What’s your status? It may be complicated.

Providing consultancy for a local authority many not be as straightforward as you imagine, writes Jono Wilson of Barnett & Turner. If you’re running a limited company and are offered a contract to provide consultancy to a council, the supply of those services is covered by the ‘intermediaries legislation’ – also known as IR35. This means that if it is decided that you are actually an employee, the company’s income could be taxed as employment income and subject to PAYE and national insurance.

How should you approach the issue?

First of all, you should have a contract with the council about your arrangement to provide services, which records the risks and duties of the engagement and the details of control your customer has over how you carry out the work. This contract and the actual arrangement will be considered in determining your employment status, so make sure you talk about it with your adviser beforehand.

What additional requirements are there?

From April 2017, public-sector bodies had to ensure that contractors providing their services through a limited company are operating under the correct employment status. The body – or agency, if applicable – will decide this using a set of tests, the details of which are yet to be announced. If these tests determine that the contractor should be an employee, then the income will be subject to PAYE and National Insurance. Again, talk to your accountant and ensure that you keep up to date with the latest developments.

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at jwilson@barnettandturner.co.uk

We all gain from thinking before selling shares

Jono Wilson of Barnett & Turner gives some valuable advice if you’re planning on realising the value of your shares. Whenever you sell or dispose of certain types of asset, you may find that you owe Capital Gains Tax (CGT). The tax is based on the ‘chargeable gain’ – or, in simple terms, the difference between your proceeds and the original cost.

CGT is payable on the disposal of property which isn’t your main home. It’s also charged on company shares. You can, however, make a gain of up to £11,100 before you reach the threshold at which you have to pay tax.

• Before the 2016 Budget

Two rates of CGT existed for individuals prior to the 2016 Budget: a standard rate of 18% and a higher rate of 28%.

• After the 2016 Budget

Following the Budget announcement, the two rates were reduced to 10% and 20% respectively, although different figures apply to certain residential properties.

With regard to shares, here are some questions to think about when considering your liability:

How are the shares held?

If they’re held in an Individual Savings Account (ISA), they are exempt from CGT.

What type of shares are they?

Are the shares held in a large PLC or a family-owned trading business? If they are in a trading business in which you work (and hold at least 5% of the shares and voting rights), you may qualify for Entrepreneur’s Relief, which provides for a rate of 10% on the whole gain. If you’re unable to claim Entrepreneur’s Relief, some or all of the gain may be taxed at 20%, depending on the level of your other income.

Are you planning on disposing of a number of assets around the same time?

If you want to take full advantage of your annual allowances, it probably won’t make sense to dispose of a number of assets at a similar time. It’s certainly worth taking professional advice before proceeding.

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at jwilson@barnettandturner.co.uk

Sole trader or limited company? Some points to consider.

Changes in legislation make the choice more complex today, argues Jonathan Wilson, Chartered Tax Adviser at accountancy firm Barnett & Turner. If you’re setting up a business for the first time, one of the key choices you’ll make is over how you choose to structure it. The simplest option is often to become a sole trader or, if there are two or more individuals in business together, a partnership. Many businesses start life in this way.

Alternatively, some might set-up in business as a limited company, appointing themselves as company director. There is no right or wrong answer here, but the way in which a business is structured will probably depend on a number of factors including possibly the business owners’ personal circumstances and the likely profits of the business.

It’s worth remembering that the Taxes Acts and the Companies Act are vast and complex, which means it’s important to get support from those who have knowledge and experience of the rules.

Limited liability

If you are a sole trader, you do not benefit from ‘limited liability’ and as a result are potentially at risk of losing your own personal assets if the business fails. A company is a separate legal entity and therefore it is possible for the business owner(s) to benefit from ‘limited liability’.

 Administration and formalities

If you run an unincorporated business, you prepare annual business accounts and a Self-Assessment tax return. The accounts are not filed at HM Revenue & Customs or Companies House, although some of the information contained within the accounts is declared on the tax return.

If you run a limited company, you are required to prepare accounts in a specific Companies Act format. Company accounts are filed at HM Revenue & Customs and at Companies House. You need to observe certain formalities before taking profits from a company, including the necessary recording of board meetings. It’s possible to pay salaries and bonuses, provided the company operates a payroll scheme.

 Rates of tax and national insurance contributions

As an unincorporated business owner, your tax and national insurance contributions on profit are at rates of 20% (basic rate), 40% (higher rate) and 45% (additional rate).

In addition, class 4 national insurance contributions are due on profits falling between £8,060 and £43,000 at 9% and 2% on profit over £43,000. Class 2 national insurance contributions of £145.60pa are due if profits exceed £5,965.

