Category: Business with the Donno’s

confused person

Top 10 “I didn’t know that” questions answered

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I didn’t know that?

This is a phrase we hear a lot, especially when someone sets up a limited company and especially in January when personal tax returns are due.

Here are our top 10 I didn’t know that questions

1 . I didn’t know that I needed a separate bank account?

  Yes, a limited company is its own entity and funds held in a personal account will be deemed personal income and could attract tax. Therefor you will need to set up a business bank account for your limited company.

2. I didn’t know I had to register to pay myself?

Yes you need to register with HMRC for a PAYE reference and deduct tax and NI on your earnings.  Note single director companies do not get the £5,000 employers NIC relief.

3. I didn’t know I paid tax on dividends?

Yes, you pay tax on dividends and these are declared on your personal tax return.  

4. I didn’t know you had to make a profit to declare dividends?

Yes, dividends are a distribution of profits and not an expense.  You need to prepare a profit and loss account, work our corporation tax payable and then you can declare a dividend.

5. I didn’t know I needed paperwork for the dividend?

Yes, you need a board minute and dividend voucher prepared on the day that you declared the dividend.  Backdating to ‘FIT’ your accounts is illegal.

6. I didn’t know I had to keep accounting records? 

Yes, HMRC require you to keep accounting records and the Companies Act.  We recommend Xero as an accounting software provider.  Giving over a years bank statements and records to prepare is expensive and you will have no idea of dividends you can vote if any.

7. I didn’t know I paid tax on monies taken from the company? 

Yes, if you have borrowed from your company you will pay tax on your Corporation Tax Return.  This is a holding tax that will be repaid once you are back in funds with the company.

8. I didn’t know my company had to register for VAT? 

Yes, if you exceed £85,000 in a rolling 12 months you must register for VAT and in some cases it is better if you do register for VAT.

9. I didn’t know I couldn’t run my car through the business?  

You can run the car through the business BUT it will be classed as a benefit in kind and you will pay tax on the benefit.  Some cars are much better through a Limited company than others.  Electric cars are a great benefit.

10. I didn’t know it was so complicated? 

This is where a good accountant will help you manage your limited company so that you comply with the companies act, HMRC and help move your business forwards.

 

Take a look at this video:

Answering Your Top 10 Accountancy Questions

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As accountants, a lot of our time is spent answering your queries and questions to help ensure you make the best financial decisions for your business. 

However, (after a while), the same questions inevitably start to crop up. 

So, in the hope that we can help out (and save you some time), we’ve answered your most frequently asked questions! 

Here’s all you need to know, from tax and VAT to transport and wages:

1. Should I register myself as a limited company or a sole trader?

Before you can decide whether to register as a limited company or a sole trader, you need to understand the difference between the two. 

As a sole trader, you (the business owner) and the business are seen as one legal entity. Whereas, with a limited company, the business is an entirely separate entity. 

So which is better?

Well, both models have their benefits.

Being a sole trader allows you to have complete control over your business and retain all of your profits after tax. They’re also relatively easy to set up and require very little paperwork. 

However, registering as a limited company allows you to be more tax-efficient (19% corporation tax), relinquish any personal liability and gain greater credibility and funding. 

Ultimately, the decision is yours. However, we strongly recommend speaking to your accountant, as they will make suggestions based on your personal circumstances. 

Take a look at this blog for more information – https://1accountsonline.co.uk/2022/05/17/sole-trader-vs-limited-company-which-is-better-for-you/

2. What exactly can I claim for? 

We get this question a lot! So we wanted to shine some light on the subject.

If you are self-employed, you can claim allowable expenses for:

  • Travel costs
  • Training costs
  • Advertising costs 
  • Financial costs
  • Office costs 
  • Staff costs
  • Clothing costs
  • The cost of your business premises
  • The cost of items you buy and sell on 

You can explore each category in greater detail on the government website, but if you’re ever unsure, always ask your accountant. 

The main thing to remember is that you can only claim expenses for business costs. So to give some specific examples, you can claim for your MBA, but you can’t claim for unreasonable expenses like extravagant meals or unnecessary trips. 

3. Can I charge my company rent for using my house?

This depends on whether you’re self-employed or you have a limited company. 

You can’t charge your company rent if you’re self-employed because you are the business. With that said, if you rent a property, you can claim a portion of your rent back through expenses. 

