Tax Planning and your Personal Allowance
Let’s be clear – tax planning doesn’t automatically mean tax avoidance.
Personal tax planning is the process where your chartered accountant uses their skill and experience, along with legal, government-approved methods to reduce your tax bill. There are no legal consequences for using proper tax planning.
Tax avoidance, on the other hand, involves ‘bending the rules of the tax system to gain a tax advantage that Parliament never intended’ as defined by Gov.uk. It must be noted that HMRC does crackdown on tax avoidance and you can read the related articles ‘HMRC legal powers’ and ‘How does HMRC expose tax evasion and avoidance’ by clicking on the appropriate link.
At TaxAgility, our Accountants have been helping individuals with tax planning for decades but never tax avoidance. Our personal tax planning services include but are not limited to income tax, trusts and estates, inheritance tax and capital gains tax. We work with you to create a strategic tax plan that allows you to earn, save, protect and invest your money as efficiently as possible.
Personal allowance
For tax years 5 April 2019 to 6 April 2020 and 5 April 2020 to 6 April 2021, your Personal Allowance is set at £12,500. What it means is you can earn up to £12,500 without paying any income tax.
If you earn between £12,500 and £37,500 then you will fall into the Basic Rate band where you pay 20% tax.
For most people on PAYE, the relevancy between personal allowance and tax planning seems trivial. But the more you earn, you need to be aware that there is the cost of losing tax breaks like marriage allowance, child benefit tax break, among others. It is best to speak to an experienced tax accountant who can provide specific advice pertaining to your circumstances.
Capital Gains tax allowance
For those who intend to sell some shares or a second home, you would want to know about Capital Gains tax allowance. For the tax year 2019-20, the capital gains tax allowance is £12,000 for individuals and £24,000 for married couples and civil partners.
How much capital gains tax you pay depends upon your tax bracket – if you pay a higher rate income tax, you are likely to pay more capital gains tax, but if you pay a basic rate income tax, there are formulas to calculate how much you pay. Contact us if you are unsure.
Pensions
Using pensions to reduce your taxable income is a common method for those looking to pay less tax and save for the future.
A simple example is that if you’re a basic rate taxpayer and you pay £80 into your pension, you get an added £20 from basic rate tax relief.
Once you reach the age of 55, you can withdraw 25% of your pension tax-free. Do note that there are scammers out there looking to take advantage of your interest in this, so be mindful.
ISAs
Individual Savings Accounts (ISAs) are attractive because you can invest up to £20,000 per tax year and don’t have to pay tax on the money you make from your ISA investments. How much you tax bill you can reduce depends on the type of ISA you have.
Pay less tax if you’re self-employed
If you have set yourself up as a contractor, there are certain business expenses which you can deduct from your tax bills. However, it must be said that every contractor is unique, so the tax advice you get should be personalised and not one-size-fits-all, as explained in our post ‘Eight top tips for choosing a contractor accountant’. At TaxAgility, we are the contractor accountants you’re looking for, so call us today to arrange a complimentary, no obligation meeting.
TaxAgility can help with your tax planning
If you’re looking to reduce your tax bill, and have questions on capital gains tax, inheritance tax and other personal tax matters, contact the Accountants at TaxAgility. To find out more, get in touch on 020 8108 0090 or fill out our Online Form.
This post is intended to provide information of general interest about current business/ accounting issues. It should not replace professional advice tailored to your specific circumstances.
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We’ve updated our accountants for doctors page
With a proven track record working with salaried GPs, locums, consultants and GPs running their own practice, our team of specialist accountants for doctors in London have been delivering a complete range of accounting services to medical professionals and keeping their financial health in check. This is why we have recently updated our service page with comprehensive no-nonsense advice that you can count on.
It must be stressed that we provide a FREE initial consultation to understand your situation first before we can put together services that can fully address your needs. The services that best fit you can be one or a combination of the following:
- A business structure that is best for your current situation (IR35, limited, partnership to name but a few).
- Proactive tax advice to minimise your tax obligation.
- VAT scheme that’s best suitable for your business and VAT returns.
- Corporate tax returns.
- Company House Annual returns.
- PAYE returns.
- Ongoing consultations.
On our specialist accountants for doctors page, you can find information pertaining to:
- How our accountants can help each type of medical professional – from salaried GPs, locums, consultants, GP running their private practice to private healthcare providers
- Tax questions concerning medical professionals
- Making Tax Digital for doctors
Contact TaxAgility, independent and trusted accountants for doctors and medical professionals today
We’re specialist doctors accountants in London that will go the extra mile to help you manage your accounting responsibilities, understand tax and VAT returns and much more. Contact one of our specialist accountants for doctors and medical professionals today on 020 8108 0090. Alternatively, you can send us a message via our Contact Form.
What is IR35? A brief guide to the IR35 legislation
IR35 is a tax legislation designed to mitigate tax avoidance by workers, particularly contractors, who supply their services through the use of intermediaries.
Introduced in 2000 by HMRC, IR35 is effectively a means of identifying individuals who are providing clients with a service under an intermediary, such as a ‘personal service company’ (usually in the form of a limited company), that would normally be classified as regular workers, known as ‘disguised employees’, without the existence of said intermediary.
