And, by the way, GraceinGlasgow, I'm also an employer. I don't think I'll step aside just yet.
Hmm, might consider taking on some more pensioners though if some of the younger staff would step aside. As you say, they can afford to work for less. I doubt they really need the money. They would probably just squander it on Werthers originals.
PhilCollis already raised the issue of pensioners having part-time jobs - but it isn't just that. More and more of us of 'pensionable' age will have to keep on working full-time well past 'normal' retirement age because of the abysmally poor performance of our private pension funds.
If I'd paid National Insurance for nearly 50 years I would be pretty upset if there was no corresponding allowance in the new income tax to reflect that fact. Oh, hang on, I have paid NI for nearly 50 years!
I am a small business owner and have responded specifically to HMRC's consultation, written to my MP an the issue and also filled out the on-line questionnaire from HMRC. Do I have confidence that they are listening? Short answer - No!
Most of our business is overseas - as such, we are an exporter of business services. Almost all of our revenue is in foreign currency.
I am horrified (but not surprised) that there is not a single mention in the entire consultation documentation about the challenges of multi-currency accounting and the calculation and recognition of profits in a market where exchange rates are fluctuating.
It is as if we small business exporters didn't exist. Well, here's the news - unless we get some support we won't!
It's broken alright! Not sure this will fix it though!
This has been an absolute disgrace from the banks for a long, long time. If you are a small business doing work overseas you get ripped off mercilessly by the banks. Unless you are big enough to warrant paying the banks a substantial monthly fee for 'free' multi-currency banking you get nothing from the bank. Sure, you can open a currency account - but there is NO on-line banking and NO currency debit card . All payments to other currency accounts (e.g Euro to Euro accounts) have to be done by cheque or by telephone using CHAPS transfer (that's £10 per transaction, thank you very much!). As you have no Euro debit card, you can't pay anybody in Euros when you travel on business. This means you have to pay using a sterling debit card with exchange rates about 4% away from the BOE spot rate. And then when the customer pays you in Euros you have to transfer it to your Sterling account to pay off the expenses you paid in Euros in the first place - another 4% - Kerching!
To add insult to injury you also have to pay a £7 transaction charge for EVERY INPAYMENT in Euros into your Euro account. Why? I have absolutely no idea. And because the bank hides the charge by just deducting it from the inpayment in Euros you have to work out manually for every single transaction what part was the customer payment and how much was the bank charge because, obviously, they go to different accounts in the books.
If the government were serious about small businesses exporting they would do something about this...
If a UK based multi-national wants to develop a new software product, they need a team of project managers, designers and software programmers. Let's say the project takes 6 months. The aren't going to employ all those people because, after the project, they have no use for them. Today, they would simply contract them in from an agency or just contract them direct. But if the agency or the contractors are UK based, they would have a problem if those contractors had to be treated as employees.
So, if it was me - I would use an offshore agency or overseas contractors who probably don't pay UK tax... I agree that taxes do move elsewhere in the economy - it's just that it may not be our economy...
For years I ran a small technology business developing both bespoke mobile apps and on-line learning for large corporate clients. About half of our revenue was to overseas clients and was, therefore, classed as export service revenue. Typically, a project would run for about 3 to 6 months and involve putting together a specialist team of subject matter expert, storyboard writer/app designer, graphic artists, animators and developers (programmers). These are all different skills and skill sets varied from project to project. It was not feasible, nor practical, that our company could employ people with all these skills on a full-time basis, hence we used contractors who were freelancers.
By government definition, because we sometimes supplied trainers to train our clients on products, the company was a personal service company even though we didn't supply personnel to our clients. The freelancers we sub-contracted to were also personal service companies even if they only supplied the services of a single contractor.
The enormous administrative burden imposed by IR35 fell on us and on the sub-contractors. We had to prove, on a contract by contract basis, that we were not 'employing' contractors, that we had checked our sub-contractors were registered for PAYE and NIC and that we were not their only client. Our contracts had to be carefully constructed to ensure we were buying a piece of work and not paying for a single contractor for a specified number of hours, that our contractors supplied their own tools, managed their own time and met all the other unintelligible criteria laid down in the regulations governing employment under IR35. It was just too much and I closed down a perfectly successful high-tech export business because of the red-tape involved.
