UK small businesses record levels of digital adoption in 2023
A recent report by the Federation of Small Businesses (FSB) found that small businesses in the UK are adopting digital technology at a record pace. The report found that 87% of small businesses now have a website, and 70% use online marketing.
This is a significant increase from the previous year, when only 75% of small businesses had a website and 55% used online marketing. The report suggests that the pandemic has accelerated the digital transformation of small businesses, as they have been forced to find new ways to reach customers and sell their products and services online.
Interestingly, the report found that small businesses that have adopted digital technology are more likely to be profitable. 60% of small businesses that use digital marketing are profitable, compared to only 40% of small businesses that do not use digital marketing.
The findings suggest that digital adoption is essential for small businesses in the UK. Furthermore, one can conclude that small businesses that adopt digital technology are more likely to be successful, both in terms of profitability and growth.
There are, however, a number of barriers to digital adoption for small businesses. These barriers include lack of skills, lack of funding, and lack of awareness of the benefits of digital technology.
The FSB report recommended that the government and other organizations provide support to small businesses to help them adopt digital technology. The report also recommends that small businesses themselves make a commitment to digital adoption and invest in the skills and resources they need to succeed online.
The report’s findings suggest that digital adoption is a key factor for small businesses in the UK. By adopting digital technology, small businesses can improve their profitability, grow their businesses, and reach new customers. In summary:
- The most common digital technologies used by small businesses in the UK are websites, social media, and email marketing.
- Small businesses that use digital technology are more likely to be aware of the latest trends and to be able to adapt their businesses accordingly.
- The main barriers to digital adoption for small businesses are lack of skills, lack of funding, and lack of awareness of the benefits of digital technology.
- The government and other organisations provide support to small businesses to help them adopt digital technology.
Examples of small business digital adoption
Here are some examples of the types of digital adoption involved in the small business sector:
- Websites: Having a website is essential for any small business that wants to be found online. A website can be used to showcase products and services, provide information about the business, and connect with customers.
- Online marketing: Online marketing is a broad term that encompasses a variety of activities, such as search engine optimization (SEO), pay-per-click (PPC) advertising, and social media marketing.
- Online marketing can be used to reach new customers, generate leads, and drive sales.
- E-commerce: E-commerce refers to the sale of goods and services online. E-commerce platforms like Shopify and WooCommerce make it easy for small businesses to set up an online store and sell their products to customers around the world.
- Cloud computing: Cloud computing refers to the use of remote servers to store and process data. Cloud computing can help small businesses save money on IT costs and improve their flexibility and scalability. For instance, cloud-based accounting software allows businesses to access their accounting data from anywhere, at any time. This can save businesses time and money, as they no longer need to maintain their own accounting software on-premises.
- Mobile apps: Mobile apps are a great way to reach customers on their smartphones and tablets. Mobile apps can be used to provide information, offer discounts, and facilitate customer service.
- Online invoicing and payments: Online invoicing and payments allow businesses to send and receive invoices and payments electronically. This can save businesses time and money, as they no longer need to mail invoices or process payments manually.
- Receipt scanning and tracking: Receipt scanning and tracking tools allow businesses to scan and track receipts electronically. This can help businesses to automate their expense reporting process and improve their cash flow management.
- Accounting automation: Accounting automation tools can automate tasks such as data entry, reconciliation, and reporting. This can free up businesses’ time so that they can focus on other important tasks.
- Data analytics: Data analytics tools can help businesses to analyze their accounting data to identify trends and make informed decisions. This can help businesses to improve their financial performance.
How can small businesses effectively adopt digital technologies and become digitally enabled?
If you’re a small business owner and you’re thinking about adopting digital technologies and becoming a ‘digitally enabled business’. That’s great! Digital technologies can help you improve your efficiency, productivity, and customer service. They can also help you reach new markets and grow your business.
But before you start adopting digital technologies, it’s important to to create a firm foundation for what lies ahead so here are some tips for small businesses that are looking to adopt digital technology in their quest for digital enablement benefits:
Start with a clear goal in mind. What do you want to achieve by adopting digital technology? Do you want to reach new customers? Increase sales? Improve customer service? Once you know your goals, you can start to develop a plan to achieve them.
Do your research. There are a lot of different digital technologies out there, so it’s important to do your research and find the ones that are right for your business. Talk to other small businesses, read online reviews, and attend industry events to learn more about the latest trends.
Start small and scale up. There’s no need to invest in a lot of expensive technology upfront. Start with a few small projects and see how they go. If they’re successful, you can then scale up your digital adoption efforts.
Get help from experts. If you’re not sure where to start, or if you need help implementing a digital technology solution, there are a number of experts who can help you. There are also a number of government and non-profit organisations that offer free or low-cost support to small businesses.
Adopting digital technology can be a daunting task, but it’s worth it in the long run. By adopting digital technology, small businesses can improve their profitability, grow their businesses, and reach new customers.
What are some of the benefits that digital adoption can bring?
There’s a lot of time and effort that goes into becoming a digital enabled company, not least in the planning and choice of technologies that match your businesses level of service and technological experience. Just the time alone, in training staff and managing customer expectations, mean that the benefits must be significant to justify the level of investment. So here are a few of the main benefits your business and customers can expect:
Increased efficiency: Small businesses are able to automate tasks and streamline their operations. This can free up time and resources so that businesses can focus on other important activities.
Reduced costs: Small businesses can save money on things like printing, postage, and travel. For example, businesses can use online tools to manage their finances, communicate with customers, and track inventory.
Improved customer service: Your business can provide better customer service. For example, businesses can use live chat and online support to answer customer questions and resolve issues quickly.
Increased visibility: In today’s business landscape, online visibility is critical and so the adoption of the right web enabling technologies is essential. This can lead to more customers and more sales.
New opportunities: An example of how visibility through digital technology can open up new opportunities. For example, businesses can use digital marketing to reach new customers around the world.
The importance of security: When adopting digital technology, it is important to take steps to protect your business from cyberattacks. This includes using strong passwords, keeping your software up to date, and being aware of the latest threats.
The need for training: Adopting digital technology can be a complex process, so it is important to provide your employees with training on how to use the new technology. This will help them to get the most out of the technology and to avoid making mistakes.
The importance of measuring results: It is important to track the results of your digital adoption efforts so that you can see what is working and what is not. This will help you to make adjustments to your strategy as needed.
Recent updates to the government initiatives and industry responses
Since the Help to Grow: Digital scheme closed in February 2023 there have been no further updates from the government. However, it is possible that the government will announce a new scheme in the future, but there is no guarantee of this.
The Federation of Small Businesses (FSB) has expressed disappointment at the closure of the Help to Grow: Digital scheme, stating that it was “a missed opportunity to help small businesses invest in digital technologies.”
The British Chambers of Commerce (BCC) has also expressed disappointment, stating that the scheme “was a valuable tool for helping small businesses to improve their digital capabilities.”
The government has said that it is “considering options for how to support small businesses with digital adoption in the future.”
Overall, there is a consensus that digital adoption is essential for small businesses to succeed in the modern economy. The government and other organizations must take steps to support digital adoption by small businesses, and it is likely that this trend will continue in the years to come.
Final thoughts
Digital adoption is essential for small businesses, and at TaxAgility, it’s a subject we discuss often with our client base, especially in relation to the array of cloud accounting tools available to them in the quest for digital enablement.
By adopting digital technologies and following an ongoing path of digital enablement, small businesses can improve their profitability, grow their businesses, and reach new customers. However, it is important to do your research and find the right digital technologies for your business. You should also start small and scale up as you become more comfortable with the technology.
What is the Register of Overseas Entities (ROE) and how does it affect me as an overseas investor in UK property
The new Register of Overseas Entities (ROE) is a public register of beneficial ownership information for overseas entities that own land or property in the UK. The ROE was created under the Economic Crime (Transparency and Enforcement) Act 2022, which was passed in response to the Russian invasion of Ukraine. The ROE is intended to make it more difficult for criminals to launder money through UK property by making it easier for law enforcement to identify the true owners of overseas entities.
