1. UK TAXATION, VAT & ACCOUNTING REQUIREMENTS Please note that Hurkan Sayman & Co do not take any responsibility for the information used or acted upon in this presentation. :

2. UK TAXATION THERE ARE OVER 100 DIFFERENT TAXES IN THE UK.

3. UK TAXATION THERE ARE OVER 100 DIFFERENT TAXES IN THE UK. THEY INCLUDE:

4. UK TAXATION THERE ARE OVER 100 DIFFERENT TAXES IN THE UK. THEY INCLUDE: INCOME TAX

5. UK TAXATION THERE ARE OVER 100 DIFFERENT TAXES IN THE UK. THEY INCLUDE: INCOME TAX CORPORATON TAX

6. UK TAXATION THERE ARE OVER 100 DIFFERENT TAXES IN THE UK. THEY INCLUDE: INCOME TAX CORPORATON TAX VALUE ADDED

7. UK TAXATION THERE ARE OVER 100 DIFFERENT TAXES IN THE UK. THEY INCLUDE: INCOME TAX CORPORATON TAX VALUE ADDED STAMP DUTY

8. UK TAXATION THERE ARE OVER 100 DIFFERENT TAXES IN THE UK. THEY INCLUDE: INCOME TAX CORPORATON TAX VALUE ADDED STAMP DUTY CAPITAL GAINS TAX

9. UK TAXATION THERE ARE OVER 100 DIFFERENT TAXES IN THE UK. THEY INCLUDE: INCOME TAX CORPORATON TAX VALUE ADDED STAMP DUTY CAPITAL GAINS TAX INHERITANCE TAX

10. UK TAXATION THERE ARE OVER 100 DIFFERENT TAXES IN THE UK. THEY INCLUDE: INCOME TAX CORPORATON TAX VALUE ADDED STAMP DUTY CAPITAL GAINS TAX INHERITANCE TAX NATIONAL INSURANCE

11. UK TAXATION WHICH TAX?

12. UK TAXATION WHICH TAX? DEPENDS ON TRADING VEHICLE, TYPE OF INCOME OR EXPENDITURE.

13. UK TAXATION WHAT DO WE MEAN BY “TRADING VEHICLE”?

14. UK TAXATION WHAT DO WE MEAN BY “TRADING VEHICLE”? SOLE TRADER One person, Owns and runs a Business in their Name. For example: Mr X Trading as White Star Engineering

15. UK TAXATION WHAT DO WE MEAN BY “TRADING VEHICLE”? Partnership Two or more persons Own and run one or More businesses in Their joint names: For example: Mr X and Mr Y Trading as White Star Engineering

16. UK TAXATION WHAT DO WE MEAN BY “TRADING VEHICLE”? Limited Company One or more persons Own shares in a Limited Company and business is Run through this company For example: White Star Engineering Limited Companies House White Star Engineering Ltd Certificate of Incorporation 15 th October 2010 Company no: 01234567

17. UK TAXATION These three are probably the most popular trading vehicles.

18. UK TAXATION These three are probably the most popular trading vehicles. Other trading vehicles include:

19. UK TAXATION These three are probably the most popular trading vehicles. Other trading vehicles include: Limited Liability Partnership (LLP)

20. UK TAXATION These three are probably the most popular trading vehicles. Other trading vehicles include: Limited Liability Partnership (LLP) Joint venture

21. UK TAXATION These three are probably the most popular trading vehicles. Other trading vehicles include: Limited Liability Partnership (LLP) Joint venture Consortium

22. UK TAXATION These three are probably the most popular trading vehicles. Other trading vehicles include: Limited Liability Partnership (LLP) Joint venture Consortium Overseas branch

23. UK TAXATION Which “trading vehicle” is the most appropriate?

24. UK TAXATION Which “trading vehicle” is the most appropriate? Sole trader; and/or Partnership In order to be able to trade in own name will need to have a business visa or leave to remain in the UK

25. UK TAXATION Which “trading vehicle” is the most appropriate? Limited Company No restrictions to own shares in a UK based company. Can also be a director, but at least one director in the company must hold a business visa, leave to remain in the UK and/or be a British Citizen

