Finance and Business Blog

January 2011 saw the release of version 1 of MyBookkeepingManager - a bookkeeping application aimed at UK-based contractors, freelancers, and other very small (micro) businesses, typically those having less than five employees.

The application concentrates on the main bookkeeping activities performed by many such businesses, providing a simple, easy-to-use, software application. It can be either used online, or it can be downloaded and installed on a web server of your choice. MyBookkeepingManager enables monthly sales, loans, salaries, income tax, national insurance (both employees and employers), pension contributions, bank interest, bank charges, office or desk rental, and plenty of other expense amounts to be entered. The software then automatically calculates the amount of VAT owed (if you are using the VAT Flat Rate Scheme), and estimates the size of dividends that can be distributed to shareholders and the amount of corporation (business) tax due.

Figures are presented in a straight forward spreadsheet format, making it very easy to see, at a glance, how your business is doing.

For more information, go to http://www.MyBookkeepingManager.com

MyBookkeepingManager is a bookkeeping application aimed at UK-based contractors, freelancers, and other very small (micro) businesses, typically those having less than five employees.

The application concentrates on the main bookkeeping activities performed by many such businesses, providing a simple, easy-to-use, software application. The software can be either used online, or it can be downloaded and installed on a web server of your choice.

What does it do?

MyBookkeepingManager enables monthly sales, loans, salaries, income tax, national insurance (both employees and employers), pension contributions, bank interest, bank charges, office or desk rental, and plenty of other expense amounts to be entered.

The software then automatically calculates the amount of VAT owed (if you are using the VAT Flat Rate Scheme), and estimates the size of dividends that can be distributed to shareholders and the amount of corporation (business) tax due.

Figures are presented in a straight forward spreadsheet format, making it very easy to see at a glance how your business is doing.

How much does it cost?

MyBookkeepingManager is produced by JDT, and we have endeavoured to make the product as cheap as possible. At a price of only 99p + VAT, which gives you access to both an online version and a downloadable version, we believe that the product offers excellent value for money.

For more information, visit www.MyBookkeepingManager.com

As part of the recently published Finance Bill 2011, the Government has moved to close a loophole that allows contractors to use Employee Benefit Trust (EBTs) schemes to reduce their tax bill.

Rob Crossland, chief executive of umbrella company Parasol, had this to say.

“It was no surprise that the Government has taken a hard-line with EBTs and other forms of tax avoidance as this has been discussed for some time.”
 
“There must be a distinction made between umbrella companies who work closely and openly with HMRC in order to protect contractors, and companies that exploit loopholes and make bold or unrealistic claims about take home pay. Correctly structured and compliant umbrella companies have nothing to fear from the Finance Act, and the reality is that this provides an opportunity to demonstrate that compliance and transparency to Government, contractors and the agencies that place them.”

“In the past, this industry has been tarnished by unscrupulous providers making unrealistic claims about the amount of take home pay a contractor can expect, by offshore providers not fully explaining the risks involved in using an EBT scheme or operating with a lack of transparency to a level that even the contractors involved in the schemes cannot fully explain how they work. Thousands of contractors have also been persuaded to join these schemes without being informed of HMRC investigations into them.”

“This had to stop and therefore the Finance Act 2011 should be welcomed by umbrella companies. It now remains the duty of leading umbrella companies like Parasol, and organisations such as the FCSA, to support and educate contractors and the agencies that place them, encourage further transparency, open discussion and compliance throughout the industry, and ensure that the bad practice of a few does not bring down the industry and prevent professional contractors from running their business and making a valuable contribution to the UK economy.”

MyBookkeepingManager - Bookkeeping Software for Freelancers, Contractors, and other Micro Businesses

With effect from 4th January 2011, the standard rate of VAT increases from 17.5% to 20%. The VAT Flat Rate Scheme (FRS) percentages will also change. For Computer & IT Consultancy, the rate will change from its current 13% to 14.5%.

The normal tax point rules will apply: date of invoice or date of payment, whichever comes first. So if the invoice or payment is made before 4th January, VAT will be at the rate of 17.5%; anything after that date will be at 20%.

More information is available on the HMRC website:

http://www.hmrc.gov.uk/vat/forms-rates/rates/rate-increase.htm

At the weekend I received my copy of the PCG’s quaterly magazine, Freelancing Matters. Flicking through the pages, it is very easy to see that a large industry has grown up around IR35 and the uncertainty it brings for IT contractors - contract reviews, tax insurance - it’s all there.

