self-assessment

10 things to remember when setting up or expanding a business

It’s coming to the end of the year and lots of people are wondering what 2013 might hold, some even might be thinking of a career change and becoming self-employed. Here’s a quick checklist before you make that step into oblivion….

1. Do the research, is there a market for the product/service?

Think about the whereabouts of potential customers, are they in reach?

Be clear about the decision to take this course; if it’s a hobby business treat it as such.           If you want to secure your future then be really critical.

Ask friends and family for advice.

2. Does your idea need a patent?

There are loads of valid reasons why you don’t want to register your idea, right up to the    point somebody nicks it.

If you’re looking for investment it unlikely a business angel would be prepare to back the business if the product is not secured.

3. Make sure you’re not in breach of any restrictive covenants

If you are a director or an employee of a company check your employment contract to ensure you are not in breach of any restrictive terms.

4. Do some basic costings

Figure out both selling pricing and costs, is there enough margin?

At some point you will need to complete a business plan which can be time consuming but you probably won’t get any finance unless it is completed.

5. Check if there are any grants or tax incentives available.

There are often local grants for expanding businesses or taking on new staff.  HMRC   have a number of schemes available including EIS and EFG.

6.Join industry or regional networking groups

Subscribe to Linkedin and join groups in your industry, people love to share information.

They may not always be competitors but potential customers and suppliers.

Your local Chamber of Commerce is often a great source of information

7. Figure out how much financing you’ll need and where to get it

Do a cash flow forecast for at least 3 years. The first year is about set-up and getting a   foot in the market, the second is where the momentum begins, and the third is where you start to become established.

8.Think about the legal structure of the business

The is not all about tax, there are loads of factors to consider including costs

9.Don’t forget about the taxman

Frankly the days where you can trade under the radar are long gone. Just like CCTV, he’s watching and will catch up with you. Then you’ll have to pay back taxes, fines and   interest. He will not be content with just the tax you avoided paying.

So get it right first time, register.

This is a list of taxes that may apply to you

  • Betting and Gaming Duties
  • Capital Gains Tax
  • Construction Industry Scheme
  • Corporation Tax
  • Environmental taxes
  • Excise Duties
  • Income Tax
  • Inheritance Tax
  • Insurance Premium Tax
  • National Insurance Contributions
  • PAYE
  • Petroleum Revenue Tax
  • Stamp Duties
  • VAT

10. Contact OD Financial Services

Tax Penalities

It has been said there are two things we can’t avoid, death and taxes. There is now a third to add: interest and surcharges when making late submissions of returns to the taxman. The idea of the taxman charging for late returns is a fairly new concept.

“ICTA88/S203 (9) provides that interest on late paid PAYE is not deductible in computing income, profits or losses for any tax purpose. Sub-paragraph 4B of paragraph 6 of Schedule 1 Social Security Contributions and Benefits Act 1992 has the same rule for interest on late paid Class 1, Class 1A and Class 1B NIC”.

In the good old days the taxman didn’t enforce this, he was just happy to get what was due. If it was late or extremely late, they rarely imposed fines or surcharges.

Then government cut-backs started to take hold in 2008 and HMRC like all government departments had its budgets cut. Somebody had a eureka moment and came up with the idea to use the legislation and started issuing penalty notices.

I remember attending a HMRC seminar back in 2010. The tax inspector giving the presentation was up-front about the new strategy of income generation.

Since then the tax office has been cranking up its strategy. It started by issuing late fines of £100, in the early days if appealed they would often be rescinded. Today if a tax return is filed late or not paid on time, a fine is issued includes surcharges or interest and often both as a matter of course. These fines apply to both individuals and businesses and for all forms of tax.

Ignorance of the rules is not a defendable response. Look at the increase in the number of people having to complete self-assessments. Everybody needs to be vigilant, any change in circumstances should be reviewed from a tax perspective - perhaps have that phone call with the tax office.

Appealing is not always straightforward nor does it automatically have the desired effect of HMRC reversing its position.

We have had two successful appeals recently. The first was for a self-assessment fine of £1,200. The other was for Class 2 NIC demand. This was rather nasty where the debt recovery department wanted six years of payments amounting to almost £700 we negotiated a settlement of £120.

So what can you expect to pay if you’re late?

It depends on the type of tax due, but expect to pay at least 3% interest whereas if you are eligible, HMRC pays interest of 0.5% (tax free!!!)

You can also look forward to receiving penalties which vary depending on the severity; suffice to say it’s expensive.

On a separate blog there is a list of these penalties. If you’re late with any tax returns from 1 April 2010, penalties will apply to the following taxes and duties:

  • Betting and Gaming Duties
  • Capital Gains Tax
  • the Construction Industry Scheme
  • Corporation Tax
  • Environmental taxes
  • Excise Duties
  • Income Tax
  • Inheritance Tax
  • Insurance Premium Tax
  • National Insurance Contributions
  • PAYE
  • Petroleum Revenue Tax
  • Stamp Duties
  • VAT

A couple of final points, if you have a tax bill and are not in a position to pay, HMRC can be accommodating. We have assisted many clients over the years and can speak on your behalf.

Any fines or interest imposed are deemed to be non-deductible for the purposes of completing any tax return.