November 2009 Tax newsletter
Our November 2009 Newsletter was published a couple of weeks ago and I forgot to post a link to it.
You can sign up to have the newsletter delivered to you by email. It’s free and we won’t bombard you with loads of unwanted rubbish.
How do accountants charge?
The traditional way of charging for accountants is by hourly rate. Accountant A quotes one hourly rate and accountant B quotes a slightly lower one. Simple, you go with accountant B because that’s going to be cheaper isn’t it? Not necessarily. You don’t know how quickly each of them can work so, if accountant A is a faster worker, possibly because of better technology, you could find that, even on this crude measure, accountant A is the lower cost option.
Hourly rates have other traps for the unwary. If the accountant is working on an hourly rate, is there any incentive to do the work quickly? If a mistake is made and has to be put right, the client is being charged an hourly rate so the cost of correcting the mistake can be passed on to the client – and this does happen. Most people wouldn’t accept an hourly rate quote from a builder or plumber without knowing how many hours to expect. Why should accountants be different?
Many, but not all, accountants do have a policy of only charging for the time which a job should have taken. They review each piece of work and, if it has taken longer than it should, possibly because of having to correct a mistake, only charge for the time the job should have taken. This does not apply to all accountants. I have come across situations where a client has pointed out mistakes to an accountant and then received a bill for “amending the accounts”.
In my opinion it is generally better to try to arrive at a price before starting the work. This is difficult with new clients because there is no previous knowledge of working with their records and, for a brand new business, no real information to go on, other than previous experience. We can be pretty definite about some types of work, such as payroll, and for other work we will give as accurate an estimate as possible, usually within a range. The principle we use is that, we will stay within the range unless there is something very different to what we expected and then we will discuss this with clients before proceeding. In about 95% of cases we are well within the indicated range. Once we have the first year’s work under our belts, we can be much more accurate in our pricing.
This method of estimating jobs allows clients to budget properly and, because we also offer a direct debit facility, spreads the cost, so no big bills.
Potential clients sometimes ask for a price based on the turnover of a business. This isn’t really relevant. A company can have a £million+ turnover derived from just a few transactions and keep immaculate records. They will be charged less than a company turning over £20,000 with a lot of transactions and poor records. The better the records you keep, the lower the cost is likely to be.
October 2009 Newsletter
Our October 2009 Newsletter has been published covering topics such as the 20th anniversary of the VAT Option to Tax and transferring investment property into stock plus information about late filing penalties.
If you would like to receive the newsletter into your Inbox regularly, please sign up today.
National Minimum Wage – October 2009 increase
We’d like to remind employers that the National Minimum Wage will increase from 1st October 2009. The new rates will be:
- For workers aged 22 and over the new minimum rate will be £5.80 per hour
- For workers aged 18 to 21 the new minimum rate will be £4.83 per hour
- For workers aged 16 and 17 the new minimum rate will be £3.57 per hour
The minimum wage has to be calculated on all hours worked by the employee so you must pay for time spent setting up before starting or clearing up when finished. There are severe penalties for employers found to be in breach of the National Minimum Wage regulations – so don’t take the risk.
Paying workers a fair rate for a job results in better employees with more commitment who stay longer. Saving a few pence per hour can often cost much more in the long run.
For more information or to discuss your payroll requirements, contact us.
CIS – The importance of keeping evidence
Unless you can prove that you have had CIS deductions made from payments you receive, you could struggle to convince HMRC that you are actually owed the money. We have seen several instances where HMRC had been given incorrect or incomplete information by contractors and consequently claims by subcontractors for refunds have been denied. The attitude which HMRC take is that, in those situations, the subcontractor has to prove that the tax has been deducted. The proof should be in the form of the statements/remittances which contractors are supposed to supply backed up by bank statements showing the amounts actually received.
In one case, the contractor hadn’t provided proper monthly statements and payment had been in cash. No chance whatsoever of proving that the deduction had actually been made. Result tax to pay again.
This is a growing problem. The construction industry is notorious for not being completely honest and we suspect that many “subbies” are being ripped off by unscrupulous contractors who have worked out how to manipulate the system to their own ends. We urge every CIS subcontractor to make sure they receive, and keep, the proper documentation.
For anyone not familiar with CIS (Construction Industry Scheme) this is a process where contractors are required to deduct tax (usually at 20%) from any payments made to subcontractors. The contractor is supposed to send the money to HMRC where it is held to the credit of the subcontractor and used to offset any tax due. The scheme often results in a refund to the subcontractor. Unfortunately, a number of contractors fail to send the money to HMRC in which case the subcontractor has to prove that it has been deducted.
Most contractors are honest but there are sufficient cases of contractors disappearing with the subcontractors’ tax to merit a great deal of caution.
