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Explaining Tax Liability

New Clients

So far I have not succeeded in explaining tax liability to new clients who were in employees in the past. 

The problems:

1) They think VAT is additional tax on them

2) They are paying too much tax  compared to being an employee

3) Explaining dividend taxation and payments on account 

4) Explaining, they will have to pay Corp Tax and Income Tax

 Have you been successful? If so how do you explain?

Thanks

 

Replies

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By mrme89
16th Oct 2017 09:35

1) It’s not an additional tax. You add VAT to your selling price and collect that amount on behalf of HMRC. You recover the VAT on any purchases and the difference is what you hand over to HMRC. It is not a tax, you are essentially as an unpaid tax collector.
2) It depends on the circumstances. Just establish the differences and explain them.
3) I am not sure what problem you have with this?
4) They don’t pay corporation tax and income tax. The company pays corporation tax. They as an individual pay income tax on salary and dividends.

You’ve been in practice for years now and you must get asked these questions on nearly daily basis. I’m very surprised that you are asking this question.

Thanks (2)
to mrme89
16th Oct 2017 09:45

FirstTab wrote:

So far I have not succeeded in explaining tax liability to new clients who were in employees in the past. 

The problems:

1) They think VAT is additional tax on them

2) They are paying too much tax  compared to being an employee

3) Explaining dividend taxation and payments on account 

4) Explaining, they will have to pay Corp Tax and Income Tax

 Have you been successful? If so how do you explain?

Thanks


mrme89 wrote:

I’m very surprised that you are asking this question.

The rest of us arent....

Thanks (7)
By mrme89
to MissAccounting
16th Oct 2017 13:14

Neither am I. But I was trying to be nice.

Thanks (0)
16th Oct 2017 09:45

Know your audience.
There will always be some clients whose eyes glaze over at the 't' word. To them you just say, 'Don't worry, I'll sort it for you.'

Thanks (2)
16th Oct 2017 09:48

FT is it your client struggling to understand the position or are you struggling to explain it to them in terms they understand.

In our game you need to be able to deal with a client range from Prince to Pauper. (The prince end tend to be better fees though).

Now that all your staff have deserted you in the office, why dont you invite the client in for a face to face meeting to go through it.

Don't let them escape Google HQ until they understand.

Thanks (0)
16th Oct 2017 09:48

How are you dealing with the explanation, face to face, or in writing?

I prefer to explain the situation, in detail, when I've completed the SA return and I'm seeking approval from the client. I always give the client the opportunity to come back to me, if they require any further explanation. It generally works for me.

Thanks (1)
16th Oct 2017 09:57

Haven't you been doing this kind of work for a while?

What have you done up until now?

things haven't changed THAT much, so are you saying you haven't been explaining this clearly for a number of years now?

Like Mr Me, I am somewhat baffled that someone who runs their own practice has to ask how to explain basic concepts to clients...

Thanks (5)
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By Maslins
16th Oct 2017 10:16

The only thing that's changed in recent years is that even modestly earning Ltd Co clients now typically have a personal tax bill (ie the "take £8k salary then dividends to top of basic rate band" brigade now also have an SA liability).

Otherwise...this is just normal stuff that has been that way since the beginning of time.

The govt/HMRC have done a very good job of taking lots of money off employees, without the employees being overly aware of it. Having separate income tax and employee NICs, then the employer having their NICs too. I think many people just forget how badly stung they were when they were employees.

Thanks (0)
16th Oct 2017 10:44

1 should be very simple to explain. The fact that they are adding VAT on top of their sales is not a difficult concept.

2 should be very simple to explain. You do a simple calculation of their tax on the same income as an employee.

3 might be a surprise for existing company owners, who were used to not paying tax on dividends or having payments on account in the past. It's still easy to explain though (short version, the tax rules have changed). For new clients, surely dividend taxation is just tax on income that they are already used to.

4 Why are you setting new clients up as companies at all? The tax advantages have been so eroded that it is rarely worthwhile for new businesses. If there is a good reason for them to be a company anyway, why did you not explain the legal separation and taxation when you incorporated them.

As others have said, these are not questions that someone who has been in practice as long as you should need to ask. I am also disappointed, but not surprised, that you have not put any effort in explaining what you have tried that you say isn't working for you. Once again, you're all take and no give.

