Invoice

Business records checks: how to keep good business records

Invoice

HMRC requires business owners and sole traders to keep good business records so the correct amount of tax can be calculated and paid.

On this gov.uk page, HMRC makes it clear that businesses must keep records to fill in tax returns and pay the right amount of tax at the right time. HMRC also states that it can choose to check your records.

While the checks are usually conducted over the phone, HMRC can choose to pay you a visit and ask you to explain about your business and how your records are kept. They will also seek to verify a few transactions before deciding if your business records are adequately kept or not.

The thing is, even if HMRC doesn’t tell you to keep good business records, it is wise to make the process as part of your financial discipline. Business records are useful – for example, historical data can help you plan and set realistic goals for the future, making sure that your business remains profitable and on the right growth path.

In this article, our small business accountants aim to discuss:

  • Business records for a limited company
  • Business records if you are self-employed
  • PAYE records if your business employs staff
  • VAT records if your business is VAT-registered
  • Pay and tax records for your Self Assessment

Keeping business records for a limited company

HMRC is very clear that every limited company must keep two types of basic records: records about the company, as well as financial and accounting records.

Records about the company

As a company director, you must keep the followings:

  • Details of directors, shareholders and company secretaries
  • The results of any shareholder votes and resolutions
  • Promises made to repay medium to long-term loans at a specific date in the future and who the creditors are
  • Promises made if something goes wrong and it is the company’s fault (‘indemnities’)
  • Transactions when someone buys shares in the company
  • Loans or mortgages secured against the company’s assets
  • Register of people with significant control, referring to anyone who has more than 25% shares or voting rights, can appoint or remove a majority of directors, and can influence or control your company.

Financial and accounting records

You must keep:

  • All money received and spent by the company
  • Details of assets owned by the company
  • Debts the company owes or is owed
  • Stock the company owns at the end of the financial year
  • The stocktakings you use to work out the stock figure
  • All goods bought and sold
  • The suppliers you bought the goods from and the clients you sold to (unless you run a retail business where you can’t identify each customer)
  • Records that are used to prepare and file the annual accounts and Company Tax Return

The last point can include:

  • All money spent by the company, for example receipts, petty cash books, orders and delivery notes
  • All money received by the company, for example invoices, contracts, sales books and till rolls
  • Any other relevant documents, for example bank statements and correspondence

How long to keep these records

All company and accounting records must be kept for 6 years from the end of the financial year they relate to. Sometimes you are required to keep them longer if:

  • They show a transaction that covers more than one of the company’s accounting periods
  • The company has bought something that it expects to last more than 6 years, like equipment or machinery
  • You sent your Company Tax Return late
  • HMRC has started a compliance check into your Company Tax Return

If the records are lost, stolen or destroyed

In the event that your records are lost, stolen or destroyed, you must do your best to recreate them. You must also inform your Corporate Tax office accordingly and mention this in your Company Tax Return.

Business records if you are self-employed

If you are a sole trader or a partner in a business partnership, you must keep records of business income and expenses, which are:

  • All receipts for goods and stock
  • Bank statements, chequebook stubs
  • Sales invoices, till rolls and bank slips

If you are using traditional accounting, you must also keep:

  • What you’re owed but have not received yet
  • What you’ve committed to spend but haven’t yet paid out, for example you’ve received an invoice but haven’t paid it yet
  • The value of stock and work in progress at the end of your accounting period
  • Your year end bank balances
  • How much you’ve invested in the business in the year
  • How much money you’ve taken out for your own use

You do not need to send your records when you submit your tax return but you need to keep them so you can work out your profit or loss for your tax return. Also, when HMRC asks, you have records to show them.

In addition, you must keep records of your personal income.

How long to keep these records

You must keep your records for at least 5 years after the 31 January submission deadline of the relevant tax year. If you send your tax return more than 4 years after the deadline, you’ll need to keep your records for 15 months after you send your tax return.

If the records are lost, stolen or destroyed

In the event that your records are lost, stolen or destroyed, you must do your best to provide the figures. When you file your tax return, tell HMRC if you are using estimated figures or provisional figures. Provisional figures mean temporary estimates while you wait for the actual figures and once the actual figures arrive, you will need to submit them.

PAYE records

A large portion of small business owners today choose to outsource their payroll service to an accounting firm like us for cost-saving purposes. Providing complete payroll services, we take care of your payroll function (including records keeping) and make sure that it is complying with regulations.

Payroll records to keep are:

  • What you pay your employees and the deductions you make
  • Reports and payments you make to HMRC
  • Employee leave and sickness absences
  • Tax code notices
  • Taxable expenses or benefits
  • Payroll Giving Scheme documents, including the agency contract and employee authorisation forms

How long to keep these records

You need to keep them for 3 years from the end of the tax year they relate to.

If the records are lost, stolen or destroyed

With Payroll, you report the figures to HMRC every month so when you cannot find the records, HMRC may be able to help by providing you with the historical figures you have paid your employees.

If you are using estimated or provisional figures in your final payroll report to HMRC, you must tell them accordingly.

VAT records if your business is VAT-registered

If your business is VAT-registered, the records to keep are:

  • Sales and purchases
  • VAT invoices
  • A separate VAT account

If your business has a turnover of more than £85,000, you must follow the rules for Making Tax Digital (for VAT) which require you keep some records digitally.

The VAT account is a summary of your total VAT sales, total VAT purchases, and the VAT you either owe HMRC or can reclaim from HMRC. It can also include the VAT on any EU purchases or sales if you trade with EU countries.

When it comes to writing off bad debts (of more than 6 months old), things get a little complicated. In this case, you should keep a separate VAT bad debt account showing the total amount of VAT involved, amount written off and any payments you’ve received, the VAT you’re claiming on the debt, when you paid the VAT, the relief you are claiming, as well as the corresponding invoices. Talk to our friendly VAT team if you have questions concerning your VAT account or the VAT bad debt account.

