Winds of change!

As you may have seen on FreeAgent's company blog, I'm very happy to say that I'm now working with them as their in-house accountant.

So that means I won't be writing any more here for a while - if ever!

It also means that unfortunately I won't be taking on any more new clients, though I'm going to go on looking after those that I do have, becoming a "5 to 9" business as Emma Jones would say.

Do look out for home business tips and articles on Enterprise Nation, it's a great site.

Goodbye and thank you. Happy home business to all!

Payments on account kick in at £1,000 for 2008/09 onwards

I'm preparing 2008-09 tax returns for my clients (that's the ones for the tax year 6th April 2008 - 5th April 2009).

What I'm used to seeing is that if a self-employed client's income tax and class 4 NIC is over £500 for the year, they would make payments on account.

Eh?

After their first year of trading, they would pay, let's say, £600 on 31st January for that first year's tax, and £300 on the same day for half the current (second) year's tax. Then another £300 on 31st July. And then let's say the tax liability for the second tax year was £700. They've already paid £600 of that - those are the £300 instalments. That's a very brief explanation of payments on account.

But today, I was preparing a client's 2008-09 tax return and spotted that, although his income tax and class 4 NIC amounted to almost £700, the software said no payments on account were required?

[scratches forehead and wonders if she's done something silly...]

So I double-checked HMRC's website just to make sure.

Aha.

For 2008-09 onwards, the threshold at which payments on account become due is £1,000 - not £500.

Goodo. No payments on account for not-very-well-off client. Phew.

"When can I claim expenses?"

This is a question that often crops up. Because HM Revenue say that any expenses your business incurs must be "wholly and exclusively for the purpose of the trade", or else you can't claim tax relief on it.

So how does that work?

Let's take travel and accommodation expenses, which are a very thorny issue. (Please note this is general guidance only, and if you're not sure you should take advice about your own case and your own journey.)

For example, imagine I travel from my home in Cumbria to London, for a training day. It's a long journey and I decide to make double the use of it by staying an extra day and going to the theatre. So I've got the cost of a 2-night hotel stay and my train fare to think about.

The first point to consider is what is the purpose of the journey. Is it just for the trade (in which case it's fully allowable for tax) or is it for pleasure too?

It's for pleasure too, because when I booked the journey, I planned to go to the theatre too.

So that means there's a duality of purpose. Note that HM Revenue distinguish between purpose and benefit. If the journey is for the purpose of the trade only, and you only get incidental personal benefit from it, it counts as wholly for the trade.

For example, if you go to Morrisons to buy ingredients for your cupcake business and at the same time you buy a bar of chocolate for your son, I would say that would be only incidental personal benefit, not dual purpose - so you could claim the cost of your travel there and back, and the cost of the cupcake ingredients. You can't of course claim the cost of the chocolate bar!

If an expense has dual purpose, then the cost is not allowable for tax. It's completely disallowed.

But... if it's possible to apportion the cost between trade and non-trade, so that a definite part was for trade and a definite part for non-trade, HM Revenue do allow you to apportion cost, and claim tax relief on the "trade" bit of the cost.

So for my journey to London, I could split the hotel bill between the night I would have had to stay for the training day, and the night I chose to stay extra, and claim tax relief for one night only.

When I entered that in FreeAgent, I would put one night's cost as "Accommodation and Meals" and the other as "Drawings".

What about the train fare?

That's a difficult one. I could argue that I wouldn't have gone to London at all if it hadn't been for the training day. The primary purpose of the trip was for business, the train fare didn't cost any more because I stayed an extra day, so I would probably try and claim it.

But HM Revenue could come back with the "duality of purpose" argument and say that I planned the trip for both business and pleasure and therefore it wouldn't be allowed.

It's a grey area.

So do be prepared to argue your claim, keep all available receipts, and of course, take professional advice.

Coming soon! New book and website builder for "5 to 9ers"

Do you have a full-time job, but are running a business from home in your free time?

Emma Jones of Enterprise Nation is writing a new book aimed squarely at you. It's called "Working 5 to 9: how to build a successful business in your spare time".

And, Emma's also teamed up with a creative agency called "Jump To", to provide a website builder for 5 to 9 'ers (that's people who work from 5pm to 9pm - or 9am! - on their home business).

Both the book and the website builder will be available from January 2010.

If Emma's last book, "Spare Room Start Up", is anything to go by, the new book will be fun, lively and packed with lots of useful tips and advice. And the website builder sounds a great tool, too, so long as it avoids churning out identikit websites :-)

To register your interest, head over to Enterprise Nation here.

Training on the move

I seem to be spending a fair bit of my time on the train at the moment (and trying to resist the temptation to splash out on first class tickets).

It's great if I can spend that time working. But mobile broadband doesn't always work on the train, so it needs to be something that I can do offline.

As a qualified chartered accountant, particularly because I'm now looking after clients of my own, I have to make sure I'm up to speed with any changes in accounts and tax legislation. I can glean a certain amount from the online and offline media, but structured, targeted courses, written by professionals, are the best way to pick up on those changes.

But taking a day, or even half a day, out of my schedule isn't always practical, especially as there aren't that many courses taking place here in rural Cumbria, so it'd mean a long journey to Newcastle at best.

OK, how about finding courses I could work through on the train? That means online courses are a no-no. Courses on a CD-ROM? My netbook doesn't have a CD-ROM drive.

No problem, said a helpful gentleman called Matthew Page at training provider CCH today.

Before you travel, put the CD-ROM into your desktop. Put an empty memory stick into your desktop. Drag the files from the CD-ROM on to the memory stick.

When you're on the train, put the memory stick into your netbook.

Hey presto, training material that I can work through on the train even if my mobile broadband won't connect and even though my netbook doesn't have a CD-ROM drive.

And, even though they don't say so on their website, CCH take payment by monthly direct debit so I can spread the cost over 12 months.

Great stuff.

Home business on the move

If you're anything like me, as well as an office at your home, you'll need to work on the move sometimes. That could be in a cafe, on the train, from a holiday cottage if you're really keen, etc. etc.

