Frequently Asked Questions

Unless you have a business which is required to undergo an audit, in which case an auditor (who will be a firm of accountants) will be needed, there is no compulsion to appoint an accountant. This applies whether you are in business or simply file a personal Tax Return each year.

Indeed, the majority of the general public do not have an accountant.

However, given the increasing complexity of business, company and tax legislation, most businesses and business-people and anyone with more than basic tax affairs is likely to need an accountant.

Appointing an accountant should give you peace of mind as regards your affairs and a good firm will be able to support you in a whole variety of ways, tailoring their service to your needs and wishes.

Do give us a call to find out how you could benefit from engaging us to assist you.

top of page

There is a variety of business structures which may be appropriate depending on your particular circumstances and intentions.

We have resources which may help you understand the differences between the various structures and whether you should incorporate if you are already trading.

top of page

The answer is possibly. There is a statutory figure which is accepted automatically by H M Revenue and Customs, but this is at a very minimal level, £2 per week. However, if you work regularly from home, then it may be that there are more substantial costs which you suffer personally over and above what your normal costs would be. In this case there is a legitimate business expense, allowable against the profits of the business. Quantifying these is often difficult and can be subject to challenge by the Revenue. The position is different for sole trades/partnerships as against companies, but it is well worth examining the position closely to ascertain relievable costs.

top of page

There are rules for this. If you use your private car for business use for a company, then, if you are paid a mileage allowance of up to 40p per mile (first 10,000 miles) and 25p (for mileage thereafter) each year then this is not taxable personally at all and the amount paid enjoys tax relief in the company. (Figures are pro-rated for a period of less than a year). If you are not paid an allowance, or it is less than the figures given above, then you can claim the difference up to the full allowance in your own Tax Return.

If you are self employed then by concession for low mileage H M Revenue and Customs will accept the same rates as a deduction in trading accounts.

It is important to maintain evidence of business mileage undertaken and what qualifies as business mileage will depend on your work patterns, your workplaces and the type of work you do.

The Approved Mileage Allowance can be a very valuable support for the running costs of your own car used on business.

top of page

If you have children and your joint earnings (with your spouse or partner) are below some £60,000, then you may have an entitlement to tax credits. There is a joint claim form to be completed which resembles a Tax Return and requires very similar information.

These credits can be very useful and provide a much needed boost to income and there are elements included for childcare costs and other considerations. It can be well worth reviewing your own position to see if you are eligible.

H M Revenue and Customs provide a range of booklets with guidance and their website contains a lot of information also.

If you are on low income, then you may also be eligible for Working Tax Credit.

top of page

If your business is small then you will only require a basic cash book based accounting system. A fairly simple spreadsheet and a basic understanding is likely to be all that is necessary and we often design such systems for small businesses, tailored to the specific needs. Such a system is quite often all a small business will ever need to generate suitable information for the production of accounts, VAT Returns, etc.

If your business is larger and you have a large number of customers or suppliers then it is much more likely that you will need a more complex system, and these days this will often be one of the well-known software packages. These should give you a structure within which to record your business activity. There will be some learning curve in this case and you may need some support from time to time. We do this too.

Over time we have helped many people to understand how to keep records, until, eventually, and perhaps to their surprise, they are capable of producing reliable management information.

top of page

For self employed people and people with substantial income not fully taxed at source, this year’s tax liability is calculated using the profits shown in your accounts for the year which ended in the tax year just finished. Thus, if your year end is 31st March annually, then your profits for the year ended 31st March 2008 will form the basis of your tax liability for the tax year ended 5th April 2008, which is paid in three instalments, 31st January 2008, 31st July 2008 and a balancing payment on 31st January 2009.

Similarly if your year end is 30th April (as many self employed people’s is) then it is the year ended 30th April 2007 which forms the basis of the tax liability for the year ended 5th April 2008. Thus, if profits are rising, this can be great news – tax is calculated on the higher, later, profits one year later. But, if profits are down, then you will be paying tax for the tax year ended 5th April 2008 on profits from almost a year ago, but you will have lower income from which to make the payments.

However, all is not lost. If you know your profits or untaxed income are down, then you can request a reduction in your interim payments on account to reflect the decreased income. The one proviso is that if you get the figure wrong and in the end the final tax bill is higher than you thought then interest runs on the amount of the shortfall.

