Tag Archives: Tax

HMRC Campaign Targets Direct Sellers

HMRC Target Direct SellersHM Revenue and Customs have periodic crackdowns on different industries who they believe may not be paying enough tax. Recently they have focussed on eBay sellers, electricians and hair dressers. Their newest target is on ‘direct sellers’. HMRC define direct selling as “when you sell directly to customers usually door to door or in customers’ homes or the workplace”. They go onto say that:

Your selling may involve demonstrating a product in a customers’ home, sometimes at a party, or you might sell door to door, using catalogues. You might only sell to your friends and relatives. As a direct seller you will usually take commission on the sales you make. You may be involved in direct selling as a full time business, to top up your income from another job or to fit around your caring commitments.

HMRC’s concern is because people are often doing this kind of selling on top of existing jobs, or view it as an easy way to earn a bit of extra money, they may not realise they have tax liabilities. This can be further complicated by the way that they are employed. Although they may be described as an agent, representative, distributor or consultant for a particular company they are usually actually self employed. As such they need to be registered with HMRC in the same way as a normal sole trader business would. They should potentially be making regular National Insurance and Tax contributions and be filling out self assessment tax returns at the end of the year. Because of the terminology used and the complexity of contracts it can sometimes be unclear whether a direct seller should consider themselves as self employed or as employed by the company they are contracted to. HMRC have made a video to help people work this out.

If you are a direct seller who is self employed and you have not been making the correct tax contributions then HMRC are giving you until 28th February 2013 to come clean. If you do own up within this time period then they may wave any penalties and allow you to pay what you owe in instalments. They are only making this offer to people who have been working as direct sellers since before 6th April 2011 though. Anyone who started work after this point has to register and pay tax as normal.

If you think that the HMRC Direct Seller scheme may apply to you then you can download a Disclosure Form from their website. If you are a direct seller and want to get registered then we offer free Sole Trader Registration which includes basic accountancy advice so you can get your tax affairs in order.

What is the Seed Enterprise Investment Scheme?

One of the biggesSeed investment schemet problems for new start-up companies is raising their initial seed capital, the money which they need to get going and test their ideas. For this reason the government has adapted the existing Enterprise Investment Scheme to create the Seed Enterprise Investment Scheme (SEIS).

SEIS is a fairly simple scheme. The idea is that if someone invests in a new start-up they can claim back 50% of their investment against their tax bill. So, for instance, if someone invested £10,000 in a start-up company they can reduce their end of year tax bill by £5,000. On top of the tax write off associated with the original investment there can also be additional Capital Gains savings if the investment is cashed in.  As well as their tax saving they have also made an investment in a small business which will hopefully generate a profit for them. So this is good for the new business, they are getting investment, and good for the investor who gets cheap shares and cuts their tax bill.

As you would expect there are some restrictions on this scheme. To start with it only applies to deals done after April 2012. The company being invested in must be less than two years old, have less than 25 employees and have assets of less than £200,000. The investor can take a maximum stake of 30% in a company but can invest in as many companies as they like as long as they do not put in more than £100,000 per year.

As the scheme has only been running for a few months there is little reliable data available on what impact SEIS is having in terms of encouraging investment. It is unlikely that any real data will be available until HMRC do an analysis at the end of the tax year. However SEIS has generated a lot of interest from organisations involved in supporting start-up businesses. SEID EIS Platform and Seedrs are two of the online services which are encouraging investors to use the SEIS scheme and actively trying to match them to businesses looking for funding.

The HMRC website has a basic introduction to the SEIS scheme. As they point out is always a good idea to seek some professional advice before engaging in investments regardless of whether you are giving or receiving the money. In particular it is worth speaking to a qualified accountant where complex tax arrangements such as the Seed Enterprise Investment Scheme are involved.

Why your business should not wait to register for VAT

Registering for VAT means that you become an unpaid tax collector on behalf of Her Majesty’s Revenue and Customs (HMRC). Once registered you have to give 20% of the price of any VATable goods or services you sell direct to the government. If you don’t register you get to keep this 20%. So why would anyone bother?

Well the first and most important reason people register is that once you reach the VAT threshold you have to. Currently the threshold is £77,000 of turnover on VATable goods and services in a year. Failure to register at this point means that once HMRC catch you, they will still make you pay the VAT but will also levy a penalty charge on top. This is normally a percentage of the VAT due. The current penalty is a premium on top of your VAT of between 5% and 15% depending on how late you are.

So your business is going to have to register for VAT at some point. You don’t have to wait until you reach the threshold though. You can do a voluntary VAT registration at any point. Many people choose to do this as soon as they start their business. There are a few reasons for this. The main ones are:

  • Being registered for VAT is the norm. All decent size companies have to be VAT registered so if you are not it makes people nervous.
  • As well as paying VAT, you can reclaim VAT if you are registered. So basically you can claim back 20% of anything you buy for your company.
  • Registering for VAT when you are already trading makes the process much more difficult.

