by Eunice | Mar 12, 2023 | UK Updates
A Guide on Saving UK Tax for Entrepreneurs via Offshore
Taxes are unavoidable, whether you’re an individual or a business entity. Most taxpayers want to save tax UK legally; however, not everyone knows how to do it. As an entrepreneur, your tax bill can significantly impact your finances.
If left unchecked, high taxes can drag down your earnings and leave you with less capital to reinvest. That’s why having well-thought-out tax planning is often more important than an aggressive investment strategy.
There are multiple ways to reduce taxes effectively, but many advisors recommend going offshore for higher savings and better tax efficiency.
What is an Offshore Business?
An offshore business or company is established outside of one’s home country. It can be set up in any country, territory, or jurisdiction as long as its activity takes place other than an individual’s nation or domicile.
Suppose you are an Amazon seller in the UK who registered an LLC in the US to handle your business operations. In that case, that corporation is an overseas company but also called offshore.
However, the term ‘offshore’ is often associated with jurisdictions where regulations differ from one’s domicile, allowing for more favourable conditions like asset protection, privacy, and lower tax rates. For this reason, offshoring is frequently linked to tax havens.
The Benefits of Establishing an Offshore Company
There are several advantages to incorporating an overseas business, one of which is asset protection. During political unrest or pending litigation, transferring resources into your offshore company minimises the risk of financial losses due to different laws and lack of jurisdiction.
But the primary reason for many taxpayers to use an offshore structure is to save UK tax. By understanding the differences in tax regulations of every country and proper structuring, entrepreneurs can legitimately lower the taxes they’ll pay to HMRC.
Suppose you incorporated a limited company in Commonwealth countries or EU member states or an LLC in the US to oversee your business activities in that location. In that case, you do not have to pay its corporate tax to HMRC because it isn’t covered by UK tax laws. But, you have obligations to the country your company is registered in.
That being said, your tax burden isn’t automatically lowered simply because of offshoring. Without the right strategy, your self-assessment may even be higher—for example, taking a salary versus earning dividends from earnings. According to HMRC, you must still pay tax on foreign income, depending on your residency status.
It’s crucial that you have extensive knowledge of your domicile and offshore country’s tax policies. Consult a professional to determine the best and most tax-efficient way to go about it.
Incorporating an Offshore Company
Setting up offshore may seem straightforward, but it is actually more complicated than it looks. Bear in mind that company registration varies for each country or jurisdiction. For instance, in the US, states have different incorporation laws—what applies in Delaware doesn’t work in Florida.
To ease the confusion, it’s highly suggested to work with an expert who can handle the entire legwork. Professional company formation services can help you focus on running your business instead of stressing over incorporation requirements.
Below are some of the general steps involved in the registration process to save tax UK:
Figure out where to incorporate. Speak to a consultant to get advice on the ideal jurisdiction for your company’s registration to maximise tax savings. If you are an e-commerce seller and your target market is the US, consider setting up your company in a foreign investor-friendly state like Delaware.
Identify the most tax-optimised corporate structure for your offshore company. Entrepreneurs have limited options when registering their business as a non-resident or foreign investor. UK residents can opt for LLC or C-corporation in the US or as a limited company in EU member states and Commonwealth countries.
Register your overseas company. Jurisdictions have different requirements for company formation, such as a filled-out application form, incorporation documents, a physical address, and a business bank account. If you work with a local registered agent, they will handle the formation on your behalf.
Have Your Offshore Business Account for Eligible Expenses
Whether you are self-employed, a freelancer or a business owner, your income tax due primarily depends on your earnings. Besides allowances and reliefs, there are also eligible deductions that can reduce your UK tax obligations.
For instance, you can claim utilities, materials, meals, insurance premiums, transportation, rental, training expenses, and other costs incurred from your taxes while conducting business activities. The same applies to your offshore company.
Regardless of where you’ve incorporated it, you must properly account for the expenses to report the correct earnings and calculate the right tax due. For example, you can charge subscription fees and marketing expenses to your offshore company if these are considered essential operational costs.
