Business management tips

It is not enough to complete work for a customer and to invoice them. Sometimes there are problems, such as the customer being slow to pay or even going out of business before you can receive payment. This can cause big problems as you are still incurring expenses while not seeing any income generated for it. In order to assist with this common problem, we have provided a few useful tips below.

·         Ensure that customer terms of payment are crystal clear. Obtain signed terms and contracts which, where possible, contain guarantees of payment.

·         Ensure you fund projects by asking for a payment/deposit up front before work commences.

·         Do not let a customer run up a large debt. Set a credit limit and make sure that the customer understands that work will cease if your invoices are not paid.

·         Borrowing money from banks can be difficult, so be sure to plan for this in advance.

·         If a customer goes bankrupt, (especially with a Limited Company) it will be unlikely that you will see any money for your work, so obtain stage payments and deposits.

·         Try not to rely on a single large customer. A larger number of smaller customers ensures continuity of income and spreads the risk.

·         Look for work with a recurring element to it, for that repeat business.

·         Review competitors prices and the quality of their product or service. Make sure your prices are competitive, and that you provide a better quality product or service.

·         Expect that some customers may cease over the next year, so always be looking for new customers, make use of selective advertising, marketing and existing industry contracts.

·         Cash advances on customer invoices, sometimes called factoring, should only be used as a last resort. There is no guarantee that this will solve your cash flow problems and is really an expensive form of bank borrowing secured by way of a personal guarantee by you. Seek professional advice before going down this route.

·         Where possible, stock should be purchased on a ‘just in time’ basis. The opposite means having your cash tied up in unsold stock, which does not help with cash flow.

If you need any help, or would like further explanation of any of the above, please contact us now.

Mark

Mileage allowances

Travelling expenses

The Inland Revenue (HMRC) have guidelines when it comes to paying motor expenses. The basic concept is that no tax relief is available for ‘ordinary commuting’, i.e. an employee travelling between their home and their permanent workplace. A permanent workplace is a place an employee regularly goes to work unless it is for a limited duration or for some other temporary purpose.

Temporary workplace

An exception to this is where the employee travels to a workplace that is not the usual place of work, or a temporary workplace. HMRC refers to people who have no permanent workplace, by referring to them as ‘site based’ employees and now accepts that such employees have no ordinary commuting journeys between home and their temporary workplace.

Where the employee’s contract of employment requires him to work from home so that home is the normal workplace, then the employee is entitled to relief for all journeys between home and any other places of work.

In order for a workplace to qualify as ‘temporary’, the employee must expect to be working there for 24 months or less. As long as this is the case, the journey from the employee’s home to the site is not ordinary commuting and the employee is entitled to tax relief for the full costs of the journey. After 24 months then it will become a permanent workplace and the employee is entitled to no tax relief on all of their travel expenses.

Where at first, an employee expects to be at a site for 24 months or less, but this subsequently changes and he becomes aware that he will be working there for longer then, at that point, the site becomes a permanent workplace on the day that the employee becomes aware of the change. From that date onwards, he is no longer entitled to tax relief on the travelling expenses, but he is entitled to tax relief from home to site before that date.

Mileage rates

The mileage rates that can be paid are claimed at the rate of 45 pence per mile for cars and vans, for the first 10,000 miles in a year, any additional miles are claimed at a rate of 25 pence per mile. A table of mileage rates can be found below.

Vehicle	First 10,000 miles	Miles above 10,000
Motor cars and vans	45 pence per mile	25 pence per mile
Motorbike	24 pence per mile	24 pence per mile
Bicycle	20 pence per mile	20 pence per mile

 

If you are employed and your employer pays you more than the above rates, then the excess payment is counted as a benefit in kind and will be liable for tax. If you are paid less by an employer, you could get some additional tax relief.

It is important to keep a  detailed log of your journeys and mileage claimed as HMRC may require access to the information.

There are other expenses that can be claimed, such as parking, congestion charges and tolls, but you must have the original receipts to back up your claim. You cannot claim tax relief for parking fines or speeding fines.

If you are working at a temporary workplace, then you can also claim amounts for subsistence and accommodation expenses caused by working at the temporary workplace.

As with the other expenses, always be sure to keep receipts as evidence of your claims, as HMRC may request to see them.