If you anticipate reduced profit or income then it is often well worth reviewing payments on account early. Although it often gives a nice warm feeling to receive a repayment from the Revenue once everything has been processed, if this is a large sum then it would probably have been better not to have had to pay it all out in the first place, especially if this put pressure on your cash-flow.

top of page

There are various requirements explicit in different legislation, ranging from three to six years. We generally recommend that all financial records be retained for a period of six years plus the current year. This should satisfy the requirements in virtually all cases.

top of page

If H M Revenue and Customs have sent you a Notice or a Return then you will need to complete one, whatever level of income you have.

Similarly, if you have income which takes you into the higher rate tax bracket then if you have any other income at all (even a few pounds of bank interest on your current account) then, technically, you will be liable to a penalty if you do not ask for a Return. This may, however, be one of the new simple short forms of Return rather than the full version.

If all of your income is taxed at source, especially if you are within the basic rate band, then you may well not have to complete a Return at all.

If you are about to be eligible for a state pension then it is well worthwhile looking properly at your situation for the year in which you become eligible as, quite often, sadly, it is all too easy for errors to be made both by the taxpayer and the Revenue in these circumstances with unfortunate consequences and it is very useful to head possible errors off before they happen.

top of page

Not necessarily. If you die without a Will (this is called dying ‘intestate’) then special rules come into play. If you have children then, if you die intestate, your spouse and your children will share the estate, if it is above £125,000. If your spouse has already died, then your estate will be shared among your children, or, if you have none, it will be shared out in a particular order between a variety of relatives, including parents, then full-blood siblings, then half-blood siblings, etc.

Just as important is that these rules are administered by the Court and Court appointed officials who will not have any knowledge of your family and your wishes. In any case which is less than simple, the estate can be tied up for a considerable period while everything is sorted out and this can cause both financial and emotional distress for the survivors.

Making a Will in a simple case should not be expensive and sidesteps all these issues. It means you can choose who will look after your estate and your family’s interests after your death and allows you to choose to whom the assets should go.

In a more complex case, or one with a larger estate, making a Will also allows Inheritance Tax planning. This can often save vast amounts of tax when a couple’s joint assets are considered together.

top of page

This can be a very good idea. Many businesses operated by two or more friends run successfully for very many years without any problem. However, should something go wrong, people wish to go their separate ways perhaps, or, maybe worst of all, someone dies, it can be important to agree in advance what would happen. It could be inconvenient, for example, if one member of a two person partnership dies and their Will leaves all their assets (which would include their share of the business) to their spouse. The spouse may have no idea of how to run a business, or wish to sell to someone else. It would be better to agree perhaps that the surviving business partner has a first option to buy the deceased’s share of the business from the widow, perhaps subject to a simple formula so that there would be no argument.

An agreement need not be a multi-page tome and a simple one can be drawn up fairly inexpensively. It is possible simply to write down what is agreed and then for both parties to sign and date it, but this may be harder to enforce in a difficult situation if it has not been formally drafted and witnessed.

It is generally advised that an agreement is made not only between partners in a partnership but also between shareholders in a company, as very similar considerations apply.

top of page

It is generally accepted, even by government, that people who have retired in recent years are the wealthiest UK pensioners there will ever be. They have benefited from huge growth in house prices and valuable final salary pension schemes together with high value post-war National Insurance Retirement Pensions.

Although it may well be that the housing market will continue to rise over a long period, it is clear that final salary pensions are becoming a thing of the past and the State Pension will become increasingly less valuable over time, due to the demographic of an aging population and the simple economics of the labour and employment market in the UK.

Investing for the future is becoming more and more important.

Pension schemes enjoy a range of tax exemptions not available to other investors especially on capital gains. Investments are held in trust and, broadly, roll up until retirement. Pensions can be taken in an increasing variety of ways and quite flexibly.

Money placed in a pension fund receives tax relief as it goes in.

There are self-administered schemes which can allow financial support to be given to a business run by the member of the fund and this can be very useful, either by direct loans, or perhaps, by the purchase of a building out of which to trade. Using a self-administered scheme, or a SIPP (Self Invested Personal Pension), can mean you don’t need to use a large insurance company at all, and you can have quite a measure of control over the investments.

Also, if your own Personal Pension Scheme is receiving bad service from your provider, you should be able now to move it to another provider without serious penalty in many cases. Such personal schemes should be increasingly portable in the future, so if you are not impressed with the service given by your initial choice of insurance company, you may well be able to change, provided you have not yet bought your annuity.

Other than traditional pension schemes, some people regard a property portfolio or the capital value inherent in their business as their pension. This can also be quite satisfactory but it is important to have in place strategies for releasing any capital that will be required, especially if this is locked up in a business. In this case exit strategies will be an important consideration.

In short, some investment for the future is very important and the pensions system offers valuable tax breaks for any money which can be put aside.

top of page