In the UK, certain entities must register as a contractor under the Construction Industry Scheme. Under this scheme, contractors are required to deduct taxes from money paid to subcontractors and submit it to HM revenue and customs (HMRC). These amounts are considered prepayments towards the subcontractors tax and national insurance costs.
Should You Register?
If you are a building contractor who regularly utilises subcontractors, you are subject to registering for CIS. However, there are certain instances where individuals or businesses must register even though they never build anything. For example, some are classified as “deemed contractors,” which means:
- You spend more than £1 million per on construction in any 3 consecutive years
- Construction work can consist of: decorating, foundation work, repairs, heating and cooling installation, demolition and more.
Tax codes and rules are complex, but here are just a few you must follow if you fall into the construction arena:
- Register for CIS before hiring a subcontractor
- Make sure your subs are registered with CIS
- Determine if you should hire someone as a sub or an employee- there are rules on this.
- File monthly
- Keep detailed records
- Submit money deducted from subcontractor pay to HMRC
In some cases, you may be exempt from registering with CIS even if you are a contractor. These include but are not limited to:
- Working on subcontractors property if it is worth less than £1,000
- Paid for by charity or trust
- Work for local school on behalf of education authority
- Carpet fitting
Registering, record keeping and understanding who must do all of the above can be quite taxing, pun intended. Whether you are a small contracting business or a self employed subcontractor, it can be confusing, which could mean financial penalties. Rather than go it alone and hope you are getting it done correctly, you may be better served working with a bookkeeper or accountant. No one needs to be on the wrong end of a tax liability, and with all the paperwork, record keeping and submissions that are required on a monthly basis, it just makes good financial sense to hire a professional.
Are you struggling with your self assessments for tax purposes? In the UK, most income is under PAYE, pay as you earn, system. Under this system, your employer will withhold specific amounts every pay period to cover your taxes, national insurance contributions and other applicable deductions. For most people, this is the end of the story with no need to submit any documentation or prepare any kind of tax forms.
However, in some cases, you may be required to complete a self assessment. Potential Scenarios:
- Self employment income
- Interest and dividend income
- Income from abroad
- Profit from selling shares or property (capital gains)
- You have deductions to reduce your tax bill that your employer did not figure in (mileage, business use of home etc..)
Wading through the self assessment process can be time consuming as well as confusing, especially if you are a salaried employee. Here are a few basic deductions you may be able to claim:
- Mileage- if you drive for your employer and are not fully compensated, the difference may be deductible
- Charity- depending on your tax bracket, you may be able to deduct charitable donations
- Uniform- if you are required to wear a uniform for work and it is not provided by your employer, you may be able to deduct the cost
- Professional Fees- certain fees for professional organisations may be deducted
These are a few of the many deductions you could claim on a self assessment and lower your tax burden. If you are self employed or independent contractor, the deductions are somewhat different, here are a few:
- Business use of Home- a portion of your utilities and mortgage may be tax deductible
- Phone and Internet service
- Business equipment such as computer and printer may be deductible
As you can see, there are a number of items that can reduce your liability for tax. The problem many people will face is the conditions placed upon claiming some deductions. For example, if you use a home computer for your business, you may not be able to deduct the full purchase price if it also doubles as a personal device for you or your family. Likewise, mileage rates are capped up to a specific number of business miles after which point, the amount per mile is reduced.
When it comes to your income, the goal is to keep as much of it in your pocket as is humanly possible. This is where a qualified accountant or tax professional is priceless. They are familiar with the tax codes, deductions and credits and can quickly put together your self assessment.
If you run a small business, chances are you attempt to do as much of the paperwork as possible to keep overhead at a minimum. The question you should ask yourself, however, is could your time be better spent moving your company forward? Hiring a good bookkeeper to manage your accounts will not only free you up physically but mentally as well. What can you expect from bookkeeping services? This answer will depend a great deal on whether you are utilising basic services or a certified accountant, but the basics are as follows.
Value added taxes can be a real pain to manage and document, but it is essential to your business that they are completed correctly and for some businesses, on a quarterly basis. VATS are charged at every step of the purchasing process, which means if you buy products to resell, you want a good record of the VAT you paid so you can then pass it on to the consumer. This is also important to avoid a hefty tax bill at the end of the year.
Which accounts or how many a bookkeeping service manages may vary, but they should be willing to manage as many as you require. Your service should keep up with incoming and outgoing expenses and alert you to any potential problems ahead of time. Of course, if you are utilising a part time basic service, this may not be available to you.
Regardless of how many employees your company has, they all need to be categorised correctly, paid and taxed appropriately. Mishandling of payroll can quickly become a nightmare for small or large businesses. Not only can it cost the company money, you could potentially lose good employees if they were to start having issues with their paycheck!
Bookkeeping is a service generally performed by a third party (versus in house) that takes care of documenting all relevant business transactions. While many small businesses tend to try to handle all the accounts on their own, utilising a professional accountant is often the most cost effective decision they could ever make.
