How to save tax for self employed ? - The Book-keepers Forum (UK)

Adrian99 · Senior Member

How to save tax for self employed ?

Shamus · Forum Moderator & Expert

Don't even think about trying to advise clients on tax matters unless you have either :

ATT (not AAT)

CTA

ACA

ACCA (incl. option paper P6).

Without firm foundations in all aspects of tax which is a very complex area of accountancy you will come unstuck and without the proper qualifications your PII may not cover you for the advice given

Beyond basic tax form filling and general assistance with tax matters leave tax planning to the experts.

kind regards,

Shaun.

Adrian99 · Senior Member

Thank you Shaun,

Seems to me that everywhere I go, I get ACCA coming over :)
AAT has Personal Tax and Business Tax. Is it incomplete ?

Many thanks,

Adrian

Spamkebab · Expert

Lol Adrian,

You haven't started yet and you're looking at tax avoidance for clients?

I'd recommend the same as Shaun, the AAT modules teach you how to fill in tax returns as part of offering clients final accounts, nothing more. Basically they cover the stuff that anybody running a small business and doing their own bookkeeping should know to be able to submit a tax return. Anything more complex is stuff for a tax advisor or suitably qualified chartered accountant.

The AAT tax modules barely scrape the surface, tax is a minefield and is the main area for things to go wrong, possibly ending with nasty results.

Shamus · Forum Moderator & Expert

Hi Adrian,

AAT tax is fine for a basic knowledge of tax leading to completing the various tax returns and giving basic advice but when you are giving people tax planning advice (as opposed to no, you can't expense that) you really need one (or both) of the dedicated qualifications (ATT / CTA). although ACA or ACCA would suffice.

This is the reason that you will often see ACA's that are also CTA's.

Note that to even be considered as a student to become a CTA you must be fully qualified as either ACA, ACCA, ATT or equivalent.

My message probably came accross a little strong but tax planning advice is really a highly specialist area and when people look at venturing down that path you need someone standing there with a big stop, turn back sign.

To get to get to a position of offering tax planning advice will take years of study and experience. (would you know when to advise a client to incorporate? What are the tax implications of such and what reliefs are available to them).

Tax planning is best left to the likes of Trueman and Robert and Mark and a few others on here (myself not included in that list).

kind regards,

Shaun.

Adrian99 · Senior Member

Thank you Shaun and Neil,

So there is another point to train for ACCA.

Kind regards,

Adrian

Shamus · Forum Moderator & Expert

Hi Neil,

crossed in the post.

great answer there matey.

kind regards,

Shaun.

Spamkebab · Expert

I think the thing that throws students/members with AAT tax is the fact that there is a question in the exam about offering advice/advising clients. This question is really down to answering clients questions about payments on account and other simple matters for which answers are readily available (If you can find them) on HMRCs website.

Because of this exam question there is a chapter in the study texts about offering tax advice, i can understand a student thinking they are qualified to offer advice after reading this.

Crossed in the post you say?

There was me thinking you had just found out i was a flat cap wearing, working class Mancunian not fit to lick your boots lol.

Adrian99 · Senior Member

Thank you Shaun and Neil,

This is really useful, but what I will do if a client ask me:
"How can I reduce my taxes ? "

And here I am speaking about a self employed with 15,000 a year. I cannot direct them to a tax advisor as they will think I am not good enough to do my work.

What is the solution ?

Cheers,

Adrian

Don Tax · Expert

Hi Adrian. You've probably figured out that if there was one catch-all way for the self employed Joe earning £10K, then none would pay the £732 and the tax rules would soon be changed. The tax saving also puts a ceiling on what it would be worth paying an advisor.

I suggest you'd be marketing yourself as acting for a lower rate than an ACCA and inevitably the odd question would come up where it might be worth paying a small fee for specialist advice. You are free to forewarn the client that the matter will involve additional consultancy fees or shell out yourself if you feel you ought to have known the answer.

Regards,
Tim

Shamus · Forum Moderator & Expert

And there's the rub.

thats what clients think that we do.

Basically the general belief out there is that you either you pay a professional or you pay tax but not both.

I make sure that I talk to clients on this misconception and point out that what having a professional representing them does save them is fines (plus interest and surcharges), not necessarily tax.

One needs to ensure that their engagement letter emphasises the point that you are not offering tax planning services.

So, in answer to the question "How can I reduce my taxes" you have a two fold answer.