Regardless of the value of the amount you draw, tax and national insurance contributions are due on the taxable profit of the business.

As a company owner, you are able to control the level of income on which you pay tax by drawing only the level of income required to fund your lifestyle. Depending on circumstances, it is also possible to control the type of income on which you pay tax by voting yourself a tax-efficient remuneration package.

Companies are currently subject to corporation tax at 20%, although this rate is set to reduce slightly in the years ahead.

Should I review my existing business structure?

The Finance Act 2015 introduced major changes to the way in which business owners are taxed on profits extracted from a company - in particular by way of dividend. These included:

• the abolition of the notional 10% tax credit on dividends;
• a new 0% tax rate on the first £5k of dividends;
• and a new rate of taxation on dividends of 7.5% (basic rate taxpayers after the first £5k).

For most small business owners the result of these changes will be an increase in taxation.

In light of the changes introduced in the Finance Act 2015, business owners should consider whether the vehicle through which they trade is still appropriate for them and, if trading as a company, whether they are extracting profits in the most tax efficient manner. That’s why it is always worth having a discussion with your accountant or tax adviser about the most appropriate option for you.

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at jwilson@barnettandturner.co.uk

Getting the best price for your business takes preparation

Jono Wilson of accountancy firm Barnett & Turner gives his top five tips for selling your company. If you’re thinking of selling your business, it really pays to plan ahead. In my experience, you’ll never get the best price if you’re reactive or rushed. You need to prepare properly as a vendor. Here are my top tips:

SEEK ADVICE

You need a realistic expectation of value, so take the advice of experienced individuals, such as your accountant or corporate finance adviser. If you have a figure in mind, but it turns out to be badly wrong, you’ll have a nasty shock waiting around the corner. Of course, if your advisers tell you that your business is worth less than you expected, you can always take a step back and re-evaluate; you’ll have lost very little in terms of time, effort and money.

DO YOUR HOMEWORK

Use the time prior to starting a sales process to “get your house in order”. You will need financial forecasts demonstrating future growth potential and your historic numbers will be scrutinised in a due-diligence process. If there are issues that need explaining – one-off costs and non-recurring fees, for example – this needn’t be a problem, as long as you are prepared to answer questions and place your business in the best possible light.  Using an advisor in this process can add significant value.

CHANGE THE WAY YOU WORK

In the event of a valuation being lower than your expectations, which doesn’t seem like the right level of recognition for all the years you’ve put into the business, why not spend that little bit longer with the company making some changes? Brainstorm with your accountant particular ways of adding extra value.

At the same time, it can often be a good idea to separate yourself from the day-to-day running of the business, as if you’re integral to the operation, the buyer may not pay a premium when they know you’ll be gone shortly after a sale. You might want to devolve operational responsibility to second-tier managers. This could involve an up-front cost, but may prove a good investment in the long run.

BE REALISTIC ABOUT TIMESCALES

Six months is often considered as a realistic time for the process from start to finish. There are all the documents and financial information to pull together before the negotiation even gets under way. The process could stretch out for 18 months if you need to make internal changes to the business in advance of the sale.

THINK ABOUT TAX

This is an area all of its own, of course. You need to thinking about this more than a year in an advance, as certain reliefs will only apply if you have been a director or officer of the business in the 12 months prior to the sale. The way you structure the sale needs to be tax efficient, so take professional advice, particularly if you have kids you want to pass benefit to.

In conclusion, selling a business can be a complex process with lots of parties involved. Meanwhile, you still have a business to run. That’s why it’s critical to get the right team of advisers and partners in place to make the sale as successful as possible.

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at jwilson@barnettandturner.co.uk

Why the year-end chat should start well in advance

Jono Wilson of accountancy firm Barnett & Turner always aims to be proactive in the advice given to clients. That way tax planning becomes so much easier. An important part of my job is to ensure that clients are informed of the tax efficient planning opportunities available to them in advance of the year end date in order to allow them sufficient time to assess each of the options available to them and decide whether these opportunities are right for them. In order to provide clients with enough time to make informed decisions in relation tax planning, these conversations need to start well in advance of the year end date to prevent any last-minute scrambles and pressurised decision making.

When it comes to discussions on efficient tax planning opportunities with clients it pays off to be proactive. Meeting with clients during the final quarter in advance of the year end, provides an excellent opportunity to discuss the business owners aspirations and strategy for the coming twelve months, allowing us to provide tailored tax planning advice which suits the specific needs of each client.

