FAQs

Frequently Asked Questions about accounting, cloud accountancy and working with an accountant

On this page we’ve tried to answer all the questions we hear most often about our accounting services, digital accounting and accountancy in general.

FAQs for different stages of business​

Individual and contractor FAQs

We will talk to you to learn about your business and agree a bespoke package of services with you. We do not provide standard packages of services that include items not relevant to you.

We specialise in serving the needs of small businesses, whether they are sole traders, partnerships or limited companies. We have a broad range of clients in these different business categories and this includes many who are one-person businesses.

We will agree a bespoke package of services with you based on your particular business and requirements. This will dictate the frequency of our accounts reviews. That said, as we pride ourselves on our advisory services we would never just look at accounts at a year end.

Of course. This is a very important element of the services provided by a Chartered Accountant.

New business FAQs

A sole trader business is where an individual trades as themselves and registers as self-employed with HMRC. Profits are subject to income tax in the individual’s name. 

A partnership is where two or more individuals form a business together and register as a partnership with HMRC. Profits are divided between the partners according to the agreement that they have made and then taxed on the individuals in the same way as for a sole trader.

A limited company is a separate legal entity from its owner(s). The owner(s) become shareholder(s) in the business. Profits are subject to corporation tax on the company itself and not its owners. When money is paid to the owners it is income in their hands and is subject to income tax.

This very much depends on the nature of the business that you intend to form. If the business is of a consultancy nature where you are using your expertise to advise others, then the investment may be very small indeed – perhaps just enough to purchase your IT equipment. If you were to establish a manufacturing business with premises, machinery and employees the required investment would be much greater.

As a director shareholder in a limited company it is normal to purchase a low value of shares – say £100 – and then to make a cash loan to the company in addition to this to finance the purchase of equipment. The reason for this is that you can repay the loan to yourself when the company generates funds. If all the money was invested in shares then it is much more difficult to withdraw this from the company.

For a small business the owner normally appoints themselves as the secretary. There are few responsibilities at this level of business except to be the person that receives official correspondence from HMRC and Companies House. The role of Company Secretary is more onerous in a large public limited company.

An accountant will be a trusted adviser who will ensure that you comply with the myriad of rules and regulations as well as paying the right amount of tax by claiming all of the allowances that you are eligible for. They will be a very good source of independent business advice. 

That said, if you are a sole trader you could run your business without the advice and assistance of an accountant if you wished to. You would need to prepare your own business accounts and self-assessment tax return which can be submitted on the government’s website. The same is true for a partnership but you will have to use a commercial online provider to submit your partnership tax return as this is not available on the government website. 

If you trade as a limited company you will need to appoint an accountant as the requirements for reporting to HMRC and Companies House are more detailed and the information has to be reported in a specific way in a digital format called iXBRL. Accountants invest in the software to report in this manner and it isn’t likely to be economically viable for an individual small company to buy this for itself.

Established business FAQs

A Chartered Accountant will always work with you to understand your business and the way that you conduct it. The wide experience of other businesses and approaches that Chartered Accountants have allow them to appreciate situations from a different perspective and offer helpful advice and guidance. If your accountant is not providing this service level we would welcome the opportunity to talk to you.

There are many reasons for switching to Xero. Some will have a greater relevance to some businesses than others. Above all, Xero is fantastically capable accounting software that is continuing to develop new features and functionality at pace. “Beautiful Accounting Software” as the people at Xero like to say.

Xero allows busy business owners to save time, money and effort in their accounting processes. These can be automated, information is available in real time, payments from customers can be collected faster and paperless operation is easily achieved. No more printing and filing of documents – it’s all held digitally and available to see whenever and wherever you are.

We have established our business as a digital practice and we recommend Xero as the software of choice. We do so because we passionately believe it is the best small business software available. We are though willing to discuss the use of other cloud-based software. We do not work with clients who want to hold records manually.

We provide full user training to all of our Xero clients. This is at the outset and whenever required as a refresher. In truth, the software is so user friendly and logical that we rarely find any client needs more than a few hours training.