Moreover, determine the most tax-efficient way to pay yourself for your overseas company’s operations—it can be through a consultancy fee, salary, or dividends from the profits. There are instances when one tax planning strategy may be better than others because of maximum savings.
Proper structuring of your business plays a significant role in its corporate tax, and by extension, in your income tax due to HMRC. If unsure, best consult a tax advisor or professional accountant who can help you figure out the most effective method to save tax in the UK.
Tax Rules on Dividends
Business owners with overseas companies often choose to downstream profits by declaring dividends. Received dividends should be included in their self-assessment return as foreign income. Although HMRC exempts dividends from tax, the tax-free allowance is set to be reduced to £1,000 from 2023 to 2024.
Anything over the threshold will be taxed according to your income tax band—the higher your taxable income, the higher the tax rates applied. That’s why it’s crucial to ensure that your earnings fall into the correct tax bracket.
by Eunice | Mar 10, 2023 | Business
A Guide on How to Hire a Partnership Accountant
Structuring your venture as a partnership is the best alternative when two or more parties invest and are responsible for the day-to-day operations. As your business grows, keeping track of your finances becomes more challenging as they turn more complicated.
Doing your own accounting may save money, but the price you’ll pay for the errors may offset such cost savings. In the long run, it’s worth getting a partnership accountant as there’s much to be gained for doing so.
When you’re ready to hire one, remember these five rules for a successful search.
1. Figure Out Your Needs
Accounting professionals, partnership accountants included, have four general areas of expertise: business advisory, accounting and record keeping, tax advice, and auditing. Here’s how each differs.
Business Advisory
Since they are well-versed in your business, financials, tax situation, and the industry, accountants can give fiscally sound advice on your strategic plans and decisions. Their valuable insights are without bias, offering a fresh perspective on critical matters.
Record Keeping
Under this discipline, accountants will set up the system to help you maintain daily records and key financial information about the business. With robust record-keeping software, you can have a comprehensive overview of the venture’s revenues, costs, profitability, and patterns to monitor performance.
Tax Planning
Some accountants specialise in tax matters—if left unmanaged, taxes will weigh on your business’ profits. Strategic tax planning allows you to remain compliant without being overly burdened by tax liabilities. A good accountant will help you identify allowed deductions to reduce your taxes at year-end.
Auditing
A basic accounting principle, auditing ensures a partnership’s reported financial information is accurate. Most business owners hire an accountant to produce audited reports, often required by banks prior to lending.
Determine the services or help you need in choosing a partnership accountant—often, the more they offer, the higher they may charge you.
2. Do Your Due Diligence
Much like when hiring an employee, it’s essential to vet all potential candidates first by looking at their credentials, experience, and knowledge of your industry.
At the minimum, your partnership accountant must have an accounting degree and a CPA license, so they can handle tax-related forms on your behalf without hiring another. Completing their formal education means they can perform accurate bookkeeping and analysis of your financial records.
Experience-wise, your prospective accountant should be familiar with your line of business. They must know the basics, such as revenue recognition, inventory, cash flow management, and taxes. If you’re in e-commerce, they should have relevant experience handling similar business operations.
Besides experience and education, factor in their knowledge of your industry too. Usually, there are trends or patterns specific to an industry that they should be aware of and look out for to identify possible errors or oversights.
Don’t hesitate to ask for references or look them up on the Internet to check for promising feedback. A reliable accountant will have several positive reviews from past and existing clients.
3. Ask the Right Questions
Often, a potential partnership accountant’s qualifications look good on paper. If you want to dig deeper to see if they’re the perfect fit for your business and specific industry, you must ask the right questions.
Besides asking about their services, here are a few more you should include during the interview:
- Do you have a CPA license? If yes, are you licensed to practice in my area?
- What is your area of expertise? Do you have a client who’s in the same business as me?
- What is the usual size of your clients? Have long have you been with them?
- What software applications do you know how to use?
- Do you belong to any professional organisations?
