- Personal Finance»
- Tax & Taxes
An overview of tax
As mentioned in my other hubs, it’s more than possible that people are branching out into new fields of employment due to the ever contininuing econmonc uncertaintiany. In light of this, people are looking are more revenue streams. This may be in the form of setting up their business after leaving their job either voluntary or being made redundant. However an even more increasing trend is for people to supplement their wage by also working on a self employed basis. This could involve jobs such as tutoring, car washing and even making money online, with the most popular method just now being the use of YouTube.
However, whilst this is a legal thing to do since you’re allowed to make as much money as you wish, the money that has been made must be declared. In the past year, there’s been a few high profile cases amongst celebrities regarding tax avoidance, which is different from tax evasion. In the former, it involves (usually) the business setting up its headquarters in an area where the level of tax that has to be paid is lower than in the UK. An example of this would be Google, Amazon and Starbucks having headquarters in Ireland and Luxembourg respectively. Due to this, even though the profit is made in the UK, the tax they pay is substantially less than what it should be.
In contrast, tax evasion is the situation where you make X amount of money, and don’t declare it to the HMRC and thus you are automatically breaking the law for doing so. Currently, the rule of the HMRC is that if you earn a penny and don’t pay the tax on it, you’re breaking the law, which can (in the more extreme cases) lead to prison time.
The pitfalls of the self assessment
Whilst you can do a self assessment tax return online to see how much you owe the tax man above your PAYE payments that your employer automatically pays for you, this is not a perfect system. A clear supporting argument against this form of tax deduction is that fact that there have been numerous mistakes by the HMRC in the past, and this will undoubetely continue. The problem with this could go in one of two ways. The first way would involve you not actually paying enough due to an error on their end. This could come as a nasty shock and even though they’re in the wrong for miscalculating what you owe, they still expect a speedy payment to settle the records. This may not be the easiest since things can change financially very quickly when you’re self-employed. The end result of this is that you might not be able to pay the bill in full in the time frame they want you to.
The other outcome is that you’ve actually paid far too much, which can occur for several reasons. One of the biggest ones again is a simple miscalculation on their part. However, whist they normally expect an underpayment to be settled in a short time they’re not as forthcoming in giving you your money back.
Why you should get an accountant
Due to the aforementioned reasons, its clear that by having an accountant it will help prevent these situations from occurring. Moreover, whilst it may sound odd, having an accountant may actually save you money. This is due to the fact that any accountant you choose will be able to sit down with you and work out how much you’ve made, but how much you actually owe. This will include hidden expenses that the HMRC may not necessarily pick up on. This is usually business expenses such as buying new equipment, going for business lunches as well as the day to do operating costs of the venture. For example you’ve decided that you want to make money line via YouTube, and in your first year you make £20,000. However, to make these videos you needed to buy a video camera, a new computer as well as expensive software. Due to this, you haven’t actually gained a proper £20,000 since you’ve had to outlay a significant amount of money to get that sum. In this case, your accountant will work extensively to make sure that you only pay your fair share of the tax and nothing more.
There are many firms that can help you with this, such as Leeds accountants. An example of such a firm would be Sochall Smith. Not only are they able to assist you in planning your taxes, but they can also assist you in terms of cash flow planning and strategic business advice and working with you fully in order to ensure that you can expand your business to the extremes that you want it expanded to. This could involve setting up a new base in a different city, to buying another business and incorporating it into your own.