Determining whether you’re operating inside or outside the scope of IR35 is mind-bogglingly complex and requires a thorough understanding of your unique situations. For the purposes of this article, our team of London’s local accountants for contractors aims to explain the various requirements for contractors under IR35, as well as gives an outline of the best practices for ensuring that you aren’t categorised as a ‘disguised employee’ under IR35’s classifications. Information given in this post should not replace professional advice tailored to your specific circumstances.
Why was IR35 introduced?
Previously, companies who engaged these disguised employees saved a significant amount of money as they didn’t have to pay employers’ National Insurance Contributions, nor provide any employment benefits.
On the other hand, contractors operating through a personal service company could also minimise their tax obligation as they were more inclined to split the income between salary and dividends. Dividends aren’t subject to National Insurance Contributions and also taxed at a lower rate, resulting in contractors paying less taxes and getting a higher take-home pay than a normal employee would.
It was a win-win scenario for companies who engaged contractors and also for contractors themselves. However, because HMRC did lose out on tax revenue they would otherwise receive, they had to close the loophole by introducing IR35.
In short, IR35 legislation was effected as a mechanism for cutting down on individuals wrongfully claiming tax advantages as contractors (or through other intermediary means) when they would normally otherwise be classified as regular employees.
In April 2000, IR35 became effective for small businesses supplying clients with contractor services and aimed to better establish the conditions by which contractor-client relationships exist for tax purposes. Despite their best efforts, the Government has been widely criticised for IR35, particularly with respect to its implementation and the impacts it can have for legitimate contractors and their small companies.
Am I at risk of coming under IR35?
Anyone who works as a contractor is potentially at risk of being categorised as a ‘disguised employee’ under IR35, and if you are deemed to fall inside this definition by HMRC, you will face some severe tax implications.
The problem with IR35 is that there is no definitive guideline that stipulates the conditions of a ‘breach’ so to speak, and as the issue is contractual in its nature, anyone investigating on behalf of HMRC is required to make a notional judgment based on the relationship between the company and the contractor rather than on the ‘written’ agreement.
As such, it is often difficult to determine whether you’re categorised as a ‘disguised employee’ in certain circumstances. Typically, HMRC looks at the working arrangement and uses these three principles (aka tests of employment) to determine the employment status of an individual.
Principle 1: Control
This refers to how much control the company has over you the contractor, from what you do, how you do it, when you start and finish it to where you complete it. If the client requires you to come in from 9 am to 5 pm every weekday for a specific period of time to finish a series of tasks, then HMRC is likely to classify you as a normal employee and therefore IR35 is applicable.
Principle 2: Substitution
A normal employee cannot go out to source for an individual to complete their work for them but if you are a genuine contractor, you should be able to send a substitute to undertake the work on your behalf, provided that your client is reasonably satisfied that the proposed substitute has the right skillset and qualifications to undertake and complete the work.
Principle 3: Mutuality of obligation
This concept hinges on the question: is there a degree of obligation with respect to the employer supplying the work and the worker accepting this offer? If you are a genuine contractor, you must have the right to terminate the contract early if you choose to.
Understanding these principles can offer an insight into circumstances where a contractor may come under IR35 categorisation, however, these are not exhaustive and there are other factors that can be taken into account when making a judgment. For example, HMRC may check if you receive any employment benefits or if you use their equipment to complete your work to name but a few.
We’re specialist contractor accountants
Essentially, it’s important for a contractor to consult a specialist contractor accountant like TaxAgility to better ascertain where they sit with respect to this legislation and whether they may be required to pay more tax as a result. While there are a number of IR35 calculators that might be able to give a rough estimate, it’s always advisable to go to a professional. Call us on 020 8108 0090 today or send us a message via our Contact Form. We offer the first consultation for free in order to understand your circumstances and provide you with the best possible advice with regards to your contractor work.
For more information, check out our contractor pages:
- What are the pros and cons of contracting?
- What does the IR35 legislation mean?
- Tax advice for contractors
- Important dates and deadlines for contractors
If you liked this post, you might also like:
- How Xero can help contractors in the UK
- How does HMRC expose tax evasion and avoidance?
- Tax planning tips for self-employed contractors
We’ve updated our accountants for landlords page
It’s common to see news relating to London property market grabbing headlines. One day you may come across an article claiming house prices have fallen but the next day another reporter may claim otherwise.
While the property market can be unpredictable, one thing is certain: you can always count on our experienced and trusted landlord accountants if you receive an income through renting out your property.
Whether you’re someone who is looking to enter the property market or is already a veteran, you may not have the time and commitment to keep up with tax changes that can affect your rental income. This is why we have updated our accountants for landlords page by giving it a sharper focus. On the page, you can find out about:
- Rental housing prospects in London
- Financial considerations as a residential landlord
- Shifting tax regulations
- Making Tax Digital for landlords
Contact TaxAgility for landlord accountants today
We’re specialist landlord accountants in London that will go above and beyond to help you manage your accounting responsibilities, deal with shifting tax regulations and more. Get in touch with one of our specialist accountants for landlords today. Give us a call on 020 8108 0090 or send us a message via our Contact Form.
The Enterprise Management Incentive scheme
The Enterprise Management Incentive scheme (EMI) is a government initiative introduced in 2000 to offer a tax-advantaged share option for both potential and existing employees. This scheme effectively allows companies to offer equity to their staff, either as a way of motivating or retaining them or as a way for cash-tight start-ups to attract high-calibre employees. While there is a number of requirements that small and medium business ventures must meet in order to be eligible for inclusion under this scheme, for those that are able to meet them, the EMI represents a fantastic mechanism for improving their company’s pull and incentivising their operation.