So you may need to use a BlackBerry, laptop, netbook or some other gizmo to access the Internet.

On my other blog today I've written about how the staff at a Carlisle cafe were helpful and flexible enough to work around me needing to plug in my netbook there.

I'm surprised, though, that in these days of mobile working, not everywhere has a policy about computer access by customers. Even cafes that don't provide WiFi may have customers with mobile broadband dongles who want to work there (like me).

There may be places which don't have convenient sockets, or who don't have a policy, or who say "no" and won't change their minds.

Do be aware that not everywhere is going to be as responsive to customer needs and as ready to think on their feet as these ladies at the Carlisle cafe.

Today's piece of advice is - if you are on the move, don't forget to fully charge your device at home before you go!

"Can I claim the cost of food when I'm at work?"

There's been a change in the rules about what self-employed people can claim for the cost of food and drink when they're out and about on business.

The rules are different depending on whether you're employed or self-employed. In this article I'm going to talk about the rules for self-employed people. Be careful - if you're employed by your own limited company, you're an employee!

Nichola Ross Martin publishes excellent guides for both employed and self-employed people on her website here. The one for self-employed people is particularly helpful as it uses several different home-based businesses as examples (freelance lecturer, jobbing gardener, accountant). I'd highly recommend buying a copy.

Here's a quick summary of the new rules.

Before 6th April 2009, HM Revenue wouldn't normally let self-employed people claim the cost of food and drink when they were out and about on business, on the basis that "well you'd have to eat anyway". The only exception was if you were staying away from home overnight on business.

After 6th April 2009, the rules have changed, by statute. If you're self-employed and either;

• in a travelling occupation (e.g. long-distance lorry driver), or;
  
• making a journey for work that is only occasional, or not part of your normal pattern of business, or;
• staying away from home overnight on business,

then as long as you have the receipts to support the expense, you can claim for the cost of any food and drink you bought for yourself while you were travelling.

You can't claim any estimates or round-sum allowances for food and drink. Round-sum allowances apply only for employees.

More information is available via Nichola's website. Thanks to Nichola for allowing me to post this summary.

"What expenses can I claim?"

When you run a business from home, that's something you definitely need to know.

Can you claim tax relief on part of your mortgage, or rent? What about the running costs? Do you get any tax relief at all?

The answer is yes, you do - and my friend and fellow accountant Alan Young has explained it beautifully on his blog here.

Show Me The Money - excellent advice from KashFlow

Duane Jackson of KashFlow has just written a superb piece on his blog with some very useful tips to help you make sure your customers pay you on time.

I particularly like the last point:

Customers paying late are a real pain. So don’t forget that you are a customer too. If you expect your customers to pay you promptly, then make sure you pay your suppliers promptly.

I've read business writing by people who try and make their customers pay them yesterday, then don't pay their suppliers right up until the last minute, to keep the cash as long as possible. I don't like that.

I've dealt with one estate agent who used always to knock a percentage off his suppliers' bills when he paid them and argue it later if and when they noticed. Ouch ouch ouch.

Put it this way - having seen what he was like as a customer to his suppliers, I'd never buy a house through him. What goes around comes around.

The legal side of a home-based business

Picture the scene.

You've been made redundant from your job as a result of the credit crunch and have decided to turn your hobby - be that jewellery making, teaching French, or basket weaving - into a home-based business.

Great decision, because it means you're making money doing something you love. (I'm so much happier since I set up my home-based business. My husband's noticed that too.)

But when you're in business, you've got to think about so much more than if you were doing what you do, as a job.

If you were weaving baskets for an employer, all you have to do is - weave baskets. You don't have to find customers, pay bills, keep your books.

And you don't have to worry about whether your contracts with your customers and suppliers would stand up in a court of law.

If you're running a business weaving baskets, you have to do all of that.

So often, micro businesses don't put written contracts in place. Remember - a verbal contract's not worth the paper it's written on.

And then if your customer doesn't keep to your payment terms, could you sue them?

I would suggest thinking about that and talking to a lawyer.

But do remember that not all lawyers, like accountants, specialise in micro businesses. Many of them would charge you a huge amount and that's just what you don't need.

Try a service like Lime One (hat tip to Enterprise Nation for pointing me at them) that will give you "a template and minimal support" if that's what you want.

Thanks to Stefan for the tip to write this.

How complicated can a 4-page form be?

I visited another firm of accountants yesterday and during the meeting, we got to talking about tax returns. Sad isn't it.

We can remember the time when the shortest tax return was 10 pages long.

Now the shortest tax returns are 4 pages long.

Improvement?

Hang on a sec.

The guidance notes got longer when the return got shorter.

The 4-page return contains exactly the same information as the 10-page one. It's just that you have to add bits together to get the figures to go in the boxes on the 4-page form.

This is where it starts getting complicated. What figures should go in which box?...

I'm one of those people who thinks the UK's tax system is in serious need of simplification. Surely a form that has to be filled in every year shouldn't need a thick wad of guidance notes to fill it in.

And it's really scary that nobody in the winning team on University Challenge a couple of years ago could work out a tax credit claim correctly. If those bright sparks can't do it, what hope do the rest of us have? And that includes the staff at HM Revenue.

But until Mr Darling and co do make the form simpler, remember there are lots of friendly accountants out there who have done so many tax returns that we talk about them over coffee - and we're here to help YOU.

What perks for no commute?

My friend and fellow accountant Shaun McGuinness of Tax Sorted writes about some of the perks that employees can receive from their employers without also receiving a whacking great tax bill.

One of them is a tax-free bicycle to ride to work and a tax-free breakfast when the cyclist arrives at work. (And hopefully the employer would also provide a changing room and shower.)

And cyclists who provide their own bike get a 20p/mile allowance, compared to 40p/mile for the first 10,000 miles driven in your own car and 25p/mile thereafter. That sounds generous to me.

