Archive for June, 2010

June 2010 Budget Update

Tuesday, June 22nd, 2010

Today’s first coalition budget was a mixed bag of good and bad news.  We still need to await the detail on exactly how a few of the initiatives will impact on your business.  In the meantime, we’ve highlighted below the changes to the major business taxes and how they will affect your business

 Personal Income Tax Allowances

 From April 2011, the personal allowance will be increased by £1,000.  This means that for an individual aged between 18 and 65 they will be able to earn £7,475 per annum before having to pay any income tax.  The Chancellor also stated that it is his longer term aim to raise the threshold to £10,000 per annum before an individual pays tax.  This increase will be worth around £200 a year to a basic tax rate payer.

 The higher threshold for income tax (the 40% rate) remains unchanged.

 Corporation Tax Rates (Tax charged on Limited Company Profits)

 The headline rate of corporation tax (For Companies making over £300,000 profits per year), will drop by 1% in 2011 and then by a further 1% per year in each of the next 3 years.

 For companies making less than £300,000, the rate (known as the small companies rate) will be reduced to 20% from 21% from April 2011.  This is an important change as in the previous Labour budget the rate was set to rise to 22%.

 Annual Investment Allowances (AIA)

 AIA allowances were introduced two years ago to encourage business to spend on capital.  Up to £100,00 of equipment can be bought in the 2010/2011 tax year and be written off in full against the businesses tax liability in the year.  From April 2011, this level will be reduced to £25,000 per annum.  So, if you are planning a major capital project, such as moving premises or introducing new machinery and it’s likely to cost more than £25,000 then you should consider ensuring that the project is complete before next April.

 Capital Allowances

 Any capital expenditure not covered by the AIA rules is written off against tax bills under capital allowances rules.  The current rules state that this type of expenditure is written off at a rate of 20% per annum.  From April 2011, this rate will change to 18%, meaning that it will take additional years for you to get full tax relief on any capital expenditure that falls under these rules.

 Furnished Holiday Lets

 The previous budget indicated that the favourable tax rules for owners of furnished holiday lets would be removed.  Today’s budget reverses that decision.

 VAT

 VAT rates will increase to 20% from 4th January 2011.  There is no change to the items that are exempt from VAT.

This will particularly impact businesses who are not VAT registered or who work directly with consumers.

 Capital Gains Tax

 The rate of Capital Gains Tax (CGT) will remain at 18% for basic rate tax payers, but will increase to 28% for higher rate tax payers from midnight tonight.  The annual exemption allowance of £10,100 will remain in place.

 National Insurance

 Both the planned employers & employees 1% increases will still be introduced from April 2011.  To mitigate the employers increase, the threshold for paying employers NI will be increased by £21 above indexation.  Some of the employee increases will be offset

 Regional Employer NIC Holidays

 The Government are keen to encourage employment outside London.  They are looking to implement a new scheme, at the latest by September that will allow new businesses which start up in these areas to get a substantial reduction in their employer National Insurance Contributions (NICs).

Within the qualifying period, these employers will not have to pay the first £5,000 of Class 1 employer NICs due in the first twelve months of employment. This will apply for each of the first 10 employees hired in the first year of business.

 Whilst  this scheme won’t be in place until September, any new business set up after 22nd June will qualify.

 The regions which will benefit will be Scotland, Wales, Northern Ireland, the North East, Yorkshire and the Humber, the North West, the East Midlands, the West Midlands and the South West.

 As we get more details of the scheme we will issue an update.

 Summary

 As always with budgets, more details are issued over the next few days.  We will issue any relevant updates as we receive them.

If you’d like to discuss how today’s budget will impact on you in more detail, please give us a call

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Posted in General Business | 2 Comments »

Are your Customers treating you as a bank?

Monday, June 21st, 2010

Most businesses sell their products and services on credit.  The length of time it takes your customers to pay you, after the issue of your invoice, is called debtor days.

Debtor days are calculated as your trade debtors figure (from either your management accounts or bookkeeping system) divided by the total sales for the same period multiplied by 365, or

Trade Debtors/ Total sales x 365

The figure produced from this calculation will tell you, on average, how long it takes your customers to pay you.  If the figure is greater than your credit terms, you could be acting as a bank for your customers.

