Paperrocket banner 3 sign up button orange star

Welcome to PaperRocket Accounting,

Specialist accountants for Limited company contractors and freelancers

Practice excellence Herts 2015 logo-FINALIST PaperRocket logo high-res Herts 2016 FSB New Colour Logo Finalist (1) freeagent-premium_partner
PEP16 Small Practice

By PaperRocket Accounting, Apr 19 2018 12:12PM

Following a Freedom of Information request by contractor website, Contractor Calculator, HMRC had admitted to not holding any detailed evidence to prove that it’s CEST tool is correct.



What is the CEST tool?


CEST stands for Check Employment Status for Tax, and the CEST tool is something that was developed for the off payroll working rules introduced for the public sector in April 2017 in order to assist public sector bodies with determining their contractors’ IR35 status’ under the new rules. HMRC also encourages the use of it in the private sector. This tool will give a result either stating that IR35 does apply, does not apply or that the test was unable to determine the tax status of the engagement.


A number of industry professionals however have disputed its accuracy. They say that there is an over reliance on substitution, it ignores one of the three key status tests (Mutuality of Obligations) as well as there being discrepancies in certain criteria which must be met. Another large problem with the tool is said to be the fact that, by its very nature (being a digital tool), context cannot be provided, and for certain questions, a conversation with the contractor/end client would be required to ensure that the relevant answer is being given.


However, HMRC has maintained that the tool is capable of making accurate IR35 assessments in the public sector and claims that it is therefore serving its purpose.



So, what’s been discovered?


Contractor resource firm Contractor Calculator submitted a series of Freedom of Information requests to HMRC in regard to the CEST tool. In response to these, HMRC has supposedly admitted that there is no detailed evidence to show that the tool delivers accurate results. They said:


‘The CEST tool testing was done by a workshop… The only documented output of the workshops is the set of rules used by the tool.


Our records show that HMRC has used the CEST tool to test all the cases cited in your request, but we do not have a record or how each question was answered as part of that testing, only the end determination.’


In its own independent tests last year, Contractor Calculator compared the CEST tool’s IR35 determinations against historic court findings and found that it delivered an incorrect outcome in 37% of cases tested.



What does this mean for contractors?


For the time being, whilst determining IR35 status in the private sector is still in the hands of the contractor, it is advised that you obtain an independent IR35 assessment by a qualified tax expert, rather than relying on the CEST tool.


For contractors in the public sector, unfortunately determining IR35 status is no longer in your hands. However, if your end client does deem you to be inside IR35, regardless of which tool was used to come to this determination, and you disagree, it would be advisable to still seek a qualified, independent assessment. You may not be able to change the decision, but if you decide to appeal in the future, it is a good idea to have as much evidence for your case as possible.



PaperRocket Accounting provide accounting and tax services to professional limited company contractors and freelancers working in the UK.


We offer our clients a choice of four all-inclusive fixed fee monthly packages which cover all of their accounting and tax needs (so no hidden costs or surprise bills!). All of our accounting packages include a monthly subscription for a cloud accounting software subscription provided by the awarding winning FreeAgent.


Each of our clients is given their own dedicated qualified accountant with unlimited access in person, telephone, or by email.


We pride ourselves on our client satisfaction and customer service and were shortlisted as 'Small Practice of the Year 2016' in the AccountingWEB practice excellence awards, as well as FSB Hertfordshire Service Excellence finalists in 2015 and 2016.


To find out how we can help you please get in touch now.


By PaperRocket Accounting, Apr 11 2018 01:31PM

So, you’ve decided to take the plunge and set up your own limited company. But, what on earth are you going to call it? Are there any restrictions? How can you check it’s not already taken? Well, here’s a brief guide to choosing the perfect company name.


Firstly, it’s worth noting that all private limited companies (PLCs) in the UK must have either ‘Ltd’ or ‘Limited’ at the end of the name, so you must take this into account. We would also recommend choosing Limited rather than Ltd. This is because registering with ‘Limited’ allows you to use either Limited or Ltd, but registering with ‘Ltd’ doesn’t allow you to use Limited, so it just gives you more choice.



So, with that out of the way, what ARE you going to call your company?


A few things to consider:


• What sort of image do you want to convey to your (prospective) clients? Do you want to appear serious, and straight to the point, or be more unique, with a name that draws attention?


• Do you want your company name to reflect the type of work that you do? For example, if you are an IT contractor, do you want your name to be something like ‘XXXXX IT Consultancy’ so that prospective clients/agents know exactly the services that you provide?