Here are some of the tax planning topics which are frequently raised in advance of the year end:

PROFIT EXTRACTION

First of all, we look at the profits which have been extracted to date, then take into consideration the client’s specific circumstance in order to assess whether there are any additional requirements in the coming 12 months. This may be that the client has a big life event coming up; possibly a family wedding, a house move, maybe even planning a big family holiday or winding down to retirement. It is important to think ahead in order to ensure that the needs of the client can be met and profits can be extracted from the business in a tax efficient way.

There are several ways in which this can be achieved; looking at a combination of salary and dividends (provided the individual is a shareholder), providing a solution which fits the needs of each client while taking advantage of the tax free allowances available. There is also the additional consideration of pension contributions which are an extremely tax efficient method of profit extraction. Given that a pension fund can grow tax free, it’s an efficient way of investing in the future and has the added benefit of allowing the company to access corporation tax relief on contributions made on behalf of employees. If there is a possibility of making a contribution before the year-end date, it’s worth discussing.

BONUSES

Bonuses can be used to reward key members of the team who have contributed to the success of the business, but who are not necessarily shareholders. Depending on the employee’s level of earnings, the marginal rate of tax payable on a bonus may be significant. Perhaps it would be more beneficial to discuss the potential of an additional pension contribution or the provision of other benefits to top up their remuneration package, such as a company car?

CAPITAL ALLOWANCES

Where a company has undertaken significant investment in capital expenditure during a financial year for the purpose of their trade, there can be some very beneficial tax reliefs available in the form of Capital Allowances. It is also possible to claim 100% tax relief on qualifying expenditure by utilising the Annual Investment Allowance (“AIA”) available to businesses, up to a value of £200,000.

When advising clients in the lead up to their year-end date, it is also worthwhile discussing whether they are utilising their AIA in full and whether there is any additional expenditure which is likely to be incurred in advance of the year end.  As the AIA is a use it or lose it allowance it is important to discuss the timing of capital expenditure with clients as it may be worthwhile to defer expenditure into the next year if the AIA has already been fully utilised in the current period.

RESEARCH & DEVELOPMENT (R&D)

Companies involved in a qualifying R&D activity may claim additional tax relief on certain costs incurred directly in the R&D process. The rate at which relief is given is dependent on various factors, however it is possible to access additional relief of up to 130%. Engaging in discussion with clients in advance of the year end can allow you to ascertain whether they have undertaken activities which you think may qualify for R&D tax relief. Small and Medium Enterprises can surrender tax losses generated by R&D tax relief to create a cash repayment, which is another factor which can be useful in discussing tax planning opportunities with clients. .

LOSSES

The current market may result in previously profitable companies making current year tax losses. If a company has been profitable and paid CT in the previous 12 months there is potential to utilise these current year losses against the prior year’s profits and generate a tax repayment. Liaising with your client as early as possible may allow them to access these repayments at an earlier stage. This can be of great benefit to companies where ‘Time-To-Pay’ arrangements are in place for tax liabilities currently overdue and cash flow is tight.

SHAREHOLDING STRUCTURES AND SUCCESSION PLANNING

Many of the clients which I deal with are family owned businesses. It is an important aspect of my role to assist clients not only with potential tax planning opportunities in advance of the company’s year-end date but also to engage in discussions surrounding the future success of the business and the owner’s plans for the future. Commencing discussions of succession strategy and the future strategy for exiting the business allows the management team time to consider how this will be achieved and begin putting the necessary operational frameworks in place to achieve these long term objectives. It is also important to assess how any shareholder who is planning to exit the business can do so in a way which fits with the aspirations of the company, whilst also being achieved in as tax efficient a way as possible for both the company and the individuals involved.

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at jwilson@barnettandturner.co.uk

Greater visibility: how management accounts help you to plan

Jono Wilson of Barnett & Turner answers some of your questions about management accounts and how they can assist in making your company more efficient and potentially more profitable. I recently visited a client who has been using his traditional accounting methods since he started in business many years ago. As an owner, he is heavily dependent on his finance team and book-keeping staff for information and they were using outdated software. Much of the data the business relied on was entered manually and many records were still in paper form, sitting in filing cabinets. Whilst it is of course key to have a system you know and understand to help you run your business effectively, it made me think about how much progress we’ve made in recent years and how important it is to maintain proper management accounts.

What is the main advantage of keeping management accounts?

Essentially, they’re about being in control of your business and looking to the future. If you want to make proper cash-flow projections, for instance, your working capital requirements or whether you’re likely to exceed an overdraft limit, management accounts are an essential starting point. If you’re a small one-person operation, using Key Performance Indicators (KPIs) rather than full management reports may be enough. But as any business grows, they become essential.