At this point, be sure to ask about their rates or fees. Although some accountants disclose their charges on their website, it pays to clarify a few things about inclusions and exclusions on their offered services. If their rates are beyond what you can afford, ask if they can tailor a service package for your needs.
4. Evaluate Their Skills and Personality
Think of your partnership accountant as a partner. Their personality must be compatible with yours, as there needs to be a good working relationship between both parties. Be on the lookout for the following soft skills:
Communication
The best accountant is one who can handle your relationship as well as they handle numbers. Find a professional who can quickly communicate issues and resolve them with your cooperation. Ask if they find it difficult to reach out to their clients once there are problems.
Time Management
An efficient, organised accountant knows how to manage their time so they won’t be overwhelmed with work during crunch time. They should be able to find crucial information quickly and finish tasks before the deadline, as delays can have costly repercussions.
Problem-Solving
Often, you’ll leave your accountant to their own devices—you trust them to handle your affairs without you constantly checking up on them. That’s why if they encounter roadblocks, they should be able to overcome them or know how to rectify mistakes.
5. Onboard Your Partnership Accountant
Keep in mind that your accountant can only work with the information you’ve given them. So, if you want a productive relationship, be sure to turn over all your financial records and relevant documents. Depending on their experience, consider briefing them about your business and industry.
Set clear expectations and guidelines, especially regarding communication preferences. For instance, you may want them to be accessible, particularly during an emergency. At the very least, you should meet once a month to discuss business matters, problems, and strategic initiatives.
Frequently Asked Questions
Is it worth getting an accountant when I have an accounting background?
by Eunice | Mar 8, 2023 | UK Accounting
1. Get an Accurate Picture of Your Business
Being a freelancer is similar to running your own business—you earn revenues from selling your services and incur expenses from performing the job. But how do you know if you’re making a profit or which clients you should relinquish?
You’ll find the answers to your questions with a simple profit and loss statement. Based on that data, you can see which clients offer the highest margins and earnings. However, you will only glean these details when an experienced accountant does your accounts and produces financial statements.
2. Manage Your Cash Flow
Even if you’re a freelancer or independent contractor, efficient cash management is crucial to your finances. You’ll need a steady flow of cash into your bank accounts to ensure that you have enough funds to meet your payables and operational costs.
When you work with an accountant for freelancers UK, they will optimise your revenue stream by issuing invoices immediately, looking after your outstanding receivables, and improving debt collection from non-paying clients. At the same time, they’ll identify outflows that reduce your money on hand.
3. Improve Cost-Efficiency
Hiring an accountant may seem like an extra expense, particularly when trying to reduce costs. But that’s just a common misconception.
A professional accountant does more than look at your expenses and take out the ones that cost you the most. Instead, they will analyse your operations and identify areas to reduce bloat and waste. They may recommend alternatives to trim your expenses without impacting your performance as a freelancer.
4. Maximise Deductions
Most freelancers are too wrapped up in their work that they forget to prepare for the tax season. When the deadline approaches, they scramble and frantically think about how to make the most of their deductions. And at this point, it’s already too late to reflect adjustments.
When you work with an accountant for freelancers UK, they will determine which expenses can count as potential year-end deductions and advise how to manage them. Freelancers must learn to track and account for depreciation, home office space, and other out-of-pocket expenses.
5. Make Better Decisions
Managing your freelancing career is akin to running a business—at some point, you reach critical junctures that require a decision. And to make a sound decision, you may need an objective perspective of a professional that understands your gig’s ins and outs and your financial goals.
For example, you may think of structuring your business as a limited company instead of a sole trader. By collaborating with your accountant, you gain insight into the pros and cons of taking the best course of action based on your current situation.
6. Avoid a Tax Investigation
Did you know that when you work with an accountant for freelancers UK, you can steer clear of the dreaded tax investigation?
Most self-employed individuals only think of hiring a professional once they’re subject to an audit, believing that accountants can quickly fix the issues after occurring. It’s a common misconception and a costly one at that.
When you have an accountant with you at the start, they will keep your accounts in order, reduce tax-related errors, and ensure your business is fiscally sound.
