Glossary

 

Latest Articles

Starting-Up

National Insurance

laptop

What is National Insurance?

National Insurance
National Insurance (or NI) is paid by employers, employees and self-employed people. Our National Insurance contributions build up our entitlement to state benefits such as a State Pension or Job Seeker’s Allowance.

HMRC expects National Insurance contributions once you are 16 or older and earn above £157 per week as an employee or are self-employed and making a profit of £6,025 or more per year (figures correct for 2017/18 tax year). Rates and thresholds for National Insurance are set at the start of every tax year and can be found on HMRC’s website.

You have to have a National Insurance number to pay NI contributions. HMRC usually sends out your National Insurance number your 16th birthday. Your National Insurance number is unique to you; it is used to ensure your contributions and tax are recorded to you only.

The type (or Class) of National Insurance you pay depends on how much you earn, whether you are employed or self-employed and whether there are any gaps in your National Insurance contributions to date.

Broadly speaking there are four Classes of National Insurance
  • Class 1 National Insurance is paid by employees earning more than £157 per week. Class 1 NI contributions are deducted from wages by the employer.
  • Class 1A or 1B National Insurance contributions are paid by employers once an employee earns over a certain amount.
  • Class 2 National Insurance is paid by self-employed people earning more than £6,025 per year.
  • Class 3 National Insurance contributions are voluntary. You can choose to pay Class 3 NI if you are self-employed and earn less than £6,025 per year, or you have missed National Insurance contributions in the past and want to ‘top up’.
  • Class 4 National Insurance is paid by self-employed people whose profits exceed £8,164 per year.

How do I pay my National Insurance?

National Insurance is usually paid through your wages, or your Self Assessment Tax Return if you are self-employed. If you are already a Numberworx customer, your dedicated bookkeeper will talk you through your tax position and liability, including National Insurance, as an included part of our service.

Can we help?

If you have any questions regarding your National Insurance contributions, or the class of National Insurance you pay, don’t hesitate to ask.

VAT Threshold

laptop

What is the VAT Threshold?

The VAT Threshold is the maximum VAT taxable turnover a business can earn in a 12-month period before you are legally obliged to register for VAT. The VAT threshold for businesses from April 1 2017 is £85,000.

You can work out your VAT taxable turnover by adding up the value of all the goods and services you sell that are not exempt from VAT. Once your turnover exceeds the VAT threshold in any 12-month period you must register for VAT with HMRC. The 12-month period is not fixed but ‘rolling’, so for example it could be the start of July one year to the end of June the next.

VAT Threshold's explained
Circumstance Threshold
VAT registration More than £85,000
Registration for distance selling into the UK More than £70,000
Registration for bringing goods into the UK from the EU More than £85,000
Deregistration threshold Less than £83,000
Completing simplified EC Sales List £106,500 or less and supplies to EU countries of £11,000 or less

VAT threshold advice

If you are using Numberworx, we will advise you if your rolling turnover is approaching the threshold at which you need to register for VAT. We can also help you decide if it’s worth registering if you are below the threshold.

Ask away!

HMRC usually sets the VAT threshold on 1 April every year. If you have any questions regarding this or any previous tax years’ thresholds, just ask!

Personal Allowance

laptop

What is the Personal Allowance?

Personal Allowance
The Personal Allowance is the amount of tax-free income you are allowed to receive each year. The allowance is reviewed every tax year, but for 2017/18 the basic Personal Allowance is £11,500.

Individuals can earn up to their Personal Allowance (currently £11,500) each year without paying tax. Once you have earned your Personal Allowance, you pay income tax to HMRC on any additional income earned during that tax year.

The income limit for the Personal Allowance is £100,000, which means you are entitled to the full Personal Allowance until you earn £100,000. Beyond that, the allowance reduces by £1 for every £2 you earn. At £123,000, your Personal Allowance is reduced to zero.

The Personal Allowance changes every year and is applied in different ways, depending on your circumstances.

If you are self-employed with no other income, your Personal Allowance is deducted from the profit you declare on the self-assessment tax return you file with HMRC. You pay income tax on the figure that is left over.