Our competitors in this market were based in India, the USA, Australia, Singapore, Malaysia and, probably now China could be added to that list. If this madness of a simple I month time limit after which a contractor is treated as an employee were introduced, large multinationals operating in the UK will simply not purchase services from the UK.
Every time I hear the Prime Minister or other Ministers saying how they are supporting entrepreneurs, that they want the UK to be the easiest country in the world to be able to start-up a new business, that the are cutting red tape, and how small businesses should seek to compete in global markets, I just wonder what parallel universe they reside in.
...is that there is any debate about the justification of what appears to have gone on here.
Having worked in Corporate Finance - and in Internal Audit - for large corporations, I am aware of the pressures sometimes on Operational Managers to show positive results. But that is why we have auditors, and it is also why we have professional standards for accountants. The job of the accounting profession is to ensure that published figures show an accurate, fair and true picture of the financial results and status of the company...
..And, yes it does matter about the short-term share price. Accurate information is a fundamental basis on which investment decisions are made by those who fuel our economy - including those responsible for millions of people's pensions. If we cannot rely on the information published then the whole system comes into question and any erosion of trust in the accounting profession will have serious consequences in the future.
Perhaps we need to re-establish a clear ethical and moral compass for all those involved in the accounting profession which transcends short-term expediency.
Really good idea. I have already enquired on the website and would definitely want my companies to have this accreditation. It is also a question we will start asking our suppliers. I agree, I want to run companies that pay a 'fair' amount of tax and I would also like to do business with suppliers who do the same.
Frankly, I'm not in the least bit interested in the technicalities of 'avoidance' and 'evasion'. Evasion is not legal and we all know really where the line is between doing things in a tax efficient way and manipulating the books/our companies to avoid tax - albeit legally.
I don't think I was rude to you, I certainly hope not! I simply said I wasn't as sure as you are on the legal payment date for RTI purposes. This was mainly because, like TC2, I also checked with the HMRC Employer Helpline but, in my case just before RTI was introduced, and I got exactly the same advice as TC2. I was told that the 'payment date' for RTI was the date you actually paid the employees i.e. the date you handed the cash over.
But please be clear, I am under no misapprehensions as you suggest in your posts. I have been running my own businesses for nearly 20 years and worked variously as an IT Director and even a Finance Manger in audit for major international corporates before that. So I was not in the least happy with the advice from HMRC because I don't think they are clear when the legal 'payment date' is either. As you correctly point out, paying Directors' salaries into the Directors Loan Account - even if the money is not there to draw down is the same as paying the salary. And thanks, but I am fully familiar with how most small businesses use the Directors Loan Account. We use it ourselves for injecting cash into the business (when required) and a subaccount for paying Dividends to shareholder Directors (naturally, on the date the dividend is formally approved by the Board).
But your suggestion that we should pay the salary monthly - pay the tax on it - and then give the money straight back to the company as a loan didn't really strike me as the most tax efficient way to manage things. Don't get me wrong, I have no objection to paying tax on my earnings - nor to paying my fair share of NIC. One of the differences I had with our accountant when I did employ one was that he wanted to pay lower salaries to Directors to avoid NIC . We now have policies in place that keep Directors' remuneration and shareholders dividends in balance - a lesson that maybe some of our banks should consider?
You keep picking out the bits of my posts that are saying what we don't do, rather than what we do. So let me tell you exactly what we do and then you can tell me - and I would be interested to hear from others as well - whether we are 'legal'...
When RTI came in, we changed the Directors' contracts. We now pay a small annual 'salary' payable once a year - but the bulk of the remuneration is now based on performance-related bonuses (now let me see - who did we learn that from? Oh yes I remember!). The bonuses are paid through the payroll, monthly, hence we pay tax and NIC as we go. But, if the company doesn't hit its cash targets, there is no cash, no bonus and hence no pay. So we declared Directors as employees who are paid irregularly - both in our payroll system and when using the HMRC On-Line RTI tool. When we make a bonus payment we run the payroll at the end of that month - which is when we pay the bonus. We pay our PAYE and NIC and report to HMRC using the basic on-line tool.
