I've written two new factsheets for January 2012.

The first is a tax planning factsheet dealing with some of the major changes and challenges that our clients are facing at the moment, and more importantly, how to avoid the tax-traps and reduce your tax liabilities.

The second is a revised factsheet about IR35 written to update recent developments, such as the announcement that IR35 is here to stay, and also some worrying developments following recent court cases.

Yesterday the Treasury announced the end of ESC C16, which was where a company could apply for "capital" treatment when taking funds out of a company prior to it being struck off without limit.

Capital treatment allowed for use of the annual CGT allowance and also the far lower rate of entreprenneurs relief CGT, i.e. 10% instead of the potential 28%.

From 1/3/12, it will be replaced by a statutory relief which LIMITS the capital treatment to just £25,000, so in very simple terms, a company with over £25,000 to pay out to the owner prior to striking off will mean that the owner pays more tax.

HMRC announcement is:- http://www.hmrc.gov.uk/tiin/tiin-esc-c16.pdf

HMRC argue this is to counter avoidance/evasion, but that argument just doesn't stack up. In the announcement, it clearly claims that there will be no gain or loss in tax to the Treasury. Furthermore, there's nothing to stop a company using the formal liquidation route to get capital treatment on the full amount. Finally, it's actually worse, because using the concession required HMRC clearance where it would be hoped HMRC would pick up and reject any deliberate evasion or avoidance.

An e-petition has been started - http://epetitions.direct.gov.uk/petitions/25190 please sign it if this may apply to you. There's also an email address on the HMRC announcement link above for anyone to write in with their comments (or objections).

Don't get me wrong, I think spreadsheets are a very useful tool and use them a lot myself, BUT, only when used created and & properly, and for the right purposes!

I use them mostly for financial modelling, i.e. creation of spreadsheets for forecasting and budgetting, sensitivity analysis, break even analysis, and all manner of "what if" scenarios such as looking at tax liabilities at various levels of income and comparing tax as sole trader as opposed to limited company.

What I don't use them for, and to be blunt, hate client's using them for, is book-keeping and recording of historical information.  Spreadsheets are no substitute for a database.  Spreadsheets are far too easy to get wrong, either by formula errors, formatting errors, or plain and simple wrong data entry.  There seems to be a trend towards image rather than substance - more and more, I get spreadsheets which are beautifully presented, multi-coloured, perfectly formatted, but the numbers are complete garbage!

Almost every time I am presented with a spreadsheet by a client, I find fundamental errors.  Almost every time, I have to spend extra time finding and correcting the errors.   Sometimes it can literally take hours to discover the reason for a discrepancy.  Although I've been working with spreadsheets ever since Lotus 1-2-3 in the 1980s, even now sometimes a client surprises me with a new mistake that I've never seen before.

A recent one was where a client had "hidden" some rows rather than deleting them, so they were still included in all the totals, but didn't appear on the hard copies.  Obviously, the rows as presented didn't add up to the totals!

 Another classic case was where a client had include the pound sign when entering some numbers, but didn't include it when entering others, and then formatting it all to include pound signs - when you looked at it, all cells looked the same, but the cells containing the pound sign when input were in fact formatted as text instead of numbers and weren't included in the totals!

Then you have people who don't use the @sum formula for adding rows and columns, instead using A1+A2 etc which of course doesn't reflect row and columns added later without changing the formula (which most people forget to do).  Even worse, those who don't use formula at all, but actually add up the rows and columns by calculator and enter the totals by hand into the total boxes, which of course, don't get corrected when a figure in a cell gets changed!

So what do I suggest instead?  Well, how about some proper book-keeping software?  People are put off because they think it's too hard to learn, cumbersome and complicated.  Well, that was certainly true of the early book-keeping software, and could still be said of Sage, but there's a lot of new software that is far more user friendly and intuitive.  My personal favourite for simple historic record keeping is www.vtsoftware.co.uk which is remarkably easy to learn and use.  What's better is that you can download a free "cash book" version which records and analyses the "in's and out's" and is a brilliant substitute for a spreadsheet, with useful reporting, such as drill down to see how all figures are made up, and with the extra benefits of very easy bank reconciliation.

Why waste your time writing a spreadsheet for your book-keeping when you can freely download a proper book-keeping software that does exactly the same, and more, far more quickly and efficiently?

