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 Partnership Agreements

If ever I am asked about partnerships, one thing I feel strongly about is that a partnership agreement should be drawn up. Everyone knows how much upset and anger can happen when a couple get divorced, well the same can arise when a partnership has a change in partners. This can be dramatically reduced if something is put in place at the start.

Book coverAlso, it is not just about splits to, or extra partners joining the partnership, if one partner is unwell, or even worse dies, what will happen to the business then? If the partner was married does the remaining spouse want to continue with, and contribute to, the business at the same level as their late spouse? Are they technically able? If inheritance tax has to be paid, how will the business be valued? How will the tax be paid?

On a more positive note, a simple point is how the profits are going to be shared. Does each partner contribute capital and actively work in the business equally? I had a recent call where I was asked what could be done. A client wanted to invest some capital so that her friend could carry out a project to enhance the value of the investment and then share the proceeds. One would get a share of the sale proceeds over the investment as reimbursement for risk and interest on the ‘loan’ plus the return of the original investment. The other would receive the remaining share of the sale proceeds over initial investment in recognition of their efforts for the increase in value. I suggested they sat down together to consider all aspects such as running costs, anticipated date of sale, what if something happened to one of them and then draw up a simple agreement and both sign it and keep a copy. My feeling was that at least they had documented their original intention as a starting point for discussions in the future.

I have another client who, if they had done this when they entered a joint venture some years ago would not now be dealing with solicitor’s letters. It could have all been resolved four years ago rather than dragging on taking time and money to resolve.

Even if all you are doing is asking someone to do some freelance sales work for you, it is worth writing out the expectations of both sides which should, of course, include confidentiality so you start with a full understanding of who is responsible for what and how the rewards are going to be shared.

bill view pennyIf you are already working with someone but have no agreement in place, it is not too late to create one. If you choose to involve a solicitor, save yourself money by preparing your joint list of things you feel need to be included before making the appointment. A solicitor may have a template but it will not include clauses specific to your business.

Two or more people working together are usually stronger than the sum of the individuals. Two or more people fighting does not get the job done.

If you feel it would be useful to have a facilitator to prepare the list of items to be covered, contact Wellington Consulting who would be happy to help.

Business Advice from Berkshire – Cost of working at home

gravatarIf you work from home, how do you calculate how much you can claim from the taxman? Over recent weeks, one of my clients has been experiencing a tax investigation. I am glad to say that he got the all clear, but in the meantime, I have had the opportunity to chat with a current tax inspector. When I thanked him for sharing some of the Revenue’s view of allowable expenses and what they look for, he said it was all part of the education process. Whatever the reason, I would extend a thank you.

One area we spoke about was the claim for ‘use of home as office’. He took quite a tight rule on this. He was looking to see if other members of the family also used the room, whether the children had their own access to the internet or used the business computer. How much of the home was taken up with storing papers (or was everything scanned in and only taking up space on the computer). Were there outbuildings for the storage of materials and large equipment used in the business, or were they full of push bikes, lawn mowers and other domestic items.

Although he was asking simple questions, you can see that the Inspector is only trying to establish the truth. Considering whether you are crossing the line between tax avoidance and tax evasion. If you issue one or two invoices a month for working at client’s premises, and it’s a long term contract so you are not spending hours surfing the internet for the next client, what percentage of internet/computer use is actually for work? How would you justify 100% business use?

HMRC have recently brought out an option for claims like this called simplified expenses. You can use them only if a sole trader or partnership. If you want to claim use of home, HMRC will expect you to work for more than 25 hours per month from home. If this is all you do, you can claim £120 per year, 100 hours per month, and it goes up to £216 per year and 200 hours per month is £316. So, instead of the flat rate, you can start to calculate exact components, but this involves square feet, number of people, number of working hours etc. If you have staff coming in with their own key, this adds to the justification.

Book coverThe truth is, it is not easy to be accurate, but you must feel confident that you can justify the figure. This is a time when talking these things through with an accountant – and then documenting the method applied can be very useful.

Have a look at your last set of accounts. Talk to your accountant before signing off this year’s. Remember it is your signature even if the accountant has calculated the figures!