• Would you like your own personal name to appear in the company name? This can have the benefit of implying a more personalised service, but equally could work against you if you are trying to portray the image of a larger set up.


It’s always worth taking a bit of time to decide upon your company name. It’s like naming a baby- you want to give it the best start in its life, and if you decide you don’t like the name a way down the road, it will be a pain to get it changed! Therefore, it’s a good idea to look around at other companies in your sector and their names, and see what sort of thing appeals to you.



Are there any restrictions?


• The name can’t be the same (or very similar) to an existing name in use with Companies House. Therefore, before you get your heart set on a name, it’s best to check the Companies House website to make sure that it hasn’t already been taken.


• Obviously, your company name can’t be offensive, so no choosing anything rude!


• The name can’t contain a ‘sensitive’ word or expression, and it cannot suggest a connection with government or local authorities, unless you get permission. So, as an example, to use the word ‘accredited’ in the name, you would need permission from the Department for Business, Energy and Industrial Strategy. You also can’t use names of certain professions (for example, Solicitor, Vet or Architect) without a letter from the relevant regulatory board.



Would I be able to register with one name, but trade under another?


The simple answer is yes, and your trading name will be known as your ‘business name’. However, you will still need to display your registered company name somewhere on all documentation and your website.


The business name must not:


• Infringe on anyone else’s name or an existing trade mark


• Include any of the following in the name; ‘limited’, ‘ltd’, ‘limited liability partnership’, ‘LLP’, ‘public limited company’ or ‘plc’.


• Contain a sensitive word or expression (as above).


It is advised that you register this name as a trade mark to stop other people trading under that name.



What if I name my company and then decide I don’t like it?


Well, all is not lost. If you do end up regretting your choice, and want to change your company name, it is just a case of completing a form for Companies House and paying a small fee (around £10). However, you will also need to consider that it will subsequently need to be changed elsewhere, such as with your bank, your stationery, social media/website and anywhere that has previously used your old name which can end up costly and time consuming. Therefore, the best advice we can give is to consider all of the above, and make your decision carefully!



PaperRocket Accounting provide accounting and tax services to professional limited company contractors and freelancers working in the UK.


We offer our clients a choice of four all-inclusive fixed fee monthly packages which cover all of their accounting and tax needs (so no hidden costs or surprise bills!). All of our accounting packages include a monthly subscription for a cloud accounting software subscription provided by the awarding winning FreeAgent.


Each of our clients is given their own dedicated qualified accountant with unlimited access in person, telephone, or by email.


We pride ourselves on our client satisfaction and customer service and were shortlisted as 'Small Practice of the Year 2016' in the AccountingWEB practice excellence awards, as well as FSB Hertfordshire Service Excellence finalists in 2015 and 2016.


To find out how we can help you please get in touch now.




By PaperRocket Accounting, Apr 5 2018 12:07PM

With the end of the 17/18 tax year and the start of the 18/19 tax year upon us, it is (unfortunately) once again time to start thinking about personal tax returns. However, whilst there are obvious things that are going to affect your tax liability, such as any personal income that has not been taxed at source, there may be some other inclusions that are not so obvious. So, to avoid any surprises, we have broken down some of the things that you may not necessarily immediately think of having to include on your return.



Child Benefit


If you are responsible for a child under 16 (or under 20 if they are in approved education or training), then you are most likely to be eligible to receive Child Benefit from the government. This usually equates to just over £20/week for the first child, and just over £13/week for any additional children.


However, if you have individual income of over £50,000 and either yourself, or your partner receives this Child Benefit, then the higher earner will have to pay a tax charge, known as the ‘High Income Child Benefit Charge’ when they come to complete their personal tax return for that tax year. This tax charge is calculated on a sliding scale, so if the personal income is between £50,000 and £60,000 then only a portion of the Child Benefit received will have to be paid back. If, however, one earns over £60,000, then the full amount would have to be paid back.



Student Loan


If you have ever been in receipt of a student loan, then once your income goes over a certain threshold, you will need to start repaying this loan. There are currently two different thresholds dependant on when you took out your loan:


• If the first year of your course started before 1st September 2012, you have a Plan 1 loan. The 17/18 payment threshold for this loan is £17,775, rising to £18,330 from 6th April 2018.


• If the first year of your course started after 1st September 2012, you have a Plan 2 loan. The 17/18 payment threshold for this loan is £21,000, rising to £25,000 from 6th April 2018.


