Monthly Archives: December 2016

0 How to Change Accountants

Why Change Accountants?

This can be an emotive topic depending on the relationship you have with your accountant and the number of years you have been together. People say it can be like a marriage; sometimes in harmony, sometimes a few ructions are felt, while both of you are needing to head towards the same goal of developing & growing your business. The accountant becomes fully versed in what your business does, where you are going and what you want to do to get there.

Like any other service or supply to your business, you should always ask yourself if you are getting good value for money out of your accountant. They can be a necessary evil of expenditure for any business, but developing a relationship with them outside the yearly compliance role can enhance your business. Of course, they will be there if you just need compliance work and tax returns completed too.

You need to ask yourself the following questions:

• Am I getting value for money – assuming you know the value you want?
• Does my accountant fully understand my business needs and what the plans are to grow the business in the future?
• Is the service satisfactory and are returns filed in good order and on time?
• Could I get better service elsewhere?
• Why has my bill gone up again?
• Has my business outgrown my accountant?
• Is my business treated like just another number to a large firm of accountants?
• Are they moving with the times? With all the digital technology out there, are there better ways of doing things?
• Are they OK with technology and the way I want to move with it?
• Can they offer advice on my systems & processes to make me more efficient?
• Why do I only hear from them once a year? Surely things happen in the year that I need to be made aware of?

How to Make the Change

Should you decide to change your accountant, then it is a relatively easy process to follow. We chat to you about what you need from your accountant, for example, a self-assessment tax return, full bookkeeping & accounting service plus year-end compliance, a workshop on processes, personal budgeting, etc., and then draw up a quote for services which will be valid for six weeks.

Should you decide that Performance Accountancy is right for you, then a whole process kicks off. The vast majority of accountants are familiar with the process and respond in a reasonable period (2 to 3 weeks), but there are times we may need you to give them a nudge. As long as you are up-to-date with fees, the outgoing accountant will not typically charge for this, although they may levy a small admin fee/postage to collect documents or post them out.

• We have a template which you can use to resign from your out-going account and introduce us to them. That gives your out-going accountant the approval to pass information to us.
• We will need to obtain various bits of information from you which is mainly via an online registration form.
• We complete the agent authorisation form on the HMRC website and HMRC post a letter to you with a code that you need to give to us to finish the process.
• We will write to your old accountants for the professional clearance and deal with any queries.
• Finally, we will need from you:
  • The agreed quote for actual work;
  • A signed engagement letter;
  • Identity documentation for anti-money laundering requirements
  • Go-cardless details set up for payment

When to Change Accountants?

It’s a question often asked. Just before filing deadlines is not usually the time as you will be stressed, your current accountant may be stressed not knowing if they are coming to you or not, and the new accountant will be fraught trying to get all the admin & agent bits through before they can work on your behalf. But sometimes we can work miracles. The impossible is harder.

Select a changeover date that is going to cause the least disruption to your business. The most obvious change date is the end of the business financial year. If you change mid-year, you may end up having additional catch up fees as your new accountant needs to re-create what your old accountant has already done. This is especially true if your old accountant is also doing the bookkeeping for you.

Ensure all financial responsibilities to your accountant are discharged i.e. all outstanding bills paid.

And then – that’s it – job done. Feel free to talk to us any time of the year if you are thinking of changing your accountant, or maybe getting an accountant, as you never know; new ideas may spark out of that conversation.

0 Cycle to Work Scheme

The Cycle to Work Scheme

The number of people taking to cycling each year is growing with over two million people taking to their bikes once a week according to British Cycling. In the large cities of the UK, it is seen to be one of the most efficient ways of getting from A to B. According to government statistics, 30% of people get to work on two wheels.  There was even a Cycle to Work Day on the 14^th September 2016. (I missed that one). It happened in 2013, 2014 and 2015 – but I missed those as well.

Employers can put in place a cycle to work scheme, so employees listen up. Even a director only company can have one. The scheme is a UK government tax exemption initiative to help promote a healthier lifestyle as well as reduce environmental pollution. Employers can loan bicycles and cyclists safety equipment as a tax-free benefit provided the value is less than £1000*.

