Saturday, 20 December 2008

Spreading The Tax Burden

In the Pre Budget Report delivered by the Chancellor Alistair Darling on 24 November 2008, he said “at this time of real difficulty for many small businesses, they need ‘time to pay’ when meeting their tax bills. I intend to meet this need”.

This means that HMRC must now enable firms facing difficulties to spread their tax on a timetable they can afford.

This will apply to all business taxes. VAT, corporation tax, income tax and national insurance. And not for just for three to six months but for as long as they need.”

So How Does This Affect Us?

This now means that many businesses, who are struggling financially, do not have to get into difficulties paying their tax or VAT liabilities.

If you are going to struggle with your cash flow and have some payments to make to HMRC then make use of this service – now.

They will not make any surcharges for late payment as they would normally do, but there will, of course, be an interest charge.

The Business Payment Support Service however only applies to amounts that are about to become due, or are just overdue. They cannot deal with outstanding overdue payments where HMRC have already contacted you about payment. There are separate provisions in place to deal with the longer term debts, but, again, these are considerably improved on the original arrangements.

More details are available at: http://www.hmrc.gov.uk/pbr2008/business-payment.htm

What Do I Do?

Call 0845 302 1435 and talk about your circumstances to one of the advisors. They promise to give you a decision in about 10 minutes for straight forward cases.

What Do I Need To Do To Prepare?

You do need to do a little homework first. They will need your tax reference number, details of the amounts that you will have trouble paying and, in their words, “basic details of your businesses income and outgoings”. This really means you need to have done at least a basic cash flow forecast.

Before you call, spend a bit of time forecasting your cash flow out as far as you need to, so you can see with a good margin how quickly you will be able to repay the amounts due. There is no point in agreeing a deal that you cannot achieve, so spend some time beforehand getting to grips with where you are.

The Business Payment Support Service do have a mandate to resolve all calls within 4 days, although their aim is to deal with them when you call and put in place a ‘time to pay’ deal. It is critical that you are prepared before you call as this will give you the best chance of getting a deal that works for you.

Tuesday, 9 December 2008

It's a Gift!

The tax man doesn't let us get away with much, even at Christmas time, but one question we get asked a lot, at this time of year, is; "What can we actually claim for our Christmas entertaining?"

Most of these business owners will be looking to extend the Christmas spirit to both their staff and customers alike, so, what can we actually get away with at this festive time?

Staff Entertaining

Where a client provides a Christmas party or other social or sporting event, for their employees, which is open to employees only, the expenditure will be allowable.
Employees, for this purpose, include partners of employees. But beware. Although the expenditure is allowable as a tax deduction, if the bill totals more than £150 per head then then employees may have to pay tax on the entertainment received as a benefit in kind.

Entertaining Customers / Business Gifts

Business entertaining, including that of customers is, generally speaking, diasallowable, and has been for many years, regardless of the purpose of that expenditure.

Business gifts are also not allowed as a deduction against profits – they are treated the same way as entertaining expenditure.

In some instances, what appears to be a gift may actually be a part of the costs of a sale to a customer. For instance a bunch of flowers presented to a customer who has just purchased a new car would effectively have been paid for by the customer – it’s part of the cost of the car.
But there is an exception for gifts that are presented which contain a conspicuous advertisement for the business.
Provided the cumulative value given to any one person does not exceed £50 in any one accounting period then such gifts will be allowable for tax purposes. This would cover promotional goods such as pens or key-rings emblazoned with your name or logo.

Companies House Increases Late Filing Penalties

Not to be outdone by HMRC, Companies House have decided to significantly increase the penalties levied for late filing of accounts.

Small limited companies are required to file a copy of their accounts each year with Companies House.

If you file even one day past the filing deadline you will be penalised.

The new late filing penalties which will be levied from 1 February 2009 are increasing dramatically!

The new fines for private companies are:

Not more than 1 month - £150 (presently £100).

More than 1 month but not more than 3 months - £375 (presently £100).

More than 3 months but not more than 6 months - £750 (presently £250).

More than 6 months - £1,500 (presently £500 between 6 to 12 months, £1,000 over one year).
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The new fines for public companies are:

Not more than 1 month - £750 (presently £500).
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More than 1 month but not more than 3 months - £1,500 (presently £500).
More than 3 months but not more than 6 months - £3,000 (presently £1,000).

More than 6 months - £7,500 (presently £2,000 between 6 to 12 months, £5,000 over one year).

Additionally if you were late filing in the previous year (and the previous financial year had begun on or after 6 April 2008) the above fines are doubled.

The new fines also apply to flat management and dormant companies.

The message is clear. If you are responsible for the management of a limited company make sure you give yourself plenty of time to prepare and file accounts on time.

Monday, 24 November 2008

Pre Budget Report. A Summary

This afternoon saw the Chancellor, Alistair Darling, present his pre budget report to the nation, including one or two announcements we all expected.

So how does this affect most of us, and what are the first reactions to this PBR. In this post, we will take a quick look at the highs and lows of the budget, and quantify the impact on our pockets.

Initial Reaction

The financial markets have rallied slightly, even this soon after the announcements.

There are, however, concerns that this is a short term impact, whilst many analyse the long term implications. Much of the market has focused on the current instability of the economy, rather than it's long term sustainability, and, once these long term implications begin to sink in, the initial optimism may be dented somewhat.

This is, by far, the most 'socialist' budget from the current Labour Government, and is also a far more risky one, representing a major shift for the ever cautious Mr Brown and his government.

The main concerns are the, apparently, optimistic projections, from Mr Darling in respect of both future economic growth, and potential cost savings.

The Highs
  • VAT is to be reduced from 17.5% to 15 with effect from 1 December 2008. This will last for 13 months, until 31 December 2009, when it will revert back to its current rate.
  • The temporary £120 allowance for those who lost out when the 10% banding was scrapped is to be made permanent, with the amount rising to £145.

  • Pension credits will increase from £124 to £130 per week for single people.

  • The state pension will also increase, from £90.70 to £95.25, and every pensioner will receive a lump sum payment of £60. (£120 for couples).

  • The increase in child benefit will be moved forward, from April to January.

  • There will be a temporary increase in tax relief thresholds for empty properties. Also, some firms struggling to pay these, will be able to spread the timetable for payment.

  • £1bn has been promised for a temporary Small Business Finance Scheme.

  • An extra £100bn is being provided to help households improve insulation.

  • £15m is promised to offer debt advice.

  • Repossesion should be the last resort for mortgage lenders, with a 3 month grace period for those struggling to make payments.

  • The Government is seeking to find a further £5bn in effieciency savings in 2010/11

  • £3bn of capital spending will be brought forward from 2010/11, to include housing and road projects.

  • Taxpayers with genuine financial reasons, will now be able to spread payments of both tax and VAT over whatever period they can genuinely afford.

  • A proposed 1% increase in the Small Companies rate of Corporation Tax has been postphoned.

The Lows

  • The single most unpopular announcement in this PBR was the increase of 0.5% in all rates of national insurance, from April 2011. On the plus side, the starting point is to be raised to the level of income tax.

  • Again, from April 2011, a new 45% income tax rate will be charged to all those earning in excess of £150,000 per annum.

  • Alcohol, tobacco and petrol taxes will all be raised to offset the VAT cut.

  • Although deferred, and reduced on original plan, new vehicle excise duties will soon be introduced.

