Industry News - 26th March 2017
- What is tax?
- What are our taxes for?
- The types of tax
- Who is affected by Taxes?
- What is accounting?
- The types of accounting
- Who may need accounting?
- Who carries out the accounting?
- Tax and accounting in the UK
- What are the current rates and allowances?
- Tax regulations
- The financial tax year
- Accounting in the UK
- Accounting standards
- Types of tax accounting
- The role of a tax accountant
- Benefits of tax accounting
Taxes are an unavoidable part of life. As Benjamin Franklin famously said: “in this world nothing can be said to be certain, except death and taxes”.
But what exactly are taxes and what do they mean for you? Where did taxes come from and what are they used for now? This guide hopes to explain the reasons why we are charged tax and what types of tax may affect you personally. This guide will also explain the benefits of accounting and what benefits tax accounting can have for you and your business. We will take an in depth look at tax and accounting, to help make what can often be a confusing topic, that little bit easier to understand.
What is tax and what is accounting
Taxes are a charge which must be paid to the government and can be applied to a range of different chargeable functions. The monies paid in tax are then spent by the government to cover various public services. We are taxed on our earnings and inheritance and also asked to pay taxes on products, imports and other charges such as road tax.
Accounting helps you to keep your finances in order so that you can clearly see your incomings and outgoings. Accounting, specifically tax accounting, also helps you to figure out how much tax you should be paying which is very important as failure to pay the correct amount of tax is punishable by law and can result in fines and even prosecution.
If you are employed, then the tax you need to pay on your earnings is usually deducted from your salary before you receive it. Along with your National Insurance contributions, this tax is sent straight to the government without you needing to do a thing. If you are self-employed, however, the responsibility falls to you to ensure that you pay the right amount of tax. As a self-employed individual, you will have to use your yearly income to work out your tax bill at the end of the year and pay it in one go.
This is why accounting is so important as it is vital that you have the correct figures showing how much you have earned over the year. Tax accounting is the process of using your income figures and your business expenses to work out how much tax you need to pay. The amount of tax you owe is determined by your income but you can deduct business expenses from your income. Tax accounting will ensure that you deduct the right amount of expenses and then work out how much tax you need to pay at the end of it all.
Accounting and tax accounting is generally done by a professional accountant or tax adviser with a recognisable qualification. Their extensive knowledge of the subject of accounts and taxes can help you to pay the right amount and keep your books up to date and easy to understand. If you own your own business or earn an average wage or more as a self-employed individual, then it is advisable to employ the services of a registered qualified accountant.
If you are only recently self-employed then it can be a daunting prospect beginning to deal with your own taxes and accounts, which is why this guide has been written; to help make tax and accounting that little bit easier to comprehend. As a self-employed individual, it is essential that you fully understand your options and obligations in terms of tax and accounting, to ensure that you are not left facing prosecution for underpayment of tax.
A history of tax and accounting
Taxes have been in effect for centuries. Modern incarnations of taxation such as road tax, inheritance tax and income tax have been around for much of living memory in one form or another but taxation systems date back much furtherer.
Ancient tax systems
The first known taxation system was used in Ancient Egypt around 3000-2800 BC in the first dynasty of the Old Kingdom. Records from the time, unearthed in archaeological digs, depict the Pharaoh conducting biennial visits to his people to collect taxes. These were either in the forms of a tithe or corvée. The corvée was forced labour which was provided by the poor who were unable to pay taxes and would give their unpaid services to the state. A tithe was paid either as a percentage of any monetary wages or paid with agricultural produce. Papyrus and lime slates have been uncovered showing receipts for such transactions. The tithe should not be confused with the modern practice of the same name which is a voluntary contribution.
Early taxation systems were also described in the Bible, in Genesis chapter 47, verse 24. In this extract, Joseph is telling the Egyptians how to divide up their crop and give 20% of it to the Pharaoh:
“But when the crop comes in, give a fifth of it to Pharaoh. The other four-fifths you may keep as seed for the fields and as food for yourselves and your households and your children”.
