Can anyone enlighten me please

**TestMangler** · 2 June 2011, 21:46

Originally posted by watt tyler View Post

Please can anyone throw some light on this ......

I have contracted for a while and started a limited company about 6 weeks ago. Am totally new to all this.

Anyway the accountant I got provides the following services for me:

* Payroll and PAYE service with weekly payslip
* We invoice your clients and chase payments
* Set up your Limited Company and provide an ongoing Company secretarial service
* Full book keeping service
* Weekly profit monitoring and tax liability spreadsheet
* VAT registration and returns using the Flat Rate VAT scheme
* Year end accounts, corporate and personal tax returns

BUT today he emailed me with my first VAT return for the quarter to 31st May 2011. This amounts to £638.36??!!! I have to pay this amount by end of June. This is what he sent me below:

1 VAT on Sales 638.36
2 VAT EC Purchases 0.00
3 Total VAT 638.36
4 VAT on Purchases 0.00
5 Net VAT to be paid 638.36

6 Sales 3940.50
7 Purchases 1299.71

8 EC Sales 0
9 EC Purchases 0

Can anyone decipher this?? What is the purchases amount for. As of yet I have not bought anything for the company. Why do I pay this VAT return - anyone know?

I asked the accountant about the purchases and he said "don't worry about that". He also said I pay this from my company bank account...

As far as I'm aware my accountant invoices my agency who then pay me a gross amount each week.

Apologies as I am totally a newbie to this - I didn't even know I have to pay a VAT return each quarter (I wasn't told about this when I signed him up).

Anyone know why or can explain in laymans terms please - am getting worried about this.

Many thanks,

Watt,...

Hi mate.

I would suggest that you have a sit down with your accountant and get a list of questions you need answered/explained.

The bit I've bolded above is the bit that would worry me most (that and the 'don't worry about the purchases' bit).

You really need an appointment with your accountant, sooner rather than later.

**Old Greg** · 2 June 2011, 22:05

Have you paid your accountant £1299.71? Who is your business bank account with? Check your statement or phone them up immediately and take control of your business. Read the contracting guides on this site.

And as TM says, talk to your accountant. Also, read anything your Ts and Cs with the accountant.

**JoJoGabor** · 2 June 2011, 22:18

I would send your accounts so far to another accountant to verify, may be worth the sub £100 fee they will charge.

To me it sounds like you need to change your accounting providings

**watt tyler** · 2 June 2011, 22:28

Hi,

Many thanks for your prompt replies.

I pay the accountant £40.00 per week..yes £40.00 per week - people i know said this is a lot.

I send my timesheet to the accountant who then invoices the agency I contracted with, then they pay directly a gross amount into my limited company bank account. Its difficult to get a yes or no answer from the accountant.

Also when I rang him today, he said at year end I do not have to pay NI or any income tax. He said all I pay out of the company account is the quarterly VAT return.

Is this correct??

I apologise for basics but am reading as much as I can to get my head around this. I don't want to end up owing the taxman at year end etc..

All this is new to me..cheers Watt...

**Old Greg** · 2 June 2011, 22:35

Originally posted by watt tyler View Post

Hi,

Many thanks for your prompt replies.

I pay the accountant £40.00 per week..yes £40.00 per week - people i know said this is a lot.

I send my timesheet to the accountant who then invoices the agency I contracted with, then they pay directly a gross amount into my limited company bank account. Its difficult to get a yes or no answer from the accountant.

Also when I rang him today, he said at year end I do not have to pay NI or any income tax. He said all I pay out of the company account is the quarterly VAT return.

Is this correct??

I apologise for basics but am reading as much as I can to get my head around this. I don't want to end up owing the taxman at year end etc..

All this is new to me..cheers Watt...

I assume you can leave without notice? If so, do so. I use SJD who are very good but not the cheapest (cheaper than you pay). Nixon Williams are also very highly regarded and are significantly cheaper (£75+VAT I think). Phone one of them tomorrow and swap over. You may have to do a little more work but you will then understand your business. Good luck.

