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What
else can chartered accountants do for you?
Advice from a chartered accountant can be
invaluable. Whether you are faced with business or personal financial
issues, no one is better qualified to help you than a chartered
accountant.
-
Speak to a chartered accountant BEFORE
you start your business – they can help you make the right
decisions right from the start.
-
How are you going to set up your business –
sole trader, partnership, limited company?
-
You will need to consider many issues such as
tax implications, personal liability, capital, etc. A chartered
accountant will know the pros and cons of each of these and will
be able to advise you on what will work best for you.
[top]
-
There are many different records that have to
be kept by a business – VAT, PAYE, accounting records of sales
and purchases – to name but a few. If your records are
inadequate in any of these areas, you could fall foul of the law.
-
All businesses have to submit accounts to the
tax authorities. All limited companies and limited liability
partnerships also have to file annual accounts with the Registrar
of Companies which follow specific guidelines.
-
Companies
are required by law to undertake an annual audit, carried out by a
registered auditor, unless entitled to claim audit exemption as a
small company. For accounting periods beginning on or after 06
April 2008 a small company must meet at least two of the following
three conditions:
(a) annual turnover
not more than £6.5 million; (b) balance sheet total not more than
£3.26 million; (c) average number of employees not more than 50.
Even when it is not a legal
requirement, most businesses choose to have this independent
review because of the positive benefits it can provide.
-
A chartered accountant will know which records
you are required to keep, help you to keep them properly and
ensure that they are filed with the relevant authorities at the
right time. [top]
-
It is important for your business to have a
properly designed management information system which will enable
you to identify and keep track of profits and losses. You will
need to prepare this information more regularly than once a year
for the annual accounts: commonly quarterly, but normally monthly
and some data may be needed weekly.
-
There is a wide variety of cost-effective
computer and accounting programs which can produce most of the
accounting and management information needed to run a business.
-
Many chartered accountants are able to advise
on the suitability of a system for your particular business and to
ensure that proper audit controls are provided.
[top]
-
A chartered accountant has the professional
experience to examine your business ideas and evaluate profit
potential. He/she can also help you work on break-even analysis,
business ratios, budgets, etc, which can be used to set realistic
financial targets. You will then be able to plan ahead and compare
forecast figures with actual results.
-
The way your business is financed has an
important effect on profitability, especially when interest rates
are high. Should new capital equipment be leased or purchased?
Should money be raised by share capital, loans or overdraft? What
are the tax implications? Can any spare cash be invested
temporarily? All these considerations affect working capital
requirements, the cost of financing the business and, of course,
profits. Obviously not decisions you should make without
professional help. [top]
-
An overdraft is usually the best way to
finance a temporary or fluctuating cash shortage. Where a
longer-term commitment is involved, a bank loan is often the
easiest and most suitable form of finance.
-
The Government and the EC may provide
financial assistance in some circumstances. This may take the form
of cash grants, tax concessions, help with training or removal
costs, subsidised rents and so on. Assistance schemes vary from
year to year, from industry to industry, and from region to
region.
-
There are many other possible sources of
finance available, ranging from debenture loans to venture capital
provided under, for example, the Enterprise Investment Scheme or
Venture Capital Trusts. Alternatively, it may be possible to
arrange finance from a merchant bank, a research foundation or
some other financial institution.
-
When seeking a bank overdraft or loan,
applying for certain types of government aid, or when you want to
attract new investors or partners, you will need to present a
convincing picture of your business’s financial condition and
future prospects. A chartered accountant knows what information is
required and how it should be presented to have the best chance of
success. [top]
-
Paradoxically, rapid increases in turnover can
sometimes weaken or even destroy a business because its systems
break down or because it cannot finance the increased levels of
stock, work in progress and debtors that are required. Adequate
working capital and good controls over stock, invoicing, credit to
customers and cash collection are among the most important aspects
of good financial management in a growing business.
-
Expansion of business activity increases the
volume of transactions that have to be recorded. Tasks such as
payroll preparation, bookkeeping and accounts preparation may be
better handled outside the business by an outsourced provider such
as a chartered accountancy practice.
-
Eventually, you may wish to employ a chartered
accountant full time, although there will still be an occasional
need for specialist help from an independent firm. If an audit is
required, it cannot be carried out by a chartered accountant in
your own employ. [top]
Buying,
selling or merging
·
Buying
The difficulty in purchasing a
business is knowing how much to pay since there is rarely a market
comparison available. Even when a public company is for sale, the
quoted share price may not reflect the real worth of the business.
Thus, it is advisable to get expert advice on valuation and
negotiation from a chartered accountant.
·
Selling
You may wish to sell part or the whole of your own business. You will
have to put a value on the business and, of course, find a suitable
buyer. Here again, a chartered accountant can help by assessing the
value of goodwill and assets and, perhaps, by introducing potential
purchasers.
·
Merging
Merging with another business
can involve complicated financial negotiation. There may be a transfer
of shares or a cash adjustment between the parties and there will
probably be a lengthy legal agreement which will need examination from
a financial viewpoint. The tax and accounting calculations can
sometimes be extremely complex and usually require expert knowledge.
