You probably hadn’t noticed but I tend to write quite a lot about the faceless hordes that we affectionately refer to as Hector. Yep, our friend the taxman. Not my favourite person, although, perhaps grudgingly, you have to accept that they are merely doing their job and the real problem is the hopelessly complicated mare’s nest of tax law they are trying to implement. Which is down to a series of inept politicians (isn’t that a tautology?), not least one particularly dim specimen of the breed.

But now it’s getting personal.

I mentioned last week that I’m being chased for a CT bill that was paid, in full and on time. I just checked my online account again and it’s gone up, since they are adding interest to a debt I don’t actually owe. Nor have they responded to my accountant’s attempt’s to find out what’s happening. And the really worrying part is that aspect enquiries are usually triggered by non-payments and poor returns, so not only do they owe me money but I am waiting or another letter where they will offer to look over my records and make sure all is in order.

And then to add insult to injury, I managed to overpay my PAYE last year. Not by any great amount, and I’m still not sure how we managed it – most likely a side effect of restarting a payroll after a 14 month break, not that I really care that much – but the accountant wrote to them to tell them somewhere around last September.

Nothing happened. Gosh…

But today I get a letter from Hector (to be précis, a D. Wrightson) Form P35D, Overpayment Review. Page one is the exact same calculation my accountant sent them last year. Bottom right hand corner is the box “Apparent Overpayment”.

“Apparent”? Are your accounting systems that pitiful that you don’t actually know? Does my accountant telling you the precise amount not indicate that just perhaps it actually is a real honest-to-God overpayment?

Anyway, I have to fill out page 2 of the form. A list of things I may have got wrong. (Hint: none of them). A tick list of which one is actually incorrect. ( Guess what?) And then the last option, “I confirm the return is correct. My explanation is as follows”. Say what? You owe me money, and I have to explain to you why I overpaid you else you won’t give it me back?

And the last sentence is a lulu. Basically “Once I have received your reply, I will make any necessary adjustments and if necessary arrange for any payments to be offset… “

Hey, it is bloody necessary, it’s my money and I don’t want to offset it against anything, I want it back in my bank account where it belongs.

Let’s be clear about this: HMRC is not a service, even at the pitiful level they manage to achieve, it’s a tax collection agency. The only money that is theirs is the amount they are owed. Everything else in excess needs to be paid back, quickly, since it’s not yours and I would rather I got the interest than you. Oh yes, just to add insult to injury, there is no hint of interest being added. Hell no, they only charge that on money they aren’t owed, not on money they do.

Earlier this week a Parliamentary committee had some critical things to say about HMRC’s performance, or rather lack of it. Nice to know they’re keeping up with reality, isn’t it…

© 2011 All rights reserved. Reproduction in whole or in part without permission is prohibited

Image: Why is this being protected in my fire safe? by someToast

There’s no doubt about it, the wholesale contractor accountancy marketplace is big business and everyone wants a piece of the action.

In recent months, a new wave of online accountants have been hitting the forums and contractor portals hard in the hope of gaining a foothold in what is already a fragmented market. Their message is clear – why pay £130 a month for the ‘old school’ contractor accountants when you can get the same, if not better service for a third of the price?

It’s a pretty compelling argument and their proposition is almost too good to be true.

Lets dig a little deeper.

Was is an online accountant?

An online accountant offers contractors an ‘end-to-end’ accounting service. This usually combines a bespoke web-based accountancy package that is backed up by a team of accountants and personal account managers. The idea here is that the contractor or freelancer is able to create invoices, manage their expenses and calculate a real-time view of their business. This then enables them to work out how much they can pay themselves (in PAYE salary, expenses and dividends) without having to produce in-year accounts or time-consuming reconciliations.

Obviously there is an element of work required by the end-user but certainly no more than you are asked to do when working through a traditional contractor accountant, and in some cases much less. The technology is also impressive. Real-time feeds into HMRC, Companies House and the government Gateway make online accountants the perfect choice for any time-precious contractor.

Of course, the more challenging aspects of accounting are managed by the online accountants who will submit VAT, corporation tax and personal self assessment returns on behalf of their clients. They will also handle the Companies House annual return and accounts as well as advising on complex issues such as IR35, family business tax, ESC 16 and the agency workers directive.

How much does an online accountant cost?

Most online accountants pitch their monthly fees around the £50-£60 mark. This includes all of the above services as well as unlimited telephone support and free company setup.

Why are online accountants so cheap?

One word – volume. Most high street accountants are happy with 100-200 clients and are therefore keen to maximise their return on investment for what is a relatively small client base. By making their business scalable, online accountants on the other hand are able to service more and more contractors without taking an enormous hit to their margins. This is why their fees are way cheaper than some of the more well-known contractor accountants.

Where can I find out more?

We have a selection of online accountants in our top 10 directory although companies such as Crunch and My Accountant Friend are definitely worth a closer look. A quick search in Google will throw up at least another 20 providers at the time of writing so take the time to do your research. My guess is that this is just the start of a new and exciting time for the contractor accountancy marketplace……I shall watch with interest.

© 2010 All rights reserved. Reproduction in whole or in part without permission is prohibited.

Image: Laptop Icon by ichibod

According to a recent survey by online accountants My Accountant Friend, nearly two thirds of IT contractors could be paying too much tax.

The firm surveyed 300 IT professionals in the city of London to assess how they were managing their accounting and tax affairs.

Of those that took part in the survey, 74 per cent were either not paying themselves tax-efficiently based on their employment status or not claiming the expenses they should. 61 per cent of respondents were not sure when key tax payments are due and a further 57 per cent said that they do not fully understand how their end-of-year accounts have been produced or what the figures mean.