7. Stay Out of Trouble
Freelancers are subject to some of the rules applicable to business owners. And if you’re working on several projects simultaneously, chances are you’ll overlook some of the government’s compliance requirements.
Numerous government regulations on taxation, compensation and even accounting procedures often change, and it can be challenging to monitor updates and comply with them. Noncompliance is a burden and costly. But with an accountant on board, you can avoid mistakes or take steps to correct them.
8. Plan for the Future
Most freelancers rarely plan for the future—as long as they have clients, it’s enough to keep their gig going. But what if something unfortunate happens and you start losing clients to competitors?
An accountant can give sound advice and assistance in developing a viable strategy for your service business. They will help you figure out your next steps to boost income, improve operational efficiency, budget for investments, and keep track of your finances to stay competitive.
Their objective stance allows them to identify the best ways to support growth, consistently thrive, and ensure the longevity of your freelancing business.
9. Free Up Time
Perhaps one of the most significant benefits of getting an accountant is having more time for yourself. Instead of dealing with the minutiae of taxes, regulatory compliance, and managing accounts, you can focus on producing quality work, looking for more clients, and creating strategic partnerships.
Your accountant will take over crucial but time-consuming tasks so that you can direct your energy into running your freelancing gig in the most efficient way possible.
10. Reduce Your Stress
Sometimes, your freelancing business may be subject to an investigation or audit despite your best efforts to comply with regulations. It can be stressful, causing you to lose focus on your work.
If you have an accountant, they will eliminate this anxiety by handling all the required responses and documentation to clear your status. By taking the burden off your shoulders, you’ll have more energy to meet your targets and deadlines.
Frequently Asked Questions
Is it worth it to get an accountant when I’m only a freelancer?
Yes. It becomes even more critical when you have multiple clients, and keeping track of your records becomes increasingly complex and time-consuming.
by Eunice | Mar 3, 2023 | UK Accounting
Sound Financial Advice
Being self-employed is akin to being an entrepreneur—think of your driving gig as running your own business. You must stay on top of your finances to know whether you’re operating profitably or at a loss. Without an accountant, you might be unaware of what’s costing you more than your revenues.
Accountants for taxi drivers understand how one can profit from such a career. They can identify areas for improvement so you can be more cost-efficient and profitable. By analysing your finances, they can see where expenses may be too high but don’t translate to increased income and bottom line for your business.
Besides tracking your service revenues and expenses, an accountant can also help you make better financial decisions. Suppose you want to shift as a self-employed private hire or Uber driver. Since your accountant doesn’t have the same bias as your family or friends, they can give you objective advice.
Know the Expenses a Taxi Driver Can Claim
Uber, private vehicle and taxi drivers must track and keep updated records of their earnings and expenses as they’re critical to accurate tax reporting. While paying the correct taxes is important, claiming allowed expenses is just as critical to avoid overestimating your tax obligations.
Keep in mind that you cannot deduct all expenditures from your tax. The primary requirement to claim the expense is that it should be business-related. So if you’ve driven your vehicle for a personal trip, such as an errand or vacation, the consumed fuel and toll fees are not tax-deductible.
If you work with accountants for taxi drivers from Sterlinx Global, we will help you figure out which of your expenses can be used to claim back taxes. We will also ask you to keep the invoices or receipts of the following eligible costs:
- Fuel, which can be petrol, diesel, or electricity for electric vehicles
- Toll charges
- Road tax cost
- Parking fees
- Vehicle repairs, maintenance, and MOT tests
- Roadside assistance
- The cost of cleaning your taxi, including washing and detailing
- Registration, license fees, and other legal expenses concerning your vehicle
- Professional membership fees and related subscriptions
- Insurance premiums
- Advertising and marketing costs
If you hire a professional to handle your accounts, you can also claim their fees against your tax. It’s best to consult an accountant to determine other tax-deductible expenditures incurred while driving your taxi for business purposes.
Mileage Expense
Did you know that when you’re a self-employed Uber or taxi driver, you can claim back mileage as an expense? Driving a thousand miles a year will take its toll on your vehicle, but you can recoup the costs by recognising it as an expense.
