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.
Your client should also consider the tax consequences of converting to sole trader status. Essentially the company would be transferring its assets (including goodwill) to a connected person. This means any capital gain is taxable at market value on the company, regardless of whether anything is actually charged or paid for the business.
He could make a claim for Disincorporation Relief if he wants, but he'd better get his skates on as it's due to end on 31/3/18. You do get 2 years to claim but not after the company has been struck off or liquidated.
Of course, the simple answer is just to de-register as everyone keeps saying.
Not so sure of that after the Belcher case last year. That took everyone by surprise. Looks like business splitting is fair game now if everyone thinks they're a sole trader.
As an aside, please note that Co Sec will not be sufficient to claim ER on any future disposal. /p>
I must beg to differ on this one Matrix. You only need to be an officer or employee of the company to claim ER. The role of company secretary is officially an office and the incumbent thus counts as being an officer.
I queried this in tax lectures a couple of times in the early years of ER, as it sounded just a bit too good to be true, but was always told it counts as being an officer for ER, so long as you've served the requisite 12 months up to the date of disposal of course.
You may run into problems if the company was created after it became no longer legally necessary to appoint somebody as secretary. Under the articles that office may not even exist, so you can't claim to be filling it. If so, just pass a resolution to create it. You can't backdate it though, so the 12 month clock would only start ticking from that date. In that case, be careful when you choose to strike off the company. Wait a bit longer if necessary.
Of course, these days there are other risks to watch out for when claiming ER, such as the tax avoidance motive, but if the company is genuinely no longer required (in the wake of the public sector IR35 rules perhaps) these new rules shouldn't be a problem.
As I suggested, he can always make his wife an employee for a week and then it would be equal numbers.
I take your point about the main purpose of the event and it could well trip up many claims, but annual events for sole directors have been accepted by HMRC for many years (whether that's due to unofficial policy or failure to challenge them is a moot point) so I don't think my advice is ineffective. It's not the procedure by which he pays for the party that's at issue here. It's whether he can treat it as an annual event at all.
I guess he could always ask for separate bills - one for him and the other for the rest of his family.
But it's not privately organised, implicitly or otherwise. It's an official company annual event. Someone has to organise it. If not the directors or employees, then who?
Plenty of directors pay for meals and drinks at the annual bash out of their own pocket and then claim on expenses. Why not a sole director arranging a party for himself?
The key point is that it must be a company event. If the restaurant is booked in the name of the company (an email with company details on will do) and the bill is made out to the company (just pay a deposit and ask for a receipt by email) then this is beyond dispute.
Once it is accepted as an annual event, then it doesn't matter whose card or cash is used to pay for the event, any more than paying for a hotel or lunch on a business trip out of your own pocket negates it being a business expense.
Is Jane Horrocks your real name by the way? We all know it's not Portia.
Is this a version of that old joke "I say I say I say"?
Just tell your client to keep the receipts, pay for it himself and put £150 on his next expense claim. He can claim the VAT back on his share of the bill too.
Last time I looked at this, even the company secretary didn't qualify for the exemption, not being on the payroll, so might be an idea for your client to employ his wife for a week on a zero hours contract with the task of organising the firm's Christmas party. Pay her £157 and make her pay the rest of the bill with it.
That kills 3 birds with 1 stone as a) he'll have evidence of an organised annual event, b) an extra £150 to claim on expenses, and c) a 6.075% tax saving on the £157 (or even 26.325%) as he can reduce his dividends by £157 x 81%.
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).