This tax was an exceptional tax rather than a standard practice as it was being collected before an expected famine.
The Persian Empire also created a sustainable and regulated taxation system for each Satrapy, or province, of their empire. Their system determined how much each Satrapy should pay the treasury and in what form that payment should be in. For example, fertile Egypt paid their taxes in grain while India, an area fabled for its gold, was ordered to pay in gold dust. Archaeological finds have also uncovered records of early tax systems in the Roman and Greek empires.
In England, the first unequivocal mention of taxation can be found in the Anglo-Saxon text Law of Æthelberht which is believed to have been written sometime in the 7th century. This first mention of taxes concludes that all judicial fines should be paid to the king. During the remaining Anglo-Saxon period, the main forms of taxation were land taxes although custom duties were also implemented as were fees for the crown to mint new coins.
Other early taxes were introduced and paid for by landowners in the form of manpower for the “common burden” as it was called, which included bridge repair, fortress work and the military. Paying taxes to fund and supply manpower for the military has been a common use of taxes since Anglo-Saxon times when Alfred the Great increased taxes in order to repel the Vikings which had invaded the lands.
Taxes have historically also been applied to certain imports and exports. King John applied an export tax on wool in 1203 and King Edward I applied a tax on wine in 1275.
During the reign of King Henry III, taxes were partly responsible for the foundation of the formation of parliament. The king and the current government consorted with the nobles of the land regarding taxes which they wished to impose. In 1254, the nobles advised the king to summon knights from each shire to help advise on the new tax. By the 1260s men from each shire were invited to consort with the knights, forming the beginnings of the House of Commons of England.
The most common and recognised form of tax nowadays is income tax and this was first introduced by Prime Minister William Pitt the Younger. Once again, war was the reason for the government needing extra income and so income tax was introduced in 1798 to help fund the Napoleonic Wars. The tax was abolished in 1802 by then Prime Minister Henry Adlington during peacetime, however conflict started up again one year later and the tax was reintroduced. One year after the Battle of Waterloo, the tax was once again abolished in 1816. By this time, the tax was so unpopular that Parliament burnt all records and documents relating to it.
In 1841, the general election was won by the Conservatives and Prime Minister Sir Robert Peel. Peel reintroduced income tax due to a rising deficit and an empty Exchequer. Despite the election promises of many prime ministers to come to repeal the tax, it has stuck around until today.
Income tax has seen quite a few changes since its original incarnation. The rate of income tax has seen several shifts and has been up and down a considerable amount of times. The highest rate of income tax was seen during the Second World War when it peaked at 99.25%. The rate was slightly reduced during the 1950’s and 60’s to around 90% before being cut to 75% in 1971.
Margaret Thatcher cut the top rate of income tax in her first budget after her election victory, from 83% to 60%. She also reduced the base rate from 33% to 30% and brought it down to 25% by her final budget in 1988. This was then reduced further by John Major’s government to 23% by 1997, and again by Labour Chancellor Gordon Brown in 2007 to 20%.
One of the other major changes modern income tax has seen is the amount of income which can be taxed. Originally, the tax was applied to all income regardless of whether anyone else was legally entitled to that income. For example, if you had to pay employees or creditors with that income too. Nowadays, a person only owes tax on income from which he or she personally benefits. This is why when you are assessed, or complete a self-assessment return, you are allowed to deduct expenses from your income before working out how much tax is owed.
The first accounting
The very oldest evidence of basic accounting has been seen as far back as the 4th and 3rd millennium BC with the ruling leaders and priests in Ancient Iran. Buildings have been unearthed which had large rooms for storing crops and within these rooms cylindrical tokens have been found on clay scripts and it is believed that these were used for counting. This first record of accounts has been evaluated as a huge cognitive leap forward for mankind.