There are two approaches to claiming mileage expense: simple and complex methods. Under HMRC’s guidance for the simple method, you can claim 45 pence per mile for the first 10,000 miles travelled within the same year and 25 pence per mile beyond the said threshold.
On the other hand, the more complicated approach involves detailing the expenses related to the miles you’ve driven while on shift or during work. While this method is more time-consuming, it allows you to deduct more expenses.
There are upsides to both methods, and they require accurate recordkeeping—claiming a higher mileage reimbursement despite a lack of records is unacceptable. If you want to know which is the better option, speak to accountants for taxi drivers from Sterlinx Global.
Handle Tax Matters
Taxis, private vehicles, and Uber drivers must register as self-employed with HMRC. As such, you have to calculate your tax liabilities and file the corresponding Self-Assessment return every 31 January following the covered tax year.
Remember that income tax isn’t your only obligation to the government as self-employed; you have to pay National Insurance contributions, the amount based on your profits. While it isn’t tax, you must include it in your Self-Assessment. If you have other income streams, such as dividends, you also have to declare them.
When you hire accountants for taxi drivers, they will oversee tax matters on your behalf. You’ll be confidently compliant with accurate, timely returns and payments, allowing you to focus more on driving farther and safer.
But accountants do more than tax filing. As they are updated on legislative changes, they will ensure you remain in compliance to avoid penalties. They can help you maximise deductions to minimise tax obligations and save money.
Getting yourself a good accountant often pays for itself and more, especially in avoiding the dreaded tax investigation. Since they guide and advise you, you can refrain from doing anything that can trigger an audit. And if the unfortunate happens, your accountant will help you resolve the audit or dispute.
Save Time and Energy
As an Uber, private vehicle, or taxi driver, you should pay attention to the road rather than bookkeeping, taxes, and compliance. An accountant can take over these critical yet time-consuming tasks, allowing you to go on more, longer and better-paid trips.
When you work with accountants for taxi drivers, you don’t have to worry about making erroneous filings and missing deadlines; the burden is on them. While you still need to keep records of earnings and expenses for at least five years, you’ll have stress-free tax compliance when you hire a professional.
Frequently Asked Questions
Is it cost-efficient to hire an accountant when I’m only a taxi driver?
If you want to know how hiring one will benefit you, estimate the cost of doing your Self-Assessment. For example, it will take 10 hours to finish this task, and every hour you allot will cost you £5 in earnings. You could’ve earned £50 and more had you left the job to an accountant.
by Eunice | Feb 27, 2023 | US Updates
A Guide on the US Sales Tax for Amazon Sellers
Tapping the US market as an expansion strategy is financially rewarding because of the size of the potential buyer base. But before you can sell on the world’s biggest online marketplace, you must fully understand its operations, and one of the most crucial is sales tax.
Since it pays for Amazon sellers to understand it, below are 10 important things you should know about the sales tax.
1. What Is FBA Sales Tax in the USA?
FBA stands for fulfilment by Amazon, a common route for many Amazon sellers. When you sell on the platform, you must charge sales tax for every item your buyers purchase.
Sales tax is a tax that customers pay when they buy a product or service. It is another type of consumption tax levied during a sale, collected by the seller, and remitted to the taxing authority. You pay for it whenever you buy coffee from a famous chain or renew your monthly subscription.
Sales tax is similar to VAT in the UK and EU—it is passed on to the end-user or consumer. If you plan to sell a product for $10 and the local sales tax rate is 10%, you must list the price at $11 to include the $1 tax. And instead of pocketing the extra dollar paid by the customer, you have to remit it to the government.
However, with Amazon FBA, handling your sales tax is slightly different compared to managing the order processing and shipping yourself. The collected tax goes into your account, and Amazon may or may not forward it to the proper tax authority.
2. The Difference Between Sales Tax and Income Tax
One of the crucial things Amazon sellers should know is that sales tax and income tax are entirely different.