At TaxAgility, our tax accountants can provide an insight into the various tax advantages, qualifying conditions and benefits for both employee and employer, as well as how best to implement the scheme and the parameters by which it can be used.
How to reward your team and gain tax advantage through the Enterprise Management Incentive scheme
As an astute business strategy for start-ups looking to grow their company organically, the EMI scheme provides smaller businesses with the ability to attract talented individuals without offering the enormous cash salaries usually reserved for larger established companies. Utilising share options as a means of incentivizing employee investment in the ‘vision’ of a company, the EMI scheme enables start-ups to grow and nurture their business - motivating employees to work more effectively and efficiently with the promise of potential returns and shareholder value.
In essence, if a start-up company has a brilliant idea and requires brilliant minds in order to reach its potential and bring this idea to fruition, offering EMI share options is a useful tactic for recruiting the types of individuals necessary, in turn, creating value for the employee and employer. Simply put, if you want to ensure that the quality of work being done is of the highest standard, then investing in your workforce through EMI is an effective tactic for raising the stakes. The EMI is effectively a win-win in such circumstances - if an employee’s work is good, it’s good for them and good for their company.
Tax advantages of the EMI scheme
In normal circumstances, when an employer offers share options to an employee, the difference between the current market value of their shares and the initial amount paid towards them is taxable under normal Income Tax and National Insurance Contributions conditions, just like a salary or bonus.
Under the EMI scheme, however, the employee can exercise their options at a future date when the value of the shares has appreciated and will incur no Income Tax or National Insurance Contributions. Moreover, any subsequent disposal of shares will also be subject to a lower rate of Capital Gains Tax.
The advantages are not strictly for employees either. The company can also claim a corporation tax deduction on the exercise of the option, with reference to the market value of the shares less the amount paid for them.
Does your company qualify?
In order to meet the conditions of the EMI scheme, your company must meet the following criteria:
- Cannot exceed £30 million in gross assets.
- Must be a trading company, as opposed to an investment company.
- Cannot be a subsidiary, or be controlled by another company (although the parent company can qualify for EMI).
- Must not employ more than 250 full time (or equivalent) employees at the date that the share options are granted.
There are also ‘excluded activities’ or ‘non-qualifying trades’ that disqualify a company from offering EMI to its employees. These trades include banking, farming, property development, legal and accounting services and shipbuilding. Moreover, the trade is required to be carried out on a commercial basis with the goal of making a profit and must be done so wholly or mainly within the UK. The company does not, however, need to be resident or incorporated in the UK.
Does the employee meet the conditions?
To be eligible for EMI share options, an employee similarly has to meet certain criteria. They must:
- Be employed by the company or a qualifying subsidiary, including director positions.
- Spend a minimum of 25 hours a week, or at least 75% of his or her working time on the business if it is fewer than 25 hours.
- Control no more than 30% of the ordinary share capital of the business, either directly or indirectly.
Qualifying options
The share options offered under EMI have to abide by the following rules:
- They must be fully paid up, non-redeemable ordinary shares.
- The market value of the option must not exceed £250,000 per employee at the date of grant. Options above this limit will not be approved under EMI.
- The options are exercisable within ten years or the tax advantages will expire.
- Terms of the option must be made by a written agreement, under schedule 5 ITEPA 2003, and include details of the date of the grant, the number of shares involved, the option price, the time and method of exercise, any restrictions and any performance conditions.
Events that may disqualify the relief
- Ceasing to meet the independence test.
- Ceasing to carry on a qualified trading activity.
- A non-qualifying conversion of the share capital into another instrument, or certain alterations to the share capital of the company.
- Certain variations to the terms of the options (that would increase share value or no longer meet ITEPA 2003 requirements).
- If an event occurs that may disqualify the relief, the options will need to be exercised within 40 days so as to retain any tax benefits. (If this does not occur, tax will be charged on the uplift between the date of exercise and the disqualifying event).
Process of implementing an Enterprise Management Incentive scheme
Before embarking on the course of applying for the EMI scheme, small and medium business ventures should be aware of the above-mentioned requirements. This should enable you to gauge whether or not the initiative is suitable for your business type and structure.
Once you have decided that EMI is right for you, registration needs to be done through HMRC. You can obtain advance clearance for offering EMI options from HMRC once confirmed that your company qualifies. The process requires registration of your scheme, then a notification to HMRC that you are planning on granting EMI options, and then finally, the grant of the EMI option.
The process itself can be quite complex and complicated, so it’s often advisable that you liaise with your accountant in order to discuss your eligibility and the steps for registering with and notifying HMRC. If you’d like to learn more about the process or are interested in beginning registration, please feel free to contact TaxAgility on 020 8108 0090 and speak with one of our specialist small business accountants.
This blog is a general summary and is not exhaustive. It should not replace professional advice tailored to your specific circumstances.
Making Tax Digital for landlords: What you need to know as a landlord
If you are a landlord, you will understand that you have certain responsibilities for which you are accountable under the law. These include fire, health and safety regulations; certifications for energy performance, gas and electrical equipment, as well as specific duties with respect to your tenant(s). Further to this, as a landlord, you are obligated to manage your finances and accounts for the purpose of tax reporting.
