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Specialist accountants for Limited company contractors and freelancers

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PEP16 Small Practice

By PaperRocket Accounting, Feb 16 2018 12:52PM

As a personal service company, there are a number of standard expenses that you are likely to be putting through your company. The most common are:


- Travel (whether this is for public or private transport)

- The rent, heating and lighting of an office used by your company

- Any office items, such as stationary, printing cartridges, computers and software

- Business phone bills

- Accountancy fees


Each of these will help to reduce your corporation tax bill at the end of the year.


However, there are some other items that you may have purchased personally and wondered “should I be putting this through my company?”. So, let’s take a look at some of the more unusual expenses you may come across, and whether you can put them through your company as a tax deductible expense?


A new suit for an important business meeting- not allowed. The golden rule with any business expense is that it has to be wholly, exclusively and necessarily for the purpose of the business. Unfortunately, a suit, or any clothes that you could feasibly wear outside of a work environment (regardless of whether you actually do or not) just aren’t deemed to be exclusively for business use.



So, are any type of clothes allowed through your business? That leads us on to…


Protective clothing, uniforms or costumes- allowed. These are items that would be seen to be necessary for you to be able to perform your job safely and appropriately, so for example, a high vis jacket, helmet, nurses uniform or clown costume! Any such item would be seen as an allowable expense and therefore fine to put through your company.

A slightly grey area is clothing with a company logo, but as long as the logo is permanent and conspicuous, this should be fine as it would also count as a form of advertising.


Annual eye test- allowable. If you regularly use a computer in your line of work, then you are fine to put the cost through your company.



So, what if the eye test determines you need glasses?


Spectacles- generally, not allowable. On the whole, you wouldn’t be able to put this cost through your company as usually these would not be exclusively for business use but instead would also be worn outside of your working environment. If, however, you are able to obtain a prescription that states that they are solely for business use and you can prove that they are not worn elsewhere, then the expense would become allowable- provided it is a reasonable amount (i.e. not purchasing top of the range designer frames).


Inviting (and funding) your employees’ spouses to a summer BBQ- allowable. Provided certain criteria is met (such as not spending more than £150/head/year, and ensuring that all employees are invited), then you are more than welcome to invite employees’ plus ones to your company shindigs, and that cost will be treated as a business expense. See 'How to fund a staff summer party'


If there are any expenses that you come across that you are not sure if they are allowable or not, always ask your accountant before putting them through your company- or you may get a nasty surprise when they are all disallowed at the end of your company year!



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, Feb 12 2018 02:54PM

Whilst the November 2017 budget didn’t have the IR35 reform sting in the tail that we were all expecting, there was a promise that rolling the controversial public sector reforms out to the private sector was going to be something that the government were going to look into further. And if the most recent IR35 forum minutes are anything to go by, then this may be something that is actioned sooner rather than later.



Concerns raised


During the forum, members expressed a number of concerns to HMRC about the issues arising in the public sector (such as ‘blanket’ assessments being used by large organisations to avoid compliance requirements) as well as their worry that any assessment of the effectiveness of the reform in the public sector would be premature. They also drew attention to the Taylor Review and the employment status issues that this addressed.



HMRC’s response


HMRC did acknowledge that the public sector changes have (in some cases) fuelled non-compliance and brought about a rapid increase in the use of tax avoidance schemes (the use of unlawful loan based umbrella schemes in particular). They also confirmed that the Taylor response consultation will consider the long term case for reform. However, unsurprisingly perhaps, their main emphasis was on it’s perceived tax shortfall and the ‘immediate need’ to fix non compliance with IR35. They said ‘the Government needs to deal with an immediate and growing Exchequer risk’.



So what does this mean?


Officially, HMRC told the forum that an extension of the public sector IR35 reform into the private sector is ‘only one option in a wide ranging consultation’. However, equally, they have not put forward any alternatives, so bearing in mind this ‘immediate need’ to tackle private sector non-compliance, it is looking more and more likely that the reprieve received in the November 2017 budget was just temporary.



Seb Maley of IR35 specialists QDOS Contractor said:


“Yet another hint from the Government and the refusal to rule out further IR35 reform adds more fuel to the fire that changes will be introduced to the private sector perhaps as early as April 2019. Contrary to speculation, private sector engagers could manage reform - but work must start now if they are to be confident and ready to make well-informed IR35 decisions the time these predicted changes arrive. Given further reform looks increasingly likely, private sector engagers must communicate with the contractors they engage and ensure them they will be taking appropriate steps to make accurate IR35 decisions.”


However, obviously we have been in this situation before, convinced that private sector IR35 reform was nigh and then nothing happened. The benefit now is that there is still over a year until this reform is rumoured to come into place, so the best advice seems to be to use this time to prepare yourself and your company for the dawn of a new contracting era in April 2019… just in case.



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, Feb 5 2018 12:25PM

Paying for a meal through your company- you’d think it would be straightforward as to whether it is allowable and receives tax relief or not. However, the answer to this actually depends on who the recipient of the meal is.



Entertaining clients at dinners or lunches


So, what happens if you decide to take your client out for a meal, or drinks, to discuss your latest project?


Whilst you can put this through your company as an expense, it will not receive corporation tax relief. It is also worth mentioning that you can’t reclaim VAT on any client entertainment expenses.


So why put the amount through the company at all? Simply put, if you were to have paid for that expense out of your own pocket, you would potentially have had to take an additional dividend for that amount from your company which itself would attract tax. By paying for it from the company, whilst you do not reduce your company corporation tax, you will save on additional income tax for yourself.



Food for employee entertainment


And what about if you want to spend money entertaining your employees, perhaps with a Christmas meal or party?