However, if you’re the director of a limited company, you can create a formal rental agreement between you and your business. But remember, the rent you charge should match the amount you pay. Otherwise, you’ll pay tax for turning a profit. 

income and wagees

4. How much should I pay myself?

Whilst we can’t offer you a definitive number, we can suggest 3 different ways to approach paying yourself. You can either:

  1. Pay yourself enough to cover your personal costs 
  2. Pay yourself a fair market salary 

Or

  1. Pay yourself a combination of salary and dividends

The third option is the most tax-efficient as you can keep yourself on the lower end of (or even below) the NI and income tax brackets. However, the best option is the one that works for you and your business.

5. What is the best way to fund my pension?

First, let’s discuss the logistics. If you have a personal pension, you have the flexibility to pay into your pension monthly or invest lump sums whenever you can afford it. Your only limitation is the £40,000 annual allowance. Beyond that, you won’t gain any tax relief for your savings.  

Now, in terms of funding your pension, that’s entirely down to personal preference. For example, you could increase your pension contributions instead of your salary. Or, you could defer your pension (it will increase by 1% every nine weeks you defer). 

So speak to your accountant and see what they believe the best option is for you!

6. Should I pay my family members a salary?

Firstly, as with any employee, you should only pay a family member if they are genuinely contributing to your business. Secondly, if you do employ a family member, their salary should accurately reflect the work they’ve done. 

As long as you can fulfil both of these requirements (and pay the national minimum wage), there are several benefits you can receive by hiring a family member. For example, you can deduct their wage from your business to keep profits low or even receive Employee Allowance. 

Alternatively, if you don’t want to hire a family member, you can always make them a shareholder. That way, they can receive dividends. Although you won’t receive an employee allowance, you will pay significantly less tax on dividends. 

Transport

7. Should I buy my next car through my company?

Although it sounds like an easy way to save on tax, the truth is, buying a car through your business might not be as beneficial as you first thought.

You see, if you buy a company car, you can only use it for company purposes. Otherwise, you have to pay tax on private use. Now you can calculate the ‘benefit in kind’ tax on the government website, but usually, the most tax-efficient solution is to buy or lease the car privately and simply claim back any mileage. 

8. What is more beneficial an EV or a hybrid car?

From a tax perspective, an EV is objectively more beneficial than a hybrid. Simply because you don’t have to pay any road tax on zero-emission vehicles! 

With that said, hybrid vehicles are still more tax-efficient than standard petrol and diesel vehicles. So both are great options!

9. Should I take advantage of the Cycle2Work scheme?

If you already cycle to work, then you should absolutely take advantage of the Cycle2Work scheme! 

You can save between 33.25% and 43.25% on your new bike and accessories by applying to the scheme. Why? Because you don’t have to pay any tax or NI. Plus, the cost is spread over 12 – 18 months and is immediately deducted from your pay slip via salary sacrifice. 

So, as long as you can commit to cycling to work 50% of the time, there’s no reason why you shouldn’t apply to the scheme. 

10. Why does my accountant always say ‘it depends’ when I ask one of these questions? 

Because it’s true!

All of these questions depend upon your unique personal circumstances – from your business model and lifestyle to your financial situation. So always ask your accountant for their professional opinion! They can offer you the most appropriate advice based on your books. 

Yellow and pink zig zag

Can anyone get a tax enquiry?

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Each year HM Revenue & Customs (HMRC) undertake an enormous number of tax enquiries into individuals and businesses to check they have paid the right amount of tax. Since 2010 HMRC have strengthened their approach to enquiry work by using wider powers and sophisticated software and consequently a record £36.9 billion of additional tax revenue in 2019/20 up £2.4 billion on the previous year.

Moving forwards we expect to see an even greater increase in the number of tax enquiries as HMRC look to revoke the enormous £350bn government spend through the Covid-19 pandemic, as well as ensuring that measures put in place to support the economy through this period have been utilised correctly by taxpayers.

Tax enquiries can last for months, even years and defending you against HMRC’s detailed questions requires specific expertise and can be time consuming and costly. Indeed the cost of dealing with an enquiry can amount to thousands of pounds, even if no extra tax is payable.

But no need to panic…. 

All of our 1 Accounts monthly fixed fee services cover the additional professional costs of handling tax enquiries and compliance checks this is through our Tax Fee Protection Service. This is so our clients never have to worry that they will get a huge unexpected bill if HMRC decide to investigate.