Sales tax is a pass-through tax—you charge it, collect it from consumers, and remit it to the state tax authority. No complicated calculations are necessary; all you need to know is the tax rate to apply to your products. Think of yourself as the medium for collecting and forwarding the tax due.
On the other hand, income tax is paid out of your net earnings as an online merchant. And unlike sales tax, it comes straight out of your pockets. Moreover, it has different rates or tax brackets, wherein your tax due depends on the applicable rate for a specific range or threshold.
3. Do You Have to Pay Sales Tax When Selling on Amazon?
Yes, you do. Amazon sellers must pay sales tax when trading on the platform. That’s because you’re collecting sales tax from your customers on Amazon. Additionally, you must remit this collected tax to the government to keep it in line with the US tax legislation.
Bear in mind that sales tax is unavoidable, and failure to pay translates to significant penalties and fines that can impact your operations.
Besides settling sales tax dues, you must ensure proper compliance as well. Your responsibilities include registering, collecting taxes, and paying the correct amount to the government. Otherwise, you will be penalised for non-compliance, not the marketplace.
4. When Does an Amazon FBA Seller Need to Collect Sales Tax?
Tax collection isn’t something you do without a legitimate reason. When you’re an FBA seller on Amazon, you are in charge of collecting sales tax in the US states that meet at least one of the two criteria: sales tax nexus and product taxability.
5. What Is Sales Tax Nexus?
Amazon sellers need to know what sales tax nexus means. Nexus occurs when your business has some connection to a state. While every state has varying definitions of nexus, it generally means physical presence in that jurisdiction. A good example is having an office or a warehouse.
An economic connection also creates nexus and making a sale is considered one. So if your buyer lives in California, you have nexus in it. You must charge the corresponding rate and collect the sales tax for remittance to the authorities.
6. Inventory Nexus and Amazon FBA Sellers
You may wonder—what is the link between inventory nexus and Amazon sellers under the FBA program?
Under the FBA fulfilment strategy, merchants must ship their products to an Amazon warehouse. To make the most of the fees, sellers store their inventory in a fulfilment centre in the state where they have many buyers. Unfortunately, this also creates sales tax nexus.
Most state tax laws consider inventory storage grounds for nexus since online sellers use the state’s resources, such as roads for delivery, public safety services during emergencies, etc.
So if you’re an FBA seller, don’t be surprised to have sales tax nexus in a particular state—it’s simply because your inventory is stored in an Amazon fulfilment centre, meeting the physical presence criteria of nexus.
7. An Important Exception to the FBA Rule
Many critical rules are in place between Amazon sellers under FBA and the marketplace because of the latter’s relationship with the local tax authorities.
Nearly every state with an Amazon fulfilment centre has implemented some form of Marketplace Facilitator Law. Under this legislation, online marketplaces like Amazon, Walmart, eBay, and Etsy are in charge of collecting sales tax on behalf of their merchants.
It removes the burden of collecting and remitting sales tax from them. However, you still have responsibilities. For instance, you must hold a valid sales tax permit and file periodic returns in states where you have nexus or your marketplace charges and pays sales tax.
If you’re unsure whether you should file returns or what your nexus states are, it’s best to consult a tax specialist.
8. Product Taxability
Not all products can be taxed, so determine if what you are selling is taxable. Tangible goods are generally subject to tax, while services aren’t. Moreover, some product categories like groceries, clothing, and textbooks may not be taxed or charged at a different rate in certain states.
Check with the state’s tax authority to identify which goods are taxed, subject to reduced rates, or exempt. Ensure you have the right information by consulting a sales tax expert.
9. How to Collect Sales Tax on Amazon
While the online retail giant collects sales tax on merchants’ behalf, Amazon sellers must know that this service comes with a price.
Currently, Amazon charges 2.9% of each transaction for collecting sales tax. It’s necessary to include this rate in your pricing to ensure that it won’t reduce your margins.
Alternatively, you can forego collecting sales tax from your Amazon customers. And since tax is unavoidable, pay your dues out of your earnings. When you take this route, be prepared to do so.