Provided certain criteria is met, again you are fine to put the amount through the company, but this time, you will receive corporation tax relief and you can also reclaim the VAT on the expense(s).


You just need to ensure that all employees are invited to attend, and that the annual amount does not exceed £150 per employee (going above this amount will mean that any costs are then subject to tax and national insurance).


The £150 is inclusive of all the entertainment cost, so whilst it can be entirely food related (such as a meal out), it could also be for tickets to a show, or payment for a party location.



Employee meals on the job


How about when you (or your employee(s)) travel away from your principle place of business and need to purchase some lunch?


Again, this is fine to put through your company, and once again will receive corporation tax relief as well as the VAT being reclaimable.


You will just need to ensure that you are working away from your principle place of business (usually, in the case of a limited company that will be your registered office) and are claiming the travel expenses for the journey(s) (whilst not breaching the 24 month rule . The cost will also need to be reasonable (i.e. a meal deal from M&S as opposed to a 3 course meal from Gaucho!).


If you have to travel and stay away from home overnight for work, then you will also be able to claim for any meals you have whilst away.



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, Jan 29 2018 11:11AM

Even if you know that you’re doing everything by the book with finances for your limited company, no one is realistically going to welcome an investigation by HMRC- it’s like walking through customs at the airport, you know that you’ve done nothing wrong but you still get that anxious feeling. Not to mention that an investigation brings with it the extra hassle and time involved in providing HMRC with everything that they require.


Whilst HMRC will never explicitly say why they would pick on a specific company for an investigation, there are a few factors that we know can have bearing on who are the unlucky chosen ones:


Regular mistakes on tax returns. Whilst the odd genuine (quickly rectified) mistake here and there shouldn’t ring alarm bells with HMRC, if a number of returns are submitted with errors, then HMRC may well pick up on this and decide to investigate further. Having a good accountant should minimise the risk of this happening. Having an accountant can also reflect well on you from HMRC’s perspective, as it can make you appear more trustworthy.


Returns not being filed, or continuously being filed late. Again, this is likely to attract HMRC’s attention, especially if you are regularly late or have outstanding, overdue returns.


Issues with figures- if your margins fluctuate dramatically, or if your business is vastly over/under performing compared to others in your sector, or if you go a number of years not making a profit and telling HMRC that no tax is due, this may raise a red flag with HMRC.


Receiving a tipoff - if someone reports your company to HMRC, whether correctly or not, HMRC has to take this seriously and will most likely investigate.


High or invalid expense claims- whilst there are a number of legitimate expenses that you can put through your company, if you are claiming a disproportionate amount of expenses compared to your turnover, or if you are claiming expenses that are clearly not for company use, then this may be cause for concern for HMRC.



So how can you minimise the risk?


• If you do have fluctuating margins or lack of profit, add a note in the accounts to explain why. This gives HMRC the information that they need and shows that you are trying to be as transparent as possible.


• Have an accountant who specialises in contracting. Not having one can make it look as though you don’t want third parties seeing your finances for some reason or, at the very least, may cause HMRC to wonder if you have the expertise to deal with your finances yourself.


And always ensure that you keep at least 6 years worth of financial records stored, so that you have any information that HMRC will require in case they do decide to investigate you.


Whilst investigations are relatively rare provided your accounts are all in order, it is always best to be prepared. At PaperRocket, as well as advising on the above, and helping to ensure that mistakes aren’t made, we also offer Tax Enquiry insurance included for free in all of our monthly fee packages. This is there to provide expert assistance, and help cover any expenses that may be required in the event of a HMRC investigation.



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, Jan 25 2018 01:59PM

So, you’ve made the decision to step away from the world of employment, and enter the new, shiny world of contracting. But, which route is going to be best for you- setting up a limited company, or going through an umbrella company?



Umbrella company


Using an umbrella company is effectively like being an employee of that scheme. It will be the umbrella company that will invoice your end client, and then the umbrella company that will pay you a salary. This salary will be paid to you after deductions have been made in respect of tax and national insurance, as well as any other costs such as expenses and the umbrella company’s fee.


The pros of using an umbrella company are that it is, from your point of view, more straight forward than using a limited company, as you are essentially still being treated as an employee (albeit one of the umbrella company rather than your end client). This is therefore a good option for first time contractors who want to ensure that they have made the right decision before fully committing and setting up their own company, or people who don’t want to have to deal with the admin side of running a company. It is also a good option for people who only intend on contracting for a few months, as it means not having to go through the processes of both setting up and closing a company, which can take time.


However, the cons of an umbrella company are that it is not as tax efficient as having your own limited company as you are required to take your whole income as salary. You are also fully reliant on the umbrella company to collect the money from your client and use it to pay you.



Limited company


By setting up a limited company to contract through, you will become a company director, with full control (and responsibility) over your business. You, via the limited company, will invoice your end client, and then it will be down to you as to how you withdraw those funds from the company (salary/dividends).


The pros of using a limited company is that it is the most tax efficient way to operate. You can choose to pay yourself a low salary and then take the remainder as dividends (which are not subject to national insurance contributions). You can also choose exactly when to withdraw funds from the company, which again has its tax planning benefits. You also have complete control over your financial affairs, and are also able to claim a wider range of expenses through a limited company.


The cons of using a limited company are that it does involve more responsibility on your part as you will have a number of statutory and financial obligations, such as submitting accounts and meeting various HMRC tax deadlines. However, if you appoint a good accountant that specialises in dealing with contractors, then they will be able to take a lot of the hard work off your hands, and ensure that you are able to meet your various obligations.




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.




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