1) you ensure that everything that they are doing is done correctly so that they pay only the right amount of taxes without interest, penalties and surcharges.

2) You advise them to seek tax planning advice from a suitable practice... Which may cost them anything up to £200 per hour for a consultation / review of their tax situation.

For someone with a £15k turnover the likelihood of things being far enough out with their taxes to warrant proper tax planning is extremely remote but note that it is also a good idea to forge a close working relationship with an accountancy practice that offers tax advice both for preemptive masures such as the thrust of this thread, or more likely to get clients out of a serious mess where you have inherited clients who have previously been given bad tax advice.

On that latter point, if a client was given bad advice in writing then the person giving them that advice can be held to account to put them lback into the situation that they would have been in had the advice not been taken.

That can also include all of the accountants fee's to rectify the situation as well as fines etc.

Also consider that if one oversteps what one's PII covers you for then it covers you for nothing

The key to the answer is that one needs to manage client expectations as to what services you actually provide and what services will require bringing in the bigger guns.

Tax planning as opposed to general tax work is definitely an above and beyond the services that an AAT qualified person would be expected to provide.

Note though that AAT will get you some ATT exemptions if you fancied taking a detour down that path (There are quite a few MIPs who are also ATT and my guess is that all of them asked themselves exactly the same question that you are now asking in relation to what do you say to the £15k client).

Certainly ATT will be a route that I'll be venturing down for my CPD post ACCA.

kind regards,

Shaun.

Shamus · Forum Moderator & Expert

Hi Tim,

and I cross again...

you must have posted just as I had started writing (shows how long my posts take to write).

Sorry, wasn't ignoring your post. It just wasn't there at the time.

Spamkebab · Expert

That chicken didn't cross as much as you! lol.

Don Tax · Expert

Great answer(s) there tho Shaun relevant to that sort of profit ....... 'managing client expectations' and 'relationship with an accountancy practice' would both be ways to go in this example.

How you doin' Neil. The Middleton Mafia is growing apace recently lol
Tim

Spamkebab · Expert

Hi Tim, i really must get down for that brew. It's getting nice out of an evening now so i'll have a stroll down sometime soon and we can put the world to rights. I thought having finished study that i would have some free time, alas this is not the case and i seem to be reading and researching more than ever lol.

The Middleton Mafia has a certain ring to it eh? Now i've made my bones.

Shamus · Forum Moderator & Expert

lol. Middleton Mafia...

Its starts off with drive by tax returns and before you know it your pushing Sage to innocent young businesses and rebranding HMRC newsletters as helpful practice factsheets for clients.

I can just imagine your sales patter now Neil.

"Nice company you've got there. be a shame if anything were to happen to it. I mean for just £50 a month we can make your bookkeeping problems go away if you know what I mean".

Spamkebab · Expert

lol Shaun, very clever, i'm having business cards printed as we speak. I often wonder how Timbo survives as Middleton folk haven't yet heard of tax, they're all busy trying to rake the moon out of a pond.

Don Tax · Expert

Today, Middleton, tomorrow.......... well my vote goes to a nice cup of tea in the Arndale or whatever it's called nowadays.

Before anyone reads these aspersions by my very good ex-friends, I just want to state that the 'drive by tax return' stories are all perfectly true and it's in you're own interests to make a voluntary donation lmso

Shamus · Forum Moderator & Expert

Not by coincidence that you are referred to as Don methinks Tim!

And not wishing to wake up finding a horses head at the bottom of my bed I'll leave it at that.

Adrian99 · Senior Member

Many thanks Shaun, Tim, and Neil.
Now I have a clear picture of what tax actually means.
Seems to me that everywhere I look, ACCA is staring back at me.

And I do not feel to study another 5 years .... but if this is what I have to do.... ooohh it is so hard to decide ...

Adrian99 · Senior Member

Considering the ACCA restrictions, is it a better deal to study ATT after AAT in my case ?

Many thanks,

Best regards,

Adrian

MarkS · Expert

At the end of the day you get what you pay for.

Had a potential client on the phone yesterday following a mailshot offer i done. Basically his turnover falls in the bracket £80k - £250k and he has 9 residential properties he rents out in his own name.

I quoted him £1,700 to do his accounts, company tax return, payroll for 1 person, personal tax return and company annual return. He said he had quotes from 2 large CA firms up here in Scotland that worked out about £5k+VAT.

