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.


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.

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.
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.:

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.