Growth business FAQs

Businesses that are set to grow rapidly typically need a greater level of accounting and taxation support. Decisions are being made more rapidly and will often have greater consequences riding on them. The availability of up-to-the-minute accurate accounting data is fundamental to getting these decisions right. We ensure that there is visibility of this information as frequently as it is needed.

Cashflow planning and control is one of the most important areas for growing businesses. The truth is that profitable businesses go bust when the cash runs out. Sadly, this is not a rare occurrence. We use sophisticated software in conjunction with Xero to prepare detailed and informative cashflow forecasts in addition to advice and guidance to address the issues that these forecasts reveal.

We will be delighted to provide appropriate client references for businesses at a similar stage to yours or in a similar sector or market. We have detailed some of these on this website and will gladly arrange contacts for you to speak to if you wish to.

The particular nature of the business will enable a more detailed answer to this question but in general it is about the timeliness and frequency of financial data and the forecasting of cashflows. We use sophisticated software connected to Xero to provide the data for this enhanced level of analysis and advice.

FAQs about Business Structure and Tax

Limited Company FAQs

When you register a limited company at Companies House you give various details about the owners and directors of the business. These are available on the Companies House website for public inspection. Each year, you are required to confirm that the information held by Companies House is correct. This is the purpose of the Confirmation Statement.

If you need to amend the information then you should record this – or more likely have your accountant do it for you – when the amendments happen. For example, if a new director is appointed or one leaves etc.

In a word – yes. It is in fact very common. In January 2020 there were 4.5m UK companies with only one director and shareholder. A company must have at least one shareholder and one director but it is often the case that these are the same person. You must be at least 16 years old and not be an undischarged bankrupt or have been disqualified from being a company director.

Yes. That said, being a director of a limited company is a position of some responsibility with defined duties to fulfil the position. You should be clear that you have sufficient capacity and time to devote to each company. Furthermore, a director should always act in the best interest of the company and so should always seek to avoid a conflict of interest position between two or more companies.

The process of forming a limited company is called incorporation. It is straightforward and your accountant or solicitor can do this for you. You can also do this yourself with one of a number of online companies that offer this service. If you choose to do it yourself please take care to choose the correct type of company from the options available. If you choose the wrong one you cannot subsequently change that company into the one you should have chosen. You would have to close the company and form a new one. As with many things, professional advice is advised.

You have to choose a unique name for your company – you cannot register a company with the same name as one that is already registered or indeed with a name that is judged to be very similar to an existing company name. In practice you enter your chosen name and if this is unique you will be able to proceed with the application. Then it is a case of entering details of the people who are to be directors of the company and paying the fee.

It is important to understand that the money in a company’s bank account belongs to the company and not to the director. There are only two legal ways in which a company director can be paid:

  • Through an HMRC-approved payroll where income tax and national insurance are accounted for under PAYE.
  • Assuming that the director is also a shareholder, by way of dividends from the company.

 

It is possible and indeed very common to balance these two methods of payment in such a way as to minimise the amount of income tax and national insurance payable whilst retaining entitlement to the state pension.

In essence the changes to the legislation from April 2020 put the responsibility and liability on the “employing“ company to determine the IR35 status of its contractors. Previously the contractor had this responsibility and liability.

Tax FAQs

Limited companies pay Corporation Tax (CT) on their profits. The current rate of CT is 19%. Unlike Income Tax there is no threshold allowance so tax is payable on every £1 of profits. However, companies are eligible to claim an Annual Investment Allowance to offset the cost of investment in new assets against their profits thereby reducing their tax charge. This is subject to a current limit of £1m pa.

There are different rules depending upon the level of your taxable profits.

If your taxable profits are up to £1.5m, Corporation Tax is due 9 months and 1 day after the company’s year-end date.

If your taxable profits are between £1.5m to £20m you pay in quarterly instalments commencing in month 6 of the accounting year.

If your taxable profits are over £20m, you pay in quarterly instalments on the 14th day of months 3, 6, 9 and 12 of the accounting year.