If you are employed, your employer will consider your Personal Allowance when working out how much income tax they need to deduct from your wage. Your Personal Allowance is shown in your tax code, which is worked out by HMRC.

Need to know more?

If you are still unsure about your Personal Allowance, the bookkeepers here at Numberworx will be happy to help. Leave your query and one of us will get back to you asap.

Corporation Tax

laptop

What is Corporation Tax?

Corporation Tax
Corporation Tax is a tax on business profits. Limited companies (and some organisations such as clubs and community groups) have to pay Corporation Tax to HMRC every year. Your Company Tax return tells you how much Corporation Tax you need to pay.

When you set up as a Limited Company you need to register with Companies House. After that – and within three months of starting to trade – you need to register for Corporation Tax with HMRC.

Corporation Tax is calculated on a Company’s Tax Return, and Company Tax Returns must be filed within 12 months of the accounting year-end. However, as Corporation Tax must be paid before 9 months and 1 day after the accounting year-end, Tax Returns should ideally be submitted before they are due!

If you are already using Numberworx we can complete your Company Tax Return and let you know how much Corporation Tax you owe HMRC. Your bookkeeper will also be able to advise you on how you could reduce your Corporation Tax liability

What is the ‘accounting year’?

The ‘accounting year’ is the 12-month period covered by your business accounts (not necessarily the tax year). Companies House sets your accounting year when you register, although you can change this date if you wish.

Need help with Corporation Tax?

We’re happy to answer any questions you have regarding Corporation Tax or Company Tax Returns. We will always do our best to help.

P45

laptop

What is a P45?

A P45 is the form an employer gives an employee when he or she leaves their job. A P45 details the salary paid to date in that tax year, the total tax deducted and the final tax code.

Your P45 is important because it contains all the information your next employer will need when you start a new job. With an up to date P45, your new employer will be able to deduct the correct amount of tax from your wages for the rest of the tax year. You will only be given a P45 when you leave your job; otherwise your employer should be giving you a P60 at the end of every tax year.

Ask away!

If you still have questions regarding your P45, we’re here to help

P60

laptop

What is a P60?

All employees receive a P60 at the end of the tax year. Your P60 is a tax document showing how much taxable salary you have been paid and how much tax has been deducted.

If you are an employee, it is your employer’s responsibility to deduct tax from your wages and provide you with a P60 at the end of the tax year. Your P60 shows how much tax you have paid on your salary that year. You will need it if you want to reclaim overpaid tax, apply for tax credits or if you need to prove your income.

If you quit your job during the tax year you won’t receive a P60 because all the information will be on your P45, which your employer will give you when you leave.

Ask away!

If you still have questions regarding your P60, we’re here to help

Capital Allowance

laptop

What are Capital Allowances?

Net Profit
Capital Allowances allow you to save money on your tax bill if your business purchases or invests in a capital asset.

HMRC allows you to claim Capital Allowances if you buy or invest in a capital asset for your business. Capital assets can be tangible or intangible. For example, a domain-name is intangible, and a laptop is tangible.

Capital assets are usually something that will be used by your business for a minimum of two years such as equipment, machinery or vehicles. However you can also claim a Capital Allowance on integral features such as heating systems, and fixtures such as CCTV.

Why would I claim Capital Allowance?

Businesses claim Capital Allowances because – although capital assets often require a larger investment than day to day running costs – these costs are not necessarily ‘allowable for tax’ in the way that other overheads are./p>

By using your Capital Allowance, you can deduct the value (or part of the value) of these allowable assets from your pre-tax profits, which means you will pay less tax to HMRC.

Numberworx customers receive free, unlimited advice on all aspects of their business tax and bookkeeping. We can advise you on what you can and can’t claim Capital Allowances for, as well as other ways you might be able to reduce your tax liability.

We’re here to help!

Unsure whether you can claim a Capital Allowance? Leave your question below, and we will do our best to help.

Self Assessment

laptop

What is a Self Assessment?

Self Assessment more correctly known as the Self Assessment Tax Return, is a form that provides details of your income for HMRC. If you are self employed you need to submit a Self Assessment Tax Return to HMRC every year.