How long to keep these records

You must keep VAT records for 6 years (or 10 years if you use the VAT MOSS service). For the VAT bad debt account, the information must be kept for 4 years.

If the records are lost, stolen or destroyed

You can easily reconstruct the data lost by reviewing your invoices or asking your suppliers for duplicated copies.

Pay and tax records for your Self Assessment

For company directors and PAYE individuals who submit Self Assessment every year, you must keep your records for at least 22 months after the end of the tax year the tax return is for. For example, if you send your 2018 to 2019 tax return online by 31 January 2020, you should keep the records until the end of January 2021.

For self-employed individuals, you know that there is no separation between and your sole proprietorship. In this case, you must keep your records for at least 5 years after the 31 January submission deadline of the relevant tax year.

Get your accounts sorted with Tax Agility

Business owners know the importance of keeping good records but not everyone has the time to go through and organise them – after all, your focus should be on running the business and not dealing with administrative burdens. Contact our teams at Tax Agility on 020 8108 0090 and let us help instead.

Our teams consist of:

  • Small business accountants: championing small business across London, our small business accountants aim to save you time and money by getting your financial statements in good order. We also help you to interpret the financial data so you can use them to make business decisions with greater confidence.
  • Tax accountants: be it personal tax, business tax, corporation tax, our tax accountants are here to help you minimise your tax obligations and maximise your income legitimately. We do not believe in shortcuts that can get you into troubles. Also, we can provide expert tax advice and assist companies when they are being questioned by HMRC.
  • Payroll specialists: providing a complete range of PAYE and payroll administration, processing and reporting functions. We can also provide specific payroll advice pertaining to your industry.
  • VAT specialists: taking care VAT registration, quarterly returns, VAT control and reconciliation, as well as providing the best VAT strategy for your business.

Give us a call today on 020 8108 0090 or use our contact form to get in touch.

 

You may also be interested in:

This blog is a general summary. It should not replace professional advice tailored to your specific circumstance.

by Donovan

Filing a tax return image

All you need to know about Self Assessment tax return

Filing a tax return sheet - image

Self Assessment is one of the two ways which HMRC uses to collect Income Tax. Find out if Self Assessment applies to you, the important dates, penalties and common questions in this article.

In the UK, HMRC collects Income Tax through PAYE and Self Assessment. PAYE is where your income is taxed at source, meaning the money you receive has already been deducted off tax and National Insurance. Most employees in the UK are taxed under PAYE.

Self Assessment is for people whose income has not been taxed at source. Examples of such income include the money you receive as a sole trader, your rental income, income from a trust, casual freelance earnings, occasional income like selling products on online, to name but a few.

Also, if you were taxed at an incorrect rate or if you want to claim allowances or reliefs, then you may need to file a Self Assessment tax return.

Who needs to file a Self Assessment tax return

Individuals who need to file a Self Assessment tax return include:

  • Self-employed individuals, aka sole traders
  • A partner in a business partnership
  • A company director whose income is not taxed under PAYE
  • A trustee who is responsible for reporting and paying tax on behalf of the trust
  • An executor or administrator of a deceased’s estate

In addition, you may also need to complete a Self Assessment tax return if:

  • You have untaxed income from property rental, investments, other freelance assignments, etc.
  • You receive regular income from a trust or settlement
  • You receive a gift from a loved one at some point in the seven years before they passed away
  • You have an annual income of £100,000 or more before tax
  • You have foreign income
  • If you get child benefit and your income (or your partner’s income) is over £50,000
  • You have capital gains

The list above is not exclusive. There are also other scenarios where you need to file a Self Assessment tax return.

Call our Personal Tax Accountants on 020 8108 0090 for expert Self Assessment advice.

Important deadlines

We will highlight a few important dates below but beware that the dates may be applicable to you during this particular tax year or they may be applicable following the end of the tax year.

31 January

Before midnight on 31 January, one of the followings may be applicable to you:

  • File your tax returns online for the previous tax year.
  • Pay any tax you owe for the previous tax year.
  • If you’re self-employed, pay your first payment on account. The phrase ‘payments on account’ refers to advance payments towards your tax bill.
  • If you’re self-employed, pay your balancing payment if you still have tax to pay after you’ve made your payments on account.
  • Amend your past tax return when you realise that you have made a mistake.

6 April

6 April marks the beginning of a new tax year in the UK. This is an important date as changes agreed in the Budget and new tax regulations may come into effect.

31 July

If you’re self-employed and you pay your taxes through payments on account, then you know that you need to make two payments a year. The first payment is before midnight on 31 January and the second payment is before midnight on 31 July.

Note: Due to the Coronavirus COVID-19 pandemic, the due date for the second payment on account for 2019/20 is now 31 January 2021 (instead of 31 July 2020).

5 October

If this is your first time submitting a Self Assessment, you must register by 5 October. Upon completing the registration, you will get a Unique Taxpayer Reference number and a code (in the post) which you need to activate your account.

31 October

31 October is the deadline for filing a paper tax return. Increasingly, HMRC wants you to file online but if you choose to continue with a paper tax return, then you will need to download one or request for a paper Self Assessment return.

30 December

If you have incomes taxed under PAYE and you also file your Self Assessment, you can pay your Self Assessment bill through your PAYE tax code if:

  • You owe less than £3,000 on your tax bill
  • You submitted your paper tax return by 31 October or your online tax return by 30 December

Please note that you can’t pay through your tax code if you don’t have enough PAYE income for HMRC to collect it.