When banks lend customers money, they charge interest – you can too!

Since November 1998, Government legislation has been in place which allows businesses the right to charge interest on late payments from customers.  The legislation is called “The Late Payment Legislation” and the interest you can charge is called “statutory interest”.

The Late Payment Legislation website contains some background information and a great statutory interest calculator, which will help you calculate how much your customers owe.

Of course, instead of charging statutory interest, it would be much better if the cash was in your bank account on time!

This is where we can help.  This post covers six key ways to ensure you get paid on time and if you visit our free resources section, you can download our cash management toolkit which should help you round up the money on time, every time!

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Posted in Uncategorized, cash management | 1 Comment »

Who is your ideal client?

Thursday, June 17th, 2010

At a networking meeting yesterday, all the members were asked to make an elevator pitch about their business.  As part of the pitch, each member had to include “who would be an ideal referral for your business”.  It was surprising, how many members responded to this with “anyone” or “any small business owner”.  From attending these meetings regularly I have learned that the more specific I am about asking for referrals, the more I seem to recieve.  For example, one week I asked to speak specifically to hairdressers, the next business owners looking to buy commercial property (as we can help them reduce their stamp duty).  Now the reason most others don’t do that is that they are frightened of missing out on other potential introductions.  However, the reality is exactly the opposite – I know, I’ve tried it!

Why the “anyone” strategy doesn’t work

The “we’ll take anyone” strategy doesn’t just apply to asking for referrals at networking events.  It’s often present all the way through a company’s customer acquisition drive.

By using this strategy, you attract all the wrong types of customers, who don’t help you move towards your end business goal.

Typical examples include customers who are fee sensitive, non profitable, are a drain on your resources, don’t take your advice or who constantly scope creep projects.

If  your business is full of these types of customers, will you ever reach your goals of profitability or being happy in your work?

Ok, it’s easy to say don’t accept just anyone, but it’s not that easy when you are trying to build a business quickly.  However, if you can accept that the business will grow a little more slowly, then there is no doubt that you’ll see the benefits – both in terms of profitability and hassle.

How to get that ideal customer

First things first, do you know what your ideal customer looks like.  What industry do they work in? How big is their business? What age group are they in?

Take time out and draw up a list of all the differant attributes that your ideal customer should possess, and take note, the list should be longer than “anyone with cash!”

You may already have some ideal customers on board.  What characteristics do they have in common?

Think like the big boys here – Supermarkets, Banks and other major players all use this type of method.  Once they have identified their ideal customer, they target them through marketing.

Once you have your list, you then need to work out how your service will benefit them and how you can get to speak with them.

A great example I saw of how not to do this was some time ago with a company that wanted to target Accountants.  He approached me at a business networking event where I was the only accountant present (and always would be due to the exclusivity “deal” you get with the networking group when you sign up).  So, by attending this meeting he got to talk to just one Accountant.  Sure, he’d done his homeowrk on his ideal client type, but then had put no research into where he’d get to meet them.  If he continued in this manner, it’d probably take him the rest of his business career to speak with only a small proportion of his intended audience!

Do you know what your ideal client looks like?

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Posted in Business Development, Profit Improvement | 1 Comment »

Working on your business – Whats that all about?

Friday, June 11th, 2010

Here at Accountancy Extra we are huge fans of Michael Gerber and the book E Myth Revisited.  So much so, that we provide new clients with a copy of the book.

In the book, one of the concepts discussed is “working on your business, rather than in it”, but what does that really mean?

Working on the business includes activities such as

  • Networking meetings
  • Researching a new product
  • Working on your cashflow
  • Putting together a business plan
  • Reviewing your gross margins, or
  • Systemising your business

How often do we start to do one of the above and then abandon it as a customer calls wanting something, or we need to attend to an urgent e mail from a client?

I often think about running a business a bit like preparing for the World Cup.  A top class footballer doesn’t just turn up 10 minutes before kick off and expect to be brilliant on the pitch.  Instead they invest years of training for their big moment, and, once they’ve made it into the international team, they continue training in between matches.  If they don’t, their performance will not improve – in fact it’ll probably go backwards and their place in the team will be taken by another player.

So what does that mean for your business?