Basic counting and accounts then since developed alongside the spread of numeracy and written skills. The role of the accountant can be evidenced in Ancient Egypt and amongst the Babylonians as commerce began to play a bigger role in societies. Records of money, commodities and transactions were scrupulously kept by the Roman military and the Roman Empire was at the forefront of pioneering early accounting techniques.
The birth of modern day accounting
During the 13th century, Europe was moving towards a more monetary based economy and merchants began to rely upon bookkeeping to keep track of multiple simultaneous transactions, many financed by bank loans. It was during this time that double-entry bookkeeping was introduced which completely revolutionised accounting.
Luca Pacioli, often referred to as the “Father of accounting and bookkeeping”, published ‘“Review of Arithmetic, Geometry, Ratio and Proportion’ in Venice in 1494. The book contained 27 pages on ‘“Details of Calculation and Recording’ in which double entry bookkeeping was explained.
Double-entry bookkeeping is defined as a bookkeeping system in which there is both a debit and credit entry for each transaction. The works were designed for merchants who used the text to help teach their sons, as well as a reference from which to keep their own accounts. The book itself also contained the first printed uses of the plus and minus symbols. Pacioli’s work is the first known printed information on bookkeeping and is widely believed to be the foundation for most modern bookkeeping practice.
The modern profession of the chartered accountant originated in the 19th century in Scotland with many accountants belonging to the same firms as solicitors. In 1854, The Institute of Accountants in Glasgow petitioned Queen Victoria for a Royal Charter arguing that the profession was of great respectability and had been for some time in Scotland. The petition also stated that accountants were required to have a set of varied skills, not only calculation; accountants were often employed by the courts to give evidence on financial matters and so they also had to have a basic legal knowledge.
By the middle of the 19th century, Britain was in the throes of the Industrial Revolution and London was the financial capital of the world. Reliable and proficient accountants were in high demand with the rise of the Limited Liability Company, large scale manufacturing and changes in legislation. In order to improve their status and tackle criticism of low standards, the Institute of Chartered Accountants in England and Wales was formed by the coming together of local professional bodies. The institute was established by royal charter in 1880.
The institute grew quickly from its initial 600 members and drew up standards of conduct which all members should adhere to. Admission examinations were also introduced and members were authorised to use the professional designations ‘FCA’ (Fellow Chartered Accountant), for a firm partner and ‘ACA’ (Associate Chartered Accountant) for a qualified member of an accountant’s staff.
What is tax?
A tax is a mandatory charge or levy imposed upon a tax payer by a state in order to fund various public expenditures. The taxpayer can be ain individual or a large entity such as a corporation. Most modern societies impose monetary taxes. Failure to pay taxes is punishable by law and can result in large fines and imprisonment.
The amounts and the ways in which governments collect taxes is often a hot topic for debate with different political parties having different viewpoints on the subject. Taxation is a hot topic both politically and economically. Taxes are collected in the UK by Her Majesty’s Revenue and Customs (HMRC).
What are our taxes for?
The aim of taxation is to raise funds to help the government to run the country and all public services. All taxes collected from the various means help the government to pay for services including economic infrastructure expenses, such as:
- Public transport
- Legal systems
- Public safety.
The money gained from taxes also helps the government to pay for:
Welfare services such as pensions, unemployment benefits, child benefit etc.
- Public works
- The military
- Scientific research
- The arts
- Data collection
- Public insurance
- Paying off debt and deficit
- The running of government itself and the payment of MPs.
Taxes can also be used to control the demand for certain products. For example, the government may levy a tax on imported goods to make them more expensive. This will often be done to ensure that demand for home grown or home made products remains unaffected by imported goods.
Governments use varying types of taxes as well as different tax rates in order to distribute the tax burden across or to redistribute resources. Current social security policies see working people paying taxes which may be used to support the retired and unemployed in the form of welfare payments. Similarly, high earners may be expected to pay a higher percentage of their salary as tax than someone who earns minimum wage; both will pay taxes but those who earn more may pay a higher proportion of tax so that the tax burden is felt evenly.