The ROE came into force on 1 August 2022. All overseas entities that own land or property in the UK must register with the ROE. The information that must be registered includes the name and address of the beneficial owner of the entity, as well as the date on which the entity acquired the property.
The ROE is a valuable tool for law enforcement and other agencies that are working to combat economic crime. By making it easier to identify the true owners of overseas entities, the ROE can help to deter criminals from using UK property to launder money.
In this article we will cover the following:
- The extent of crime related to property investment in the UK
- A brief overview of the ROE
- An explanation of why the ROE was created
- A description of the information that must be registered on the ROE
- A discussion of the benefits of the ROE
So how big is the problem?
To highlight how big of an issue money laundering through property is in the UK, here are some statistics for 2022 on money laundering related to UK property investment by overseas individuals:
- Total value of UK property investment by overseas individuals: £6.7 billion
- Value of UK property investment by Russians accused of corruption or links to the Kremlin: £1.5 billion
- Percentage of UK property investment by Russians accused of corruption or links to the Kremlin in the City of Westminster: 28.3%
- Percentage of UK property investment by Russians accused of corruption or links to the Kremlin in Kensington and Chelsea: 18.8%
Such statistics highlight the extent of money laundering related to UK property investment by overseas individuals. The UK has long been a target for money launderers, and the property market is a particularly attractive option as it is relatively easy to hide the source of funds. The recent sanctions against Russia have increased the focus on money laundering in the UK, and it is likely that these statistics will only increase in the coming years.
How do criminals achieve their goals? Here are some of the ways that money launderers use UK property investment to launder their money:
Buying property in cash: This is the most common way to launder money through property investment. Criminals can simply buy property in cash, without having to provide any evidence of where the money came from.
Using shell companies: Criminals can set up shell companies to buy property on their behalf. This makes it difficult to trace the ownership of the property, and therefore the source of the funds.
Using trusts: Criminals can set up trusts to own property. This can also make it difficult to trace the ownership of the property, and therefore the source of the funds
This is why the UK government has taken steps to combat money laundering in the property market. These include introducing new regulations for property transactions, increasing the powers of law enforcement agencies to investigate suspected money laundering and recently, the introduction of the ROE.
The creation of the ROE
The ROE is a public register that lists the beneficial owners of overseas entities that own land or property in the UK. The register was created as part of the Economic Crime (Transparency and Enforcement) Act 2022, which was passed in response to the Russian invasion of Ukraine. The aim of the ROE is to increase transparency and make it more difficult for criminals to launder money through UK property. The ROE has been welcomed by anti-corruption campaigners, who believe that it will make it more difficult for criminals to hide their assets. However, some critics have argued that the ROE is too complex and that it will be difficult to enforce.
Are you looking to invest in UK property, or perhaps you already own property here?
If you are an overseas investor who owns property in the UK, or if you are considering buying property in the UK, you will need to be aware of the ROE. The following are some of the key things you need to know:
Who is required to register?
The ROE applies to all overseas entities that own land or property in the UK. An overseas entity is any entity that is not incorporated or registered in the UK. This includes companies, trusts, partnerships, and individuals.
What information must be registered?
- The ROE requires overseas entities to register the following information about their beneficial owners:
- Name
- Date of birth
- Nationality
- Residential address
- Occupation
How do I register?
You can register your beneficial ownership information on the ROE website. The registration process is free.
What are the penalties for non-compliance?
If you fail to register your beneficial ownership information on the ROE, you could face a fine of up to £2,500.
Benefits of registering on the ROE
There are a number of benefits to registering on the ROE, including:
Increased transparency: The ROE makes it easier for law enforcement agencies to track down criminals who use UK property to launder money.
Reduced risk of fraud: The ROE makes it more difficult for criminals to steal your identity and take control of your property.
Improved market reputation: By registering on the ROE, you are demonstrating that you are a responsible investor and that you are committed to compliance with the law.
The ROE system may seem like a lot of additional paperwork, but it is important to remember that it is designed to protect you and your investment. By registering your beneficial ownership information on the ROE, you are helping to make the UK property market a more transparent and secure place.
Final thoughts
The ROE is a new initiative that is designed to increase transparency and reduce the risk of financial crime in the UK property market. If you are an overseas investor who owns property in the UK, or if you are considering buying property in the UK, we strongly suggest that you register your beneficial ownership information on the ROE. By doing so, you are helping to make the UK property market a safer and more secure place for everyone.
How AI is Helping HMRC to Collect Taxes and Crack Down on Tax Evasion
HMRC has been developing its AI capabilities for a number of years. In 2016, it launched the AI Lab, which is a team of experts who are working to develop new AI-based tools and techniques to help HMRC collect taxes more effectively. In this article, we explore some of the ways HMRC is using its new tools to crack down on small business tax evasion.
The AI Lab has made a number of significant achievements in recent years. For example, it has developed an AI-based tool that can automatically detect fraudulent tax returns. This tool has been used to identify millions of pounds of fraudulent tax claims.
AI Lab is also working on developing AI-based tools to help HMRC with other tasks, such as identifying businesses that are at risk of tax evasion and targeting businesses for audits.
It appears that HMRC is committed to using AI to improve its ability to collect taxes and to crack down on tax evasion. The AI Lab is playing a key role in this effort, and it is likely that HMRC will continue to develop its AI capabilities in the years to come.
Here are some of the ways in which HMRC has been developing its AI capabilities:
- Investing in research and development. HMRC has invested heavily in research and development of AI technologies. This investment has led to the development of a number of innovative AI-based tools and techniques.
- Partnering with academia and industry. HMRC has partnered with academia and industry to access expertise and resources in AI. This collaboration has helped HMRC to accelerate the development of its AI capabilities.
- Scaling up its AI capabilities. HMRC is scaling up its AI capabilities by training more staff on AI technologies and by investing in infrastructure to support AI-based processes.
HMRC’s investment in AI is a significant development that has the potential to transform the way that HMRC collects taxes. By using AI, HMRC can become more efficient and effective in collecting taxes, and it can crack down on tax evasion more effectively.
HMRC cracks down on small business tax evasion with AI
Small businesses are a vital part of the UK economy, but they are also at risk of tax evasion. The UK tax authority, HMRC, is using artificial intelligence (AI) to crack down on small business tax evasion. This is a significant development and it’s important for small business owners to be aware of the risks and to take steps to protect themselves and thus avoid the prospects of a tax investigation.
Why small businesses need to know this
There are a number of reasons why small businesses need to be aware of HMRC’s use of AI to crack down on tax evasion.
The use of AI is a significant development that small business owners need to take note of. AI is a powerful tool that can be used to analyse large amounts of data and identify patterns of suspicious activity.
This means that HMRC is now able to identify businesses that are at risk of tax evasion much more easily than in the past.
Small businesses are a target for tax evasion. Small businesses are often seen as being less likely to comply with tax laws than larger businesses. This is because small businesses may have fewer resources to devote to tax compliance, and they may be more likely to be run by individuals who are not familiar with tax laws.
The penalties for tax evasion are severe. If a small business is caught evading tax, it could face significant penalties. These penalties could include fines, asset seizures, and even imprisonment.
How AI is identifying businesses at risk of tax evasion
AI is being used to analyse data on businesses to identify patterns of suspicious activity. For example, AI can be used to identify businesses that are reporting unusually high expenses or that are making large cash payments.
Here are some examples of suspicious activity that AI can identify in businesses that are:
- Reporting unusually high expenses, such as travel and entertainment expenses.
- Making large cash payments, especially for items that are typically paid for by check or credit card.
- Reporting inconsistent income and expenses from year to year.
How AI is assessing the risk of tax evasion by businesses
AI is being used to assess the risk of tax evasion by businesses. This risk assessment takes into account a number of factors, such as the business’s size, industry, and location.
Here are some factors that HMRC considers when assessing the risk of tax evasion:
- The size of the business. Larger businesses are more likely to be audited by HMRC than smaller businesses.
- The industry of the business. Some industries, such as construction and hospitality, are more prone to tax evasion than others.
- The location of the business. Businesses that are located in areas with a high concentration of tax evasion are more likely to be audited by HMRC.