Once your income exceeds the relevant threshold, you will then need to pay 9% of anything received.



It’s not all things that increase your tax liability though. There are some items that, if included on your return, will actually help bring your liability down.



Charitable Donations (Gift Aid)


If you donate to a registered charity (and make a Gift Aid declaration to enable the charity to be able to claim an extra 25p for every £1 you give) and are a higher/additional rate tax payer, then including these donations on your personal tax return will help bring your tax liability down. You will be able to claim the difference between the rate that you pay and the basic rate on your donation.


So, as an example, you donate £100 to a charity and they claim £25 Gift Aid. You pay 40% tax so on your tax return you will be able to claim back £25 (£125 x 20% (the difference between your tax rate and the basic tax rate)).



Private Pension Contributions


Again, if you are a higher/additional rate tax payer, and make contributions to your pension personally (not from your salary before tax), then you will be able to claim tax relief on those contributions (up to 100% of your annual earnings).


If you are a higher rate tax payer, and your pension provider claims the first 20% relief on your behalf (relief at source), you will be able to claim tax relief on the extra 20% on your self assessment return (and if you are an additional rate tax payer, this will be 25%).



So, whilst these may not immediately spring to mind when completing your tax return for the year, to avoid any nasty surprises, it is important that they are not forgotten.



PaperRocket Accounting provide accounting and tax services to professional limited company contractors and freelancers working in the UK.


We offer our clients a choice of four all-inclusive fixed fee monthly packages which cover all of their accounting and tax needs (so no hidden costs or surprise bills!). All of our accounting packages include a monthly subscription for a cloud accounting software subscription provided by the awarding winning FreeAgent.


Each of our clients is given their own dedicated qualified accountant with unlimited access in person, telephone, or by email.


We pride ourselves on our client satisfaction and customer service and were shortlisted as 'Small Practice of the Year 2016' in the AccountingWEB practice excellence awards, as well as FSB Hertfordshire Service Excellence finalists in 2015 and 2016.


To find out how we can help you please get in touch now.




By PaperRocket Accounting, Mar 29 2018 09:00AM

So, the time has come that you want to withdraw a dividend from your limited company. However, your accountant/accounting software is saying you can take one figure, but your company bank balance is saying another figure? Why is that? Surely, if the company has the money, you can just withdraw it, right? Wrong… and there are a few reasons why your bank balance may not reflect the true level of profit available to withdraw as dividends.



Outstanding taxes


The amount available to take as a dividend must take into account any taxes that would be due on your profit. This would include corporation tax. So, whilst the corporation tax isn’t payable until your company year end, it needs to be accounted for on an ongoing basis. So, as a rough example, if you invoice £1000 and this is paid to the company, there would be £1000 in the account, but only £190 of that would need to be set aside for corporation tax at 19% (ignoring any deductible expenses for the purpose of this illustration).


The same would go for VAT. If the company is VAT registered, then that same £1000 invoice would need to be raised with £200 VAT. As a result, you would be paid £1,200 into the company account, but £200 would need to be paid over to HMRC when your VAT return is due.



Trade debtors or creditors


The profit distributable figure will include any invoices raised to date. However, it will not take into account whether that invoice has been paid. Therefore, if you have any unpaid client invoices (trade debtors), then this will also have the effect of making the profit distributable figure potentially appear higher than the company bank balance.


The same is true with any money that you owe supplier for example. So, if you have purchased something on credit with a supplier, then the cost of that purchase will lower the profit distributable, but will obviously have no effect on the company bank balance until it is actually paid.



Director’s loan


If the director owes, or indeed is owed, money to/from the company, this will also cause a difference between the bank balance and distributable profit figure. If the director has taken a loan from the company (which itself has tax implications- see here for more details on this), then the company bank balance will show less than is actually available to take as dividends (as that loan amount is still the company’s money, and therefore still part of it’s profit). And if the company owes the director money (for example, in respect of expenses repayment), then the opposite will be true.



Timing


Accounts, by current legislation, should be prepared on an accruals basis- i.e. expenses/income should be matched to the accounting year that they relate to. Therefore, when accounts are prepared, adjustments may be made to move certain expenses/invoices into different years (regardless of payment date) to ensure that are accounted for correctly. This in turn can affect the distributable profits figure as an expense/invoice that has been paid will change the bank balance figure, but may not affect the distributable profit figure until the following year in which it is accounted for.