Well firstly, it’d be great if you could do your preparation before starting your business.  Sadly, this is rarely possible.  However, constant investment in improving your business should be high on your list of priorities, if for no other reason than to stop you slipping backwards!  A lot of business owners start off with the right intentions and then let them slip as they get busier, i.e. they revert to Technician Mode.

You should set time aside each week to work on your business, think about the footballer in training each day.

Working “on” your business is exactly that – setting time aside each week to do all of the things mentioned above and more. Taking the time to look at how your business is performing and how you can improve. The main reasons why most Business Plans and Budgets don’t work for you is because they have no clear action plan broken down into what you need to do on a monthly and weekly basis (We’ll cover this area more in future posts).

 How much time have you scheduled into your diary in the next few weeks to look at how your business is performing?

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Posted in Business Development, General Business, Profit Improvement | No Comments »

New VAT Penalty Regime

Wednesday, June 2nd, 2010

The new electronic VAT regime has brought with it a number of changes to the ways and dates that VAT payments can be made to HMRCE.

From 1 April 2010 all VAT payments made by cheque will be treated as being paid on the day the cleared funds reach the Taxman’s account. Previously the VAT was treated as being paid on the working day the cheque reached the VAT Office. A cheque will normally take at least three working days to clear. Where VAT payment is received late more than once in 12 months you may have to pay a default surcharge (a penalty).  Of course, there is no guarantee that the cheque will be banked on the same day that it’s received either!

The Taxman will exercise his discretion not to charge a default surcharge for VAT periods that commenced before 1 April 2010, where the paper VAT form and the cheque payment are both received on time. VAT cheque payments for periods that begin on and after 1 April 2010 will have to clear the Taxman’s bank account by the due date, or surcharges may apply.

Where the VAT return is submitted online the payment for any VAT due must also be made online. However this can cause problems where the VAT due for the quarter exceeds £10,000.

Many banks impose a daily limit of £10,000 for electronic payments for both business and personal accounts. Larger electronic payments can be made by CHAPs but this may involve bank charges of up to £35 per transaction. You should also be aware that unlike normal business transactions, it takes HMRCE two days to clear, faster payments.

If your business is not already VAT registered but your sales are edging up towards the VAT compulsory registration threshold, (£70,000 from 1 April 2010), you need to be particularly careful about when you register. From 1 April 2010 there is a new set of penalties for failing to register for VAT on time. The penalty is based on the underpaid VAT. The minimum penalty will be 10% of the VAT due, and the maximum penalty 100%. The highest penalty will be charged where there has been deliberate concealment of the need to register for VAT.

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New Penalties for PAYE

Wednesday, June 2nd, 2010

From this current tax year the Taxman can impose penalties if you are late in paying over the payroll and CIS deductions you make in the tax year. ‘Late’ in this context means the payment reaches the Tax Office after the 19th of each month, (or 22nd when paying electronically).

Until now the Taxman did not impose penalties or interest on small employers if all the payroll deductions for the year reached him by 19th April (or 22nd) after the end of the tax year. Large employers (those with more than 250 employees) have been subject to surcharges for late payment for some years, as they have been obliged to pay over all deductions electronically.

Those surcharges for large employers have been scrapped and all employers are now subject to the same penalties. However, small employers do not have to pay over their deductions electronically.

The penalty will be based on the total amount of deductions paid late for the tax year and will be calculated based on the number of times payments are late in a tax year as follows …

  • Late once – no penalty
  • Late 2 to 4 times – 1% penalty
  • Late 5 to 7 times – 2% penalty
  • Late 8 to 10 times – 3% penalty
  • Late 11 or more times – 4% penalty

The penalty applies to the total amount that is late in the tax year (ignoring the first late payment in that tax year).

If any payment is made more than six months late a further 5% charge is added to the above penalties. Where the payment is over 12 months late another 5% penalty charge is added.
However, these penalties cannot be imposed automatically as at present the Taxman does not know how much PAYE etc you should be paying over month on month. Although, when the Taxman inspects your PAYE records and it is apparent that you been late in paying over your payroll deductions, he has every right to impose these heavy penalties for late payment.

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Posted in Online Filing, PAYE, Tax | No Comments »

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