Shaun says:

We have thus far waited in vain for the introduction of joggers’ breakfasts and walkers’ breakfasts!

I agree - there's no mileage rate at all for walking to work and no provision for a tax-free breakfast for those who use shanks's pony to get to work.

And what about those of us whose commute is a walk into the dining room / spare room / down the garden to the shed - home business owners and homeworking employees? How about a tax-free breakfast for us Mr Darling?!

What do you want from your accountant?

The clients who've so far come on board with me have wanted the same things from their accountant.

Someone who'll help them keep good records so that they know how their business is doing and keep the Revenue happy.

Someone who'll make sure they fill in the right forms and pay the right amount of tax at the right time.

Someone who'll give them advice on how to save tax, like buying a new piece of equipment just before the year end instead of just after it, so you get the tax relief a year earlier.

Someone who won't talk endless accountantese, or drown them in generic information sheets and newsletters.

And someone who charges reasonable fees for a small home-based business.

That's what I'm aiming to offer to my clients.

But I'd be interested to hear if there's anything else that home-based businesses would like from their accountants.

What makes you choose your accountant? Why did you pick that one? What would you like them to do differently?

Please tell me using the comments box.

Business equipment on a shoestring

Emma Jones's book Spare Room Start Up, one of the books on my recommended list, gives a breakdown of how you can start your small business for under £500 - and that includes the price of a bottle of bubbly to celebrate!

The most expensive item on her list is a £335.99 laptop.

But you really don't need to spend that much on a computer.

It's not unknown for big organisations to off-load their old computer equipment in return for a small donation to charity. £25 to the Air Ambulance, and hey presto, I have a desktop. OK it's a few years old, but that doesn't worry me. In fact, I'm glad it's an older model, because it's running XP, not Vista.

And sometimes people even post computer equipment on Freecycle, and that means you could get it for nothing.

You don't need a top-of-the-range Apple Mac, or even a mid-range laptop, to be successful in home business. Spend your money where it will really make a difference - on a good website, or professional business stationery.

Business cards with pizazz

Duane Jackson, MD of KashFlow, blogged some time ago about business cards.

Here's what he had to say:

Your business card should have your logo, web address and contact details - it doesn’t need much more than that.

It doesn’t need to fold out into an origami duck, it doesn’t need to be inserted into a CD drive, it doesn’t need to tell us about your 10% discount to new customers, it doesn’t need to play the national anthem whenever it’s picked up and it doesn’t need to taste of strawberries when you lick it.

Putting anything on the back of your card is a big no-no too.

Well, Geoff Ramm would have a blue fit if he read that. His view is that business cards should have a bit of punch and a bit of pizazz. Because that's what makes them stand out from the dozens of other business cards that are dished out. And if they can be a different shape then so much the better.

And personally, I agree with Geoff.

I'd like to share two examples of great business card shapes with you.

First is a book-binder's in Haltwhistle, Northumberland. Their business card is shaped like a bookmark. Fab. It's relevant to the business, and as it's used as a bookmark, the reader remembers the company.

The second, which I was given last night, is for The Utility Warehouse, a company that saves you money on all your utility bills.

Here's their business card.

Shaped like a smiling fat pink piggy bank.

(The grey background is my printer, not the card.)

And it's headed up with the tagline, "Let's put money in your Piggy Bank".

That card grabbed my attention right away and made me laugh. And it ensured that if I'm looking for that sort of a company, I'll think of the one with the piggy bank card.

I did think of making my own cards shaped like a plus-sign, but my printer wasn't keen :-)

Mobile broadband; setup

One technological advance that's been at least partly responsible for the huge numbers of home businesses in the UK is broadband Internet connections.

Because I travel about a fair bit on business, I finally took the plunge yesterday and signed up for a mobile broadband connection, because my battered old laptop refuses to connect to any WiFi (even though it is wireless-enabled).

I chose a deal that gave me a free netbook, one that would be light enough to carry easily on the train, that I could just pop into an ordinary bag (sadly important for security, given I'll be travelling alone), and that could be used for web browsing and working on documents in Google.

No bells and whistles are needed, and I'm not planning to load any more programs than anti-virus software and my preferred browser (Firefox), so I opted for a straightforward Dell Inspiron.

The very helpful guys at the Carphone Warehouse in Carlisle checked my home postcode and said that the only network that offered any sort of mobile broadband coverage there was 3, which has the best overall coverage in the UK.

3's a new one for me. My personal mobile phone is with O2 and my business mobile phone is on what my brother calls "Skodafone". But apparently standard mobile phone coverage won't give you enough capacity for mobile broadband. It needs to be better than that. And 3 is the only network giving enough cover in my neck of the woods.

So I duly signed up to 3.

When I got my new netbook home and began setting it up, I discovered that there are two possible broadband speeds depending on the coverage in your area - fast or slow.

Guess what. In my area I get the slow one.

Which, speed-wise, is comparable to dial-up. Chug chug chug.

So the anti-virus software took till 8pm to download. Ow.

By which time I was fed up with the slow connection. So I unplugged the mobile broadband dongle and hooked up the netbook to my trusty landline broadband from BT.

Anti-virus update then downloaded in 5 minutes instead of 5 hours. And Firefox downloaded before I could say "Mozilla".

So my netbook is now all ready for taking on the train - and here's hoping that in the areas I go to, I'll be able to get the faster 3 speed.

But at least it means I can work on the train, even if I can't get the faster speed. I must just remember to do any downloads and updating here at home using the landline connection.

Moral; if you're off the beaten track, mobile broadband may be best for travelling and emergencies only.

Dressing for homeworking

When you're working from home, one of the great advantages is that you don't have to follow an office dress code.

You can work in your pyjamas if you want to (Liz Jackson admits that's what she used to do when she started her business from home). You can wear a favourite old sweater when it's cold, or pad around in shorts and bare feet when it's hot.

Some home business owners do prefer to dress up smart every day, to help them get into a "work" frame of mind.

