It is your responsibility as the employer to inform HMRC of the value of the benefits and expenses you have provided. Claiming tax back on expenses can be a complicated business and, as the business owner, you are responsible for calculating it. How do you know what counts as an expense and what doesn’t? Can you be sure you have worked out what is due correctly? The Local Bookkeeper has put together a top 8 must do’s for business expenses.
1. Only claim for expenses that are genuine business related activities.
Business expenses are defined as expenses that are for business generating profits. As HMRC explain, you can only claim for expenses that are “wholly and exclusively” in the performance of your business. A business trip cost is a claimable expense, if it is a reasonable cost, like accommodation and dinner.However, you may have some expenses that are shared with personal expenses like your phone bill; in cases like this, you can claim against the part that is for business calls.
You will need receipts for all of your claims to be processed. Without them, you will only be able to claim a maximum of £5 per day.
You will not also be able to claim tax back on occasions like business lunch expenses because it is seen to be a cost that you would have encountered anyway, had you stayed at the office. In contradiction to this, you are actually allowed to claim on one Christmas lunch a year for a maximum of £150 per head so you have room to go a little crazy…
2. You can claim on travel that is “wholly and exclusively” for business but not from home to work.
You are able to claim up to 40 pence on every mile up to 10,000 on private cars and then 25 pence for every mile after that. It is also possible to claim for the usage of a motorcycle at 24 pence per mile or a bicycle at 20 pence per mile.
But beware, though you can claim for parking and congestion charges, you may not claim for any parking fines you receive!
If you have any changes in the car benefits you provide, you must declare these to HMRC at the end of the quarter in which the change takes place, instead of the end of the tax year like other expenses and benefits, using form P46 (Car).
3 . Remember your business equipment and premises are capital items.
These cannot be counted as an expense. Instead, they must be categorised under fixed assets and writing down allowances are calculated at the year end, to reduce your profits. You may be able to reduce your taxable profit but this depends on items you are claiming for. You should check this with your financial cornerstone.
However, when your bookkeeper prepares monthly management accounts for you, they will calculate depreciation costs which, over the year, will reflect the writing down allowances that are calculated for the year end accounts.
If you work from home, you are able to claim back on your associated utility bills, like gas, electric, water, mortgage or rent, by the percentage of your home that is your designated office space. For example if you have a 5,000 square foot home of which 500 square foot is an office, you are able to claim 10% on your appropriate bills as a tax-deductible expense.
4 . Always hand in the correct completed forms to HMRC by 6th July every year.
This form will contain all the expenses for the year from each employee. This must be donefor all employees earning £8,500 and over including expenses and benefits and most company directors, you must complete a P11D form. You must pay Class 1 National Insurance contributions (NICs)to HMRC each month, all year round, together with PAYE. Class 1A NIC’s are paid in a lump sum that will be declared on the P11D form and paid by 19th July or, if you are paying electronically by a preapproved method, 22nd July.
If you have an employee earning less than this or a director who has no material interest in the company (i.e. controls less than 5% share of ordinary share capital and works full time or in a charity or non-profit organisation), you must complete a P9D form for each one. You do not need to pay Class 1A NICs for these employees.
5. Keep accurate records!
The rules are very strict and it can be likely that you will be asked to produce your records by HMRC. You must retain documents of when, why and receipts of the costs incurred for the last three years as well as the payments you have made. It is sensible that you keep these on an employee-by-employee basis. If you are not able to produce these records, you may be fined.
6. Check if your business could work more efficiently with a Dispensation
This is a notice from the HM Revenue & Customs that allows you to not have to declare certain expenses and benefits on a P11D or P9D nor pay National Insurance on them. This is designed for routine expenses or benefit for you are not liable for tax. To apply for a dispensation, you must complete a P11DX to HMRC at any time of the year and, once granted, they can take effect straight away if HMRC allows it to. Dispensations lasts indefinitely as well but you can expect to have a review of your eligibility every five years from HMRC.