The last one of these reasons is perhaps the most important, and most overlooked. To understand why registering while trading can be such an issue you just have to take a look at the official HMRC advice. HMRC say that as soon as you make the application to become VAT registered you have to start paying VAT but you aren’t allowed to charge it on invoices (or reclaim it on payments). Their solution is as follows:

you should increase your prices by an amount equivalent to the VAT rate relevant for your goods or services, and explain to your customers why you are doing so.

Once you receive your VAT registration number you can then reissue those invoices, amended to show your VAT registration number and the VAT charged. This will ensure that your VAT-registered customers may reclaim the VAT that they have paid.

So basically if you try to register for VAT while you are already trading the recommended way to do it is to put all of your prices up by 20%. HMRC currently quote a month for the VAT registration process to take place. Once this month is up you would then have to re-issue invoices for all the sales you have done showing your new high price less the VAT. If you are dealing with business customers who are VAT registered this won’t bother them too much as they will be able to claim back the VAT and will end up paying the same as they always have. However for ordinary retail customers, or non VAT registered businesses, you will effectively be giving them a 20% price rise.

It isn’t hard to imagine the effect that a sudden 20% price hike, and having to redo all of your sales invoices for a month, will have on a new business. As well as potentially hitting overall sales the extra paperwork could be a significant burden. Registering for VAT from the start of you business means that you can maintain your prices at a constant level and avoid the disruption of the registration paperwork.

If you would like to register for VAT you can do it yourself through HMRC or we can do your VAT registration for you.

Private Limited Companies, Tax, Celebrities, PR and HMRC.

Tax and Private Limited CompaniesThe way companies and company directors pay tax has been at the heart of several leading news stories over the last week. We have had debates over the morality of celebrities and politicians avoiding tax through loopholes involving offshore companies. Meanwhile the HMRC has been attacked by the Audit office for the way it deals with the tax arrangements of large companies. At the same time HMRC are being challenged in court over the ‘sweetheart’ deal it came to with Goldman Sachs.

At the centre of the Jimmy Carr case is the way in which company directors are taxed. The loophole he was using is a variation of one that 2000 senior civil servants have recently been investigated for employing. Essentially this boils down to having your pay fed through a private limited company rather than being paid direct as an employee. By being paid through a private company, which you are a director of, you can take advantage of the lower tax rate charged on director’s dividend payments. This can easily save an individual 10% on their tax liabilities. Another popular tactic is to have the company make a director’s loan to an individual which can be tax free. It would appear that Jimmy Carr was using the director’s loan tactic but feeding it through an offshore company in a tax haven. Both the director’s dividend payment and director’s loan payments are perfectly legal and in many cases are a legitimate way for individuals to be rewarded by the company they work for. The issue arises when people are setting up companies purely to take advantage of lower tax rates rather than because they are creating a new business.

Why all the fuss?

While the actions of celebrities and various large corporations in minimizing their tax bills may be legal it is not always popular. This is shown by the response to Jimmy Carr’s dealings and the current court case against HMRC and Goldman Sachs. Avoiding tax, legally or not, can turn into a PR disaster for individuals and companies. However there are more than the PR, and moral, considerations to take into account when considering using a private company to pay yourself.

Because the use of private companies as a tax reduction channel has become so widespread over recent years the HMRC has begun to specifically target it. They recently introduced their controversial IR35 test to assess when limited companies are being used as a tax dodge. IR35 tests whether a company is really a functioning and trading business entity or simply an entity created to channel pay and reduce tax. If HMRC find that the company is not really a trading business then they can begin prosecutions and proceedings to claw back any unpaid tax. This may not be a quick process either. Recent reports have claimed that at current rates, it would take HMRC 38 years to clear their current backlog of tax tribunal cases.

What can we learn from this?

So basically if you want to avoid being denounced by the Prime Minister on the news, spending the next several decades being investigated by HMRC and potential prosecution and fines make sure you pay your tax. More specifically if you are going to pay yourself through a private company make sure that you can pass the IR35 test. If you are in any doubt speak to a qualified accountant who can make sure that what you are doing is legal and above board.

HMRC IR35 Test: When is a company not a company?

New Business Tax TestIt recently emerged that about 2000 UK civil servants were being paid as contractors through companies in order to avoid paying income tax and National Insurance.

Whereas employees are liable to income tax, company owners can pay themselves dividends from their company which are liable to a much lower tax rate. Paying yourself through the dividends of a company also means that individuals can avoid paying National Insurance contributions. If you are running a legitimate company then this is not an issue. However HMRC have been concerned that many people who, like the 2000 civil servants, could be seen as employees were being paid as contractors through companies purely to avoid paying the full amount of tax.

As a result of the widespread abuse of company structures HMRC launched what became known as the IR35 forum with small business owners, tax experts and HMRC collaborating on new rules. The IR35 initiative was launched in 1999 and finally came up with a new points based “Business Entity Test” last week. This test looks at various business activities and assigns points as to the risk that a “company” is really just being used as a tax dodge for an employee. If a company is found to be in the “high risk” category then they could come under full investigation and potentially be lumped with quite a large tax bill.