I pay around £500 per year between tax investigation insurance and my PCG membership. This is money I didn’t have to spend pre-IR35, and which I wouldn’t have to pay if IR35 was scrapped. If I’m a typical contractor, ie there are loads of other contractors out there paying a similar amount, it’s not difficult to see that IR35 is not bad news for everyone.

If the people making a living out of IR35 are also the same people with whom the OTS is consulting over the future of IR35, it seems pretty obvious to me that the ’son of IR35′ will still somehow ensure that contractors need tax insurance and contract reviews.

Free Accounting Software for Contractors

PCG Chairman, Chris Bryce, has been invited to join the Coalition Government’s Office of Tax Simplification’s (OTS) Consultative Committee that will review small business taxation, including IR35. Since its inception in 1999, PCG has campaigned against IR35.

Accepting the invitation to join the OTS committee, Mr Bryce expressed his delight that the UK’s 1.4m freelance workers would be represented:

“PCG worked tirelessly with the Conservatives in opposition to ensure that a review of IR35 would be carried out following the expected change of Government at this year’s General Election. We produced a paper for senior members of the Party which put forward compelling arguments as to why IR35 was unfair and unworkable.  We also worked closely with the Liberal Democrats at this time.

Our paper has been seen by John Whiting, the Director of the OTS, with whom we have maintained a good relationship over many years. We are delighted that he recognised the importance of having PCG, the Voice of Freelancing, on this vital committee.”

Mr. Bryce added: “This is a crucial time for freelancers.  PCG will continue to offer the OTS every resource available to us and we will be advised by leading tax expert, Chris Sanger, from Ernst and Young. It is our objective that this process will produce a fair and effective solution for all small businesses.”

John Brazier, PCG Managing Director echoed those sentiments saying:

“PCG is a not-for-profit association and as such our views will not be influenced by commercial gain. We are on this committee to represent the needs of our members and we will strive to do this fairly and accurately.”

The OTS will be holding consultation events in locations around the country.  At least two of these, currently planned for Edinburgh and Manchester, will be exclusively for PCG members.  In addition PCG will organise their own regional meetings to ensure that the widest possible input is gathered from its membership.

Mr Brazier added: “By harnessing the views of our members we can deliver the true voice of the freelancer directly to the heart of the decision making process.”

For further information contact:

Jim Cassidy
Prima Communication & Media Limited
Phone: 0141 530 8144 or 0777 595 3990
Website: www.prima-media.co.uk

It’s good to hear that IR35 is to be addressed by the Government’s Office of Tax Simplification (OTS), in consultation with various contractor-related bodies. Lack of consultation was one of the reasons why IR35 was such a mess in the first place. I do, however, have a concern that the various bodies with whom the OTS will consult do not have the same incentive to get rid of IR35 as contractors themselves do.

Although it is widely accepted that IR35 does not raise anywhere near the amount of Income Tax and National Insurance income for HMRC as was originally thought, and that it probably costs more to administer than it raises in revenue, a whole industry has grown up around IR35 and I suspect many tax consultants and tax insurance providers have done very well out of IR35.

And this is where my problem lies. If, because of the uncertainty caused by IR35, a company offers tax insurance products to contractors, will that company really want to see the demise of IR35? Of course, they may well accept that IR35 is unworkable in its current form, but if it is replaced, they will almost certainly want the replacement to still cause contractors to require tax insurance. Without this requirement, the company may well go out of business - and that’s not what they want!

And then there’s also the various companies that offer contract reviews for £150 a shot. They won’t want that revenue stream to disappear. Even the Professional Contractors Group (PCG), which undoubtably has done a splendid job in lobbying the Government over the past decade to get IR35 repealed, does very well out of the existence of IR35.

OK, maybe I’m being a bit cynical and perhaps everyone with whom the Government consults really does want IR35 to go away and for contractors to be able to work in the way they did in the 1990s - without the need for tax investigation insurance and without the need for contracts to be reviewed … but I doubt it!

Now that the new Conservative-Liberal Democrat coalition government contains some of the high profile signatories of the Early Day Motion EDM 1124, namely Vince Cable (Business Secretary), David Laws (Chief Secretary to the Treasury) and Chris Huhne (Energy and Climate Change Secretary), perhaps IR35 will finally be reviewed and, hopefully, consigned to the rubbish bin !

