limited liability partnerships

Posted by admin on February 15, 2016 in Business

In English and Scottish Law, a limited liability partnership (LLP) is essentially like a partnership but with liability for losses limited to the partners investment in the LLP. Limited liability partnerships were introduced to English and Scots law by the Limited liability partnerships act 2000. In essence, the act provides for the limited liability partnership to be a separate legal entity from the partners in the partnership, and limits the  partners liability on wind up to their contribution to the LLP.

LLPs must be incorporated at companies house. The law requires that two or more persons intending to go into partnership and partake in a legitimate business , subscribe their names to an incorporation document, which should then be delivered to the registrar of companies at companies house.

The incorporation document also sets out a number of things. This includes naming the persons whoo will be designated members, or stating that all the members will be designated members. Designated members function like the directors of Limited companies. They sign the accounts and appoint auditors where required. There must always be at least two designated members, and where two are not appointed, or there is only one, all members would be deemed to be designated members. Like all legislation, this may be subject to change.

Once all legal requirements have been fulfilled, the registrar retains the incorporation document or a copy of the original and issues a certificate of incorporation for the Limited liability partnership.

Limited liability partnerships have to submit accounts to companies house at least once a year. The accounts are not subject to companies act format, but accountants are guided by UK GAAP such as the Statement of Recommended Practice: Accounting by Limited Liability Partnerships, a SORP

LLPs have to submit a partnership tax return just liked standard partnerships and the individual members are subject to personal tax under self assessment. The members are taxed on their share of the LLPs profit or loss for the accounting period, plus any other income they have for the financial year.

The LLP structure offers the members a significant benefit over the traditional partnership. This is the limited liability element. And as the LLP has a legal personality, the members of an LLP are not held to be generally and severally liable for the actions of an individual member

This article is limited to the treatment of Limited Liability Partnerships in England and Scotland, and is not intended in anyway to represent Legal or professional advice. You should seek professional advice should you intend to go into a limited liability partnership.

Capital expenditure

Posted by admin on February 07, 2016 in Business

What is capital expenditure , and how do you record capital expenditure in the accounting records?
Capital expenditure for a business is the acquisition of an asset, or assets which will be used in the business for the conduct of that businesses operations for a considerable period, usually exceeding one accounting period. Thus the benefit of the capital asset, is expected to persist over multiple years.

When a small business buys a server computer for say £4,000 this is a fairly substantial out lay for a small company. Typically, a server will have an operational life of four to five years. The matching concept in accountancy requires that we match the expense to the period over which it is relevant.
In the case of our £4,000 server, that is four to five years depending on the companies replacement policy. Hence the full capital expenditure of £4,000 should be taken to fixed assets.

The capital expenditure of £4,000 is now released to the Profit and loss account via a depreciation charge. Typically, this will be the cost of £4,000 divided over the expected useful life of the asset. Assuming the choice is four years, a charge of £1,000 would be taken to profit and loss each year.
Some companies will elect to fine tune their depreciation charge in the year of initial capital expenditure to a monthly charge.

A server computer is an obvious example of capital expense, others include, printers, cars, factory machinery like lathes, tractors, robots, and many others. However, some items that might be thought of as maintenance , could actually fall under capital . There is a lot of legal precedent illuminating what may be considered capital expenditure. Its beyond the scope of this article to go into detail on these precedents.

However, one clear principle is that, where the work done , or additions to an existing asset, extend the utility of that asset, the expenditure should be considered as capital expenditure.

Thus if a building has been acquired in a derelict condition, unfit for use as a business premises, the cost of making it usable will be capital in nature. Thus, the cost of repairing windows, floors, painting , new bathroom fittings, labour costs, and all the associated costs, will have to be capitalised.

Similarly, when you buy accessories for a factory lathe machine which make it possible to make new items, the nature of your purchase will be capital.

In recognising capital expenditure, one generally capitalises only material expenditure. Thus, even if your £10 screw drivers are expected to last a couple of years, generally, you would charge small tools to maintenance or other suitable profit and loss accounts.

Tax relief for capital expenses is via the capital allowances regime, under which we also find the Annual investment allowance which became available on qualifying expenditure incurred after
6th April 2008 per the Finance act 2008. Plus there are many other allowances. Capital allowances will be looked at in another article.