Despite the collaborative consultation process the new test has been heavily criticised by some members of the IR35 forum who feel that HRMCs criteria are much too strict. Critics of the test say that manly legitimate UK companies would find themselves in the “high risk” category of the IR35 test and would be liable for investigation from HMRC. The new test looks at the following factors:

  • Does a company rent or own premises other than an individual’s home?
  • Does the company advertise?
  • Does the company have a business plan?
  • Does the company invoice for its work before getting paid?
  • Does the company sometimes not get paid?
  • Have the company’s contracts changed in the last year?
  • Does the company employ more than one person?
  • Could the company send an alternative person to do its normal job?

If the answer to most of these questions is no then a company could find itself at “high risk”. In other words it is likely that HMRC would not see them as a real company but as an employee using the pretence of a company to dodge tax.

As the new IR35 Business Entity Test has only been in existence for a week it is hard to know how HMRC will try to enforce it. However if you are a company whose contracts are largely with one other company, or if you are thinking of forming a company in such a situation it is worth thinking about what kind of points score you would accumulate.

The Office of Tax Simplification – “Britain Is Open For Business”


News from the Government shows the upcoming creation of a new body known as The Office of Tax Simplification. Just like the body’s title, the idea is simplifying things for business.

A number of new measures have been introduced lately which make it clear that the current Government is aware of the need to help small businesses and new companies survive and grow. Helping the British economy to do the same. Simplification of the tax system is just one step intended to support small business.

The Office of Tax Simplification is going to be tasked with finding areas of complexities in the current tax system which can be amended in an effort to support British Business. Its report will be used as the basis for the next Budget.

George Osborne the Chancellor of the Exchequer spoke of the new body saying:

“…With its independent, expert advice it will be a permanent force for a simpler tax system. Simpler, more competitive taxes will help us show the world that Britain is open for business.”

David Frost, director general of the British Chambers of Commerce commented:

“The creation of the OTS is a necessary and long overdue response to the relentless chop and change of tax law. The business community, and the economy, will benefit from the recently announced lower rates of tax, and now from the drive towards a simpler system. The government needs to continue with measures that foster entrepreneurship in order to secure a sustainable economic recovery.”

In the meantime, The Company Warehouse is helping new businesses and those who have carried out a company formation with tax efficient accountancy services and advice. Get in contact today to see what we can do for you.


For more information – http://www.hm-treasury.gov.uk/ots.htm

HMRC Clamps Down on Tax Fraud


Credit cards and doumentary evidence seized by HMRC

In recent news, HMRC has demonstrated its tough stance when it comes to tax fraud. A London accountant, a 21 strong criminal gang and 11 members of a Ukrainian gang have all been subject to legal action, facing jail time and repayment orders.

With the strict rules around company accounts and VAT returns and the current deficit of the economy it is not surprise that the HMRC are keen to pursue these cases to the full extent of the law.

Richard Meadows, Assistant Director of Criminal Investigation for HMRC, said:

“We are determined to bring to justice the criminals behind this type of fraud and take away the proceeds of their crime.”

It is not just those who intentionally defraud HMRC that are likely to be subject to action and fines. Those companies incorrectly submitting accounts or missing filing dates are also often subject to financial penalties. It is important to keep on top of your accounts and submit the right information at the right time. Using a good quality accountancy service ensures that the business is in line with the law. A good quality bookkeeping software will help you keep on top of your accounts.

HMRC and Retrospective Tax

HMRCIn a recent article (Will retrospective taxes affect us all?), the BBC have highlighted the dangers surrounding tax law and its changing nature with regard to business. Obviously wishing to reduce the tax that they have to pay, over the years a number of business men and women have been involved in schemes aimed at minimising payments to HM Revenue & Customs. Perfectly legal at the time, these schemes have now been deemed as illegal as the law changed with Section 58 of the Finance Act 2008. Precedent set by a recent court judgement has meant that this law now has a retrospective effect and many people are finding themselves subject to a hefty tax bill.

A number of these individuals have found that the taxation they face is to such a level that they cannot afford to pay it, even after selling all their assets. Considering that at the time, they all were under the impression that what they were doing was perfectly legal its quite a worry for business people in general.

These changes in tax law illustrate an important yet simple point. If you’re going into business, you need to ensure you separate yourself from the business and avoid liability that could leave you penniless. This is just one of the reasons why limited company formation is so appealing, allowing business men and women to take advantage of the limited liability offered by forming a limited company.

It also makes it clear how important it is for businesses to properly register with HMRC where they are required to do so, keep on top of their books and up-to-date with the latest laws so they don’t get caught out.

The Company Warehouse is here to help you. We offer a number of services to ensure you get on with the tax man.

Vat Registration

Payroll Services

Accountancy Packages

Don’t forget our limited time offer of Free Limited Company Formation! Take advantage of limited liability for your new business and keep the tax man happy.

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