Conclusion

There is no doubt there are some positive aspects to this budget, but there are some serious doubts as to

(a) The credibility of the projections, and;

(b) The actual impact of these changes.

In order to fund the VAT cuts, The Chancellor is projecting borrowings next year of £78bn, rising to £118bn in the subsequent year. (Earlier in the year, he was projecting a peak borrowing of £38bn). This is also being funded, in the main, by the increases in national insurance contributions. There are concerns that Mr Darling's growth projections are unduly optimistic, which may then impact on the government's ability to repay these unprecedented levels of debt.

In the real world, how will these changes affect the majority of us? The VAT reduction has, in the main, been greeted very favourably, but, will it make that much of a difference?

There are concerns that a 2.5% reduction will not have a significant impact on spending, especially when many high street retailers are already having 'sales' of 20, 30 or more percent already. A much bigger impact (though not a positive one) is the practical issues, such as the cost and inconvenience of changing paperwork, product prices, web sites, signs, etc etc. This is particular annoying when we know it is only for 13 months, when we shall have to go through the whole process again.

There is also the concern arising for those of us on the flat rate scheme. (See our earlier post of today).

A brave PBR, but also a risky one. Time will tell if the gamble will pay off.

Anyone concerned as to the implications of the new VAT changes can check out the HMRC Guidance notes, at the following link. http://www.hmrc.gov.uk/pbr2008/measure1.htm

Proposed VAT Rate Reduction. Is It All Good?

This afternoon, in the Pre-Budget Report, one of the hugely anticipated announcements is the reduction in the standard VAT rate, from 17.5% to 15% (the minimum rate allowed without EEC approval).

It is expected that this will provide a kick start to the ailing economy, increasing consumer spending in the run up to Christmas.

But is it good news for everyone? What about those companies currently operating a Flat Rate VAT Scheme? Potentially, depending on the changes made, this could be a disastrous move for companies in that position.

So how will this arise?

Well, if we are paying under the Flat Rate Scheme, we pay a fixed percentage of turnover to HMRC, regardless of what we charge to our customers / clients.

A typical consultancy business, working from home (with a first year 1% discount) will currently be paying 10% of their turnover to HMRC, in the form of VAT. At present, they are charging 17.5% on their sales, giving them a 7.5% surplus.

If the rate reduces, as planned, they will still pay (unless changes are introduced) 10% to HMRC, but will only charge, on sales, 15%. This reduces the surplus to 5% of turnover.

Based on a turnover of £100,000, this reduction will cost the average business some £2,500. This could, however, be as much as £5,625, for a company operating at the upper threshold of £225,000.

So. We await the announcement with bated breath.

Will the Chancellor reduce VAT? If so, will he ammend the Flat Rate Scheme rates to compensate?

If not, there could be a large number of unhappy small business owners out there.

Watch this space.
***UPDATE***
It would appear that the flat rates are reducing, but (surprise, surprise) not by the same as the standard rate.
For example, the standard flat rate for 'other business services' has reduced from 11% to 9.5%, representing only a 1.5% fall, compared with a 2.5% fall for the standard rate. This means that anyone in this situation will be worse off to the tune of 1% of their total turnover.
Yet another stealth tax, the sceptics amongst you may be thinking.
Details of the new flat rates can be found at the following link, and are contained within Annex E.: http://www.hmrc.gov.uk/pbr2008/vat-guide-det.pdf

Sunday, 23 November 2008

1st Addition Sign Up For Bartercard

1st Addition Accountancy have, this month, signed up as members of Bartercard.

We have taken this decision for two main reasons:

1. The barter facility extended to us will fund the expansion of out Telford office, and;

2. Athough we have only been signed up for a week, we have already picked up two new clients through Bartercard.

How Bartercard Works

Since 1991, Bartercard has combined the latest technology and a global network of members to transform the traditional form of simple bartering into a flexible and modern business tool to meet the demanding needs of today’s businesses.

Bartercard enables member businesses to exchange goods and services with other member businesses without using valuable cash, or having to engage in the direct two-way swap of goods and/or services.Members gain access to a network of other member businesses. Each member is issued an account number, a transaction card, an interest free line of credit and access to Bartercard’s printed and online business directory, offering members a world of trading opportunities.

Members use their Bartercard transaction card to trade anything from stationery to real estate, all facilitated by Bartercard’s global transaction technology. Bartercard operates similar to the common credit and debit card systems, as operated by VISA and MasterCard.Members earn Bartercard Trade pounds for the goods and services they sell and this value is recorded electronically in the member’s account database.

The Bartercard Trade pound is recognised by the HMRC and financial institutions as having the same value as the one pound.This service particularly benefits the world’s largest business sector – small and medium enterprises (SMEs) – which are often faced with fluctuating cashflow, slow sales growth and high business financing rates.

How the Bartercard transaction works:

1. A Bartercard transaction is similar to a credit/debit card transaction. Members receive a plastic transaction card and an interest-free line of credit. Monthly statements detail member transactions and Trade pound balance.

2. Trade pounds are credited to the member’s Bartercard account upon the sale of goods and services through the exchange.

3. Members use their Bartercard transaction card to spend their credit balance, or draw on their interest-free line of credit, on goods and services from any other Bartercard member. Trading within the Bartercard system includes a number of transaction methods, such as electronic transactions via the internet, EFTPOS swipe card facilities, telephone, e-Commerce or by traditional transaction voucher.

In essence…Bartercard is a strategic business tool that acts as a third party record keeper for global business-to-business trading. It facilitates and monitors all purchases (debits) and sales (credits) undertaken by its members. Bartercard’s credit/debit system functions in the same way the MasterCard and Visa systems deliver service to cash-paying consumers.

Benefits of Barter:

Barter increases sales

A barter exchange markets your company to thousands of local, national and international businesses who are all potential customers. For example, as at 2006, Bartercard had over 4,000 member businesses in the UK and over 55,000 member businesses around the world to facilitate incremental business over and above your daily cash-paying customers. Businesses barter to purchase what they need or want, and pay for them with the additional sales of their goods or services.

Barter improves cashflow

Cash savings are the primary benefit of barter. Barter allows you, as a business owner, to pay for what you need with your own goods or services, allowing you to preserve working capital for other expenses. When you use barter, instead of cash, to purchase needed goods and services, you reduce your cash costs by paying for them with revenue generated by incremental barter sales. Making purchases with your Trade Pound means the payment is made with new sales - sales made by your exchange affiliation. Bartering helps reduce cash outlays for overhead costs. Many of the services offered through barter — such as accounting, cleaning, gifts, restaurant dining and travel — relate to overhead costs. Obtaining these overhead services through barter rather than writing out.

If you want to check out Bartercard for yourself, you can click on the title to this article, for a link direct to their web site.

Sunday, 9 November 2008

Home Business Report 2008. A Summary

October 2008 saw the launch of the BT Small Business Week, in conjunction with the publication of the Home Business Report 2008, featuring ourselves, 1st Addition Accountancy, as one of 16 case studies.

A link to this is given in our post of 13 October, however, this document is 54 pages long, so what, if any are the key findings?

Some of the more pertinent ones are listed below:

  • The 2008 report highlighted a 16% increase in businesses running from home.

  • This brings the total, in the UK, to over 2.5 Million. (Out of a total of 4.7 Million SMEs in the country).

  • Recent research, by O2, shows that many businesses are choosing not to renew their leases on business premises, and that 60% of those still in commercial property are considering giving it up to relocate back to a home environment.