Late filing and the penalties

Unless you have an excuse deemed reasonable by HMRC, filing late will cost you money. Here is an overview of the penalties:

  • One day late: £100
  • Up to three months late: £100, plus £10 a day (capped at 90 days), so up to a total of £1,000
  • Up to six months late: £300 or 5% of the tax due (whichever is higher), plus the penalties above
  • Up to 12 months late: Additional £300 or 5% of the tax due (whichever is higher), plus the penalties above

Every year, hundreds of thousands file the Self Assessment late and risk a fine. You can avoid this by getting in touch with our Personal Tax Accountants on 020 8108 0090 now. We can help you plan, prepare and file on behalf of you.

Late tax payment and the penalties

31 January is the deadline for paying any tax you owe for the previous tax year (assuming you have not requested to pay your Self Assessment tax bill through your PAYE tax code). If you miss this deadline, you may be charged interest plus a penalty of 5% of the tax outstanding. Visit this gov.uk page to calculate your estimated penalties if you file your Self Assessment late or pay your Self Assessment tax bill late.

Reasonable excuses

If you’ve missed the deadline for your return or payment, you can appeal against some penalties if you have a reasonable excuse.

According to this gov.uk page, examples of reasonable excuses are:

  • Your partner or another close relative died shortly before the tax return or payment deadline
  • You had an unexpected stay in hospital that prevented you from managing your tax affairs
  • You had a serious or life-threatening illness
  • Your computer or software failed just before or while you were preparing your online return
  • Service issues with HMRC online services
  • A fire, flood or theft prevented you from completing your tax return
  • Postal delays that you could not have predicted
  • Delays related to a disability you have

You must send your return or payment as soon as possible after your reasonable excuse is resolved.

Mistakes on your Self Assessment tax return

Mistakes can happen and after you’ve filed your Self Assessment tax return, you can make still make a change by signing in to your Government Gateway portal (if you’ve filed it online) or download a new tax return and send HMRC and the corrected pages (if you’ve filed a paper return).

Beware that if HMRC doesn’t think that the mistakes are genuine, you could face a fine. How much fine you will need to pay depends on how HMRC sees the mistake; whether you have made the mistake due to carelessness, you have made it deliberately, or you have made it deliberately and have tried to conceal it.

Also, if HMRC finds the mistake (instead of you) and believes that you have been careless or you have deliberately done so, the penalty is usually more severe than you finding it.

Frequently asked questions about Self Assessment

As Personal Tax accountants with offices in Richmond, Putney, Wimbledon and London, we get many questions pertaining to Self Assessment. Here are a few common questions and their answers.

I’m self-employed and my business has made a loss, do I need to file a Self Assessment?

The answer is yes. In fact, you can carry the loss forward to deduct from any future profits you will make.

I’ve got a full-time job now, do I still need to file a Self Assessment tax return?

If you have a full-time job now and you don’t receive any income from any freelance work, then contact HMRC to let them know that your circumstances have changed. This gov.uk page lists how you can get help.

If you have a full-time job but you still receive untaxed income (like you are still selling products online or renting out a room in your home), then you must continue to file a Self Assessment tax return.

What records do I need to keep?

If you are self-employed, you must keep good records of business income and expenses for at least five years after the 31 January submission deadline of the relevant tax year. For more information, check out this post “Business records checks: how to keep good business records” and scroll to the self-employed section.

If you file Self Assessment but you are not self-employed, you should keep the relevant records for at least 22 months after the end of the tax year.

More questions are likely to arise during preparation and filing, which is why many individuals (particularly self-employed contractors) rely on an experienced Personal Tax Accountant like us to prepare and file Self Assessment.

Tax saving tips

If you are self-employed, you will have a higher tax liability if your business is prosperous and naturally, you may look to lower the liability and this is where professional advice can make a difference.

At Tax Agility, we work with you to look at how you can save some money when filing your Self Assessment tax return. For instance, we may look at:

  • If you have claimed for allowable expenses and capital expenditures
  • If you have invested in a personal pension scheme
  • Other tax saving ideas applicable to you

Tax Agility can help with your Self Assessment Tax Return

At Tax Agility, our team of Personal Tax Accountants has been serving residents in London, Richmond, Putney and Wimbledon with personal tax issues, including Self Assessment.

We can act as your agent and we will deal directly with HMRC on your behalf.

As everyone’s financial situation is unique, we can customise our service to you depending on your needs. For example, we can:

  • Calculate the amount of tax owed
  • Share tax saving options
  • File on your behalf
  • Represent you if HMRC asks questions

Our Personal Tax accountants are experienced, competent and we offer professional and friendly advice. Above all, our fees are transparent with no hidden charges. We also provide a no-obligation meeting to understand your case first.

Give us a call on 020 8108 0090. Alternatively, use our online form to arrange a complimentary, no-obligation meeting.

This blog is a general summary. It should not replace professional advice tailored to your specific circumstance.

by Donovan

cost control

How to control costs

cost control

Cost control is different from cost cutting. Learn this financial discipline to keep a lid on your costs and improve profitability.

Not to be confused with cost cutting, cost control is all about financial discipline and it involves planning, managing and preserving your financial resources. It's good practice to follow in both good times and bad – and if you control costs consistently well over time, your business should benefit from a stronger operating position and better cash flow leading to a rise in the company’s current assets (such as more cash in the bank), which will undoubtedly strengthen the value of your company and its financial position.

In this article, our chartered accountants for small businesses in London aim to discuss all you need to know about cost control, including:

  • The difference between cost control and cost cutting
  • Cost control applications
  • Who should be involved in the exercise
  • Top tips to control costs
  • Quick wins
  • Habits to help you succeed

The difference between cost control and cost cutting

The main difference between cost control and cost cutting is that cost control is about the management of costs while cost cutting focuses on lowering costs.

Cost control is also about discipline and stewardship exercised throughout the business journey, during both good and bad times. Cost cutting, on the other hand, tends to kick in when the business is going through a rough patch and you want to save as much as possible.