How AI is supporting HMRC’s enforcement activities
AI is being used to support HMRC’s enforcement activities. For example, AI can be used to identify businesses that are not complying with tax laws and to generate reports on tax evasion.
Here are some ways that AI is being used to support HMRC’s enforcement activities:
- AI can be used to identify businesses that are not filing tax returns or that are filing late.
- AI can be used to identify businesses that are underreporting their income or overstating their expenses.
- AI can be used to generate reports on tax evasion that can be used by HMRC to target businesses for audits.
What this means for small business owners
As a small business owner, it’s important to be aware of the fact that HMRC is using AI to crack down on tax evasion. This means that you need to be more careful than ever to ensure that you are complying with all tax laws.
Here are a few things you can do to protect yourself from being caught up in HMRC’s AI crackdown:
- Keep good records: It’s important to keep good records of all of your business income and expenses. This will help you to ensure that you are able to declare your income correctly and that you are not claiming false expenses.
- Keep all of your receipts, invoices, and other documents related to your business.
- Organise your records in a way that makes them easy to find.
- Keep your records for at least seven years.
- Get professional advice: If you are unsure about your tax obligations, it’s important to get professional advice from an accountant or tax advisor.
An accountant or tax advisor can help you to understand your tax obligations and to ensure that you are complying with all tax laws.
Be aware of the risks: Tax evasion is a serious offence and it can lead to penalties, asset seizures, and even prosecution. It’s important to be aware of the risks of tax evasion and to take steps to avoid it.
Penalties: HMRC can impose penalties for tax evasion. The amount of the penalty will depend on the severity of the offence.
Asset seizures: HMRC can seize assets, such as bank accounts, cars, and homes, from businesses and individuals who have evaded tax.
Prosecution: In some cases, HMRC may prosecute businesses and individuals who have evaded tax. If convicted, individuals can face up to seven years in prison.
How TaxAgility has helped clients avoid tax evasion issues
As a specialist small business accounting firm in Richmond and Putney, we’ve been on hand to assist our clients ensure they meet all their tax reporting obligations in a timely manner. We are also able to spot simple and more elaborate issues in their day-to-day operations and tax reporting, that may bring them to the attention of HMRC, often quite inadvertently so.
Don’t hesitate to contact TaxAgility, if you’re concerned that mistakes may have been made and you are worried about HMRC’s response. Call today on: 020 8108 0090.
Fraud & scams businesses need to watch out for 2023
Businesses in the UK are facing an increasing number of fraud scams targeting their Tax and VAT arrangements. These scams can be very sophisticated and can often go undetected for months or even years. As a result, businesses can suffer significant financial losses. Businesses can protect themselves from fraud scams by being aware of the different types of scams and by taking steps to verify the identity of anyone who they are dealing with before making any payments.
This article describes and explains many of those business owners and employees’ experiences.
Fraud is a large and growing problem
Fraud is a serious problem for businesses of all sizes. In 2022, the average loss from fraud in the UK was £1.2 million. The most common type of fraud in the UK was payment fraud, which accounted for 44% of all fraud losses. The second most common type of fraud in the UK was identity fraud, which accounted for 34% of all fraud losses. The third most common type of fraud in the UK was investment fraud, which accounted for 12% of all fraud losses.
Here are some more statistics to make you think:
Cloned invoice scam: There were 12,000 reports of cloned invoice scams in 2022, with a total loss of £100 million. The average loss per cloned invoice scam was £8,333.
VAT refund scam: There were 8,000 reports of VAT refund scams in 2022, with a total loss of £50 million. The average loss per VAT refund scam was £6,250.
Fake tax authority scam: There were 6,000 reports of fake tax authority scams in 2022, with a total loss of £30 million. The average loss per fake tax authority scam was £5,000.
Overpayment scam: There were 4,000 reports of overpayment scams in 2022, with a total loss of £20 million. The average loss per overpayment scam was £4,167.
Fake bank transfer scam: There were 2,000 reports of fake bank transfer scams in 2022, with a total loss of £10 million. The average loss per fake bank transfer scam was £5,000.
Such statistics show that frauds and scams targeting UK businesses involving payments, tax and VAT are a major problem. Businesses can protect themselves from these scams by being aware of the different types of scams and by taking steps to verify the identity of anyone who they are dealing with before making any payments.
A deeper look into the types of Fraud
There are many different types of fraud that businesses can fall victim to. Some of the most common types of fraud include:
Cloned invoice scam: In this scam, fraudsters send an invoice to a business that appears to be from a legitimate supplier. However, the invoice is actually fake and the money paid to the fraudster is never received by the legitimate supplier. The fraudsters often clone the email address of the legitimate supplier and send the invoice from that address. They may also use a fake website that looks like the website of the legitimate supplier.
- To protect yourself from a clones invoice scam, be sure to verify the identity of the supplier before making any payments. You can do this by calling the supplier directly or by checking their website for a physical address.
VAT refund scam: In this scam, fraudsters contact a business and claim that they are entitled to a VAT refund. The fraudsters will often provide the business with false documentation in order to support their claim. Once the business has paid the refund, the fraudsters disappear and the business is left out of pocket.
- You can protect yourself from this scam by verifying the identity of the person or company requesting the refund. You can do this by calling the supplier directly or by checking their website for a physical address.
Fake tax authority scam: In this scam, fraudsters contact a business and claim to be from the tax authority. They will often say that the business owes money in taxes and that they need to pay immediately. The fraudsters will often provide the business with false documentation in order to support their claim. Once the business has paid the money, the fraudsters disappear and the business is left out of pocket.
- Be sure to verify the identity of the person or company contacting you. You can do this by calling the tax authority directly or by checking their website for a physical address. Do this and it will help you avoid this scam.
Overpayment scam: In this scam, fraudsters contact a business and claim to have overpaid for goods or services. They will often ask the business to refund the overpayment, but the refund will actually go to the fraudster.
- Similar to other scams of this nature, be sure to verify the identity of the person or company requesting the refund. You can do this by calling the supplier directly or by checking their website for a physical address.
Fake bank transfer scam: In this scam, fraudsters send a fake bank transfer to a business. The bank transfer will appear to be from a legitimate source, but it is actually fake. Once the business has spent the money, the fraudster will withdraw the money from the bank account and the business will be left out of pocket.
- Again, verification of the identity of the person or company sending the bank transfer is the key. Do this by calling the bank directly or by checking their website for a physical address.
HMRC Related Scams
HMRC related scams are a type of fraud that target businesses and individuals. These scams often involve the fraudster pretending to be from HMRC and demanding payment for a tax bill that does not exist. Other HMRC related scams may involve the fraudster asking for personal or financial information in order to steal the victim’s identity.
Here are some examples of HMRC related scams:
Scams involving tax refunds:
These scams typically involve scammers sending emails or making phone calls claiming to be from HMRC and offering a tax refund. The scammer will then ask for personal or financial information in order to process the refund. HMRC will never contact you by email or phone to offer a tax refund. If you receive such a communication, it is a scam.
Here is an example of a scam email that may be sent by a fraudster:
Dear [Recipient Name],
We are writing to inform you that you are entitled to a tax refund of £[Amount].
To claim your refund, please click on the link below and enter your personal information.
[Link]
This link will take you to a fraudulent website that looks like the HMRC website. If you enter your personal information on this website, the fraudster will be able to steal your identity.
Scams involving penalties and fines:
These scams typically involve scammers sending emails or making phone calls claiming to be from HMRC and saying that you owe a penalty or fine. The scammer will then ask for payment in order to avoid further action. HMRC will never contact you by email or phone to demand payment for a penalty or fine. If you receive such a communication, it is a scam.
Here is an example of a scam phone call that may be made by a fraudster:
This is a scam. HMRC will never call you and demand payment for a penalty or fine. If you receive such a call, hang up immediately.
Scams involving identity theft:
These scams typically involve scammers sending emails or making phone calls claiming to be from HMRC and asking for personal financial information. The scammer will then use this information to commit identity theft. HMRC will never contact you by email or phone to ask for personal financial information. If you receive such a communication, it is a scam.
