What sort of things can we do for them, and, therefore, what might we be able to do for you?
Below are a few genuine case studies, using actual figures, to give an indication of the nature of the assistance given.
It is also worth noting, that these may help to answer that most common of questions; “Do I need an accountant to do by accounts / tax for me, or can I do it myself”?
Unfortunately, they also confirm that it can be equally painful to employ the wrong accountant to represent you and deal with your taxation affairs!
Self Employed Sole Contractor
AB was a self employed contractor, working in the Construction Industry, under the CIS taxation system. As a result, he was suffering tax at source on his income received from the main contractor.
Each year, the client went into his local Tax Office, armed with a box of receipts, where he then spent the whole day with an HMRC employee, completing his Self Assessment Tax Return.
Of course, in this situation, the Revenue employee can only work with what they are given, and within fairly tight time constraints. As a result, even though he had suffered tax in advance, under CIS, the client still came away with a tax bill of £1,487.
Following on from a recommendation by one of his fellow contractors, who already used us to complete his accounts and returns, the client approached us to do the following year”s work for him.
In that second year, coincidently, the business turnover was just £25 different from the previous one.
In spite of this, because we were able to claim everything the client was entitled to, we were able to secure a refund of £842.
The client was £2,329 better off, tax wise, through using our services, we only charged him £250 for this, and he paid us out of his refund! In addition to this, the client saved a whole day of their time, previously spent sitting around the local Tax Office.
Larger Self Employed Business
WW was a larger business, run on a self employed basis, from home, with approximately 25 employees.
The client was originally recommended to us by her mortgage broker, as he felt that her taxation liability was totally disproportionate to her level of income. (She had asked him to arrange a remortgage for her, so that she could pay her £45,000 tax bill for that year).
Although the client was some 200 miles away from our offices, we attended the premises, and performed a full review of the accounting records for the current year, and three previous years, from commencement of trade, to establish the nature of the problem.
Our findings were as follows:
- The previous accountants had submitted estimated returns, for the first 2 years, which had resulted in an HMRC compliance investigation.
- During the investigation, they had provided misleading information, which resulted in an HMRC determination, estimating £85,000 profit, when the actual result was closer to £25,000.
- The main reason for the problem was that (due to low profit levels in the startup years) the client had substantially remortgaged one of her properties, in order to provide a series of cash injections into the business. The accountants had treated this as taxable income.
- In spite of the above, the accountants had the cheek to write to the client and advise her that they could not complete the year 3 accounts, as there were a number of small items they couldn”t tie up.
Following our initial visit, the client received an immediate refund of a little over £15,000. There is currently a further refund pending in the region of £28,000.
He was a relatively small, one man band, business, and, since April 2007, he had been paying £1,000 A MONTH standing order to HMRC to cover his tax liability.
We advised him to cease his sole trader business and transfer it to a new limited company, with immediate effect. We also completed his last year”s accounts, in order to rationalise his taxation liability.
The client worked from home, and had two rooms, out of seven, totally dedicated to his business. The previous accountant had been claiming £10 per week to cover ”Use of Home As Office” allowance. However, since 2004, you can no longer put in a round sum allowance of more than the HMRC specified rate (currently £3, but, back then, it was £2) though you can claim considerably more, if you can substantiate the claim. We looked at all relevant expenditure, and were able to claim, quite legitimately, over £2,800 when the previous accountant had only claimed £520, which, in itself, had increased the risk of an HMRC compliance enquiry, due to the use of incorrect ”round sum” amounts.
Due to the claiming of extra expenses such as this, we were able to reduce the client”s overall tax liability for the year, however, the key saving arose from the transfer of the business to the limited company. Self Assessment Tax is paid in advance, in 6 monthly installments. Corporation Tax is payable in arrears, thereby, potentially, giving a tax payment holiday period.
The client”s tax liability was reduced to some £5,000, as payments on account were no longer required for the following year. As he chose to continue his standing order, the total liability could now be satisfied by January 2010, after which he would not be required to pay any further tax (Corporation Tax) on his profits, until 1 June 2011, at which point (based on current profit levels, CT rates etc) he would expect to pay around £4,500.
Our fee for these services? Less than 10% of the tax we have saved him, AND no more than he was charged by the previous accountant who gave him the inadequte advice in the first place.