If you feel that any of the above is relevant to you and you would like to claim the relief but not sure how, just give me a call and I will be happy to help.

Mark

Real time information

Real time information (RTI), the biggest shake up to payroll procedures since PAYE was introduced in the 1940’s, will become a reality for employers from April 2013.

Look out for a letter from HMRC inviting your PAYE scheme to join RTI, an invitation you cannot refuse! Let us know as soon as you have received your invitation so we can help you make the necessary transition.

The principle behind RTI is simple, HMRC want to know which employees are being paid, together with details of the deductions being made ‘on or before’ the payment is made to the employee.

Real time information key procedures

Here we primarily concentrate on the key submissions but do contact us regarding any questions concerning RTI.

Key submissions	What the submission contains and ‘top tips’
Employer alignment submission (EAS) – preparing for RTI	Although this submission is only compulsory for large employers or those with a complex payroll system. It is advisable for all employers. It provides HMRC with details of all employees employed in the current tax year.
Full payment submission (FPS)  – operating RTI	Used to report details of employees being paid for a particular pay period.
Employer payment submission (EPS) - operating RTI	Used to report employer details each month such as payments to HMRC (or where no payments are due) and also CIS suffered.

Changes to employees leaving and new employees

Under RTI information, when an employee leaves a company, the information is filed automatically along with the payment details for the pay period during which they left, as opposed to separately filing a P45. There will still be a P45 to issued to the employee.

For a new employee, information for them is automatically filed during the pay period in which they started work for an employer. This means that there will no longer be P46’s issued to employees, unless the employer is exempt from filing online.

If we are currently handling your payroll then you don’t have to worry about doing anything for RTI, our software provider has already confirmed that they can handle the change and are fully compliant with RTI.

If we do not currently handle your payroll and you would like further details of the service we provide, please give us a call and we can also quote a price to suit your needs.

Mark

Repaying your student loan

Student loans are a great way to finance learning when you’re low on cash, but the money has to be paid back at some point, and if you don’t know how this works you could be in for a surprise if it gets collected without your knowledge.

How repayments are made

Repayments of your student loan are taken from your pay in the same way as PAYE and National Insurance contributions when your income before taxes exceeds a certain threshold. This threshold is one of the following

£303 per week if you are paid weekly

£1,316 per month if you are paid monthly, or

£15,795 per year.

How much is taken?

The rate for student loan deductions is 9% of anything earned over the above thresholds.

For example, if you earn £1,750 in a month, you subtract £1,316 giving an amount of £434, then you take 9% of £434 to give you £39 as the amount that will be deducted from your income per month.

Other repayment examples

Income before tax (£)	Monthly Salary (£)	Monthly repayment (£)
Up to 15,795	1,316	0
16,000	1,333	1
21,000	1,750	39
24,000	2,000	61
27,000	2,250	84
30,000	2,500	106

What you can expect when your income changes throughout the year

Because the repayments are taken in the same fashion as PAYE, if your income rises or falls throughout the year, the amount of student loan you pay back will alter to reflect this. This means if your income drops sharply, you wont have to worry about an unaffordable payment on your student loan.

Making payments even if below annual threshold

If you are under the annual threshold but have a temporary increase in income, such as taking on an extra shift at work or a bonus, you could have some of your student loan repaid if you exceed the weekly or monthly threshold for that week or month.

If some money was taken for your loan in this fashion, you can apply for a refund providing you are still below the annual threshold at the end of the tax year.

Student loans and your tax return

If you are a sole trader, your student loan must be declared on your income tax return, failing to do this could result in HM Revenue and Customs issuing a penalty for an inaccurate tax return if you cannot provide a reasonable excuse.

So if you have a student loan, make sure to let us know and provide us with a copy of an up to date statement with your accounts so that we can ensure that your tax return will be accurate.

I hope this has managed to shed some light on this seldom mentioned subject, if you do have any queries regarding this, please do not hesitate to give me a call.

Mark.

Saving money by working at home

Normally tax for self-employment is worked out by taking a percentage from the profits that the business makes, which is the money earned by the business with expenses subtracted. Expenses are usually costs that are “wholly and exclusively” for the purposes of trade.

If some business is carried out from home, then some tax relief may be available. HMRC agree that a deduction for household expenses is acceptable, provided that part of the home is solely being used for business purposes.