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16th Oct 2017 11:02

I think FT is posting out of frustration. We've all met clients that no matter how well you explain things to them they don't want to understand. Usually because a family friend/someone down the pub/facebook has told them they won't pay tax if they do xyz. All you can do is meet face to face, explain to them, show them how much they would pay as employees v Corp Tax and income tax and if they still don't accept it I would think carefully if you want this appointment. This could well be a battle you would need to do every year.

Thanks (2)
avatar
16th Oct 2017 13:08

I tell them their tax liability as a percentage of their taxable income as well. It makes them feel better.

If they area one man limited I treat the corporation tax as their's and tell them the percentage in tax and NI and compare what they might have paid as en employee.

Payments on account means paying a year and a half's tax perhaps in January. As long as they know this they are ok.

Thanks (1)
By Tornado
16th Oct 2017 17:21

I think I can see what FirstTab is getting at.

I have a few clients who are simply unable to understand what seems perfectly logical to me or you and no matter how you try to explain it, they are still baffled. This applies equally to clients that I have had for many years as well as to newer clients.

Most of us just work around it and effectively persuade the client to trust us but I do detect a new wave of rebellion where perhaps a younger generation gets involved who think they know better because they Googled it, but still don't really know how to interpret the Googled information.

We need to avoid the arrogance that such projects as MTD are based upon, because someone in the know assumes everyone is equally as knowledgeable and capable as them. It is a fact that some people simply cannot relate to some of the concepts that we can, particularly financial matters, and we have to deal with that by trying to communicate with them in a way that they can understand and to encourage them to trust us.

If it seems that the required trust fails to materialise, then I think it best for the engagement to terminate as I don't think a working relationship can be created without trust.

Thanks (2)
16th Oct 2017 21:38

Thanks to those who took on the point I was getting at - trying to explain as plainly as possible, client's tax liability. Even, after I have done all I can to explain, some clients do not get it. I want them to understand.

I thought those who claim to know it all would enlight the less than perfect like me. It is the usual mud slanging that they love doing here. On reflection, I very much doubt they have the communication skills to put across the explanations. Time wasters.

Thanks (1)
to FirstTab
17th Oct 2017 10:07

It could have been worse for you. Where's Peter Saxton?

Thanks (0)
By mrme89
to FirstTab
17th Oct 2017 10:23

FirstTab wrote:

On reflection, I very much doubt they have the communication skills to put across the explanations. Time wasters.

Given your question, wouldn't that just put them on par with you?

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By DJKL
to FirstTab
17th Oct 2017 11:11

FirstTab wrote:

Even, after I have done all I can to explain, some clients do not get it. I want them to understand.

.

It does give one sympathy for school teachers, all the lesson planning done, the hoped for learning outcome documented but yet, at the end of the lesson, one is faced with blank stares of total incomprehension.

Still, each to their own, I still cannot understand more than four dimensions and I have been trying, for a number of years, to wrap my brain around the concept with no success. Same with three dimensional matrices, the bit of university maths that finally got me to the realisation that in maths that was as far as I was ever going to go.

Just take pity on your clients, they can maybe say see patterns in paintings and music that you do not even know are there, we all do not need to be able to do/appreciate/understand the same things.

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17th Oct 2017 10:18

Who has thrown any mud at you, there is very positive comments there.

You have 2 ears and 1 mouth for a reason, use them in that proportion.

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to Glennzy
17th Oct 2017 10:23

BIG DITTO

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17th Oct 2017 10:34

Nutters have taken over the asylum. I am out of this thread.

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17th Oct 2017 10:34

Nutters have taken over the asylum. I am out of this thread.

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17th Oct 2017 10:35

Nutters have taken over the asylum. I am out of this thread.

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to FirstTab
17th Oct 2017 11:19

@FT - you must have known you'd get this type of response.

There are a few who will take the p1ss nicely, there are those who will offer advice and there are a few (at least one of whom has posted here) who constantly look to diss, bully and disparage the efforts of some who are genuinely looking for advice/talk out loud and to vent steam.

It is the latter who are the complete pr1.cks who really do need to fc.uk off and get back to work instead of playing keyboard warriors.

@FT - I would suggest you find one/two practitioners who you can sound out/ask questions of privately as this forum posting lark never seems to go well for you.

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