TAX BILL RANT!

[spamcan61]

 

My personal view is that such defaulting directors should be barred from holding such an office for a period (say 10 years). But that's is because I have been on the receiving (or rather not receiving) end of such individuals.

 

Good luck with the new venture.

 

Hasn't this 'ere government reduced the directorship disqualification period from 3 years to 1 year? Hardly a major disincentive to the kind of scenario you describe....

 

Thanks for the kind thoughts, I'm hoping to stay with the ranks of the PAYE employed, but need to look seriously at this self employment malarkey.

[45156]

Never been self employed, but many years ago, I did work for the Inland Revenue, and one thing that I do remember is that the investigation teams were a bit like rotweilers - and went into most cases with the mindset that they were right and the taxpayer was wrong, and that everybody with whom they dealt was trying to fiddle. Not so surprising when you think about it, given the active nature of the tax avoidance industry. My training also involved a lot of case study of avoidance dodges, and also what legislation and case law existed to "catch" the avoidances.

 

Although it was years ago, I doubt that it has change much in that respect.

[BOARD OF TRADE]

Sorry Kenton but you are wrong about only paying tax on profits/monies received.Our glorious leader who in those days was our glorious Chancellor introduced the novel idea of taxing "work in hand" i.e. work done but not yet completed and accordingly not yet paid for.

In the year following its introduction I had a tax bill to pay for my business for that year(i.e. the previous 12 months)of over ??43K of which ??12K approx. was for "work in hand",and that was in the days when ??43K was a lot of money!

[Kenton]

Sorry Kenton but you are wrong about only paying tax on profits/monies received.Our glorious leader who in those days was our glorious Chancellor introduced the novel idea of taxing "work in hand" i.e. work done but not yet completed and accordingly not yet paid for.

In the year following its introduction I had a tax bill to pay for my business for that year(i.e. the previous 12 months)of over ??43K of which ??12K approx. was for "work in hand",and that was in the days when ??43K was a lot of money!

No, not exactly wrong. Just trying to keep it simple for the OP.

 

You are, I think, talking about the problems with IR35 - which is, as I eluded to, rather complex and has nothing to do with the self-employed. I am also aware that WIP may also apply to the self-employed, and can be a further complication. But it is quite an unusual business that has not recovered the profit on WIP by the time they should be paying tax on it. This should also be true of IR35 as long as the corporate and personal tax year ends are aligned. If you are caught badly by this you should consult your accountant and ask them of the benefit of moving your corporate year end. Of course, they should have already advised on this.

 

The reason why I am guessing about IR35 being your problem is that you are right it was introduced as a stealth tax by GB. The inclusion of WIP in the accounts (and therefore profit calculations) has been around since accountants designed accruals basis accounts to confuse their clients HMR&C will only get worried about this if there are large proportion of profits involved. There are also some other business types (self-employed) such as Actors/Artists, Ministers of Religion, Farmers, etc that have peculiar accounts and tax returns. Just as the individual taxpayer may have more complicated tax affairs than the simple PAYE - eg. Capital Gains, Stocks & Shares, Property, Foreign Income, Inheritance, etc.

 

which brings me back again .... GET AN GOOD ACCOUNTANT

 

 

the investigation teams were a bit like rotweilers

:D

But if you pat them gently on the head, treat with a certain amount of respect and don't pull their tail ... they are just puppies.

[BOARD OF TRADE]

Thanks for the reply,it gave me great comfort.

I had a very good accountant,a very good business,as did many friends and colleagues of mine but it was for many of us then the last straw.

I packed it in as soon as I decently could,and when I was made bankrupt at least the only person I owed any money to was the Revenue.

It's been hard but a bit easier than for four of my business colleagues,they committed suicide.

True story.

[Pennine MC]

I am very sorry for bringing my annoyance to air, obviously I am the only one with the problem.

 

Better get on with some modelling to forget it then

 

That's the spirit

[Kenton]

It's been hard but a bit easier than for four of my business colleagues,they committed suicide.

True story.

How very shocking and sad.

 

Starting and running a small business is very stressful and not as easy as it looks to someone who is on PAYE who's main source of stress would be the prospect of redundancy.

 

Running a small business takes a great deal of time and it has been said many times that it requires a certain aptitude as well as the ability to make something/provide a service for which others are willing to part with hard cash.

 

I have seen quite a few businesses go under - quite a few from bad tax management or failure to understand some basic principles. Some of them have been basically sound businesses or where the businessman/woman has a very innovative product to sell but they have taken the decision from the start that they would do everything in the business for themselves. Trying to be experts in every part of the business and ultimately failing in everything.

 

It is not an easy life and the rewards are generally poor on financial and family life for many years. Going self-employed should never be taken lightly and is rarely the dream it seems from afar. Anyone who is thinking of doing so should seek professional advice wherever they can get it, but also from family and friends as their support will be valuable in understanding, relieving and not adding to that stress.

 

Having said that, for some the freedom and the control (relative) of one's own destiny; the ability to create worth by the provision of employment for others; the intellectual reward of seeing your own product/idea "sell"; the challenge of doing all this despite the "red tape" and the "system"; and yes, ultimately the financial rewards make it all worthwhile.

