"ACTIVE ACCOUNTING"

PAUL A. HILL & CO.

Chartered Accountants and Registered Auditors

Paul A. Hill & Co. provides all the services one would expect from a firm of Chartered Accountants, but we go that "extra mile" with our "Active" approach. These days, an accountant who just sits back and processes your records in arrears will almost certainly cost you money, but we work with our clients throughout the year to ensure they are aware of changes and can rearrange their affairs, if necessary and within the law, to lessen the impact of taxation. We also ensure clients are aware of the often considerable impact of capital taxes, Capital Gains Tax and Inheritance Tax, which can arise at times when the family may not be expecting or be able to easily deal with them. We are currently working with many clients to ensure that they understand the potential impact of these taxes and can take some, often relatively simple, steps to alleviate them.

Over the past few years, the Government has made the tax system considerably more complex. By gaining a full understanding of your business, employment and investment income and your aspirations for the future, our "Active" approach can often change the way in which the various different taxes, including National Insurance, affect you. As an example if you are self-employed, have you considered being a company instead? - if you make profits of about £25,000 a year you could well save over £1,000 EVERY YEAR, even taking into account recent changes.

A lot of the basic work we do involves dealing with the H M Revenue & Customs on your behalf. These days HMRC are streamlining and computerising more and more of their relationship with you and are demanding more and more documents be filed online. With the tax system becoming more and more complex, unless your affairs are extremely simple, the possibility of an error is much greater than it used to be. There is no sign of this changing in the near future, with a complete rewriting of the penalties regime for incorrect returns this year and new and extended penalties for both the late filing of returns and late payment of tax in the process of being introduced.

We sometimes find it difficult to keep up with all of these changes, so we are sure you do!

The main service areas we provide are set out below:

Helping you with your annual tax position:

Our "compliance" work for individuals involves making sure your tax position is correct and then keeping HMRC "off your back". We can act as your agent in all dealings with HMRC if you require it and give you that important independent opinion as to whether your tax affairs are correct and you have been dealt with properly by the authorities.

The sort of work we might do for you on your current tax position, from some relatively simple matters, for us!, up to more complicated assignments could be as follows.

• Checking your PAYE code is correct and therefore making sure PAYE deducted from your pay or pension is as correct as possible in the first instance. No query is too simple - if your code is wrong for your circumstances you will pay the wrong amount of tax and may not be able to get this back after the end of the tax year; unless you take action.

• If you have a company car, advising you whether it would be better to either take your current car private or take a cash option if available

• Reviewing the decision on a company car when you come to change it - the position may be different next time around, dependent on a whole range of factors - not least that better cars with much lower CO2 emissions are becoming available.

• Making sure you get all of the new Working and Child Tax Credits you are entitled to it or explaining to you why you are not eligible for the full credit others are getting.

• Review of your tax position for a year to determine if you are entitled to a repayment - we send all self-assessment returns to HMRC electronically, ensuring that the repayment can be made directly to a bank or building society account within a few days of the return being submitted!

• Review of your tax position if you have started to receive income from any source "gross", i.e. without some tax at least being deducted from it before you receive it or your income and benefits are beginning to exceed about £40,000 per annum, to determine whether you need to complete a self-assessment income tax return form. It is your responsibility to apply for a form if your circumstances warrant it.

• Preparation of your self-assessment tax return if you need to complete one, advising you on any additional tax payable for a particular year and on payments on account that are required for the following tax year. We always calculate and advise you of the tax payable and make extensive use of computer technology, including electronic submission for most returns to ensure our clients tax affairs are processed as correctly as possible, first time and with the minimum of "fuss".

Helping you avoid some pitfalls when you undertake "unusual" transactions:

Most people's tax affairs are broadly the same from year to year, but from time to time you will sell your house, have somebody in the family die, or wish to make some arrangements that are a little out of the ordinary. Taking advice in advance of what you plan to do will often save tears later, for example:

Transfers of valuable items

If you wish to change the ownership of something belonging to the family, it will be important to consider the value of the item you are transferring. In some situations, you may wish to make the transfer, for family reasons, at a figure different from the open market value of the item concerned and this can give rise to tax issues. In many cases, there will not be any tax payable through various reliefs from capital taxes that are available, but there may be what is known as a reporting requirement - i.e. you have a duty to report the transaction to HMRC, which may in turn mean you have to complete a self-assessment tax return for a particular year. We can, of course, advise on both the tax position and the reporting requirements

It is also possible, that stamp duty might be payable - there are interest and penalty charges if this is not done properly and in a worst case the item may not be legally transferred to the correct person without this tax being paid. We can advise on your liability to stamp duty and arrange for documents to be "stamped", as required by law.

