Accountancy Basics Q&A

There are a range of questions accountancy firms get asked on a regular basis from serious stuff like ‘my turnover exceeded £81,000 one month but this was a freak occurrence – what do I do?’ to ‘can I call my business Froggy Feet Footwear or do you think that has been taken already?’

ABC Accounting Services is more than happy to answer any questions you may have whether you are a client or not. To start addressing some of the more common accountancy questions we are going to provide a Q&A blog once a month. Any questions you send in will be addressed in these blogs because usually if one person has a query then there are tons of other people wondering the same thing.

Here are six common questions to get the ball rolling, do not be afraid to speak up, we really have heard everything!

  • When should I register for VAT?

If you are doing business in the UK as an individual, a partnership, a company, an association, a charity, a local authority or any other organisation/group of people acting under a chosen name, then you could need to register for VAT.

If your annual turnover is more than £81,000 (this figure can change on an annual basis) then VAT registration is compulsory. This also applies if you are anticipating your turnover to be higher than that amount in the next 30 days. If you turnover exceeds that amount temporarily then you must apply for an exception from registration.

If you have received goods from other countries in the EU, registration for VAT is compulsory if the total value of the goods acquired has gone over £81,000 in the current year since 1 January.

  • How do I close my business?

First of all make sure you plan it carefully and have gone through your reasons with our accountant. There may be solutions to problems you have not thought of. The first stage is to inform HMRC of your intent. They will settle matters related tax and National Insurance owing. You should also negotiate with HMRC, or have an accountant do it for you, as sometimes it is possible to extend deadlines for payments or perhaps claim back some tax or National Insurance depending on your circumstances.

The self-employed and business partners will just need to fill out a simple online form. It is more complicated for shareholders who may still have to file Company Tax Returns, pay Corporations Tax while closing the business and account for any capital gains made during the closing process. Employers have to submit a final Full Payment Submission (FPS) with the final payroll, making sure than any due PAYE tax and National Insurance deductions are paid.

Any VAT registered businesses will have to de-register.

  • What is CIS and how do I know if it is relevant to my business?

CIS stands for the Construction Industry Scheme. It regulates the procedures of making payments to subcontractors by contractors in the construction industry. A business that involves construction work and spends much of their funds on construction will also fall under CIS.

CIS encompasses all businesses which are active in the construction industry in the United Kingdom in the form of a partnership, a company, a limited liability partnership (LLP) as well as self-employed sole traders.

As a benchmark, if you spend over £1 million a year on average on constructions within three years, HMRC may consider you a ‘deemed contractor’ and you will have to register with CIS. CIS is also applicable to businesses that are not based in the UK but operate in the UK or UK territorial waters.

  • What is capital gains tax?

Capital Gains Tax is a tax that you pay when you make a profit by way of selling assets (shares or property). Your Capital Gains Tax may be reduced by a tax-free allowance and some additional reliefs. To calculate your Capital Gains Tax work out the gain or loss separately for each asset. Then add everything together to get the overall gain or loss for that tax year.

  • What are the advantages to being a sole trader?

The biggest advantage is that there are no formation costs. They are not legally required by law to have annual accounts or to file accounts for inspection BUT annual accounts are required for tax returns.

Sole Traders are not limited in the amount and purpose of borrowings and losses generated can be set against other income of the year and even carried back to prior years. Tax can be paid in instalments on January 31st in the tax year and July 31st following the tax year.

The down side to being a Sole Trader is that you are personally liable for any debts related to the business so any assets are savings are vulnerable to a claim made against you.

  • What are the advantages of becoming a Limited company?

The biggest advantage is that you literally place a limit on your liability. That limit is the value of the company, including any money you may have invested in, loaned to or are owing to the company. This means that the company has a separate legal identity away from your personal affairs so you are not liable for any claim that exceeds the companies limit as outlined above.

There are a number of advantages to limited companies including:

  • You can give a share of the business to others eg family
  • They tend to attract investments easier than Sole Trader businesses
  • Easier to obtain bank loans
  • No higher rate tax bands
  • Easier to sell the business
  • The business generally has more clout – social standing
  • It can assist in the protection of a name
  • Builds confidence in your business as people can check up on your company on the public records at Companies House

The main disadvantages of becoming a limited company are the extra costs of preparing of annual accounts, formation costs, and the loss of some financial privacy.

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