Her Majesty’s Revenue and Customs’ Making Tax Digital initiative is now in effect for VAT registered businesses earning above the threshold (£85,000) and will soon become ubiquitous for all businesses in England and Wales – currently set down for April 2020. What this means, is that all businesses will be required to submit mandatory quarterly tax returns (as well as the standard annual return) to HMRC as of this date, through the use of a Government recognised and sanctioned cloud accounting software, including landlords.
Migrating your finances may seem like a daunting task, and there will be a number of changes felt by businesses with established bookkeeping and tax lodgement systems already in place, but before we get into the specifics, TaxAgility, London’s local accountants for small business, will take a brief look at the various taxes applicable to landlords.
What taxes are landlords liable for?
When property owners let out their property, they become liable for several taxes and contributions:
- Income Tax – If an individual lets property in the UK, they are subject to income tax. The first £1,000 of income from property rental is tax-free and known as a ‘property allowance’. For individuals letting out a property that they personally own, rental income has to be reported if it is 1) £2,500 to £9,999 after allowable expenses or 2) £10,000 or more before allowable expenses.
- National Insurance – This is required to be paid by landlords who are deemed to be ‘running a business’. A landlord is deemed to be 'running a property business' if 1) being a landlord is their main job, 2) they rent out more than one property and 3) they’re purchasing new properties for the purpose of renting them out. If a landlord meets these requirements and is categorised as running a business under such parameters, they are liable for Class 2 National Insurance, as long as their annual profits exceed £5,965.
- Stamp Duty Land Tax (SDLT) – This is a lump-sum tax that is payable when buying land or property that amounts to more than a certain value. The current SDLT threshold is £125,000 for residential properties and £150,000 for non-residential land and properties, with rates increasing depending on the value of the property.
- Capital Gains Tax – Landlords will be liable for Capital Gains Tax (CGT) if they sell a property that has increased in value. The tax is only payable on the profit you have made, not the total amount received. Types of properties that are incorporated under CGT include buy-to-let properties, business premises, land and inherited property.
- Value Added Tax (VAT) – Lease or sale of residential and commercial properties is usually VAT exempt, but a commercial property owner may ‘opt to tax’ the property for the purpose of recovering VAT charged to the property.
Making tax digital (MTD) for landlords
Instituted in 2018, HMRC has integrated their Making Tax Digital scheme sequentially with respect to the degree of difficulty some businesses might encounter when migrating their finances to online cloud accounting platforms. In essence, Making Tax Digital is an initiative designed to make tax administration more effective, efficient and easier for taxpayers through a fully digital tax system. Instead of filing an annual self-assessment tax return, taxpayers and businesses are required to keep records digitally and send quarterly updates of their finances to HMRC. They will also need to send in a final report at the end of the tax year, together with a claim for any reliefs or allowances.
According to the government’s timetable, as it stands, all businesses including landlords will have to switch to meet the requirements of MTD by April 2020. This means that everyone from large conglomerates and corporations to small businesses and startups will be lodging their financial and fiscal data to HMRC through digital accounting software. In a nut-shell, MTD requirements stipulate that by April 2020, landlords will have to:
- Maintain their records digitally using MTD-compatible software
- Report summary information to HMRC every quarter via a digital tax account
- Make an end of year tax return declaration
Making the transition to the cloud is not as complicated as you might think, and many of the software platforms available are incredibly intuitive and straightforward. Digital tax accounts are accessed via a secure online portal where a property business or individual landlord can see all of their tax details. All of the records will be ‘cloud-based’, meaning that they reside online, and are accessed through commercially available third-party accounting software and mobile apps. Many of these softwares provide easy to understand insights into the financial health and positioning of businesses, however, using them can often be a burden for landlords and property ownership businesses that don’t have the time to also manage their own accounting functions. This is where TaxAgility can help. As Gold Partners of Xero, one of HMRC’s recognised MTD accounting software, we have a proven track record of managing finances and accounts on the cloud and are also able to assist you with the move to digital.
Making tax digital FAQs for landlords
Does it matter if I am a residential or commercial landlord?
It might. If you’re an incorporated property lessor or landlord with an income over £85,000 that has opted in for VAT, you will need to be MTD-compliant from 1 April 2019. If you are a residential landlord, then you won’t have to become MTD-complaint until April 2020, when MTD for income tax comes into effect for all businesses.
What if I rent out multiple properties? Will I have to report for each property or just the business as a whole?
Where multiple properties are held within a business or by an individual landlord, income and expenditure only has to be recorded and submitted for the property business as a whole and does not have to be allocated individually. However, it is good practice in such circumstances to keep a record of the income and expenditure of each property so as to keep comprehensive records and avoid a possible audit by HMRC.
What if I have joint ownership of the property?
There is a difference between properties owned by a partnership or simply owned jointly, such as by a married couple. The principles of the proposed system for partners and partnerships are as follows:
- The partnership, rather than each partner, will be responsible for the requirements of Making Tax Digital.
- A nominated partner will fulfil these obligations.
- There will be an option for the nominated partner to push quarterly summary information of their share of the profit to each partner’s digital tax account. With this option, each partner would have an estimate of their profit to date in the tax year.
- When the end of year declaration is made, the nominated partner will be obliged to push each partner’s share of profits to their digital tax accounts.