How frequently should they be produced?

We would always recommend quarterly reports at a minimum if you’re a proper trading business, but monthly management accounts are often ideal.

How much time and effort are involved?

There are very few excuses these days for not having management accounts, because there is so much technology out there to help. With cloud software, it’s an easier process than it’s ever been. You can work collaboratively with your accountant, which makes everything more seamless. And of course the integration of automated banking feeds cuts down on a lot of time too.

What will it cost?

Well, there’s obviously a one-off investment in software, but in the longer-term, you may see significant benefits in terms of staff costs. You may be able to outsource more work to your accountant. And, of course, there may be significant gains in terms of visibility within your business.

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at jwilson@barnettandturner.co.uk

Direct answers on the role of directors

Some frequently asked questions about the responsibilities of company directors. And some straightforward responses from Jonathan Wilson of Barnett & Turner. How do you set up a limited company?

It’s an easy online process which can be done for as little as a £15 fee. The company will be registered within 24 hours, although often it makes sense to instruct a formation agent to ensure the new company’s statutory books are completed with relevant and correct information from the beginning of the company’s life. This will result in a greater fee than above but it is often money well spent.

Does a company need directors?

It must have at least one director, although it’s a simple procedure, as no test or qualifications are involved. You don’t even need to understand the rules and duties of a director to become one. It is essential, however, you are over the age of 16 and have not been disqualified.

Where are the director’s duties set out?

Chapter 2 of the Companies Act Part 10.  The same framework applies to a ‘shadow’ director, who effectively performs a director’s functions without being formally appointed.

What is expected of a director?

Directors are responsible for promoting the best interest of the company and its shareholders, rather than their own personal interests. They need to act with the care, skill and diligence of a reasonable person, although if they have a specialist background – accountancy, for example – there would be an expectation that they would perform to a higher standard.

A director is also responsible for a company’s compliance with regulations – keeping proper books and records, lodging accounts, filing tax, VAT and PAYE and so on.

What are the Articles of Association?

This is a document which may set limitations on the power of directors and define how decisions should be made. Effectively, it’s the constitution of the company.

What are a director’s potential liabilities?

Contrary to popular perception, it is possible for Directors to be held personally liable if they breach duties owed to the company and set out in the Companies Act. A failure to file tax returns, for instance. Wrongful or fraudulent trading. Or continuing to trade when you know there is no chance of avoiding insolvent liquidation.

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at jwilson@barnettandturner.co.uk

Your annual return to Companies House? It’s now a thing of the past.

The requirement to send an annual return to Companies House has come to an end says Sam Fisher of Barnett & Turner.  From 30 June 2016, your company now files a confirmation statement instead. What is the Confirmation Statement?

The Confirmation Statement (Form CS01) provides similar information to the annual return, but if no changes have taken place, you can make a declaration to this effect. This means that the process is much simpler.

When you file a CS01 for the first time, there are five parts of the confirmation statement you need to complete. The most fundamental change is the requirement to file information on ‘People with Significant Control (PSCs). Any company incorporated after 30^th June 2016 must include PSCs in their initial application. 

When must the Confirmation Statement be filed?

If you have an existing company, your first confirmation statement must be filed 12 months after your last annual return and then at least once every 12 months thereafter. An updated statement can be submitted at any time within the 12-month review period and a new review period of 12 months will be set from the date of the most recent confirmation statement.

This rolling 12-month window means that a company can combine the confirmation statement with another filing at any point during the year, if this is administratively easier. Therefore, you can capture key events (such as a change in shareholders) when they happen, rather than having to wait until a later date, when information may have been forgotten.

What is the filing period?

Companies were allowed a period of 28 days from the due date of the annual return to file it with Companies House. This has been reduced to 14 days for the confirmation statement.

If 12 months have elapsed since the last filing of the confirmation statement, a company will therefore only have an additional 14 days to file the next Statement before the company is no longer considered to be compliant. If you fail to deliver the Statement by the end of the 14-day period, you have committed an offence and may be fined.

What is the cost?

A filing fee must be paid when the confirmation statement is delivered.  This is the same as for the annual return (£13 online, or £40 on paper).  Updates to the information can, however, be made as many times as required throughout the year, without incurring an additional fee.

If you require any assistance with your confirmation statement or in interpreting who should be recorded as a PSC, please talk to your accountant.