26. UK TAXATION Is it easy to set up a “trading vehicle”?

27. UK TAXATION Is it easy to set up a “trading vehicle”? Individuals meeting requirements can register self employed on line or complete a form CWF1 and submit them to HM Revenue & Customs (HMRC)

28. UK TAXATION Is it easy to set up a “trading vehicle”? Individuals meeting requirements can register self employed on line or complete a form CWF1 and submit them to HM Revenue & Customs (HMRC) They must also register with the Department of Work and Pensions (DWP) in order to pay self employed National Insurance, known as Class 2 NIC

29. UK TAXATION Is it easy to set up a “trading vehicle”? After a short period individuals will receive a “UTR” (Unique Taxpayer Reference). This is a ten digit number and once issued to an individual stays with them for “life”

30. UK TAXATION Is it easy to set up a “trading vehicle”? After a short period individuals will receive a “UTR” (Unique Taxpayer Reference). This is a ten digit number and once issued to an individual stays with them for “life” Partnerships will also receive a UTR number which is unique to that partnership

31. UK TAXATION Is it easy to set up a “trading vehicle”? Limited companies can be: Purchased “off the shelf”

32. UK TAXATION Is it easy to set up a “trading vehicle”? Limited companies can be: Purchased “off the shelf” Incorporated same day to order

33. UK TAXATION What tax will I pay once I have decided on my “trading vehicle”?

34. UK TAXATION What tax will I pay once I have decided on my “trading vehicle”? Individuals (including partners in a partnership) pay Income Tax on their “profits”

35. UK TAXATION What tax will I pay once I have decided on my “trading vehicle”? Individuals (including partners in a partnership) pay Income Tax on their “profits” Companies pay Corporation Tax on their “profits”

36. UK TAXATION When is the tax payable?

37. UK TAXATION When is the tax payable? Individuals have to pay their Income Tax (and Class 4 National Insurance) in advance on the 31 st January and the 31 st July each year (special provisions apply in the first year of trading).

38. UK TAXATION When is the tax payable? Companies pay their Corporation Tax nine months and one day after their accounting date. For example a company with a year end 31 st March 2010 will need to pay its Corporation Tax by the 1 st January 2011. Note: Special rules apply for “Large companies”

39. UK TAXATION How much tax is payable?

40. UK TAXATION How much tax is payable? Individuals (or partner in a partnership):

41. UK TAXATION How much tax is payable? Individuals (or partner in a partnership): First £6,475 Tax Free

42. UK TAXATION How much tax is payable? Individuals (or partner in a partnership): First £6,475 Tax Free Between £6,475 to £37,40020%

43. UK TAXATION How much tax is payable? Individuals (or partner in a partnership): First £6,475 Tax Free Between £6,475 to £37,400 20% Between £37,401 to £150,00040%

44. UK TAXATION How much tax is payable? Individuals (or partner in a partnership): First £6,475 Tax Free Between £6,475 to £37,400 20% Between £37,401 to £150,00040% Above £150,00050%

45. UK TAXATION How much tax is payable? Individuals (or partner in a partnership): First £6,475 Tax Free Between £6,475 to £37,400 20% Between £37,401 to £150,00040% Above £150,00050% PLUS: Class 4 National Insurance

46. UK TAXATION How much tax is payable? Individuals (or partner in a partnership): First £6,475 Tax Free Between £6,475 to £37,400 20% Between £37,401 to £150,00040% Above £150,00050% PLUS: Class 4 National Insurance 8% of annual profits between £5,715 and £43,875 1% of annual profits above £43,875

47. UK TAXATION How much tax is payable? Individuals (or partner in a partnership): First £6,475 Tax Free Between £6,475 to £37,400 20% Between £37,401 to £150,00040% Above £150,00050% PLUS: Class 4 National Insurance 8% of annual profits between £5,715 and £43,875 1% of annual profits above £43,875 Rates applicable for the tax year 2010/2011

48. UK TAXATION How much tax is payable? Companies:

49. UK TAXATION How much tax is payable? Companies: “Small companies rate” – Up to £300,00021% “Full rate” – Above £1,500,00028% Between £300,000 and £1,500,000 the effective rate of tax is 29.75% Companies with accounting periods commencing 1 st April 2010

50. UK TAXATION How do we notify HM Revenue and Customs on the amount of “taxable profits” Partnerships: Have to submit a Tax Return noting the trading profits of the partnership and any other income, such as bank interest. The Return form also informs HMRC on the amount of profits and other income allocated to each individual partner.