Trouble is, the HMRC calculations don't match the payroll software calculations. Now with over 40 years in the IT industry, here I do have some expertise and experience. And, after much careful consideration, I have come to the conclusion there's a bug in the system which needs fixing!!
We don't go for OPTION2 for precisely the reason you suggest
Stepurhan
Thanks for the lecture on how we should be handling our payroll. Unlike civil servants and some corporate employees, small business owners do not live in a world of certainty regarding their income. If I don't have enough cash to pay the Directors salaries, I would have thought it would have been fairly obvious that I don't have the money to pay the tax on those salaries I haven't yet paid either. I'm not entirely sure your assertion is correct that, if I make a note in the accounts (deferred payroll account) that salaries are owed but have not yet been paid, then that means "it HAS been legally paid". In many cases, the Directors might simply later forego their salary if the business did not pick up, or more cash was required to invest in expanding the business. I'm certain others far better qualified than I will have a more accurate view on this.
As it turns out, the argument is somewhat hypothetical anyway. As I said in my post, that isn't the strategy we have adopted - precisely because of the uncertainty on when salary is deemed legally paid. We record salaries in the accounts when we actually have the cash to pay them and we use the HMRC on-line Basic RTI tool to report the fact they have been paid. But, as many, many people have pointed out in this thread, irregular payments reported through RTI are not working. I've just had a number of' estimated ('specified') charges that were showing on our company PAYE account removed but I still have a mismatch between the PAYE/NIC paid and calculated by my payroll software and the amount owing calculated by HMRC.
I thought by choosing a reputable payroll software package I was "getting my house in order" - but, as you point out, apparently not!
My answers
And, by the way, GraceinGlasgow, I'm also an employer. I don't think I'll step aside just yet.
Hmm, might consider taking on some more pensioners though if some of the younger staff would step aside. As you say, they can afford to work for less. I doubt they really need the money. They would probably just squander it on Werthers originals.
PhilCollis already raised the issue of pensioners having part-time jobs - but it isn't just that. More and more of us of 'pensionable' age will have to keep on working full-time well past 'normal' retirement age because of the abysmally poor performance of our private pension funds.
If I'd paid National Insurance for nearly 50 years I would be pretty upset if there was no corresponding allowance in the new income tax to reflect that fact. Oh, hang on, I have paid NI for nearly 50 years!
I am a small business owner and have responded specifically to HMRC's consultation, written to my MP an the issue and also filled out the on-line questionnaire from HMRC. Do I have confidence that they are listening? Short answer - No!
Most of our business is overseas - as such, we are an exporter of business services. Almost all of our revenue is in foreign currency.
I am horrified (but not surprised) that there is not a single mention in the entire consultation documentation about the challenges of multi-currency accounting and the calculation and recognition of profits in a market where exchange rates are fluctuating.
It is as if we small business exporters didn't exist. Well, here's the news - unless we get some support we won't!
It's broken alright! Not sure this will fix it though!
This has been an absolute disgrace from the banks for a long, long time. If you are a small business doing work overseas you get ripped off mercilessly by the banks. Unless you are big enough to warrant paying the banks a substantial monthly fee for 'free' multi-currency banking you get nothing from the bank. Sure, you can open a currency account - but there is NO on-line banking and NO currency debit card . All payments to other currency accounts (e.g Euro to Euro accounts) have to be done by cheque or by telephone using CHAPS transfer (that's £10 per transaction, thank you very much!). As you have no Euro debit card, you can't pay anybody in Euros when you travel on business. This means you have to pay using a sterling debit card with exchange rates about 4% away from the BOE spot rate. And then when the customer pays you in Euros you have to transfer it to your Sterling account to pay off the expenses you paid in Euros in the first place - another 4% - Kerching!