The types of tax
The Organisation for Economic Cooperation and Development (OECD) publishes an analysis of tax systems used by its member countries, of which the United Kingdom is one. The OECD has developed an overall definition of taxes levied as well as a system of classification which covers most of the taxes the UK government uses.
Here is a list of some of the most common types of tax a typical person may encounter throughout their lives:
- Income Tax- most countries levy some form of income tax which is a tax placed on the amount of net profit from businesses, net gains and other profit. The amount of income tax owed can be calculated by an accountant with access to all incomes and expenditures to hand. In the UK, most employed individuals will have their income tax deducted on a pay-as-you-earn (PAYE) basis and any over or under payment is calculated at the end of the tax year. Self-employed individuals will need to complete a tax return at the end of every tax year detailing their income and expenses.
- Capital Gains Tax- capital gains is the profit made from the disposal of capital assets. For example, if the sale price of stocks, bonds or property is more than the purchase price, then this profit may be liable to be taxed. The rate of tax may be different for individuals and companies and may also vary depending on the length of time the capital was held.
- Corporation Tax- this refers to the tax levied against income, capital, net worth and any other taxes companies may face.
- National Insurance contributions- while the UK government provides free healthcare and pension, employees are required to pay National Insurance contributions in order to help the government fund these systems. NI contributions are based upon a percentage of your earnings once you earn over a certain amount each week.
- Stamp Duty Land Tax – the sale or transfer of land or property is subject to a Stamp Duty Land Tax. A stamp duty is traditionally levied against documents such as stocks and shares and property leases. Stamp duty rate varies according to the value of the property.
- Inheritance Tax- this tax is paid by a person who inherits money or property from someone who has died. The tax can also be levied against the estate of the deceased.
- Council Tax- this tax is payable to your local council and will be a set figure depending on the size and location of your home. The council tax varies from area to area and the amount paid helps local councils to pay for public services such as roads, refuse collection, emergency services and running costs of local councils.
There are a range of other taxes and levies which are specific to certain industries and individuals, such as licence fees for landlords and road tax for drivers. Goods often have taxes levied against them as do certain imports and exports. Most products and services sold in the UK have a Value Added Tax (VAT) applied to them.
Who is affected by taxes?
In short, everyone is affected by taxes in one form or another. Low earners can often be exempt from tax if their wages do not meet the threshold set out by the government. Anyone earning below £11,500 in 2017/18 will not be required to pay income tax on their earnings and anyone earning below £8,164 will also not be required to pay National Insurance contributions. Low earners may also be entitled to help towards council tax but there is not avoiding VAT for anyone. Alternatively, higher earners may be required to pay a higher percentage of tax due to their increased earnings.
What is accounting?
Accounting is often called the “language of business” and is a way to measure the results of a corporation or individual’s economic activities. These results can then be presented in an easily understood manner to shareholders, investors, creditors, management, regulators and auditors.
Accountants examine all financial and economic dealings which an individual, business or corporation has performed over a tax year and summarises all the information into the accounts. From this, it is easy to see any gross profit, net profit and any losses, amongst other financial information. Accounting is vital in order to help companies and individuals to calculate how much tax they need to pay each financial year. Failure to pay the correct amount of tax can result in financial ramifications or legal consequences.
The types of accounting
In order to practice accounting you need to gain a specialised qualification. Then you need to choose which field of accounting you want to practice in. While general accounting can cover all bases, certain areas or industries will require the skills of an accountant who has specialist training.
Accounting can be divided into these separate fields:
- Financial accounting – financial accounting reports on the financial dealings of an individual or company and prepares accounts for third parties such as investors, creditors and HMRC. A financial accountant looks at the past financial performance of the business or individual on a monthly, quarterly or annual basis. Part of the role involves reporting and calculating business transactions and preparing financial statements in line with Generally Accepted Accounting Principles (GAAP).