51. UK TAXATION How do we notify HM Revenue and Customs on the amount of “taxable profits” Individuals: Also have to submit a Tax Return noting their own personal income in the tax year (including any share of profits from a partnership). This includes income from sources outside the UK (unless non-domicile).

52. UK TAXATION How do we notify HM Revenue and Customs on the amount of “taxable profits” Companies: Have to submit a form known as a CT600.

53. UK TAXATION What if these forms are not sent to HM Revenue and Customs?

54. UK TAXATION What if these forms are not sent to HM Revenue and Customs? YOU WILL BE FINED

55. UK TAXATION What if these forms are not sent to HM Revenue and Customs? YOU WILL BE FINED And If after being fined the forms are still not submitted HMRC will estimate the tax due.

56. UK VALUE ADDED TAX What is VAT?

57. UK VALUE ADDED TAX What is VAT? VAT is a tax on the supply of goods AND services AND imports which is charged at each stage in the supply chain as goods and services flow from one trader to another. It is NOT a tax on profits. VAT is charged on: – The supply of goods and services in the UK; – The acquisition of goods in the UK from another EU country; and – The importation of goods from outside the EU.

58. UK VALUE ADDED TAX The equivalent in Turkey is: KATMA DEĞER VERGISI (KDV)

59. UK VALUE ADDED TAX Taxable Person VAT is a transaction-based tax, and the charge is levied on all UK supplies of goods and services that are: – Made by a taxable person in the course of a business in return for “consideration”; and – Not exempted from, or specifically outside the scope of, VAT. Under UK legislation a taxable person is an individual, firm, company or trading entity who is either registered for VAT, or required to be so.

60. UK VALUE ADDED TAX Registering for VAT In the UK a person is required to be registered for VAT if he makes taxable supplies above certain value limits (currently £70,000). Traders below this limit can choose to be registered voluntarily. Registration is a simple process: Individuals or Companies will need to complete form VAT1 and submit paper copy by post or on line; Partnerships will also need to complete form VAT2.

61. UK VALUE ADDED TAX Registering for VAT Once the application has been submitted the VAT number will be sent (in the form of a VAT Registration Certificate) between 2- 6 weeks. The VAT number is a unique 9 digit code, which must be quoted on all invoices.

62. UK VALUE ADDED TAX Place of supply For a transaction to fall within the scope of UK VAT it must be made in the UK. It is therefore necessary to determine the “place of supply”. To be treated as supplied as supplied in the UK goods must be either: – Located and supplied in the UK; or – Installed or assembled in the UK.

63. UK VALUE ADDED TAX Output Tax Output tax must be charged on all taxable supplies at the appropriate VAT rate, depending upon whether they are:

64. UK VALUE ADDED TAX Output Tax Output tax must be charged on all taxable supplies at the appropriate VAT rate, depending upon whether they are: Standard-rated17.5% (20% from 1.1.2011)

65. UK VALUE ADDED TAX Output Tax Output tax must be charged on all taxable supplies at the appropriate VAT rate, depending upon whether they are: Standard-rated17.5% (20% from 1.1.2011) Reduced-rated 5.0%

66. UK VALUE ADDED TAX Output Tax Output tax must be charged on all taxable supplies at the appropriate VAT rate, depending upon whether they are: Standard-rated17.5% (20% from 1.1.2011) Reduced-rated 5.0% Zero-rated 0.0%

67. UK VALUE ADDED TAX Input Tax Input tax is incurred on all taxable purchases made by a trader in the course of his business. This tax is recovered by offsetting it against any output tax charged by the trader. The net figure after this offset is either paid to or repaid by HMRC as appropriate. VAT is therefore only a real cost when charged to an end consumer.