Cost control is applicable to direct and overhead

Broadly speaking, costs can be categorised into direct and indirect. Direct costs are costs attributed to the production of specific goods or services.
Indirect costs or overhead costs, on the other hand, are ongoing expenses associated with running a business.

Here is a quick example – assuming you are a small publisher producing atlases to colleges. Your direct costs are cartographers, designers, printing, storage and the delivery charges from the warehouse to your clients. Your indirect costs are office rent, an e-commerce site to take orders, phone lines and emails to communicate with your clients, staff to support and market the products, among others.

Cost control can be applied to both direct and overhead costs. For example, you may engage freelance cartographers when possible and negotiate with your printer for a better deal to manage your direct costs. When it comes to controlling overhead expenses, you can choose to modernise your e-Commerce site and marketing efforts, implementing referral programmes that only cost you when a sale is realised.

Who should be involved in cost control?

Contrary to cost cutting which is usually a top-down approach, cost control involves your team members liberally, particularly your managers. Your employees are more likely to cooperate if they can understand how cost control can benefit the company and also themselves.

Here is an example – a client has three bank accounts in three different currencies and in the past, their in-house bookkeeper spent almost £1k a year on bank transfer fees because no one was ‘thinking about such small costs’. When the company director decided to make financial discipline as part of the corporate culture, ideas started to flow. The bookkeeper switched to using an online money transfer service when paying overseas suppliers and the company immediately reduced its bank fees significantly.

It is also possible to involve your suppliers as part of the cost control exercise. Once your suppliers know that you are taking a proactive step to control costs, they are likely to share with you options that can help lower your bills.

As cost control starts with a careful review of financial data, naturally you want to involve your accountant too. Talk to one of our small business accountants in London if you are looking for someone who can help you identify under-performing cost centres and suggest ways to reign in control.

Top four tips you can take to control costs

1. Reviewing the variances between actual costs and budgets

The main purpose of budgeting is to reduce careless spending and improve profits.

Every month our small business chartered accountants share a vital set of financial data called the management accounts with our clients. Among them is a document called budget variance which tracks how much you have budgeted to earn and spend in a particular month versus how much you have actually earned and spent during that period. Ideally, you want the actual figures to be as close to the budgeted figures as possible, as they indicate good planning, good execution, and less careless spending.

It is worth pointing out your budgeted figures must be realistic, based on historical data and market trends. For example, you shouldn’t expect to sell £10k worth of Christmas decorations to consumers in March (unless the figure is after some massive discounts). Equally, you can’t have a budget of £1k a month for marketing but choose to splurge on TV commercials.

2. Enhancing internal processes

Many businesses have their own set of procedures created years ago and some of these are so set in their ways to the point that no one questions if they are still relevant. Review every part of your internal processes and make the necessary changes to increase efficiency.

For example, your staff may still spend time on endless meetings, often involving everyone in the team and each meeting has a designated note taker. In reality, many companies have started to streamline meetings with clearly defined expectations and use apps to take notes.

3. Focusing on quality

Quality control is an essential tool in manufacturing, not just in producing an excellent product, but also in refining the production process as it can lead to zero wastage. Even if you aren’t a manufacturer, you can still apply the same principle to every product and service you offer.

Once you start to focus on quality, you will see an increase in satisfied customers, which is likely to lead to more sales and referrals. Together, they will create a positive feedback loop that will yield more favourable results, such as higher quality that will enhance value and allow you to potentially differentiate and charge higher prices to more customers.

4. Be well prepared

No business is risk-free and yet surprisingly, many small business owners aren’t prepared for the associated risks, let alone having robust plans to manage an uncontrolled loss of something valuable.

Risks that can affect a small business may include economic risk, compliance risk, financial risk, operational risk, fraud risk, reputation risk, and competition risk.

For instance, business owners know that the economy can fluctuate between periods of strong growth and weakness. As a business owner, you must be able to analyse the changes and trends pertaining to your industry. Your business must innovate, evolve, and adapt to stay relevant. Also, it is wise to set up a rainy day fund to tide the company over during an economic downtown.

A few quick wins

Controlling costs should not be a burdensome exercise and here are some easy savings you can make immediately:

  • Finding alternatives to lower bank transfer fees – plenty of online money transfer services now charge less for each transaction than your bank.
  • Using cloud computing – subscription-based or pay-as-you-go software and data storage remove expensive infrastructure in-house. At Tax Agility, we work with Xero, cloud-based accounting software that streamlines many common accounting processes, saving you time and money.
  • Eliminate unnecessary costs – unneeded insurance, unused telephone lines, subscriptions that your staff don’t use, hiring staff when outsourcing can do the work, these are some costs you can eliminate immediately.
  • Negotiating with your suppliers – apart from asking for discounts and better payment terms from your current suppliers, find out if there are alternatives. Also, look for alternative suppliers where possible.
  • Rejuvenating your marketing programmes – try new approaches such as rewarding your loyal customers when they refer other buyers to you.
  • Maximising your staff’s skills – many modern offices look for staff who can step up and be responsible for a variety of tasks. For instance, a marketer today should be able to manage a CRM system, design a newsletter, write compelling product descriptions, know how to take good product pictures and publish them online, among other tasks. If your marketer can only do limited functions, consider training and encourage them to grow, or find somebody who can.

Good habits can help you reach your goals

Financial discipline is about being consistent in your approach when it comes to planning, managing and preserving your financial resources. It is definitely not a one-time exercise. To be successful in cost control, you must be able to plan, set realistic goals, review results and spend time to sharpen your financial knowledge regularly.

At Tax Agility, we know that not every small business owner has the time to plan and interpret financial data, this is why our small business accountants are ready to assist. Our biggest strengths are in number crunching and applying solid financial principles to help you create and maintain the economic value for your company. So give us a call on 020 8108 0090 when you are ready to instil some financial discipline into your business.