The equipment that can be included in the scheme:

• A bike (handy) but the amazing thing is that it also includes those new ones that have a battery to assist peddling (I do like the sound of one of those);
• Cycle helmets that conform to European standard EN1078 (don’t know what happens to these standards after Brittan leaves the EU but that is another post);
• Bells and horns;
• Luggage carriers and the straps to allow bags to be safely carried;
• Child safety seats
• Lights
• Mirrors & mudguards so cyclist can see safely;
• Locks & security chains;
• Pumps & repair kits;
• Protective clothing with those reflective strips build in;
• Cycle clips & dress guards.

With all that kit, you probably need to have a car to put it in!

How does it work?

The two methods are via a loan scheme, or via a salary sacrifice arrangement and the employer reduces the salary of the employee.  There must be a salary sacrifice letter in the employee’s file to show this has been agreed. It needed to be noted that the sacrifice cannot take the employee below the national living wage or the minimum wage dependant on the age of the employee.

The employees enter into a hire agreement with the employer for the bikes, so the employee must be over 18 as they need to sign a legal agreement. The scheme must be available for all employees, but there can be different levels of bike to different levels of staff. I can picture the old Chopper bike versus a Felt Z6 bike.

The hire agreement or salary sacrifice letters must be in place before the commencement of the scheme for the employee. We can provide a template for the salary sacrifice letter.

Ownership of the Equipment

It is important to note that the title of the bike belongs to the company and does not pass to the employee. The bike should mainly be used for travelling back & forth to work and work related journeys need to account for at least 50% of its usage. There is no requirement to keep mileage logs, but the advice would be to keep one to prove the 50% use. Many people take the train city to city and then use the bike to get from the station to the office. You just need to be careful about which train journeys the bikes cannot be taken on.

The joyful news for tax is that there is no benefit in kind payable by the employee so it will not appear on the P11D for the employee, and therefore no payment of national insurance on the cost.

Get peddling.

*The value is to do with the consumer credit act and hire agreements.

0 How is my tax calculated? Why is it so high?

I’m a self-employed singer/musician – how is my tax calculated?

It is a common misconception that tax is calculated on your income/revenue/billings, and that the costs incurred for your business as a singer/musician are then deducted from that tax calculation. I wish it were true but sadly not.

This blog post assumes your only income is from self-employment and you have no PAYE income, interest, dividends or pension.

At the end of your accounting or tax year (this may change from April 2018), you work out what your income is whether from teaching, concerts, adjudication, publishing, royalties etc. You then work out your allowable costs that can be offset against this income. Typical allowable costs can be found on my blog post site or you can sign up at the bottom of my webpage for a full document at www.performanceaccountancy.co.uk/musicians.

Having got those two figures, you have a profit (or loss). From here, you can deduct capital allowances for any major purchase you may have made e.g. a new piano, computer etc.

You are then left with your taxable profit. As an individual, you get a personal allowance of £11,000 for the tax year 2016/2017 and that is deducted from your taxable profit.

Income tax is then calculated on that figure if it is greater than zero. Tax is at 20% but goes up to 40% at £33,500 (after the £11,000 allowance).

That is only the first lot of tax to pay on your taxable profit. If your pre allowance taxable profit is greater than £8060, you then have to pay 9% Class 4 National Insurance over that amount. To top it off, if your taxable profit is over £5956, you have to pay £145.60 for class 2 national insurance if you are over 16 and under pensionable age. 

As an example, Sandra earns:

Private teaching               £16,500

Concerts                              £4,200

Allowable Costs                 £3,600

iMac Purchase                   £1,200

Therefore her profit is £17,100 and her taxable profit is £15,900.

Her tax calculation is:

Taxable Profit                    £15,900

Personal Allowance          £11,000

Total                                      £4,900

Tax @20% on £4,900       £980

Class 2 National Ins          £145.60

Class 4 National Ins          £765.60

Bill for current year        £1831.20

Sadly for Sandra, it does not end there as she owes more than £1,000, she will have to make a payment on account for next year – more on that in a later post.

Hopefully that clears up how tax is currently calculated for the self employed.