pjw accounting - the common tax mistakes start-up businesses make

Never leave a Tip with the Taxman

What Are You Going To See

● Who Am I?● The Common Tax Mistakes● Inheritance Tax Reliefs● Xero● Final Thoughts

Who am I?

● Chartered Accountant● Amateur Photographer

“The only difference between a Taxman and a taxidermist is that the taxidermist leaves the skin.” Mark Twain

Common Tax Mistakes Made in

Business

Common Tax Mistakes Made in

Business

My typical client: self-employed with taxable income of £30,000

Income Tax

• Total tax due £6,532 - Made up of:

• £3,880 Income Tax• £2,652 National Insurance

“Income tax returns are the most imaginative fiction being written today.” Herman Wouk

Corporation Tax

By incorporating:

He saves - £1,588

• Corporation Tax - £4,944

“Income tax returns are the most imaginative fiction being written today.” Herman Wouk

And the Rest

• Using the family to save tax:1. Employ his wife £2,0002. Employ the children ?• Use of home as office

£400• Use fixed rate for mileage

£300• Split the share capital £2,500“Government's view of the economy could be summed up in a few

short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.” Ronald Reagan

VAT

Not currently VAT registered• Current level of inputs - £2,350• Set up a VAT registration - tax saved

£2,350• Bonus - looks like he has a turnover

of £80k• Double bonus - FRS - tax saved now

£3,250Where is the politician who has not promised to fight to the death for lower taxes- and who has not proceeded to vote for the very spending projects that make tax cuts impossible? Barry Goldwater

Capital Gains Tax

• Couple own a rental property• Previous accountants never asked

about CGT• Tax rules were about to change• Property only in husband’s name• Tax due is selling after 5 April -

£10,250• Property sold prior to 5 April• Tax saved £10,250

“Be wary of strong drink. It can make you shoot at tax collectors... and miss.”

Robert A. Heinlein

Total Savings

• Incorporation £1,588• Wife’s wages £2,000• Split shares (potential)

£2,500• Use of home as office £ 400• FPCS £ 300• FRS £3,250• CGT

£10,250• Total Savings £20,288

A democratic government is the only one in which those who vote for a tax can escape the obligation to pay it. Alexis de Tocqueville

The Use of Allowances

Inheritance Tax

Inheritance Tax

• Who likes to take about death?• We do anything to avoid it.• What's the potential consequences of our

squeamishness? • But 1st - How much is raised from IHT?

“Thinking about death is like looking at the sun. We all do it occasionally, but it is only bearable for the briefest of moments” – Theodore Dalrymple

Example

• Widow – main asset £375,000 home in Lichfield

• Cash in bank - £125,000• PETs - £50,000• Husband died in 1995, gifting ⅔ of his NRB

to children.• Good tax planning at the time, but disaster

now. Only ⅓ of current NRB was available to widow (i.e. £110,000).

• Tip – now use spousal exemption & make it clear in will

• NRB available £435k, leaving £115k chargeable (£46K)

Distaster Strikes

• Widow diagnosed with cancer Feb 2011. Dies Dec 2012.

• No time to plan away the IHT. No one discussed it!

• What could have been done?• Annual Allowance - £3,000/year. Had it

been given every year from 1995, £51,000 would have been taken out of the estate. Can be out of capital

• Small gifts exemption – 3 children; 3 in-laws, 8 grandchildren - £3,500/year. £56,000 out of the estate - £22,400 saved. Can be out of capital

What is overlooked?

Gifts Out of Income• Must be out of surplus income• Based on a pattern of spending over 3 years• Make a record of gifts made.• Make you intentions known in advance in

writing.• Give the written document to your

executors• Examples – pay for school fees, take out a

savings plan, or insurance bond.The tax collector must love poor people, he's creating so many of them. Bill Vaughan

Conclusion

• The tax was entirely avoidable using these basic reliefs.

• But it wasn’t because the family avoided the subject.

• How do we get talking about it?• Visit www.death-clock.org• My death is scheduled for Saturday 5th June

2049• That gives me 34 years to planThe hardest thing to understand in the world is the tax

code. Albert Einstein

Accounting Made Easy

Xero

Accounting:- what are the options?

● Bag of invoices● Spreadsheets

● Software

So what makes Xero Different?

● Different options● Bank feeds

● Adds-ons

Receipt Bank - £10/month

● Solves the paper bag problem● Lets you focus on your business● Upload by email; mobile; dropbox

or post● Receipt bank analyses your

receipts and uploads it to Xero.● All you have to do is refresh the

bank feed.

Tripcatcher - £1.50/month

● Records your business mileage● Can be entered by mobile or online● Mileage and VAT calculated by app● VAT automatically updated by app● Claim automatically uploaded to

Xero● Saves time and maximises tax

deduction

Chaser - £20/month

● Useful if you have poor payers● Chaser takes all invoices from Xero● Sends a reminder every 7 days● You control who receives the

emails● Emails get progressively terse● You can edit the text of the emails● Client get a thank you when they

pay.

Xero Summary

● Xero allows a closer relationship between you and your accountant.

● The add-ons give you more time to concentrate on what you’re good at.

● The whole package gives me more time to concentrate on what’s important to you - saving tax & giving business advice.

Final Thoughts

Chat To Me In The Break

How to get in touch

● Call me – 01889 586 431● E-mail me – paul@pjwaccounting.co.uk● Web – www.pjwaccounting.uk● LinkedIn - Paul Woodcock● Twitter - @PJWAccounting● Facebook -

www.facebook.com/pjwaccountingltd● Google+ -

www.plus.google.com/+PjwaccountingUk● Tumblr – www.pjwaccounting.tumblr.com/