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After having a bust up with my accountant over the cost of their fees and googling some different stuff I see back in 2013/14 the government introduced cash basis accounting as opposed to traditional accounting which you can use as a method to submit your tax returns. My accountant has never mentioned this to me but it looks a lot simpler than the method they use in as far as i can see you just add up your sales and take away your purchases/expenses to arrive at your profit. I am in a partnership, where the business turnover is less than the vat threshold (ie not vat registered) and I wondered whether I could submit all my tax returns each year (and my partner) and totally do away with an accountant. Anyone have any thoughts or have been down this route?
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Yes. I know someone who turns over about £60k pa (VAT threshold about £80k ish?) and HMRC are quite happy for her to submit her return on the basis you describe.
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Can't see the point in using an accountant unless you have to (ie Ltd co) unless they can save you more in tax than you pay them in fees or they save you a lot of time.
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Btw, she adopted this method several years prior to 2013.
I'm not even sure you need an accountant if your turnover exceed the VAT threshold - VAT returns are straightforward. Clearly, HMRC won't allow returns submitted on a cash basis if turnover exceeds a certain level but check with them. |
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Can't see the point in using an accountant unless you have to (ie Ltd co) unless they can save you more in tax than you pay them in fees or they save you a lot of time.
Exactly. Thanks. When I look at my accounts I see words such as depreciation and accruals - they over complicate matters. Take all this jargon away and the calculations involved and I think I could easily submit my own tax returns. I can see why cash basis for small businesses was introduced and I shall be asking my accountant why I wasn't told about this? I used to think by using an accountant I would add some sort of "authenticity" to my submissions - now I don't. Also my business, is seasonal, I basically don't do anything for 4 months which gives me plenty of time to sort my own accounts. At this moment in time I feel like a mug who's been had over. |
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I wouldn't bother with depreciation unless you have to.
As for accruals (expenses incurred but not yet paid eg gas, elec) - you'll defer some tax in yr 1 but after that no real effect thereafter and in any case partly offset by Prepayments (eg rent paid in advance) |
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... in the first submission you make, don't forget to adjust for any accruals etc that your accountant has made in the prior year
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This is the only slight thing I'm worried about, what adjustments I may have to make in my first year when I switch from accrual to cash basis accounting - if any.
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I'll post up something later (just about to eat).
It may be also worth running it by HMRC. |
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Thank you.
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Depreciation
Eg. At the start of Year 1, you purchase a computer for £1,000; accountant depreciates it over five years: Y/e 31/12/Yr1 Depcn £200 Y/e 31/12/Yr2 Depcn £200 Y/e 31/12/Yr3 (first cash acctg yr) As part of your expenses: Residual cost of computer (£400 dep yr 1 and 2) £600 Accruals Eg Y/e 31/12/Yr2 Electricity £1,200 (billed £1,000 to 31/10 + £200 accrued not yet billed) Y/e 31/12/Yr3 Electricity: Bill to 31/1 £360 - £200 accrued prev yr + billed to 31/10 £900 = £1,060 in your expenses There may be others. Has your accountant drafted a Balance Sheet? |
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Dont forget,one set of accounts for the tax man,one set of accounts for your bank manager(in case you seen a loan).a true set of accounts for yourself,a set of accounts in case you ever sell your business.for some reason these 4 accounts usually have different stories.
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^
so wrong being under investigation for 12 months now exhausting Inland Revenue soft wear will catch you NAP get an expensive accountant cheaper in long run |
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Yes, I have the balance sheet as at 28 Feb 2017. My accounting period runs from 1st march until 28 Feb each year.
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Other possible adjustments are: prepayments, debtors, creditors. Anything else on your BS?
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Fixed Assets
Tangible assets Current assets Debtors cash at band and in hand Current liabilities bank loans and overdrafts Accruals net current(liabilities)/assets total assets less current liabilities Long term liabilities bank loans net (liabilities)/assets Financed by: current accounts The above is how the balance sheet appears, minus the figures of course. |
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We've dealt with Tangible assets and Accruals.