To add insult to injury you also have to pay a £7 transaction charge for EVERY INPAYMENT in Euros into your Euro account. Why? I have absolutely no idea. And because the bank hides the charge by just deducting it from the inpayment in Euros you have to work out manually for every single transaction what part was the customer payment and how much was the bank charge because, obviously, they go to different accounts in the books.
If the government were serious about small businesses exporting they would do something about this...
I may not be an accountant, but...
...I think taxes do get lost...
If a UK based multi-national wants to develop a new software product, they need a team of project managers, designers and software programmers. Let's say the project takes 6 months. The aren't going to employ all those people because, after the project, they have no use for them. Today, they would simply contract them in from an agency or just contract them direct. But if the agency or the contractors are UK based, they would have a problem if those contractors had to be treated as employees.
So, if it was me - I would use an offshore agency or overseas contractors who probably don't pay UK tax... I agree that taxes do move elsewhere in the economy - it's just that it may not be our economy...
What universe does the government reside in?
For years I ran a small technology business developing both bespoke mobile apps and on-line learning for large corporate clients. About half of our revenue was to overseas clients and was, therefore, classed as export service revenue. Typically, a project would run for about 3 to 6 months and involve putting together a specialist team of subject matter expert, storyboard writer/app designer, graphic artists, animators and developers (programmers). These are all different skills and skill sets varied from project to project. It was not feasible, nor practical, that our company could employ people with all these skills on a full-time basis, hence we used contractors who were freelancers.
By government definition, because we sometimes supplied trainers to train our clients on products, the company was a personal service company even though we didn't supply personnel to our clients. The freelancers we sub-contracted to were also personal service companies even if they only supplied the services of a single contractor.
The enormous administrative burden imposed by IR35 fell on us and on the sub-contractors. We had to prove, on a contract by contract basis, that we were not 'employing' contractors, that we had checked our sub-contractors were registered for PAYE and NIC and that we were not their only client. Our contracts had to be carefully constructed to ensure we were buying a piece of work and not paying for a single contractor for a specified number of hours, that our contractors supplied their own tools, managed their own time and met all the other unintelligible criteria laid down in the regulations governing employment under IR35. It was just too much and I closed down a perfectly successful high-tech export business because of the red-tape involved.
Our competitors in this market were based in India, the USA, Australia, Singapore, Malaysia and, probably now China could be added to that list. If this madness of a simple I month time limit after which a contractor is treated as an employee were introduced, large multinationals operating in the UK will simply not purchase services from the UK.
Every time I hear the Prime Minister or other Ministers saying how they are supporting entrepreneurs, that they want the UK to be the easiest country in the world to be able to start-up a new business, that the are cutting red tape, and how small businesses should seek to compete in global markets, I just wonder what parallel universe they reside in.
What I find amazing about this...
...is that there is any debate about the justification of what appears to have gone on here.
Having worked in Corporate Finance - and in Internal Audit - for large corporations, I am aware of the pressures sometimes on Operational Managers to show positive results. But that is why we have auditors, and it is also why we have professional standards for accountants. The job of the accounting profession is to ensure that published figures show an accurate, fair and true picture of the financial results and status of the company...
..And, yes it does matter about the short-term share price. Accurate information is a fundamental basis on which investment decisions are made by those who fuel our economy - including those responsible for millions of people's pensions. If we cannot rely on the information published then the whole system comes into question and any erosion of trust in the accounting profession will have serious consequences in the future.
Perhaps we need to re-establish a clear ethical and moral compass for all those involved in the accounting profession which transcends short-term expediency.
I think this is a truly great idea
Really good idea. I have already enquired on the website and would definitely want my companies to have this accreditation. It is also a question we will start asking our suppliers. I agree, I want to run companies that pay a 'fair' amount of tax and I would also like to do business with suppliers who do the same.
Frankly, I'm not in the least bit interested in the technicalities of 'avoidance' and 'evasion'. Evasion is not legal and we all know really where the line is between doing things in a tax efficient way and manipulating the books/our companies to avoid tax - albeit legally.
