Can You Afford To Die ?

Now that the Conservative Party are in power they have conveniently forgot their manifesto promise to increase the nil rate band exemption for Inheritance Tax (IHT) to £1,000,000.  Instead they have fallen in line with the Labour freeze on the current amount of £325,000 until 2015.  After 2015 this exemption will only be increased in line with the Consumer Price Index, which unlike the Retail Price Index, does not react to increases in property prices.

Inflation has already started to widen the gap between the nil rate band and the value of estates at death.  As the currently depressed property market recovers, this gap will get ever wider, bringing more and more people into the IHT net to be subject to a tax of 40% on all the assets that they own  in excess of their nil rate bands.

Rather than being a tax on the super rich, who have the means of avoiding this tax, IHT is a tax that impacts mainly on the moderately wealthy members of society such as the current Baby Boomers who typically are industrious, frugal, and have accumulated on paper a reasonable estate.  A decent house, a nice car, and some investments, and you could be facing a considerable tax liability on your death.  Leaving a legacy to you loved ones could be a daunting prospect for them – with the present state of the banks how are they going to find the money to pay the IHT bill so that they can get probate and deal with your estate?

IHT is a stealth tax at its worst.  It will affect more and more people if they do not take action NOW.  At DEB we are rising to the challenge that this liability poses to many of our clients. We are looking to increase awareness so that remedial action can be taken to reduce their exposure to a tax that is imposed upon the wealth that has been  created out of income that has been heavily taxed already.

If you feel that that IHT could be a concern and you need some help, please do not hesitate to contact us at DEB Chartered Accountants.

Is operating as an unincorporated business really a ‘cheap’ option?

When many entrepreneurs start out in business the default position is to operate as a sole trader or a partnership. This is more straightforward than operating as a limited company and is considered a cheaper alternative as it avoids the costs of incorporation and the higher accountancy costs associated with running a limited company. However, it is becoming increasingly evident that the ‘cheaper option’ of running an unincorporated business can be something of a false economy and could be an option that the unwary business owner simply cannot afford to take.

Over recent years, HM Revenue & Customs have been shifting the burden of much of the work that they historically did onto the shoulders of business owners and their accountants. In particular, the extra compliance work associated with the Construction Industry Scheme (CIS), being VAT registered and the newly introduced Real Time Information impacts upon both incorporated and unincorporated businesses alike, and from a workload perspective does not therefore provide a compelling argument in favour of incorporation. However, when considering the associated punitive penalty regimes there is a strong argument in favour of operating as a limited company that could be too costly for many business owners to ignore.

The harsh penalties associated with non-compliance can soon mount up, even for small businesses, and leave business owners faced with fines amounting to tens of thousands of pounds. Whilst this is always an undesirable position, those business owners who operate under the protection of a limited company at least have the option of liquidating the company and walking away without facing a personal liability. The outlook for unincorporated businesses however could be considerably bleaker, with the business owner facing the prospect of re-mortgaging or possibly even bankruptcy.

Incorporated business are unquestionably more difficult and costly to run but business owners need to seriously consider whether they can run the risk of operating without the safety net of limited liability. The days of operating an unincorporated business as a ‘cheap’ option look to be numbered.If you are uncertain about whether you would benefit from being incorporated then please do not hesitate to contact us at DEB Chartered Accountants.

The danger of underestimating the book-keeping requirements for Pay Pal

Paypal is an extremely useful facility that is becoming far more widely used by many businesses – see our earlier blog about Chip and Pin from Paypal.  For some small users, the existence of the Paypal account can be overlooked when they do their bookkeeping. This is particularly the case when the number of transactions is small.  At some point of time the payments and/or receipts get transferred to the main bank account.  It is at that point that some business then acknowledges them as sales and expenses etc.

Paypal is a bank account and, due to its greater acceptance amongst businesses, it is gaining far more significance.  In order to get the tax points on your transactions correct for VAT purposes, and also to ensure that you book-keeping is complete, it is essential that you record all the transactions on your Paypal account as a separate bank account.  The passing of sums between your Paypal Account and your main bank account should be treated as transfers that are outside the scope of VAT.

For many businesses this may seem like an un-necessary complication, particularly as it can be tricky obtaining the right printouts from Paypal to enable you to do the necessary book-keeping.  Failure to do this however, can result in significant errors and short comings in your book-keeping.  This is particularly the case if balances are left on your Paypal account and you only transfer funds to your main account periodically.

The emergence of Paypal, and its increasing use by many businesses, has the potential of creating a greater opportunity for HMRC to discredit the record keeping of unwary businesses where the need to properly record Paypal transactions is ignored.

If you use Paypal and are not separately recording the transactions you need to change as soon as possible.  If you need any advice on this subject, please do not hesitate to contact DEB Chartered Accountants on 01226 245824.

Chip and Pin from Paypal

For years, major high street stores have been able to accept credit card payments. Unfortunately, some smaller businesses have not been able to justify the costs (eg terminal rental fees, telephone landline rental) associated with such payment methods, resulting in a loss of sales. Additionally, some smaller businesses are finding it difficult to be ‘accepted’ by the Merchant companies due to poor credit ratings, or a transaction volume that is too low . Accepting card payments appears to have been an exclusive club – until now.

Paypal is launching Paypal Here, which will be available to selected UK businesses over the coming months before becoming generally available in the summer. Paypal Here will allow any business to accept Paypal, credit and debit card payments simply and securely on the go.

The business will download the PayPal Here app, and sign up for the device right there. There’s no contract or ongoing fees, just the initial purchase price and a “small” fee for each transaction. The device is then paired with your smartphone using bluetooth technology to accept secure payments anytime, anywhere you trade, whether at a market stall, shop, restaurants, taxi or even in the customer’s home. As well as taking card and PayPal payments, the system allows you to send invoices and receipts wherever you do business.

The system has already been tested by a business in Londons Borough Market and they reported that it was great for business – cash is king in the market, and often customers would run out of money and sales would be lost. Giving the option of payment by card resulted in additional sales that would otherwise have been lost.

In theory this seems a great idea. Paypal Here may be able to break the stranglehold that the large merchant service companies have on this market. Many customers will already have experience with Paypal, being the preferred payment choice with ebay and other online enterprises that have chosen not to go down the merchant services route. The main issues for small businesses will probably be the ‘one-off’ cost of the terminal and the ‘small’ (details yet to be released) transaction fees.  One thing is for sure – the business will need to keep their mobile phone full of charge!!!

Paypal is also pioneering payment via ’check-in’ – a quick tap in a mobile phone app to check in and pay a local business. This opens up so many possibilities for making life quicker and easier: for example, ordering your drink or lunch ready for collection, beating the queue.

Anyone interested in finding out more about PayPal Here can register their interest and get all the facts here.