November 21, 2017

Have you got 31st July in your diary?

tax, self-assessment, HMRC, 31st July, accountant, herefordshire, monmouthshire, gloucestershire

Have you got 31st July in your diary?

 

We may all have put this matter to one side, filing the reminder letter in the unshrinking in-tray, but staying on top of our taxes is vitally important to all small businesses and those who are self employed.

The key is to not fear them or forget them!

 

I know you are busy, time so often our enemy and much better spent delivering our goods and services, but time has to be taken to keep our business affairs in order and avoid any nasty penalties. And if you don’t have the time, engage with someone who has both the time and the expertise.

Diary dates.

So, let’s start by reminding ourselves of the key dates for your diaries regarding taxes:

  • 5th October – registration date for individuals who are self-employed
  • 31st October –paper tax returns completed submission deadline
  • 31st January – online tax returns submission deadline
  • 31st January – deadline to pay taxes you owe
  • AND if you paid more than £1,000 tax on 31st January 2017, you may have more to pay by 31st July 2017.

How do you know if the July 31st deadline is applicable to you?

HMRC state this: ‘If you are self employed and earn enough to pay over £1,000 in tax and you have not already settled all tax due for the year to 5th April 2017, you will need to make a payment by 31st July this year.’

Also, if you have rental income or large amounts of investment income such as dividends, you may also be affected.

There is further information on the gov.juk website, or if you are unsure talk to your/an accountant.

You still have time.

If you haven’t already completed your tax returns, don’t panic! You can still avoid HMRC’s late filing penalties just start taking action now.

  • Gather together all your receipts, bills, bank statements, mileage logs, sales invoices and takings summaries
  • If you have already entered these into a spreadsheet or accounts software, such as QuickBooks Online, well done. It will make your life easier, and you will have a better handle on how the business is doing.
  • Gather other details of income such as bank interest, rental income (and related expenses), P60s and P45s and P11ds from any employment or pension you have. Also pension payments if you can deduct those from your tax bill
  • If you are married, discuss with your spouse whether there is benefit in reallocating some of the personal allowance to the other spouse (10% can be moved although some rules apply)

Decide if you are going to feel brave and prepare your own tax return. If so

And if you would rather have help making sure you are declaring everything and claiming all you can, call me and we can get things sorted.

Penny Lowe, Wellington Consulting

Visit my website to find out more about how I can help you and your business >

Business Advice from Berkshire – I’ve got round to it – when will you?

There are some things that sit towards the bottom of my ‘to do’ list as I know I ought to do them so won’t actually remove them. They won’t make me instant money nor will they, on the surface, cost me money by not doing them, so why don’t I choose to do them?

IntuitSometimes it just takes will power to go ahead. I have been training QuickBooks since 2004 and been listed as QuickBooks Advisor for many years. Last year they bought out an accreditation scheme so you could take an exam, and become a ‘certified’ version. I downloaded the course material, read it through, decided it was fine as I knew and taught most of it, but never did the exam. This year they have also bought out an accreditation for their On-Line QuickBooks so, as I am on the stand next to Intuit – authors of QuickBooks at The Business Show at Olympia, I thought perhaps I ought to go for it. I am glad to say I passed both exams to a high level so can now be one of their elite team. The only question now is why didn’t I get round to it before?

I have done my personal tax return, I have done my VAT return, how about you? Are there jobs that you don’t fancy that are not time critical yet but you will feel so much better when they are done. It may be they were part of this year’s New Year Resolution. There is still time to complete it before the end of this year.

Go on, take the plunge and share with me what you have or will achieve over the next month.

How NOT to make a loss

This week has not been the most productive for me with issues of expected deliveries not happening, computers not playing and tax offices asking for what they already have – and me spending over an hour on the telephone (mostly on hold) to read HMRC what they had been given two months ago. I am sure you have had weeks like this. You get to Friday and wonder how much money the business has made as a direct result of your efforts.

