Q: My company has sales of £95,000. Do I have to get the
accounts audited?
A: No. With sales of £5.6 million or less, you dont have
to get your accounts audited at all, but you can have a voluntary
audit.
Q: Is there any advantage in changing from being self-employed
to forming a limited company?
A: While a few years ago, there was a fairly even balance between
the two ways of doing business, several changes have been introduced
which mean that a limited company is becoming the sensible option
for more entrepreneurs. There used to be far more paperwork and record
keeping with a company, but the introduction of self-assessment for
tax, means that the administrative burden for the self-employed has
become heavier. And recently, the limit on turnover for companies,
which requires an audit has been multiplied. So if your limited company
has sales of less than £1 million you dont need to get
an audit carried out, thus saving money, time and effort. Note this
doesnt apply to plc companies. Suddenly, the extra burden for
directors compared to self-employed has gone.
Perhaps of even more interest to you, because it hits you right in
the pocket, is the fact that tax rates favours a limited company.
A recent report, conducted by The Federation of Small Businesses,
concluded that on profits of £15,000, a self employed person
may face a combined income tax and national insurance bill around
32 times greater than the equivalent level of corporation tax a limited
company would have to pay. On profits of £30,000, meanwhile,
a self-employed person would face an income tax and NI bill of £7,234
some £3,580 more than a limited company would face.
Yet another change in favour of the limited company has been the
Chancellors decision to phase out retirement relief over the
past few years. As a result, the sellers of businesses, which are
not companies, have been adversely affected. Company sales can be
a lot simpler.
Finally, the limited liability for a company gives some protection
(although not complete) to a director compared to the horrors of bankruptcy
for the self-employed.
Copies of The Federation of Small Business' report can be downloaded
from www.fsb.org.uk. Back to top
Q: We are a very small company with £50,000 turnover. How
do we go about doing our own audit? We already have a tidy filing
system and do our own VAT return.
A: Small businesses are often tempted to 'go it alone' rather than
seek professional help with their accounts usually this is
a cost-saving exercise, but can be a false economy in the long run.
'For example, VAT is a very complicated issue,' says Clive Lewis,
Head of SMEs at the Institute of Chartered Accountants in England
and Wales. 'Many businesses make mistakes when trying to do their
own books, having to turn to accountants to bail them out in the end
anyway.
'In short, a business cannot do its own audit,' he continues. 'An
audit can only be carried out by a registered auditor, accredited
by one of the six UK accountancy bodies. There are around ten thousand
registered auditors in the UK and they are generally needed when shareholders
or the bank want reassurance that all is as it should be.
'A business must have a turnover of at least £5.6 million before
a mandatory audit needs to be carried out,' he says. 'But a company
below that threshold can request an audit if they wish.'
Even without an audit, there are several simple yet significant measures
that businesses can implement to keep their financial affairs in order.
'It's impossible to underestimate the importance of keeping records
of everything,' stresses Lewis. 'This means having a cashbook containing
details of all money going in and out, where it's going and what it
is for.'
He adds: 'If a business reaches £60,000 turnover it must register
with HM Revenue and Customs immediately, as there are fines for failing
to do so. Conversely, if revenues drop below £58,000 then it
can de-register.'
Even with all these measures in place, Lewis still advocates employing
the services of a chartered accountant, say, at the end of the tax
year. 'They can ensure everything is in order and the business is
complying with all relevant legislation.' Back to top