  • Home based businesses now make a significant contribution to the economy, as expressed by Professor Colin Mason, of Strathclyde University; "The popular belief that home based businesses are part time, small and marginal does not reflect the reality. The majority provide work for other people, and just over half are generating revenues of more than £50,000 per year".

  • There are 5 key factors influencing the rapid growth of the home business sector:
  1. Reducing Costs (Primarily in terms of rent and travelling, but there are others).

  2. Increasing Income (Often in conjunction with another job).

  3. Greater Demand (More requirments for the niche products and services they provide).

  4. Lifestyle Choice (Offers freedom and flexibilty, thereby fitting in with family commitments).

  5. Advances In Technology (Allowing / assisting the increase in cost effective tele working).
  • This popular way of working shows no sign of slowing, with 71% of home based professionals believing they can grow or maintain their business levels throughout the current economic downturn.

  • The most popular ideas for entering into this market sector are currently via franchises, and the number of opportunities in this area are likely to rise significantly in the coming months.

  • Not all business for the home based Entrepreneur is locally sourced. Back, once again, to Professor Colin Mason, for words of wisdom; "Contrary to what might be expected, home based businesses are not excessively dependent on their local market for sales: only 47% derive more than half their sales locally, compared with 56% for other SMEs. Indeed, home based businesses are more likely than other SMEs to derive a high proportion of their sales from regional and UK markets".

  • 82% of home based business owners responded that technology was either critical, or very important as a factor, in enabling them to work from home.

  • A further 67% felt that technology had helped them to attain a better work / life balance.

  • So. What about the future? When asked what they would most like to see in their area, home businesses replied, in the majority, that they'd appreciate more events and networks tailored for their specific needs. Physical infrastructure (hubs live / work units, professional meeting space & enterprise units) came a close second.

The report is a comprehensive look at the home business sector, and includes 14 pages of survey data, giving a further insight into the world of the home based business owner. It's a sector of the market we ignore at our peril.

You can check out the Home Business Report 2008, in full, by clicking on the heading, at the top of this article.

Thursday, 16 October 2008


Waypoint Systems Ltd has been providing online applications to a wide range of SME’s since 2003 - specializing in the creation, development and maintenance of bespoke websites as well as online data collection systems.

In 2008 Waypoint launched two bespoke software applications, which have been developed in-house to suit the needs of their client mix. These are an e-commerce store and a website content management system – both of which are extendable and flexible enough to deal with Waypoints ever growing list of clients and industry sectors.

Olivia Willcocks is the Managing Director of Waypoint Systems and here, she shares her 10 top tips to check that your website is working for you.

(1) Ensure your website is up to date.
Keep on top of the content you have online, make sure you only have new and relevant news and that all the pages contain up to date material.

(2) Manage the content yourself.
Make sure you are able to change everything on your website and that you receive adequate training on how to do this. With a good system you should be able to change every word and image on your website including the metadata.

(3) Make sure you know how well your website is working for you.
Are you meeting the targets you set for the website? Do you know that you are – are you getting monthly statistics reports or do you get access to online statistics so you can ensure that your website works for you?

(4) Make sure you are in control of the metadata on each page.
Each page of your website should have its own set of keywords and you should be able to alter these yourself. The CMS element of your website should also let you know what are strong and weak keywords for that individual page. This will increase your search engine optimization ratings significantly.

(5) Purchase similar domain names.
By purchasing similar domain names to your primary domain name you will not only aid your search engine ratings but will also stop your competitors from purchasing them and pointing the domains to their website.

(6) Feel comfortable with your website supplier.
Having a holistic approach to your relationship with your website supplier will ensure that you are able to tell them exactly what you think and what you want – after all your website supplier is one of your top sales agents.

(7) Ensure your website has synergy with the other elements of your marketing mix.
It is imperative that the look and feel of your website resembles the other marketing material that you utilize within your company. Failure to do this can result in mixed and confusing messages being sent out to your potential clients.

(8) Use a bespoke CMS or e-commerce element that works for you.
Using a templated element to your website will leave you without the ability to expand your website as you grow. A bespoke solution tailored to suit your company needs will ensure that you can keep your web presence up to date and relevant at all times.

(9) Does your website pass W3C standards.
All websites should pass W3C standards – this is the World Wide Web Consortium and they are responsible for developing specifications and guidelines to lead the web to its full potential. These guidelines will include web accessibility – so ensuring that your website can be viewed by people with site disabilities for example.

(10) Publish your website.
Once you have a website that you are proud of make sure you publish it and advertise the URL on all your marketing equipment. This is especially important for online marketing in order for you to build up your link exchanges, which aid your search engine optimization.

For more information on anything covered in this article please contact Olivia A Willcocks (o.willcocks@waypointsystems.co.uk) or alternatively check out their website http://www.waypointsystems.co.uk/.

Wednesday, 15 October 2008

2008 Home Business Report

As planned, Enterprise Nation today released the 2008 Home Business Report.

Included within it's 54 pages are a number of profiles on 16 key small businesses in the UK, including ourselves, 1st Addition Accountancy Limited.
To view the report, click on the heading to this post, or the link below. Essential reading if you are a home based business.

Monday, 13 October 2008

Small Business Week 2008 Is Launched

Today sees the launch of Small Business Week 2008, starting today with a webinar, and the release of the 'State Of The Small Business Nation' report.

Later in the week, a the 2008 Home Business Report is due to be released also, and, amongst its contents, 16 case studies of expanding small businesses, including ourselves, 1st Addition Accountancy Limited. I shall be publishing this report to our blog, as soon as it is released.

In the meantime, please feel free to check out the Small Business Week website, at; http://www.sbw08.co.uk/

It's also worth checking out the State of The Small Business Nation report, at; http://www.visualwebcaster.com/imageslides/51544/2008%20State%20of%20the%20Nation%20Report.pdf

Thursday, 9 October 2008

The Difference Between Making A Will And Estate Planning

Pete Savage, MIPW, is an Estate Planning Consultant with DeedSafe Wills and Legal Services. In this brief feature, he gives us an insight into the importance of 'getting it right' before you go.

As Pete himself often reminds us, it's all about thinking outside the box before ending up inside one!

When people consider making a Will, experience has shown us that they will invariably think about leaving everything to their surviving spouse/partner on first death, then on second death to their children. This typical route has a host of hidden dangers which could mean your children are partially or totally disinherited. For example:

a) If after your death, your spouse/partner re-marries; their new spouse could inherit everything, not your children.
b) If you have children from a previous relationship; after your death your partner could change their Will to disinherit those children.
c) If you end up in a care home, your assets can be seized by the local authority to pay for your care.

Estate Planning is too important an area to risk making a do-it-yourself Will or to put in the hands of unqualified and unregulated so-called ‘will writers’.

A properly prepared Will can protect your family from all of the above scenarios.

You may also have specific wishes or situations which may need to be taken into consideration e.g. a disabled child or a beneficiary with acute behavioural problems or addictions. It would be potentially harmful for these people to benefit directly from your Will but you may not want to disinherit them completely.

Also you may wish somebody such as a partner or elderly relative to be granted the right to live in your property after your death but to not necessarily inherit it. These situations can be dealt with within a correctly drafted Will.

Of course within your Will you can name the people you want to do the important jobs such as who should take over parental responsibility for your children if you should die while they are still minors. You will appoint people to look after your cash and other assets also.

