MARSHALL ROCHE
Remember, all income is taxable, however it is paid and whoever it is
received from, and must be included in your accounts. Tips are also taxable income.
It is estimated that around half of all Inland Revenue investigations
start with a tip-off – it could be a disgruntled customer, a nosey neighbour or
even (and it does happen) a jilted lover!
The best way to avoid problems with the Inland Revenue is to keep good
records of all business income and outgoings, but particularly income. If you sell your services, eg. building work,
keep a diary to show the booking of work, to prove that all work is accounted
for. Enter holidays and sick periods in
the diary, to show when and why there is a drop in your income.
Remember that if your records are inadequate, the Inland Revenue will
regard you as ‘guilty until proved innocent’ – the onus is on you to keep
proper records and they can even fine you up to £3,000 for failing to do so.
Beware of the latest scam
The latest sales scam
to hit town goes something like this:-
You get a call from a company claiming to be screening applicants for
web-site addresses. They tell you that
someone has applied to register your-business-name.xyz and the caller is
concerned that they may be planning to set up a web-site in your name and rip
off your business. The good news is,
though, that as the owner of your-business-name, they are giving you the
opportunity to prevent the other person from registering it. Jolly decent of them to warn you, you may think. But then comes the crunch – you can
only stop the others by registering it first… If you have not registered
your-business-name.co.uk or your-business-name.com by now, do so if you
can. If you have a limited company,
only you can register your-company-name.ltd.uk. However, as more suffixes (ie the .com bit) are ‘released’, the permutations appear to be endless – if .com and .co.uk are already registered, ask yourself whether someone will find them instead of you when they look for your site – consider developing a new name altogether or a variation on your name, as some of the big companies have done. Avoiding NIC on dividends
Dividends are free of NIC, but this does not stop the Inland Revenue from challenging their validity - if you can’t prove that they were legitimate dividends, then you could end up paying 21.8% NIC on them, as well as the tax. It is no good just paying yourself £x and
leaving it until the end of the year to split it between salary and dividend
– this will only invite problems.
Dividends can only be paid from profits and must be recorded as
dividends, preferably paying them separately from salary. The easy answer is to draw your net salary
each month then, whatever else you draw, record it as a dividend. But make sure the profit is there to draw
and leave enough behind to pay the Corporation Tax on that profit (as a rule
of thumb, 23% of the net dividend you take). The Inland Revenue,
through IR35, has already scuppered dividends for ‘personal service
companies’ - we would bet on them tackling dividends for all small companies
at some time – don’t be one of the
first to be picked off… |
Directors’ NIC
To stop directors avoiding NIC by paying all their salary in the first month of the year (and so only paying one month’s NIC), the Inland Revenue introduced the rule that directors’ NIC had to be calculated on the basis of total pay in the tax year. If your salary is level each month, it
makes no difference, but if it fluctuates you need to recalculate the NIC on
the year-to-date, similar to PAYE calculations. If you need any help with this, contact
us. Tax returns
– the year marches on
As we approach the half-way mark, between
the issue of tax returns and the final deadline for submission, once again we
urge everyone to dig out the information we need for the return, if you
haven’t done so already. As before, we aim to keep your costs down
by avoiding too many reminder letters -
but we still want to hear from you! |
Investments – ‘can go down as well as up’
After the bursting of the
dotcom bubble in 2000 and the attack on the World Trade Centre, most people
thought the ‘going down’ bit was over for a while. The current situation mirrors the
over-optimism of the 1990’s, except now everyone is looking for reasons not
to invest rather than the other way around.
However, money put by for later in life must be put somewhere. With interest rates so low on bank and building society accounts, the long term prospect for stock market based investments (ISA’s, unit trusts, bonds etc) remains comparatively positive. With property at premium prices, that is clearly where many people are putting their investment funds at the moment, but when the property bubble eventually bursts, watch this space… |
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