Fixed fee or time basis Accountancy

We all received emails from companies offering us a opportunity for a fixed fee accountancy service. Is this something which works for clients. There are pros and cons like many things.

An accountancy firm like your operation is a business. It has overheads the most important being the staff. Good staff come with a associated cost based on level of experience. As a traditional rule accountancy firms calculate their staff hourly rate based on their pay, a allocation of overheads and a profit margin.

So whilst a fixed fee basis might have its merits, are you getting the level of service you require. The answer needs consideration. The fixed fee companies operate on the basis of clients not asking them to many questions to ensure the time staff spend on their work is less. So what happens if you have a business that needs more support than the normal business. It is likely that is where frustration sets in as the time taken is normally then assessed.

With a traditional accountancy form the fees will not be fixed but will be reviewed on a annual basis but you get the best of service as someone isn’t sitting with a stop watch to get things done as quick as possible or questions answered with minimal thought. A good Accountancy firm will give you a estimate of fees then assess normally at end of year time to budget. They then work with the client to assess how they can help the client realise benefits.

Contact us for more detail. We pride ourselves on being proactive and reactive which many fixed fee services don’t provide.

Vat myths

Client is adamant that their car dealer has advised them that VAT incurred on the purchase of an electric car is recoverable in full.

Myth! An electric car is no different to a car which runs on any other fuel; input tax is blocked from recovery unless the car meets one of the exception conditions detailed in VAT Notice 700/64, section 3, summarised briefly below:-

The Exceptions are for a car which:

  • is stock in trade of a motor manufacturer or dealer
  • is intended to be used primarily as a taxi, for driving instruction, or for self-drive hire
  • will be used exclusively for the purposes of the business and would not be made available for the private use of anyone

A building or a piece of land is itself opted to tax, and that option continues after the building is transferred to a new owner.

 Myth! It is not the land or building which is opted to tax, but the “interest in” that land or building held by the entity which has made the decision to opt to tax, and the option to tax is only binding on that entity, or a relevant associate of theirs in a VAT group situation. An ‘interest in’ property means any interest in, right over or licence to occupy property.

In most cases the decision to opt to tax is driven by the wish to recover input tax incurred in relation to the building, but can also be a requirement for the purchaser of a building opted to tax by the seller, to acquire it “VAT free” as part of the transfer of a business as a going concern.

To illustrate this point: if the landlord of a building has opted to tax, that option does not flow through to the tenants. If the tenant is subletting, and wants the rent they receive to be taxable income, they will need to notify HMRC of their own option.

Detailed information on Opting to Tax Land and Buildings is provided by HMRC in VAT Notice 742A

The conditions required to be met when transferring property as part of a transfer of a going concern are covered in section 2.3 of VAT Notice 700/9.

Exempt and outside-the-scope supplies of goods and services do not form part of taxable turnover for VAT registration or Making Tax Digital threshold purposes, but zero rated supplies of goods or services do (including exports).

Correct! Taxable Turnover includes supplies of goods and services at the standard, reduced and zero rate of VAT. Exempt supplies are not taxable supplies.

Examples of outside-the-scope supplies are:-

  • Business to business services supplied to customers outside the UK which under the place of supply of service rules are supplied where the customer belongs (See VAT Notice 741A),
  • Supplies of goods which never come into the UK, e.g. goods purchased from a supplier with stock held outside the UK and delivered direct to a customer’s premises outside the UK.

Both the above are examples of “supplies which would be taxable if made in the UK” but as the supplies are not made in the UK, they do not count as taxable turnover in the UK.

Exempt and zero rated supplies are both included when calculating the gross turnover on which VAT is to be declared on the Flat Rate Scheme (FRS). Outside-the-scope supplies of goods and services are not.

Correct! It is a common misconception that exempt supplies in particular are excluded from the FRS turnover calculation. This often catches out FRS users with property letting income.

Information on supplies to be included/excluded from FRS Turnover is provided in the Flat Rate Scheme VAT Notice 733 Sections 6.2 and 6.3.

Expense recharges are disbursements

Myth! When a consultant or any other kind of businesses recharges the costs it has itself incurred in the course of providing its services to its customers, that recharge is not a disbursement.

As per HMRC guidance on disbursements in section 25 of Notice 700: The VAT Guide, a disbursement is the result of acting as a disclosed agent between your customer and a third party to facilitate a supply of goods or services between those parties, and the supply made must be used by your customer – not by you!  There are eight conditions which need to be met for a payment made to a third party on behalf of your client to be treated as a disbursement:-

  • you acted as the agent of your client when you paid the third party
  • your client actually received and used the goods or services provided by the third party (this condition usually prevents the agent’s own travelling and subsistence expenses, phone bills, postage, and other costs being treated as disbursements for VAT purposes)
  • your client was responsible for paying the third party (examples include estate duty and Stamp Duty payable by your client on a contract to be made by the client)
  • your client authorised you to make the payment on their behalf
  • your client knew that the goods or services you paid for would be provided by a third party
  • your outlay will be separately itemised when you invoice your client
  • you recover only the exact amount which you paid to the third party
  • the goods or services, which you paid for, are clearly additional to the supplies which you make to your client on your own account

Recharges of a business’s own travel, subsistence or other costs are not disbursements – the customer is not using the transport, eating the meal or doing the miles in the case of a mileage rate. The recharge is correctly treated as further consideration for the goods or services supplied. In the case of a consultant, the fee for the job is in effect a daily rate for the job plus costs.