It is illegal to pay yourself a dividend if there is not sufficient profit to do so. Therefore, it is incredibly important therefore that, when it comes to taking a dividend from the company, you pay close attention to the profit distributable figure rather than what’s in the company bank account.


At PaperRocket, our monthly fee includes a subscription with FreeAgent, an award winning online cloud accounting software that provides you with your own company ‘dashboard’, giving you an up to date view of not only what is in your company bank account, but also, perhaps more importantly, what profit is available to withdraw as a dividend.



PaperRocket Accounting provide accounting and tax services to professional limited company contractors and freelancers working in the UK.


We offer our clients a choice of four all-inclusive fixed fee monthly packages which cover all of their accounting and tax needs (so no hidden costs or surprise bills!). All of our accounting packages include a monthly subscription for a cloud accounting software subscription provided by the awarding winning FreeAgent.


Each of our clients is given their own dedicated qualified accountant with unlimited access in person, telephone, or by email.


We pride ourselves on our client satisfaction and customer service and were shortlisted as 'Small Practice of the Year 2016' in the AccountingWEB practice excellence awards, as well as FSB Hertfordshire Service Excellence finalists in 2015 and 2016.


To find out how we can help you please get in touch now.



By PaperRocket Accounting, Mar 21 2018 08:54AM

March already, where is this year going? And only a few months after we said goodbye to 2017, it is now time to say goodbye to the 17/18 tax year, and hello to 18/19! But what exactly are we saying hello to on the 6th April? Below we look at some of the main tax changes that are just around the corner.



Personal tax-free allowance


Every year, the amount that you can earn before you start paying tax increases, and this is no different in 18/19. From 6th April, this amount will be £11,850 (up from £11,500), although if your personal income exceeds £100,000 then you will start to lose this.



Tax bands


As with the personal tax free allowance, every year the amount that you can earn and still remain in the basic rate tax band also increases. From 6th April, the top of the basic rate band increases to £34,500 (up from £33,500), meaning that, assuming a standard personal allowance, you would be able to earn up to £46,350 before you enter the higher rate tax band and are taxed accordingly at the higher rate.


It is worth noting that in Scotland, the tax bands are different. The Scottish tax bands can be found here.



Capital Gains Tax Annual Exemption


Just like both of the above, every year, the amount of profit that you can make on the sale of an asset before you are taxed increases. From 6th April, the annual tax free allowance for capital gains will be £11,700 (up from £11,300).



Tax free dividends


In 2016, a new tax free dividend allowance was brought in, meaning that everyone would get a certain amount of dividends tax free, regardless of what other personal income they have. From 6th April, this is reducing to £2,000 (from £5,000).


The remainder of any dividends received will be taxed as follows:


- Basic rate tax band dividends (apart from the £2,000 allowance) will be taxed at 7.5%

- Higher rate tax band dividends will be taxed at 32.5%

- Additional rate tax band dividends will be taxed at 38.1%



What are PaperRocket advising as the most tax efficient way of withdrawing funds from your limited company?


Every year here at PaperRocket Accounting, we do tax planning for our clients on an individual basis, taking into account any personal income that each client has and any new tax changes for the year.


For 2018/19, we are advising clients with no other personal income (e.g. rental income, savings interest etc) to withdraw the following:


£8,424 gross annual salary

£37,926 dividend drawings


This will keep the personal income in the basic rate band, therefore only paying tax at the lowest rate. The dividend drawings will attract £2,437.50 of tax.


Of course, this is non-specific advice, not taking into account personal circumstances or other personal income. It is always important to get tailored advice from your accountant, something which we pride ourselves on providing here at PaperRocket.



PaperRocket Accounting provide accounting and tax services to professional limited company contractors and freelancers working in the UK.


We offer our clients a choice of four all-inclusive fixed fee monthly packages which cover all of their accounting and tax needs (so no hidden costs or surprise bills!). All of our accounting packages include a monthly subscription for a cloud accounting software subscription provided by the awarding winning FreeAgent.


Each of our clients is given their own dedicated qualified accountant with unlimited access in person, telephone, or by email.


We pride ourselves on our client satisfaction and customer service and were shortlisted as 'Small Practice of the Year 2016' in the AccountingWEB practice excellence awards, as well as FSB Hertfordshire Service Excellence finalists in 2015 and 2016.


To find out how we can help you please get in touch now.



RSS Feed

PaperRocket Accounting

Blog

packages banner