But the point is, it's up to us. We don't have to do what some poor goons have to do and wear matching suits all day, even in the heat of summer.

And when you're your own boss, you get to pick what to wear when you visit your customers/clients. You can decide what image you want to project. I try and avoid the stereotypical "accountant" look of a pin-striped suit and white blouse. For one thing, I look ghastly in black and white, and for another, I'm not your average accountant, so I don't want to look like one.

My two smart jackets are 1) bright red and 2) deep rose pink. So I look smart and professional, but cheerful and approachable.

New magazine for home business

At a home business event yesterday, I was handed a copy of a new magazine for home business owners. It's the Home Business Network's magazine which is being distributed monthly with the Saturday Telegraph - or you can register FREE on their website and get the magazine online without having to buy a newspaper.

I've registered so that I can have a good read of the magazine, which is full of useful articles, case studies and tips, all written in straightforward, non-patronising terms, and share some thoughts.

Here's my thinking about the first issue.

There are some "Top Tips for Business Sellers" aimed at businesses trading on eBay. One of these tips is;

Think and act like a business
Starting your own business means you need to master a whole load of skills from basic accounting to marketing. Too many traders don't know basic maths and this can cost them dearly in the future.

It is true that you do need to learn a lot of new skills when you have your own business. You'll be chief sales(wo)man, chief marketer, production manager, chief coffee-maker, etc. etc. Some of it you can outsource (see below), but some of it you'll want to keep and do yourself, because nobody else has the same passion as you for your business. It's your baby.

But you don't need to learn basic accounting, even if you choose not to outsource your bookkeeping. You didn't go into business to be an accountant. Instead I'd recommend you use a nice simple software package that will help you with your figures and add everything up for you. I use FreeAgent for my clients, or you could try KashFlow.

And talking of KashFlow, the Home Business Network site also mentions that you get a free trial of KashFlow if you sign up to the HBN. Sorry folks, this isn't a benefit of HBN. Every new user of KashFlow gets a free trial!

Also in the magazine was an article about bespoke tailor Harold Rose. He mentions how he doesn't directly employ staff, but instead outsources his bookkeeping, "web design, SEO, website management, accounts, warehousing and 'office reception'."

That's what I do too. I outsource my telephone answering to the excellent Moneypenny and my websites to 1973 Ltd (for my video business) and Greg Coltman, my brother-in-law, for Home Business Accountant. I'm not a web designer, and Chris, Dave and Greg know far more than I do about websites, CEO and design.

Don't be fooled by the government organisations who judge a business by the number of employees it has. You don't need to employ anyone if you don't want to. There's bound to be someone whose business it is to provide the service you need.

To quote Emma Jones at Enterprise Nation:

Do what you do best, and outsource the rest!

Why it's good to do the books

When you're running a home business, or even more so, setting one up, there always seem to be a thousand and one jobs to do.

"Doing the books" - keeping track of the money coming into and going out of the business - is just one of these jobs.

Hands up all those for whom "doing the books" is something you enjoy, look forward to doing, and put aside time for.

Now hands up everyone who thinks "doing the books" is a chore and a bore and puts it off as long as they can.

And finally, hands up those who are terrified of "the books" and ignore them hoping they'll go away if you leave them long enough.

Well the books might go away, if they get mouldy enough to grow feet and walk, but I'm afraid HM Revenue aren't going anywhere.

That's one reason for keeping your books up to date. If HM Revenue come sniffing round - and they do now have the power to visit us home-business owners at home - then you need to have some nice, neat, up-to-date records to show them. It's actually illegal not to.

The second, and what I think is the most important reason, is that if you keep your books up-to-date, you have a much better grasp of how the business is doing. Can you remember everything about your business's figures?

Did Mrs A pay you for digging her garden? How quickly? Do you need to collect cash from her next time because she took ages to post you a cheque? Did you remember to pay that bill from the gas man? Are you sure? And are you paying out too much to make your business worthwhile? Is the game worth the candle?

You won't know any of that without a good set of up-to-date figures.

And the third reason is that it keeps your accountant happy. In my career I've seen dozens of sets of inaccurate, messy, behind-schedule records. That really doesn't help client-accountant relationships. Because if the records are a mess, I'm cross with the client before I get even an hour into preparing their accounts, and by the time I've finished, I'm more inclined to show the client the door than to help them save some tax.

That's why anyone who'd like to be a client of mine needs to be ready to keep their books accurate. I want to build a good relationship with you and that'll be impossible if your records are rubbish!

Don't worry though, you don't have to be any good at sums. FreeAgent will take care of all that for you and it comes inclusive in my prices. And I'll teach you how to use it, so there really is nothing to worry about.

So those are my three reasons for why it's a good idea to keep your books accurate and up-to-date.

• It's illegal not to.
• You're much more aware of how your business is doing.
• It makes your relationship with your accountant so much happier.

And that has to be good news!

My own accounts; Why I recommend FreeAgent to clients

Another month end has passed, a statement has arrived from my business bank.

Guess that means it's time to do my own businesses' accounts. Because apart from the many excellent reasons why it's good to keep your accounts up to date (and more about that soon), it's also not much good me encouraging other home-business owners to keep their books up to date if I don't do it myself.

I keep Home Business Accountant's books on FreeAgent, the same software that I offer, inclusive as part of my fixed monthly fees, to my clients.

I'm getting more and more keen on FreeAgent as I go on using it.

Today, I had several out-of-pocket expenses to record, and the data entry for them is so quick and easy. I've talked more about this on my other blog, here.

And also, compared to other online software products I've seen, it's so simple to use, with lots of clearly written explanations.

It has only the "bells and whistles" that micro businesses really need. Out of pocket expenses? Check. Bank statement imports? Check. Stock control? Nope. Explanations in accountantese? Not on your nelly. They were written by non-accountants and it shows.

Insurance for home-based businesses

One dilemma for us home-based business owners is insurance.

Will the standard buildings and contents insurance policy cover

• home business equipment,
• stock,
• a flood that makes it impossible to work from home and means you have to pay for an alternative place to work while repairs are on-going,
• suing by visiting clients who trip over a pair of wellies left in the porch?