·
Management Buyout
The raising of finance for a
‘management buyout’ may involve complicated loan arrangements
between the company and the new shareholders. The tax implications
also need careful appraisal. [top]
-
The dates chosen for starting or ending a
business and for its accounting year-end can make an important
difference to the tax position and cash flow. Similarly, the
timing of important transactions or purchases of capital equipment
can have a significant effect. It pays to consult a chartered
accountant before committing yourself to a decision on timing,
since you may be able to save tax or delay the payment of tax.
-
Most expenses of running a business are tax
deductible but there are exceptions. A chartered accountant can
help to ensure that all legally available tax allowances have been
claimed and also to achieve maximum benefit from the timing of
capital allowance claims.
-
The tax implications should always be
considered when investing in new equipment, buying a new car or
undertaking any other major expenditure. Depending on
circumstances, the best approach might be outright purchase, loan
finance, hire purchase or leasing contract.
-
Dividing a company’s operations into
subsidiary companies or branches may provide tax advantages, as
may the formation of a company by a sole trader whose business is
expanding rapidly.
-
Trading or setting up overseas brings its own
problems which can sometimes be extremely complex. To assess the
tax advantages and disadvantages of overseas operations, you need
to get expert advice. [top]
-
Filling in tax forms can be complicated.
Whatever the tax assessment involved - income tax, corporation
tax, VAT, etc, a chartered accountant can help to collate the
necessary information and prepare the return on your behalf.
-
Where there is a dispute over a tax liability,
a chartered accountant can handle the negotiations with the Inland
Revenue or Customs & Excise on your behalf, even to the extent
of appealing to the Commissioners if necessary.
-
Some businesses have trouble sorting out
transactions which are VAT-able and those which are exempt or
zero-rated. A chartered accountant can help you to understand the
rules governing VAT and also advise on the type of invoicing and
bookkeeping required for Customs & Excise purposes.
-
A tax liability may depend on the taxable
value of a benefit received or an asset transferred. In such
cases, the professional opinion of a chartered accountant can help
you to agree a value with the tax authorities.
-
If too much tax has been paid in the past, it
may be reclaimed in certain circumstances. Typical examples of
overpayments include a non-taxpayer’s investment income being
taxed at source, incorrect PAYE coding or the omission of
allowable expenses from a tax return.
-
Individuals must now make their own assessment
regarding personal taxation. A chartered accountant can help you
to understand income tax rules and make sure you are fully aware
of the implementation timetable. [top]
·
There are many ways to reduce
income tax liability, apart from the obvious one of claiming all
allowable expenses. For example, you may consider choosing different
forms of borrowing or investment, taking advantage of the tax relief
available on personal pension plans, changing the timing of visits
abroad or even moving abroad to achieve non-resident status.
·
Most transfers of assets are
now free from inheritance tax provided the donor survives for seven
years after the transfer. However, this tax is extremely complex and
needs careful planning. Chartered accountants are well qualified to
provide expert professional advice on the subject.
·
If a profit results from
selling an asset which is not part of the trading stock of a business,
there may be a capital gains tax (CGT) liability. If a business is run
from home, the exemption from CGT which private houses normally have
could be prejudiced if you seek income tax relief on part of the
running cost of the house. It is important to get advice. [top]
Personal
and family finances
·
House purchase
If you are buying a house, it
usually pays to take out a mortgage even if cash is available. A
chartered accountant can explain the different types of mortgage and
insurance schemes, their relative costs and tax advantages.
·
Insurance and retirement
planning
Accident insurance, life
assurance and a pension are essential parts of the financial
protection every family should have. A chartered accountant can
provide advice on a suitable financial package which meets the needs
of your pocket, your family and your personal tax position.
·
Investments
The way money is invested can
have a major impact on your tax liability and general financial
position. When considering major changes in investments, it is a good
idea to consult a chartered accountant as well as a stockbroker or
other investment adviser. Under the provisions of the Financial
Services and Markets Act, firms of chartered accountants licensed by
the Institute (or by the Financial Services Authority) can undertake
various investment-related activities on behalf of clients; they can
advise on investments, arrange deals in investments and manage
investments.
·
Wills
It is often an advantage to
have expert tax and accountancy guidance when drawing up a will,
especially if large sums are involved. Carrying out the terms of a
will may also need professional help and it is for this reason that
chartered accountants are often appointed as executors.
·
Trusteeships
Whether a trusteeship involves
a family settlement, a charity, a pension fund or some other financial
trust, the professional knowledge and integrity of chartered
accountants make them obvious choices as trustees. [top]
Further
Information
The ICAEW publishes a series of leaflets
explaining the services of chartered accountants. Copies are available
free of charge, and you can email comms@icaew.co.uk
with your request. Titles include:
- Why
You Need a Chartered Accountant (you can also download this document in pdf
format -
click
here to open in a new window: 11 pages, 55Kb file)
- Choosing a Chartered Accountant
- Mind Your Own Business
- Grow Your Own Business
- The Benefits of an Audit
- The Visit - Are You Ready for the Taxman?
- A Question of Money
- Self-Assessment Explained
- Coping with a Tax Return [top]
Compiled from material copyright © The Institute of
Chartered Accountants in England & Wales and reproduced here with permission
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