Furthermore, if you have an accident or worse still, become mentally or physically incapable, who’s going to arrange your finances and pay your bills? What if it becomes desirable to sell your home? Even if your husband/wife is still alive and well, they cannot give your consent to do any of these things.

A Lasting Power of Attorney document ensures all these matters are dealt with and stops the wrong people gaining control of your finances.

For further advice on any of the above topics please contact:

Peter Savage on 0800 781 9371

Sunday, 28 September 2008

New Self Assessment Deadline for Manual Returns Is Just Weeks Away

HM Revenue and Customs (HMRC) has issued a reminder to anyone filing a Self Assessment tax return this year - there's now a new 31 October deadline for paper returns, and it's only weeks away.

Previously, both paper and online Self Assessment tax returns had to be filed by 31 January. But from this year, paper returns must be with HMRC by 31 October, or you could face a £100 penalty. The deadline for filing online returns remains 31 January.

If you file a paper tax return, you therefore need to get organised now. For example, start thinking about what information you need to complete your return, such as your P60, self employment accounts, records of your savings and investments, and details of any untaxed income.

Alternatively, you could switch to online filing. It's easy to register. Filing your tax return online has a number of advantages - your tax is calculated automatically, you get an immediate online acknowledgement once you've filed, and it's processed faster, so any money you are owed by HMRC is repaid more quickly.

Once you've filed your return, any tax due has to be paid by 31 January, whether you file on paper or online.

Buy-To-Let Landlords Beware

HM Revenue & Customs have cottoned on to the substantial buy-to-let market out there, and are now targeting landlords who have failed to declare, and pay tax on, this income.

As agents, we are starting to receive letters stating; "I have information that suggests your client has received rental income from property that has not been included on their Tax Return. I need to verify if my information is correct, and, if they have received rents, to work out any tax that may be due."

Anyone receiving these letters should act immediately, as failure to do so could could incur additional financial penalties, and, ultimately, criminal prosecution.

An Inland Revenue spokesman said; "We are not planning a crackdown, or to otherwise target landlords. These letters are about helping customers with their tax affairs and answering common questions put to us by our landlord customers. It has got nothing to do with revenue raising. (Yeah, right, and and speed cameras are all about helping drivers with their driving skills).

The other impact of this strategy is that HMRC are seeking to gather information on buy-to-let properties, so that they can ensure these properties don't slip through the Capital Gains Tax net, when they are ultimately sold.

Thursday, 25 September 2008

8 Keys To Recession Proof Your Business

Have you noticed how often the words 'recession', 'economic downturn' and 'the credit crunch' are mentioned in the media these days?

Is your business starting to feel the pinch?

With businesses large and small downsizing and closing down, what are you doing to make sure your business isn't next?

Peter Lisney is a business development and copywriting specialist. He developed his first commercial website in 1998 and has been integrating online and offline marketing ever since.

He has produced a comprehensive 8 step guide to recession proofing your business.

We feel it's definately worth a look:


Why not check it out.

Sunday, 7 September 2008

Estate Planning & The Seven Year Rule

The Seven Year Rule allows us to gift an asset or some money to loved ones, whilst reducing your inheritance tax (IHT) bill. There is, however, a catch (isn't there always?) In order for the gift to be fully IHT exempt, you will need to survive for seven years after making the gift.

There is, currently, a £312,000 IHT threshold in place. This means that, on death, the first £312,000 of our estate will not be subject to IHT. Any amounts gifted above this amout will be subject to the Seven Year Rule, so we need to make sure that the receipients can afford to pay the bill.

There are other ways of making IHT exempt gifts. For example, you can give away an annual, tax free, allowance of up to £3,000 to family or friends. If this is not used in the first year, it can be carried forward to the next year only. So, if you've not done this before, you can gift up to £6,000 (bringing forward last year's allowance) in the first year. This means that a couple can gift £12,000 in the first year, and £6,000 per year thereafter.

Putting this money in trust for your children or grandchildren could give them a head start on the property ladder or pay for their education.

Elderly parents should review their estate as soon as possible, making sure they have an up to date will, and that loved ones know where it is.

Whether you provide care for them or not, they could look to make regular gifts from income to you (provided that, in doing so, they are not reducing the quality of their lifestyle).

These gifts (which can be for any amount) can fall outside their estate for IHT purposes. If they move into your home and contribute to running costs and bills, make sure a record is kept of all expenses, so you don't incur an unwelcome income tax or IHT bill.

As with all legislation, IHT law is subject to change, so always check out the current position when looking to make a gift of this nature.

Tuesday, 2 September 2008

National Minimum Wage Increases Next Month

From 1 October, the national minimum wage (NMW) hourly rates will be increased to the following rates:
  • Adult rate (workers aged 22 and over) will increase to £5.73.

  • Development rate for 18-21 year olds will increase to £4.77

  • Development rate for 16-17 year olds will increase to £3.53

The rate for accomodation offset will increase to £4.46 per day (weekly maximum £31.22).

For more information about the changes, or for general advice, call the NMW Helpline on 08456 000 678, or visit http://www.berr.gov.uk/employment/pay/national-minimum-wage/index.html

Stakeholder Pension Schemes

Stakeholder pension schemes were introduced on 6 April 2001, and are aimed at individuals on low earnings, with no pension provision.

Employers with five or more employees who do not provide access to a personal or occupational pension scheme, may be required by law to offer their employees access to a stakeholder pension scheme.

An employer can select a scheme by seeking the advice of an independent financial advisor, or by making their own enquiries. Having identified a scheme, the employer must ensure that the scheme is on the Pensions Regulator's register of stakeholder pensions, and consult with employees and their representatives about the choice of scheme.

Providing access to a stakeholder pension scheme does not mean the employer has to set it up and run it. It is up to the individual employee whether or not they decide to join a stakeholder pension scheme.

Employees who are members of stakeholder pension schemes pay National Insurance contributions at the standard not contracted-out rate, ie contribution Table letter A. Do not use any other Table letter. If an individual contracts-out of the State Second Pension using a stakeholder pension plan, HMRC will pay a rebate of National Insurance contributions into their stakeholder plan.

Information on stakeholder pensions can be found on the following sites:




Article reproduced from HM Revenue & Customs Employer Bulletin, Issue 30.

Monday, 25 August 2008

HMRC Introduces Streamlined Tax Returns And Extended Penalties

The self-assessment tax return for self employed people who do not use an accountant has been simplified, with fewer questions and easier language.
Questions about less common types of income and reliefs have been moved to the Additional Information pages, whilst there is a new two-page form for more straightforward, smaller businesses, with turnover below £64,000.

Although online SA Tax Returns still need to be filed by 31 January, the deadline for paper returns has been shortened to 31 October.

What the Tax Man giveth, he also taketh away!

The 2008 Finance Bill has also extended penalties for the period from 1 April 2008 (due to be filed by 1 April 2009)

HMRC will charge penalties for documents containing careless or deliberate inaccuracies that lead to understatement of tax liabilities, a false or inflated statement of loss, or inflated claim for the repayment of tax. Their aim is to crack down on those who do not comply, whilst helping those who do.

They suggest that reasonable care should be taken when completing forms because errors will be penalised, and recommend that early disclosure of errors will reduce those penalties.

Top Ten Money Making Tips For A Successful Business

Earlier this month, Sonia Colon, the lady behind My Fashion E-Mall Blog gave us some top tips on running a successful business. In this post, she takes a look at the top ten tips for maximising the earnings potential of a successful business.