- Management accounting – management accounting helps managers to make decisions which will enable them to fulfil the aims of the organisation by focussing on the measurement analysis and reporting of certain information. This information may be financial or non-financial in nature and the management accountant will be expected to be able to evaluate data regarding a range of topics such as sales, workforce and overheads. Reports prepared by a management accountant are based on a cost vs. benefit analysis and are not required to follow the GAAP. Management accounting produces future orientated reports rather than analysis of past performance.
- External auditing – auditing is described as the “unbiased examination and evaluation of the financial statements of an organisation”. Forensic accounting is a type of auditing as financial records are evaluated and double checked for accuracy. The auditor is expected to express a professional opinion on whether the records and financial statements they have audited are a fair representation of the financial position of the individual or business in accordance with GAAP. The auditor will also be expected to highlight any practices which are not in line with GAAP guidelines.
- Tax accounting – rather than preparing public financial statements, tax accounting focuses on taxes and the calculations needed in order to determine how much tax an individual or company needs to pay. Tax accounting focuses solely on transactions which can affect the amount of tax a person or company needs to pay and the accompanying tax calculations and documentation.
- Cost accounting – the goal of cost accounting is to help advise management on the best course of action in relation to the cost efficiency and capability. Cost accounting looks at collecting, recording, analysing, summarising and evaluating various courses of action and how to control the costs of those actions. Overall ; cost accounting provides in depth and detailed analysis which management will need in order to keep costs low and make the best operation decisions.
Who may need accounting?
Every business will need an accountant in some form or other. From large scale corporations with teams of accountants to small start-up businesses who employ the services of an accountant to help with tax returns; any and every business needs accounting services of some kind.
Small businesses with low staff numbers and low costs and sales may simply need an accountant to help them get their tax return paperwork together. Large businesses and corporations are more likely to require the services of a team of accountants in order to focus in on all areas of accounting such as cost accounting, financial accounting and auditing as well as tax accounting.
Individuals who are self-employed may need the services of a qualified accountant in order to ensure that their finances are in order. This could include using the services of an accountant to ensure that their tax return is completed on time and correctly, so that the amount of tax they pay is correct and fair.
Who carries out the accounting?
Your accounting should be carried out by a professional and qualified accountant. Large corporations may employ the services of an entire accountancy firm in order to fulfil their requirements but smaller businesses and individuals may employ an accountant who works for him or herself.
Any accountant should be a member of a professional body, such as The Association of Chartered Certified Accountants (ACCA) or The Institute of Chartered Accountants in England and Wales (ICAEW), who both ensure a high level of service and standards.
How much does accountancy cost?
The amount you pay for an accountant will vary depending on the amount and type of accountancy work you require. You may also find that the level of expertise of the accountant will also affect the cost as you may pay less to have your accounts done by a less experienced or less trained junior accountant. Individuals and businesses may pay by the hour for accountancy services where as large corporations will likely have an accountancy firm on retainer and pay them an annual sum to take care of all their accountancy needs.
Tax and accounting in the UK
Taxation systems vary from country to country with some places barely charging their citizens any tax at all.
In the UK, citizens pay a range of taxes to the state in order for the government to be able to run many free public services. Taxes paid to the state go towards free healthcare, free education, welfare payments for the ill, elderly and unemployed as well as an array of other public services such as refuse collection, roads and sanitation.
In the United Kingdom, income tax is the single largest source of income for the government- making up around 30% of the total revenue. National Insurance contributions come a close second making up 20% of the government’s total revenue.
The tax rates used in the UK differ depending on the amount of money a person earns. This is designed to share the “tax burden” equally amongst the citizens of the country so that the low earners within society pay less tax and the high earners pay a larger percentage of their wages. More than 25% of all income tax revenue is paid by the top 1% of earners in the United Kingdom. 90% of all income tax paid to the state is paid by the top 50% of taxpayers with the highest incomes.
What are the current rates and allowances?