Tax Agility can help you to control costs

Cost control often starts with a careful review of your major cost centres – your direct costs, sales and marketing, finance and administration, IT support, legal costs, to name but a few – over a period of six to 12 months. After that, you proceed to rank each cost and identify areas where savings can be made.

Your accountant is vital to your cost-control effort. At Tax Agility, our small business accountants have the experience to help you review your financial data and suggest ways which you can take to manage your costs and improve profitability.

We have three offices – in Putney, Richmond, and also at Cavendish Square in Central London – conveniently located to assist company directors and owners across London with a complete range of financial and business services, including Accounts & bookkeeping; Payroll management; Management consultancy; Personal tax planning and many more.

Call us today on 020 8108 0090. Alternatively, use our online form to arrange a complimentary, no-obligation meeting.

You may be interested in:

This blog is a general summary. It should not replace professional advice tailored to your specific circumstance.

by Donovan

A living room interior

Changes to Capital Gains Tax on the disposal of residential properties

A living room interior

From 6 April 2020, disposals of certain residential properties must be reported and with any Capital Tax Gains tax due paid within 30 days of completion.

Before 6 April 2020, if you sold a residential property in the UK and made a gain, you would be required to report and pay Capital Gains Tax when you were ready to submit a Self Assessment tax return. As many property owners knew, the length of time between the disposal and the deadline for filing Self Assessment could be a year or even up to 22 months. This meant some owners might have forgotten about the transactions and failed to pay the relevant Capital Gains Tax due many months down the line, leading to penalties.

Accordingly, HMRC has now launched a new regime which brings forward the reporting and payment of Capital Gains Tax on disposals of certain residential properties. In this article, the Tax Accountants at Tax Agility outline the changes and encourage property owners who plan to sell their buy-to-let residential properties across London, Putney, Richmond and in Surrey to come and discuss the implications of this regime and Capital Gains Tax with us.

What are the new rules

In essence, all UK residents who sell a residential property (like a buy-to-let property) and make a gain of more than £12,300 (the tax-free allowance for 2020-21) will need to report to HMRC and pay any Capital Gains Tax due within 30 days of completion. Subsequently, you will also need to disclose the transactions on your Self Assessment tax return for the relevant tax year, usually on 31 January after the end of the tax year for most people.

To be sure that you can report within 30 days, you must have a government gateway account ready, along with information that allows you to calculate the gain. HMRC has confirmed that computations can be attached when you file the report. If you don’t have enough information to compute the gain, then you must give the best available estimates and amend the Capital Gains Tax return within 12 months.

If you make a loss, like you sell the property less than what you have paid for, then you do not need to report to HMRC within 30 days unless the loss is expected to be used against other gains made on other residential property disposals later in the year.

It is also worth noting that this new reporting requirement applies to each taxpayer rather than for each property.

Exceptions

  • This new Capital Gains Tax regime excludes no gain/no loss transfers (like transfers of property between spouses and civil partners), charities, pension schemes and companies.
  • It also excludes disposals that realise a gain that is relieved to leave no tax liability such as selling of one’s main residence.
  • Any gain made that is equal to or less than the Capital Gains Tax annual exempt amount (£12,300 for 2020-21) is also not in the scope.

Penalties

If you don’t report the transactions and pay the Capital Gains Tax due within 30 days, the penalties are:

  • £100 initial late filing penalty,
  • Further penalty if six months late, which will be 5% of Capital Gains Tax due or £300, whichever is greater
  • Interest will also accrue on late payment

Complicated scenarios

Tax is a complicated subject and you are likely to find yourself in a situation where you aren’t quite sure how the rules apply to you. Talk to one of our Tax Accountants if this is the case by calling 020 8108 0090 today. With offices in Central London, Putney, Richmond and in Surrey, we have helped many families and taxpayers by giving them independent and trusted tax advice.

Here are two examples of how we can help pertaining to the changes to Capital Gains Tax from 6 April 2020.

Example 1: Multiple owners on a property

If you and your spouse jointly own a buy-to-let and each of you stands to make a gain of £50,000 after selling it, then each of you must report it individually as this new regime applies to each taxpayer rather than each property, unless the property is transferred first into the sole ownership of a spouse on a no gain/no loss basis.

Example 2: Computing gains

Calculating Capital Gains Tax requires information such as brought forward losses from previous tax years. We can also help to gather information such as length of ownership, base cost, costs of improvements, incidental costs, among others. While losses realised on assets that have not been reported cannot be deduced from the residential property gain during computation, we can help you to include them (and other losses made throughout the year) when completing your Self Assessment tax return, thereby reducing your tax liability.

Tax Agility can help with Capital Gains Tax

At Tax Agility, we believe in providing solid tax advice that complements your investment strategies and saves your hard-earned cash. Make use of our free initial consultation so we can understand your situations and make the appropriate recommendations.

If you will soon be selling your buy-to-let and these new Capital Gains Tax changes are likely to apply to you, give us a call on 020 8108 0090 or contact us via our Online Form to kick-start the conversation today.

 

You may also like:

This blog is a general summary. It should not replace professional advice tailored to your specific circumstance.

 

by Donovan

How can management accounts be used effectively?

Produced monthly or quarterly, management accounts contain financial data that business owners can use to make decisions.

As a small businesses owner, success is always on your mind and amid your busy schedule, you are likely to receive a set of financial reports from your accountant every month or every quarter. These are management accounts and their purpose is to give you a snapshot of the business activities. The data also allow you to find out how healthy and resilient your business is – for example, is your business running efficiently? Does it have enough cash to pay its bills? How much working capital should you retain in your company?

At Tax Agility, our chartered accountants for small businesses in London send out management accounts to our clients regularly. What goes into each set depends on the clients and their business activities but typically each set may consist of:

  • Executive summary
  • Profit & Loss
  • Budget variance
  • Balance sheet
  • Aged receivables
  • Aged payables
  • Cash summary

In this article, we aim to discuss some vital data in management accounts that require the attention of small business owners.