Blank view pennyOther weeks the opposite happens, I get through to the tax office within a couple of minutes, speak to a nice helpful person at HMRC who suggests they can do something for the benefit of the client before I even ask it. Clients turn up to an appointment with their cheque book in hand and request to settle their account at the end of the meeting and then agree the date of the next meeting – so it is not they want to dispense with my services! Others send an email the same day as I send them the invoice, saying they have transferred the money into the company bank account.

Which sort of week would you rather have? What has this got to do with making a loss? The fact of the matter is that life is not perfect and by accepting this, you can build in ‘slack’ to cover the cost of repairs, the lost time, the extra staff salaries. When some new business owners come to me, they have worked out their expected revenue without appreciating the time needed to do marketing, administration, documentation and other roles that may have been done for them in a corporate environment. Even in larger firms, senior staff seem to think that preparing for an exhibition and attending it can just be done in addition to the usual work. Staff cannot be making sales calls while driving to and assembling a stand. When looking at costs, the set up day needs to be taken into account as well as fuel, accommodation etc.

forecastAs with much of business success it is all down to planning. Plan for the unproductive time and associated costs and base the sales required on having to cover these costs as well as those of the ‘good’ sales. If you do this, you will avoid a loss and if the worst doesn’t happen, you can make an even bigger profit.

If you need help in identifying costs you need to include in your plans, get in touch. If you want to share some of the hidden costs you have discovered, please reveal all below.

How Can you afford it ?

Do you sometimes find yourself wanting something for the business, but thinking you can’t afford it? Like any purchase, you should first ask yourself the questions ‘why do I want it? What benefit will I get once I have purchased it?’

miniDepending on the answer to these two questions, you can then decide whether to even think about how to fund it. A very simple and small example was a purchase I made at the weekend. I am a latecomer to iPhone’s and have historically logged my mileage in my diary so I could make a claim at the end of each month. Sounds good as I always have my diary with me so can easily enter the mileage. Trouble is, you run out of space against the day; although I keep my diaries, it would be hassle for the taxman to go through and agree my monthly claims even though I do circle the numbers for easy reading. However, one of my clients has been using FYI Mileage and sending me the sheets each month. I splashed out £1.99. I can now tell you I have done 12 trips amounting to 143 miles since 1st July. By recording 27 more miles than I would otherwise have remembered to claim for, I have covered the cost by the reduction in Corporation Tax I will have to pay. I am sure I will manage this by the end of July. So, return on investment one month maximum.

 I know this is a minute example, but I also placed an order for a stand at The Business Show at Olympia. This is costing nearer £3,000. Same rules apply. What do I need to ‘sell’ at the show to recover the cost and cover my, and my staff’s, attendance and travel and accommodation? I have done the maths and happy that we will bring in revenue that will exceed the costs.

 So the next question is cash flow. How do I pay for the show before I get the money from the sales? The answer is I agree a payment plan to spread the payments. The salesperson was amused that when I had said that my business is training clients in the area of understanding their finances, that I was demonstrating exactly the same to him regarding my own. Justifying why I was not prepared to pay it all today, or even all within 30 days when the show was not until November. That I could use much of the cash not paid up front to generate the income that would allow me to pay the balance prior to the show. A mutually beneficial timing was agreed with the condition that I would be included in all marketing even if they had not received full payment. I have got caught out by that one before. So watch out for Wellington Consulting links in The Business Show marketing. I also hope to see you at stand 160!

So what have you bought recently that you first thought you could not afford until you worked out the benefits? How did you finance it? Please share your ideas so that others can enjoy accounts and grow their business.

Your Books Under the Microscope

Last week saw a letter from HMRC asking for all the information that had gone in to the accounts for the tax return to 5th April 2012. I wrote and asked what format, as the letter said they had technical people that could help with computer system.

I had a pleasant phone call from HMRC to say could we print everything out and bundle it up for him. I explained the invoices were Word documents filed per month, the payments were in a spreadsheet per month so would he like a CD with the information. No, we needed to print out each sheet and send everything in a single package. Everything includes my year end adjustments for own use and disallowed items, bank statements for the period as well as the signed accounts.

I have spoken with the client and I think they are going off to Tesco to get some more reams of paper. We have agreed to meet up in a fortnight to make sure we have everything required and box it all up. HMRC have given us a month to get all the information to them and the member of staff at HMRC admitted he was in no rush to receive it as he had a plenty there already. I didn’t ask what the turnaround time would be!

