When a business purchases something that has a useful life to the business of more than a couple of years, in general, and/or has a cost that is out of the ordinary for regular day-to-day running costs is it classed as a capital asset. This can take the form of equipment or investment and may be tangible or intangible.
As the value of the asset may depreciate over its lifetime, the depreciation for tangible assets (or amortisation of intangible assets) can be used to reduce profits liable to tax.
There are complex rules on how to apportion asset value and specific allowances to take advantage of that an accountant can advise businesses specifically upon.
Contractors must register with HMRC to join the Construction Industry Scheme. Once registered, before they can pay subcontractors, checks must be conducted to find the tax treatment of the subcontractor – some may qualify as employees and therefore require payment via PAYE others may qualify as self employed and therefore are paid net of 20% registered or 30% unregistered.
An accountant can help contractors with the running of the scheme. Subcontractors need to receive the correct deduction and a written statement or certificate for each payment and therefore proper guidance or use of a payroll service/specialist software should be implemented.
Subcontractors, due to being paid net of 20-30% of there income should have an accountant check over their income and expenses and file a tax return to make sure the correct tax is deducted. In many cases subcontractors can expect large refunds of tax upon submitting a tax return.
IR35 rules aim to catch out employment disguised as ‘self employment’. By creating a limited company a contractor can be paid gross by the contracting firm and then choose how they wish to be paid via their company ‘profits’. This method saves tax and national insurance contributions, particularly employers national insurance contributions.
IR35 legislation aims to trap those who are not deemed to be actual contractors, working at different firms under varying contracts and have penalise them for unpaid tax and national insurance.
An accountant can help guide contractors in the correct direction, offer up alternatives and if caught by IR35, work with the contractor to minimise the effect of any penalties.
Any incorporated entity, foreign company with UK offices or clubs, co-ops or unincorporated associations must pay corporation tax on profits.
Annual financial accounts must be produced to back up a company tax return (CT600).
An accountant can produce accounts and complete the CT600 whilst taking all expenses, relevant reliefs and allowances into consideration.
There may be other scenarios where an accountant can assist, such as changing a company’s year end.
The main employment-related taxes are income tax and national insurance (employer and employee). An accountant can offer advice on running a payroll, investigating issues within an existing payroll or providing help with joining the PAYE scheme.
The transfer price is the cost of goods sold by a subsidiary to its parent company. The two parties in the transaction establish the price.
An accountant can help manage risks associated with transfer pricing and help improve efficiency. It is important that transfer pricing obligations are managed correctly as HMRC can impose penalties (plus interest) where non-compliance is found.
Partnerships can be both incorporated or unincorporated where responsibility and profits are shared between partners.
In an unincorporated partnership partners are liable for their share of losses.
In an LLP (Limited Liability Partnership), partners are not personally liable for debts and responsibilities and share of profits it set out in an LLP agreement.
A nominated partner must submit a ‘Partnership Self Assessment Tax Return’, but partners must send their own personal tax return also. Partners pay tax/national insurance on their share of profits.
R & D Tax Credits act as a relief against corporation tax. If a company is investing in a project to advance in field of science or technology, on a previous unresolved problem, and the project is related to company’s existing or new trade, many costs can be offset against the company tax bill.
It is a complicated relief with many definitions applied to the R & D involved, the costs associated with it and the timelines over which claims are allowed.
An accountant can guide through this process making sure existing projects are claimed accordingly or offer advice before a business undertakes a new project.
If the Taxman suspects inaccuracies within an individual or business’ tax returns it is likely a full tax investigation may occur. Sometimes less intensive tax audits occur, particularly when VAT and the PAYE scheme are involved but these are just record checking, not as in-depth as a full investigation and on average occur every five years.
Tax investigations focus mainly on Income Tax and Corporation Tax Returns and if HMRC has reason to believe an entity is underpaying tax it may notify them with a formal letter asking for information. The letter will advise what aspect of the submitted return is being checked.
There are certain factors that make it more likely to be subject to an investigation such as filing returns late, inconsistencies year-on-year, relatively high costs for the business activity, offshore banking, property income and high-risk/cash-based industry. In extreme cases there may be external evidence from standard of living compared to income declared through to tip-offs from whistle-blowers.
An accountant can provide specialist help in the stressful several months or so over which investigations are carried out. Records need to be checked over and inspectors can be assuaged by providing information in a timely manner when requested.
An accountant can also negotiate with inspectors, keep them in line particularly if the investigation is not being carried out within limits and can help the entity reduce overall penalties and interest in the event of bills arising.
If a business’ turnover exceeds a certain amount and they are registered for VAT, or they register voluntarily, they have a number of responsibilities, including:
An accountant can make sure all of these obligations are adhered to.
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