Thinking of buying a house to let out?

Over the last few years a lot of people have been considering their retirement options and as well as paying a pension contributions there has been a lot of interest in buying property for rent. We can advise on all the tax issues surrounding this and complete the "land and property" sections of a self-assessment return on your behalf if you require it. Through various contacts, we may also be able to assist you with your management dealing with tenants etc., of the property, which is often one of the more difficult aspects.

Have you, or a relative, got an estate worth more than about £312,000 on death?

The threshold at which inheritance tax bites into an estate is £325,000 for the 2009/10 tax year. If your estate is more than this, tax at 40%, a really swingeing rate in many circumstances, is chargeable on amounts in excess of the threshold. It is often said that inheritance tax is "optional", as those who take proper advice avoid it, whereas it is the unadvised taxpayer who is caught. If you think any member of your family could have an estate valued at more than the threshold, it pays to take really early advice; in the Cambridgeshire area, many houses are now worth more than this!!! Through contacts, we may also be able to assist you in writing a will, if you do not write a will; your estate could be divided up in a way you most certainly do not expect, particularly if you have a large extended family.

These are only examples, we can make sure you fully understand the impact of all taxes, and reporting requirements, on any family or special transactions you intend to undertake.

Working for yourself (or thinking about it); you need some guidance

You may be working for yourself or, as I say, considering it. If you do start top work for yourself as a self-employed person, you must now "register" your business, however small it is, with HMRC. To register you must complete a form and we are able to provide assistance with this - the form is particularly confusing for those who are really going to work just for themselves, as it needs to cover the setting up of quite large businesses with different requirements, as well as the "one man band".

When you work for yourself the normal term for you as a business entity is a "sole-trader" - this is the simplest form of business organisation. We do a lot of work for both sole-traders and where a number of people, often, but not necessarily, members of a family, operate a business jointly - this being known as a partnership

There are other issues you need to think about when you first start up as well. For example should you "just" be sole-trader, or if you are setting up with other members of your family or a friend, a partnership - or should you be a company? Even if you are a partnership - what does this mean and should there be a partnership agreement?

Following significant changes to the taxation of small companies and substantial increases in National Insurance contributions paid by employees and the self-employed and partners in a partnership, there can be significant annual savings to be made if you operate through the medium of a limited company. Whilst a company is a more complex method of operation, if you are going make more than about £25,000 profit in a year (£25,000 per partner in the case of a partnership) there may well be tax and National Insurance savings from operating as a company, although each case is different dependent on your personal circumstances. This threshold may even be a bit lower than this in cases where your overall level of family income means you might be entitled to the new Working Tax Credit! Get us to check the position for you.

There are also other commercial reasons why it might be a good idea to operate as a company – for example if you hope that other people might become involved as investors at a later stage. We are able to review all the circumstances and give advice on the merits of the different forms of business organisation. Where required we are able to arrange company formation on your behalf and deal with all the company secretarial and other legal matters concerning the company's ongoing operation - lifting the burden of one of the complications of operating as a company entirely.

What about an audit - surely if I operate as a company, I will need an expensive audit of my affairs each year. In fact no - companies only require an audit it they have an annual turnover of more than £6.5 million. If you have or are expecting a turnover of this sort of level, the detailed check of your affairs that an audit provides is often very useful! As registered auditors Paul A. Hill & Co. are permitted by law to undertake any audit work you may require.

If you offer your personal services through a company, a piece of legislation (known colloquially as "IR35") may affect your ability to gain all of the tax and National Insurance savings normally associated with company operation. However, even if this legislation is apparently a problem, it may be possible, by advance planning of how you and the end user of your services intend to inter-react and by putting appropriate contracts in place, for the potential problem to be avoided. We have advised a large number of clients on this legislation and are therefore well placed, if contacted in advance of each new contract, to provide advice on the application of IR35 and possible strategies to minimise its effect.

Recently, there has also been a lot of publicity over the split of income from dividends where a husband and wife own a company. It was expected new legislation on this would be introduced from April 2008, but it now looks as if this is not going to be introduced at all - meaning you should take advantage of the current position. As part of our "Active" service, we are keeping all our clients who could be affected fully up to date with developments and suggestions as to how their tax could be minimised - are you getting this advice from your current advisers?