68. UK VALUE ADDED TAX Input Tax Example: White Star Engineering Limited made the following transactions in the three months ended the 30 th September 2010: Net AmountVAT Amount Sales 100,000 17,500.00 Purchases 70,000 10,500.00 ====== ------------- VAT Payable 7,500.00 ========

69. UK VALUE ADDED TAX Input Tax – Import VAT Import VAT is also payable on importation from non-EU countries (unless deferment applies), eg Turkey. Payment is normally made by the importer or his agent following completion of: – An import declaration (SAD form C88); and – A declaration of value (form C105A, C105B or C109A) VAT registered traders can recover import VAT as input tax in their VAT returns.

70. UK VALUE ADDED TAX Normal compliance The VAT compliance regime is “self-administered”. VAT returns are generally made for a 3 month period, known as the VAT period. When registering for VAT each person is allocated a VAT period. To spread the VAT cycle, different persons will have different return periods ending in different months.

71. UK VALUE ADDED TAX Normal compliance A registered trader can however apply to HMRC to change the allocated cycle so that it coincides with its accounting year end. HMRC may authorise a trader to complete monthly returns. This is generally reserved for businesses that generally receive refunds. Smaller businesses can also apply to operate an annual accounting scheme where only one VAT Return is submitted

72. UK VALUE ADDED TAX Exempt supplies VAT is not due on exempt supplies. A person making only exempt supplies will not be liable to register for VAT.

73. UK VALUE ADDED TAX Exempt supplies VAT is not due on exempt supplies. A person making only exempt supplies will not be liable to register for VAT. Where a person makes both exempt and taxable supplies in the course of business: – Income from the exempt supplies does not count towards the value of taxable supplies for registration threshold purposes; and

74. UK VALUE ADDED TAX Exempt supplies VAT is not due on exempt supplies. A person making only exempt supplies will not be liable to register for VAT. Where a person makes both exempt and taxable supplies in the course of business: – Income from the exempt supplies does not count towards the value of taxable supplies for registration threshold purposes; and – Input tax incurred in the course of making the exempt supplies is irrecoverable, subject to certain de minimis limits.

75. UK VALUE ADDED TAX Exempt supplies The most commons ones are: – Finance (foreign exchange, credit facilities etc); – Land (complex exceptions apply); – Charity fund-raising events (includes admission charges); – Cultural services (entrance to museums, galleries); – Education (private lessons, examination services) – Sports competitions – Health and welfare (supplies made by doctors, dentists, opticians etc) – Insurance

76. UK VALUE ADDED TAX Exempt supplies - continued – Antiques, works of art etc from historic homes; – Betting, gaming and lotteries (Whether lawful or not!); – Burial and cremation – Investment gold (gold coins, bars) – Postal services supplied by the Post Office

77. UK VALUE ADDED TAX Time of supply – Output tax There are TWO rules: the basic and actual tax point.

78. UK VALUE ADDED TAX Time of supply – Output tax There are TWO rules: the basic and actual tax point. Basic tax point Goods – Date that the goods are removed (or made available) to the recipient

79. UK VALUE ADDED TAX Time of supply – Output tax There are TWO rules: the basic and actual tax point. Basic tax point Goods – Date that the goods are removed (or made available) to the recipient Services – Date that the services are performed

80. UK VALUE ADDED TAX Time of supply – Output tax There are TWO rules: the basic and actual tax point. Actual tax point Either the date of:

81. UK VALUE ADDED TAX Time of supply – Output tax There are TWO rules: the basic and actual tax point. Actual tax point Either the date of: a.Issue of a VAT invoice if it is either: – Before the basic tax point; or – Up to 14 days after the basic tax point;

82. UK VALUE ADDED TAX Time of supply – Output tax There are TWO rules: the basic and actual tax point. Actual tax point Either the date of: a.Issue of a VAT invoice if it is either: – Before the basic tax point; or – Up to 14 days after the basic tax point; or b.Payment if it before the basic tax point

83. UK VALUE ADDED TAX Time of supply – Output tax Example White Star Engineering Limited undertakes the following transaction: On the 20 th August 2010 a pro-forma invoice was issued to Mood Limited. On the 23 rd August 2010 Mood Limited made full payment. On the 1 st September 2010 goods were supplied to Moon Limited. On the 8 th October 2010 a VAT invoice was issued. What is the actual tax point?