1. Quality
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Provide a quality product/service which people want and need.
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2. Customer Loyalty/Service
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Help your customers feel that they can trust you. Be honest and trustworthy. Offer money back guarantees and stick to your policies. Treat your customers like gold.
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3. Offer something for free once in awhile
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Your customers concern is how your product can help them. How will it meet their needs; improve their lives; make them happier; etc. Offer something of value and they will buy what you’re selling.
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4. Creative / Unique
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Own and control your products/services. Offer something that only YOU can provide. Have exclusive control over at least one of your products/services. It should be something that people cannot find anywhere else and wanted by a lot of people.
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5. Make Money to Spend Money
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Spend money on advertising and promotion. Although there are many free methods to work within your budget, you will still need to spend some money in order to make money.
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6. Put back in what you harvest
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Take a portion of your profits and re-invest that money back into the business. Use that money to purchase more ads, brochures, catalogs, t-shirts, flyers, etc.
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7. Grow and Multiply
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Put others firstSatisfy the needs of others. Help them achieve their dreams. Show your expertise and in the process others will follow your lead.
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8. Seek the Help of Others
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Use services to help you reach a wider audience, such as dealers, distributors, Internet, customers and networking.
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9. Other Successful Business Owners
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Seek the advise of other successful people. Find someone who is making the kind of money that you want to make. Do exactly what they are doing, why re-invent the wheel?
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10. Get Personal
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Know your customers by name. Thank your customers and acknowledge them.
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There you have it the “Top ten money making tips for a successful business”
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Thanks again, Sonia!
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Sonia Colon is writer/publisher of My Fashion E-Mall Blog & The Biz Buzz of a Latina Mom Blog! Writing & sharing powerful business articles & successful Internet marketing tips on starting & maintaining a lucrative work-at-home business is a passion

New Personal Allowances From September


Next month, new changes will be implemented to personal tax allowances and bandings, as part of the Chancellor’s measures to offset the effects of the removal of the 10p in the pound tax band.

Personal Allowances for the 2008-09 tax year will be increased, by £600, to £6,035 (from the current £5,435). This will coincide with a reduction of the basic rate tax band limit from £36,000 to £34,800. (This is the income level, over which, we will pay higher rate tax).

If you are an employee, the changes will take effect on the first day on or after 7 September 2008, and will be back dated to the beginning of the tax year (April 2008). As self employed, these changes will be reflected in our 2008-09 Self Assessment Tax Return.

The changes will equate to an annual tax saving of around £120 per year (or £2.30 per week). Due to the backdating of the changes, depending on the date and amount they are paid, most employees will see a £60 or £70 reduction in their tax bill in the month of September or October respectively.

These changes are designed to benefit basic rate tax payers only. Higher rate tax payers will see no benefit at all, as the higher rate tax threshold has been reduced proportionately to counteract the increased personal allowances.

Sunday, 24 August 2008

HM Revenue & Customs Issue Notice of Frauds & Scams


Many people are currently in receipt of emails purporting to be from HM Revenue & Customs, and offering substantial rebates.

Although these emails appear to bear all the right logos and details, we should all be aware that they are fake, and, as with all such emails, we should never respond to an email that asks for personal information.

Whilst it is quite conceivable that HMRC may send out emails, from time to time, they would never do so requesting login names, passwords, bank and / or credit card details.

If you suspect you may have received one of these emails, under no circumstances should you follow any links within the mail, or disclose any of the information requested. Forward the mail to HMRC, at phishing@hmrc.gsi.gov.uk. Although HMRC can't, obviously, reply to every email, it will help with the reduction of online fraud.

If you have reason to believe to suspect that your personal details have been stolen, you should report the incident to your Internet Service Provider, as they are able to close down sites that subsequently prove to be fraudulent.

Friday, 15 August 2008

Top Tips On Improving Cash Flow With Jigsaw Business Services

After 20 years working with businesses to help them improve their cashflow, Julie Owen, of Jigsaw Business Services gives us some of her top tips on how we might be able to achieve some of these results within our own businesses.

1) Contracts, Letter of Engagement or Head of Terms

It may sound obvious but, whether you’re selling a service or product, do you have a document which your client has signed to say they would like to enter into an agreement with you? The detail of the item being purchased along with the cost and timescales should also be included in the document. Should your client dispute the level of service or goods provided, you can refer to this contract, letter of engagement or Head of Terms to ensure you have delivered what was agreed at the price agreed. This way your invoices are less likely to be disputed.

2) Consider Whether You Have The Right Business Processes in Place

How will you deliver the service or product? What processes does your business need to have in place to ensure the smooth delivery? Do you have the necessary project management quality systems in place? How many times have you ordered a product and something has arrived broken or missing? Having the right business processes in place can and will save companies money in the long term. Business processes should be tailored to your business and that doesn’t mean lots of endless form filling. Remember, only happy clients will signoff the service or product. Unhappy clients will leave your invoice to gather dust on their desks!Where a business is providing a service, whether a one off service or one which will take several months to deliver, think about when you will invoice the client. Could you ask for staged payments rather than wait until you’ve delivered the service before invoicing?

3) Invoicing

Once you’ve agreed the invoicing schedule for each client, put these into one document to make it easy to refer to and which will clearly state all your client invoices to be issued each month making it easy to know who to invoice when.

Don’t leave it until the end of the month before drafting and issuing your invoices. Invoice your clients as soon as you’ve delivered the product/service or at the agreed stages during the project.

Think about who drafts and issues the invoices, are they the right person to do this? What business processes do you have in place to ensure your invoices are issued efficiently? Do they include all the expenses i.e. travel, postage etc, you have incurred? These costs really can mount up over 12 months and, by not passing on these costs to your clients, will result in an erosion of your profit!Explore whether you can issue invoices earlier in the month. If you only invoice at the end of the month and your terms are 30 days, it is likely you will not receive payment until the end of the following month, i.e. when you have to pay salaries and VAT. So by issuing as many invoices as you can during the month, it hopefully means you will have monies coming in during the month hence reducing your business risk and for the need of overdrafts or loans.

4) Cash Control

Who does this task in your business? If you are a Managing Director or a Director, is this a good use of your time and skills? Are you effective enough i.e. are you to close to the situation, do you think you might upset your clients, so don’t talk to them about overdue monies owing? Are your clients settling invoices within the agreed business terms? If not, then why not? It is very important to think about this area and to be honest.

If you have a member of staff performing this role, review how effective they are. Have they received proper training? Do they actually chase clients for payment? I have come across many companies where staff don’t like chasing for monies owed and have even admitted they actually don’t do it, keeping busy on other tasks in order to ‘get out’ of having to pick up the phone.

In this current climate, clients are unlikely to settle invoices if they are not being actively chased. This will become more apparent over the coming months, and it’s very important for businesses to keep on top of debtors.

If a client consistently takes longer to settle invoices i.e. not as agreed in your business terms, then ask yourself the question: Do I want to continue to do business with them? The answer may be yes, but you are then making the conscious decision. By ensuring you have the right business processes and people in place performing the right tasks, it reduces the need for you to make this decision. A business can only afford to have 1 or 2 clients who may take longer to pay than the agreed business terms. If you have more, you need to give this some urgent attention.

5) Cash Flow

Can you project your cash flow at the end of any one week or month? Do you know when monies are due in and when payments need to be made?