7. Check if your business could work more efficiently with a PAYE Settlement Agreement
This is a scheme where you will be able to place small/irregular items or those that are hard to value in order to settle any Pay As You Earn (PAYE) or NICs in a lump sum. They are designed to simplify the way you pay tax on expenses and benefits as you won’t have to declare these items on any employee’s form, payroll or pay Class 1A NIC’s at the end of the year. However, you will pay Class 1B NIC’s and calculating the tax due under this system can be complicated so you should consult your financial cornerstone to make sure you are doing it correctly.
To apply for a PSA, you will have to apply to HMRC who will issue you with a signed P626 form if the agreement is authorised. They are renewed on a yearly basis, unlike a dispensation , and you will have to resubmit the document that will be sent to you from HMRC each year if authorised.
8. Remember your deadlines!
Don’t risk receiving a fine from HMRC by missing these important deadlines of the tax year.
P11D and P9D forms must be received by 6th July
Issue your employee’s with a copy by 6th July
P11D(b) form of your total Class 1A NIC’s by 6th July
Pay your Class 1A NIC’s by 19th July or 22nd July by pre-approved electronic means
If you are ever in doubt then ask yourself this, ‘was this cost necessary to generate more profit for the business?’ if your answer is yes then it probably is a tax-deductible expense.
Although this advice is very helpful, if you are unsure about anything consult your financial cornerstone. You can also consult The Inland Revenue “Expenses and Benefits” Tax Guide here: http://www.hmrc.gov.uk/guidance/480.pdf
How do you currently work out your expenses? How sure are you that they are correct when you send them into HRMC?
Wednesday 5 August 2009
Wednesday 17 June 2009
The Difference between an Accountant and a Bookkeeper
An accountant and a bookkeeper both perform the essential tasks needed to manage the finances of a business.
Bookkeepers are generally more involved in the systems applied to the daily running the business and accountants take the information provided by the bookkeeper to produce end of year accounts and tax returns.
According to the qualifications that are offered by the Institute of Certified Bookkeepers (ICB), bookkeepers are able to perform everything from maintaining the sales and purchase ledger accounts, all the way up to producing VAT returns and constructing management accounts. Accountants then take what work the Bookkeeper has produced during the year to devise tax strategies, business advisory services and auditing of the clients accounts.
Bookkeeping and accountancy are complimentary fields; the two professions work hand-in-hand with each other thus if the bookkeeping expert of this partnership does not perform well, their bad job will hinder the important work of their accounting associate. The line between where the bookkeepers job ends and accountants job begins can be blurred however many accountants have the skills to perform most of the tasks that a bookkeeper is able to. Even though both services are essential to a well run business, the services of a bookkeeper are more affordable than that of an accountant.
The Local Bookkeeper’s (TLBK) bookkeeper’s offer much more than the average bookkeeper, it offers a professional who assists in the running of the finances of the business. TLBK bookkeepers are capable of producing Management Accounts and cash flow forecasts for their clients that will allow clients to have the financial transparency they need to make informed important decisions. The management accounts also show the client the effects of a business decision on their finances on a regular basis instead of only being able to see this in the end of year accounts when it may be too late to make changes.
TLBK’s bookkeepers can also offer advice to businesses on what methods they could undertake to better manage their cash flow that increases their available cash and therefore avoid business failure.
The Local Bookkeeper produces high quality work that means the accountants duties are made much easier and therefore much faster, which will be saving the client money on their accountancy bill.
Do you use a qualified bookkeeper?
Bookkeepers are generally more involved in the systems applied to the daily running the business and accountants take the information provided by the bookkeeper to produce end of year accounts and tax returns.
According to the qualifications that are offered by the Institute of Certified Bookkeepers (ICB), bookkeepers are able to perform everything from maintaining the sales and purchase ledger accounts, all the way up to producing VAT returns and constructing management accounts. Accountants then take what work the Bookkeeper has produced during the year to devise tax strategies, business advisory services and auditing of the clients accounts.