How TaxAgility can help landlords transit to MTD
If you’ve maintained a paper-and-binders kind of approach to record keeping, you may want to approach an accountant for small businesses for assistance. A local London accountant like TaxAgility can help clients to subscribe to a compatible online ‘cloud’ tax accounting software package, such as Xero. Apart from helping with the MTD transition, TaxAgility also specialises in advising landlords to:
- identify special tax reliefs available to property owners
- purchase property with tax-efficiency in mind
- track tax changes that will impact on your cash flow, tax position or accounting practices
- prepare and submit landlord accounts and personal tax returns in a timely and accurate manner
- remember any interim and final payments through the year
- invest rental income
TaxAgility has worked with Xero since 2011 as a gold partner and certified Xero adviser. This means that our clients get exclusive access to a whole host of benefits, including 25% discounts on Xero subscriptions. As experts in Xero, TaxAgility can help make your transition to Making Tax Digital as smooth as possible. Take advantage of the free 30-day trial and contact us today on 020 8108 0090.
This post is intended to provide information of general interest about current business/ accounting issues. It should not replace professional advice tailored to your specific circumstances.
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Payroll, pension and dynamic tax code changes April 2019
April 2019 is the start of another new payroll year with the following changes taking effect.
Payslip for all: All workers (anyone who has a contract to do work or services and receive money or a benefit in kind as a reward) are entitled to receive a payslip. The only exceptions are members of the armed forces and merchant seamen/ seawomen.
Payslip changes: Employers must provide the number of hours worked on each employee payslip beginning 6 April 2019. This is to make sure that employers pay accurately and employees understand the exact hours they are being paid for in each pay period.
Student loan changes: Thresholds for repayment of student loans are changing in 2019. Before April 2019, the repayment threshold was £18,330, meaning anyone with a salary over the threshold must repay 9% of earnings. From April 2019, the threshold is increased to £18,935 for Plan 1 and £25,725 for Plan 2.
Increased statutory family and sick pay rates: The weekly amount for statutory family pay rates is increased to £148.68 or 90% of the employee’s average weekly earnings (whoever is lower) from April 2019. This rate will apply to maternity pay, adoption pay, paternity pay, shared parental pay and maternity allowance. The weekly rate for statutory sick pay is increased to £94.25 from April 2019.
Minimum wage and Living wage increase: Every April the minimum wage and living wage increase and the new rates from April 2019 are as follows:
| Age 25 & over | £8.21 per hour |
| Age 21 to 24 | £7.70 per hour |
| Age 18 to 20 | £6.15 per hour |
| Under 18 | £4.35 per hour |
| Apprentice | £3.90 per hour |
Apprentices can be paid the apprentice rate if they are aged under 19 or if they are 19 and over and in the first year of their apprenticeship. An apprentice who is over 19 and has completed their first year of apprenticeship is entitled to the minimum wage rate for their age.
Pension auto-enrolment: From April 2019, the total pension contribution must be a minimum of 8% - out of which 3% must be contributed by the employer and 5% to be deducted from the employee’s salary.
Dynamic Tax Codes: HMRC dynamic tax codes continue to create challenges for employers. Using estimated pay to determine tax codes causes issues when bonuses are paid early or mid-year, increasing the estimated amount of tax owed by the employee. HMRC has implemented dynamic codes which allow for in-year adjustments, so corrections are made in the same year.
Dealing with payroll can be time-consuming and the related changes every year make it more challenging. At TaxAgility, we provide a full spectrum of payroll services to companies large and small. Call us on 020 8108 0090 or get in touch with us via our contact us page.
How Xero can help contractors in the UK
In the United Kingdom, many businesses are gravitating towards more flexible employment structures as a way to not only cut costs but also enjoy greater autonomy and larger returns and profits. One of the structures that facilitate these benefits is independent contracting; whereby business owners offer their contracted services to companies in place of a traditional employee. For accounting purposes, the government considers you a contractor if you own all or part of your business, work for multiple companies on short, temporary assignments, supply your own materials and equipment and take your directions from a client.
While the prospect of having to constantly find new short-term contracts may sound like an insecure life for an independent contractor, many contractors cite freedom and independence in their choice of employment and personal development as the deciding factor. It allows them to maintain a work/life balance that traditional employment does not provide. If your service is in high demand, you can easily earn more income than you would if employed as a traditional employee, and even taking into account loss of benefits such as holiday pay and sick pay, many contractors still come out ahead financially.
Accounting for contractors
Independent contractors, unlike company employees, do not have access to the benefits of a company department to assist with bookkeeping and financial accounting. As a contractor, you are now required to manage your own payroll, taxes, expenses and any invoicing of clients for services provided. Further to this, you may also face differing accounting needs depending on the nature of the work that you do, including but not limited to the various taxes applicable to the structure of your business, and the statutes and limitations that are applicable to your contracting company.
As a contractor, particularly if your business has been incorporated as a limited company, there are additional taxes that you need to be aware of, and that are applicable to your business as a financial operation. These include corporation tax, employer’s and employee’s National Insurance contributions, VAT and income tax, all of which are relevant and applicable in addition to your own personal tax return. Also, there are certain tax laws such as IR35 legislation that affect contractors, and understanding these laws (and knowing how to negotiate them and the situations in which they might apply) is of paramount importance, as they may categorise a contractor as a de-facto employee which in turn will increase the amount of tax that needs to be paid under that specific contract.