By monitoring cash flow based on sales, purchases, direct debits and standing orders, you can easily see if your business is generating enough sales or whether your overheads are too high. Monitoring cashflow will give you an early indication that more sales are needed or a reduction in overheads is required. You can then make an informed decision as you are in control. So many businesses don’t have this system in place and are put in a position of taking large overdrafts or loans which only further impacts on the business.

Reading the above tips may well lead us to ask ourselves the all important question; "Am I in control of my business?" If the answer is; "Yes" then you probably have a healthy business. If not, then what are you going to do about it?


For a no-obligation informal conversation about any of the issues raised above, contact Julie, on 07973 715738, or visit http://www.jigsawbusinessservices.co.uk/

Sunday, 3 August 2008

Top 6 Tips For Business Success

Sonia Colon offers the six essential skills to business success. Sonia says you may not have developed all of these skills, but like most things in life, you can by learning, practicing and determination. Implement them and you’ll be on the right track.

1. Personal Skills

A healthy self esteem is necessary for you to tackle the day to day tasks of business. As an entrepreneur, you will spend a great deal of time working solo. Listen to your heart but consult your head before making final business decisions. Keep motivated by staying on track of plans and organization.

2. Communication Skills

You must sharpen your communication skills if they have become a little rusty. You may find yourself needing to communicate with lawyers, accountants, bank managers etc. You need to be able to get your message across clearly. Good communication will reduce the chance of being misunderstood. It’s essential to be able to communicate effectively at a variety of levels, in a variety of manners, to a variety of people. There are many self-help books on this topic.

3. People Skills

People will make or break your business. You will make or break your business. You are Your business. The way you deal with people will determine much of you business success. Good manners, politeness, and attentiveness to your customers’ needs are what will ensure repeat business. Customers need to feel that they are important to you.

4. Marketing Skills

To round off your entrepreneurial skills, you will have to have a sound knowledge of marketing your business. Marketing is the ability to communicate to your potential customers and inform them of your products and or services. Know how to define and target your market. You need to know what will work for your business. Read books, talk to others and observe how other types of businesses successfully market their businesses. Usually effective marketing involves a combination of many techniques that can change from time to time.

5. Technical Skills

Read books, attend seminars, workshops, trade shows and conferences to add to your technical knowledge and keep a leading edge on your competition. Don’t make the mistake of working at your business and forget to work on your business. Never cease your education in your area of expertise, and remember to keep up with the changing technology within your chosen field.

6. Financial Skills

You have to be financially knowledgeable in the business world. Your entrepreneurial knowledge should include basic accounting, organizational and administrative skills, an understanding of all tax laws, federal and provincial requirements, and an in-depth knowledge of the business that you are running.

It may sound like a lot to learn, but take heart. You can learn everything you need to know to run a successful business. No one was born a business HOT-SHOT. There are an abundance of courses offering business management training. There are also self-help books that can assist you with the financial aspects of your business needs.

Sonia Colon is writer/publisher of My Fashion E-Mall Blog & The Biz Buzz of a Latina Mom Blog! Writing & sharing powerful business articles & successful Internet marketing tips on starting & maintaining a lucrative work-at-home business is a passion.

Tuesday, 22 July 2008

Top Tips For Mortgages, From Gallimore Adams.

In the first of our features from our business partners, Laraine Adams, of independent mortage brokers, Galimore Adams Ltd, gives us a few top tips to help us make sense of our mortgages in this infamous 'credit crunch';

As everyone knows, today’s financial market is a tricky one. Not only has the number of mortgages available decreased dramatically, but the criteria for securing a mortgage has changed too. Here is a step by step guide to finding a new mortgage, and how to avoid the pitfalls.

1) Arm yourself with information

It may sound obvious but find out what rate your local bank is offering and note the competitor rates that are being advertised on the television and radio.

2) Consider how much of the work you want to do

If you are financially savvy, ensure you read the small print; in particular the rate, penalties, and the fees.

If you are not so confident, find a mortgage broker. Ask your friends and family if they can recommend someone. Perhaps do a Google search for mortgage advisers in your area and find out what ‘word of mouth’ has to say about them.

3) Narrowing down the options

Ensure the adviser you chose is ‘whole of market’. This means the adviser can look at all products available to them on the market, rather than just a specific panel of lenders.

Find out if the adviser charges fees. Charging a fee does not mean the advice you receive will be any better.

Ensure you choose an adviser you feel comfortable with. You need to trust them and feel confident they are going to find the best deal for you.

4) Adverse credit?

If you should have any adverse credit, do not just consider those brokers advertising that they specialise in poor credit histories. A whole of market adviser will have access to the same deals. And ensure you are upfront and honest with the adviser about your credit history.

5) Keep ALL of your options open

Some banks and building societies are offering rates that are only available if you go to them directly rather than through an adviser. A good adviser will tell you if you will benefit from going directly to a lender.

6) Protecting your mortgage

Don’t automatically take out payment protection in conjunction with your mortgage. This can be very expensive. Your adviser should discuss the protection you should consider and again the adviser can research the best deal for you.

As some lenders will only deal with you directly, do some research of your own as well. If you find a great PP deal that beats anything your adviser suggests, then ask your adviser to compare the cover. Again, a good adviser will be open and honest with you even if it means you take protection cover out elsewhere.

To find out more, contact Laraine or Laura, on 01952 463852, or why not check them out at http://www.gallimoreadams.co.uk/

Monday, 21 July 2008

Spreading The VAT Burden

As the credit crunch continues to bite, an increasing number of companies are finding that the ‘once a quarter’ cash flow burden of paying their VAT bill all in one go is placing mounting pressure on the purse strings.


As with many other regular bills, wouldn’t it be great if we could spread the payments over a number of months, to help us to budget more effectively.


As accountants, we are dealing with more and more ‘time to pay’ arrangements on behalf of our clients.

HM Revenue & Customs have no plans to formally relax the rules by giving companies extensions on paying their quarterly VAT bill. They have, however, confirmed that businesses do, subject to certain criteria, have the option to spread the payments.

So, what are the criteria?

As soon as you realise you need to make a payment arrangement, you should contact your local office immediately. Alternatively, you can contact the Payment Helpline, on 01274 539 628, during office hours.

Making a Proposal

If you agree to pay the amount in full, within 28 days, no further action is required.

If you require longer, you will need to provide details of;

• Your savings and other assets, for payment arrangements of up to 3 months, and;
• Your income, spending, savings and other assets, for payment arrangements longer than 3 months.

Your Rights

HMRC will consider any payment arrangements you request. If you feel they’ve rejected it without considering it properly, you can make a complaint, but you can’t appeal against their decision.

Things to Remember

• HMRC will only entertain payment arrangement proposals if all returns (whether VAT or tax) are up to date.
• You will have to pay interest on any tax or VAT paid late. The current rate is 8.5% PA

So, although HMRC don’t really like it, and you may have to pay interest, and provide additional information, this could be an invaluable means of budgeting your VAT payments, thereby keeping the wolf from the door.

Free advice on arrears and dealing with HMRC is available through the charities; Citizens Advice Bureau, and TaxAid, by following these links.

Citizens Advice Bureau

http://www.adviceguide.org.uk/index/life/tax/help_with_tax_problems.htm

TaxAid

http://www.taxaid.org.uk/help.cfm?secnav=20

If in doubt, always seek the advice of these agencies, or your own accountant.

Saturday, 19 July 2008

Home Business Mortgages


Often, when we work from home, our house will have a dual purpose, as both a business premises, and a personal residence, so how does this affect our mortgage?