Most business owners and all self-employed people file Self Assessment Tax Returns with HMRC. It is called ‘Self Assessment’ because you fill in the details of your income yourself to work out how much tax you need to pay HMRC; other terms for Self Assessment include Income Tax Return or Personal Tax Return.

Filing your Self Assessment Tax Return

If you file your Self Assessment Tax Return online, HMRC must receive it by 31 January following the end of the relevant tax year. Paper tax returns must be filed before 31 October following the end of the tax year.

With Numberworx, our simple to use software and the services of your dedicated bookkeeper mean your figures are always up to date. When it comes to filing your Self Assessment Tax return, we will check all the numbers are correct, and submit to HMRC on your behalf.

Self Assessment advice

When you sign up with Numberworx we assign you your own bookkeeper. He or she is then available to give you free unlimited advice by phone, email or online chat on all aspects of your tax and accounting.

Ask away!

Got a question about Self Assessment? One of our Accountants will be happy to help.

Limited Cost Trader

laptop

What is a Limited Cost Trader?

Limited Cost Trader
‘Limited Cost Trader’ is a business category in HMRC’s Flat Rate VAT Scheme (FRS), denoting a small business with low annual costs.

After 1 April 2017 businesses using the Flat Rate VAT Scheme will have to decide whether or not they are a ‘Limited Cost Trader’ in the eyes of HMRC.

A ‘Limited Cost Trader’ is a business whose goods cost less than 2% of turnover, or more than 2% of turnover but less than £1,000 per year. From April 1, 2017 Limited Cost Traders will pay a rate of 16.5% Flat Rate VAT, regardless of the nature of their business.

You can work whether you are a Limited Cost Trader by adding together the cost of all qualifying goods you have bought for your business. You can’t include items such as food and drink, capital goods or vehicles, vehicle parts and fuel (unless you run a transport business such as minibus hire).

The Limited Cost Trader category was introduced to stop small businesses benefitting unfairly from the Flat Rate Scheme Scheme by having very low costs. If you are not on the VAT Flat Rate Scheme, you don’t need to worry about whether or not you are a Limited Cost Trader.

If you are a Numberworx customer and you are already using the Flat Rate Scheme, your personal bookkeeper will work out whether you should be paying the Limited Cost Trader rate of 16.5%. He or she will also advise you whether to stay on the FRS or move to one of the other VAT schemes available.

Any questions?

If you still have questions regarding Limited Cost Trader status, the team at Numberworx is here to help. Leave your question and one of us will reply soon.

Income Tax

laptop

What is Income Tax?

Tax Code
Income tax is tax paid on an individual’s income. The tax is payable on any income you receive in a tax year over and above your Personal Allowance.

Income tax is a tax paid to HMRC on income from a number of sources including self-employment, wages from salaried employment, interest earned on bank accounts, share dividends and income from renting property.

Your tax code does not contain details of your income, it just tells your income provider how much tax to withhold. HMRC works out your tax code depending on how much you can earn tax-free, and your personal situation.

Everyone is entitled to an amount of tax-free income every year. This is called your Personal Allowance. You pay Income Tax on anything you earn during the course of a tax year over and above your Personal Allowance

If you are an employee, you will have a tax code. This tells your employer how much income tax you need to pay in the tax year. Your income tax is then deducted from your salary, and paid directly to HMRC by your employer.

If you are self-employed you pay income tax through the Self-Assessment Tax Return which you file every year with HMRC. If you are using Numberworx, we will complete and file your tax return on your behalf.

Can we help?

If you have a question regarding income tax or your Self Assessment Tax Return don’t hesitate to ask. We are always pleased to help

Annual Investment Allowance

laptop

What is the Annual Investment Allowance?

Annual Investment Allowance
The Annual Investment Allowance incentivises businesses to invest in assets or equipment by offering tax relief on qualifying purchases up to £200,000.

The Annual Investment Allowance is a type of Capital Allowance, and Capital Allowances are designed to help you reduce the tax you pay HMRC.

The Annual Investment Allowance is designed to encourage businesses to invest in buying machinery and equipment by allowing you to deduct the full cost of the assets from your profits before tax.

If your business is not VAT registered and you purchase an asset which qualifies for the Annual Investment Allowance, you can deduct the full cost of the item from your profits before you work out how much tax to pay HMRC. If your business is VAT registered you can claim the full cost of the item less the VAT (which you can claim in your VAT return).

