When should I switch from sole trader to limited?

Your business may benefit from being set up as a limited company from the outset.

Alternatively, you can change from a sole trader business to a limited company structure when your business is established and begins to grow.

Your company can be registered with just one person, or you can set up a company with multiple shareholders and directors – it is a very flexible business structure.

The three principal reasons to trade as a limited company are:

1. Limited liability
2. Tax efficiency
3. Status

1. Limited Liability

The biggest benefit of running a business as a limited company is limited liability. If a company runs into financial difficulty, the personal finances and assets of the shareholders are protected beyond the value of their shares. So, if your company is unable to pay its creditors, you will only have to contribute the nominal value of the shares you hold – this could be as little as £1.

Limited liability is crucial if you plan to provide high value supply or services that could potentially lead to liability claims. If any such situation should arise, your personal finances and possessions are protected – this is not the case for sole traders.

2. Tax Efficiency

Limited companies offer greater flexibility and more opportunities when it comes to the taxation of profits and personal income – company profits are liable for Corporation Tax of 20% for the first £300,000, and 21% for profits above £1,500,000. As a comparison, sole traders are charged 20% Income Tax on profits up to £31,865; 40% between £31,868 – £150,000; and 45% on profits exceeding £150,000.

It is also easier for directors to keep their income below higher bands by taking a combination of a salary and dividends – this means less money goes to HMRC and more money is available to reinvest in the company or distribute to directors and shareholders. There is no such tax-saving strategy for sole traders.

3. Status

Limited status can boost the perceived value of a business by creating a professional, corporate image.

Many industries and corporations are more likely to do business with limited companies, rather than sole traders, because they are considered more established, committed, and credible. Limited liability also gives certain industry professions a sense of security when choosing to invest or use the services of a new business.

There are greater accounting requirements and administration costs associated with running a limited company, all of which require more time and attention; however, the financial and professional gains often counter these perceived pitfalls.

When should I switch from sole trader to limited?

If you aren’t sure about the answer, don’t worry – we are here to help and guide you. Request a free of charge call-back from our website today http://www.taxandaccountancysolutions.co.uk/ or click here to submit an online enquiry.

PwC annual Women in Work Index shows UK improvements

The debate of women in work – and women in business – is one that is certainly ongoing.

With reports that women are generally paid less than male counterparts even though the latest news shows that only one in ten women are now stay-at-home mums, the British Government has certainly had its work cut out to make sure that every effort is made to encourage women into the workplace.

The latest PwC report shows that the UK has risen four places to take 14th position within the 2013 OECD; this was its previous position back in 2000.

The improvement in performance has largely been attributed to strengthening economic recovery – this has driven improvements in the female labour force and reduction in female unemployment.

Nordic countries stay at the top when it comes to the latest statistic; Norway remains in first place, with Denmark second, Sweden third, and New Zealand and Finland fourth and fifth respectively (all of which have retained their positions from 2012).

The USA and Hungary notably improved their index positions, showing a narrowing of the wage gap, a general reduction in female unemployment and an increase in the female full-time employment.

What is the PwC Women in Work (WIW) Index?

The PwC Women in Work Index is a weighted average of various measures that reflect female economic empowerment:

• Ø  The equality of earnings with men
• Ø  The proportion of women in work
• Ø  The gap between female and male labour force participation
• Ø  The female unemployment rate
• Ø  The proportion of women in full-time employment

Executive board member and head of people at PwC, Gaenor Bagley, said;

“Whilst it is positive that the UK is gaining ground, it is clear that the low number of females in full-time employment is preventing the UK from competing with the Nordic countries at the top of the index.

“Despite the perception that flexible working helps women, our index and wider research suggests that it is still holding back women’s career progression. The reality for many flexible workers is that they have to work harder for promotion and don’t progress as quickly.

“The decision to go part-time is often made for short-term reasons, but unfortunately for women it often seems to have a wider, long-term negative impact.”

Bagley also commented that new Shared Parental Leave option which comes into force in April 2015 month were important, a change in culture is also required. She continued;

“For the UK to make real progress we first need to solve the culture challenge. We know women are confident and ambitious; they just need a workplace and society that support these aims. This often means getting the basics, such as how people are assessed and rewarded at work, right.”