Here is an example of a scam email that may be sent by a fraudster:
Dear [Recipient Name],
We are writing to inform you that we have recently detected suspicious activity on your HMRC account. In order to protect your account, we need to verify your identity.
Please click on the link below and enter your personal information.
[Link]
This link will take you to a fraudulent website that looks like the HMRC website. If you enter your personal information on this website, the fraudster will be able to steal your identity.
VAT Scams & Fraud
AT fraud is a type of tax fraud that involves the fraudulent evasion of Value Added Tax (VAT). VAT is a consumption tax that is added to the price of goods and services at each stage of the supply chain. Businesses that are registered for VAT are required to collect VAT from their customers and then pay it to HM Revenue and Customs (HMRC).
There are a number of ways that scammers might use to commit VAT fraud against unsuspecting businesses. Some of the most common methods include:
Missing trader intra-community (MTIC) fraud: In this type of fraud, the fraudster sets up a fake business and registers for VAT. The fraudster then buys goods from legitimate businesses within the European Union (EU) and claims the VAT back from HMRC. However, the fraudster does not actually sell the goods and does not pay the VAT to HMRC. This type of fraud is known as MTIC fraud because the fraudster is missing from the supply chain.
Invoicing fraud: Here, the fraudster sends an invoice to a business for goods or services that have not been ordered. The invoice may look like it is from a legitimate business, but it is actually from a fraudster. The fraudster will then ask for payment for the invoice. If the business pays the invoice, the fraudster will keep the money and the business will not receive the goods or services.
Refund fraud: The fraudster will make a fraudulent claim for a VAT refund from HMRC. The fraudster may use a fake VAT registration number or they may claim for a refund for goods or services that were not actually sold. If the fraudster is successful in claiming the refund, they will keep the money and HMRC will lose out on the VAT revenue.
VAT fraud is a serious problem that can cost businesses and HMRC a lot of money. Businesses can protect themselves from VAT fraud by being aware of the different types of fraud and by taking steps to prevent fraud, such as:
- Checking the identity of their suppliers: Businesses should check the identity of their suppliers before they do business with them. This can be done by checking the supplier’s VAT registration number and by asking for references.
- Only paying invoices from legitimate businesses: Businesses should only pay invoices from businesses that they know and trust. If an invoice looks suspicious, the business should contact the supplier to verify the invoice.
Reporting suspicious activity to HMRC: Businesses should report any suspicious activity to HMRC. This can be done by calling the HMRC fraud hotline on 0800 788 887. Find out more about reporting fraud on HMRC’s website here.
How to Protect Yourself from Fraud
There are a number of things that businesses can do to protect themselves from fraud:
- Educate your employees: This is probably your best line of defence. Make sure your employees are aware of the different types of fraud scams that target businesses. Train them to be suspicious of any unsolicited emails or phone calls, and to never give out personal or financial information over the phone or online. Familiarity with your business operations, supply chains and customers, their trends and typical activities, is an excellent way of helping employees spot fraud and scams.
- Use strong passwords and security measures: Make sure your business has strong passwords and security measures in place. This will help to protect your business from hackers and other cyber criminals.
- Be careful what you click on: Never click on links in emails or text messages from unknown senders. These links may contain malware that can infect your computer.
- Always be suspicious of and query communications from official sources, such as your banks and HMRC, especially those over the phone or through email.
- Be suspicious of offers that seem too good to be true: If an offer seems too good to be true, it probably is. Don’t be afraid to ask questions before you make a payment.
By following these tips, you can help to protect your business from fraud.
Here are some additional tips that may be helpful:
- Keep your software up to date: Software updates often include security patches that can help to protect your computer from malware. Malware can give fraudsters a unique insight into your business that may allow them to pass themselves off as someone from an official source, as they will have convincing personal information to refer to.
- Use a firewall: A firewall can help to protect your computer from unauthorized access.
- Back up your data regularly: This will help you to recover your data if it is lost or damaged due to a fraud attack. This is critical in stopping RansomeWare attacks.
- Report fraud: If you believe that you have been the victim of fraud, report it to the authorities.
How director's loan accounts work, including tax implications and risks
What is a director’s loan account?
A director’s loan account is a record of all the money that a director of a UK limited company has borrowed from, or lent to, the company. This can include money that has been borrowed or lent for any reason, such as to cover personal expenses, to invest in the company, or to help the company with cash flow problems.
Director’s loan accounts are not regulated by law, but they are subject to certain accounting and tax rules. Directors are required to keep accurate records of all transactions relating to their loan accounts, and they must disclose the existence of any loan accounts to the company’s auditors.
How do director’s loan accounts work?
When a director borrows money from the company, the amount is recorded as a debit on the director’s loan account. When the director repays the money, the amount is recorded as a credit on the account. If the director has borrowed more money from the company than they have repaid, the account is said to be overdrawn.
There are two main types of director’s loan accounts:
- Repayment-free loan accounts. These are accounts where the director is not required to repay the loan to the company. The company may choose to set up a repayment-free loan account if the director is providing a personal guarantee for the company’s debts.
- Repayment-on-demand loan accounts. These are accounts where the company can demand that the director repay the loan at any time. The company may choose to set up a repayment-on-demand loan account if the director is borrowing money from the company to invest in the company or to help the company with cash flow problems.
What are the tax implications of director’s loan accounts?
The tax implications of director’s loan accounts can be complex, and it is important to seek professional advice. However, in general, interest that is charged on an overdrawn director’s loan account is taxable income for the director. Additionally, if a director’s loan account is not repaid within nine months of the company’s accounting year end, the director may be liable to pay National Insurance contributions on the amount of the loan.
For example, let’s say that a director borrows £10,000 from the company and does not repay the loan within nine months of the company’s accounting year end. The director will be liable to pay income tax on the interest that is charged on the loan, even if the loan is not repaid. The director will also be liable to pay National Insurance contributions on the amount of the loan.
What happens if I overdraw by more than £15,000?
If you overdraw your director’s account by more than £15,000, you may be subject to additional tax charges. This is because the government considers loans of this size to be more likely to be used for personal expenses rather than business purposes.
The exact amount of tax you will owe will depend on your individual circumstances, but it could be as much as 33.75% of the amount of the loan.
In addition to the tax charges, you may also be at risk of being disqualified from acting as a director of a UK company. This is because the government considers loans of this size to be a sign of poor financial management.
If you are considering overdrawing your director’s account by more than £15,000, it is important to seek professional advice to understand the potential risks and consequences.
What are the risks of director’s loan accounts?
There are a number of risks associated with director’s loan accounts. These include:
- Personal liability. If the company is unable to repay its debts, the director may be personally liable for those debts. This is because the director is considered to be a creditor of the company, and creditors have a right to be repaid before shareholders.
- Tax implications. As mentioned above, interest that is charged on an overdrawn director’s loan account is taxable income for the director. Additionally, if a director’s loan account is not repaid within nine months of the company’s accounting year end, the director may be liable to pay National Insurance contributions on the amount of the loan.
- Disqualification. If a director does not repay an overdrawn director’s loan account within nine months of the company’s accounting year end, they may be disqualified from acting as a director of a UK company.
What should I do if I have a director’s loan account?
If you have a director’s loan account, it is important to understand the risks involved and to take steps to mitigate those risks. This may include:
- Repaying the loan as soon as possible.
- Making sure that the loan is documented properly.
- Keeping accurate records of all transactions relating to the loan.
- Seeking professional advice on the tax implications of the loan.
Final thoughts
Director’s loan accounts can be a useful tool for directors of UK limited companies. However, it is important to understand the risks involved and to take steps to mitigate those risks. If you are considering setting up a director’s loan account, it is advisable to seek professional advice.
TaxAgility has been working with small business owners in and around Richmond and Putney for many years. We’ve assisted them manage their financial operations and advised them on the use of their directors account.
Contact us today on 020 8108 0090 to learn more about how we can help you.
Top 6 accounting mistakes small businesses make
As an accounting firm based in Putney and Richmond, we’ve seen our fair share of small business owners make accounting mistakes.
These mistakes can cost you time, money, and even your business. Fortunately, they are quite easy to avoid and with the assistance of a professional accountant, you’ll never need to be concerned about making them again.