Equipment and stock might be particularly difficult to get cover for if they're what insurers call "attractive to thieves", e.g. a laptop computer, the stock of a jewellery maker.

So I was pleased to find, thanks to a tip from Emma at Enterprise Nation, that Direct Line do a policy specifically for home business owners. Their site is here.

I hasten to add I'm not reselling insurance here. I get no commission from Direct Line for mentioning their policy or if anyone chooses to buy it. This is just a pointer to a site that might be useful.

Could YOU be due for a tax refund?

Earlier on today I attended an absolutely cracking marketing seminar with Geoff Ramm. I can safely say I've never known a seminar whizz by so fast. Geoff was energetic, zingy and full of fun, and there was no guff in sight. Nor did he advise us to do hugely expensive marketing exercises. All his advice was for easy, quick and CHEAP changes to marketing. Brilliant.

He even did the Diet Coke and Mentoes experiment (dropping a mint into a bottle of Diet Coke to create a Coke fountain - made a right mess of the tablecloth but certainly gave us a laugh).

After the seminar, I was chatting to a lady who was in a situation that I suspect a lot of people are in right now.

She was in full-time employment for part of the year ended 5th April 2009, which of course means she was paying one-twelfth of a full year's tax each month.

Then she got made redundant, and started up her own business.

But unless its monthly profits and any other untaxed income she has came up to her month's salary, she'll have paid too much tax.

So she might be entitled to a refund, assuming the National Insurance on the business's profits doesn't gobble the difference up.

But until she (or a friendly accountant) crunches the numbers, she won't know for certain.

So don't leave your tax return gathering dust in a drawer. Get it sorted as soon as you can. Because come January, HM Revenue will be snowed under with tax returns and you'll be waiting that much longer for your refund. Get the return filed now and you could receive your refund within weeks. I did and so did one of my other clients.

What are you waiting for!

Can you afford NOT to...

Overheard in a local hardware shop, customer to manageress: "Come on Maureen, there's a credit crunch on!"

Many of us are tightening our belts like mad and trying to avoid any "unnecessary" expenditure. But where's the borderline between "necessary" and "unnecessary"?

As an example, my husband and I decided yesterday evening that going out for supper on our wedding anniversary this week was definitely "necessary". If you cut out absolutely everything you enjoy to save money, you'll go stark raving barmy. OK, we're not going to go to David's, our nearest upper-notch eatery, we'll be going to a local gastropub, but we're still going to have a meal out.

And it's the same in business. Sometimes spending some money is the best thing to do, like having your website done professionally. Template-built sites absolutely shriek.

Jason Holden, a fellow small-business-friendly accountant, writes on his blog why using the services of an accountant is something you can't afford not to do. In brief, if you get your records in a muddle, or pay the wrong amount of tax, you face HM Revenue coming down on you like a ton of bricks. And they don't accept the excuse that you're a layman and don't understand the system.

That's why you need the services of a friendly accountant like Jason, or Andy, or me :-)

Accountants like us are there to help guide you through the labyrinth that is the UK's tax system.

Because there is a credit crunch on and you don't want to find yourself confronted with a Minotaur in the shape of an angry HM Revenue inspector come to take more of your hard-earned money away in interest and penalties because you didn't get it right the first time.

"Must I tell the Council / local authority that I work from home?"

Guess what.

It's another grey area!

The two issues involved are:

1. Will you need planning permission?
2. Will you have to pay business rates instead of, or as well as, council tax?
   

As far as planning permission goes, the consensus seems to be that if you're not doing anything to change the nature of your home or its surroundings, or upset your neighbours, then the answer is no.

So for example, if you're sitting in your lounge hand-sewing patchwork cushions for sale by mail order, or sitting at your computer writing articles, you won't be disturbing anybody, so you don't need planning permission.

But if there's going to be more traffic, more noise, more visitors (customers and/or suppliers), more large vehicles delivering stock, then you should speak to your local authority. So if you want to turn your garden shed into a blacksmith's forge, then you'll definitely need planning permission.

Business rates are an even greyer area. The difference between these and council tax is that business premises pay business rates, domestic occupiers pay council tax. So if you work from home - which category is that?!

If you use a large part of your home just for your business, then you could be liable for business rates. But if you only work in one room, and that room's also used for non-business activity, you're unlikely to be liable.

As an example - my office doubles as a music-room, and a quiet room to escape to when Matt's watching the football. So it's not just used for business, and I pay council tax, not business rates.

The Valuation Office Agency (VOA) which is now part of HM Revenue & Customs gives some examples of how they would judge whether you need to pay business rates or not. They look at each case on its own merits - so if in doubt, contact the Valuation Officer for your area. You can find contact information here.

As always - if in doubt, check it out!

Homeworking and staying sane

Wendy Pascoe's book "Starting a Business in the Country" has a great chapter called "Working from home - the best option?"

She suggests some tips for how to "stay sane" when you're working at home, because the boundaries between "work" and "not work" are necessarily more blurry when you work from home.

Here are her tips:

1. Try to start and finish at a set hour. Or have an unbreakable rule: 'I will never work past 7pm'.
2. Have two (or three or four) breaks a day.
3. Make sure you still see people. This is particularly important if you live alone. Make a point of meeting a supplier, customer or client every week or two. It's also good for business because it puts faces to names.
4. Develop more friends socially because you won't have work colleagues to fall back on.
5. Treat work as seriously as you would if you were going out to work. Tell your family and friends that your piano practice or potting up of baby bamboos is just as important as sitting in an office staring at a screen.
6. Set yourself targets and give yourself treats if you meet them. 'If I finish this project by Wednesday lunchtime I can go for a walk / have a bar of chocolate.' You need self-discipline for this one.
7. Ignore housework. If you were working in a formal office environment you wouldn't pop home to unload the dishwasher or do some ironing, so why should this be any different?

I've got some thoughts to add to those tips.