84. UK VALUE ADDED TAX Time of supply – Output tax Example White Star Engineering Limited undertakes the following transaction: On the 20 th August 2010 a pro-forma invoice was issued to Mood Limited. On the 23 rd August 2010 Mood Limited made full payment. On the 1 st September 2010 goods were supplied to Moon Limited. On the 8 th October 2010 a VAT invoice was issued. What is the actual tax point?23 rd August 2010, i.e. payment date If the company’s VAT return was for the 3 months ended the 30 th September 2010 the VAT would be due in this quarter even though the invoice was issued AFTER this date.

85. UK VALUE ADDED TAX Accounting records – period of retention and nature General requirements Records that can accurately verify the VAT return must be retained for a minimum of 6 years, unless HMRC agree to a shorter period (usually because the business has storage problems or is subjected to undue expense).

86. UK VALUE ADDED TAX Accounting records – period of retention and nature What is meant by “records”?

87. UK VALUE ADDED TAX Accounting records – period of retention and nature What is meant by “records”? Business and accounting records Includes annual accounts, delivery notes, cash and other accounting books, purchase and sales books, records of daily takings, business correspondence, bank statements and paying in books

88. UK VALUE ADDED TAX Accounting records – period of retention and nature What is meant by “records”? Business and accounting records Includes annual accounts, delivery notes, cash and other accounting books, purchase and sales books, records of daily takings, business correspondence, bank statements and paying in books Copies of all VAT invoices issued May be on paper, computer or other media

89. UK VALUE ADDED TAX Accounting records – period of retention and nature What is meant by “records”? - continued All VAT invoices received from suppliers Credit notes and debit notes Documentation relating to cross border trade VAT account

90. UK VALUE ADDED TAX Payment of VAT The payment regime depends on the size of the trader’s VAT liability. For “normal” businesses, payment* is usually made at the same time as the submission of the return. However, if the annual VAT liability exceeds £2 million, the rules for “very large traders” apply and payments on account apply. *If paying electronically 7 extra days

91. UK VALUE ADDED TAX Payment of VAT - continued “Very large traders, with an annual VAT liability in excess of £2 million, VAT payments must usually be made in advance via estimated monthly instalments*, as notified by HMRC. However, instead of paying estimates, there are two alternative monthly payment mechanisms as follows: – Submitting and paying monthly returns; or – Paying the actual liability monthly while still submitting quarterly returns. * Calculation is based on previous 12 months VAT liability

92. UK VALUE ADDED TAX Penalties and fines There are two types of penalties for failing to comply with VAT legislation: – Civil Penalties, which are used to comply with most aspects of VAT compliance

93. UK VALUE ADDED TAX Penalties and fines There are two types of penalties for failing to comply with VAT legislation: – Civil Penalties, which are used to comply with most aspects of VAT compliance; and – Criminal penalties, Criminal proceedings are normally only taken in serious fraud cases.

94. UK VALUE ADDED TAX Penalties and fines Civil penalties can range from a fixed amount (from £50 up to £1,500) to a percentage of the VAT amount involved (from 5% to 100%).

95. UK VALUE ADDED TAX Penalties and fines Examples of Civil penalties include: – Failure to preserve accounting records; – Failure to submit VAT returns or pay VAT; – Failure to provide information when requested; – Failure to register for VAT; and – Many more………

96. UK VALUE ADDED TAX Penalties and fines Reasons for undertaking criminal proceedings include: – Evading VAT (eg Fraudulent evasion of VAT); – Relating to documents and statements (eg producing a false document, false accounting); and – Offences in relation to HMRC officers (eg bribery). Being found guilty, or admitting guilt, can lead to an unlimited penalty and/or imprisonment of up to 10 years.

97. ACCOUNTING REQUIREMENTS IN ENGLAND & WALES Basic Requirements – All trading entities are required to prepare annual accounts;

98. ACCOUNTING REQUIREMENTS IN ENGLAND & WALES Basic Requirements – All trading entities are required to prepare annual accounts; – Generally, there is no statutory “year end”;

99. ACCOUNTING REQUIREMENTS IN ENGLAND & WALES Basic Requirements – All trading entities are required to prepare annual accounts; – Generally, there is no statutory “year end”; – Sole traders and partnership accounts do not require an audit and their accounts only need to follow basic accepted accounting principles;