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at jwilson@barnettandturner.co.uk

A significant change to company registration

Jonathan Wilson of Accountants Barnett & Turner examines the recent requirement for UK companies to keep a Register of People with Significant Control… Under new rules, which came into effect on 6 April 2016, companies and Limited Liability Partnerships (LLPs) must now compile and keep an up-to-date Register of People with Significant Control (PSC). The aim of this register is to help increase transparency about who ultimately controls UK companies.

Who counts as a PSC?

First of all, a person qualifies as a PSC if they own 25% or more of shares in a company or own 25% or more of voting rights. Alternatively, they will need to be listed if they own the right to appoint and remove the majority of the board of directors. (These conditions can be met directly or indirectly – for example, through another company – and include interests of close relatives such as a spouse or dependant.)

It is also a requirement that anyone who holds significant interest or control over a company should be listed as a PSC, along with trustees or partners who satisfy any of the conditions described above.

The recording process

This information needs to be reported to Companies House on the annual confirmation statement (which will replace the annual return from 30 June 2016).  Changes to the PSCs need to be updated immediately on the company’s own register and at Companies House on the next confirmation statement.

A company’s PSC register needs to be made available for public inspection on request but a company must not divulge the normal residential address of a PSC.

For each PSC, the following details must be included on the register:

• Name
• Service address
• Usual country of residence
• Nationality
• Date of birth
• Usual residential address
• Date of becoming a PSC
• Nature of control

By definition, a PSC is an individual. If, however, a company is directly controlled by a UK legal entity, then that legal entity must be included as the PSC. A legal entity needs to be included in the register of another company if it meets one of the conditions described above, keeps its own PSC register and has a direct interest in the company. It is important to establish ultimate ownership when identifying PSCs where a company is owned or controlled by another business.

Other considerations

Most overseas companies are not PSCs and therefore do not have to be disclosed, but the ultimate PSC still needs to be established. The Department for Business Innovation and Skills has confirmed that, where – for example – an unquoted Swiss-registered company owns a UK company, information about the PSCs of the Swiss company would have to be disclosed.

It is important for the directors of a company or members of an LLP to corroborate the information about a PSC (and keep evidence of that corroboration), as failure to provide accurate information on the register is a criminal offence.

If the entity does not have any PSCs (because there are no persons who hold 25% or more of the shares or control) then the register must state:

“The company knows or has reasonable cause to believe that there is no ‘register-able’ person or ‘register-able’ relevant legal entity in relation to the company.”

The register cannot be left blank.

For further information, please visit:

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/515720/Non-statutory_guidance_for_companies__LLPs_and_SEsv4.pdf

You can find summary guidance at:

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/496738/PSC_register_summary_guidance.pdf

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at jwilson@barnettandturner.co.uk

Start your business by the book

You’ve launched a new business and are optimistic about the future. Perhaps you want to focus on the development of your product or service, or on marketing it to prospective customers. Unfortunately, however, day-to-day book-keeping is an essential part of every successful start-up. You ignore it at your peril argues Jonathan Wilson of Midlands accountancy firm Barnett & Turner. If you’re a budding entrepreneur with big ambitions – or simply someone who has decided to branch out with your own micro-business – the chances are that you will have some kind of particular skill or talent. Perhaps you’re an expert consultant, a technological genius or a retail guru. But there’s no reason to suppose you’ll have any knowledge of the financial legwork that’s so important for any company.

It’s important that you catch up fast, as accurate, tidy records are not only a legal requirement, but also essential for helping your business to grow – providing you with vital information whenever you need it.

In reality, there are many different ways that a business can keep its books and your choice will probably be dictated by your size, your predicted growth and the kind of market you’re in. If you see yourself becoming a household name within a year and are planning on opening offices around the globe, a manual system isn’t really going to cut it. On the other hand, if you are running, say, a small childminding business, it probably won’t make a lot of sense to splash out £1,500 or more on a computerised system.

Costs vary widely, of course. A basic accounting software package, for instance, might be around £200 up front or £10 + VAT a month, although that figure can climb considerably if you opt for upgraded versions. Cloud-based systems such as, Xero, Kashflow and Sage One can also be chosen with different functions as well, designed to fit your pocket via Apps on your mobile and meet the changing needs of your company.

An accountant can certainly advise you and help you to analyse the various options.  If truth be told, however, a well-kept spreadsheet or manual cash book can still often work just as effectively for a small start-up.

After talking to your account, you might decide to let their team take the whole book-keeping process off your hands entirely. Although this involves an additional expense, it will allow for the production of regular management accounts which can prove to be an invaluable tool when making key decisions, especially in the early life of a new business.

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at jwilson@barnettandturner.co.uk