Currently in the UK you have a set allowance which you can earn before you are charged any tax. Once your earnings are above that allowance, the amount of tax you are charged is set in earning brackets with higher earners expected to pay a higher percentage of their income in tax.
The current tax free allowance for the 2017-2018 tax year for anyone earning under £100,000 a year is £11,500. This means that you will not be taxed on the first £11,500 that you earn. If you earn below this threshold then you won’t be obliged to pay any tax at all.
Once you earn over the tax free threshold, you will fall in to one of three tax rate brackets which will determine the percentage of your income you will have to pay in tax.
- If you earn up to £33,500 over the tax- free allowance then you will be liable to pay the basic tax rate of 20% of your earnings.
- If your earnings over the allowance fall between £33,501 and £150,000 a year then you fall in the higher rate bracket and will owe 40% of your income in tax. For earnings over £150,001 per year over the tax free allowance, you are in the additional tax bracket and your tax rate will be 45% of your income.
However, for every £2 you earn over £100,000, £1 of the tax free personal allowance is actually lost. This means that for incomes between £100,001 and £120,000 the marginal income tax rate is more like 60%. The income of a taxpayer is assessed in a certain order with income from employment using up the personal allowance and then being taxed first. Then savings are taxed followed by any dividends. The rate any savings are taxed is the same rate as outlined for income from employment. Dividends are taxed at a basic rate of 7.5%, a higher rate of 32.5% and an additional rate of 38.1%, however currently the first £5,000 is tax-free.
Why do tax rates differ?
Some may consider different tax rates unfair and question why they should pay more tax simply because they earn more money. However, there is not one taxation solution which would please all members of society.
The current taxation system is deemed to be the most fair to ensure that the “tax burden” is felt evenly across society. If everyone paid the same amount of tax then those on a lower income would feel the impact much more than higher earners. Low earners would see a much higher percentage of their income being deducted in tax payments than those earning considerably more. The current tax rates are designed to ensure that those who can afford to pay a little extra in taxes shoulder more of the burden than those who would struggle to afford more taxation.Taxes and tax rates are a contentious topic for economists and politicians alike and have always sparked major debate and often form some of the founding differences between the major parties. Tax rates will always be subject to fluctuations depending on the government holding power but they are also affected by interest rates and the trends of the country’s economic growth.
Her Majesty’s Revenue and Customs (HMRC) is responsible for all tax regulations as well as being responsible for the collection of all state taxes. If you earn above the tax- free allowance then you are obliged by law to pay the taxes due depending on which tax rate band you fall in to. If you fail to pay your taxes then HMRC have the power to investigate, arrest and charge any individual or business with tax avoidance or tax evasion – an offence punishable by a monetary fine or imprisonment.
HMRC is also responsible for investigating serious organised fiscal crime and can use their wide- ranging powers or entry, search, detention and arrest to detain anyone who has or is suspected of committing any offence under the Customs and Excise Act.
It is down to HMRC to collect a range of direct and indirect taxes for the state including:
- Income Tax
- Capital Gains Tax
- Inheritance Tax
- Corporation Tax
- Stamp Duty Land Tax
- Excise Tax
- National Insurance contributions.
HMRC is also in charge of the distribution of certain benefits such as tax credits and child benefit, as well as ensuring that all employers are paying their employees at least the national minimum wage.
The financial tax year
Unlike a standard calendar year beginning in January and ending in December, the tax year in the UK runs from 6th April and finishes on 5th April the following year. All income received during this period must be calculated in order to work out how much tax you owe HMRC and this information must be submitted to HMRC in the months following the end of the financial year.
The reason the UK tax year begins and ends in April lies way back in the 16th century. In 1582, Pope Gregory XIII ordered the existing ‘“Julian’ ” calendar (named after the infamous Julius Caesar) to be changed. This change was ordered as the existing calendar was inaccurate compared to the solar calendar by 11 and a half minutes. 11 and a half minutes may not seem much but after 500 years of this calendar, it left a discrepancy of 10 days, so Pope Gregory introduced the Gregorian calendar to make up the difference. The new calendar shortened each year by 10 minutes 48 seconds per year and was quickly adopted throughout Europe.