The Government sets the Annual Investment Allowance, which is currently £200,000. If you are a Numberworx customer your personal bookkeeper will advise you what is and what isn’t eligible for the Annual Investment Allowance, and any other ways you might be able to reduce your tax liability. Our service includes free, unlimited tax and accountancy advice throughout the financial year.

Here to help

We are happy to answer any questions on the Annual Investment Allowance even if you’re not signed up to Numberworx.

P11D

laptop

What is a P11D?

A P11D gives HMRC details about certain benefits you receive from an employer that are not put through payroll, such as health insurance or a company car

Employers need to submit a P11D form to HMRC for every company director or employee earning more than £8,500 per year, or a company director with more than a 5% shareholding in the business.

The form is designed to let HMRC know about any extra benefits or perks an employee receives during the tax year.

Because these benefits are generally not shown on the payroll it is important HMRC knows what they are and what they are worth so they can calculate the correct amount of tax and National Insurance payable.

P11D tax forms have to be filed by July 6 following the end of the tax year. Your employer should give you a copy of your P11D for your records. You will need it if you are registered for Self Assessment or if you want to check any P800 tax calculation form from HMRC.

Ask away!

If you still have questions regarding your P60, we’re here to help

Tax Code

laptop

What is a Tax Code?

Tax Code
Your tax code tells your employer or pension provider how much tax to take from your income. HMRC determines your tax code depending on your wage and circumstances.

Employers and pension providers deduct income tax from your earnings and pay it to HMRC on your behalf. In order to make sure you pay the correct amount of tax, HMRC works out your tax code and sends it to your employer or pension provider.

Your tax code does not contain details of your income, it just tells your income provider how much tax to withhold. HMRC works out your tax code depending on how much you can earn tax-free, and your personal situation.

The numbers on your tax code relate to your tax-free income. The letter(s) relate to your circumstances, e.g. whether you are entitled to the standard tax-free Personal Allowance (L), the Marriage Allowance (M) or the Basic (BR) or Higher Rate (D0).

You can find your tax code on pay slips from your employer, your P45 or your P60. If you have more than one employer you may have more than one tax code.

Tax codes usually change at the beginning of every tax year. This is because the Personal Allowance changes each year. However your tax code can change at any time, for example because you change jobs or start to receive a State benefit.

If there is a change in your circumstances you, your employer or your pension provider should inform HMRC. They will then issue you with a new tax code.

Ask Numberworx

We’ll happily answer your questions on tax liability or any other tax or accountancy related issues. Just ask!

VAT registration

laptop

What is the VAT registration?

VAT or Value Added Tax is a tax that is added to some goods and services. Businesses whose turnover is above the VAT threshold have to register for VAT. After registration, you add VAT to all applicable sales, which HMRC collects through VAT returns.

Businesses whose turnover exceeds the VAT threshold have to register for VAT with HMRC. Once registered you have to charge VAT to your customers, which you then pass on to HMRC through quarterly VAT returns. Once you are VAT registered you can reclaim the VAT you’ve paid on purchases.

Some businesses choose to register for VAT even if their turnover hasn’t reached the VAT threshold. This is so they can reclaim VAT they’ve paid on goods and services. However it’s worth considering your customers before you do this; if you sell mostly to the public or non-VAT registered businesses you could lose business because they wont be in a position to reclaim VAT, so your prices will just go up. But if your customers are larger, VAT-registered businesses, it could be worthwhile.

Registering for VAT

Your business is legally obliged to become VAT registered once you reach the VAT threshold. If you are already signed up with Numberworx, we will advise you if you are approaching the threshold, help you choose the VAT scheme that will best suit your business and guide you through the process of registration.

Ask away!

We recommend you take professional advice before deciding to register your business for VAT. We are happy to answer any questions you may have.

Capital Gains Tax

laptop

What is Capital Gains Tax?

Capital Gains Tax
Capital Gains Tax (CGT) is a tax on the profit you make when you sell something that has increased in value. Capital Gains Tax is due on the profit only, not the total amount you receive.

