I have highlighted below some “tips” that can help to reduce the tax burden and simplify the day to day issues for businesses. Most of these schemes have been around for some time but I am still seeing new clients who were unaware of them. As we are all looking to be as competitive and efficient as possible it seemed sensible to highlight these ideas again even if it just means that you can say “yes” we are on top of all of these. These “tips” are only a small sample of the options available to businesses and getting the right advice will always help you.

Should You be a Limited Company?

From a purely taxation point of view, it begins to make sense for sole traders and partnerships when your taxable profits exceed £25,000pa. At £25,000 taxable profits, the saving can be approximately £1,200pa. If your profits were in the region of £50,000pa you could be saving £3500pa. Each case, however, needs proper consideration and professional advice; factors such as goodwill will have an effect and further tax savings can be made. There are many factors to consider when forming a limited company, please refer to the quick links on our website for further guidance.

VAT Cash Accounting, Cashflow and Bad Debts

To make the example simple, if you assume all your sales and purchases are VATable; if your debtors are £125,000 and your creditors are £60,000, the switching to cash accounting would give your business a cash flow injection of approximately £10,000 on the first VAT return after you have made the switch. You are eligible to join the scheme if your annual sales are below £1,350,000 - this increased in 2007-08 from £660,000. The scheme means you pay VAT based on money received and paid; therefore you don’t pay on sales that have not been paid. In this climate bad debts are a serious risk to a business, if you are not on the cash accounting scheme you have to wait 6 months to reclaim the VAT paid on sales that have gone bad and you must have written the debt off. Sadly, it is a fact that chasing slow payers can take longer than 6 months which again means that, if you cash account for VAT, you have the benefit of having not paid the VAT in the first place and can continue to pursue the debtor for as long as you wish.

VAT Flat Rate Scheme Cheaper and Simpler?

You are eligible to join the scheme if your turnover is below £150,000. Under the scheme you simply pay a flat rate % of your gross sales. The percentage you pay is based on your sector. If you look at our website and see the "quick links" we have a full list available.
To work out if you could benefit from the scheme I would look at your last four returns, simply add box 6 + 1 together for the last 4 vat returns and then multiply it by your flat rate percentage, this will show you the amount you would have paid under the scheme. You can then compare the figure to the amount you have paid by adding together all the box 5's for the last four returns. This method will only work so long as you do not have any exempt sales and I must stress the need to take professional advice.
The scheme is very simple which means you save time and the headache of pulling all the output and input VAT together to calculate your return. It also follows that your risk of making a mistake is
substantially reduced, which in turn means that the dreaded VAT inspection is a far more straight forward affair. You could argue that so long as you can add your sales correctly and use a calculator to apply the % you can't get it wrong.

Motoring Costs, a Higher Claim?

If you are a sole trader or partnership and you trade below the VAT threshold, you can claim motoring costs in your accounts at the HMRC approved mileage rates of £0.40ppm for the first 10,000 miles a year and then £0.25ppm for the miles over 10,000. This can lead to a higher claim against your taxable profits. For example, if you completed 12000 business miles in your own car you could claim £4,500 against your profits and, in my experience, this can be far higher than claiming true costs of running the car for the year. Our website has a full library of guidance and calculators to help you, some of these require you to register but I would stress that it is FREE.

Oct 2010 Sherborne Community
Times Article - Quicklinks 

- Table of VAT Flat rate %'s 

Emergency Budget 22nd JUNE 2010

- Further guidance and information

We are officially out of recession

- Business confidence to move forward with new ides and clever thinking

Tax Information

- Top Tax Tips

- 31st January Tax Bill Deadline

- Look beyond the... surface!

Finance and Legal

- The fab four finance facts

- Business matters