In this article, we’re going to share the top 6 accounting mistakes small businesses make, and how you can avoid them.
Mistake #1: Not Keeping Good Records
This is one of the most common accounting mistakes we see. Small business owners often don’t think it’s important to keep track of their receipts, invoices, and other financial documents. But this is a big mistake!
Good records are essential for tracking your income and expenses, filing your taxes, and getting loans or financing. If you don’t keep good records, you’ll be flying blind when it comes to your finances.
Here are some examples of the importance of keeping good records:
- If you don’t keep track of your income and expenses, you won’t know how much money you’re making or spending. This can lead to overspending and financial problems.
- If you don’t file your taxes on time, you could be subject to penalties and interest.
- If you don’t keep good records, it will be difficult to get a loan or financing. Lenders want to see that you’re a responsible business owner who can manage your finances.
Here are some tips for keeping good records:
- Get a receipt for every purchase you make for your business.
- Keep all of your invoices and other financial documents in a safe place.
- Back up your records regularly.
- Use accounting software, such as Xero, to help you track your income and expenses.
Mistake #2: Not Paying Your Taxes on Time
The penalties for late tax payments can be significant, so it’s important to make sure you pay your taxes on time. If you’re not sure when your taxes are due, you can always check with HMRC.
Here are some tips for paying your taxes on time:
- Set up a system for tracking your tax deadlines.
- Make sure you have enough money to pay your taxes on time.
- File your taxes electronically.
- Get professional accounting help if you need it.
Mistake #3: Not Using Accounting Software
Accounting software can save you a lot of time and hassle. It can help you track your income and expenses, generate reports, and file your taxes. There are many different accounting software programs available, so you can find one that fits your needs and budget. We recommend cloud based accounting from companies like Xero.
Here are some of the benefits of using accounting software:
- Increased accuracy
- Improved efficiency
- Reduced costs
- Easier compliance
Mistake #4: Not Getting Help from a Professional
If you’re not comfortable handling your own accounting, there are many qualified accountants who can help you. An accountant can help you set up a sound accounting system, track your finances, and file your taxes.
The cost of hiring an accountant can be offset by the benefits of having accurate and up-to-date financial records.
Here are some of the benefits of hiring an accountant:
- Peace of mind knowing that your finances are in good hands
- Expert advice on tax planning and other financial matters
- Time savings
Mistake #5: Not Planning for the Future
It’s important to plan for the future of your business, and this includes planning for your taxes. You should consult with an accountant to find out how to minimize your tax liability and make the most of your tax deductions.
By planning for the future, you can help ensure that your small business is financially secure.
Here are some tips for planning for the future:
- Consult with an accountant to find out how to minimize your tax liability.
- Make sure you have a plan for retirement.
- Make sure you have a plan for the sale of your business.
Mistake #6: Not Having a Disaster Recovery Plan
A disaster recovery plan is a document that outlines how your business will continue to operate in the event of a disaster, such as a fire, flood, or cyberattack. Having a disaster recovery plan in place can help you minimize the financial impact of a disaster and get your business back up and running as quickly as possible.
Here are some tips for creating a disaster recovery plan:
- Identify your critical systems and data. What are the systems and data that are essential for your business to operate? Once you know what’s critical, you can start to develop a plan for how to protect it.
- Create a backup plan. This should include a plan for backing up your data and systems, as well as a plan for restoring them in the event of a disaster.
- Test your plan regularly. This will help you identify any potential problems and make sure that your plan is up-to-date.
- Communicate your plan to your employees. Everyone in your business should know what to do in the event of a disaster.
- Keep your plan updated. Your business and its needs will change over time, so it’s important to keep your disaster recovery plan updated as well.
By following these tips, you can help ensure that your business is prepared for any disaster.
Why not talk to TaxAgility and see how we can help you avoid these mistakes
By avoiding these common accounting mistakes, you can help ensure the financial health of your small business. So if you’re a small business owner, be sure to keep these tips in mind.
TaxAgility has been helping small businesses in and around Richmond and Putney for many years.
Contact us today on 020 8108 0090 to learn more about how we can help you.
AI-Powered Accounting: Boosting Efficiency and Value for Small Business Clients
The fear of Artificial Intelligence (AI) replacing human jobs has been around for a long time, and it’s only getting more intense. But here’s the truth: AI is far from being able to replace human labor anytime soon, if ever. In this article, we’ll explore the impact AI is likely to have on the accounting profession and the potential benefits it will bring to both us as accountants and the service we provide to you, our clients.
Debunking the Myth of AI Replacing Accountants
The rapid development of Artificial Intelligence (AI) has generated widespread discussion and, in some cases, apprehension about its potential impact on various professions, including accounting. The media often portrays a picture of AI-driven tools and systems replacing human accountants, stoking fears among small business owners that their trusted advisors may soon become obsolete. However, this argument overlooks the true potential of AI to augment, rather than replace, the skills and processes of accountants enabling them to provide even greater value to their small business clients. In this introduction, we will address the irrational fears, media hype, and fallacies surrounding the notion of AI replacing accountants.
Irrational Fears
The fear that AI will replace accountants is largely based on the misconception that AI can wholly replicate human skills, experience, and judgment. While AI-powered tools can automate routine tasks and improve accuracy, they cannot replace the nuanced understanding, empathy, and strategic thinking that human accountants bring to their work. In reality, AI serves as an invaluable tool that allows accountants to focus on higher-value tasks, providing tailored financial advice and fostering deeper relationships with their clients.
Media Hype
Sensationalist headlines and media reports often contribute to the misconception that AI is poised to replace accountants. However, this narrative tends to focus solely on the automation aspect of AI, ignoring the broader benefits of AI-augmented accounting. By understanding the true capabilities and limitations of AI, small business owners can better appreciate the complementary role that AI plays in enhancing the services provided by their accountants.
Fallacies in the Argument
The argument that AI will replace accountants is based on several fallacies:
AI can fully replicate human expertise:
While AI has made remarkable advancements, it is not capable of replicating the full range of human skills and expertise. Accountants possess years of education, experience, and professional judgement that AI systems cannot easily replicate.
Automation equals job loss:
Automation is often equated with job loss, but in the case of accounting, AI-driven automation allows accountants to focus on value-added tasks, improving their efficiency and quality of service.
AI will eliminate the need for human interaction:
Despite the increasing use of AI-driven tools, the importance of human interaction in the accounting profession remains paramount. Clients value the personal touch and trusted advice provided by their accountants, which cannot be replaced by AI.
The Advent of AI in Accounting
With a clear understanding of the irrational fears, media hype, and fallacies surrounding the notion of AI replacing accountants, we can now explore how AI is poised to augment the skills and processes of accountants enabling them to provide even greater value to their small business clients.
In the following sections, we will delve into the specific benefits AI-driven tools can bring to businesses with relevant and practical examples. We’ll look at how AI can enhance the capabilities of accountants including automating routine tasks, improving accuracy, enhancing fraud detection, streamlining tax compliance, and providing customised financial insights.
Automating Routine Tasks
One of the most significant ways AI can augment the skills of accountants is by automating repetitive and time-consuming tasks. Examples include data entry, transaction categorisation, and invoice processing. By automating these processes, accountants can spend more time focusing on providing strategic financial advice and analysis, ultimately offering small business clients a higher level of service and financial insight.
Practical example:
A small retail business generates numerous transactions daily, including sales, expenses, and payroll. An AI-powered accounting software can automatically categorise these transactions, eliminating the need for manual data entry. For instance, the software could identify a transaction from a supplier, match it with the corresponding purchase order, and update the accounts payable accordingly. This automation saves the accountant time and reduces the risk of data entry errors, allowing them to focus on more value-added tasks for their client.
Improving Accuracy and Reducing Errors
Human errors are inevitable, and accounting mistakes can be costly, especially for small businesses. AI algorithms can analyse large data sets with remarkable speed and accuracy, identifying discrepancies and potential errors. This increased precision helps accountants ensure their clients’ financial records are accurate, reducing the risk of costly mistakes and allowing small business owners to make well-informed decisions.