This does not mean that the business part of the costs must be billed separately or that part of the home must be permanently used for business purposes. However it does mean that when part of the home is being used for business, that’s all you use it for.

Apportioning costs

HMRC will accept that costs can be apportioned and if the amount is small they will usually not be interested in it. For example you can claim £3 per week for use of home, that’s £156 per year with no questions asked.

Although if you plan on claiming any more then there are some things to consider such as:

The proportion in terms of area of the home used for business services, how much is consumed where there is a metered or measurable supply like electricity and how long you use that part of the home for business purposes.

Generally HMRC will accept a reasonable proportion of costs such as council tax, mortgage interest, water rates, rent and general repairs. Additionally allowable costs may include business telephone calls, a proportion of line rental and internet connection if it is used for business purposes.

Any equipment at home, such as a laptop or desk, can have a costs proportioned under capital allowances claims based on the estimated business usage.

Travel from home

Another consequence of working from home will be the impact on your travel costs. The cost of travel from home to work is generally disallowed, as it represents the personal choice of where you live. This will not be affected by doing some work at home, however, if there are no other business premises, then travel costs to visit clients should be allowable. So it really depends on where the business is run from.

Selling the home

Normally when you sell your home, any profit made is exempt from tax if it is your primary place of living. However, when part of the home is used exclusively for business, then that portion of the house will not be exempt. Occasional and minor business will be ignored for this purpose.

To summarise, it is possible to claim some extra 'home' expenses to reduce your tax, but you need to be clear about the rules, keep good records and be reasonable about how much you claim.

If you need more information about this subject then feel free to call me on 01761 436 436.

Mark.

Child benefit withdrawal

As part of the reforms to the welfare system, Child Benefit will be withdrawn from households that include certain higher earners beginning from 7^th January 2013. In other words these rules will already apply from this tax year 2012/2013. This is regardless of whether you are a single parent or have a partner.

How will they do this?

This will take the form of a tax charge at a rate of 1% of the child benefit per £100 above an adjusted net income of £50,000. Once the adjusted net income exceeds £60,000 the tax charge will be equal to the Child Benefit. This applies even if one partner is earning over the limit and the other one is under and is receiving Child Benefit.

For example if someone has child tax benefits of £1,752 and had an adjusted net income of £57,750, you would first calculate the percentage by taking 57,750 minus 50,000 and divide the remaining 7,750 by 100 which equals 77% (rule of rounding is to round down to nearest whole number). Then you would take 77% of £1,752 which equals a Child Benefit tax of £1,349.

The tax is calculated by reference to weeks therefore it will only apply in the weeks you are eligible for it. For example if a couple gets together and child benefit is already being paid, then the tax will apply for those weeks from the date the couple started living together until the end of the tax year.

Who is a partner?

HMRC have decided that a partner is defined as a spouse or a civil partner or someone that you are living with as if they were a spouse or civil partner.

As long as one partner is in receipt of Child Benefits and either partner has an adjusted net income greater than £50,000 then it is the partner with the income over £50,000 who will be responsible for paying the tax.

What is the effect of the tax charge?

The following table shows how this income benefit tax will affect three different couple with different amounts of adjusted net income.

Couple	Partner 1 Income £	Partner 2 Income £	How much	Who pays the tax
A	40,000	45,000	None	N/A
B	30,000	55,000	50% of benefit	Partner 2
C	65,000	20,000	100% of benefit	Partner 1

There is of course concerns that this system is flawed, in the above examples, all three couples earn between them £85,000 yet Couple B is charged 50% of their benefit and Couple C loses all of their benefit. While Couple A retains all of their Child Benefits.

Therefore the most beneficial scenario would be where both partners earn up to £50,000 each for a total adjusted net income of £100,000 with no Child Benefit tax becoming due.

Another potential flaw is who is responsible for paying the tax. With Couple B Partner 2 will pay the tax regardless of who is receiving the child benefits, and with Couple C it will be Partner 1. Therefore you will need to discuss with your partner how much each of you is earning.

What to do if you meet the requirements for the tax charge.

Should you meet the requirements for the income tax charge, you will need to inform HMRC as soon as possible or no later than 5^th October 2013, failure to do so can result in a penalty equal to the amount charged to your income tax.

If you feel you would like more information or advice on this subject, help is only a phone call away on 01761 436 436.