There are also various expenses that you incur during the course of your contracting work, such as products, services, professional subscriptions, utilities, travel expenses, entertainment and business start-up costs. It is important for contractors to stay on top of their accounting and bookkeeping so that they’re able to accurately and efficiently gauge the financial stability, positioning and health of their business. If you’re a contractor or considering incorporating your small business as a contracting limited company, TaxAgility, London’s local accountants for business can assist you with the finer details of setting up, or better understanding the requirements to make the switch to a more profitable and flexible business structure.
Making tax digital and cloud accounting
Historically, many contractors have relied on accountants for their financial record keeping, and many have used TaxAgility when they’ve needed help managing their fiscal and financial responsibilities. As of 2019 however, HMRC has implemented a statute that will revolutionise the way that businesses lodge their accounts and pay their taxes each year. Under the Government’s ‘Making Tax Digital’ legislation, businesses will be required to transfer their finances, accounts and bookkeeping to an online, cloud accounting software platform, lodging quarterly returns as well as an annual one. In effect, this initiative represents an attempt to make tax administration more effective, efficient and easier for taxpayers, utilising a fully digital tax system. This means that contractors no longer have to keep track of their finances with physical ledgers and receipts, streamlining the accounting process and making it simple for them to communicate with their accountant and better understand their finances. Taxpayers will be able to do so by subscribing to a compatible online ‘cloud’ tax accounting software package such as Xero.
While it’s true that this move to digital accounting allows contractors to do their own taxes, budgeting, invoices and VAT management, many still prefer to use an accountant so that they can focus on running their business to the best of their ability, as well as receiving specialist tax advice and receiving a ‘human touch’ that the computer cannot offer. Some accountants for contractors, such as TaxAgility also collaborate with cloud accounting companies like Xero, to manage their clients’ tax accounts through the platform. Under HMRC’s digital initiative, contractors are now required to report accounting information every quarter, in a similar way as a quarterly VAT return. TaxAgility, a gold partner of Xero, have been working with cloud accounting software platforms for years, so if your business is yet to make the switch for ‘Making Tax Digital’, we can assist you to migrate your finances and accounts and provide bespoke, expert advice as to how you can maximise the profitability of your operation.
Cloud technology tools with Xero
Apart from its HMRC recognised cloud accounting software, Xero also offers many other cloud services for independent contractors, such as:
- A simple project management and time-tracker software designed to help you track your work by time and project,
- An intuitive ‘to-do list’ tool designed to manage your time for you
- Word processing, spreadsheet and presentation software
- A suite of marketing apps designed to create and maintain your website, manage your social media presence, and help publicise your contractor business
Built for small business owners, Xero was created with a clear vision - to be a simple, user-friendly interface that requires little expertise or prior knowledge. The dashboard overview provides a clear view of your business’s most important financial information, and also offers ‘in-the-cloud’ security and maintenance-free financial record keeping designed specifically for small contractors.
Being cloud-based, Xero also facilitates instantaneous invoicing, meaning you can send one through to the client as soon as you finish a job, meaning you get paid more promptly and don’t have to wait to serve them with a physical invoice.
Get a better deal with TaxAgility
At TaxAgility we have worked with Xero since 2011. We are gold partners and certified Xero advisers, meaning that we have access to a whole host of benefits that other firms do not, including 25% discounts on Xero subscriptions made through us. In addition, we are experts in Xero, and we can help make your transition to the future of online business accounting smooth and problem-free. Take advantage of their free 30-day trial to quell any doubts you may have.
If you’d like to learn more about the ways in which TaxAgility can help your business transition to the cloud in preparation for the Government’s ‘Making Tax Digital’ legislation, please contact us today on 020 8108 0090 or get in touch with us via our contact page and we’ll call or email you back (your preference).
If you found this helpful, you might also like:
- Xero accounting: Update your business
- Xero: How Xero can help with Making Tax Digital
- Business expenses you can claim as an IT contractor
- Moving from permanent employee to full-time contractor
This post is intended to provide information of general interest about current business/ accounting issues. It should not replace professional advice tailored to your specific circumstances.
Xero: How Xero can help with Making Tax Digital
Making Tax Digital is the Government’s imminent legislative initiative that comes into effect for VAT-registered businesses earning above the VAT threshold (£85,000) on 1 April 2019. This will require qualifying businesses to migrate their current financial recording systems to a dedicated digital, cloud accounting platform, and will become ubiquitous for all businesses by April 2020. This means that sole traders, partnerships, landlords and commercial property owners and trading companies and corporations will all be subject to these changes in little over a year.
It’s a big change. Under Making Tax Digital, finances are required to be reported quarterly rather than annually, though the annual tax return is still included under this. Essentially, Making Tax Digital represents a more effective way for the Government to stay updated on companies’ financial reporting – providing less room for error, miscalculation and fraud when it comes to processing tax.
Transitioning your business’s finances to the cloud sounds like a complex and calculated process and indeed it can be unless you have the right help. The scale and scope of the operation depend on the size of your business and the quality of your existing bookkeeping, but some cloud accounting platforms exist that can facilitate a quick and painless migration such as Xero.
In this post, we take a look at the various ways in which Xero can improve your business’s financial accounting and streamline the bookkeeping and accounting process.
Why choose Xero?