1. Good in theory, doesn't often happen in practice, especially if you're what Emma Jones calls a '5-9er', working as well as holding down a job. I guess what Wendy's very wisely saying is don't overdo it and get burn-out.
2. Yes, very important. I often get a dose of extra brain zing when I've had a break and a cup of Redbush tea.
3. Agreed 100%. Face to face is always the best way to do business. If you'd rather not have business contacts come to your home, arrange to meet them at a local business centre, cafe or hotel.
4. Especially important if you've done what I did 2 years ago and moved to a new area where you don't know a soul except your spouse/partner/children/family/cat. I've taken up playing folk fiddle again (cue endless puns about an accountant on the fiddle!) which is a great way to meet new people.
5. It's all there in the title - homeworking.
6. Self discipline so you don't scoff too many bars of chocolate? Or so that you'll chase yourself away from your desk?
7. Not sure I agree with this one. I think one of the advantages of working from home is that nobody minds if I set a video producing and then go and tidy the kitchen while my computer's whirring. Or that I can run out to rescue the washing off the line if it starts raining (as it frequently does in Cumbria).

What do you think?

Employed or self-employed?

That is the question!

When you decide to set up in business, although you may be pretty certain that you're self-employed, HM Revenue may think otherwise.

And I've heard it said that they like to reclassify people as employees because that means they get more National Insurance (both employers and employees pay it when someone's employed, but for a self-employed contractor only (s)he will pay National Insurance).

HM Revenue say you're probably employed if you:

• have to do the work yourself [i.e. can't send someone else to do the work on your behalf - bit of a sticky one that if you're a one-man or one-woman band]
  
• work for one person at a time, who is in charge of what you do and takes on the risks of the business
• can be told how, when and where you do your work
• have to work a set amount of hours
• are paid a regular amount according to the hours you work, and get paid for working overtime - even if you do casual or part-time work, you can still be employed

(Source: HMRC website)

And they also say that you need to look at what you do for each customer individually. You may be employed by one and self-employed for another...

Argh.

Why can't they make things simple??

In his book "The Quick Guide to Working from Home" which I read yesterday, Hugh Williams provides a much longer and more comprehensive list of factors which might indicate employment or self-employment, e.g. do you have to wear a uniform, do you provide your own tools and materials.

HM Revenue will look at the situation as a whole rather than just at one measure. So if you are a one-man or one-woman band and don't have anyone else you could send as a substitute, they won't say you're an employee just because of that (or they jolly well shouldn't, anyway).

If you're in any doubt about whether you're employed or self-employed, take professional advice.

It does matter because if you're found to be employed instead, there'll be a large tax bill involved for someone - your employer if you're not a limited company, your company if you are - that's called IR35 and is a whole separate issue!

And remember, HM Revenue want you to be an employee because they get more tax - so cover your back!

Wise advice from a wise man

The latest addition to my home office is a cork pin board for notices. So I can pin up phone numbers, reminders, checklists etc. I think it's going to be very useful. Here's a picture of it.

While I was in Staples yesterday buying the pin board, I spotted a book called "The Quick Guide to Working from Home", which jumped up waving a flag that said "Buy me!" so I did.

That was before I noticed it was written by my friend and fellow accountant Hugh Williams. If I'd known that, the flag would have shrieked at me to buy it. I already have two of Hugh's books and they're full of knowledge and insights but written in clear, plain English and with a wonderful dry wit.

Talking about promoting your business to the local media, Hugh quotes:

He who whispers down a well
About the goods he has to sell
Never makes as many dollars
As he who climbs a tree and hollers.

Absolutely right. The more you get your word out about your business, the more likely you are to meet ideal customers.

But do remember where your ideal customers hang out - and don't waste your voice "hollering up a tree" in a park where they won't be found!

For example, I don't post on forums where large business owners congregate. I don't even know where those forums are. My ideal customers wouldn't go there - so neither do I.

Who was it said that if you've got the best cat food in the world, it's no good trying to sell it to dog owners?

"How do you work out what I pay tax on?"

If you're a sole trader or a partner in a partnership or limited liability partnership, you pay income tax.

A limited company pays corporation tax.

But the point is, on what?

The answer is - profit.

That's the business's sales less the business's expenses (travel, staff salaries, website design fees, etc).

BUT - some expenses are what we accountants call "tax-deductible" (that means you can count them as part of your expenses when you're working out the profit to pay tax on), and some aren't.

For example, entertaining anyone other than your employees is not tax-deductible.

Another way of putting that is "you can't claim tax relief on it".

So if the business's profit after all expenses was £15,000, but that was after taking off entertaining of £100, the business would pay tax on £15,100 - because the entertaining isn't tax-deductible.

Some expenses are cut and dried - they either are tax-deductible or they aren't.

But in some cases, there are a lot of complex rules about whether an expense is tax-deductible. Travel is an absolute corker for that.

Did you know that if you take a trip for both business and non-business purposes (e.g. you fly to Dublin for a meeting with a customer, and then have a weekend in the city as a tourist afterwards), NONE of the travel costs for that weekend will be tax-deductible, because the trip wasn't just for business?

Ow!

You'd do better taxwise not to combine the trips and have your tourist weekend another time!

That's why you need a friendly accountant to guide you through the tax maze!

Am I trading? 2: Applying the badges of trade

In my last article I talked about the Revenue's "badges of trade" which is the system they use to decide whether or not someone is trading.

BUT there can be situations where more than one badge applies but they seem to point in different directions!

For example:

You are a web designer. Your grandad bequeaths you his collection of vinyl LPs. You don't have a LP player so you decide to sell them. It's a large collection, so you sell a few at a time on eBay. Do you have to put the money you make from them on your tax return? Are you trading in LPs?

1) Are you selling them to make a profit? No, you're selling them because you don't have an LP player.

2) Are you selling the same sort of items repeatedly over time? Yes, you are.

3) Are you selling something that didn't give personal enjoyment? No, they did give personal enjoyment to your grandad.

