Like many sole practitioners, I started out as a wage slave and only became self-employed about midway through my career. It was something of a happy accident really. It certainly wasn't planned that way!
I spent most of my early career in financial services and worked for various banks, finance houses and insurance companies throughout the 80s and 90s, studying part-time for the ACCA exams and finally qualifying in 1988. I had a CV as long as your arm, but all that background actually did me a lot of good, as it gave me a breadth of experience few people in the industry had.
It didn't teach me very much about being an accountant though, not a real one anyway. That only really happened when I started contracting in the late 90s and running my own company. Maybe it was the buzz of being (more or less) my own boss or maybe it was just the tax savings, but I never wanted a "permanent" job after that. In just a couple of years, I learnt more about tax returns, and more importantly tax planning, than in the whole of my career up to that point. In fact, the other contractors started asking me to do their accounts too, so I got my practising certificate in 2000 and re-branded the business as Acumen Accounting.
Back then it was just a spare time practice, as I had a full-time job running the finance function for a group of captive insurance companies. This came in handy when IR35 first reared its ugly head in 2000, as I had a separate contract with each company and, crucially, was able to draft the basic terms and conditions. This kept me on the right side of the taxman, but IR35 also encouraged me to take on more private clients and market my burgeoning practice as a real business, mainly through the website. This worked quite well, as few accountants had their own website in those early internet days, and I was able to steal a march, so much so that when I came to a cross-roads in my career a couple of years later, the way forward was obvious.
The group had decided to outsource their insurance operations, and only a small team of us remained to manage the handover. I had a choice between finding a new position or staying on 2 days a week for a while and using that interim period to dip my toe in the water and see if I wanted to go into public practice full-time. It was a no-brainer. I went for it, and I've never regretted it for a single moment ever since.
For one thing, I actually feel as though I'm doing something useful these days. My clients are really appreciative of the work I do for them and rely on my advice. So different from the old days, when I felt more like a cog in a machine, and I certainly never really felt appreciated. Back then, I seemed to spend more time sorting out staff issues or sitting in weekly meetings than doing any useful work, and I was getting bored with the repetitive cycle of head office reporting and regulatory returns.
I came to another career cross-roads in 2008 when the "old job" finally came to an end and simultaneously my largest client created his own accounts department, precipitating a big drop in turnover. I decided to focus more on the tax side of things, so set up a new brand called Acumen Tax Solutions and marketed it with a series of fact sheets, which ranked highly on the internet and drove business towards the main website.
I've always enjoyed tax more than accounts and by that time I'd added considerably to my knowledge and experience. Anyway, there's not much money in number-crunching any more. Those days are over. You have to be more of an all-rounder now and advise on all sorts of things, from IT to HR to tax, and I find the tax work a lot more fulfilling. I've even found the time to write a couple of Tax Cafe books which have helped to put me "on the map" so to speak.
It was also around that time I started posting on Accountingweb. I've always found this site to be both a brilliant resource and a great way of communicating with fellow professionals. I also get a lot of satisfaction from helping others, which is one of the things that makes me stay in public practice. It's been a lot of fun too, even when I'm crossing swords with some of the more contrary posters (of whom I am undoubtedly one). Accountingweb certainly boasts more than its fair share of us. Well, that's my story, for anyone who's interested. It would be fascinating to read other members life stories and see where they come from.
forrest gump wrote:
btw the house had been owned by the owners' ltd company before it was transferred to them and they took the short occupation before they rented it.
Did the company report a chargeable gain on its corporation tax return based on market value at the date the house was transferred?
I know that it's not corporation tax but I consider it to be analagous to a company receiving overseas income from which foreign tax has been deducted, which tax does form part of the tax charge. The IR35 tax is a charge on the company, so I don't agree that the DLA should suffer as a result.
The IR35 deductions are far more analagous to PAYE than foreign tax so I still say it's correct to debit DLA. After all, PAYE itself is a charge to the company, but it doesn't hit the P&L (apart from the employer NI). It hits the DLA as this is only credited with net pay.
The commercial reality is that the director is being forced to take his remuneration as salary rather than dividend. Therefore, the accounts should reflect this and look exactly as they would if he took that much salary voluntarily rather than having his arm twisted.
Essentially, the PSC company will reduce it's turnover by the PAYE/NICee deducted for CT purposes and deal with the net amount received in payroll under rti tax free, unless a dividend is paid in which case the company will get a tax deduction for the deemed salary. Hope that helps.
As Ruddles has said, that guidance is pants. Turnover is measured in accordance with accounting standards, not by what some half-wit in the Treasury says. Basically, as per the invoice.
What you should do is take the tax and NI to a temporary debtors account (call it IR35 Deductions) until the client decides what to do about it. Unless he wants to argue the toss with either the client or HMRC, he will have no choice but to take salary of an equivalent sum to avoid double-taxation. That salary will be tax free on his own payroll (you have to report it as non-taxable income in Data Field 58A according to their guidance note) and the IR35 deductions can then be debited to DLA in lieu of the PAYE deductions there would have been otherwise.
Best do this before the end of the corporation tax year though or you might end up having to carry back loss relief (or even worse, carry it forward).
Well, if this is rolled out to the private sector then we will all have to do these calculations.
I think the private sector will be a much tougher nut to crack than the public sector bodies, who were more or less ambushed with this ill-thought out legislation. I can see a lot of them making full use of the much criticised (but nonetheless relatively benign) status tool to keep key staff on board.