There are a number of reasons for choosing Xero as your dedicated cloud-accounting platform, all of which stand to benefit your company and its financial position and stability. Aside from the obvious benefit of being listed by HMRC as a compatible Making Tax Digital platform, using Xero’s accounting software can assist with:
Simplifying and streamlining your accounts
With an intuitive and intelligent interface, Xero is the perfect solution for businesses looking to refine their approach to bookkeeping through clear, concise accounting. The Xero system is simple and straightforward to use, and as it’s built specifically for small business owners and operators, it means you’re not required to have an in-depth knowledge of accounting in order to use it, understand it and in turn, better understand your business’s finances.
Understanding your business’s financial position
By engaging with Xero’s illuminating dashboard overview, you’re provided with a clear, comprehensive and unobstructed view of your business’s financial stability. From automated daily bank feeds to outstanding invoices owed, Xero is compatible with a number of third-party technologies and platforms, and its dashboard offers a holistic insight into your finances - giving you the tools to better understand your business’s positioning and health.
Unadulterated access
With a strictly digital hosting network, Xero’s client data is stored entirely on the cloud. This means that you can access the platform from anywhere in the world; the only requirement is an Internet connection and a compatible device. Further to this, you don’t need to back up your files when using Xero. The secure servers are in place with all necessary redundancy measures, so accessing everything is a remarkably painless affair.
Improving your business’s operations
As a cloud-based platform, Xero provides freedoms that many small businesses once thought out of reach or unattainable. With no need for IT maintenance, no over complicated setup process or the tediousness associated with having to serve a client with a physical invoice the week after completing a job, Xero can make your business a smoother, simpler operation.
Better security of your financial data
Incorporating complex encryption technology into the storage and transference of your business’s financial data, Xero’s cloud accounting technology is a reliable and secure means of keeping your accounts in order. With your data encrypted in both storage and sending phases, any records that you submit online are efficiently and effectively safeguarded - which means your business and its interests are also better protected.
Aligning yourself with future Making Tax Digital Requirements
Despite coming into effect for VAT-registered businesses above the threshold on 1 April 2019, future instalments of the MTD legislation are imminent and will incorporate other forms of business. The ramifications of this are yet to be seen, but depending on how the introduction of MTD for VAT-registered business pans out, there may be changes to the existing and planned tax lodgement processes - so embracing the cloud and familiarising yourself with a platform such as Xero is imperative.
How can TaxAgility help?
As a gold partner of Xero, TaxAgility is privy to a handful of benefits that other tax agents and accountants aren’t. As London’s local accountants for small businesses, we’ve been working with Xero since 2011 and as such, have cultivated a reputation for being experts when it comes to using their digital cloud accounting software – becoming certified Xero advisors in the process.
This certification means that we’re able to provide our clients with special benefits when it comes to subscribing to Xero and using their technology, as well as being able to offer discounts of up to 25% for new small businesses looking to make the switch. Not only can we make it more affordable for your business to migrate its finances to the cloud, but TaxAgility is also able to provide bespoke assistance for businesses whose transition might be more complex or complicated – we’re specialists in start-up and small business accountancy and have a proven track record of delivering reliable accounting advice.
If you have any queries as to the processes by which you can migrate your business’s finances and accounts to the cloud, or would like to get in touch regarding setting up with Xero, TaxAgility can advise and assist regardless of your business type or structure. Moreover, if you’re a small- or medium-sized venture that is interested in securing the services of a qualified, specialist accountancy firm familiar with your needs and your area, London’s local small business accountants, TaxAgility, can help.
Feel free to get in touch on 020 8108 0090 and find out how you can better manage your business and improve your business’s financial positioning.
If you found this helpful, you might also like:
- Xero accounting: Update your business
- How Xero can help contractors in the UK
- Making Tax Digital for landlords: What you need to know as a landlord
This post is intended to provide information of general interest about current business/ accounting issues. It should not replace professional advice tailored to your specific circumstances.
Top tips to being a successful start-up in Central London
London is often referred to as the start-up capital of Europe, with a staggering number of new businesses registered yearly. Known for its vibrancy, a high concentration of capital, large international talent pool, as well as government support measures and accelerators and tech events - London has one of the fastest-growing, and most prosperous, start-up ecosystems in the world.
Despite this, the city also has the lowest rate of survival for start-ups in the UK, mainly due to London’s highly competitive climate and the volatile nature of establishing a start-up business. In 2018, small business growth saw a deficit for the first time since 2000 (-0.5%) with 27,000 fewer businesses than in 2017. In essence, while London is certainly the place to be if you want to build a successful start-up, you should consider whether the current economic and political environment in the UK is conducive to your business model.
TaxAgility, the London accountants for start-ups have worked with budding new businesses in the city for years and here, they offer a few insights into what makes a successful start-up and how you can apply them in 2019.
Why start a business in Central London?
Aside from London’s long-running history as a hub for large corporations and firms, the city has recently seen a shift in its business demographic - becoming a hub for more and more start-ups and small businesses. Drawn by good transport links, a deep talent pool and strong infrastructure, the climate in Central London is perfect for start-ups, and with a history of success, it’s only natural these businesses are increasingly making London their home.
Though it holds a reputation as one of the world’s foremost financial and business capitals, the balance of power between large corporations and smaller start-ups is beginning to even out. Offering a bounty of professional bodies, communications, publishing, advertising and media agencies upon which start-ups can rely for their services, London has established itself as a veritable breeding ground for small ventures looking to establish themselves in what is one of the world’s most competitive financial cities.