How well would your records stand up to such scrutiny? When the accountant returns your books and says you need to hold onto them for current year plus six, do you know exactly where you have stored them? I have previously had a client who’s garage was flooded some years ago so he binned the soggy papers. He ended up with a large tax bill as he couldn’t produce proof of some payments. Do make sure your storage facility is waterproof and mouse free.

It is possible to get insurance against such investigations. This will cover the extra time your accountant has to spend in talking to/writing to HMRC. It does not cover lost papers or invented figures so make sure you can justify your payments out and be able to demonstrate the completeness of your sales.

It is not just HMRC who may want these figures, I had to produce 3 years sales invoices to an insurance company to justify my claim for loss of earnings against the other party after a road accident some years ago.

Need guidence on your record and data keeping ? Contact me for more information.

How to reduce your Tax Bill

As we approach the end of the tax year – 5th April 2013, what can you do to reduce your tax bill? Although you have left it a bit late, you still have a couple of days to act.

If you have a pension scheme and some money to spare, you could pay some extra money into your pension scheme. Just remember to tell your accountant that you have made extra payments. If you do your tax return yourself, you need to include this extra payment.

Another option is to invest some money in an ISA. Although the rates of interest are not high, you will not have to pay tax on the interest earned, so if you are a higher rate tax payer, this could almost double the actual rate of interest.

If your year end is 31st March, have you declared all the dividends the company can afford to pay? This is where you need to monitor your profits as there is no point putting yourself into the highest rate of tax, when this is due to reduce from 6th April 2013. If you are not sure, speak to your accountant and tell them you need to know whether to do something before 5th April.

Other lesser ways to reduce your tax bill is to ensure that your business is being charged for all the amounts you pay out on its behalf. A client today, realised that she hadn’t charged the company for the mobile phone she used for business for the last 6 months. I personally know I need to put a mileage claim in for last month and this. How up to date are you with such claims? If you do not put your claims in, not only will your business pay more tax, but the costs you consider for your business will not be accurate and may distort your planning and cash flow plans.

If you haven’t done so before, sit down this weekend and make sure that you – and any other member of staff eligible – have caught up with your expense claims

Should I buy a Company Car ?

If you are a director of your own company, there is the opportunity for you to put the purchase, running costs and fuel for a car through the company. The down side is that HMRC will view this as a perk of the job and tax you on the benefit received, on their calculation. This calculation is linked to the full retail price of the car plus accessories (not the purchase price you paid) multiplied by a percentage based on the CO2 emissions. There is then another benefit of the fuel with the same percentage used on a prescribed figure for fuel for the year. If you then multiply this benefit by your highest rate of tax, you may appreciate that it will depend on the amount you use the car and the CO2 levels as to whether you wish to pay the extra tax.

 

Other considerations are that you cannot claim the VAT back on the purchase of the car unless you are a taxi or a driving school i.e. it is a tool of the trade. You may have to pay extra for insurance as if owned by the company, it must be insured in the company’s name. The company may not yet have any no claims discount. Insuring it through the company may also affect your no claims. If you have company insurance for a number of years, your personal no claims discount may expire. Depending on how you intend to finance the vehicle, leasing companies and finance houses may want to have a close look at the accounts for the last three years.

 

When I had a company car, my company took out a bank loan to fund it and my insurance company (NFU) looked at real life so there were no insurance implications. They did not just tick boxes on a form/computer screen. Any car used for business should have appropriate cover, particularly if you are using it to deliver goods to customers as the goods need to be insured ‘in transit’.

 

By all means get a company car, but calculate (or get someone else to) how much it will add to your tax bill up before you sign on the dotted line. Fuel can be treated separately so don’t assume if you have a company car, you have to get the company to pay for all your fuel. You can put in a claim per mile which is much less than 45p per mile as you use your personal car.

 

The alternative is that you own and fund the car yourself, making sure you include business within the insurance cover. You can then claim your 45p per mile and get the company to pay you at that rate.