August 2009 Newsletter Available
Our August 2009 Newsletter is available to view now. There are articles on “Flipping”, HMRC’s budget scheme for tax, when a Pick Up is a van plus information on email tax scams which try to extract information by pretending to be from HMRC.
You can read the Newsletter online – or better still subscribe to receive future editions.
Use your accountant
Your accountant is the person, outside yourself, who knows most about your business – and has an interest in making you more profit. Your accountant also has a wide experience of business. Making better use of your accountant could be the best decision you make.
Obviously I can’t speak for other accountants but we try to get to know, and understand, a client’s business so that we can be constructive in helping them. We aim to be proactive in our dealings with them and welcome feedback and questions. A small business owner knows and understands the business he or she is in intimately. What they generally don’t understand is accounting and finance – and they definitely can’t afford a finance director. This is where a good, proactive, accountant can really help. Regularly discussing your business’s financial position and examining the sales, purchase and expense figures can really focus the mind and help you see more clearly.
If your accountant really is just a “bean counter” and doesn’t take an interest in your business, I suggest you should be looking for a new accountant. If your accountant wants to be proactive and help you – let him. You may be very surprised at just how much your business can improve with professional and experienced help.
New Business start up?
If you’re starting a new business, you have a lot to think about. Often the question of an accountant comes a long way down the list – but really it shouldn’t. Research has consistently shown that existing businesses look on their accountant as their most trusted adviser. By talking to an accountant before taking major steps, costly mistakes can be avoided and information to help improve profitability obtained.
Most accountants have experience across a wide range of industries and business types and can contribute a lot to the initial thoughts about a new venture. We were recently approached by someone who thought they’d spotted a major opportunity. Our knowledge of that market enabled us to point out one substantial, unavoidable, cost which had been missed and more realistic projections prepared. We also demonstrated how some other costs could be reduced because we knew of a cheaper source for a particular service. The business is still going ahead and looks as if it should be successful – but not knowing about the missing cost could have proved very expensive.
My advice is to discuss plans with an accountant at an early stage. Find an accountant who you’re comfortable talking to and who talks in English – not accountants jargon – or, at least, explains what the jargon means. Preferably you want an accountant who doesn’t mind you contacting them – and doesn’t charge you for every phone call.
I will now blow our own trumpet. I may be biased but I think that we are the accountants you are looking for. We have a small, and friendly, team with a great deal of knowledge about different businesses and we aim to be proactive to help you develop your business. You can have a free initial chat about your business – and we won’t specify just 30 minutes or an hour; if you need more time, we’ll spend it – within reason of course. We don’t pretend to be the cheapest because we don’t provide a “cheap” service. Neither are we expensive compared to some of the other accountancy firms. We practice what we preach and keep costs down – no Jags or Porsches to support.
You can contact us via the website. Why not sign up for our Free newsletter?
Accountants aren’t just useful in business start ups. Existing businesses can gain a great deal from regular communication with their accountant. I’ll cover this topic at a later date.
Free Newsletter
We recently launched our Free Newsletter, delivered by email to your inbox, covering tax news and information which we think will be of general interest.
It’s FREE. We won’t bombard you with loads of unwanted mail – just the Newsletter about once a month. You can unsubscribe at any time. You should find some interesting comments and information in the Newsletter. Is there a reason you can think of why you shouldn’t subscribe?
This is the link to the subscription page.
What’s the difference between Tax Avoidance and Tax Evasion?
The quick answer is “Prison”.
Tax Avoidance is perfectly legitimate. You can order your affairs and manage your business in the most tax efficient way to take advantage of rules, regulations, laws and concessions.
Tax Evasion is where you step over the line and deliberately misstate or hide transactions. This is illegal and, in extreme cases, can result in prison.
As accountants we do our utmost to keep our clients’ tax bills as low as possible, or obtain the highest possible refund. What we can’t and won’t do is become involved in anything illegal. Quite frankly, it just isn’t worth it. If it is found out that we have knowingly been complicit in tax evasion, the penalties we face can also include prison.
Maybe you hadn’t realised, because it hasn’t been widely publicised, that all accountants have to be registered and are legally required to disclose anything suspicious on a form called a Suspicious Activity Report (SAR). This has to be done without advising the client, otherwise the accountant is guilty of an offence called “Tipping Off”. Failing to make a report where it can be shown that an accountant knew about the offence is also a criminal offence.
The law has been around for a few years but really became fully operational in December 2007 and registration wasn’t completed until well into 2008. Already many thousands of reports have been submitted. Because of this legislation, confidentiality between accountants and their clients no longer exists in most situations.
Think back on any conversations you have had with your accountant over the past year. Did you say anything incriminating? Is there anything in your books or records which might trigger a suspicion?
The best advice is not to put your accountant in a position where they feel they have no option but to make a report, otherwise the Tax Inspector may come knocking armed with insider information.