If you’re self-employed or in a business partnership you have to pay Capital Gains Tax on any profit you make through the sale of a business asset such as land and buildings, machinery, fixtures, fittings and registered trademarks.

Usually, this is simply the difference between what you paid for the asset and what you sold it for. However there are times when you use the market value instead such as if you gave the asset away (unless it was to a spouse, civil partner or charity), sold it for less than it was worth or inherited it.

Limited companies don’t pay Capital Gains Tax. They pay Corporation Tax on any profit they make from selling or disposing of a business asset. Also, Capital Gains Tax is not normally due on gifts to your spouse, civil partner or charity.

You may be able to reduce the Capital Gains Tax you owe by deducting any costs you incur such as advertising or valuation fees, Stamp Duty or VAT. You may also reduce CGT if you are eligible for tax relief.

How to calculate Capital Gains Tax

CGT is calculated through your Self Assessment Tax Return. If you’re signed up with Numberworx your bookkeeper will calculate your tax return and let you know if you have Capital Gains Tax to pay, and why

Your questions answered

If you are have any questions about Capital Gains Tax, we’re here to help. Don’t hesitate to get in touch using the form below.

Companies House

laptop

What is Companies House?

Companies House
Companies House is a government registrar of UK limited companies. Companies House stores statutory company information and makes it available to the public in the official government register.

Limited companies have to be registered with Companies House (this is known as ‘incorporation’). Once you have registered, Companies House will send you a ‘certificate of incorporation’ . This is your confirmation that your company legally exists. It also contains your company number and the date of formation.

Once they are registered, limited companies have to file certain documents with Companies House. These include annual accounts, confirmation statements (which replaced annual returns) and any changes of address for directors or the organisation itself.

If you are a Numberworx customer your bookkeeper will guide you through the process of registering with Companies House. It’s all part of the free, unlimited bookkeeping support advice that comes with the Numberworx service.

Your questions answered

If you have any questions about registering with Companies House, we would be happy to help.

PAYE

laptop

What is PAYE?

PAYE
PAYE (Pay As You Earn) is the system used by HMRC to collect tax through income. Employers deduct income tax and national insurance from employees’ wages and pay them direct to HMRC through PAYE.

Most businesses with paid staff need to register for PAYE with HMRC. This makes it simple to deduct tax and national insurance before any salary or wage is paid to an employee. Taxes are then paid directly to HMRC.

This is usually done every month, although small businesses can sometimes pay quarterly.

If you are a Numberworx customer your bookkeeper can set up and run your payroll and register you for PAYE. We will let you know how much you need to pay HMRC each month, and the deadline for payment (usually the 22nd).

Questions on PAYE?

If you have any questions regarding payroll or PAYE please don’t hesitate to get in touch. We will always do our best to help!

PSC

laptop

What is PSC?

PCS
A Person with Significant Control (PSC) is someone who has significant influence or control over a business. Since 2016 private UK companies and LLPs (Limited Liability Partnerships) have had to file a PSC register annually with HMRC.

The PCS register is intended to create transparency around the ownership and control of UK businesses. Businesses can have more than one Person with Significant Control on their PCS register. The register is compiled and submitted annually to HMRC within the Confirmation Statement (previously the Annual Return).

Who should appear on a PSC register?

A PCS register should include anyone who meets one or more of the following criteria:

  • Owns over 25% of the shares in the company
  • Owns over 25% of the voting rights in the company
  • Has the right to appoint or remove more than 50% of the board of directors in the company
  • Has the right to exert, or does exert, significant control or influence over the company
  • Has significant control or influence over a Trust or Firm that meets one or more of the above criteria.

Any questions?

We are happy to answer your questions regarding who should be included on a PCS register, and how to submit it to HMRC.

Net Profit

laptop

What is Net Profit?

Net Profit
Net Profit, also known as the bottom line, net income or net earnings, is the actual profit made by a business over a given time. Net Profit is worked out by subtracting total expenses from total revenue.

A business’s Net Profit is the money left over after all overheads, operating costs and interest have been paid.

Overheads are the ongoing administrative costs of running a business. These include items such as rent, utility bills and insurance. Operating expenses are directly associated with production, such as raw materials, and a business could be paying interest on a loan or debt. All these factors will have an effect on Net Profit.