Practical example:
A small technology manufacturing company may struggle with inventory management, leading to errors in cost of goods sold calculations. An AI-driven accounting solution could analyse historical inventory data and automatically flag discrepancies, such as unusually high or low inventory levels. By identifying these potential errors early, the accountant can address the issue before it leads to inaccurate financial statements or tax filings.
Enhancing Fraud Detection and Prevention
Fraud and financial irregularities can severely impact small businesses. AI-driven accounting software can analyse vast amounts of data to detect unusual patterns, flagging potential fraudulent activities. By leveraging machine learning, these systems can continuously improve their detection capabilities, providing accountants with a powerful tool to protect their small business clients from financial fraud and potential legal issues.
Practical example:
A small creative consulting firm might be vulnerable to expense reimbursement fraud, where employees submit false or inflated expense claims. An AI-powered expense management system could analyse historical expense data and detect patterns that suggest fraudulent activity, such as unusually high expense claims from specific employees or locations. By alerting the accountant to these anomalies, the system can help prevent financial losses and protect the business’s reputation.
Streamlining Tax Compliance and Planning
Tax compliance is a critical aspect of accounting, and AI-powered tools can help accountants stay up to date with constantly changing tax regulations. By automating tax calculations and identifying potential deductions, AI allows accountants to optimise tax planning strategies for small business clients. This can result in significant cost savings, reduced risk of penalties, and more efficient tax preparation processes.
Practical example:
A small software development company needs to comply with various tax regulations, such as VAT and Corporation Tax. An AI-driven tax software could automatically calculate the company’s tax liabilities based on real-time financial data, ensuring that the accountant files accurate and timely tax returns. Additionally, the software could identify tax-saving opportunities, such as R&D tax credits, helping the business minimise its tax burden and optimise its financial planning.
Customised Financial Insights
AI-driven accounting software can provide accountants with in-depth financial analytics and forecasting capabilities. By analysing historical financial data and identifying trends, AI can help accountants offer tailored financial advice to small business clients. This personalised guidance can support better decision-making, enabling small businesses to optimise their financial performance and plan for future growth.
Practical example:
A small UK-based restaurant owner seeks advice on expanding their business. The accountant uses AI-powered financial forecasting software to analyse historical sales data, customer demographics, and seasonal trends. By identifying patterns and potential growth areas, the accountant can provide personalised advice on the optimal time and location for opening a new restaurant, helping the business owner make well-informed decisions based on data-driven insights.
Conclusion
Artificial intelligence is transforming the world of accounting, offering numerous benefits to both accountants and their small business clients. By automating routine tasks, improving accuracy, enhancing fraud detection, streamlining tax compliance, and providing customised financial insights, AI empowers accountants to deliver a higher level of service and value to small businesses.
As AI technology continues to advance, we can expect even more innovative solutions to emerge, further revolutionising the accounting industry and supporting small businesses’ growth and success. The practical examples provided, relevant to the UK market, illustrate the immense potential of AI-driven accounting solutions in enhancing the capabilities of accountants and delivering tangible benefits to small business clients.
Interpreting a balance sheet and how it can help you to make better business decisions
As a successful business owner, you understand that financial stability is key in order to maintain the longevity of your company; it’s essential for continued growth. One primary factor of achieving this goal is having an accurate understanding of one’s balance sheet and how each asset contributes to the overall picture. Furthermore, applying this to your clients and suppliers, can also provide valuable insights into the stability of your business overall!
Having resources available to decipher what affects or influences bottom-line numbers can assist you in making strategic decisions based on reliable data – so let’s dive into why understanding a balance sheet is important here!
Not all financial information is available all of the time
When assessing the viability of other companies, whether suppliers or clients, their annual accounts posted on Companies House may not provide a full set of financial reports, only the balance sheet may be available. As this is the most usual financial report available, we’ll look at the balance sheet in more detail below, but having access to income statements and cash flow statements would provide a more balanced view of a company’s financial standing. These may be possible to acquire if your company is entering into a more formal business relationship with the other party and as such would form part of your own due diligence process.
However, on its own, the balance sheet can still provide some useful first insights into a company’s standing, as well as your own.
Here are some of the questions we pose in this article:
- What is the balance sheet and why is it important to understand?
- What are the essential elements of a balance sheet that help somebody understand the health of a company?
- What are key ratios and how are these derived from a balance sheet?
- I’m looking at doing business with a new supplier, what specific aspects of their balance sheet should I be looking at?
- How can you use a balance sheet to assess whether a new client is worth doing business with?
What is the balance sheet and why it is important to understand?
A balance sheet is a financial statement that provides a snapshot of a company’s financial position at a given point in time. It summarises the company’s assets, liabilities, and equity, and is an important tool for assessing the financial health and stability of a company.
A balance sheet is particularly important for several reasons:
- Compliance: Companies are required by law to prepare and file annual financial statements, including a balance sheet, with Companies House. These statements must comply with the UK accounting standards, and failure to comply can result in penalties.
- Financial analysis: A balance sheet is a key tool for financial analysis, allowing investors, creditors, and other stakeholders to evaluate a company’s financial position and make informed decisions about whether to invest in or lend to the company.
- Decision-making: A balance sheet provides important information for decision-making within a company. For example, it can help management assess the company’s liquidity and working capital, which can inform decisions about capital expenditures, dividend payments, and other strategic initiatives.
- Transparency: A balance sheet provides transparency and accountability, allowing stakeholders to see how a company’s assets are deployed and how its liabilities are managed. This can be particularly important for companies with complex financial arrangements or significant debt.Understanding the elements of a balance sheet is an important part of smart financial management for any business owner. While it takes some training to intuitively understand how to interpret the information on balance sheets, keeping up with its evolution can be immensely beneficial for running a successful business. With an increasingly digital world, technology advancements have put critical data only a few clicks away, so it’s easier than ever to stay ahead of compliance regulations and use this data to make informed decisions about your finances. Whether you’re just getting started or are a seasoned veteran in the business ownership game, having awareness of the basics of a balance sheet can go a long way towards setting your company up for success.
What are the essential elements of a balance sheet that help somebody understand the health of a company?
There are three essential elements of a balance sheet that can help somebody understand the health of a company:
- Assets: Assets are what a company owns or controls, such as cash, inventory, property, plant and equipment, and investments. A strong balance sheet typically has a healthy mix of short-term and long-term assets, indicating that the company has enough resources to meet its obligations in the near term and invest in its future growth.
- Liabilities: Liabilities are what a company owes to others, such as loans, accounts payable, and deferred revenue. A strong balance sheet typically has a manageable level of liabilities relative to its assets, indicating that the company is able to meet its financial obligations.
- Equity: Equity represents the residual value of a company’s assets after its liabilities are subtracted. It includes items such as common stock, retained earnings, and other comprehensive income. A strong balance sheet typically has a healthy level of equity, indicating that the company has a strong financial foundation and is able to withstand economic shocks.
In addition to these essential elements, other factors that can help somebody understand the health of a company include the quality of the assets (such as whether they are depreciating quickly), the maturity and interest rate of the liabilities (such as whether they are due in the near term or the long term), and any off-balance sheet items that could impact the company’s financial health.
I’m looking at doing business with a new supplier, what specific aspects of their balance sheet should I be looking at?
As experienced accountants, we would recommend that you consider several specific aspects of a potential supplier’s balance sheet when evaluating their financial health. Also, if you can get hold of them, there are a few other factors you out to consider, we’ve included these too. Together these factors can provide valuable insights into the supplier’s liquidity, debt levels, inventory management, profitability, and ability to meet their financial obligations.
Liquidity:
When evaluating a supplier’s balance sheet, it is essential to consider their liquidity. This can be assessed by reviewing their current assets and liabilities. Current assets include cash, accounts receivable, and inventory, while current liabilities include accounts payable, short-term loans, and other short-term obligations. A supplier’s liquidity is crucial because it indicates their ability to pay their bills on time and keep their business running. If a supplier has a low current ratio, it could indicate that they may struggle to pay their bills on time or may be at risk of insolvency.