Bookkeeping and accountancy are complimentary fields; the two professions work hand-in-hand with each other thus if the bookkeeping expert of this partnership does not perform well, their bad job will hinder the important work of their accounting associate. The line between where the bookkeepers job ends and accountants job begins can be blurred however many accountants have the skills to perform most of the tasks that a bookkeeper is able to. Even though both services are essential to a well run business, the services of a bookkeeper are more affordable than that of an accountant.
The Local Bookkeeper’s (TLBK) bookkeeper’s offer much more than the average bookkeeper, it offers a professional who assists in the running of the finances of the business. TLBK bookkeepers are capable of producing Management Accounts and cash flow forecasts for their clients that will allow clients to have the financial transparency they need to make informed important decisions. The management accounts also show the client the effects of a business decision on their finances on a regular basis instead of only being able to see this in the end of year accounts when it may be too late to make changes.
TLBK’s bookkeepers can also offer advice to businesses on what methods they could undertake to better manage their cash flow that increases their available cash and therefore avoid business failure.
The Local Bookkeeper produces high quality work that means the accountants duties are made much easier and therefore much faster, which will be saving the client money on their accountancy bill.
Do you use a qualified bookkeeper?
Friday 22 May 2009
How to Choose a Trustworthy Bookkeeper
When appointing a bookkeeper for your business, the two most important qualities are their skill and trustworthiness. You can gain an idea of their level of skill by their experience and qualifications but how can you tell if they can be trusted with your sensitive financial information?
An example of why it is important to find the right bookkeeping and accounting partner is the most recent case of bookkeeper from Aberdeen who stole £100, 000 from a business owner. The bookkeeper moved it to her own account in small amounts, without the knowledge of the owner who did not have any bookkeeping knowledge and therefore had to wholly trust his bookkeeper, as most business owners do. This demonstrates how trust can be so easily abused in this position and reiterates the importance of employing a bookkeeper in whom you can have faith to never misuse your confidential information in this damaging manner.
You can always ask business colleagues and acquaintances if they know a good bookkeeper and hope you get a personal recommendation but what other options do you have? We have a created the four R’s to help you find the right financial cornerstone.
1. Reputation
Study their reputation. Their reputation is essentially a collection of personal experiences that have been spread by word of mouth and therefore this can be a good gauge of whether they are reliable. Many bookkeepers operate solely or as part of a small, unregulated business, which makes it hard to determine what level of service and protection your books would receive as they have no national brand and no ethical code of conduct to adhere to. If you were to employ a bookkeeper who works as part of a national brand, like The Local Bookkeeper, you would be able to look at their first-class reputation and know that the bookkeeper you would be employing is honest, dependable and will deliver the service you require.
2. Reliability
How do you know if your bookkeeper will deliver a service and always be available to give you up-to-date information on the performance of your business? Many bookkeepers will leave you in the lurch when they go away on holiday or unexpectedly fall ill. Although both of these events will inevitably occur, one must identify whether they have the back-up to allow them to deliver a service for you at any time. Events could suddenly happen in your business that would require you to consult the expertise of your “financial cornerstone” and therefore it is essential that you should be able to receive this advice all year round. By working with The Local Bookkeeper, you will receive a service that is reliable, with a network of experienced and qualified professionals at your beck and call.
3. Regulation
It is not expected that every business owner will possess not only extensive knowledge of their business but also bookkeeping and financial skills. Therefore, following the advice of a “financial cornerstone” like a qualified bookkeeper, you can feel confident that the information they give you is correct and they are handling your financial data in a confidential manner. However, you can only be sure of this if the bookkeeper is regulated by a governing industry body, who will ensure that they adhere to a code of ethics, such as the Chartered Institute of Management Accountants (CIMA) and Institute of Certified Bookkeepers (ICB). The Local Bookkeeper has a national team of qualified bookkeepers and accountants who are regulated by professional bodies and adhere to a professional code of conduct and who also conduct their own assessment of each bookkeeper to ensure they have an exceptional level of skill and are trustworthy and dependable.