Not surprisingly, the subject of IR35 featured prominently with nearly 70% of respondents saying that they are still nervous about the possibility of an IR35 investigation, despite the government’s recent commitment to review it. Graeme Hart, Managing Director of My Accountant Friend, commented on the results of the survey:

“We expected many contractors to be a little apprehensive about their accounting and tax affairs. However, we were quite surprised by both how many people seem to be paying too much tax and the level of concern in some areas.”

According to Hart, My Accountant Friend now provides a number of guarantees around their services. He continued, “we promise to save people tax, increase their take-home pay and reduce the burden. Our online system automates the bookkeeping and provides real-time visibility of personal and corporate tax liability. ”

The firm is currently running a special World Cup promotion. Sign up before the 15th June and they will provide 2 months of accounting services completely free of charge. What’s more if England win, they’ll provide their services for FREE UNTIL 2011. More information can be found on the My Accountant Friend website.

© 2010 All rights reserved. Reproduction in whole or in part without permission is prohibited.

Image: In which I go insane in a sea of paperwork by Strawbleu™

PKF, a firm of online accountants and business advisers, believe that the chancellor should increase funding to HMRC if he really wants to cut the public debt which is currently £167bn.

They say that if the revenue hires extra staff and we introduce a national tax amnesty for tax evasion, an additional £20bn could be raked in over the next 3 years.

They claim that there is a tax gap of £40bn between the revenues estimated collections and what is actually collected.

On Monday, the coalition announced that by freezing non-frontline recruitment in the civil service they could make savings of £190m. PKF has urged the government to make sure that HMRC is not affected by these cuts.

Philip Fisher from PKF said that it would be better to give the Revenue the resources necessary to work effectively and that cutting back on staff would simply be a false economy.

This is a view shared by John Kimmer who has just been appointed as technical officer for the ATT. He said that HMRC is already struggling to cope with the UK’s complex tax system.

Kimmer started working for HMRC in 1960 and having watched systems evolve, he believes the current systems are actually making life harder, rather than better, for the revenue to collect successfully.

Kimmer also stated his believe that the easiest way to raise more tax would be through an increase to the VAT rate as this requires the least amount of work to collect.

© 2010 All rights reserved. Reproduction in whole or in part without permission is prohibited.

Image: Stretching by Davide Tambuchi [Sirio 174]

The deadline for online VAT returns is drawing close. As from April 1st this year, it becomes mandatory to file online.

Businesses that do not comply with the new online regulations will face a fine from HMRC.

The Federation of Private Businesses believes there are many benefits to using the online service. These include 24/7 access and an instant acknowledgement of receipt. An initial online error check is performed; businesses can obtain a seven-day return and extension and use the system to nominate an agent or online accountant.

The only disadvantage, according to many contractor accountants, is that direct payment must be made electronically through the BACS system, CHAPS, Bank Giro and internet or telephone banking.

Another change that comes into effect on April 1st this year concerns the receipt of cheques. If paying VAT by cheque, the payment is classed as made when the cheque clears as opposed to when it was received.

Businesses are strongly advised to urgently review their VAT procedures, including contractors using the Flat Rate VAT Scheme, to ensure they comply with the new regulations.

© 2010 All rights reserved. Reproduction in whole or in part without permission is prohibited.

Image: Day 113 by bandita

Those of us who have an income of £150k+ have the unwelcome prospect of a new 50% tax rate with effect from April 2010.

A multitude of mitigation and tax avoidance options have been suggested by several contractor accountants that range from the sensible to the ridiculous. Below we look at some of the available options and consider what the pitfalls could be.

Speed up the surrender of non-qualifying life policies

Accelerating the surrender of bonds (non-qualifying life policies) can be an effective way for higher rate taxpayers to escape he income tax liability incurred on higher rate taxpayers.

Be warned: The surrender is taxed per “policy year”, not tax year so ensure that any surrenders will be taxed pre April 2010.

Involve your spouse in your business

A taxpayer operating a company can allow their spouse to have 50% of the business shares even if they have little involvement in the business. The new 50% tax band extends the advantage of making such arrangements, as well as encouraging the transfer of income-producing capital to a lower-earning spouse.

Be warned: Make sure any such arrangements are set up correctly, otherwise they will not be successful. Also, the Government wants to block this option so it may just be a short-term solution.

Accelerate the payment of salaries, dividends and bonuses

You will clearly benefit by accelerating the payment of any dividends from your own company to pre 6 April 2010. Some commentators have extended this idea to paying, for example, three years’ salary in return for the employee waiving rights to salary for the same period.

Be warned: The “accelerated salary” will is fraught with potential danger and should only be used for family businesses.

Executive remuneration – use of share options

After the new tax rate comes into force, the difference between income tax (up to 50%) and Capital Gains Tax (up to 18%) will be greater than ever. Converting income into capital is an attractive option, especially for executive remuneration where share options are popular.

Be warned: There is highly complex legislation surrounding employee incentives and you should seek professional advice. Other “conversion” techniques are subject to longstanding and byzantine anti-avoidance legislation. Implement with caution!

Check your bank accounts

Banks pay interest on deposits at regular intervals, sometimes annually. If you’re likely to receive a significant interest payment in, say, May, the only sensible way of accelerating this is likely to be by way of closing the account. Be warned: Banks have penalties for closing accounts that could out-strip the benefits.

Change your accounting periods

A change of accounting date can have the effect of accelerating profits into 2009/10 if you run an unincorporated business.
Be warned: As with most financial dealings, the rules dealing with this are complex and often have unexpected effects. It’s imperative that you seek professional advice before implementing such a change.

What next?

As there are obvious pitfalls attached to all these methods, you should seek professional advice from your financial advisor or online accountant before implementation.

© 2009 All rights reserved. Reproduction in whole or in part without permission is prohibited.

Image: Heroes by Frederic Poirot