Executive summary

An overview of your financial information, this shows the performance of your company, income and profitability in a given period.

Profit & Loss

P&L for short, a Profit & Loss account shows your company’s income minus its expenses. The income can be from sales or other sources like interest earned. On the other hand, expenses can be directly linked to your sales (known as cost of sales) or they can be general operating expenses like rent, insurance and office supplies.

If your income is greater than your expenses, then you have a net profit. But if your income is less than your expenses, then you have a net loss.

It must also be noted that your net profit (or net loss) does not equate to the cash your business has in the bank. For instance, last month you sold a dozen of office chairs to a dozen of clients and they are recorded in your P&L, but only half of them have paid you. The money owed to you by customers who have yet to pay is considered accounts receivable and it is recorded in your balance sheet which we will explain later.

A typical P&L usually has the following components:

  • Income
  • Cost of sales or cost of goods sold
  • Gross profit (income less cost of sales)
  • Expenses, anything from rent, national insurance, IT support, legal expenses to subscriptions
  • Net profit or net loss (gross profit less expenses)

How is the P&L account useful?

1. Determine efficiency

Gross profit (the difference between your income and cost of sales) is an indicator of efficiency. If your gross profit is high, it means your business is keeping more money from each sale made and is efficient.

2. Determine profitability

If your business is recording a net profit, you know that your business is selling products or services that are desirable and well-received, your price structure is right and your expenses are controlled.

3. Work out tax payable

All taxable profits made by your company are subject to corporate tax (the rate is 19% at present).

4. Work out dividends

Many small business owners draw a low salary and use dividends to make up the income. If you are taking this approach, you can only declare dividends to you and your fellow shareholders after the company has paid its corporation tax.

Budget variance

The budget variance shows you the original budget versus what was actually earned and spent in a specific period. Ideally, you want the actual figures to be as close to the budgeted figures as possible.

How is the budget variance useful?

1. Identify issues

Assuming December is a good month to sell toys and accordingly, you have a healthy £10k budget for toy sales in that month. But when January rolls around, you realise that toy sales were only £2k in the previous month, well below the £10 budgeted figure. In this case, the sooner you find out the reasons, the better it will be for the business.

2. Minimise careless spending

Assuming your marketing budget is only £1k a month, you are not likely to splash out on TV advertisements without knowing what positive results they can bring. Instead, you are likely to use the budget wisely, such as using the money to target online shoppers or run advertisements in your local areas.

Balance sheet

A balance sheet shows you what your business owns (assets) and what it owes (liabilities) at a given moment in time.

Assets

Assets are divided into current (items of value that can be converted into cash within the next 12 months) and fixed (items that cannot be converted into cash quickly). Examples of current assets are cash, accounts receivable and inventory while examples of fixed assets are equipment, vehicles and goodwill.

Liabilities

Liabilities are financial obligations that the business must fulfil. Liabilities are divided into current (bills that the business is expected to pay within the next 12 months) and non-current (bills that the business cannot settle within the next 12 months). Examples of current liabilities are accounts payable, PAYE payable, wages, pensions, VAT, among others. Examples of non-current liabilities are long-term loans and deferred tax (deferred tax usually happens when your financial year does not match the tax year).

Equity

For a limited company, the first line under equity is usually capital, which means the purchased shares. The next lines are current year earnings (net income or loss of the business for the current year) and retained earnings (reserves of profit made in previous years). Total equity refers to the assets left in the business after it has paid its bills and you (the shareholder) can have a claim to.

How is the balance sheet useful?

1. Compare performances

If you compare the numbers between two specific time periods, you can see if the business has performed better or worse. For instance, last month you had £10k in your net assets versus £2k a year ago, this means your business is doing better when compared to the same period a year ago.

2. See how the business is being funded

The formula for debt to total assets ratio is total liabilities divided by total assets. If the ratio is high, it means the company relies on borrowed money and money owed to others to operate, which is worrying.

3. See if the business can meet its financial obligations

The formula for liquidity ratio is total current assets divided by total current liabilities. Assuming your total current assets are £50,000 and your total current liabilities are £10,000, you have a ratio of 5, meaning you have £5 to cover every £1 owed, sufficient money to meet all short-term obligations.

Aged receivables and payables

Aged receivables or aged debtors show outstanding amounts your clients have yet to pay you. These invoices are usually outstanding for 30 days or more. In England, small business owners are painfully aware of the negative impact of aged receivables – they limit your growth and development, which in turn can put your business in jeopardy.

Aged payables or aged creditors, on the other hand, show you which suppliers your business owes at a particular time and how much you owe them.

Cash summary

Sometimes the management accounts also include a cash summary – information about your cash flow like how much money is leaving your company and what is coming in for a selected period. Ideally, you want the inflow of cash to be greater than the outflow, otherwise you will have something called a cash flow gap.

Cash summary is a powerful tool as the data allow you to rethink your budget and reallocate your resources. For more information about cash flow management, this article "Five ways to improve your company’s cash flow" will make a good read.

Sharpen your management accounts with Tax Agility

At Tax Agility, we have been championing small businesses across London since 2008. Our team of chartered accountants for small businesses work closely with our clients and our objective is to help your business grow.

Knowing that you are busy, we run management accounts for you and explain the key findings clearly, some of the things we look for may include:

  • Compare your original budgets versus actual
  • Check if your business is operating profitably
  • Check if your costs are under control
  • Work out how fast (or slow) your stock is turning over
  • Work out how many days your customers take to pay you
  • Determine how much sales you need to cover your expenses
  • Determine if your business can survive in an economic downturn

Based on this data-driven information, you can make sound decisions like the followings with confidence:

  • Evaluate which products or services are profitable
  • Work out the optimal sale price and allocate the right resource to sell your products/ services
  • Determine the financial effect of your management strategies
  • Lower your expenses
  • Modify your budget
  • Plan for the future
  • Measuring results

At the end of the day, every business deserves the best opportunity to succeed and your business should be no exception. To make money, your business needs to run efficiently, control costs, and sell products or services that meet the demands of your clients. Using data from your management accounts, you can make the all-important decisions that keep your business healthy and on track.