The simple answer is that, in most cases, it won’t.

Although we may need to notify our insurers, simply working from home is not something that mortgage companies generally need to be aware of.

The implications for buying a house will depend on its current usage at the time of purchase, as well as the level of business undertaken there.

If, for example, we buy a house with extensive outbuildings, as long as they are not currently used for business, then we will simply need a standard domestic mortgage. What we do to the buildings after that, is not relevant, until we come to sell or re finance the property. If, however, they have already been converted, say to offices, or a small retail unit, we would normally need a specialist mortgage, with dual residential / commercial usage.

This does not apply if the vendor simply ran a business from home. It is only relevant if there have been structural modifications, making the premises partly commercial.

Whilst looking at mortgages, I should just mention that it is common practice for small business owners to extend their mortgage, in order to finance a business venture. This could be for converting / fitting out our new office premises, or it could be for anything from web site design / production to recruiting new staff etc. As long as we can prove that some of the mortgage relates to our business, we can claim 100% of the mortgage interest relating to that proportion of the loan. This is something that often gets missed when completing our tax returns.

Sunday, 15 June 2008

Can We Employ The Kids In Our Family Business?


Some 60% of UK businesses are family owned, and, in an earlier post, I looked at the possibility of employing a spouse or partner in our family business, in order to reduce our year end tax bill with some extra wage costs.

That’s all very well, but what about the kids? Can we pay them a salary too? Everyone, including our children, has a tax / NI free personal allowance of around £5,500, so can we use this to our advantage?

The simple answer is; “Yes”, so here are a few of the basics:

The Children And Young Person’s Act states that no person under 13 years of age may be employed, other than in very specific areas, such as acting, modelling and sporting activities, so employing your 8 year old as head of marketing could just raise a few questions.

Under current legislation, the National Minimum Wage doesn’t need to be paid to workers in the family business, provided they are members of the employer’s family, and share the family home. That said, the more we can pay them, within reason the greater the expense, for tax purposes.

As with most things, common sense is the watch word here. We need to be able argue that our kids are performing tasks that are well within their capabilities. Many, these days, are highly computer literate, and may have done work for us on our web sites, spread sheets etc. Others may have helped us with despatching goods, filling mail shot envelopes etc.

So, as long as our kids are over 13, and they perform appropriate tasks, within our business, for a sensible salary, there is nothing to stop us paying them for work done, in order to reduce our business tax liability.

There is a wealth of legislation governing this, but, for most of us, it’s definitely worth some serious consideration.

Thursday, 12 June 2008

Another Look At Claiming Home Expenses

In an earlier blog entry (taken from an article I produced for Enterprise Nation) I covered the very basics of this subject. In a more recent article, for BHP Publishing, I was asked to explain the subject in a little more detail. This article is reproduced below:

One thing that any small, home based business owner will need to know is; “What expenses can I claim for running my business from home?"

Surprisingly, there are no ‘standard’ or recognised methods of calculating these allowable expenses, although there are a number of conventions and guidelines which we, in the profession, tend to adhere to.

In the ‘good old days’ we accountants would simply claim a global ‘round sum’ amount (often about £20 - £30 per month) to cover these costs, which was never challenged by HMRC, as it was not significant or worth amending.

However, since 2004, the limit of these round sum amounts has been capped at £2 per week (or £104 per year). Anything above this rate is increasingly likely to trigger an investigation.

If we feel that the £2 is insufficient, we can claim specific costs, based on actual expenditure.

Main Criteria

• We must actually work from home, and have a dedicated area for this work (doing the books on the kitchen table once a week simply won’t cut it)
• Expenses must be ‘wholly and exclusively’ for the business. If mixed usage (part business, part personal) the business part must be separately identifiable.
• Where an area of the house is used partly for business, and partly for personal, the expenses will be apportioned by time used, as well as floor area utilised.

What Can We Claim

The following property expenses can be claimed:

• Light and Heat
• Rent / Mortgage Interest
• Council Tax
• Water Rates
• Property Insurance
• Cleaning
• Re decoration and repairs (internal and external)

Calculating ‘Business’ Element

As a general rule, we tend to apportion all of the above costs on the basis of floor area utilised. In reality, this may be difficult to calculate, so it is perfectly acceptable to work on the basis of numbers of rooms in the house. If, for example, we use one room for business purposes, and there are four further rooms, the business element will be 1/5, or 20% of the total running costs of the home. If we further estimate that this room is used 50% for business, and 50% personal, the percentage claimed will be halved to 10%.


Other Claimable Costs

In addition to our home, we can claim any expenses utilised ‘wholly and exclusively’ for the purposes of the business, including:

• Telephone (including line rental) apportioned by call time (incoming and outgoing). A dedicated business line can be claimed in full.
• Broadband (as telephone costs)
• Business insurance
• Repairs to business equipment
• Capital allowances (wear and tear) on business equipment. (including computers and peripherals, office furniture and fixtures such as shelving etc).
• Printing, stationery, postage and advertising
• Computer software used for business
• Travelling and subsistence costs (a whole topic in it’s own right). Subsistence relates to the ourselves only. Any entertaining of suppliers, business associates and, even, customers is totally disallowable.
• Motor expenses of running business vehicles (less any personal element).

Examples of expenses claims we can make in certain circumstances are given in the HMRC guidance manual; http://www.hmrc.gov.uk/manuals/bimmanual/BIM47825.htm

Pitfalls

When claiming expenses relating to our home business, we need to be aware of some potential issues:

• We can claim any costs directly attributable to the business working area of our home (such as decorating the home office, installation of specialist equipment, additional utility supplies, insulation etc) However, if we treat a room as being 100% for business, then, on the sale of our house, the percentage of the sale relating to the ‘business’ area will, potentially be subject to Capital Gains Tax. This will only be an issue where a significant profit is made, as smaller gains will be covered by our annual exemption. **UPDATE** From June 2008, HMRC have announced that this will no longer be an issue, and that capital gains tax will no longer be charged where home business expenses, such as mortgage interest etc are claimed against profits.
• Most mortgage companies ask us to stipulate whether or not there is a business element to our occupation. We may need to be able to prove to them that we have separate business insurance to cover us for this.
• Running a business from home may attract the attention of the Valuation Office Agency who will determine whether or not a property will attract business rates. Guidelines for this can be found at: http://www.voa.gov.uk/council_tax/working_from_home.htm

Legislation is constantly being updated, and the only piece of advice that never changes is; Always check with your accountant, when looking to claim or calculate these expenses.

**UPDATE**

For the 2008/09 tax year, the flat rate allowance has been increased from £2 to £3 per week.

Saturday, 7 June 2008

2006 Companies Act Further Simplifies Limited Company Structure


In a number of features and articles, I have made reference to the fact that, for most of us, it will be preferable to run our business as a limited company, rather than as a self employed person or partnership, and in my last feature, I touched on some of the reasons why this might be the case, but what does it involve? Is it more work or more expensive? Will you have to have an audit, register for VAT or find a company secretary?

The latest Companies Act has now completed the task of simplifying the limited company process, by, amongst other things, removing the requirement to have a company secretary, from 1 April this year.

Other recent simplifications include:

• The audit requirement for small companies has been removed for companies whose turnover is below £5.6 Million.
• The requirement to have two directors has now also been removed.
• Limited companies were previously required to have at least two shareholders. This was, in reality, a bit of a pointless exercise, anyway, as business owners would simply issue 100 shares, 99 to themselves and 1 to their partner.