For the past 10 years, contractors in the UK have been looking forward to the day when the Labour Government is toppled by the Conservatives. In the early days of IR35, the Tory line was that IR35 would be scrapped as soon as they returned to power. Gradually though, over the years, their attitude towards IR35 has softened, to the extent that they now state that a review of IR35 will form part of a bigger review of taxation for small businesses - this is a long way from stating that IR35 will be abolished.

The Tories seem to accept that IR35 does not in itself work, but it is now such a major part of the current tax regime for small businesses that simply dropping it would cause even more confusion in the tax system. Going back to the pre-IR35 days no longer seems like the most sensible solution for them.

In fact, out of the three main parties, only the Liberal Democrats are now committed to dropping IR35, and they even raised an Early Day Motion (EDM) a couple of years ago to get it scrapped. The EDM was signed by quite a few MPs, but most of them were Liberal Democrats.

If we end up with a hung parliament though, which seems quite likely, we may well be in an interesting situation with regard to IR35. I think the Labour party will win the election, but without an overall majority. This, I think, will cause them to form an alliance with the Liberal Democrats and I believe Vince Cable will be the next Chancellor. Dr Cable is one of the Liberal Democrats who signed the EDM, so we’ll get to see whether he puts his money where his mouth is, and scraps IR35 !

HM Revenue & Customs (HMRC) is phasing out paper VAT Returns. From 1 April 2010 you may have to submit your VAT Returns online and pay any VAT due electronically (for example, by Direct Debit, internet or phone banking etc). If you are affected by this, there are things you need to do now.

Who has to switch to online VAT Returns?

From 1 April 2010 you will have to submit your VAT Returns online and pay any VAT due electronically if either of the following applies:

• you have an annual turnover of £100,000 or more (exclusive of VAT)
• you register or should have registered for VAT on or after 1 April 2010 (regardless of your turnover)

If you fall into either of the groups mentioned above, you will have to file all your VAT Returns online (including nil and repayment returns) even if your turnover drops below £100,000 in the future.

Does this affect you?

If your annual turnover was £100,000 or more on 31 December 2009, HMRC should have sent you a letter in February 2010. This letter explains that you have to submit your VAT Returns online and pay your VAT electronically for all returns starting on or after 1 April 2010.

If your turnover is less than £100,000

You currently don’t have to submit your VAT Return online and pay VAT electronically if you registered for VAT before 1 April 2010 and your VAT-exclusive turnover stays below £100,000.

However, you should note that it’s likely that all VAT-registered businesses will have to file their returns online and pay electronically by 2012, at the latest. So, you might want to switch to using the online service sooner - it will save you time and, in most cases, will give you extra days to submit your return and pay the VAT due.

Submitting your VAT Return online

The online VAT Return is very similar to the paper version and there has been no change to the rules on how you complete your return or how you calculate VAT.

Also, you won’t have to change your existing record keeping system - you can still keep your records on paper if you prefer.

Getting ready for the changes

If you think you will have to submit your VAT Return online from 1 April 2010, you should take the following action now:

• Register and enrol for the VAT online service. (You will need to do this to submit your VAT Return online, whether you choose to use commercial software or HMRC’s free online service.)
• Talk to your accountant if they will be submitting your VAT Return online on your behalf and discuss what you both need to do, to ensure you meet the deadline for your first online return.
• Consider whether you need to change any of your business processes for checking and signing off your VAT Return.
• Identify your preferred form of electronic payment (eg Direct Debit, internet banking, etc) and set up the necessary arrangements. There are lots of electronic payment methods to choose from.
• If your business has to pay your VAT by cheque, make sure you order from HMRC the necessary Bank Giro paying-in slips (preprinted with your and HMRC details), which you will use when paying in your cheque at a participating bank or building society. For more information on how to order the paying-in slips see the link below ‘Read more about ordering Bank Giro paying-in slips’.

You might also want to set up the email reminder service (this is a free service which reminds you when your next online VAT Return is due). You set this up by filling in your email address on the ‘At a glance’ screen, once you have registered and enrolled for the VAT online service.

You can find more information at: http://www.hmrc.gov.uk/vat/vat-online/index.htm