You pay tax on the Net Profit of a business. This may take the form of corporation tax or personal (income) tax depending on the type business it is.

Got a question?

Unsure how to work out your Net Profit, or what constitutes an ‘overhead’? Ask Numberworx, we’ll do our best to help.

Limited Liability Partnership

laptop

What is a Limited Liability Partnership?

Limited Liability Partnership
A Limited Liability Partnership (LLP) is a way of structuring a business that is similar to a normal partnership, except the partners have ‘limited liability’ for any loss or debts incurred by the business.

Professional private companies that would otherwise operate as traditional partnerships (such as accountants, architects or vets) often choose to become LLPs.

Businesses usually decide to incorporate as a Limited Liability Partnership because of the financial protection it offers to partners’ personal assets. If the business is sued or makes a loss, individual partners have only limited liability for any debts that the business can’t pay.

There must be at least two partners in a Limited Liability Partnership, and the LLP must be registered with Companies House. LLPs and individual partners submit annual tax returns, and partners must pay tax on their share of the profits (as in a normal partnership). The LLPs itself does not pay tax on its profits.

Like any UK Limited Company registered with Companies House, Limited Liability Partnerships have to submit annual accounts and Confirmation Statements. This information is then available for the public to view online.

Any questions on LLPs?

If you have a question regarding LLPs or registering as a LLP with Companies House, don’t hesitate to ask.

Invoice

laptop

What is an Invoice?

Invoice
An invoice is a document sent out by a business or supplier asking for payment for goods or services. Invoices detail what has been provided, how much is due and the date by which payment should be received.

Most businesses send out invoices to customers for the goods or services they provide. Invoices should include details such as the trading address, contact details, a unique invoice number, a description of the goods or services provided, the total price of the invoice and the date by which it should be paid.

Invoices should also tell the customer how payment can be made, including bank transfer information if applicable.

Businesses that are VAT-registered also need to add VAT to their invoices. If both the buyer and seller are VAT-registered the seller must use a VAT invoice, which includes more detail than non-VAT invoices.

If you are a Numberworx customer you should already be using our software to invoice your customers. Don’t forget to add your company logo to our invoice template, as well as a ‘Pay Now’ button so your invoices can be paid instantly online.

Want to know more?

Feel free to ask us any questions you have about invoices and invoicing

Proforma Invoice

laptop

What is a Proforma Invoice?

Proforma Invoice
A Proforma Invoice declares a seller’s commitment to providing goods or services at a certain price. Proforma Invoices are similar to estimates; they are not a request for payment and are not binding on either side.

Proforma Invoices outline specific goods or services and their prices to customers. They are not invoices; they are supplied for information only, so customers know what they can expect to pay for the items described.

Proforma invoices are often treated as estimates. They are also used to declare the value of goods passing through customs if no commercial invoice is available.

Proforma Invoices don’t need to be included in your accounts, and customers can’t use them to reclaim VAT. If you are VAT-registered, your Proforma Invoices should state ‘This is not a VAT invoice’.

If a Proforma Invoice is accepted and you go on to supply the goods or services, you must then issue a proper invoice for tax purposes.

Still have a question?

If you still have questions regarding Proforma Invoices and when to use them, don’t hesitate to ask.

VAT Return

laptop

padding: 20px 0 0 0; } h1{font-weight:normal;color:#23527c;} h1 em {font-weight:bold;}

What is aVAT Return?

VAT Return
If you are VAT-registered you need to file a VAT return every three months with HMRC. Your VAT return records how much VAT you owe or you can reclaim. If you are not VAT-registered, you don’t have to file VAT returns.

Your VAT return is worked out by subtracting the amount of VAT your business has paid on goods and services from the amount of VAT you have charged. If your VAT return shows you can reclaim more than you owe, you have nothing to pay and HMRC will give you the difference.

VAT returns are usually filed online every three months. You can find out when your VAT returns are due, as well as your payment deadlines, by checking your VAT account on the HMRC website.

If you registered for VAT online you will have an online account with HMRC. Even if you didn’t register online, if you have a VAT number you can sign up for an account on the HMRC website.