Make the most of being female in work

There is no reason why you can’t choose to start your own business – whether it be as a sole trader or as a limited company – as an alternative to taking on a ‘day job’. And it may not be as scary as you may think!

With the help of an experienced company like Omni Chartered Accountants, starting up your business can be made easy, and running it is often a lot simpler than many anticipate.

For an initial chat, we are here to help – make that first step by calling 01902 837408 or by requesting a free of charge call back from our website. You can also click here to make an online enquiry.

What is the real reason behind the UK’s falling unemployment figures?

Is the UK’s steadily falling unemployment rate being driven primarily by a rise in self-employment, rather than a recovery of permanent jobs?

Depending on who you speak to, employment figures are either great news or a disaster.

With imminent election, the Government is happily repeating the falling unemployment figures to anyone who will listen, but bodies such as the Trade Union Congress have issued alarming reports that Britain’s now-4.7 million-strong self-employed workforce lack job security and employee rights, earn well below the average wage, and have started their own business due to a lack of better options.

Often with political issues such as this, the real answer lies somewhere in the middle. However in this case it looks as though both parties could be telling the truth, but talking about different things.

The numbers problem

Self-employment numbers as reported by the Office for National Statistics aren’t concrete figures – they’re the result of sample surveys.

So the ONS numbers aren’t recording the exact number of sole traders, umbrella contractors, limited company directors or any single specific legal entity – they’re recording the number of people that identify as self-employed.

UK self-employed

We know from available research that sole traders are more likely to identify as self-employed, while limited company directors are more likely to see themselves as “business owners” or “company directors” – even if they’re running a company of one. So it’s relatively safe to assume those classed as “self-employed” by the ONS are sole traders.

But what about the limited company freelancers and contractors? It would appear they’ve been largely excluded from the debate up until now.

Attempting to compare sole traders and one person limited companies is where we encounter the biggest problem in the self-employment debate. The data we need to get the whole picture is split between the ONS Labour Force Statistics, HMRC’s Self Assessment receipts and Companies House data.

What are people actually earning in the UK?

According to HMRC’s Personal Income Statistics, the average income for a self-employed person in the UK is around £13,500 per year – which would seem to back up the TUC’s “low paid jobs” line. However this group’s average earnings is weighed down by a huge number of people who earn very little (a few thousand pounds per year) through their self-employment. This group – over a million of them – are the moonlighting freelancers, doing work here and there to supplement their income.

As to what the average full-time sole trader earns, it’s very difficult to tell. Tax Research estimates around £19,000.

But again, what of the limited company brigade? We know that 43.5% of limited companies in the UK are freelancers and contractors. Based on that ratio about 230,260 one-person limited companies were formed in 2013/14 (about 35,000 more than the previous year). In the same period roughly 326,000 people became sole traders.

We know that one-person limited companies earn on average £58,200 per year. Compare that to the Tax Research figure of £19,000 for sole traders and it seems we’re looking at a two-speed self-employment boom.

High earners quitting day jobs

On one hand, high earners are quitting their jobs, incorporating, and earning more than twice the national average wage. These are the entrepreneurial go-getters that Osborne and Cameron love to lionise.

On the other hand, those taking their first steps into self-employment are sole trading, earning a somewhat lesser wage (below the national average in many cases) and missing out on employee rights and job security. This is the group the TUC and others are concerned about.

To attribute the entire self-employment boom to either group is patently inaccurate – however this kind of nuance tends to get lost in political debate.

Do sole traders earn less than limited company directors?

Based on the available data we can conclude that sole traders earn significantly less than Limited Company Directors – and the former group is growing faster. This trend could change over time though, as those who have been freelancing longer tend to earn significantly more.

The TUC’s claim that the UK’s burgeoning ranks of self-employed workers are going it alone out of necessity doesn’t appear to wash, though.

A survey by RSA found only 15% chose self-employment due to a lack of better options (over 50% chose it “to have more freedom”), Global Entrepreneurship Monitor found the number freelancing out of choice was five times higher than those forced into it, and the Resolution Foundation reported that almost three quarters (72%) of newly self-employed professionals prefer it to salaried work.