Your business must register for VAT when your VAT taxable turnover exceeds £85,000 or you know that it will exceed this amount in the next 30 days. The VAT taxable turnover is the total of all turnover that is not VAT exempt.

A voluntary registration can also be made when turnover is below the threshold. You may choose to register voluntarily in order to be able to reclaim the VAT that your business incurs on its purchases and costs.

Yes you can. There are different allowances if you are self-employed (a sole trader or partnership) or a limited company.

If you are self-employed, you can use a simplified expenses system. This means you claim a flat rate per month based on the number of hours that you use your home for business purposes. You can claim either £10 (for 25 to 50 hours), £18 (for 51 to 100 hours) or £26 (for 101 hours or more) per month.

The alternative is to total all your household bills and then allocate these proportionately to the space that you occupy and use for business purposes. HMRC will accept any fair and reasonable basis of allocation.

This is typically done by the number of rooms and the proportion of time each day the room is used. So for example if your house has 10 rooms and you use one of them for 8 hours per day for business then you could claim 3.33% of the total running costs as a tax allowance (1 room out of 10 for 8 out of 24 hours = 10% x 1/3).

In our experience the simplified expenses method is much easier to apply and results in a higher level of allowance.

If you are a limited company, you can claim a flat rate allowance of £6 per week. You do not need to produce receipts for this. The money paid to you is not treated as a benefit in kind.

A director of a limited company will typically claim business mileage from their company at the rate of 45p per mile. This rate is set to cover the costs of fuel, wear and tear, insurance, service and repair etc.

If the company is VAT-registered, then VAT can be reclaimed on a part of this 45p per mile known as the Advisory Fuel Rate (AFR). The AFR is set at a rate designed to just cover the fuel cost. The AFR is reviewed quarterly and adjusted to reflect the changing level of the retail price of fuel. The current rate is available on the HMRC website.

In practice this means that a mileage claim is split into two lines – the number of miles multiplied by the AFR and the number of miles multiplied by (45p – AFR). Only the first of these is eligible for a VAT reclaim.

As with all VAT reclaims you must have VAT receipts to support the cost incurred. This means receipts for a sufficient quantity of fuel to cover the mileage being claimed are required. For example, if you are claiming 500 miles and your car typically achieves 50 miles per gallon then you will need VAT receipts for at least 10 gallons of fuel.

IR35 FAQs

IR35 is anti-tax avoidance legislation. It applies to those who work as contractors through their own limited company to provide services to, typically, one customer. To all intents and purposes the people caught within IR35 act as though they were employees of the business that contracts with their limited company. The legislation aims to ensure that they pay the same amount of tax and national insurance as an employee would. 

To determine whether or not IR35 applies to you there are some basic questions to ask

  1. Do I trade through a limited company? If the answer is “No” then IR35 doesn’t apply.
  2. If you do trade through a limited company you can check whether it applies to you by using the Check employment status for tax questionnaire on HMRC’s website.

 

You should of course give the questions thought and answer truthfully. You will get an instant decision at the end of the test. Keep a copy of it in your records. HMRC will honour the result in any subsequent tax investigation, unless of course you are shown to have answered the questions dishonestly.

IR35 was introduced to ensure that a popular tax avoidance loophole was closed, which resulted in those who are de facto employees paying the same tax as they would if they had been employed by the business that they are providing services to.

IR35 is only intended to catch those who should really be classified as employees. If you are a genuine business providing services to a number of different customers on your own terms then IR35 will not be an issue for you.

The precise wording of the contract between your company and the contracting company is key and your accountant will be able to advise you as to whether IR35 applies. However, it is not a case of getting around the legislation.

IR35 will be enacted in full in April 2021. It has already been introduced into the public sector and was due to apply to the private sector in April 2020. It was then postponed by a year by the Covid-19 pandemic.

In essence the changes to the legislation from April 2020 put the responsibility and liability on the “employing“ company to determine the IR35 status of its contractors. Previously the contractor had this responsibility and liability.