Have any debtors been icluded in your income? If there are some big numbers on your Balance Sheet, it may be worth staying with an accountant. You could submit your tax return with a covering letter explaining your change of accounting together with your previous Balance Sheet and Incom & Expenditure statement (P&L) |
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if you register tomorrow with the tax office you will not pay tax until the first year is over.a month before this year is completed you will be notified and asked to send of a preliminary tax.(its your decision of how much you send them).when you send in your returns put the business in the controlling share holders name.(in other words ,its a self employed business).if you take in 80 grand and pay out 40 grand -expenses to live(lets say 30 grand )you will be accessed on 10 grand profit.(but if your mothers cousins sister is decorating her living room ask her for the receipts ,if you go out drinking with you mates get receipts(business lunch),petrol receipts,business Christmas party receipts etc.
it will not be too difficult to right all the 10 grand profit off if you have enough suitable receipts. On the second year increase profits in your business .keep improving profits each year. tax men can investigate if your livelihood exceeds your income.(in other words "where did you get the money for the new jag) the chance of you getting called in are about 1750/1 as tax inspectors always check out big 10 inch files x 3 books. the tax office are so badly understaffed that a slim file is never ever likely to see daylight until its birthday the following year. And one last piece of advice,leave it as late as you can to send in your returns(last self accessment) ,it means your returns will go in at the same time as all the other self accessments. dont worry if you are half fair with them they will never annoy you.good luck ,hope this helps. |
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ps=dont pass the offical self accessment date.
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Tangible assets are £408, debtors £631, Accruals £988 Debtors are not included in my income, my only income is from sales..
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they will be wondering how you can afford to put 100's on horses and football teams
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Ssssh - lol
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So the debtors aren't for sales income invoiced, not paid?
These aren't big numbers. Maybe speak to an accountant and see if he can give you a good reason for using his services. |
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a good account will do all the work for you,but they protect themselves by asking you to sign a form saying that the figures you give them are true and accurate to the best of your knowledge then they will tell yarns for you once they get their cover note.but they can save you money as your businesses grow.
keep a good book for the bank,because if you ever decide to a few houses you will have to show them that your businesses are going really well. |
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if you are unlucky to be called in it is nice when you have an accountant because he is the one that will represent you.
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No. I'm actually a licensee of a seasonal social club who has recently taken on my stepdaughter as a partner. I'm looking to increase profit while staying below the VAT threshold - cutting or doing away with accountants would help things. In 2016 when i was a sole trader, my accountants fees were £1020, this year, £2070. Apart from my stepdaughter becoming a partner nothing has changed, turnover is broadly similar and yet fees have doubled?
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Thanks for your help folks, off to bed, see you tomorrow.
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That's shocking MC. You can do your own bookkeeping, just get some decent cloud accounting software where everything is automated once set up. Just get an accountant to do your annual compliance. MTD is coming 'soon' anyway, although it's stalled a bit with brexit https://www.gov.uk/government/publications/making-tax-digital/overview-of-making-tax-digital
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Yes, I've seen that, & from what I gather it's going to have a trial period and small businesses with turnover less than vat threshold will be exempt to begin with. What I'm more cross about than anything is not being told about the cash basis system for accounting as opposed to traditional accounting methods by my accountant. That stinks.
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you must be going to him more than once a year,it usually only a grand,but he will save you it,because most small businessses pay no tax or very little ,because all profits are written off by the cost of living ,and a new car is always needed for any business.an accountant is very good at advising on percents a business should grow from year to year,and after the first year he is working on his first set of figures and has it harnessed for you and could do a second expected expansion year based on the first year,and show how its expected expansion growth over 7-10 years.
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its a bit like the gambling,get a system that works and make 10 grand the first year,second year do the same system and double the stakes.and so on doubling each year until you make a million
in other words let the winning system grow.and gamble by habit and no risk. |
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The end game for MTD is effectively real time accounting ie there will be no need to actively file, just a cut off point. Your accountant may have determined that cash accounting will bring no benefit, if you don't have any cash flow issues it wouldn't.
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ignore all creative accountant brass end up room mate with Lester
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