 

The situation is different if you are a sole trader – but I will leave that for another day… If you are looking to make a decision and need assistance – contact me

How many hours do you work ?

As part of the new regime that HMRC are bringing in for payroll know as RTI (Real Time Information) you will need to declare whether each employee does under 16 hours, 16 – 30 or over 30 per week or is an occasional worker. As a business owner, you may well do over 30, but how many do you get paid for?

 

At minimum wage (currently £6.19 per hour) you would need to be taking a salary of £9,657 to meet this hourly rate on 30 hours per week. If you are a director of a company, it may be that your company recognises your efforts by paying you a dividend depending on the profitability of the company. Even if it does not have the cash to pay you at the time, it may reserve the funds by adding it to the amount the company owes you. This is not uncommon. Dividends do not attract National Insurance whereas salary does.

 

So, is this a ploy by HMRC to ensure that company directors are getting a fair wage or will they start chasing those companies that primarily pay their directors by way of dividends on their shareholdings?

 

The good news is there is another box to tick which says the hours are unspecified. As a director you may choose how many or how few you work so this sounds like a more accurate answer.

 

If you employ your children during the school holidays to create PowerPoint slides, help with your web site, proof read the book or reports you have written, they would be counted as ‘occasional’ workers so must go on the payroll, but you don’t have to pay them every month. Remember this is an allowable expense of the business and will reduce the tax bill whether you are a sole trader or a limited company unless – of course – you pay them a huge salary. The minimum wage for under 18s is £3.68 per hour.

What are your costs of distribution?

A cost that is often overlooked when deciding on prices, or considering profitability is the cost of getting your product or service to the customer. Whether it is you travelling to a meeting at your customer’s location or the cost of postage and packaging, they are each costs you would not incur if you had not made the sale.

What bought this home to me was the cost of distribution of my, soon to be launched, book. I could buy padded envelopes from W H Smiths at 99p each (or 3 for 2) or I could buy 100 for under £10 with free delivery on 300 or more. That was just the first cost. There was then the cost of postage. I am glad I have a franking machine but it still over £1 second class.

The costs can mount as much and more when delivering yourself. Parking at the station, the cost of the train fare, taxi to and from at the other end. I know that today I will spend more on taxis than the pre-booked train fare but this is still cheaper than driving at 45p per mile – and I can get some work done on the train. This cost of travel can make quite a dent in the daily rate. I know I am doing more work locally and from my office. I have no travelling costs or time involved so I don’t have t have the conversation about why they should pay for me to go to them. To be fair, my daily rate is less when they come to me as I know I can do chargeable work when I would otherwise have dead time while I was in the car.

If you have engineers or technicians on the road, just consider what the costs are. I am not saying you shouldn’t offer the service, I am saying make sure you build in the cost when calculating the price. The idea of being in business is to make a profit, not just deliver a fantastic service. If you don’t make a profit, you will not be able to continue which means that people will be deprived on the quality products and services you offer. If you do not get the figures right, you cannot continue.

Are you working to a budget ?

Budgets are not just for large firms. Every business can benefit from creating a budget. They can benefit further from using that budget to plan cash flow and monitor progress.

 

Tax return sooner rather than laterWhen you sit down to create a budget you validate the overall strategy for your business. If you have not written down your plans, it may be that creating the budget forces you to actually deicide what you are trying to achieve and then, if you have the resources to do it. One critical resource is manpower. Although you can take on more staff or freelancers to help out, they will need training which will divert other members of staff from their primary staff. This is not a problem, providing it is built into the plan.

 

The other resource to consider is cash. Can you afford to buy the stock to fulfil your projected orders? This leads me nicely to propose that, following the preparation of a budget, you should also prepare a cash flow. As with all plans, if you know there are going to be times where cash is tight, it is not a problem if it is part of the plan.

 

Having created your budget and planned your cash, the next stage is taking action, and then monitoring. There is little point preparing a budget if it sits on the shelf. I am a strong believer in working with businesses to create their budgets. If they know how the projections were arrived at, they can validate them as they go, and have the understanding to update them if needed.

 

The title of this was not do you have a budget, but are you using the budget you prepared. What is your answer?