Taxation
Taxation
If you are setting up in business then you must give consideration to the tax
burden that will fall due at the end of your accounting period. Unexpected tax
payments can have a serious effect on a business’s cash flow and its ability to
trade. We often hear from new clients that they are having trouble agreeing
credit with their suppliers as they have defaulted on payment due to a large
unexpected tax payment falling due.
Here at Decimal Accountancy, we deal with all aspects of tax planning, whether
it be for a business start-up, an established sole trader or multi-million pound
turnover clients.
The areas we cover are:
- Value added Tax.
- Personal Income Tax.
- Construction Industry Tax (CIS).
- Corporation Tax.
- Capital Gain Tax.
Value Added Tax
If your business turnover (sales) have reached a level that exceeds the mandatory Value Added Tax (VAT) threshold then you must register for VAT.
Once registered you have to charge VAT at the standard 20% rate on all standard rated sales, this then has to be paid over to HMRC after deducting any VAT incurred on expenses on a quarterly basis.
If you do not register for VAT by the due date then you will become liable to penalties and interest charges as well as having to account for and pay and VAT that should have been payable from the time you should have registered, some of which may not be recoverable from your customers.
There are many special schemes that are designed to simplify the administrative burden and cash flow problems that VAT may cause a small business:
Cash Accounting
Under the usual method for accounting for VAT you may be required to over pay VAT charged to customer for which you have not been paid. The cash accounting scheme is available to businesses whose turnover is within the limits of the scheme and allows a business to pay VAT over to HMRC only when payment has payment has been received.
Flat Rate Scheme
Businesses that are eligible to join this scheme can simplify the VAT calculations by simply applying a flat rate percentage to their gross sales. The flat rate percentage will be determined by the rate table issued by HMRC and is specific to your industry.
Annual Accounting
Generally a business is required to submit a quarterly VAT Return and pay the
liability on a quarterly basis. The annual accounting scheme simplifies this
process by the business agreeing an annual liability and pays this over via
monthly installments. At the end of the year an annual VAT Return is submitted
and any balancing liability is paid or over payment repaid.
Retailers Scheme
When operating the standard VAT system a business is required to keep a record of every transaction. For some businesses this may be an unrealistic burden. To soften the administrative burden, affected businesses can use one of the schemes set up with retailers in mind.
We offer a VAT service where all you have to do is arrange a time to drop off
your accounting records for the VAT period in question and we will prepare and
electronically submit your VAT Return for you.
Personal Income Tax
H M Revenue & Customs (HMRC) issues Income Tax Returns to individuals in the following circumstances:
- To individuals with complicated tax affairs.
- To individuals who are self-employed, if trading as a partnership the
business will also be issued with a Return. - To individuals who receive income from either land or property, even if you make a loss on your rental income, it should still be declared.
- To individuals who receive income from overseas.
- To individuals who receive income without tax being deducted at source.
If you are issued with a notice to complete an Income Tax Return, you must declare all income the you received during the tax year in question; even if some of it has been taxed at source i.e. Pay As You Earn (PAYE).
If you have not been issued with a notice to complete an Income Tax Return but believe that you fall into any of the above categories above you should notify HMRC that you wish to complete a Return.
The UK system of tax declaration is called Self-Assessment, the purpose of
which is to put the responsibility of reporting on the tax payer, it is the tax
payer’s duty to “self-assess”. Should HMRC become aware of any income
received and remains undeclared, you could incur a series of penalties and
interest for each year that you did not self-assess.
Construction Industry Tax
If you work within the construction industry you will either be a subcontractor, acontractor, or possibly both. Either way you will have to familiarise yourself
with the rules specific to the construction industry regarding income tax deductions at source.
Subcontractors
If you are a subcontractor you will need to be registered as both self employed and as a subcontractor within the Construction Industry Scheme (CIS) HMRC so that when you undertake a new contract your contractor will be able to contact HMRC and start making deductions at the specified rate of either 20% or 30%, unless you hold gross status.
Every time you receive a payment from your contractor it will be after they have deducted income tax at source at the specified rate on the labour content of your invoice. At the end of each month you will receive from the contractor a statement detailing the total gross pay and income tax suffered at source. At the end of the tax year when you are completing your Income Tax Return the
amounts suffered at source can be deducted from the total liability, this can often result in a repayment of tax.
At Decimal Accountancy we can help subcontractors in the following way:
- Register you as a subcontractor with HMRC.
- Prepare your Income Tax Return at the end of the financial year.
- Obtain any repayment of tax (our fees can be deducted from the repayment to preserve your cash flow).
Contractors
If you are considering taking on labour, you are required to register with HMRC
as a contractor. Before you pay a subcontractor you will be required to contact
HMRC to verify the subcontractor and confirm how much income tax you must deduct from the payment, either 20% or 30% should the subcontractor not hold a gross payment status.
At the end of every month you are required to report to HMRC how many subcontractors you have paid and how much you have deducted at source and as a result have to pay the deductions to HMRC.
You are also required to provide subcontractors with a monthly statement
detailing the payments you have made to them and how much income tax has
been deducted so that they can offset the deductions from their year-end
income tax liability.
- We can help contractors by:
- Registering you as a contractor with HMRC.
- Verifying subcontractors and advising how much tax to deduct.
- Completing the monthly Contractor Returns and advising how much to pay.
- Providing CIS vouchers to distribute to subcontractors.
Corporation Tax
If you are a director of a limited company, you should be aware of your obligations to prepare and submit a Corporation Tax Return. The Return, in conjunction with the company accounts and corporation tax computations, provides H M Revenue & Customs (HMRC) with information on how the company has traded during the most recent accounting period and what you believe is the company’s liability to Corporation Tax for the period.
Preparation of corporation tax computations can be quite complex and if you are not sure of all relevant tax rates and allowances, preparation of the Return can be stressful and if done incorrectly, could cost your company unnecessary
additional tax.
Capital Gains Tax
There are many instances of transactions that may be classed as a capital gain instead of income. It is important to be aware of this as the basic rate for capital gains can be as low as 18% compared to 20% income tax and 28% compared to 40% respectively for higher rate tax payers.
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"Decimal Accountancy provided excellent accounting services that gave me control and clarity over my finances. They were extremely helpful to my business because of their proactive approach, technical know-how, and amiable demeanor.
"My accounts were expertly managed by Decimal Accountancy, who found savings and improved my financial performance." Their commitment, expertise, and individualized care have been crucial to the development and success of my company."
"My finances were streamlined and compliance was ensured by Decimal Accountancy, who delivered outstanding accounting services. I felt at ease knowing that I could concentrate on expanding my business thanks to their knowledge, meticulous attention to detail, and individualized support.
"Decimal Accountancy optimized my tax strategy and ensured compliance with their professional tax advice. I've saved time, money, and peace of mind thanks to their expertise, attentive service, and proactive approach.