You’re probably starting to get tired of hearing ‘Why accountants are such amazing assets for your business‘. I know it seems like we go on about this a lot, but that’s because they’re an extremely important part of your business.
You may have heard or read about some self-accounting nightmares before, and about how a tax return can take a strong business and force it to collapse overnight. There are no business owners in the UK, if not the world, who would want something like this to happen to their business. The scary part isn’t that it has happened to someone else’s business, it’s that it could happen to your business.
Why You Have To Get It Right
Here’s a good example of some nightmare accounting, luckily with a (kind of) happy ending.
This couple set themselves up as Self-Employed; they both went into hairdressing and they both operated out of the same salon with the same name (Crewe Cuts). All of this is sounding fishy already, but it gets worse. To make matters worse, they were also filing in a Partnership Tax Return each year, despite the fact that they were adamant they were independent traders.
The problem with this is that individually both entities weren’t earning over the threshold, cutting their tax significantly. However, as a partnership, they would’ve made over the threshold and HMRC were looking for them to pay £136,691 in VAT and an extra £15,829 in late payment fees; a grand total of £152,520!
Luckily, they were able to argue their case as independent traders as they had separate tills for separate incomes, their expenses were paid based on the individual entity, and the management of the staff was also done separately. Altogether, it was extremely lucky that they were able to get away with this.
The easier way to avoid this problem would have been to use an online accountant.
Their first and biggest problem was the fact that they were filling out a Partnership Tax Return. I’m not sure why they thought this was the best idea, but if HMRC receives a Partnership Tax Return then it would be safe to assume they’re working as a Partnership. An online accountant would have spotted this problem immediately and informed the couple of what implications filling out a Partnership Tax Return could have on their independent businesses.
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