Utilise funding options
There are several ways to finance a new business. Traditional methods range from saving up the capital yourself to borrowing from friends and family or taking a bank loan. These days, however, there are alternative avenues to procure funding if you have a compelling business proposal. As a global financial centre, London offers them all:
- Government support initiatives – Specific grants are awarded to some businesses for the purposes of generating employment and boosting the economy. If you are researching and developing a process, product or service or testing an innovation, you may be eligible for funding. You can visit Government sites such as Innovate UK and London Co-investment Fund to research the types of funding you may be eligible for and the requirements you must meet.
- Seed Enterprise Investment Scheme (SEIS) - Designed to help small businesses raise equity finance in the early stages by offering tax reliefs to individual investors who invest in them. You can receive a maximum of £150,000 through this scheme. A qualified, specialist start-up accountant can assist you with applying for SEIS.
- Crowd-Investing Platforms – Like traditional crowdfunding platforms, there are also crowdfunding platforms for equity that a new company can approach to raise funds such as Crowdcube or Seedrs.
- Angel and venture capital investors - An angel investor is an individual who provides capital for a business start-up, usually in exchange for convertible debt or ownership equity. Venture capital investors provide a form of financing or funds to small, early-stage, emerging firms that have demonstrated high growth or are deemed to have high growth potential. They usually request upwards of a 20% stake.
Recruiting talent
To be successful in London, you will have to recruit the best talent. London has many leading universities and is home to over 350,000 students from the UK and overseas. It also has the largest percentage of working age population with degrees and National Vocation Qualifications (NVQ) equivalents, with 60.7% of the population possessing NVQ Level 4 qualifications or above.
This abundance of talent does come at a price, however. Driven by the high demand of these skilled workers, average weekly salaries in Central London average approximately £690.81. You can circumvent this problem by approaching local universities and colleges who can provide apprentices, trainees and interns for employment. You also have the option of hiring from outside the UK as the government offers visas for skilled workers to attract and retain the very best global talent.
Workspace
Central London offers a wide range of properties for potential start-ups. Even with the timeless popularity of the area and a growing property boom, Central London still offers a wealth of available office spaces, from flexible co-working locations to serviced office spaces, multi-storey buildings and prestigious headquarters. As is customary, finding the right premises for your start-up will depend on your budget, the stage-of-development your company is at, and future expansion plans.
Business support in Central London
London offers simple and inexpensive incorporation services which can be accessed online, around the clock. There are a handful of online services that can perform this service. However, it is always advisable to consult a professional, specialist accountant to ensure that you are meeting all of the necessary requirements. London houses many accountancy firms, such as TaxAgility, who cater specifically to start-ups and small business enterprises and can assist with incorporating your business or provide financial and accounting services for your new company.
Incubators, resources and events
Central London has some of the largest and most well-regarded accelerators and incubators in the UK for businesses across a range of industries. These are support services which assist promising start-ups in the early stages of development by offering everything from office space to advice, mentoring, and even seed funding.
The city also has some of the best business resources, with Westminster’s library databases particularly useful for business and market research information. The British Library’s Business and IP Centre in St Pancras is also a valuable support for entrepreneurs, inventors and small business owners seeking networking, planning, copyright and IP guidance, as well as free industry guides.
New entrepreneurs will have no shortage of events and workshops. Every borough council runs events of some sort to support businesses, bringing together the most forward-thinking and innovative companies in the industry.
Marketing strategy
An innovative business idea will not guarantee success on its own. If no one knows about your idea or product, then your business has failed to employ an effective marketing strategy and in turn, has failed to effectively reach your goal of disseminating and selling said idea or product. To do this, you need a cohesive campaign that reaches your target market and illuminates the benefits of your product. Essentially, you want to invest in quality marketing in order to maximise your return with an efficient, targeted marketing campaign that gets quantifiable results. To do this, you need to define your end goal, maintain a consistent brand and message, determine your target audience and find a social channel for your start-up. It’s always advisable to consult a professional, industry-affiliated marketing provider to do this for you in circumstances where you’re not well equipped enough to do it yourself.
What TaxAgility offers the start-up
The financial and regulatory requirements of a new start-up can seem daunting to a new entrepreneur. Innovative ideas may be exciting, but it takes a competent and trustworthy accountant to get your business started. TaxAgility, the London accountant for start-ups can advise you on important issues, and help you with accounting tasks such as:
- Assessment of your financial requirements, including advice on finance sources, introductions to banks and preparation of the necessary proposals
- Advice on the most suitable structure for your business – sole trader, partnership or limited company
- Advice on tax-efficient investment schemes such as the Enterprise Investment Scheme (“EIS”) and the Seed Enterprise Investment Scheme (“SEIS”)
- Preparation of your business plan, cash-flow projections, budgets, and trading forecasts
- Completion of registration with Companies House and HM Revenue and Customs
- Management of company secretarial services
- Advice on setting-up financial, management and record-keeping systems in compliance with statutory requirements.
Simply call us on 020 8108 0090 or fill out our Online Form for more information regarding your start-up business.
This post is intended to provide information of general interest about current business/ accounting issues. It should not replace professional advice tailored to your specific circumstances.
Check out the other articles in our ‘Advice for start-ups in Central London’ series:
- Guide to setting up a medical practice in Central London
- Guide to setting up a gastropub in Central London
- Guide to setting up a retail outlet in Central London
- Challenges faced by start-ups in Central London