Tax Agility is here to help small business owners

Any questions you have pertaining to your management accounts, give us a call on 020 8108 0090 or use our online form to get in touch. The first meeting is always free and without obligation.

Our philosophy is simple: You win, we win.

 

You may also be interested in:

This blog is a general summary. It should not replace professional advice tailored to your specific circumstance.

by Donovan

Shopfront concept

Sole Trader or Limited Company: Choosing one that best suits your business needs

Shopfront concept

When you are ready to launch your business, one of the first key decisions is choosing a business structure that suits you best.

Choosing to run your business as a sole proprietorship or as a limited company depends largely on the type of business you run, how you want to run it, and your aspirations when it comes to growing your business.

The business structure that you choose can determine:

  • How much tax you pay
  • If you are considered the owner of the business or an employee
  • How far you want to protect your personal liability
  • How much control you want to have over the business
  • How much you want to pay to maintain the company
  • How much administrative work you want to do it yourself

It is worth mentioning that you can change your business structure at some point through your business journey. For instance, you may choose to start with sole proprietorship but as your business expands, you take on staff and forge new partnerships. These new commitments may make a limited company more suitable to your business needs and you make the switch accordingly.

Having said that, getting the business structure right from the start can potentially save you time, money and effort. If there are concerns you would like to address, contact one of our small business accountants today and we’d be happy to discuss any issues surrounding sole proprietorship or limited company.

Sole trader

Being a sole trader or setting up a sole proprietorship is the simplest and also the most popular business structure in the UK, but it comes with a big catch – you are legally responsible for all aspects of the business including its finances. The statement seems alright at first glance, but it is the implications that you should pay your attention to. What it means is that you are personally liable for all the income your sole proprietorship receives as well as all the losses your business incurs, which can put your personal assets at risk when things go bad.

Here is a quick example
Your business goes through a bit of a rough patch and the business owes suppliers a sum of money. Because your business is essentially you (there is no separation in the eyes of the law), your creditors (in this case your suppliers) can file for County Court Judgements against you, putting both your business and your personal assets (property, money, possessions) at risk.

So let’s look at the advantages, disadvantages and tax responsibilities of a sole trader:

Advantages of a sole trader

  • Easy to set-up
  • Small administrative burden
  • Small up-keep cost
  • You have complete control on how the business is ran (as there aren’t any other shareholders)
  • You have privacy – your name is not published on the Companies House website
  • In most instances, you have less accounting work than a limited company too
  • As there is no separation between your sole proprietorship and you, you can access the profit anytime you like

Disadvantages of a sole trader

  • You have unlimited liability, meaning if something goes bad, your personal assets (property, money and possessions) are at risk
  • As liability is an issue, some businesses are less reluctant to deal with a sole trader
  • Because you are personally liable for all the income your business generates, you may be paying a lot of tax as a sole trader when your business booms
  • You cannot split your business profits or losses with family members
  • Rightly or wrongly, business people tend to view sole proprietorship as something less serious

Tax responsibilities of a sole trader

  • You must keep all financial records (income and expenses) for at least five years
  • You must send a Self Assessment tax return to HMRC every year
  • You pay Income Tax and National Insurance
  • If you are VAT-registered, you must file a VAT return

Limited company

Before launching your business, your friends and business associates are likely to encourage you to set-up a limited company due to its distinct advantages. So let us go straight into highlighting the advantages, disadvantages and tax responsibilities of a limited company.

Advantages of a limited company

  • The biggest advantage is that your liability as a shareholder is limited
  • You can reduce your tax obligations legitimately by taking a low salary and using dividends (which is taxed at a lower rate) to make up your income
  • You can also split your business profits or losses with family members
  • You can transfer ownership by selling shares to another party
  • The business structure is respected
  • A limited company tends to have wider access to capital and funding than a sole proprietorship
  • The name of your company is protected; no one else can use the same name as your company once you have registered
  • Your company can contribute pre-tax income to your pensions
  • Your company may qualify for some types of relief

Disadvantages of a limited company

  • The set-up cost is higher than a sole proprietorship
  • The running costs are also higher than a sole proprietorship
  • Your limited company is owned by shareholders and managed by directors – you have full control only if you are the only shareholder and director
  • As a director and/or significant owner, your name is published on the Companies House website
  • The financial information of the company is also published on Companies House
  • If you fail to meet your legal obligations, you may be held liable for the company’s debt
  • Even if you hire an accountant to manage your day-to-day tasks, you are still legally responsible for your company’s records, accounts and performance.

Tax responsibilities of a limited company

  • A limited company must keep good financial records and report changes
  • A limited company must complete corporation tax return and pay corporation tax on its profits
  • A confirmation statement and annual accounts must be sent to Companies House each year
  • File a VAT return if the company is VAT-registered

Reducing your tax obligations through a limited company

In the article Incorporating a limited company, we share two scenarios on how a director of a limited company can reduce their tax obligations and increase their tax-home pay by spreading the income between salaries and dividends. If you are interested to know more, follow the link and have a read.

Sole Trader or Limited Company – need help deciding?

Making the decision to launch your own business is the first step that you take towards fulfilling your dreams; now this step of choosing a business structure that suits you will reinforce your commitment.

At Tax Agility, our small business accountants have helped countless entrepreneurs set up their limited companies over the years. Moreover, we continue to support them throughout their business journey, assisting with company accounts, payroll and tax matters. In some instances, we even help to implement financial disciplines that are unique to your business, reigning in the appropriate level of financial control so your company can grow and expand quickly but sensibly.

