A: This is an individual who is in business on their own account (self-employed) and differs from somebody on PAYE as no tax is deducted at source. A Sole Trader pays tax on their profits after they have deducted appropriate expenses. This calculation for tax forms the main part of their annual accounts. A Sole Trader is commonly known as ‘Schedule D’ even though the Inland Revenue no longer uses this term.

One of the largest areas of contention with the Inland Revenue is an individual’s ability to label themselves as self-employed and thereby receive income gross (no tax deducted) and claim relevant expenses. Christopher Lunn & Co has a team of specialists dealing with the question of an individual’s status and would be happy to discuss this area with you.

A: A group of self-employed individuals (Sole Traders) who have jointly formed and are participating in non-limited company or business.

A: This can be an individual or group of individuals who wish to limit their personal liability by incorporating the company as a separate legal entity to themselves.

A: It is often true that an individual running a limited company is not just performing the duties of a company director but also carrying out some or all of the tasks for which the company gains its revenue. In many situations this persons input is of a creative nature thus separating the way in which they are paid between PAYE as a Director and self-employed for the rest.

A: Income Tax is the tax paid by an individual on their total income in the financial year.

The most common types of income are:

• Trade profits: This is self-employed income minus allowable expenses earned from a trade, profession or vocation.
• Employment income: Income earned from employment including salaries, bonuses, benefits and pensions.
• Property Income: Rent etc, from all types of land and buildings.

Savings Income:

• Interest Income: Interest received either net or gross of tax.
• Dividend Income: Dividends received.

A: This is the tax that is payable on any limited company profits after the deduction of business expenses. This tax is payable before any distribution of dividends but after the deduction of any PAYE or self-employed payments.

A: Value Added Tax, or VAT, is a tax that applies to most business transactions that involve the supply of goods or services.

Once your business turnover reaches a certain level, you will have to register for VAT. This means that whenever you buy or sell anything in the course of your business, you will have to charge VAT on your sales. Even if your turnover is below the registration threshold you could consider registering voluntarily for VAT.

There are two main types of accounting for VAT.

The first or Standard Scheme involves you charging VAT on all sales (in the UK only). Having also paid VAT on most purchases this amount you have paid is then deducted from the amount you earn the difference is what you owe to the Inland Revenue. The problem with this scheme is that there are so many exclusions and caveats attached to what VAT you can and can’t claim it is often better to pay a book-keeper to do this for you. This also allows you do spend your time concentrating on the core business.

The second or alternative is the Flat Rate Scheme. This simplifies the accounting process as you are not required to analyse any of your expenses. This system operates on the basis of a flat rate percentage (already determined by the Inland Revenue) which is payable by you on your gross earnings. This percentage can vary and is the average expected claim for anyone in your line of business.

Even though the Flat Rate Scheme is simpler to administer it is not always cost effective and certainly does not suit everybody. There are also limits to the turnover level for the Flat Rate Scheme. VAT is an incredibly complex issue so please feel free to contact us to discuss further

A: The list below is the current list as it appears on the Revenue & Customs website:

Trade sector (from 1 April 2004) - Flat rate percentage

Category of Business : Appropriate Percentage

Accountancy or book-keeping: 13
Advertising: 10
Agricultural services: 10
Any other activity not listed elsewhere: 10.5
Architect, civil and structural engineer or surveyor: 13.0
Boarding or care of animals: 10.5
Business services that are not listed elsewhere: 10.5
Catering services, including restaurants and takeaways: 11
Computer and IT consultancy or data processing: 13
Computer repair services: 9.5
Dealing in waste or scrap: 9.5
Entertainment or journalism: 11
Estate agency or property management services: 10.5
Farming or agriculture that is not listed elsewhere: 6
Film, radio, television or video production: 11.5
Financial services: 12
Forestry or fishing: 9.5
General building or construction services*: 8.5
*Note: Use ‘General building’ if the value of materials supplied is more than 10% of your turnover.
If the value of the materials is less than this, use the ‘Labour only’ flat rate.
Hairdressing or other beauty treatment services: 11.5
Hiring or renting goods: 8.5
Hotel or accommodation: 9.5
Investigation or security: 10.5
Labour-only building or construction services*:13
*Note: Use ‘Labour-only’ if the value of materials supplied is less than 10% of your turnover.
If the value of the materials is more than this, use the ‘General building’ flat rate.
Laundry or dry-cleaning services: 10.5
Lawyer or legal services: 13
Library, archive, museum or other cultural activity: 8.5
Management consultancy: 12.5
Manufacturing fabricated metal products: 9.5
Manufacturing food: 8
Manufacturing that is not listed elsewhere: 8.5
Manufacturing yarn, textiles or clothing: 8.0
Membership organisation: 7
Mining or quarrying: 9
Packaging: 8
Photography: 10
Post Offices: 4.5
Printing: 7.5
Publishing: 10
Pubs: 6
Real estate activity not listed elsewhere: 12.5
Repairing personal or household goods: 9
Repairing vehicles: 7.5
Retailing food, confectionery, tobacco, newspapers or children’s clothing: 3.5
Retailing pharmaceuticals, medical goods, cosmetics or toiletries: 7
Retailing that is not listed elsewhere: 6.5
Retailing vehicles or fuel: 6
Secretarial services: 11.5
Social work: 10
Sport or recreation: 7.5
Transport or storage, including couriers, freight, removals and taxis: 9
Travel agency: 9.5
Veterinary medicine: 10
Wholesaling agricultural products: 7
Wholesaling food: 6.5
Wholesaling that is not listed elsewhere: 7.5

Click on this link and it will take you through to the Inland Revenue VAT website and the guidance notes and percentages of the Flat Rate System.

A: We always advise that this process takes on average six to eight weeks. We have known it to take just a couple of weeks but sadly one or two have taken over six months. We have a tracking system now in place in the Corporate Department who constantly chase up the process.

A: An Annual Return is a form that is legally required to be filed with Companies House detailing information regarding the Directors and Shareholders of a limited company. A Tax Return accounts for an individual’s total earnings (and tax paid if relevant) for the financial year and is filed with the Inland Revenue.

A: In an ideal world both personal and Corporation Tax Liabilities would be due at the same time sadly this is not the case.

Personal tax is always due 31st January following the end of the relevant tax year.

E.g. For the tax year ending 31st March 2008 that personal tax will be due by 31st January 2009.

If your tax liability is above £1,000.00 you will have to pay instalments please see Why do I have to pay instalments for a more detailed explanation?

Corporation Tax This is due 9 months after the accounting period.

If you set up a limited company, whose incorporation date (birth date) is less than 6 months before the end of the financial year, you are not required to file separate accounts but can add this to the next 12 months. To account for this mini financial period we produce a set of accounts commonly known as an ‘interim’. If you find yourself having an interim set of accounts produced please be aware that the tax due in this period could be payable at a different time than the tax due on the following 12 months even though there are all produced on one set of accounts. As we complete your tax return we will make you aware of amounts and due dates so you should never be caught short.