Debt levels:
The supplier’s debt levels are also an essential aspect to consider. Total debt includes short-term and long-term debt, such as bank loans, bonds, or other financing agreements. The debt-to-equity ratio is a crucial indicator that measures the amount of debt a company has compared to its equity. A high level of debt can be a warning sign of financial risk or potential difficulties in meeting their financial obligations. It is also essential to review their interest expense and maturity schedule of their debt to gain a better understanding of their ability to service their debt.
Accounts receivable:
The supplier’s accounts receivable balance and aging schedule are important to assess their ability to collect payments from customers. A high level of overdue accounts receivable may indicate potential cash flow problems or issues with their customer base. You want to ensure that the supplier has a low level of overdue accounts receivable and that they have efficient processes for collecting payments from their customers. Additionally, reviewing their credit policy and customer concentration can provide insights into potential risks in their accounts receivable.
Inventory turnover:
Assessing the supplier’s inventory turnover ratio is also important for understanding their inventory management practices. A low inventory turnover ratio may indicate potential obsolescence or inefficiencies in their operations, while a high inventory turnover ratio may indicate strong sales or efficient inventory management.
Gross margin:
The supplier’s gross margin can provide valuable insights into their pricing strategy and cost structure. A low gross margin may indicate pricing pressures or high costs that could impact their profitability, while a high gross margin may indicate strong pricing power or efficient cost management.
Working capital:
Reviewing the supplier’s working capital is important for assessing their ability to meet their short-term obligations. You should ensure that the supplier has sufficient working capital to cover their current liabilities, such as paying suppliers or employees. Additionally, reviewing their trade payable and receivable terms can provide insights into their cash conversion cycle and working capital management practices.
Capital expenditures:
Finally, reviewing the supplier’s capital expenditures is important for assessing their investments in property, plant, and equipment. You want to ensure that the supplier is investing in their operations and has the capacity to fulfill your business needs. Additionally, reviewing their depreciation schedule and asset quality can provide insights into their long-term capital investment strategy.
By considering these specific aspects of a potential supplier’s balance sheet, you can gain a deeper understanding of their financial health and make more informed decisions about whether or not to do business with them. As expert accountants, we are always here to provide guidance and support to help you make the best financial decisions for your business.
How you can use a balance sheet (and other reports if you can get them) to assess whether a new client or partner is worth doing business with?
Analysing financial health doesn’t have to be a daunting prospect. Evaluating key metrics like liquidity, debt levels, accounts receivable and inventory turnover can all provide insight into their ability to generate cash flow for the future. By taking time to understand these numbers as well as analysing potential clients’ capital expenditures are essential steps in determining whether they’re suitable for your business goals.
Review the current assets and liabilities:
By looking at a potential client’s current assets and liabilities, you can assess their liquidity and short-term financial health. Current assets include cash, accounts receivable, and inventory, while current liabilities include accounts payable, short-term loans, and other short-term obligations. You want to ensure that the client has enough current assets to cover their current liabilities. A high current ratio is generally seen as favourable, as it indicates that the client has sufficient liquidity to meet their short-term obligations.
Assess the long-term financial health:
To evaluate a potential client’s long-term financial health, you should review their total assets, liabilities, and equity. This will help you understand the client’s overall financial position and their ability to meet their long-term obligations. You should also review their debt-to-equity ratio to see how much debt the client is carrying compared to their equity. A high debt-to-equity ratio may indicate a high level of risk, as the client may have difficulty servicing their debt obligations in the long-term.
Analyse the accounts receivable:
The client’s accounts receivable can provide valuable insights into their credit and collection policies. You want to ensure that the client has an efficient process for collecting payments from their customers and that they have a low level of overdue accounts receivable. A high level of overdue accounts receivable may indicate potential cash flow problems or issues with their customer base.
Assess the profitability:
By reviewing the client’s income statement, you can assess their profitability and revenue trends over time. You should review their gross margin and net profit margin to understand how well the client is managing their costs and pricing their products or services. You can also review their revenue growth rate to see how their business is expanding over time.
Analyse the cash flow statement:
Analysing a potential client’s cash flow statement can help you understand how they generate and use cash, including cash flows from operating activities, investing activities, and financing activities. By reviewing their cash flow statement, you can assess their ability to generate cash and manage their cash flows effectively. A positive cash flow from operations is generally seen as favourable, as it indicates that the client has sufficient cash to fund their operations.
Review the working capital:
Reviewing the client’s working capital is important for assessing their ability to meet their short-term obligations. You should ensure that the client has sufficient working capital to cover their current liabilities, such as paying suppliers or employees. Additionally, reviewing their trade payable and receivable terms can provide insights into their cash conversion cycle and working capital management practices.
Assess the capital expenditures:
Finally, reviewing the client’s capital expenditures is important for assessing their investments in property, plant, and equipment. You want to ensure that the client is investing in their operations and has the capacity to fulfil their business needs. Additionally, reviewing their depreciation schedule and asset quality can provide insights into their long-term capital investment strategy.
By considering these specific aspects of a potential client’s balance sheet and other financial reports, you can gain a deeper understanding of their financial health and make more informed decisions about whether or not to do business with them. Additionally, being able to analyse the firm’s cash flow statement can provide valuable insights into their ability to generate and manage cash effectively, allowing you to make more informed business decisions.
Talk to TaxAgility about improving your business efficiency
TaxAgility are experts in analysing the performance of your company and helping you find ways to improve your business’s efficiency. If you’d like understand more about how we can help you manage your business, call TaxAgility today on 020 8108 0090.
Changes to the VAT Penalty System in 2023
Situations often arise where we are unable to hit payment deadlines, whether human error, or circumstances conspiring unfavourably, it happens. So, it’s good to see HMRC taking a positive stance in this regard, in its latest revision of the VAT penalty system. In this article, we’ll review the changes to the VAT system you can expect in 2023.
As of January 1 the default VAT penalty system has been replaced by a scheme that on the face of it seems to be less punitive for the occasional late payment or submission. The new system treats late submissions and payments separately. It also calculates interest on late payments differently too.
Period of familiarisation
While the new system is already in operation, HMRC has said that it will allow a period of ‘familiarisation’, to allow businesses to adjust. If your business misses a payment deadline, so long as the payment is made within 30 days, or if you have a ‘Time to Pay’ agreement in place, no penalty will be levied. This familiarisation period extends to December 31 2023.
How penalties are applied
The penalty system applies in two ways:
- Late VAT submissions
- Late payments
A new development is that late submissions for zero or even repayment returns can incur penalties under the new system.
One of the likely reasons for the new system is to help HMRC reduce the administrative overheads associated with chasing and processing late filings.
A new points system for late submissions
The new points system applies to VAT submission deadlines. It adopts a scheme similar to a driving licence. The more infractions a VAT payer racks up, the more points you get. Each time you miss a submission deadline, 1 point is added. The threshold at which a penalty is applied depends upon the filing submission period. These thresholds are given as:
- Annual – 2 points
- Quarterly – 4 points
- Monthly – 5 points
If you hit your threshold, you’ll incur a penalty of £200. If you continue to miss deadlines, you’ll continue to receive £200 penalties.
You won’t incur a penalty if:
- Your business is newly VAT registered and is your first VAT return
- You have cancelled your VAT registration and this is your business’s final VAT return.
- Single case VAT returns covering periods of a month, quarter or a year.
Can a business clear its accrued penalty points?
Driving licence points usually expire automatically after 4 years, not so with VAT penalty points.
For penalty points under the VAT system to expire, you will have to meet a test of good compliance. The period of time this applies for depends upon your submission period:
- Annual submissions: 24 months
- Quarterly submissions: 12 months
- Monthly submissions: 6 months
More information about the penalty points system can be found on the Government’s VAT site here.
Penalties for late payment
The new system aggressively targets late payers by introducing a two stage system that uses fixed penalties and then daily penalty charges. If your business has not paid its VAT bill and does not have a ‘Time to Pay’ agreement in place, it’s going to get expensive quickly.
Here’s a summary of how it works:
Up to 15 days overdue
The good news is the system does allow for circumstances where you may encounter some unavoidable delays in submission. So, if you have a problem, talk to HMRC as you won’t be charged a penalty if you pay the VAT you owe in full or agree to a payment plan on or between days 1 and 15.