I bow to your experience and knowledge
Stepurhan
I don't think I was rude to you, I certainly hope not! I simply said I wasn't as sure as you are on the legal payment date for RTI purposes. This was mainly because, like TC2, I also checked with the HMRC Employer Helpline but, in my case just before RTI was introduced, and I got exactly the same advice as TC2. I was told that the 'payment date' for RTI was the date you actually paid the employees i.e. the date you handed the cash over.
But please be clear, I am under no misapprehensions as you suggest in your posts. I have been running my own businesses for nearly 20 years and worked variously as an IT Director and even a Finance Manger in audit for major international corporates before that. So I was not in the least happy with the advice from HMRC because I don't think they are clear when the legal 'payment date' is either. As you correctly point out, paying Directors' salaries into the Directors Loan Account - even if the money is not there to draw down is the same as paying the salary. And thanks, but I am fully familiar with how most small businesses use the Directors Loan Account. We use it ourselves for injecting cash into the business (when required) and a subaccount for paying Dividends to shareholder Directors (naturally, on the date the dividend is formally approved by the Board).
But your suggestion that we should pay the salary monthly - pay the tax on it - and then give the money straight back to the company as a loan didn't really strike me as the most tax efficient way to manage things. Don't get me wrong, I have no objection to paying tax on my earnings - nor to paying my fair share of NIC. One of the differences I had with our accountant when I did employ one was that he wanted to pay lower salaries to Directors to avoid NIC . We now have policies in place that keep Directors' remuneration and shareholders dividends in balance - a lesson that maybe some of our banks should consider?
You keep picking out the bits of my posts that are saying what we don't do, rather than what we do. So let me tell you exactly what we do and then you can tell me - and I would be interested to hear from others as well - whether we are 'legal'...
When RTI came in, we changed the Directors' contracts. We now pay a small annual 'salary' payable once a year - but the bulk of the remuneration is now based on performance-related bonuses (now let me see - who did we learn that from? Oh yes I remember!). The bonuses are paid through the payroll, monthly, hence we pay tax and NIC as we go. But, if the company doesn't hit its cash targets, there is no cash, no bonus and hence no pay. So we declared Directors as employees who are paid irregularly - both in our payroll system and when using the HMRC On-Line RTI tool. When we make a bonus payment we run the payroll at the end of that month - which is when we pay the bonus. We pay our PAYE and NIC and report to HMRC using the basic on-line tool.
Trouble is, the HMRC calculations don't match the payroll software calculations. Now with over 40 years in the IT industry, here I do have some expertise and experience. And, after much careful consideration, I have come to the conclusion there's a bug in the system which needs fixing!!
We don't go for OPTION2 for precisely the reason you suggest
Stepurhan
Thanks for the lecture on how we should be handling our payroll. Unlike civil servants and some corporate employees, small business owners do not live in a world of certainty regarding their income. If I don't have enough cash to pay the Directors salaries, I would have thought it would have been fairly obvious that I don't have the money to pay the tax on those salaries I haven't yet paid either. I'm not entirely sure your assertion is correct that, if I make a note in the accounts (deferred payroll account) that salaries are owed but have not yet been paid, then that means "it HAS been legally paid". In many cases, the Directors might simply later forego their salary if the business did not pick up, or more cash was required to invest in expanding the business. I'm certain others far better qualified than I will have a more accurate view on this.
As it turns out, the argument is somewhat hypothetical anyway. As I said in my post, that isn't the strategy we have adopted - precisely because of the uncertainty on when salary is deemed legally paid. We record salaries in the accounts when we actually have the cash to pay them and we use the HMRC on-line Basic RTI tool to report the fact they have been paid. But, as many, many people have pointed out in this thread, irregular payments reported through RTI are not working. I've just had a number of' estimated ('specified') charges that were showing on our company PAYE account removed but I still have a mismatch between the PAYE/NIC paid and calculated by my payroll software and the amount owing calculated by HMRC.
I thought by choosing a reputable payroll software package I was "getting my house in order" - but, as you point out, apparently not!