The Government might think they have cleverly levelled the playing field to stop contractors deserting the public sector for jobs in the private sector, but actually the private sector will probably fragment into firms that impose blanket policies and those who either assess their contractors individually to get the best staff or simply outsource the work to larger firms.
He agreed with you on the narrow point about deemed salary. Guess what -so do I. Nothing you propose follows from this point.
He specifically said he ignored the provisions of the Insolvency Act 1986. And what you have been sticking your head in the sand about is that this is the crux of the matter. Not obscure reg 72. Simple insolvency law.
If you agree with me that salary was contemporaneous with the cash drawings then I fail to see how this breaks insolvency law, as it simply recognises a cost the company has already incurred. It does not improve the director's position at the expense of the creditors as he had already taken that salary whilst the company was both profitable and solvent.
Recognising that there are PAYE liabilities doesn't break insolvency law either. We're not creating them as they always existed, same as the VAT debts. It is not trading whilst insolvent, any more than it would be to entertain a late claim from a previously unknown creditor.
In fact, I don't even think the accountancy fees would fall foul of insolvency law, as they are simply to quantify the tax liabilities. Of course, if there was a CVL rather than a strike-off, the IP could always include them in his fees and then there's no argument.
As for the inadequacies of insolvency law, I tend to agree with you there. Debtors get off far too lightly these days, especially when are allowed to buy out the old business, as so often happens now.
Tax Dragon wrote:
He knows he's right, even though there has been not one respondent - not one response (has there?) - that gives clear support to his 'plan'.
Actually, there is one poster who agrees with me, at least concerning the salary, which is the crux of the whole issue as it affects whether there is an overdrawn DLA or not. Justin Bryant said that it is "far from crooked" as HMRC do it all the time when it suits them. He also said in a later post that in the absence of evidence to the contrary that there was a loan or dividend "there is a presumption that money taken out of a company by a director is salary". That's exactly what I'm saying.
He's just one lone voice among many saying the opposite, but he does happen to be someone who has demonstrated a high level of knowledge on this site, so with all due respect to the rest of you, I'm inclined to give greater weight to his thoughts on the matter.
Understandably, he did hedge his bets on the overall situation because as he said he didn't know the full facts (something that doesn't seem to have held back the rest of you). I don't even know the full facts myself yet.
Once all this is done and dusted, I will update this thread and let you all know what happened, but that probably won't be for a few months yet.
@cfield I would say that just because opposing views to yours have been expressed, doesn’t make them trolls.
Thought I'd better respond to this "troll" issue. It isn't the fact that the majority of respondents disagree with me that made me say that. Most of have done so in a polite and professional manner. I wouldn't be posting on here if I couldn't take criticism.
I said that because the later posts were starting to go well beyond reasoned debate and a nasty undercurrent was gaining momentum based on little more than supposition (as to the real motivation of the parties concerned) and emotional reactions.
One of the posters put his finger on that when he talked of public opinion shifting westwards, and others have mentioned their ire at the fee (which by the way is only a top-end estimate and includes VAT and legal fees). Not what you expect on a professional forum.
Consequently, a few posters were veering away from debating the matter in a professional way and beginning to adopt a "have a pop" mentality. To me that is trolling, although I hasten to add, not as bad as you see elsewhere on the internet.
Most people on here think we should let sleeping dogs lie and do nothing, but what about the VAT aspects? I mean, this man has registered his company for VAT voluntarily and charged his client VAT (albeit on a self-billing basis) but not filed a single return or paid a penny. Some might say that was fraud rather than gross incompetence. If he does nothing, that conclusion is inescapable. He could go to prison for that. However, if he files the VAT returns and pays at least some of the arrears, he stands a good chance of not being prosecuted. If not, then who knows what will happen.
Basically, the director has 3 choices:
1) Do nothing. The debt collectors will eventually give up and HMRC may never get round to investigating him. But what if they do? Suppose they allege VAT fraud and the Official Receiver demands repayment of a DLA?
2) Do as the IP suggests and enter into a CVL. They will then chase a DLA and he will have to either go bankrupt or enter into an IVA. Also, he may still be accused of VAT fraud.
3) Do as I suggest and take matters into his own hands. File all the outstanding tax returns, be totally up-front with HMRC about what has happened and how we've dealt with it and pay them all the remaining cash, but limit the scope for them to chase him for company debts as much as possible.
At the end of the day, it will be his decision. If he chooses 1) I will have no choice but to file a SAR.
Bad form. I though you had done pretty well up to then.
Don't worry Andy. I don't mean you. I know you're not a troll.
I won't name names but I'm sure you know who I mean and the type of thing I mean. It's starting to go way beyond an intelligent debate.
By incurring extra PAYE liabilities, how does the director plan to get around:
OK, one last post. Section 214(3) is not in point as the PAYE liabilities already exist, same as the VAT liabilities. We are not changing them, just recognising them.
The client will pay the fees himself so they will not come out of the £40k, nor will they be claimed as an expense.
We don't even know how much the taxes will be yet. You never know, the £40k may cover them, although it seems unlikely. Once they have been quantified, if they exceed the available funds, then the company would indeed be insolvent, although of course it doesn't exist at present.
It doesn't matter for insolvency purposes but it may matter very much for what happens afterwards.