**TykeMerc** · 2 June 2011, 22:36

Quite apart from the possible oddness with the OP's accountant, I suppose there is an issue that he hasn't a clue what VAT is and what obligations there are with being VAT registered.

When you register for VAT you agree to act as a tax collector on behalf of HMRC, you do this by charging VAT on all of your business sales.

e.g. You do £10,000 worth of work for your client, you invoice the client:-

Work ---------- £10,000
VAT @ 20% ---- £ 2,000
Total ---------- £12,000

That £2,000 VAT does NOT belong to your company, it belongs to HMRC and they expect to be paid it at the end of the quarter that the work takes place. However if you're on the Fixed Rate Scheme (known as the FRS) you deduct a percentage (which varies depending on what type of business your company has declared is its main activity) from that £2,000 then pay the remainder over.
If you're not on the FRS then you add up all of the VAT paid on company purchases, deduct that from the £2,000 you owe HMRC and pay over the balance.

I admit that I'm struggling somewhat to believe that anyone who's worked for a few years as a contractor hasn't even got a basic grasp of VAT and I have to wonder if the question was an attempt at a windup.

**Old Greg** · 2 June 2011, 22:41

Originally posted by TykeMerc View Post

Quite apart from the possible oddness with the OP's accountant, I suppose there is an issue that he hasn't a clue what VAT is and what obligations there are with being VAT registered.

When you register for VAT you agree to act as a tax collector on behalf of HMRC, you do this by charging VAT on all of your business sales.

e.g. You do £10,000 worth of work for your client, you invoice the client:-

Work ---------- £10,000
VAT @ 20% ---- £ 2,000
Total ---------- £12,000

That £2,000 VAT does NOT belong to your company, it belongs to HMRC and they expect to be paid it at the end of the quarter that the work takes place. However if you're on the Fixed Rate Scheme (known as the FRS) you deduct a percentage (which varies depending on what type of business your company has declared is its main activity) from that £2,000 then pay the remainder over.
If you're not on the FRS then you add up all of the VAT paid on company purchases, deduct that from the £2,000 you owe HMRC and pay over the balance.

I admit that I'm struggling somewhat to believe that anyone who's worked for a few years as a contractor hasn't even got a basic grasp of VAT and I have to wonder if the question was an attempt at a windup.

He's only had a Ltd for a few weeks.

**TykeMerc** · 2 June 2011, 22:54

Indeed, but he said he's been contracting a while so you would expect him to have gained a little knowledge in that time.
I would also have expected someone who requests VAT registration to have picked up a little info on the basics before doing so.

I should have mentioned in my earlier post that another obligation of VAT registration is to submit a VAT return on time every quarter and pay any outstanding VAT on time, if you fail in either of those duties HMRC are entitled to levy penalty charges. In the event that you have a quiet quarter you can submit a nil return, but it must be submitted. Obviously submitting a deliberately incorrect return is tax fraud so must not be done, but minor errors can be corrected on the next return.

**Old Greg** · 2 June 2011, 22:58

Originally posted by TykeMerc View Post

Indeed, but he said he's been contracting a while so you would expect him to have gained a little knowledge in that time.
I would also have expected someone who requests VAT registration to have picked up a little info on the basics before doing so.

I should have mentioned in my earlier post that another obligation of VAT registration is to submit a VAT return on time every quarter and pay any outstanding VAT on time, if you fail in either of those duties HMRC are entitled to levy penalty charges. In the event that you have a quiet quarter you can submit a nil return, but it must be submitted. Obviously submitting a deliberately incorrect return is tax fraud so must not be done, but minor errors can be corrected on the next return.

I've never used a brolly but I imagine you could get through without picking up any of the Ltd. stuff. But I agree that when you set up, you want to understand your responsibilities as a Company Director pretty quickly. We're not allowed to sign the back of passport photos for nothing, you know!

Can anyone enlighten me please