4. Reference
Don’t be afraid to ask for testimonials. Your bookkeeper should be very open to you requesting a reference. This way you are able to see what level of service you will be receiving directly from their clients, instead of only having to take their word. The Local Bookkeeper has testimonials for all their bookkeepers and will happily supply you with these to give you peace of mind that your books are being dealt with by knowledgeable and trustworthy professionals.
What experinces have you had with bookkeepers in the past and what criteria have you used to choose a bookkeeper on before?
When appointing a bookkeeper for your business, the two most important qualities are their skill and trustworthiness. You can gain an idea of their level of skill by their experience and qualifications but how can you tell if they can be trusted with your sensitive financial information?
An example of why it is important to find the right bookkeeping and accounting partner is the most recent case of bookkeeper from Aberdeen who stole £100, 000 from a business owner. The bookkeeper moved it to her own account in small amounts, without the knowledge of the owner who did not have any bookkeeping knowledge and therefore had to wholly trust his bookkeeper, as most business owners do. This demonstrates how trust can be so easily abused in this position and reiterates the importance of employing a bookkeeper in whom you can have faith to never misuse your confidential information in this damaging manner.
You can always ask business colleagues and acquaintances if they know a good bookkeeper and hope you get a personal recommendation but what other options do you have? We have a created the four R’s to help you find the right financial cornerstone.
1. Reputation
Study their reputation. Their reputation is essentially a collection of personal experiences that have been spread by word of mouth and therefore this can be a good gauge of whether they are reliable. Many bookkeepers operate solely or as part of a small, unregulated business, which makes it hard to determine what level of service and protection your books would receive as they have no national brand and no ethical code of conduct to adhere to. If you were to employ a bookkeeper who works as part of a national brand, like The Local Bookkeeper, you would be able to look at their first-class reputation and know that the bookkeeper you would be employing is honest, dependable and will deliver the service you require.
2. Reliability
How do you know if your bookkeeper will deliver a service and always be available to give you up-to-date information on the performance of your business? Many bookkeepers will leave you in the lurch when they go away on holiday or unexpectedly fall ill. Although both of these events will inevitably occur, one must identify whether they have the back-up to allow them to deliver a service for you at any time. Events could suddenly happen in your business that would require you to consult the expertise of your “financial cornerstone” and therefore it is essential that you should be able to receive this advice all year round. By working with The Local Bookkeeper, you will receive a service that is reliable, with a network of experienced and qualified professionals at your beck and call.
3. Regulation
It is not expected that every business owner will possess not only extensive knowledge of their business but also bookkeeping and financial skills. Therefore, following the advice of a “financial cornerstone” like a qualified bookkeeper, you can feel confident that the information they give you is correct and they are handling your financial data in a confidential manner. However, you can only be sure of this if the bookkeeper is regulated by a governing industry body, who will ensure that they adhere to a code of ethics, such as the Chartered Institute of Management Accountants (CIMA) and Institute of Certified Bookkeepers (ICB). The Local Bookkeeper has a national team of qualified bookkeepers and accountants who are regulated by professional bodies and adhere to a professional code of conduct and who also conduct their own assessment of each bookkeeper to ensure they have an exceptional level of skill and are trustworthy and dependable.
4. Reference
Don’t be afraid to ask for testimonials. Your bookkeeper should be very open to you requesting a reference. This way you are able to see what level of service you will be receiving directly from their clients, instead of only having to take their word. The Local Bookkeeper has testimonials for all their bookkeepers and will happily supply you with these to give you peace of mind that your books are being dealt with by knowledgeable and trustworthy professionals.
What experinces have you had with bookkeepers in the past and what criteria have you used to choose a bookkeeper on before?
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