Mark

Employed or self employed?

This subject is rarely out of the headlines. One of the reasons for this is that the distinction between the two is not defined in statutory law. Instead, reference must be made to numerous Commissioners decisions and appeal cases on the issue.

This debate has been extended with IR35, which seeks to examine the relationship between the worker and the ultimate client (where a Limited Company exists to receive payment on behalf of the worker).

The following tips and practical points should be borne in mind:

Ensure that there is a watertight contract and that this contains a satisfactory substitution clause (we can provide a sample contract, if required).

A self-employed person tends to have some control over how he does his work. He supplies his own tools and equipment, engages in on-going training and incurs advertising costs. The self-employed person should engage in more than one contract during the year(the more clients, contracts or customers the better).

Recognise that the business of defending a tax status tends to be a complex and expensive exercise as there is no satisfactory test in place to determine whether or not someone is self-employed or an employee. HMRC have an extensive list of what may be taken into account here.

If you are concerned about any of the above, or if you feel you would like some additional advice, please do not hesitate to call me,

Mark

Opting to tax property

Usually property is exempt from VAT which makes things simple because you don’t have to register for VAT and worry about VAT returns.

However some people will “opt to tax” which means they will register for VAT and complete returns, why do they do this you may ask?

The short answer is to be entitled to claim input VAT on costs when selling a property.

Basically the VAT rate depends on the type of land being sold as shown below.

Sale/Lease of land: Exempt

Sale/Lease of commercial property: Exempt

Sale of a new (less than 3 years old) commercial property: Standard Rated (20%)

Sale/Lease of a dwelling: Exempt

Sale (including lease over 21 years) of a new (first sale) dwelling: Zero-rated

If you incur any VAT on costs in the course of making a taxable (standard or zero-rated) property sale you can reclaim that VAT. However if it is an exempt sale you cannot.

By “opting to tax” you would change most sales and leases of non-dwellings into Standard rated taxable sales. This allows the business purchasing the property to recover the associated VAT (on construction, purchase renovation and ancillary costs).

A business will not need to “Opt to tax” in order to recover VAT if it is using the property for business purposes, e.g. a factory for the purpose of manufacturing goods.

Most developers will already know that if a residential property has remained vacant for two years, the VAT rate associated with its refurbishment stands at 5%. this, of course, helps to mitigate the developers irrecoverable VAT cost as the sale of refurbished houses is exempt from VAT.

What is less known is the fact that a property that has been vacant for ten years or more can be treated as if the building was new and therefore its disposal - freehold or a lease exceeding 21 years - is taxable at a zero rate.

This enables developers to recover the 5% VAT rate charged by subcontractors as well as a VAT rate of 20% charged on legal and professional services. This is a major saving and is something that should always be kept in mind when buying derelict properties with the potential for refurbishment and re-sale.

If you feel the above would be useful to you and that you would like some more information, please make sure to contact me.

Mark

Wife's wages

Where one spouse or partner employs the other in the business (often a husband employing his wife), it is perfectly in order for a salary to be paid to reflect the work done for the business. Often the salary is just below the Income tax or NIC threshold where there is just part-time involvement. It is worth stressing that two important conditions should be observed:

The salary should: 

• actually be physically paid rather that just making a journal entry through drawings and;

• be justifiable in relation to the type of work done and the hours spent.

Should the above points not be observed, then you run the risk that any amounts claimed in your accounts could be disallowed - which means that you will be required to pay more tax and national insurance on your profits!

In addition to the above, my opinion is that it makes sense that if wages are going to be paid to the wife, that a 'payroll scheme' is opened with HMRC to formalise the administration of this task and ensure the necessary paperwork is in place so that if some national insurance is desired to be paid - the year will count for state pension purposes.

Whilst there are additional compliance costs, these may secure the result you are after where poor paperwork and definition results in an unforeseen problem for you in the future.

Mark

Flat-rate scheme

With the VAT rate at 20% and having to be paid every quarter, you may find that it can be a substantial drain on your funds, especially if you don’t have many VAT purchases to offset against it. This is where the flat-rate scheme comes in.

What is the flat-rate scheme

The flat-rate scheme is where you pay VAT at a lower percentage of your VAT inclusive turnover. This means where you would pay 20% of the income before adding VAT, someone in the construction industry would pay only 9.5% but on the total income including the VAT. However if you are in the flat-rate scheme, you will be unable to claim back VAT on purchases as you can under the normal scheme, with an exception that we will discuss below.