You may need to borrow money to start your business or have other reasons - to set yourself a budget or targets for performance for example - or even to decide whether or not a particular project is a suitable business venture, to need to prepare a business plan. Whilst we cannot do your selling for you we can either prepare on your behalf, based on information you supply, or assist you to prepare, a comprehensive set of business forecasts and also assist you in writing a business plan.

Having decided on the most appropriate form of business organisation and got your business plan, if you feel you need one, you will also need to consider VAT. We can provide advice on all aspects of VAT, including on the flat rate scheme and cash an annual accounting for VAT.

Keeping you informed about your business performance:

You will need to prepare some form of "accounts" to show the performance of your business. Accounts are primarily prepared to assist you in the management of your business as you go along - it will help your business decision making if you have up to date accounting information available at all times. Accounts prepared on a monthly or quarterly basis are known as management accounts and we are able to provide considerable assistance with your accounting if you require it. You also have a legal duty to keep records to show how your business has performed.

We can either keep your accounting records ourselves on our computers in our office - perhaps receiving information from you on a monthly or quarterly basis to make sure we keep you up to date, or can provide you with assistance in the selection of a suitable accounting system - which might be a manual system, one based on spreadsheets or a proprietary computerised accounting package, dependent on how you wish to deal with matters and your information needs.

Where we keep your accounts on our computers, we are able to provide a service of preparation of a quarterly VAT return form for you if you require it. We are also able, through some "remote access" software and provided the appropriate links are set up to correctly to work on accounts held on your computer if you prefer.

We are always pleased to provide advice about accounting systems and get a new system up and running for you. We are fully conversant with all the main accounting "packages" available in the UK and would be pleased to assess your requirements and make recommendations as to the most suitable package for you to use.

Having helped you to select an accounting system, we always make sure that the opening position is input correctly and are pleased to "hold your hand" whilst the system is in its infancy.

We can also provide training for your staff in setting up and using your accounting system. This will enable your staff to make sure you get the information you need to enable you to manage your business from your system.

One "issue" with an accounting system can be your and other senior people's expenses. We would be pleased to discuss your requirements in this area and to set up a system that meets those requirements, whilst also allowing information to be made available for input to the accounting system and in respect of PAYE end of year compliance

How on earth do I pay myself and deal with staff?:

We are fully equipped to provide a full payroll service for clients and use software that is compatible with HMRC's requirements for electronic filing of end of tax year PAYE returns.

If we have recommended you use a company for your business, we will usually design a "remuneration strategy" of a mixture of salary and dividends. Whilst there are some general rules regarding such strategies, they need to be personalised to your individual circumstances and we will always discuss our recommendation with you in detail each year.

Our payroll services include a full end of year PAYE/NIC "compliance" service including dealing with forms P11d for benefits in kind and expenses and National Insurance contributions on benefits in kind.

After the end of your business' accounting year:

At the end of your accounting year, we will need to look carefully at your accounting records and prepare an annual set of accounts that will be used to assess the taxation payable as a result of your business activities. Annual accounts are often requested by your bank manager and will need to be given to any partners or investors. In view of the "extra" requirements for a set of annual accounts, we will probably want to do some more detailed checking and also make sure that all the adjustments that are required by standard accounting practice and company law, if that applies to your business, are made.

We encourage clients to have formal annual accounts prepared as soon as possible after the year-end and will "chase you up" if more than about three months has elapsed after the year-end date and we haven't heard from you. We very much encourage all clients to look at accounts as live documents to be used for business planning and not just an historic record used for tax and other statutory purposes.

Once accounts have been prepared and agreed we will prepare taxation computations for your business based on the accounts. For sole traders and partnerships, this information will be included on an individual's personal tax return for the year, so it is important that accounts are prepared in time for this to be done.

A partnership and a company also have their own separate returns that need to be completed in accordance with laid down deadlines.

We make extensive use of the latest computerised technology in preparing accounts, tax computations and the returns themselves, producing integrated printed "substitute" returns to HMRC requirements

Buying or selling a business:

We have extensive experience of both buying and selling business and are pleased to provide clients with detailed advice on these issues.

In particular, at present, there are a number of capital gains tax issues about selling a business and we have extensive recent experience in this area, which will ensure you get the most for your business - and therefore lose the minimum to the taxman!

We can also help you in other ways!:

Many clients use us as a "foil" - an independent set of people whom they can talk to about their business. If you ask us for help, we will always tell it "as it is" and help you to take decisions about your business.

As accountants, we see a considerable number of different businesses in operation and are well placed to pick up operating ideas and to advise you widely on your business operation.

Having a difficulty - try us!