Britain was slow on the uptake of this new system and so by the time the Gregorian calendar was introduced into the country in 1752, Britain was now 11 days behind the rest of Europe. On the old British calendar, New Year’s Day began on March 25th, as did the new tax year. The British Treasury, to ensure against any lost revenue, decided that the tax year would last the traditional 365 days and so the tax year would end on April 4th and the following tax year would begin on the 5th.
This worked fine up until 1800, when the old Julian calendar would have had a leap year but the Gregorian calendar did not. Therefore, the treasury moved the start of the new tax year from 5th to 6th of April and it has remained on that day ever since.
Accounting in the UK
In the UK, the title ‘accountant’ does not hold the same legal protection given to other professions such as doctors or lawyers. Due to this, anyone can practice accounting and call themselves an accountant regardless of what qualifications they actually hold.
If a person wants to be able to call themselves a ‘Chartered Accountant’ then they must first pass the examinations set by and become a member of one of these following organisations:
- The Association of Chartered Certifed Accountants (ACCA)
- The Institute of Chartered Accountants in England and Wales (ICAEW)
- The Institute of Chartered Accountants of Scotland (ICAS)
- The Chartered Institute of Public Finance and Accountancy (CIPFA)
- A recognised equivalent body in another Commonwealth country.
There are other official bodies which require membership before an accountant can use their titles such as the Chartered Certified Accountants. These bodies help to ensure a high standard of accounting and by using an accountant who is a member of such an institute, you can be assured that you will be receiving service from someone who is trained and qualified to the highest level.
When it comes to auditing and bankruptcy accountancy however, only specific accountants can carry out such work. It is illegal for any individual or accountancy firm to carry out auditing work unless they are a Registered Auditor. In order to become a Registered Auditor, an accountant must be able to show specific skills and hold a certificate from one of the various governing bodies. Similarly, in order to practice insolvency accounting, an accountant must belong to a registered accounting institute.
On 2nd July 2012, the Financial Reporting Council (FRC) took on all responsibility for setting and monitoring accountancy standards. Before this, standards were set by the Accounting Standards Board (ASB) and many of these standards are still in place.
Accounting standards developed and issued by the ASB are known as Financial Reporting Standards (FRSs) and these included the FRSSE (Financial Reporting Standard for Smaller Entities). A major change occurred with the introduction of FRS 102 on 1 January 2015. This essentially gave financial accounts more consistent, international detail.
The accounting profession and its various bodies and institutes uphold their own set of standards called the Generally Accepted Accounting Practice (GAAP). The GAAP includes legislation, regulations and high standards set by industry professionals in order to ensure that the profession is kept in high regard. Any accountant who is part of a professional body or institute must adhere to the GAAP at all times throughout their work.
Accounting standards are often updated to fall in line with current legislation which is kept up to date with any changes made regarding taxation systems or economic changes. However, the fundamental professional standards and the GAAP are much unchanged from when they were first written.
The FRC ultimately is responsible for regulating accountancy firms and ensuring that they are adhering to the set standards and legislation. Accountancy is also regulated internationally by the International Federation of Accountants (IFAC) and the International Accountants Standards Board (IASB). These two federations promote best practice in accountancy throughout the world as well as issuing global standards in ethics, practice, auditing and public sector accounting.
Types of tax accounting
Tax accounting specifically focuses on the calculation and payment of the correct amount of tax owed depending on the tax band an individual or a business falls in to. Tax accountancy looks at all the financial transactions of an individual or business, both the incoming profits but also the out-going expenses, in order to calculate how much tax is owed.
Deciphering tax codes and keeping abreast of constantly changing legislation is a technical and time consuming task and if you are running a business or busy working for yourself then you may simply not have time to keep track of all aspects of your finances and taxes. This is where a qualified and professional tax accountant can step in to help ensure that your accounts and tax payments are in order.