4) Are you selling something that's similar to your own business? No, websites are not similar to LPs.

5) Did you repair, modify or improve the items before you sold them? No, you didn't (apart perhaps from dusting them, but that's cleaning, not repairing).

6) Did you sell the items as a trader might? Difficult one. Traders do use eBay but then so do people who aren't trading.

7) Did you have to borrow money to buy the item, that could only be repaid by selling it? No, you didn't.

8) Did you sell the item quickly? Difficult one again. Yes to some LPs and no to others. But for the collection as a whole, the answer would be No.

9) Did you buy the item? No, you inherited it from your grandad.

So are you trading in LPs?

I make that seven No's, one Yes and one "could be either".

On balance, my answer would be "No, you're not". Not necessarily because you've got more No's than Yes's, but because there are some really compelling No's - in particular, you're not selling the LPs to make a profit, they gave personal enjoyment to the person who gave them to you, and you inherited them, you didn't buy them.

So you're not trading in LPs. That means there's no income tax to pay on the sale of the LPs.

BUT in some circumstances there may be inheritance tax or capital gains tax to pay!

So because the issue of whether or not you're trading is such a grey area, and because there might be other taxes involved, I'd recommend you always take professional advice.

(If I can't help you then I'll usually know someone who can!)

Am I trading? 1: The badges of trade

One question I'm frequently asked is something like:

"I've sold a lot of CDs / clothes / old furniture on eBay. Does the money I make from that have to go on my tax return?"

The answer - as with so many tax questions - is, "It depends!". If your sales on eBay are "a trade", then the answer is yes. But if they're not - then it's no.

How do you know if your sales are "a trade"?

The Revenue have a series of what they call "badges of trade" to check this. Here's what they are.

1) Whether you meant to make a profit. This isn't the same as meaning to raise some cash for an emergency (see point 6). Are you selling because you want to make a profit out of the sale, or because you don't need/want the items any more and you'd rather make a bit of cash than throw them away or give them to a charity shop? Selling to make a profit is a big pointer to trading - but the Revenue say that's not conclusive!

2) Repeated transactions. Are you selling the same sort of stock over several months (e.g. an eBay shop selling furniture)? That's likely to mean you're trading.

3) Nature of what you're selling. Is it something that you've had personal enjoyment from, e.g. a painting you had hanging on the wall, your old CDs, your wedding dress? If what you're selling is something that didn't give you personal enjoyment (e.g. a bag of loo rolls) then you're far more likely to be trading.

4) Similar transactions to an existing trade. If you have an online flower shop, and you sell a potted plant on eBay, the sale of the potted plant would count as part of your trade because your business is to sell similar goods.

5) Changes to the item. Did you "repair, modify or improve" the item to make it sell more easily, or for a greater profit? If you did, that could point to trading.

6) How the sale was made. Did you sell the item as a trading organisation would do, or did you sell it to raise some cash for an emergency? Selling on eBay through an eBay shop would be trading. Selling something through the classified columns of your local paper is less likely to be trading.

7) How the item was bought. Did you have to borrow money in order to buy the item? Could you only repay that money back by selling it? If yes, you could be trading.

8) How quickly the item was sold. Selling items very soon after they were bought could indicate a trade (e.g. buying wholesale stock to sell on a market stall). The longer you've kept the goods, the less likely you are to be trading - but that depends on the nature of the items. A trader selling antique furniture would keep his stock for longer than a greengrocer selling fresh fruit and veg.

9) How you acquired the item. Did you inherit it or receive it as a gift? Selling items you've inherited or been given points away from trading.

That's what the Revenue are looking for... BUT what happens if you can see several badges in your situation, and some say you're trading and some say you're not?

Next article coming up!

What kind of business set-up? 4; limited company

Last but not least... comes a limited company.

A private limited company (one where the shares can't be freely sold to members of the public) has Ltd after its name. A public limited company (where the shares are available for sale to anyone who cares to buy them) is a plc.

There doesn't have to be more than one person involved in a Ltd. That one person would be a director of the company and would probably also own all the issued shares.

Ltds are set up at Companies House, and I can help you to do that.

Like an LLP, a Ltd must file accounts in a set format every year at Companies House, which go on the public record. The addresses of the company and the directors also go on the public record.

A Ltd must also register with HM Revenue and do its own tax return every year. Again, that's all part of what I can do for you.

If the director wants to pay him- or her-self a salary, the director will be an employee of the company, so the company must register as an employer with HM Revenue and jump through all the hoops of running a payroll. And all company directors must do a tax return every year. I can help you do your tax return and I can recommend a good bureau that can help you with your payroll.

Also like an LLP, a Ltd has a legal identity all of its own. It's separate from the directors and shareholders. Ask M Ltd, the video-making business, is not the same legal entity as Emily Coltman, even though I'm the only director, only shareholder, and only person involved in the company.

The good side of that is that if Ask M Ltd is sued, the suer can't take my home away, unless I've done something really bad. My liability is limited to what I spent buying shares in the company.

If I do something really bad, I could be disqualified from being a company director ever again and at worst I could go to prison. So I'm trying very hard not to do anything bad :-)

But what I have to remember is that any money Ask M Ltd earns when I make videos, belongs to Ask M Ltd, not to me.

Ask M Ltd can pay me a salary as a director. It can pay me dividends as a shareholder. And it can pay me back any money it owes me, for example when I spend my own money on a new printer for the company.

But it cannot pay me any money any other way.

If I take out of the company more than I've put in, then that's treated as the company lending me money, and the company will pay extra tax on the loan. Bad idea.

While we're on the subject of tax, a company (Ltd or plc) is the only set-up I've mentioned so far that pays tax in its own right. For a sole trade, a partnership or an LLP, the trader / partners will pay income tax and National Insurance on their share of the profit from the business (which of course is 100% for a sole trader).

But a company pays corporation tax on its profits and does not pay National Insurance except on its staff's wages.

