07 July 2015
With a variety of clients of different types over many business sectors, at McDade Roberts we are used to dealing with lots of accountancy issues. It is often the case that some of these issues can be avoided and in this blog we will take a look at some problems that many clients face and how to avoid them.
1. Poor Record Keeping
Although this can be viewed as more of a problem to us as accountants it can also cause problems for clients. As a general rule, poorer records often require more work from accountants, which of course leads to higher fees. By maintaining accurate and organised records you can save money in accountant fees.
By keeping good records you also can keep a better control over your business. Issues such as collecting money from customers or organising payments to suppliers can be much easier if records are maintained accurately on a timely basis. As many businesses main trading issue is often cash flow, having good records can help avoid serious issues in the future.
Top tip – poor records can easily lead to mistakes that can lead to VAT and tax issues too. HM Revenue and Customs have been completing business records checks on businesses recently. They have completed these with a view to ensuring that proper accounting records are kept and that the chance of mistakes causing tax issues are minimised.
2. Forgetting About National Insurance
For individuals who operate as a sole trader or as a partner their individual tax is based on profits made by their business. Many people are aware of the basic rate of tax being at 20%, this means they often believe they know what their tax liability is going to be. It is common however for National Insurance to be forgotten.
National Insurance is also charged on profits with the starting rate of 9%. This obviously makes a big difference in terms of total tax that is due and can often come as a surprise to clients when advised of their tax liability.
3. Missing Income From Self Assessment Tax Returns
Under current rules all individuals liable to self assessment must file a return each year under current rules. This return is used to report all personal income received during the tax year ended 5th April.
This includes common income such as:
- Employment
- Dividends
- Rental
- Interest
- Pension
- Capital Gains
- Taxable benefits
As this encompasses many different sources of income it is often found that clients can overlook certain sources such as bank interest due to sometimes the amounts involved being negligible.
HM Revenue and Customs are getting more sophisticated in how they gather information from third parties to enable more thorough checking of tax returns. This increases the chances of HMRC spotting missing information and raising this with individuals leading to additional work and often additional tax liabilities.
Top tip – Keep an eye out for interest statements and p60’s that are sent every April as these contain the details that are required for entry on a tax return. These forms are often also part of an external reporting process to HMRC therefore do fall in to the category of being verifiable and cross checked by HMRC.
4. Treating Company Money As Personal Money
One common problem found by owner managed companies is the confusion that the funds in the company are theirs to draw out without tax implications.
This often occurs if a company is newly incorporated and the owner has had a history of being self employed.
In many ways the owner is still self employed because they own their own company however from a legal and a tax point of view the difference is very black and white.
The owner of a limited company will often be a director, and therefore they are effectively an employee of the company. This means that for them to receive money from the company they have to be in receipt of either salary or dividends.
Any other monies drawn could be treated as loans but these do bring potential tax implications for the individual and the company.
Top tip – Ensure that you have discussed remuneration policy with a qualified advisor and also plan carefully for exactly what is needed to be drawn. Often it is better to draw a minimal living allowance before looking at formalising annual additional funds to draw against.
Many of these issues are often caused by a misunderstanding of accounts or tax. At McDade Roberts we accept that our clients aren’t going to know all the intricacies of accounts and tax and that is why they seek our advice.
We do however do our upmost to try and educate our clients so that they are aware of potential pitfalls and encourage them to seek our advice before making major decisions. A brief conversation before an action can often prevent more detailed remedial work having to be completed in the future which saves our clients’ money.
If you don’t currently have this type of relationship with you accountant then why not find out how approachable the staff at McDade Roberts are by arranging a free initial consultation?