It may be a while yet before the UK’s exploding self-employed population is fully understood – not least due to the problems understanding how they work and what they earn. It seems clear from the available data that the vast majority enjoy their job but, just like full-time employees, will have to wait for their wages to recover to pre-recession levels.

How to maximise your earnings

Of course, everyone’s work situation is different and advice will differ from client to client – we are here to help provide guidance whatever your circumstance may be.

Contact Omni Chartered Accountants today for information about how you could benefit by incorporating your current as a limited company or not, as your case may actually be.

3 common misconceptions SMEs have about accounting and tax

Anyone who is thinking of, or has already set up, their own business may admit to having preconceived ideas about how tax and accounting works.

For some, these misconceptions could have put them off even starting up their own business so instead, they have stuck with the security of working for an established employer.

Don’t let this stop you from fulfilling your dream of running your own company.

Below are some of the most common misunderstandings.

1. My business is too small to need an accountant

Regardless of how big or small your business is, you can always benefit from the help of an accountant.

If cash flow is limited then admittedly a full time employee may not be the most practical step. However, many small companies enlist the help of an accountancy practice that can keep track of figures, submit tax returns on time, carry out payroll services and best of all, advise you on the best ways to save your company money.

Even if you’re happy to take on the extra workload yourself, hiring an accountant purely for the money saving advice can be well worth your time. You stay in control of what you want when, but you benefit from the professional knowledge, experience and advice.

2. I can do my accounts myself

This is of course true – you can do your accounts yourself. However, as mentioned above, even though it may not seem like it at the time, an accountant can save you a lot of money in the long run.

Furthermore, very few successful entrepreneurs got to the top because they spent their days bookkeeping.

You are of much better value to your business when you spend time working on new business development and growing the company rather than doing things that you can hire others to do.

3. HMRC is always right

Just like any business, HMRC isn’t immune to making mistakes. Although they endeavour to achieve incredibly high levels of accuracy, human error is part of life.

If you are uncertain about a tax bill, the complexities of filing online, your tax code or anything else to do with your accounts, check out the FAQ’s and help available on the HMRC website.

Alternatively, if you have been left incredibly confused by tax codes and balance sheets, or just want help or advice, contact Omni Chartered Accountants who will be able to advise you accordingly.

HMRC eases stance on late PAYE filings

UK businesses with less than 50 employees will now be allowed three days’ leeway by HMRC before being penalised for late filing of PAYE submissions.

HM Revenue & Customs has confirmed that late payment penalties will carry on being reviewed on a “risk-assessed” basis as opposed to being issued automatically.

No change to PAYE filing deadlines

HMRC have confirmed that there will be no change to the actual filing deadlines, which usually means that businesses need to file them actually on or before each payment due date.

HMRC will be closing close to 15,000 PAYE schemes in March 2015 in a bid to prevent unnecessary penalties being issued, for companies that have not filed a PAYE report since April 2013, and as a result, look to appear to have ceased trading.

These company schemes will be written to, advising them about the planned closure and what they should do if they are - or should be - operating PAYE.

Employers with less than 50 employees are also reminded that late filing PAYE penalties will apply from 6 March.

A discussion document has been published by HMRC in order to gauge views by the deadline of 11th May 2015. Suggestions concerning potential improvements to the way in which penalties apply for PAYE payment failure or to meet deadlines for registration or returns will be considered.

How to run your PAYE smoothly and avoid penalties

Of course, it is not always easy running a business and PAYE is something that a good accountant like Omni Chartered Accountants can help you with.

Seeking help with your PAYE affairs may work out more cost-effectively than you may think, especially when you consider the time saving and potential problems that your company could face if deadlines and payments are not made by the dates as set out by HMRC.

For more information, contact us now by clicking here or request a free of charge call back from our website by clicking on the link at the top of this page. 

A guide to auto enrolment for SMEs

Top of FormA guide to auto enrolment for SMEs

In order to enhance personal pension funding, the government has drastically changed the laws and regulations around pension provisions supplied by employers. 

Employer responsibilities

This article will give you a basic outline of these changes and your responsibilities as an employer.  The government has changed details from the point of first considering auto enrolment until now so it is important that you keep up to date with any changes in legislation going forward.

