you cannot claim it as a business expense.

It all depends on whether you fall within the IR35 regulation or not. IR35 is aimed at people who are contractors that primarily only ever work for one company. This rule limits what you can claim as a business expense in an effort to stop all employees from setting up their own companies to save on tax.

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There are three main factors that will dictate the best route for you to take: your eligibility to run a limited company, the cost of setting yourself up in business and the complexity of running the company. If you can sort all these issues out, then a limited company will help minimise the risks you are taking and it could save you a heap of cash.

First of all, are you eligible to set up a company?

This is the biggest stumbling block that you may face; one that even a good accountant can struggle to sort out. There are a handful of reasons why you cannot set up your own limited company, the most common of which are being underage or having been banned from being a company director. There is one other fundamental reason that may keep you from setting up a company; if you are constantly working for the same client and you keep a regular workload for a set amount of hours every week. If you invoice the same company for the same amount on the same date of the month, expect HMRC to notice. This means that you are effectively an employee of one company, so you should be paid via PAYE instead of through dividends from your own company.

Is the initial cost of setting up a company too expensive?

This is usually a much smaller hurdle than you may be expecting. Typically it only costs only a few hundred pounds to set up a limited company in the UK, although some accountants may cost less. Speak to an accountant before you come to any conclusions about the real costs of setting up a company; you may be very pleasantly surprised.

Are you organised or do you struggle with complex paperwork?

One of the main concerns of a new business is whether or not you can handle the paperwork. If the answer is a resounding “yes”, then you probably have no need to worry. If you are hesitating due to a lack of confidence with figures, there is no need to hold up your business ambitions. You can employ an accountant to help you to deal with the number-crunching. As long as the company structure is relatively simple, you should not have any trouble finding an accountant who can help you get all your paperwork sorted for a very small sum.

Will a limited company help save you money?

There are certainly tax advantages to being a company director. By paying yourself a very limited salary, you will have a majority of your income paid as a dividend instead. This means that you are likely to pay a lot less tax as dividend payments are only taxed at 10%. Pensions are a little more complex as you do not need to pay national insurance, so you will likely need a private pension. Again, you can seek professional advice from an accountant or financial advisor about this.

One thing to remember is that it is not as simple as paying a tiny amount of tax – you have to remember that your company will have taxes to pay, which will ultimately limit the size of your profits, which is what decides the dividend. Talk to an accountant to find out whether this method of payment is truly what is best for your bank balance.

How else can a limited company help me?

If your line of business is inherently risky, then a limited company can help. The ‘limited’ part of the title means limited liability; which means that it is the business’ assets rather than your own that are at risk. So, if your business was to go bankrupt, you would not lose your home, for example. This is perhaps the single biggest advantage to starting a limited company.

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