If you continue as a contractor under IR35 then your company will have to pay you a salary through an HMRC payroll equivalent to 95% of the money that your company is paid by the business that you are contracted to. This will ensure that the correct amount of income tax and national insurance is paid. Your limited company can retain 5% of its income to cover administrative costs.

Will I pay more tax under the new IR35 rules?

The rules will be fully implemented from 6 April 2021. They are already applicable in the public sector. 

FAQs about Vertis Accounting

New Client FAQs

An accountant will be able to assist you in establishing your business and putting in place the important financial foundations for success. It is therefore advisable to appoint an accountant at the outset. A good accountant will reflect the fact you are a new business in their fees, which will start at a lower level and increase as your business grows.

For an established business looking to change accountants there are times that are better than others – for example at the start of a financial year or VAT quarter – but in reality a good accountant will pick up the baton of supporting and advising you whenever they are appointed.

This is a very easy process. It is also one that your new accountant can handle in its entirety if you wish. An incoming accountant is required as a matter of professional etiquette to contact the previous accountant who is similarly required to cooperate and pass over relevant information to the new accountant. This process is ordinarily completed within a week.

Vertis Accounting has chosen to operate digitally with all of our clients. This means that your accounting records are held in online software and are available for both you and us to see and use at any time of the day and from any internet-connected location. It means if you have any questions while you’re working on something, we can look at the same screen at the same time and get it sorted.

There are many advantages from operating digitally – not least the ability to save time, money and effort in your accounting – and we want all of our clients to be able to exploit these. 

Furthermore, the government is pursuing a published agenda to digitise the tax system – Making Tax Digital. This is therefore the direction of travel for all accountants. We have decided to fully embrace this technology before we are compelled to do so because we passionately believe that it delivers great benefits to our clients and ourselves.

Our fees are related to the level of complexity of your business and therefore the extent of the work that we will be required to do on your behalf. A sole trader business is almost certainly going to be less complex or demanding than a limited company.

We will agree an all-inclusive fixed monthly fee with you – this is our annual fee divided by 12. We will not increase this fee unless you ask us to provide additional services. Similarly, we will not issue any surprise invoices to you.

Xero FAQs

There are many reasons for switching to Xero. Some will have a greater relevance to some businesses than others. Above all, Xero is fantastically capable accounting software that is continuing to develop new features and functionality at pace. “Beautiful Accounting Software” as the people at Xero like to say.

Xero allows busy business owners to save time, money and effort in their accounting processes. These can be automated, information is available in real time, payments from customers can be collected faster and paperless operation is easily achieved. No more printing and filing of documents – it’s all held digitally and available to see whenever and wherever you are.

It is remarkably easy to switch to Xero. We would manage the entire process for you, taking data from your current system, placing this into Xero and training you how to use the new software. Each case is slightly different but we would always expect to be able to make the change and deliver the training within one month.

There is a one month notice period to terminate your Xero subscription.

Xero works on any internet connected device. There is no requirement for high powered equipment. A desktop, laptop or tablet with an internet browser such as Internet Explorer, Chrome or Safari is all you need.

Yes, you can. The way you do it depends on whether you are a limited company or a sole trader.

If you are a limited company a separate subscription is required for each business. This ensures the integrity of the accounting records for the separate legal entities and also the fact that the companies will have separate bank accounts. You can switch between the two businesses in Xero without having to log out and back in again.

If you are a sole trader engaged in different activities, you could use a function in Xero known as Tracking Categories. This separates out the different activities. You can run separate reports for the different businesses or one report with a column for each business. Invoices can be issued to customers with different logos and business names on them using the Xero branding themes. However, even though it’s possible, we wouldn’t recommend using the same Xero subscription for anything other than the smallest of businesses.

We have established our business as a digital practice and we recommend Xero as the software of choice. We do so because we passionately believe it is the best small business software available. We are though willing to discuss the use of other cloud-based software. We do not work with clients who want to hold records manually.

We provide full user training to all of our Xero clients. This is at the outset and whenever required as a refresher. In truth, the software is so user friendly and logical that we rarely find any client needs more than a few hours training.