Please share your thought on this subject.

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.

Is your sales forecast achievable ?

They say anything is possible, but at what cost? I have been working on my forecasts for the coming year and having designed my ideal position, I then re-visited the figures to make sure they were practical.

 The good news is that they are, but only after they had been tweaked and I accepted that, in order to be as productive as I want to be, I will be getting extra help in certain areas. As part of this plan, we have compared this year to last to see where we need to do things differently. We have prioritised our efforts and pencilled in dates for the next twelve months.

forecastWhen I say we, I mean my team and I. We did spot that I appeared to be taking extra holiday during one month – I wondered why I was getting so much in the coming year! We also worked together on where to focus and decided on actions to get certain things moving as we knew there would be some quick wins as well as certain areas that would take longer to set up.

So much for my plans, how are yours going? Will you need an investor to fund the next stage of growth? Are you looking to stay the same size but work more efficiently? Do you know where you want to/expect to be by Christmas? Will you have sufficient funds available to finance your tax bill? It is all very well starting with sales revenue, but you also need to focus on the costs and the cash flow.

 Having decided on your ideal revenue, work out what the related costs are, when bills will need to be paid, and when you expect receipts from your revenue. Then add in the VAT and tax bills and if you are a sole trader or partnership, the cash you want to draw from the business. If you are a shareholder in a limited company, consider what dividends it will be able to pay during the year. You are well on your way to having your complete financial plan.

The final stage is to decide how and how often you are going to monitor it. There is little point in putting lots of effort into a detailed plan that sits inside your computer till the end of the year. Don’t put the time in if you are not going to use it. If you are happy to rely on good luck, may I wish you all the best.

 Book coverIf you need help with your planning, Wellington Consulting are happy to work with you to create a plan. You can even come over to our offices to avoid the distractions in yours.

 Let me know whether you use luck or judgement for your plans.

How Flexible is your Business?

With changing times and circumstances, how flexible is your business? Over the last ten years my business has changed its focus due to both customer demand and what I want from my business. To me, this is one of the benefits of being the business owner. The future of the business is my decision.

Book coverWhy are you in business? Are they the same reasons now as they were when you started? I am sure you are wiser and have built up a tremendous knowledge of things you didn’t know, you didn’t know when you started. What else is there for you to learn?

For many business owners, there are some topics that you would rather delegate and positively avoid, what are yours? Even if you don’t do the hands work, you need to have enough knowledge to delegate. If numbers are your monster then I can help you fight it and win. Like David and Goliath, a few well-chosen tools can give you the upper hand. The story of the hare and the tortoise is much the same. A careful and controlled approach means you do not need to go to extremes to win.

gravatarIf you find that your market place is changing, that the technology is moving on at a rate of knots, that you want to fit extra activities into your life in addition to your work, it is down to you to decide how to deal with this.

My business is leaping into its next phase which includes supporting many more businesses succeed and grow. In what area do you need help? Are your customers moving into a direction that you need to catch up with? Or do you need to educate your customers? This will demonstrate you want to do the best for them, to help them keep up with the times. They will then start to respect you as the expert, hang on your every word while you steer them in the direction you want them to go.

Remember, if you monster is numbers, I can show you the tactics to win.

How to reduce your Accountancy bill

When you get actually pay your accountancy bill, do you know what you are paying for? Does your accountant discuss with you how it might be reduced either in total, or as a percentage of sales? Would you be happier to pay more to your accountant?

For some types of services you purchase, there is an element of flexibility in the price, depending what you are prepared to do so that the supplier does not need to. I know I tidy up before my cleaner comes so that I am not paying her to put things back in the room they belong. I mow the lawn, so that the person that helps with the garden can concentrate on the flower beds. My horse is at DIY livery so that I can look after my horse and the yard owner can look after the fields and fencing. In the last example, I could pay more and ask them to also look after my horse. The down side would be that I would not have such an intimate knowledge of how my horse was on a day to day basis. If I had a competition coming up, I would have to pay extra for the preparation – or I might not know if he was fit enough. This is also true of your business. You need to know what is important to you and your business. What you can outsource and what needs to be done or monitored by you.

