Part 1, in which I learn about accountancy and tax
OK, let’s start with a confession and a declaration of interest. I’ve been using M&S for my accounts ever since I started out on path to the self-employment, well over five years ago. Prior to that, a career climbing the corporate ladder meant that I had regular contact with accountants – almost daily with a Management Accountant (whose job, as I described it, was to protect me from the results of my own stupidity), and very regularly with the CEO and CFO, both of whom were accountants and whose job consisted largely of grilling me and the rest of the board as to where the money was (in the recession it usually wasn’t). In other words, my knowledge of accounting was almost entirely centred around the monthly P&L, budgeting and trying to them work out how the company could make the numbers add up.
Since then, I’ve discovered a whole new side to the accountancy profession. Yes, they tend to conform to the stereotype (and why not – that’s why stereotypes exist), but they are also quite useful really.
When I set up my own business, I learned very quickly that there are many different legal entities – Limited companies, Limited Liability Partnerships, Sole Traders, etc. – and what form your business takes has an impact on how, when and how much tax you pay. I’d been used to my tax coming off my pay slip, so this was a brave new world. Despite having been an MD in a large ad agency, I had a lot to learn. In particular, having negotiated my way out, I required advice on what to do with my package. My former CEO told me that I’d have to pay tax on it. He’s an accountant; I presumed he would be right. After handing it to M&S, it transpired that, while he may have been an accountant, he wasn’t always right and rather than my being due money to HMRC they were actually due me some. Result!
The form of my business matters too. I am a sole-trader, which means that I have interesting conversations with other self-employed friends who, like me, are a one-man business but, unlike me, have Limited company status (and use different accountants). We compare notes. It’s very interesting and I’m glad to say that I don’t seem to have the same problems they sometimes do.
In the years since then, I’ve gradually become far more interested in how tax affects my business. Like many self-employed people, I’ve had ups and downs over the years, but unlike in my corporate life, where I simply took what the accountants gave me, now I feel I work in partnership with my accountant. So much so, that I suspect M&S are occasionally weary of my constant request – “Is this tax-deductible?”
This is the first of what will be a regular series of blogs, charting the progress, frustrations with HMRC (how long were you on the phone?), the perils of self-employment, the successes and, above all, the fact that I have learned far more in the last five years than I did in the previous ten at the corporate coalface. I’ll also tell you about the various things I’ve learned about the world of tax, and how this affects my business, sometimes for good, sometimes for ill. However, that’s for the future. Now, if you’ll excuse me, I’ve got a VAT return to do…
Alastair Blair, thePotentMix