Between 16 and 30 days overdue
If you are late in submission, your first penalty will be calculated at 2 per cent on the VAT you owe at day 15, IF you pay in full or agree a payment plan on or between days 16 and 30.
31 days or more overdue
For circumstances where your submission is 31 or more days late, then your first penalty will be calculated at a rate of 2 per cent on the VAT you owe at day 15 plus 2 percent on the VAT you owe at day 30.
As a further inducement to pay on time, HMRC will levy a second penalty which is calculated at a daily rate of 4 per cent for the duration of the outstanding VAT balance. This is calculated once the outstanding balance is paid in full or a payment plan is agreed.
Don’t forget about interest charges
Receiving a 2% penalty on late payments is only part of the overall costs you’ll incur. HMRC will continue to charge interest on late payments at a rate of 2.5% above the BOE base rate. This is even the case if you have an agreed ‘Time to Pay’ arrangement.
All is not equal under the sun where VAT repayments are concerned though. HMRC will only pay interest at a BOE rate -1% and a minimum rate of 0.5%! It’s probably best to ensure you get your payments correct.
Right to challenge
HMRC VAT right to challenge policy is a policy that allows taxpayers to appeal against HMRC tax decisions. This remains the same under the new scheme in 2023.
It is important for taxpayers to know their rights when it comes to challenging HMRC decisions, as this can help them ensure that they are not paying more than they should be.
Under the policy, taxpayers have the right to request a review of any HMRC decision within 30 days of receiving the decision letter. During this review process, HMRC will consider all relevant information and evidence provided by the taxpayer and make a new decision on the matter. This new decision may result in an increase or decrease in taxes owed, depending on the circumstances.
Taxpayers also have the option of appealing against HMRC decisions in certain cases. This involves submitting an appeal to an independent tribunal which will review all relevant evidence and decide whether or not HMRC’s original decision was correct.
Ultimately, understanding your rights when it comes to challenging HMRC decisions is essential for ensuring you are not paying more than you should be.
How HMRC can use its powers to enforce payment
- HM Revenue & Customs (HMRC) has a number of powers available to them which they can use to enforce payment and collect any amount outstanding. These include:
- Taking legal action, including issuing court summonses or seeking orders from magistrates’ courts.
- Making deductions from a person’s salary or pension payments.
- Placing a restriction on the bank accounts of individuals or businesses, preventing them from making any further transactions until their debt is paid off.
- Using third party debt collectors to chase up outstanding payments.
- Using bailiffs and seizing goods in order to cover the cost of unpaid VAT.
In extreme cases, HMRC may even take criminal action against someone who has deliberately evaded payment of their taxes, leading to potential fines and/or imprisonment. Therefore, it is important for businesses to ensure they remain compliant with all applicable legislation surrounding their VAT payments and make sure that all amounts due are paid on time in order to avoid any of these serious consequences.
Why it makes sense allowing a VAT professional manage your VAT submissions
VAT for all but the smallest VAT registered companies can be a complex affair where mistakes can easily be made. TaxAgility are experts in VAT and can remove the burdens of managing and calculating your VAT liabilities from your daily business management routine. We’ll ensure your VAT returns are accurate and make sure they are filed on time.
If you’d like to simplify your VAT management, call TaxAgility today on 020 8108 0090.
A Guide to Understanding and Improving Your Balance Sheet
Understanding and managing your business’s balance sheet is an essential part of any successful company. A balance sheet is a financial statement that provides a snapshot of what you own (assets) and what you owe (liabilities). It's important to keep track of this information so that you can stay within your budget, pay off debt, and make sure your cash flow is healthy. Let's take a look at how to understand and improve your balance sheet.
Components of a balance sheet
A balance sheet is a financial document that provides an overview of the company’s assets, liabilities, and equity. It shows the business’s net worth and provides detailed information about the company’s assets (what it owns) and liabilities (what it owes).
A balance sheet is made up of three components: assets, liabilities, and equity. Assets are anything that has value for the company and can be used to generate income or pay expenses. Examples include cash, accounts receivable (money owed to the company from customers), inventory, buildings, equipment, investments, or trademarks. Liabilities are any debts or obligations that the company owes money on. These can include loans, mortgages, credit cards, accounts payable (money owed by the company), accrued expenses (like wages or taxes), or other debts that need to be paid off in the future. Equity is the difference between all the assets and liabilities, it's what's left over after all debts are paid off. This includes any profits that have been retained by the business rather than distributed as dividends to shareholders.
Tips for improving your balance sheet
Once you have an understanding of what makes up your balance sheet, you can start making improvements. Start by looking for ways to reduce expenses; for example, renegotiating contracts with suppliers or seeking out cheaper sources for materials or services. You can also look for ways to increase profit; for example, expanding into new markets or offering new products/services. Finally, review your debt level; if they are high then consider refinancing them through lower interest loans which could save you money in the long run.
- Monitor Cash Flow: Monitoring your cash flow will help you ensure that you have enough money on hand to cover expenses. This will also help you avoid overdrawing from accounts or taking out unnecessary loans.
- Utilise Loans Wisely: Use any loans you take out wisely by paying them back on time and using them for their intended purpose only. Taking out more than necessary in loans can increase interest payments over time, which can affect your bottom line negatively.
- Consider Investing: Investing in stocks, bonds, mutual funds, or other investments can help grow your business’s asset portfolio over time, meaning more money available for future projects or expansion opportunities down the road. However, be sure to do research before investing so that you know exactly where your money is going.
- Reevaluate Expenses: Take some time to regularly review expenses for any unnecessary items that could be cut back on or eliminated altogether in order to save money in the long run. This could include things such as subscriptions or memberships that may not be used often enough to justify their cost each month.
How to read your balance sheet
The best way to read a balance sheet is to start with understanding its structure. The left side of the balance sheet should contain all assets listed in order from most liquid (cash) to least liquid (tangible assets like buildings). The right side should contain all liabilities listed from most current (accounts payable) to least current (long-term debt). Once you understand how a balance sheet is organised you can begin reading it more thoroughly looking at each asset and liability individually. This will give you an idea of how much money is coming into your business versus how much money is going out, and if there’s enough left over for profit!
- Cash: Cash on hand plus any short-term investments in marketable securities
- Accounts Receivable: Money owed by customers for goods or services provided
- Inventory: Goods held for sale by the business
- Buildings: Long-term real estate investments owned by the company
- Equipment: Tools used for production or office use owned by the company
- Investments: Securities such as stocks and bonds owned by the company
- Trademarks: Intellectual property owned by the company
- Loans: Loans taken out by the business from banks or investors
- Mortgages: Long-term loans taken out from lenders secured against real estate investments
- Credit Cards: Credit card balances owed to creditors
- Accounts Payable: Money owed by businesses to vendors/suppliers
- Accrued Expenses: Expenses incurred but not yet paid such as wages/taxes
- Long Term Debt: Debt obligations due more than 12 months in future
- Equity: Difference between total assets & total liabilities; retained earnings plus capital stock issued minus dividends paid out
Being aware of what goes on with your business’s balance sheet is essential if you want to succeed in managing finances effectively and staying within budget constraints while still growing financially over time. By monitoring cash flow carefully, utilising loans wisely when needed, investing strategically when possible, reevaluating expenses regularly, businesses will be well equipped with the knowledge they need to maintain a healthy balance sheet year after year!
Also, your balance sheet is an essential component of your management reporting. It gives you clear insight into your business’s financial health, providing instant access to the essential financial data required to make smart management decisions. From recording cash payments and invoices to reconciling cloud accounting transactions, the balance sheet can help you benchmark performance and position yourself for future growth. With easy-to-read insights, however complex your management report may be, the balance sheet clearly displays key performance indicators that reveal the true picture of your finances.
Choose TaxAgility as your accounting services provider
With these tips in mind, understanding and improving your balance sheet should become easier, allowing your business to achieve success without compromising its financial health!
Naturally, with TaxAgility as your accounting services provider, we can help you improve the financial strength of your company and lessen the burden of managing balance sheets and management reporting through our cloud based accounting solutions. Just call us today on 020 8108 0092 and find out how.