Tax – How do they find out?
A few months ago we published two articles by Tom Casagranda outlining some of the methods used by HMRC to identify people who are not declaring all of their income.
Tom is an ex HMRC employee who now offers a consultancy service. He wrote the articles to highlight the ways that people inevitably leave a trail when trying to avoid declaring income.
The first article deals with general methods used to select taxpayers for enquiry, whilst the second article deals more specifically with undeclared income from property lets. If you haven’t already done so, we recommend you read the articles.
VAT – Happy New Year
VAT returns to 17.5% on 1st January 2010 so will the hostelry you are frequenting on New Year’s Eve suddenly increase their prices at midnight? The answer is “No”.
As a concession HMRC are allowing pubs, hotels and other establishments which are open at midnight to continue accounting for VAT at the 15% rate until 6.00am on New Year’s day.
If you need more information on the changes, contact us.
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.
Business Rates
The new business rates valuations are being issued during October. It is important that you check the figures and how it has been calculated because these figures will form the basis of your business rates for the next five years. The first one we have seen shows an incorrect area for the property and is therefore wrong.
You should advise the Valuation Office Agency (VOA) of any inaccuracies before 30 November 2009.
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.
Helen & Kellie Graduation
We are very proud of Helen & Kellie who both passed their final year AAT exams. This is a picture of them in full regalia at the graduation ceremony held at Loughborough College yesterday: Any resemblance to a pair of cheshire cats is purely coincidental. They worked hard and did well. This is a formal recognition of the ability and talent they both have – and have demonstrated many times.
Kellie & Helen at their graduation
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.
September 2009 Tax Tips newsletter published
Our September 2009 Tax Tips newsletter has been published and is available to view.
It contains articles on the recently announced amnesty for taxpayers with overseas bank accounts, paying dividends, correcting VAT errors and giving shares to employees.
Why not sign up to receive our FREE newsletter straight to your Inbox as soon as it is published. We only publish about once per month so you won’t be inundated with spam – and we definitely don’t pass on any information to third parties.
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.