Ensuring you have the most suitable pension scheme in place is paramount in order to offer a quality benefit to your employees while reducing the costs and time associated with administering the scheme.

The duties of an employer pre-auto enrolment

If you employ less than five members of staff you currently do not have any responsibility or obligation to offer your staff pension benefits. 

If you employ five or more staff the minimum requirement is that you have to provide access to a stakeholder pension scheme.  There is no obligation to make contributions either as an employer or an employee.

The Government’s aim

Due to employees having to opt in to the pension scheme and there typically being no employer contribution the current schemes meeting the minimum requirements have very poor take up. 

In order to improve take up and therefore increase private pension funding, the government are taking away these two main barriers by bringing in auto enrolment and compulsory employer funding.  This means that instead of employees choosing to enter the pension scheme they will be automatically enrolled into the scheme and contributions taken.

Your staging date

The date by which you have to be compliant is governed by your number of employees on the 1 April 2012 and your PAYE reference number.  The earliest date was 1 October 2012 for employers with 120,000 or more employees gradually working through companies with less employees with the earliest start date for a company employing 30 or less employees will be 1 June 2015.

There is a comprehensive list of staging dates available from the Pensions Regulator.

Employers’ responsibilities

From their prospective staging date, any employer employing at least one person will be legally obliged to

•             Set up and register a pension scheme suitable for auto enrolment
•             Assess all staff eligibility at every pay period
•             Automatically enrol and make contributions for all eligible jobholders
•             Enrol and make contributions for non-eligible jobholders who wish to join
•             Manage the auto enrolment: including the joining and opt-out process
•             Keep records on how they have fulfilled their responsibilities

Scheme contributions

In order for the scheme to be classed as qualifying it must meet minimum contribution levels. There are different methods of assessing qualifying contributions but below is the simplest and is based on percentages of the employees total remuneration. The contribution level is to be bought in over three stages.

October 2012 – September 2017

Minimum Employer contribution = 1%

Minimum Member contribution – 1%

Total minimum contribution = 2%

October 2017 – September 2018

Minimum Employer contribution = 2%

Minimum Member contribution – 3%

Total minimum contribution = 5%

October 2018 onwards

Minimum Employer contribution = 3%

Minimum Member contribution – 4%

Total minimum contribution = 7%

Enforcement

In order to ensure compliance with the employers’ responsibilities, the following three stage process for non-compliance has been put in place by the Pensions Regulator.

Stage 1: compliance/ unpaid contribution notice

This will detail the breach and detail the timescale over which the employer has to put it right. Interest may be required on unpaid contributions.

Stage 2: fixed penalty notice

If the breach has not been rectified by the given time a fixed penalty of £400 will be applied.

Stage 3: escalating penalty

If employer continues to fail to comply with the first and second notice, then a daily penalty will be payable based on the number of employees.

Ensuring you have the most suitable pension scheme in place is paramount in order to offer a quality benefit to your employees while reducing the costs and time associated with administering the scheme.

These changes are likely to have great implications on business planning so be sure to understand the effect it will have on your business over the coming years.

For more information and impartial advice, you can be sure to count on Omni Chartered Accountants, who are here to advise you at every stage of your business journey. Request a free of charge call-back from this website or click here to find out more today.

Are you addicted to the busy drug?

It appears all of us at times become addicted to the drug 'being busy.' But let's be really clear.

Being busy doesn't necessarily mean...
1. You're being effective.
2. You're clearly a success.
3. You're incredibly important.

However, it could mean:
1. You've poor organisational skills and fail to delegate.
2. You're a people pleaser who cannot say no.
3. You're suffering from fuzzy focus and lack clarity regarding your purpose.

Are you addicted to the busy drug?

So please never ever confuse being busy with being effective. Instead, spend a little more time trying to Stop and Understand what you're aiming to achieve before you Move On to take action.

Do you know anyone who needs help with this addiction? Perhaps forwarding this message would be a start. Unless of course they're too busy to read it...

Omni Chartered Accountants - for sensible and advice when you need it most...
http://www.taxandaccountancysolutions.co.uk/

*courtesy of http://www.thesumoguy.com/