New rules coming from 06 April 2020

This will affect only a few clients but is always worth looking at especially in relation to the basic allowance. Currently there is an allowance for employer NI allowance of £3,000 per year but from 6 April 2020, employers with a National Insurance contributions liability of £100,000 or more, or employers who are connected to other employers where their cumulative secondary Class 1 NICs liability is £100,000 or more, will no longer be able to claim the Employment Allowance.

It is being brought in to actually benefit smaller businesses so the limitation that companies will only be able to claim the Allowance moving forward if their NIC liability in the previous year was less than £100,000.

De minimis State Aid

The Employment Allowance moving forward will mean businesses will need to be aware if they are already claiming any other de minimis State aid(s). There is a three year cap on the total de minimis State Aid a business can claim – this cap is €200k over a three year rolling period.

How can I claim if my company is eligible?

A company could get up to £3,000 a year off their National Insurance bill if they are an employer.

The allowance will reduce your employers’ (secondary) Class 1 National Insurance each time you run your payroll until the £3,000 has been reached or the tax year ends (whichever is sooner).

You can only claim against Class 1 National Insurance you’ve paid, up to a maximum of £3,000 each tax year. You can still claim the allowance if you pay less than £3,000 a year.

Employment Allowance claims will need to be submitted each tax year. Claims will not automatically roll over from the previous tax year. Look out for more information in the coming months.

The benefits of cloud software

We live in an age of instant accessibility to almost everything. Amazon delivers same day, we have most information available on internet and the greatest option to both client and accountant is good online software.

We are certified in Quickbooks, Xero, Sage, Free Agent and Receipt Bank.

Tax due on Air BNB & Holiday Let income

A subject of interest to many of our readers will be the rental of property/rooms such as Airbnb and Holiday lets.

Each year we can all have an available tax free personal allowance of £12,500 (Subject to other factors) which we utilise against mainstream income. There are also separate capital gains allowances which are £12,000 for tax year to 05 April 2020 with varying rates liable based on total income after the £12,000 is used and the gain on type of asset, property being at 18% and 28% where other assets are 10% and 20%

In addition to these for clients with earnings from Airbnb this income is not exempt from tax, however if you rent out a room in your main residence, you may qualify for the “rent a room” relief, the amount of relief is currently up to £7,500 or £3,750 if let jointly.

The amount of tax you will be due to pay on Airbnb income will be affected by whether the room you are renting out is in your main residence or not and then subject to rates of tax. If you are letting an Airbnb in a separate property, you will be due to pay the tax on profits just like any other business owners are.

Don’t forget about VAT. If your total income from Airbnb rentals exceeds the VAT threshold (£85,000) then you will need to consider registering for VAT.

Draft legislation from HMRC may be tightening on the rent a room relief. The current level of £7,500 per year will remain, however if you rent your own home, you must be present some or all of the time that it is let out.

Garrison Accountancy are your local leading experts for all areas of property taxes and income, this includes commercial property, buy-to-let properties, hotels and bed & breakfast, residential letting  If you require any support or guidance in relation to this area please contact Garrison Accountancy Tax Manager Brendan Kelly on 01397 600167 or email him at bkelly@garrisonaccountancy.com.

MTD software

We are glad to announce we have the highest level Quickbooks Advanced Certification which makes us pro advisors.

In conjunction with Receipt Bank, it makes the transition to Making Tax Digital an option for all client no matter their location (broadband connection willing)

The software works in conjunction with all leading online software packages: Quickbooks, Xero, Sage, Free Agent etc… and then exports the digitally captured image into the program.

An option for sole traders is it produces an income and expenditure which is then used for the preparation of the self-assessment tax return.Quickbooks Glasgow

Capital Gains Tax

Capital Gains Tax is a tax on the profit when you sell or dispose of something an ‘asset’ that’s increased in value after the available basic rate allowances and capital gains exemption. You will have to factor in other income you received such as employed earnings. It’s the gain you make that’s taxed, not the amount of money you receive.

This can be residential, commercial Property, assets, investments etc.

The current exempt sum for capital gains tax is £11,700 then the applicable gain over this attracts capital gains tax.

Typically this is then taxed at 18% for residential property and 28%. Other chargeable gains will be liable for 10% and 20% tax. Examples of other chargeable gains are

First rates above are for lower rate taxpayers the second is for higher rates taxpayers. Businesses pay the higher rate of 20% on other chargeable gains and 28% for residential property. Sole traders still can have 10% rate for sole trader or partnership gains applicable for entrepreneur relief

Making Tax Digital

Come 01 April 2019 all clients submitting vat returns will have to complete via online filing software. The process should be simple and we have partner programs with Quickbooks, Xero and Sage with reduced rates for clients. We are offering a deal till 31 March 2019 of £6.99 per month then £12.99 per month. Clients taking up this option after 31 March 2019 will not receive the same discounts and will start from £16.99 per month.

What makes them useful is the connection of the business bank account to the package meaning we can start on vat returns without having to request from client.

The reporting will benefit all clients and it is our intention to recommend clients use it monthly for their sales invoices, for their expenses and we will then provide a Profit and Loss to allow clients to have a monthly view of their business.

Please contact us for further details or for training options for these packages.

Welcome to the new Callan Accountancy website

Thanks for visiting the new Callan Accountancy website. We’ll be posting interesting and helpful information on the News blog so please check back regularly.

If you have any questions about the service we offer or would just like some accountancy related advice please call us on 0345 541 1377 anytime. We deal with businesses all over Scotland and would be delighted to hear from you.