Joining the flat-rate scheme

To join the flat-rate scheme your estimated VAT taxable turnover (excluding VAT) will need to be £150,000 or less, this includes income at different rates of VAT such as reduced rate and zero-rated products. Once in the scheme you can stay in until your total business income exceeds £230,000.

However you cannot join the flat rate scheme if you were in the scheme and left in the previous 12 months.

Pros and cons of the flat-rate scheme

Pros

The main advantage is that you no longer need to record the VAT that you charge on every sale and purchase as with normal VAT accounting. There is also 1% discount if it is also your first year of being VAT registered (this applies until your first anniversary of VAT registration). Having a set percentage across sales means you will always know how much takings you need to pay to HMRC.

Cons

You will find that if you make a lot of zero rated sales and/or make a large number of standard rated purchases, you may find that it is cheaper to stick to the standard scheme.

Flat-rate scheme percentages

As there are many different kinds of business, it is difficult to list them all down without taking up a considerable amount of space, but you can find out from either HMRC or by giving us a call. Bear in mind that the percentage is likely to change each year, so be sure to check each year to avoid making a mistake.

Invoicing with flat-rate scheme

On your invoices, you must show the amount of VAT that you would normally charge on standard rate (i.e. 20%).

Claiming back VAT on capital assets

The exception to the rule you cannot claim VAT back on purchases is that you can claim back VAT on a capital asset purchase if it has a VAT inclusive price of £2,000 or more. This may be more than one asset providing they are part of the same purchase, but cannot be anything you intend to lease, resale or use up in your business.

However if your asset costs more than £50,000 inclusive of VAT you must leave the flat-rate scheme. Remember that if you eventually sell the asset you must charge VAT at the standard rate.

If you require any more information on the flat-rate scheme, or feel you would like to discuss if this will be of benefit to you, please give me a call.

Mark

Protection scheme against unexpected fees (sole trader)

Investigations by HMRC can happen to anyone in business, and without reason now that random investigations are part and parcel of Self Assessment. In addition, the Government is looking for ways of obtaining additional tax as overall tax revenue is down because of the recession.

These investigations almost always take a year or more to settle and accountancy fees are typically £1,500 or more. This is simply down to the time taken up by HMRC in extensively scrutinising your business and financial affairs. The time and the financial costs are incurred even if the authorities find that your records are correct. There is no come back.

In our efforts to help clients wherever we can, we have come up with Tax Fee Investigation Insurance, this means for a small sum of money we can provide you with the security that should your business become to victim of a HMRC tax investigation, you will not have to worry about the additional accountancy costs that may be incurred.

Why you should get Tax Investigation Fee Insurance

· Annual cover against fees arising from investigations or attendances at inspections.

· Covers Inland Revenue, Contributions Agency and VAT.

· No quibble over limit of cover.

· No small print.... the rules are simple.

· Peace of mind; no unexpected accountancy bills.

· Cover starts from 1st May 2012.

· Prompt action guaranteed.

The Rules

· Cover starts from the 1st May 2012 and runs for one year.

· The Scheme covers any Inland Revenue Aspect Enquiry or Full Investigation arising in that year, and relating to work done by Bijok Accountants. The Scheme SPECIFICALLY EXCLUDES any work undertaken by any other firm, unless covered by written agreement and endorsed in the scheme cover.

· The scheme underwrites fees incurred with Bijok Accountants only during their work in an inspection or investigation, and SPECIFICALLY EXCLUDES fees due to any other firm, unless covered by written agreement.

The principle exclusions to the policy are as follows:

· Claims resulting from accounts, tax returns, VAT Returns having been submitted late without good reason.

· Matters where the Inland Revenue, HM Customs & Excise or Contributions Agency allege fraudulent evasion of tax, VAT or national insurance and pursue that case on that basis or where the insured person or business has acted dishonestly in respect of the accounts or returns rendered e.g. Special Compliance Office cases).

Because of the state of the government’s finances, there is an expectation that more individuals and businesses will be targeted for inspection. This is your opportunity to join the scheme and protect yourself. The amount is only £95 per year. For details on how to join, please contact me.

Mark