Writing a business plan

Posted by admin on August 01, 2014 in Business

Writing a business plan is vital, on your road to a new business venture. A common saying is that if you don’t plan, you plan to fail.You will require a business plan for a number of reasons. These include:
The banks usually require a workable business plan from businesses before offering a number of services such overdraft facilities,loans .

Potential investors such as venture capitalists usually request a business plan from the entrepreneur.

A solid , well thought out business plan will act as strategic document for your business , setting out policies, procedures and targets for the business. Although you can structure your business plan as you wish, with time , some expected formats have developed and are like a CV for a new business.

A typical business plan would include sections like:
Executive Summary: This a brief summary of your business, states your objectives and briefly explains why you will succeed. it must command the attention of the reader immediately for credibility must be built from the very first page to the last page of your business plan. This applies to all business plan, whether intended for internal use or to be given to interested 3rd parties.

People and Operations: here you have the opportunity to introduce key personnel to the reader. The people who run the business and produce its output are always key to the success of the business. So , in addition to yourself, introduce experts whose services you have secured or make a statement about the recruitment policy you will pursue to secure the most capable staff.

Products and Services: Write about your products, introduce a few photographs of key , well known products.

Some other very important sections of a full business plan would include Market and Competitor Research, Competitor analysis, Marketing Plan, SWOT Analysis, Key Risk Areas, financial projections and appendix.

Financial projections: Business plan should always include a realistic financial model of the business.
This is the core of your business plan, and if these figures make sense, your business really has a chance. Investors might well spend the a lot of time testing your figures to make sure that they back up your stated intentions and are workable, realistic in the environment your business will be trading in.

Writing a business plan, that is credible, takes time,effort, knowledge and skill. A number of businesses can offer you writing services if you want a professionally produced plan. There are benefits to having your business plan produced by an independent, professional , third party.

You get a dispassionate review of your proposed business venture, the Business plan writer might be able to correct factual errors. The financial models required for a business plan can be quite complex, so getting a professional to handle this can be beneficial.

If you require assistance in writing a business plan or getting a financial projection done, please contact us.

Sole trader tax

Posted by admin on July 10, 2014 in Business

Sole trader tax is paid by self employed individuals, human persons in the generally accepted meaning of the word,in the UK. this article is a brief exploration of the accountancy requirements and the tax regime for sole traders.

Once you set up in business as a sole trader and start buying and selling goods or services, you must start keeping records of all your transactions. These records will be used to prepare your accounts and tax return at the end of the relevant tax year.

You must also notify HMRC that you have started trading. HMRC require that you should register by
5 October in your business’s second tax year. If not, you may incur a failure to notify penalty.

Self employed people generally report their income in line with the standard tax year, that is 6th April to 5th April the following year, however, Sole traders, who have accounts prepared, can choose to prepare their accounts to a different year end date. There are rules which govern the use of accounts for sole traders.

The accounts for a sole trader are not governed by companies act, and are not submitted to companies house, however, the accounts would have a similar structure and follow UK generally accepted accountancy practice.

As a sole trader, for the relevant tax year you would get a set off account prepared which would have a profit and loss statement showing the sales for the year against your expenses in the year , a balance sheet showing the Assets and liabilities attributable to your business as at your year end.

Although there is no legal separation between your affairs and the business, accounts for a sole trader enable interested third parties such as HMRC , creditors and suppliers to reliably measure your trade income. So if you are a part time IT consultant, the bank can separate how much you make from IT consulting from your other income from say a day time job in manufacturing. In certain circumstances, third parties will demand that your accounts have an accountants certificate affixed.

From your accounts, and your other income,you would then have to complete self assessment every tax year. Your sole trader income would usually be classed as trade income. In addition to your trade income, you could also have rental income, dividend income, interest income on savings. All these are considered in determining your eventual Sole trader tax liability.

A common source of concern is the treatment of assets retained in the business. Really small assets such as cheap hand tools would be treated as expenses in the year, but an expensive laptop would be treated as an asset in your accounts. Happily, you get capital allowances against your taxable profit for qualifying assets like laptops.

To find out more about sole trader tax , or running a business as a sole trader, do please contact us.

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