If you are a Numberworx customer, your dedicated bookkeeper will complete your VAT returns and discuss the figures with you before filing them with HMRC.

Any questions?

Even if you are not currently signed up to Numberworx we will do our best to answer your VAT related questions.

Sole Trader

laptop

What is a Sole Trader?

Sole Trader
A sole trader is a business that is set up, owned and run by one person. As a sole trader you will be self-employed and entitled to keep all after tax profits but you are also liable for any debts the business incurs.

A sole trader is a self-employed person who is also the sole owner of the business they run. As a sole trader, you can keep all profits made by your business once you’ve paid any tax owed to HMRC.

However as a sole trader you have ‘unlimited liability’ for any debts your business incurs. So if your business makes a loss, you are personally responsible for the debt.

Sole traders have to file a Self Assessment Tax Return every year with HMRC, which is far less paperwork than a limited company has to complete. Less paperwork is one reason why small business owners might initially prefer to register as a sole trader rather than as a limited company.

All sole traders have to be registered with HMRC. You will also need to register for VAT Threshold if your turnover is exceeds £83,000 per year. As a Numberworx customer, we can guide you through the process of registration. Our cloud-based software will keep your accounts up to date, and we’ll even complete and file your Self Assessment Tax Return.

Registering as a sole trader

You can register as a sole trader on the HMRC website. However if you have any questions or would like advice on whether registering as a sole trader is the best option for you, one of our bookkeeping will be happy to help.

Any questions?

Numberworx customers receive free, unlimited advice on all aspects of their bookkeeping and accounting. However, even if you are not using our service, we’ll do our best to answer any questions you have.

Flat Rate VAT

laptop

What is Flat Rate VAT?

Businesses on the Flat Rate VAT Scheme pay a fixed rate of VAT to HMRC. This is different to other schemes that calculate your VAT return based on the VAT you’ve charged your customers and the VAT you’ve paid out yourself.

Usually, the amount of VAT you pay or claim back from HMRC is calculated using the amount of VAT you have paid on your own purchases and the total VAT you have charged your customers.

With Flat Rate VAT you simply pay a percentage of your flat rate turnover (your income including VAT). The flat rate you use depends what type of business you have, currently ranging from 4% for certain retail items to 14.5% on computer and IT consultancy services.

Under the Flat Rate Scheme you keep any difference between the VAT you charge your customers and the flat rate you pay HMRC. Unfortunately you can’t reclaim the VAT you’ve paid out, except on capital assets over £2,000.

Registering for Flat Rate VAT

To be eligible for Flat Rate VAT your turnover must be less than £150,000 (excluding VAT). Other schemes are available but each one has different terms and different thresholds, so you should seek professional advice before registering. If you are a Numberworx customer, your dedicated bookkeeper will be familiar with your business and circumstances, so he or she will be in a good position to help. Remember our service includes free, unlimited advice by phone, email or online chat so you can ask any questions, any time.

Ask away!

Even if you aren’t using Numberworx, we will do our best to answer your questions on the different VAT schemes available.

VAT

laptop

What is VAT?

VAT
Value Added Tax (VAT) is a tax on certain goods and services. Only businesses that are VAT registered can charge VAT, but you are legally obliged to register once your turnover exceeds the VAT threshold, currently £83,000.

VAT is charged at three different rates: Standard rate VAT, Reduced rate VAT and Zero-rate VAT.

Most items carry the Standard rate of VAT, which is 20%. Goods and services that are classed as Reduced rate VAT include children’s car seats and domestic fuel or power. The Reduced rate of VAT is currently 5%.?

Zero-rated does not mean the service is not VAT taxable. It simply means the rate of VAT you charge is 0%. You still need to record zero-rated goods in your VAT accounts and on your VAT return. Zero-rated VAT goods include books, newspapers, most foods, children’s clothes and children’ shoes.

There are some goods and services that are exempt from VAT. These include postage stamps and property.

As a Numberworx customer you can access free unlimited advice and help on all aspects of VAT and VAT registration. Our bookkeepers are available without appointment via online chat, email or by phone.

Still unsure about VAT?

If you have any questions about VAT, the different rates of VAT or registering for VAT, we will be happy to help