Tax Guru 10-2012

Hello again!

My name is Andrew Richardson and I have been running TaxAssist Accountants in Elgin for five years. I am hoping that this tax advice section will become an interactive feature. Submit your tax and accountancy questions to Moray Life and I’ll answer a sample of them each month, along with a brief summary of the tax issues we should be looking out for.

Things you need to know:

An increase in the minimum wage will take place on the 1st of October 2012. The main rate for workers aged 21 and over will be £6.19, for those between 18 and 20 the rate will be £4.98, 16 and 17 year olds are £3.68, while the apprentice rate, for apprentices under the age of 19 (or in the first year of their apprenticeship) is £2.60. The change in minimum wage will take place from the 1st of October, due to this being half way through the tax year.

The first phase of the 'Pension Auto-enrolment scheme' is due to begin on the 1st of October. This scheme will eventually affect anyone aged between 22 and the state pension age who earns enough to pay income tax.

The Pension Auto-enrolment scheme forces companies to enrol their staff into a company pension scheme and to make contributions on their behalf. From the 1st of October, companies which employ 120,000 or more people will be required to conform to this law. By the 1st of October 2013, all firms employing 1,250 or more people will also have to comply. Over time this will extend to every company, with the likely date for full compliance to be in 2017 or 2018.

 

Q: I want to set up as self employed, but I'm not sure how. What do I need to do?

A: The first step is to contact HM Revenue and Customs. You can do this by post, telephone, by visiting one of their offices, or by having an authorised agent (such as an accountant) register you on your behalf. This is done to both register you as self employed, and so that you can pay class 2 national insurance.

There are no initial start up fees or costs associated with registering as self employed, although you will need to keep records of all money in and out from your business.

Q: My friend and I are thinking about merging our two sole trader businesses into a single partnership. How is this done and what are the advantages / disadvantages?

A: The process of creating a partnership from two [or more] self employed people is similar to creating a partnership from scratch. The most important thing to do is take accurate records from the last day each of you are self employed, as these figures will be included in your tax returns.

If either or both of you are registered as an employer or for Value Added Tax then this has to be taken into consideration. HM Revenue and Customs can, on certain occasions, transfer over registration and reference numbers from one business entity to another, although you can ask to de-register and start again from scratch.

There are a couple of advantages to forming a partnership:

  • You can share expertise and perhaps produce more capital
  • You can share the workload with someone without having to pay PAYE
  • The risk posed by unlimited liability is shared, making it potentially less frightening

There are, of course, a number of disadvantages:

  • You don't have the same degree of control
  • You need to share profits with someone else
  • You are equally liable for any debts that your partner generates
  • The combined turnover could force the business to register for VAT

The best piece of advice I can give is to create a partnership agreement. This sets out in writing each partner's responsibilities, rights and role in the business and helps to prevent arguments later.

Partnership agreements can be made by the partners themselves, although you can approach someone outside the business, like a lawyer or an accountant, to look over the terms for any potential issues.

Q: My business is growing and I'd like a salesperson to help me keep growing, but I'm nervous about hiring someone. What options do I have?

A: Hiring an employee (especially on a full time basis) can be intimidating and expensive, especially when you consider employers national insurance. An accountant can run a payroll system for you, but you still may believe that it isn't the right option for you. Thankfully, there are alternatives.

The first is to approach an agency. They will have numerous people on their books and will introduce some of them to you. Once you find someone who is capable of completing the work at an agreeable rate, they can begin acting on your behalf whilst only billing you for the work they do. This means that you aren't tied down to a single individual should things not work out and you don't need to pay employers national insurance. Of course, an agency will charge you a fee, possibly increasing your costs, and the agent themselves isn't tied down to you and can leave (contract permitting) whenever they wish, potentially costing you a very capable employee.

The second approach is to hire someone who is self employed. This option removes agency fees and retains most of the same benefits (although an agency is better placed to provide emergency cover at short notice). The one concern with this is in regards to IR35. IR35 is a piece of legislation which defines whether someone is self employed or an employee. If this person were to work only for you, using your equipment and does not have the option to turn down tasks, then HM Revenue and Customs could determine that they are your employee, and give you a hefty national insurance bill.

It would probably be best to go over these options with an accountant or employment law specialist to make sure that you have the set up you want.

 

I'd like to say a big 'thank you' to all the people who turned up for the open day business clinic I held on Wednesday, the 19th of September, as well as a special thank you to Michelle Gillibrand of 'The Olive Tree' for providing a delicious chocolate fountain. I'm sad to report that the chocolate fountain was much more popular than my advice!

If you have a tax query then please submit your questions to Moray Life and I'll try to give a response next month. And always remember...

'The difference between death and taxes is that death doesn't get worse after every budget.'

By Andrew Richardson

TaxAssist Accountants Moray

Andrew’s contact details:

Please see my TaxAssist page for more details.