The net effect of all of this is that, from April this year, it is now possible to form and run a limited company with just one person, without the need to involve anyone else. The structure of the business, therefore, becomes as simple as that of a sole trader.

The other benefit of this is in the costs involved. The fact that most of us will never require an audit, will significantly reduce accountancy costs, and the simplified company structure means that you can now form a brand new limited company online from as little as £25.

Thursday, 5 June 2008

Should I Run My Business As A Partnership / Sole Trader Or Limited Company?


One of the fundamental questions when starting a new business is; “Should I run my business as a sole trader, partnership or limited company”?

In the majority of cases, it will be preferable to run your business as a limited company. Some of the benefits of doing so include:

Limited Liability.

If your business fails, your house and other assets are not at risk (unless you have guaranteed any debts personally).

Taxation savings.

Over the last few years, legislation has changed almost yearly. For some of that period, the first £10,000 of a limited company’s profits were tax free. Although this provision is not currently in force, the Small Companies Corporation Tax Rate presently stands at 21%, from 1 April 2008, for profits up to £300,000.
Although the Chancellor has now back peddled somewhat on the 10% tax band, a self employed person will pay a basic rate of Income Tax of 20% (rising to 40% from £36,000 of income) plus 8% Class 4 National Insurance. This, obviously, represents a minimum saving of 7% on every penny earned for a limited company..

Image.

The perception held by most people is that limited companies are larger entities, and this automatically gives increased credibility.

As long as you actually pay tax (in other words, you earn more than the tax free threshold, currently £5,430 per annum) then the tax benefits of being a limited company will normally be significant, and one of the biggest misconceptions amongst new business owners is; “I’m too small to be a limited company.”

To all of you I would say; “You’re never too small to save tax!”

Tuesday, 3 June 2008

Should I Be Claiming Tax Credits?


Everyone has heard of Tax Credits.

We’ve all seen the Inland Revenue publicity, but the usual reaction is; “That won’t apply to me. I earn too much” or “It’s not worth applying. The Government never give anything to people like me.”

Many people, though, particularly those with young families, are surprised to learn that they are, in fact, entitled to some form of Tax Credits.

There are two main types available; Working Tax Credits and Child Tax Credits. The former is only available to families with a household income below £15,000, but the latter can be available up to a household income of £66,000.

When starting out on a new business venture, money can often be a major issue, and any extra help is always welcome. It is important to remember, also, that, for the self employed, Working Tax Credits are paid, based on NET income. Just because you have total income of, for the sake of argument, £18,000, does not mean you’re not eligible. By the time you have deducted allowable expenses, such as travelling, telephone, insurance, etc, it is quite likely your net income will fall into the qualifying bracket, and this is where a good accountant will be able to help.

Also, people who are aware that they can claim Tax Credits, often fail to do so, as they feel it’s ‘not worth it’. In this situation though, we need to look at the bigger picture. Whilst the amount of the Tax Credits received may be small, there are a number of further benefits that will make a claim worthwhile, such as free dental treatment, assistance with childcare arrangements etc.

Still not sure? Why not check it out for yourself? The Government have a Tax Credits calculator available online. Simply by entering a few basic details, it will not only calculate whether you are eligible, but also give an indication as to how much you can expect to receive. This calculator is available at
http://www.taxcredits.inlandrevenue.gov.uk/Qualify/DIQHousehold.aspx

Sunday, 1 June 2008

Can I Pay My Partner Through The Business?


It used to be common practice to pay a spouse or partner a small wage, in order to utilise their tax free personal allowances, or lower rate tax banding (particularly if they have no other employment).

This loophole has been partially closed in recent years, as any such salary must now be ‘earned’ by the person concerned, which can be difficult to prove when they have a full time job elsewhere.

One way around this, if you run your business as a limited company (and it is likely that you should be) is to issue a number of shares to your partner, so that they are able to receive part of the dividend paid for the year.

Under current legislation, a dividend is classed as investment income, rather than earned income, and, as such, there is no requirement to prove any involvement on the part of the partner. (Also, as investment income, it won’t be subject to National Insurance).

Alternatively, if they do actually play a part in the business (such as bookkeeping, administration or company secretary) then a salary is permitted, as long as it is at a commercial rate. One of the best ways to prove this is to ensure that they sign the odd document, from time to time, such as letters, cheques, etc.

Saturday, 31 May 2008

What Expenses Can We Claim For Working From Home?

Something we are often asked is; “What expenses can I claim for running my business from home?”

Briefly, we can claim household running costs as follows:

Telephone

Firstly, we need to calculate the business element of the calls. The Revenue will now only accept a figure that has been calculated from at least two telephone bills from each line / mobile used over the year. In practice, this means going through the itemised bills to identify business / personal usage.

You don’t need to identify every call, but will need to calculate the business percentage of those you can.

Whilst this may seem a lot of effort, bear in mind that, without adequate evidence, the Revenue will not allow ANY costs against the business. Also, you only need to do this for a couple of bills, just to establish a pattern.

Use of Home As Office

This is a global allowance, designed to cover us for the element of the home used for business purposes.

The simplest way to carry out the calculation is to add up the annual costs (as applicable) of:

· Gas / electric / solid fuel
· Council Tax
· Contents / buildings insurance
· Water rates

Remember to keep all the bills to support these amounts.

Next, we simply count up the number of principal rooms in the house (kitchen, reception rooms, bedrooms, bathroom etc). If there are seven, and one is used for half for business, and half personal (eg spare bedroom / office) then we would allow half of one seventh.

We should remember that this ‘allowance’ is a Revenue concession, and is not supported as business expenditure in Tax Law.

Sticking to the Revenue guidance will avoid any suggestion of liability to Capital Gains Tax on the part or parts of your home you use for business.

You may have exceptional circumstances depending on your business, in which case, the calculation can be adapted. The more information you can provide, the easier it is for your accountant, and the greater the protection in the event of Revenue Enquiries.

Thursday, 29 May 2008

When Do We have To Register For VAT?

There are many misconceptions, amongst new business owners, as to when we should register for VAT. There is, however, no legal requirement to do so, until the business turnover exceeds the registration threshold (currently £67,000) though this is applied on a pro rata basis.

In other words, if turnover in a three month period exceeds £17,000, and it is likely that it will continue to do so, then registration is required immediately.

It is possible to register for VAT voluntarily, even if you are below the Registration Threshold.
Reasons we might want to would include:

* In order to reclaim the VAT incurred on large initial capital outlays at business start up. (Equipment, vans etc).

* To reclaim VAT on ongoing purchases and expenses, thereby making them 17.5% cheaper. (although we should be wary if we are mainly selling to the public).

* To improve company image. If a company is not registered for VAT, then any potential large customers will realise that its turnover is below £67,000, and may refuse to deal with such a small company, on the grounds that its continuity cannot be assured. This will be a potential issue for any of us working from home.

When considering voluntary registration, you need to be aware of who your customers are. If we are dealing mostly with business customers, then they will, in the main, be able to reclaim any VAT that we charge on our products and services.

If, on the other hand, we mainly deal with the public, they are unable to make such a reclaim and our goods and services immediately become 17.5% more expensive. Alternatively, we can make our current prices VAT inclusive, and lose out on the extra profit. Either way, this will be a major factor in choosing whether or not to register for VAT before we actually need to.