If you outsource all your book-keeping and accountancy functions, they should be done to a high standard, but how do you know? Do you look at the results – or just keep paying the money? Have you ever thought about sitting down with your accountant and discussing what you need to run your business on a day to day basis?

The original comment was how to reduce your bill – or at least as a percentage of turnover or profit. My answer is to understand what you need to run a profitable business. Put systems in place to allow you to monitor this on a monthly basis (at least). Ensure that the figures you are relying on are accurate and complete. Then, when you get to the end of the year, the figures will all be there and ready for the accountant to produce the annual accounts and calculate your tax bill.

The added benefits are that you will be better able to manage your business allowing you to increase your turnover and profits. You will know your tax bill well in advance of the due date. Most importantly you will see what needs to change during the year while there is time to have an impact rather than getting to the end of the year and realising you should have done things differently. You will see and understand what your accountant has done to help you grow your business.

Want to discuss your options? Contact me for a consultation.

Poor Planning leads to..

Have you ever worked late into the night? When did you last feel you could have done a better job if you had had more time? Have you ever missed a deadline? Its all about planning.

Recognising what needs to be done and by when allows you to prioritise your tasks. Your finances should be planned in the same way. You have limited time and know it is down to you how you spend it. Treat your business funds in the same way.

You should have two types of plans which are different views of the same thing. One is a budget which sets out your planned sales, costs of sales and expenses. This may be by month in the coming year and annually for the next couple of years. In addition, you also need a cash flow statement. As it says, this is cash flowing in and out from the business with dates. This type of plan will keep you within overdraft limits, or indicate when you can take a dividend from the business (remembering to leave the money for the tax bill in the business).

A simple example of the difference is sales in a budget may show as £50,000 per month for three months. If your terms are 30 days, the cash flow would show nothing coming in during month one, £60,000 in months two, three and four and cash out of £20,000 also in month four. Where do these figures come from?

The nil in month one is down to £50,000 of sales but no one has paid you yet. Months two, three and four are £60,000 per month being £50,000 of sales plus 20% VAT) paid by your customers for sales in months one, two and three. What about the £20,000 out. This is the VAT you have collected on behalf of the taxman and received in months two and three. That is what I mean by leaving some money in the bank. Don’t forget, you have another tax to save up for as well, being the tax on business profits. Although not due yet, this would be another £30,000 due to go out. (being say 20% corporation tax on £50,000 for 3 months).

With these chunks of money due out, it is important to know, not only what you current bank balance is, but what you need to keep money back for. Even if it is only a rough idea, planning is better than penalties.

Need any help? Contact me.

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

What Costs can you control ?

Do you know what benefits you get from the costs your business incurs? Do you know what it is paying out for, and to whom? As time moves on, so does the needs of every business – and business owner. Are there alternatives to what you are currently spending your money on that could give you a greater benefit?

A simple example may be when do you upgrade a computer system further rather than biting the bullet and replacing the systems? Although it may seem painful at the time, I know many accounts staff who spend time and frustration waiting for their system to do things – or rebooting when they have asked it to do too much. For some reason it is often forgotten how much time the accounts department spend at the keyboard – or waiting for their computer to give them an answer! How does that come back to costs? The tasks that they can’t do as they do not have time may be costing you money. Payment of unpaid invoices not being chased meaning the money is in your customers’ account – not yours. Relationships with suppliers strained as their bills are not getting processed as quickly as they might. This may lead to early settlement discounts being missed or the opportunity for direct debit discount not being investigated.

I am not intending waving a flag to help the accounts department, just asking that you acknowledge the contribution that they make to the business. As a business owner, you don’t need to enter the figures and chase the debts – that can all be delegated. What you need to do is understand the figures. It is not the calculation that matters it is what you do as a result of the answer. Don’t be put off by the numbers, others may like those better than you. In the same way you may or may not enjoy driving a car, the fact you can – or can hire someone – makes most locations accessible to you. You can then choose whether you go there. The important thing is you have the choice providing you have the knowledge.

If I can be of any help contact me - oh and big news on the Book Next Week !