As an additional benefit this protection also provides our clients with complementary telephone access to employment, health & safety and general legal advisors, including support from employers with any adjustments made in response to the Covid-19 pandemic.

money bags

Anti-money laundering and our clients

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Anti-money Laundering – sounds scary, doesn’t it?

Our governing body (AAT) requires us to follow strict guidelines to help us spot signs of money laundering. Although we trust our clients, we must follow all of the steps to comply with the regulations.

What is anti-money laundering?

Our team are all trained to spot the signs of money laundering. Each client will have an identification check and risk assessment completed at the point of onboarding and then every year thereafter. We have to be sure each client is correctly identified and that their income hasn’t changed dramatically without justification.

As we have to complete the reports each year we will require:

  • Up to date data on each client
  • Valid identification from each client

Due to the nature of accountancy, the police rely on us to report any suspicious activity. The rules are becoming much more strict and so as a regulated firm, we have to comply with the rules.

What do our clients need to do?

For our clients, all we need to know is that your data on our systems is correct and up to date. Therefore each year, every individual client will receive an auto email on the 6th of April. This will request the following:

  • Confirmation of your email address
  • Details of any name changes in the past year
  • Details of any changes in marital status
  • Details of any children born in the past year
  • Confirmation of your mobile number
  • Details of any address changes in the past year
  • Details of any plans to move home in the next year
  • Details of if of any changes to bank details
  • Details of any changes to personal circumstances

We will also request new copies of your ID if they are out of date, but these will only be requested if the ID we currently hold is no longer valid.

How we work 

At 1 Accounts we use a system called Karbon to request information we require from clients. At the end of the tax year on the 6th of April, we send out an automatic email requesting all the information we require to stay compliment with our anti-money laundering regulations. We then send an automatic reminder email once a month for five months to those who haven’t uploaded the information. If you still haven’t sent information after this, you will get chase emails from one of the team.

If you haven’t used our Karbon system before, it is nice and straight forward. All you have to do is click ‘manage checklist’ on the email.

Karbon checklist

This will then direct you to create a pin number (make sure it is memorable). If you forget your pin, just click on the ‘Forgotten your PIN?” hyperlink and follow the steps.

Pin number

Once you are in, you will be able to see a checklist where you can comment and upload the information we have requested, or ask any questions. These comments come through to the team like an email.

online checklist

Once you have completed a task we ask you to tick it off. The open tasks are what triggers the automatic reminders and so ticking them off will stop them.

If none of the information requests apply to you, we still need to write N/A in the comments so we know it doesn’t apply.

How to write N/A

Once you have completed your checklist and ticked off the tasks, please just log out or close the window. Your progress will be saved and we will be notified.

If you ever need any help completing these tasks, please email jade@1accounts.co.uk

Katie Donno giving thumbs up

Is employing family members good for business?

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Employees are sometimes afraid to voice their opinions. The same goes for disappointments, frustrations or general ideas, especially when it comes to changing the way things are done. As you can imagine, this can be damaging to the growth of a business; it can even stagnate it completely.

Working with family members, however, is a completely different story. Having such a deep relationship and history promotes honesty that you just don’t get from non-family employees, and this can be very good for business.

Yes, complete honesty can be a good thing! Here’s how working with family promotes honesty and why that’s so important.

Working with family promotes honesty…

Employees are the beating heart of any business; they are the key workers on the frontline and they are knee-deep in the day-to-day running of the business so they know what’s working and what’s not.

This insight is extremely valuable to every business owner, but not many employees share it. Why? Because not all businesses make their employees feel ‘safe’ enough to voice their concerns or to pitch new ideas.

This is where working with family members is extremely beneficial. It promotes honesty because:

  • Family members are not scared of getting fired (technically they can, but it is unlikely)
  • You know how to communicate with each other better (you both know the best way to speak to each other and how you will best respond)
  • You can have business meetings in more relaxed settings (for example, a relaxed meeting over dinner better promotes honesty)
  • You both want each other’s best interests so will listen (listening is often the weak link in communication)
  • Family members are trusted to go with their ideas and to run with it (you know your family members, so you put more trust and responsibility with them. In return, they feel psychologically safe to take initiative and voice their ideas).
  • Family members aren’t scared of making mistakes (many employees don’t take initiative because they are afraid of repercussions. Family members aren’t as they know that you will help them to learn from their mistakes).