It's always fascinated me that most of the top entreprenneurs end up making their money doing something completely different from the first business they started.  It's also interesting that a lot of the top business owners are self-made, working up from lowly beginnings rather than growing a business on the back of a degree.  I feel it demonstrates the need for real life experience rather than relying on what you read in books.

I often tell people to start out by buying or starting a small, relatively safe, business, maybe a burger or ice cream van, market stall, or small shop/cafe, etc.  (I'm not saying these kinds of business are easy to run or risk free).  You do this, not for the purpose of making a shed load of cash, but for gaining the experience of running your first business in a relatively simple and low risk environment, even though it will probably be hard work and long hours. By doing so, you gain experience of book-keeping, tax, stock control, dealing with banks, suppliers, customers, accountants, insurers, banks and solicitors, employment regulations, dealing with the local councils, health & safety, not to mention sales and marketing.  After a year or two, you'll have a good grounding in all the mechanics of running the business and will be ready to move onto something more exciting.  Hopefully, you'll have made enough money to live on and maybe even make a profit when you sell on the business to someone else.  If not, then it's still probably been cheaper than a few years at Uni and a student loan to repay!

What's more important, though, is that you'll have made mistakes.  You may have chosen the wrong solicitor or accountant, or had horrendous dealings with your chosen bank, or messed up your book-keeping, or whatever.  But in a low risk environment, none of that has crippled you and you can learn from those mistakes.

At the same time, you'll also have made lots of valuable contacts, whether suppliers, maybe employees, maybe found a good insurance broker.  You now have plenty of experience in the mechanics of running a business - all the boring stuff that has to be dealt with but doesn't add value and may cripple your future business if you get it wrong.  You can "bank" and take your knowledge and contacts with you to your next venture.  You can "rinse and repeat" this process a few times, just like the housing ladder, you could climb a business ladder, going for larger and riskier businesses each time.

I recall a client who ended up a very successful businessman who started his business life with a clapped-out van doing a wet fish round and ended up running a large food processing factory, employing a few hundred people and selling to the major food chains, all from humble beginnings with virtually no money to his name and no relevant experience or qualifications -  achieved by working his way up through various food related businesses.

So if you've got a rock solid business idea, but don't have experience and don't have the money to develop it properly, why not think about "holding that thought" for a few years, do something else instead, and come back to it when you're in a better position to launch it when you're more likely to succeed.

It's a hot topic in the media at the moment, but what do we really mean by tax avoidance and evasion?

At one end of the scale, we have tax avoidance, more often termed tax planning, which is perfectly legal, and in its simplest and most popular form, includes savings in tax free ISAs and making pension contributions.  At the opposite end of the scale, we have illegal tax evasion, such as deliberately not declaring income (back-handers).  There is a vast chasm between these two extremes and a good deal of doubt as to where a person crosses the line between legal tax avoidance and illegal tax evasion.

Take a property that's is to be sold,  A perfectly legal and acceptable tax planning strategy would be to transfer the ownership between spouses or put it into joint ownership prior to marketing with a view to reducing capital gains tax.  However, illegal tax evasion could include lying to claim that the home was the owner's private residence or even worse, simply not declaring the sale at all.  However, some people would think it wrong for the owners to switch ownership in advance of the sale.

How about a plumber who doesn't declare his small cash jobs?  There's no doubt that it is illegal tax evasion, but some people would regard it as acceptable and nothing more than a perk of the job.  But, some would think that it's not just the tradesman offering cheaper prices "cash in hand", no VAT, no tax who is acting illegally - some would regard it as aiding and abetting for a householder to be willing to pay cash for a cheaper tax-free job!

So it's complicated enough at each extreme, but what about the middle ground.  It's perfectly legal for a business to convert from a sole trader to a limited company to save tax.  It's perfectly legal for a start up business to choose it's own year end to pay the least amount of tax.  Where does tax planning change from being legal avoidance to illegal evasion?

My own view is that it's fine for people to plan their affairs in whatever way they want to save tax, but the moment that lies and deception come into play, it moves beyond the line into illegal tax evasion.  I think that there are pleny of opportunities to reduce your tax bills by legal means, usually by careful forward planning, without the need to break the law.