Here are some questions which we are Frequently Asked when clients come to us for the first time.
- How do I incorporate my business
- Is it better to trade as a limited company or a sole trader?
- When do I need to send in my tax return?
- How much is the penalty for late submission to HMRC?
- How can I appeal against a penalty imposed by HMRC or Companies House?
- What happens if I make a loss in my business but I have other income
- What insurance do I need for my business
- How often should I do my accounts?
- What records should I keep for my business
- How do I record personal items of expenditure I bought for personal use?
How do I incorporate my business
If you are operating your business a self employed sole trader or a partnership and you decide you would like to run it as a limited company then you will need to review the assets and liabilities which you have in the business as they will be taken over by the limited company as if it is buy a brand new business. If you are a partnership then you will need written permission from all the partners agreeing to the incorporation and if they are to become shareholders then their agreed percentage shareholding. A limited company is a separate entity to the owner and is run and managed by company directors. You can have only one director and no secretary if you desire but from a governance perspective if you are looking to raise finance it is better to have two or more unrelated directors. To incorporate your business you need to register it with Companies House and provide details of your assets, share capital, directors, company secretary and you have to pay a fee. You will also need to provide a memorandum and articles of association.
Is it better to trade as a limited company or a sole trader?
This is a common question asked by entrepreneurs and people who want to start business. The answer is really down to personal preference. A limited company is a separate entity from the business owner and is run by directors who have put share capital in the business. This means that their liability for any debts incurred by the business will be limited to the amount of money invested in the share capital.
When do I need to send in my tax return?
You need to send in your self assessment tax return by the 31st October each year if you are submitting by paper. But if it is online then it needs to be done by the 31st of January following the 31st March. But you also need to pay the tax by this date
How much is the penalty for late submission to HMRC?
For self assessment; if you miss the January 31st Self Assessment deadline, you will be fined
£100 for a late return from 1st February.
You have 30 days to pay your tax before 5% is charged on it.
You have 90 days to get your return in after which it will cost you £10 a day in fines.
For limited companies; if you don’t file your CT600 before the deadline the fine is £100 from the first day after the deadline.
If it is up to 3 months late another £100 is added
If it is up to 6 months late the HMRC will estimate your tax bill and charge 10% penalty for unpaid tax.
If it is still outstanding after 12 months then another 10% of unpaid tax charge will be added.
If your return is late 3 times in a row then each penalty increases from £100 to £500.
For late submission of accounts to Companies House the penalty is
£150 for up to 1 month late (£750 for a PLC),
up to 3 months it is £375 (£1,500 for a PLC),
up to 6 months £750 (£3,000 for a PLC),
up to 12 months late £1,500 (£7,500 for a PLC).
Penalties double if you are late for two or more successive years.
For VAT late submissions;
The penalties if your annual turnover is less than £150,000; where you submit your return late in a 12 month period there is no penalty for the first two late submissions.
For Construction Industry Scheme;
1 day late fine is £100,
2 months late the fine is £200,
6-12 months late and penalty is £300 or 5% of CIS deductions whichever is greater.
How can I appeal against a penalty imposed by HMRC or Companies House?
There are some instances where you can appeal HMRC decisions for instance if you have a close relative or partner who died before the tax return was due, you were in hospital or had a serious illness, your computer software failed as you were submitting the return, there were service issues with the HMRC online service.
You cannot use the excuse that you were relying on someone to submit it and they didn’t or that you did not get a reminder from HMRC or that the HMRC service was difficult to use.
If you want to make a reasonable excuse appeal to HMRC there are two things that must happen:
- HMRC must decide whether, when viewed objectively, the excuse is reasonable in the context of the delay that has triggered the penalty.
- You (the taxpayer) must put the excuse/appeal in writing within 30 days of the penalty being issued (though HMRC sometime consider late appeals).
What happens if I make a loss in my business but I have other income from other sources?
If you make a loss in your business trading activities (i.e. your expenses are more than your income) then you may be able to offset profits from other activities such as property rental, tax paid on employment income, etc. This only applies if you are self employed and not if you are running your business as a limited company.
What insurance do I need for my business?
Insurance needs vary from business to business depending on the nature of trade you wish to carry out. However most businesses require public liability insurance especially if they are allowing customers to come to their premises of even for attending trade shows and events where the customer may interact with them or their products.It is also a requirement if you use volunteers to work for you.
Employer liability insurance is really only relevant but compulsory if you are employing paid staff. This protects the company against compensation claims resulting from staff illness or injury as a result of working with the company. Then there is
Professional Indemnity insurance which is mainly for people who give professional advice or have their comments and suggestions taken as an expert. Such businesses include lawyers, doctors, nurses, beauticians, builders and so on. It is worth having it even if you employ people who may do this role as if they misrepresent the information the client can sue your company and not necessarily the individual.
Other types of insurance will include insurance for stock, cash (if your company keeps a lot of cash on the premises or in transit).
How often should I do my accounts?
There are two aspects to preparing your accounts. The first is bookkeeping which is the recording all the income invoices, expenses and payments in one place. We recommend this is done daily or weekly if you do not have that many transactions. The second is accounting reports which is a report showing how your business has progressed over a period of time in terms of the income and expenses and the result of profit or loss. We recommend you do this monthly and at least quarterly for micro businesses
What records should I keep for my business?
In order to prepare information for your annual tax return and in order to assess how well your business is doing you need to keep accurate records of all income and expenditure related your business activities. As the barest minimum you should keep a record of your sales income receipts and expenditure payments.
If you do not issue invoices each time you sell something then keep a sales order book where you record everything you sell. Try and ensure you have receipts for everything you spend. Again if you do not have receipts keep an expenditure note book where you can record everything you spend on even if it is for photocopying or milk for the office!
As a new start up business, this information can simply be kept manually in a record book or on excel. As you progress in business and your transactions become more as a result of your business activities then it is best to start using an accounting software either online or desktop (see types of accounting software).
How do I record personal items of expenditure I bought for personal use?
As a business owner you may find that occasionally you use your business income or business bank account to purchase something which is for personal use. This is not an expense which the HMRC will allow you to deduct before calculating the business profits and hence the amount of tax payable. As such it is preferable to keep your personal expenses separate. However if you spend on things like your car which part is used for business and part is used privately then you need to make an apportionment of the part which is personal and record it in a ‘personal owners account’ or if a limited company it will be the ‘directors account’ . This effectively takes the personsal spend out of the business expenditure accounts.