He did say that he was with one of the firms at the moment and they had saved him £24k in tax re his properties due to a particular tax break. He had to pay £5k for this but was £19k better off.

Thats why big firms can charge these rates. They have qualfied staff who are experienced in particular tax matters rather than just general tax matters that people like me who work for themselves do. I know the basics but if someone came to me saying they want to know about the relevance of Inheritance Tax to their situation I couldnt answer and would need to research.

I lot of people think there are schemes out there to avoid paying tax. In general it isnt true and everyone has to pay their share of tax. Unless you have large profits (talking £m) and can afford to pay high consultancy costs then generally isnt worth looking into.

Regards

Mark

Adrian99 · Senior Member

Thank you Mark,

Considering my situation I am not allowed to do tax return by ACCA because I am a student, old Regulation 8
But how ACCA will know that I am offering this kind of services if I do advertise with no connection whatsoever to ACCA ?

I know it is a principle not to break the rule. And I agree, but at some point maybe there is a tip and trick :)

Thank you,

Adrian

Shamus · Forum Moderator & Expert

Do the AAT not teach ethics...

Such action (do it and hope that you don't get caught) is to fail to act with integrity which is the primaray fundamental ethical principle of accountancy.

You would be stripped of membership, you would be charged a penalty which at a minimum would be £800 but can run ito several thousand pounds, you may find it difficult for other professional bodies to consider you for membership (but mitigating circumstances are generally taken into account in applications).

Also HMRC want to know whether you have criminal history, been bankrupt or been struck off by a professional body before they will cover you for MLR.

Without MLR cover you cannot practice and if you do then such carries threat of five years imprisonment and unlimited fine.

... Ask yourself... Is practicing without a licence worth that risk?

If you are really determined to go down that path you know that CIMA is more flexible and you would not have to live a lie with them.

Or you can practice under an MAAT MIP banner and if you added ATT to that such would open up tax work.

If you practice as an accountant whilst being a student of the ACCA though you are playing Russian roulette and whilst you may not be caught immediately is it worth the risk?

ACCA is to my mnd one of the two finest qualifications that one can hold but you need to decide whether you can live with the restrictions that student membership places upon you.

You cannot simply ignore regulation 8 and hope not to be caught.

I know a couple of people who thought along similar lines and now regret it.

If you want to be ACCA you have to play within their rules if you cannot then walk away from that qualification or see your dreams of working in accountancy turn to ash.

Sorry,

Shaun.

Adrian99 · Senior Member

Thank you Shaun,

At this point in my life, I really think that is time to get the party started and accumulate practical knowledge. See if there are any results of my AAT qualif, and than if I like what I am doing and I enjoy the profession, carry on with the studies.
I need to see this first,
*Am I able to obtain clients ?
*Do I like what I am doing ?
*Is there enough place for me on the market ?
*Do I find an experiences accountant who I can pay for his support in order for me to make sure that I am doing everything 100% right. (and maybe help me with ACCA reg. 8)
*Do I fit the bill ? Is this for me or just quit and do something else.

The whole idea is to work what I like without having a boss, but I need to test this now. before taking further action.
I could go on and study another X - Y years and then realise that it is not what I would like to do or it is not for me or is just not the earnings that I am looking for.

I think I need a little bit of taste of this profession. A little bit Try before you buy thing.
Please do not get me wrong, I am not doing this on the back of the client, I will be extremely careful with the accounts and I will not work unsupervised until I know exactly what I am doing.

Many thanks Shaun,
I really appreciate it.

Best regards,

Adrian

FoxAccountancyServices · Expert

Hi Adrian

I have seen a couple of posts from you debating your options for the future. I wonder: are you working full time while you are studying? And if so, what work are you doing? Are you working in an environment that is giving you the experience you need to set up on your own and offer clients a value service?? Its great to be your own boss, but I feel anyone going into this business should have some sort of work experience to back up the qualification - it really IS only with that experience, that one begins to properly understand the system, as each day brings a new situation and we watch what our bosses do to handle those situations - and even then the law changes year on year, so you have to keep up.

AAT require 5 years experience of any work you wish to offer, together with a professional reference, and CPD.. it was SOME application let me tell you.

Sorry if this sounds like a wee on your chips.. but if you have so many questions, I worry that perhaps you need some more time, in a practice? Being in it every day, you learn to understand the business.

I say that sincerely, hun :)