Did you know a good accountant does more that prepare your taxes or manage payroll accounts? Yes, these are all part and parcel of the bookkeeping job, but they are not the only way they are beneficial to your company. Let us examine a few reasons you should consider a local Leeds accountant today.
You may know everything there is to know about your specific product or service, but how well do you know the tax code and its associated forms and rules? Taxes are never black and white, but more of an if this then that. For example, you can deduct a percentage of the value of a business car but only if you are not using it for personal use as well (deduction will be lower). Furthermore, the amount you can deduct will depend upon the vehicles C02 emissions and several other factors. This is but one example of one potential business deduction. Can you see how quickly you could lose money without the aid of a trained professional?
When you are running a business, it is easy to get caught up in the grind. You have orders to fill, product to produce or services to execute. Taking the time to organise your receipts, financial plans and other important documents can sometimes take a back seat to the mechanics of your business. An accountant can take all the scraggly bits of paper, torn receipts and coffee stained paperwork and create an efficient masterpiece of organised bookkeeping. (really, they are that good!)
Now, hiring an accountant for payroll, accounts receivable and more is a fantastic idea for all of the reasons listed and many more, but that does not mean you can take a vacation. Your business is just that – yours, which means you are a part of the bookkeeping process and you should never take a totally hands off stance. Besides, your accountant will need to touch base with you regularly if for no other reason than to tell you everything is going smoothly.
Hiring someone to manage your accounts will cost some money, but if you factor in the time you will save, not to mention peace of mind, there really is no comparison. In the long run, a great bookkeeping service will actually save you money, and perhaps prevent an ulcer at the same time.
Self employment has become quite popular over the last several years for a multitude of reasons. Some want to pursue a more meaningful path by earning through their passions while others want more flexibility to their work day and your reasons may differ even further. One thing all self employed individuals are going to need to deal with is accounting, in particular, as it relates to taxes.
Do You Need an Accountant?
You are not required to utilise an accountant or bookkeeping service, however, it is something you should carefully consider. If you are just starting out, you might be under the impression that you are not earning enough for an accountant. While this technically may be true, you could be leaving a lot of your hard earned money in the hands of the government if you do not. Accounting services will help you organise your expenses and ensure you are getting proper deductions for the office use of your home or mileage on your vehicle.
Tax Rules and Laws
Do you know which accounting method you should use? Are VATS a concern? Do you know what is new for the upcoming tax year? Have you obtained a UTR number yet? These are just a few of the many questions your bookkeeping professional can answer for you. Not only are they up to speed on the latest changes, they are familiar with all the forms that will need to be submitted at year’s end. Even if you absolutely love every single minute of your self employment, you still work hard for your money and should be able to keep more at the end of the year.
It Can Get Complicated Quickly
If you earn over a specific amount each year from goods or services, your bookkeeping can get complicated in a hurry. How long do you have to depreciate the new equipment you purchased for your work? Will you need to carry over expenses or money owed to you? Your client ordered a widget from you in one year, but did not settle the bill until the following year so when do you report it for tax purposes?
Self employment is liberating, exhilarating and may just be the hardest job you will ever love, but why complicate it further? Bookkeeping and accounting services can help you avoid the struggles and pitfalls of making your self employment successful. There are small firms that will not charge you an arm or a leg for assisting you in your financial endeavors. Give them a try and you might be surprised at just how economical it truly is.
Do you need professional accounting services? If you are like many small business owners, you may believe it is an excess your company cannot quite afford. This may be true in the first days of your business, but as it grows and progresses, the truth is you cannot afford not to have bookkeeping, payroll and accounting services.
There is only so far the do it yourself method will allow you to grow, and it does not take much growth to be beyond the limits of popular software programs. By utilising the services of a good accounting or bookkeeping firm, you set the right foundation for future growth. An accounting professional can examine your business structure and plans for financial growth in order to determine if you are on the right fiscal path, and give adjustment advice if you are not.
There is no sadder statistic than the one that states most businesses will fail in the first five years. Of course, there are many reasons this can happen but one big problem is an inefficient budget. When you have an accountant going over the books, they can alert you early on to potential problems before they have a chance to sink your entire business.
Employees mean payroll, taxes and a myriad of other related financial issues. Whether you employee one or ten, offer company employment or utilise contract labor, you will have a payroll to meet, taxes to withhold and tax papers to provide. A skilled bookkeeping professional takes all the headache out of the process and ensures it is accurate as well as timely.
What You Do not Know
Are you sure your employees are correctly classified? Do you have any idea what an auditor looks for? How familiar are you with the tax code, both locally and nationally? When it comes to running a successful small business, what you do not know can definitely hurt you!
Whether you own a well established small business or you are just getting your feet wet, do not overlook the importance of a good accountant. You have enough to worry about without struggling with accounts, payroll and budgets as well as value added taxes (VATS, if applicable)