Tuesday, 30 June 2009

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!

Monday, 29 June 2009

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.

Friday, 26 June 2009

"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!

Thursday, 25 June 2009

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?

Wednesday, 24 June 2009

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...


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!

Tuesday, 23 June 2009

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?

Monday, 22 June 2009

"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?


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!

Friday, 19 June 2009

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!

Thursday, 18 June 2009

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.


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!


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!