[BOARD OF TRADE]

Would that we had had your wisdom.

I shall wish you the compliments of the Season and say no more.

[antrobuscp]

You are, I think, talking about the problems with IR35 - which is, as I eluded to, rather complex and has nothing to do with the self-employed.

 

Kenton, it wasn't IR35 which was the problem, but a change in interpretation of the various Accounting Standards surrounding Work-in-Progress(WIP) and Debtors. IR35 had/has a different target. Effectively, WIP ceased to exist where a contract for the work is in place. Because related profit was to be included and WIP can't include profit, the value was moved into Debtors. WIP still exists for speculative work where there is no contract for payment whilst the work is being done. For example, a builder may have a contract to construct a building for an agreed price. The value of the work at year end could be broken down into 2 or 3 places on the balance sheet, depending on the progress on the contract, whether or not it appears to be profitable, how much of the work has been billed and paid for, and how much is unbilled and paid/unpaid . Essentially, though, the profit to the stage of current completion should be included. If the builder was constructing houses for speculative sale, the costs only would be included in WIP, the profit being taken in accordance with the builders stated accounting policy which itself should comply with Accounting Standards on revenue recognition - e.g. on signing a contract for sale or on legal completion. Sorry, this is heavy stuff for Christmas Eve, and it is only an outline.

 

The change was controversial at the time, particularly for barristers who made quite an issue of it, and as a result they were given a long (10 years I think) transitional period. Everyone else, ended up with a shorter period of spreading, but never having had to deal with that personally, I can't recite the rules. They were, I think, quite complex, and in many small cases probably weren't worth the hassle - but I'm open to be corrected on that.

 

I don't particularly like saying this, but it wasn't initially the government's idea. I think it was navel contemplators in the accountancy profession who shot everyone, including accountants, in the foot, so to speak. Naturally, in clarifying the position, the government didn't argue with the idea, but they didn't start it.

 

Colin

[Kenton]

Thanks, Colin

that will have just about killed off anyone from ever going self-employed

I wonder how many from HMR&C even understand it. Sounds like it is good for business (accountancy/tax) just like IR35.

Fortunately it must apply, in the deeper sense, to only a relatively few businesses.

 

Just like IR35 - a sensible anti-avoidance idea, implemented and screwed up by the politicians.

 

In many ways I'm glad I left the profession ... too much of an intellectual exercise in trying to catch everyone out than the simple application of simple rules.

[antrobuscp]

Your post, #32, makes some very good points. The current recession is catching a lot of people out. The ones I am personally aware of really result from not following basic common sense guidance about how much is taken out of the business, how and when it's taken out, etc., and other general good business practices.

 

Some people are not cut out to be self-employed, and others can cope with that but not the added formality of a company. For some, drawing the dividing line between their company's money and their own, is very difficult. Others handle the concept with ease. Some have no problems with either status, but almost all need assistance with tax, business management, etc.

 

Don't get me wrong, having your own business can work extremely well, but it's not for everyone.

 

One thing I should have made clear in my last post, Kenton, is that for self-employed people the more complex disclosures I outlined don't have to be followed. You can still describe the values how you wish (WIP/Debtors, etc), but the valuation principles must be followed. For companies, the disclosures must follow the Accounting Standards.

 

Colin

[antrobuscp]

I don't actually think that complex rules are, in the long run, good for accountants. I would rather help people make money than run around protecting their back in a never-ending paperchase. In some ways I agree with your comment that no-one would go self-employed. Perhaps it's my age - I am approaching retirement within a few years - but I do wonder why so many actually want to start a business, particularly one which relies on the employment of others. It's a minefield. One day, someone in government will have a "big idea", probably when the money has run out and they've no alternative, and that will be to free up business rules, simplify tax, and create an environment where people want to create new businesses that may grow to rival some of the well known names.

 

Many years ago we had the "Exempt Private Company" under the 1948 Companies Act. Such companies had limited paperwork to exist, they didn't file accounts at Companies House, and the accounts could be quite simple - in fact simple enough for the owner to stand some chance of understanding them. Since then we've had increasing regulation, audits for all companies, complex accounting standards, etc., then a period of specific relaxations - audit exemptions(increasing) for various companies, small company exceptions from many accounting standards.

 

There is an EC proposal to allow member countries, if they wish, to de-regulate "micro-entities" with under 1m euro turnover. This would effectively enable a return to the "Exempt Private Company". No doubt the UK govenment will "boiler plate" the legislation, but if it happens, what a b....y monumental waste of effort everything in between has been. Still, I suppose I've made a (genuinely modest) living out of it.

 

IR35 - rather a sledgehammer to crack a nut. A simpler, more broad brush rule would probably have made more sense. Let's be honest, the government would really like to charge NIC's on small company dividends, and maybe some rule based on that concept could have been applied in some circumstances, or possibly to all "Close Companies". I have always avoided IR35 cases because of their complexity. I gather it's not collected that much tax really, not least because it wound everyone up to fight or find ways around it. Then again, and this is not intended as a politically charged remark, GB never did "simple" as Chancellor.

 

Colin

[Horsetan]

I think this thread should be made a sticky.....

 

Some genuinely useful discussion of general application here