Whenever we take on a client we tend to have very similar conversations with them, mainly because many of them have never been given any kind of explanation of how things work and are often left to their own devices to figure stuff out.
We make it our mission to help them understand their finances and the idiosyncrasies that exist when you do business in the UK.
Misconceptions can arise because often the thing business owners are describing to me are common sense, things appear to be simple and would make no sense for it be handled differently, or because of “my mate in the pub said so” syndrome, where one person is doing something a certain way, so it must be okay.
Unfortunately, HMRC does not operate on a common-sense basis and the rules have been built up over the years to prevent abuse, close loopholes and prevent you claiming the majority of things as tax deductible.
Often these rules are like using a sledgehammer to crack a nutshell but there you are, they are what they are, and we have to live with them.
- You can claim for entertainment
Unfortunately, you can’t claim back the VAT, or get tax relief, when you take clients out to lunch or provide entertainment.
It is ok that the company pay for it, but we have to add it back in the tax computation. It sucks but there you have it. So, when you see a business owner putting their entertainment bill on their tab to claim back later, they won’t be able too. There is some entertaining you can claim back and this normally means its employee entertainment.
- You don’t need a profit to take Dividends
You can’t take dividends out of your company if it isn’t profitable. You can pay yourself a salary, but not dividends because dividends by their nature are a distribution of profit. So, if you take too much e.g. more than the company is making, it’s illegal and HMRC will view this as a loan to you and will be taxed on it.
- You can rely on HMRC
Sadly, you can’t necessarily rely on advice you are given by HMRC. If you call HMRC, you should be able to reasonably expect that the person on the other end of the phone is giving you solid advice. But if, later, you take action based on this advice and its wrong, it’s not a reasonable excuse! Go figure!
- There is one single VAT scheme for businesses
The misconception here is that you are simply VAT registered or not. However, this is not the case as you can be on the flat rate scheme, the annual accounting scheme, the second-hand margins scheme, TOMS, accrual accounting or cash accounting.
There are many different ways of accounting for VAT – you need to make sure you are on the correct scheme for your business.
- Its ok to be 1 day late
It’s not. There are huge fines for being just one day late and they escalate, so if you are constantly 1 day late they increase. When clients don’t deliver information in good time the likelihood of being late increase and the fines will follow. So be early with information – it’s much better than being late and paying for the privilege.
- Accountants are only for saving tax
This is up there with the ‘Accountants are boring’ misconception, which of course we aren’t – we know how to have fun and we know how to help with more than just your tax bill!
Modern accountants – and I class myself in this category – are all about the business. Making things better for the business owner. We can help with business advice such as going paperless, choosing software, integrating software into your business, staff training and much more. Of course, we love saving tax but we do so much more than that.
These are just a few of the misconceptions that exist and there are plenty more out there. We make it our mission to help and educate our clients, so they avoid the traps that they can fall into without the correct knowledge of the accounting and tax side of running a business.
We are different.
- We recognise that behind the accounts, there is a business and behind the business there are people. People who face the same problems as many of our other clients. Problems we have helped resolve in the past.
- We are interested in the day to day reality of the business owners we work with, how they do things in their business, what they are working towards and what they want to achieve.
How does Xero.com help us?
Xero is by far the best online bookkeeping package on the market but, for us, it’s more than that, it’s a positive enabler, helping us get closer to our clients by giving us insight into the workings of our clients businesses.
By utilising all the tools at our disposal, we can help businesses become more efficient, freeing up the time of business owners.
Keep an ear out – If you hear of someone bemoaning that their accountant never calls, doesn’t offer advice or doesn’t support them, then pass on our name – we would be happy to help.