100. ACCOUNTING REQUIREMENTS IN ENGLAND & WALES Basic Requirements – All trading entities are required to prepare annual accounts; – Generally, there is no statutory “year end”; – Sole traders and partnership accounts do not require an audit and their accounts only need to follow basic accepted accounting principles; – “Small companies” do not require an audit but their accounts have to follow various guidelines and statutes (SORP, FRSSE, IFRS, Companies Act 2006);

101. ACCOUNTING REQUIREMENTS IN ENGLAND & WALES Basic Requirements – All trading entities are required to prepare annual accounts; – Generally, there is no statutory “year end”; – Sole traders and partnership accounts do not require an audit and their accounts only need to follow basic accepted accounting principles; – “Small companies” do not require an audit but their accounts have to follow various guidelines and statutes (SORP, FRSSE, IFRS, Companies Act 2006); and – Companies exceeding audit threshold must prepare audited accounts.

102. ACCOUNTING REQUIREMENTS IN ENGLAND & WALES Annual accounts – sole trader and partnerships A typical set of annual accounts will contain the following: – A front sheet – An accountants’ report (unaudited); – A profit and loss account – A balance sheet; and – Notes to the accounts In addition a schedule will be prepared reconciling the profit per the trading accounts to the “taxable profits” (Sch DI)

103. ACCOUNTING REQUIREMENTS IN ENGLAND & WALES Annual accounts – Limited companies A typical set of annual accounts will contain the following: – A front sheet – A Directors’ report – An accountants’/auditors’ report; – A profit and loss account (summary); – A balance sheet; – Notes to the accounts; and – A detailed profit and loss account In addition a schedule will be prepared reconciling the profit per the trading accounts to the “taxable profits” (Sch DI)

104. ACCOUNTING REQUIREMENTS IN ENGLAND & WALES Annual accounts – VAT Where a trader is registered for VAT the figures stated in the annual accounts are always exclusive of VAT.

105. ACCOUNTING REQUIREMENTS IN ENGLAND & WALES Year end As stated previously there is no “statutory fixed year end” applicable in England and Wales. However, the tax year runs to the 5 th April (or for convenience purposes the 31 st March is acceptable). Many businesses in their first period of trading have long or short periods to coincide with the tax year.

106. ACCOUNTING REQUIREMENTS IN ENGLAND & WALES Filing Requirements – Sole traders and partnerships There is no requirement to file annual accounts with HMRC. The figures are submitted in a set format via the traders annual Tax Return.

107. ACCOUNTING REQUIREMENTS IN ENGLAND & WALES Filing Requirements – Limited Companies Companies have to file their accounts annually at “Companies House”. Failure to file the accounts on time will lead to automatic penalties ranging from £150 to £3,000. Filing deadlines depend if the company is a Limited company, a PLC or an LLP.

108. ACCOUNTING REQUIREMENTS IN ENGLAND & WALES Filing Requirements – Limited Companies Company accounts also have to comply with the Companies Act 2006. Failure to do so will result in the accounts being rejected. 1 in 10 accounts are rejected by Companies House and can result in a fine if the amended accounts are submitted late.

109. ACCOUNTING REQUIREMENTS IN ENGLAND & WALES Accounting records All accounting records used in the preparation of the annual accounts must be kept for a minimum of 6 years (from the end of the accounting or tax period). These records are as the same for VAT but also include the wages or payroll records.

110. ACCOUNTING REQUIREMENTS IN ENGLAND & WALES Who can prepare accounts? Sole traders and partnerships – Anyone!!

111. ACCOUNTING REQUIREMENTS IN ENGLAND & WALES Who can prepare accounts? Sole traders and partnerships – Anyone!! Limited Accounts – Unaudited – Anyone!!

112. ACCOUNTING REQUIREMENTS IN ENGLAND & WALES Who can prepare accounts? Sole traders and partnerships – Anyone!! Limited Accounts – Unaudited – Anyone!! PLC’s and Audited Accounts – Firm’s authorised to carry out Audits.

113. ACCOUNTING REQUIREMENTS IN ENGLAND & WALES Association of Chartered Certified Accountants Chartered Institute of Management Accountants The Chartered Institute of Pubic Finance Accountants The Main Chartered Accountancy Bodies