…and this is great for business

Honesty is essential for building integrity in the workplace which in turn is essential for businesses to evolve and grow. You may not think that the success of a business is all that affected by honesty, but you’d be surprised. Here is why it is so important:

  • Honesty results in closer relationships – if employees are honest with each other, they can develop deeper and closer relationships.
  • Honesty is the foundation for trust and confidence – with trust in the company and confidence in leadership, employees are far more productive and happy.
  • Honesty nurtures wellness and reduces stress – voicing concerns and new ideas not only has mental benefits but it also allows employees to identify problems and work better as a team.
  • Honesty fosters an environment for self-accountability and responsibility – if your employees feel safe to be honest, they will be more willing to take on more responsibilities and to hold themselves accountable for their work. As you can imagine, this results in better individual performance but also as a team.

Honesty is the best policy

As the saying goes, honesty really is the best policy in the workplace. It has major benefits for all your employees and your business as a whole. While working with family members promotes honesty a lot more naturally than working with non-family members, fostering this same environment should be a goal for every business.

The Donno family

Family board meetings – you still need to take minutes

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Paul and Jenni had a board meeting yesterday revolving around the cycle to work scheme and Boris Johnsons announcement regarding the new grants for Electric bikes.   Now when we say ‘board meeting’ it was actually a discussion over their ‘Avo’ on toast. The vote was a very formal “that sounds like a good idea” and the minutes were as follows:

1 Accounts Online Ltd

Meeting of the board of Directors

Kitchen of the Directors in Haverhill Suffolk – 7:45am

Present:

Paul Donno

Jenni Donno – Chairperson and PSC

Apologies:

Paul Donno – for not getting the toast quite right!

Minutes of last meeting

JD required an amendment to the last meetings minutes in so far as she didn’t say that PD could have more time off to play golf.  It was agreed that PD could play golf three times a month and not a week as per the minutes.  JD also said that she would write the minutes in future.

It was resolved

PD having read the Times’ article that Boris Johnson is going to give a grant for an electric bike, PD suggested that it would be a good idea to look at the Cycle to work scheme. He then suggested for JD to get an electric bike so that the board of 1 Accounts could stay fit and work out together.  PD advised that then they could cycle to their local café for tea and cake for their next board meeting and claim subsistence.

JD felt that this was a good idea and asked PD to look into the scheme and find her a bike suitable to get to the café.

AOB

PD thought that as JD is only fulfilling her statutory duties as part of the Furlough rules, tea making is not illegal and should be actively encouraged.  After much debate PD agreed to make his own tea.

There being no other business the meeting was closed

Jenni Donno

Chairperson

You are not a bank

1 Accounts – You are not a bank

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You Are Not A Bank

As a small business, credit control can be a nightmare. Paul will tell you that when he first started running his traditional accountancy practice (Paul Donno & Co) he was pulling his hair out when he would do work, invoice the client and then not get paid. Unlike buying a product, paying for a service seems to have less urgency when it comes to paying. It used to take Paul on average just over 90 days for collection on 10 day accounts.

There is a group we belong to called the 2020 Group. One of the founders, a guy called Gordon Gilcrest spent some time with Paul to help his overcome this problem, he sat him down and said to him:

“Paul, you are not a bank. If people want a loan, they can go to the bank and they can pay interest on it. You are not a bank; you have credit terms, stick to the credit terms. If you give 14 days’ credit that gives them the right to pay within 14 days, not over days and pay you 50-60 days later”

This advice has stuck with Paul, and he re-evaluated his approach as a result. He spoke to the clients who were taking a long time to pay and advised them that they needed to change their ways. He also parted ways with a couple of companies.

When starting 1 Accounts Paul did not want these problems again. We set up Go cardless and have automatic direct debits taken every month. The direct debit is automatically set up when the proposal is signed. This saves time, money and chasing.

Here is our advice to you if you are struggling with credit control:

  • Look at your trading terms and ask yourself why you are offering credit, and if you do offer credit, want are your terms? Work out on average how quickly your customers are paying.
  • If you are lending money long term, that is for banks to do and not you!
  • Look at all types of money collection and do not put barriers in the way. Take credit cards, offer direct debit, provide alternative funding to customers
  • Remember ‘Turnover for vanity, profit for sanity but cash is reality’
  • It is no good tying up your money in stock that takes ages to turn over, measure stock turnover and don’t lock up your cash.
  • Don’t give extended credit, and if you do chase it hard, you have already paid for the goods sold or staff to provide services.
  • Without cash, you cannot make rational business decisions to move forwards.