The role of a tax accountant
First and foremost, a tax accountant’s primary role is to prepare tax returns for a business or an individual. They should be able to put together all the income details of the person to whom they have been instructed and calculate how much tax is due to be paid, as well as filling out and submitting all the correct paperwork to file the tax return and advising on the tax payment.
Individuals or small businesses may only require the services of a tax accountant once a year in order to be able to do this effectively. However, larger companies and corporations may retain the services ofn a tax accountancy firm all year round in order to keep on top of all the financial aspects, as well as dealing with other aspects of tax which the company may encounter during their daily operations.
A tax accountant can help businesses deal with all aspects of Corporation Tax and ensure that they business is compliant in all areas. Failure to do so could mean penalties for your business, so it is vital that if you don’t follow every detail in regards to Corporation Tax, that you have a tax accountant who does.
Tax accountancy can also help small and large businesses to handle payroll tax reporting procedures, as well as helping you to understand any property or stamp duty tax which your company may be liable for. Every business will have some dealings with sale tax or VAT and tax accountancy can help with complex sale situations.
Who needs a tax accountant?
If you operate a business, corporation or if you are a self-employed individual, then you may benefit from the services of a tax accountant. Self-employed individuals may feel that they do not earn enough to warrant an accountant but if you earn over the tax free allowance then it is advisable to contact a tax accountant to help ensure that your tax returns are in order and correct before you send them to HMRC.
Businesses, no matter if they are big or small, should always look to hire the services of a tax accountant. There are so many types of taxes and different bands and brackets within each type that you will need a qualified and experienced professional accountant to help to guide you through it all. The penalties for incorrect, false or late tax returns and payments can range anywhere from a fine to imprisonment so it is vital that your accounts are up to date and in order.
How much does a tax accountant cost?
The amount you can expect to pay for a tax accountant will depend greatly on the type of work you would like them to do for you, as well as the amount of work involved.
Benefits of tax accounting
The world of taxation is notoriously complicated, long- winded and often confusing. Tax accountants spend years studying taxes and the best practices involved in the calculation and payment of taxes. This is why they can be tso beneficial to any business and self-employed individual.
With penalties for non-compliance, non-payment and underpayment of taxes being as extreme as imprisonment, your business’ future is reliant upon you being able to trust that your financial affairs are in order and your taxes are paid up to date and filed correctly. A tax accountant is invaluable in this process.
If you employ the services of a professional tax accountant who is part of one of the major institutes or professional bodies then you can rest assured that your taxes and finances are in capable hands. Thanks to heavy industry regulation and high standards of practice, you can be safe in the knowledge that while you may not fully understand the implications of each tax, your tax accountant does.
Almost every working adult in the UK is subject to taxes. While many of us may complain about paying our taxes, without them the government would struggle to fund vital public services such as the NHS, education, the welfare state and much more besides.
For businesses, corporations and the self-employed however, taxes become slightly more complicated as they cannot simply be deducted on a pay-as-you-earn basis like they can be for employed individuals. This is where the services of a tax accountant become so important.
A professionally registered and qualified tax accountant can help you to get your financial records in order and calculate your tax bill for you to ensure that you will always be paying the right amount of tax. They can also help to plan and implement a tax strategy to help you avoid paying too much tax in the future. Whether you run a large corporation or are a self-employed sole trader; you shouldn’t underestimate the importance of having a tax accountant on board.
If you are yet to hire a tax accountant and are looking for a reliable and trustworthy accountancy firm, then look no further than Perrigo Consultants. Our qualified and highly trained tax accountants have years of experience working with an array of businesses across a wide range of industries and can offer a quality service and support which is second to none. We offer competitive prices and can put together a tax accountancy package which is as unique and individual as you are.
Tax accountancy saves you time and money and eliminates the stress and worry around filing accurate tax returns on time.