So, in return for all the palaver that goes with running a Ltd, you will save money in tax, and have a certain amount of extra kudos from putting "Ltd" on your letterheads and being the director of a company.

It's for you to decide whether it's all worth it!

What kind of business set-up? 3; limited liability partnership

A limited liability partnership (usually called an LLP for short) is similar to an ordinary partnership - but with a difference.

As you might have guessed, that's the LL bit.

Legally, a limited liability partnership is an entity in itself. It has its own identity separate from the business owners. So if an LLP can't pay its debts, the partners only have to pay out any money they've invested in the LLP, and that's it. Their liability is limited. Unless you've put a personal guarantee on a loan to the LLP, or you've done anything really bad, your own property is safe.

But setting up a business that has its own legal identity involves more formalities. The LLP must register with Companies House and must file accounts each year. Those accounts must be laid out in a certain way. I can help you with that.

And those accounts are on the public record and visible to anyone who cares to pay a few quid to look at them.

Also, the LLP must register at Companies House details of its address and the addresses of the partnership members, and again, those are on the public record.

So you need to consider the trade-off between the protection of limited liability and the increased exposure of your personal info.

What about a company? Next up...

What kind of business set-up? 2; partnership

A partnership (without the limited liability bit) is very like a sole trader except there's more than one of you running the business.

Home-based partnerships are often a husband and wife team, or civil partners team, running a business together from their home. But there could be two of you living near each other who decide to go into business together. A partnership doesn't have to have just one location.

Partners can split the profits of the business any way they choose. It doesn't have to be equal shares for all.

That's one reason why a partnership agreement drawn up by a solicitor is something no partnership should be without. Even if you're setting up in business with a friend, who's to say you won't disagree over a deal and fall out? Especially as it's perfectly legal for one partner to make a deal without consulting the other partner(s).

Each partner's got to register with HM Revenue as self-employed in the same way a sole trader must register, and using the same form. I can help you with that and it's all included in my prices. Or to find the form yourself, click here.

Then every year each partner must complete a tax return for themselves, and a tax return must also be completed for the partnership itself. I can help you with these.

Partnerships can employ staff (in which case they must register as employers with HM Revenue) but the partners don't count as staff, because the business isn't separate from the partners legally.

You share all the risks and the rewards. So if the partnership makes losses or can't pay its debts, then any or all of the partners face losing their homes, cars, etc. That's even if only one partner has been up to no good. If you're in partnership, legally you're all equally responsible for the business, because it's not separate from you. You are the business - all of you.

Next up: limited liability partnerships.

What kind of business set-up? 1; sole trader

When you decide to set up in business, one thing you need to work out is whether you're going to be a sole trader, go into partnership, go into a Limited Liability Partnership, or form a limited company.

Eh?

Sorry. I'll explain those terms a bit more fully, starting with a sole trader.

A "sole trader" is a business that just consists of you, your computer and your cat. As Wendy Pascoe puts it:

You wake up one morning and decide to start selling cut flowers from the bottom of your garden. That's it: you're now a sole trader.

It's the simplest business structure there is. You don't have to make any agreements with yourself (or your cat, apart from agreeing to feed it and house it, but I guess you'd do that even if you weren't in business).

And compared to the other business set-ups I mentioned, there are very few legal formalities.

One of them is that you have to register with HM Revenue as self-employed. I can help you with that if you're going to be a client of mine, and it's all included in my prices. Or to find the form to register yourself, click here. You must register within 3 months of starting your business (you can't do it before you start). And you must register even if you're still employed, or already have another business.

You'll then have to fill in a tax return every year. I can help you with that, too.

Don't be tempted to keep your business quiet and trade only for cash, or over eBay. HM Revenue have spies everywhere and if they catch you then they'll charge interest and penalties. And they've ramped up their powers lately and the fines have got higher. Keep it clean!

You are allowed to employ staff as a sole trader, though again you'd have to register with HM Revenue, this time as a new employer. "Staff" of a sole trader doesn't include you. Legally you are the business.

You must keep a full record of your income and expenses. If you're a client of mine, I'll show you how to do that.

The big drawback of being a sole trader is that if the business makes losses, or runs up debts it can't pay, then you'll be personally liable for them. Legally there's no difference between you and the business when you're a sole trader. So if you don't pay your business's bills, then your suppliers can sue you. You could end up losing your home, your car, your furniture...

When you're deciding what set-up to choose for your business, have a good think about all the options and decide which one suits you best.

Next topic; partnerships.

Welcome to my blog!

Hello!

This is the Home Business Accountant's new blog for a new business. I'm Emily Coltman, M for short, I'm a qualified Chartered Accountant, and I'm setting up my own accountancy practice that's just going to look after home-based businesses.

Yes, that's right. Just home-based businesses.

Many other professionals (accountants / solicitors / business consultants and so on) out there in the big wide world seem to think that home businesses are a "poor relation" to office-based businesses. No separate premises? No employees? "Bah humbug - that's a job, not a business" say lots of professionals.

Not this one.

For starters I'm home-based myself. I'm writing this blog post sitting looking out at my back garden and hoping it doesn't rain because I want to put my washing out.

So I know at first hand the pressures of running your own small business. When you're in a job, you don't have to go looking for customers (unless you're in sales). You don't have to chase up money from customers (unless you're in credit control). You don't have to worry about paying the bills (unless you're in purchasing). But when you're running a business, you have to do all three.

And keeping the taxman happy is a great worry for lots of home-based business owners. When do you have to register with HM Revenue? How on earth do you fill in all those complicated forms? Do you have to tell the Council? And do you get any tax relief because you work from home?

That's what I'm here to help you with.

I'll be writing about things like that on my blog.

I'll also keep you posted with lots of links to other sites that can really help you.

And by that I don't mean that I'll do what a local business centre tried to do to me the other day and send you off to Business Link. That's a great resource but there's so much of it to wade through.

No, my references will be to sites like Enterprise Nation where you can meet other home business owners and read about issues that really matter to YOU.

Stick with me and enjoy the ride!