If you would like to talk to one of our small business accountants regarding your accounting needs (for either your sole proprietorship or limited company), give us a call on 020 8108 0090 or fill in our online form.

 

You may also be interested in:

This blog is a general summary. It should not replace professional advice tailored to your specific circumstance.

by Donovan

The complete guide to buying a franchise

63186357 - franchise business

Franchising has helped hundreds of thousands of individuals becoming small business owners in the UK, but is it suitable for you?

Owning your business through franchising can be hugely rewarding, as it uses a business model that has been proven successful, so much so that fewer than 1% of franchisees fail, according to a comprehensive 2018 study done by BFA and NatWest. In comparison, it is estimated that 60% of new businesses will fail within three years according to this 2019 article by the Telegraph.

As a franchisee, you pay fees to a franchisor who is usually an established company that licenses its brand, process and know-how to you. Essentially a franchisee is a person who is a self-employed business owner but with limited control on how you can run the franchise; you must follow the strict procedures laid out by the franchisor whom you choose to work with.

Although popular, franchising isn’t for everyone. In this article, our small business accountants at Tax Agility aim to discuss the top five points you need to know about franchising:

  • Types of franchises
  • Advantages of running a franchise
  • Disadvantages of running a franchise
  • Key considerations
  • The importance of due diligence

Hopefully at the end of the article, you would have a better idea if franchising is something that you would like to pursue or not.

Types of franchises

Every franchise is slightly different in how they are managed and generally they can be broken down into three main types.

1. Business format

This is the most common type and is widely used by fast-food companies. What it means is that you buy the right to use the franchisor’s intellectual property, systems and products for a fee over a set period of time as specified in the contract.

Under this arrangement, it is common for the franchisor to continually influence the franchisee by setting guidelines and goals, as well as offering training and support.

2. Product distribution

In this case, you (the franchisee) is given the right to distribute a manufacturer’s products within a specific territory or at a specific location. Your business may not trade under the franchisor’s name but you may choose to display the manufacturer’s brand prominently in your business premises. An example is a car dealership where you sell the franchisor’s products directly to the public.

3. Processing or manufacturing

In this model, you (the franchisee) produce or manufacture the products, following the exact formula or know-how given by the franchisor. For instance, a chocolate maker licences its recipes and packaging to franchisees.

In addition to the above, there are also other types of franchise arrangements like agency, license and management.

The top five advantages of running a franchise

1. An established brand

Your franchisor is well established and ready to let you use their brand, reputation, as well as products or services.

2. A support network

Your franchisor is likely to have an extensive business network with incredible power to assist you with lease negotiation, shop fit-out, equipment, management training and ongoing support. Some franchisors go even further to provide legal and logistical support to their franchisees.

3. No experience required

Quite a few franchisors are not dissuaded if their potential franchisees have zero business experience as they offer training and give tools to help their franchisees succeed. Instead of experience, some franchisors may look for franchisees with leadership skills, passionate about the business and a willingness to learn.

4. Less concern over market trends

When running your own business, you need to continuously develop products or services that are relevant to your customers, otherwise you risk losing them. When you are a franchisee, you tend to worry less about market trends as usually your franchisor takes on this responsibility.

5. Almost guaranteed success

The success of franchises is supported by data. In the 2018 franchise landscape study done by BFA and NatWest, there were about 48,600 franchised units in the UK with 6 in 10 of them enjoyed a turnover of more than £250,000. Among them, 93% of franchisees claimed profitability in 2018. The data show that as long as there are proper due diligence, good management and good support in place, there is not a lot to hold a franchise back from becoming profitable.

The top five disadvantages of running a franchise

1. It is costly

For all the success that franchising can offer, it is often forgotten that the initial start-up costs to gain access to a franchise can be very high. It is not unusual to see a franchisor wanting at least £50,000 from a franchisee and often hitting six figures for a fast-food chain.

On top of that, you also need to secure a location, get equipment, buy stock, employ staff and get the business going. While some supplies will be provided by the franchisor, there are bits and pieces that you need to make your own purchases. Additionally, you will need to pay a regular fee to the franchisor irrespective of whether you turn a profit or not.

2. Your control can be limited

Your franchisor has given you the platform to succeed, but no matter how successful or profitable you make your franchise, the franchisor remains in control and shares your success. The only growth path for you is to license more franchises from your franchisor.

You also have less autonomy when it comes to making business decisions, as you are usually required to operate the franchise according to a standard operating manual.

Also, when you decide to sell your franchise, you have strict procedures to follow. Some franchisors also want to approve your buyer first. In other words, you have less control in a franchise than in managing your own business.

3. Your ideas (and franchises) are never your own

Jim Delligatti became a McDonald’s franchisee in 1955 and thought up the concept for the Big Mac 10 years later. Despite the global success of this iconic burger, Delligatti never received any royalties for his creation but a plaque.

Being a franchisee may mean that you are self-employed, but unlike running your own company, you do not have the creative freedom in a franchise. So if you are someone who loves the freedom to innovate, generate ideas and think outside of the box, franchising may not be right for you.

4. Bad performances by other franchisees may affect your franchise

When something bad happens in another franchisee like when they don’t follow strict hygiene procedures and customers get sick, it tends to affect other franchisees and you have no control over it.

5. Franchisors can refuse to renew your contract

When it comes to getting a franchise contract renewed when the previous contract is up, a franchisor may not elect to renew your contact irrespective of how hard you work or how successful you are.

Franchisors can choose not to renew for a number of reasons, such as if they think you are not performing as well as they want or if there has been non-payment of fees. In fact, any minor breach of the agreement could result in the franchisor pulling out the rug from under you. When this happens, the business and its goodwill go back to the franchisor.

Key considerations

Apart from the main advantages and disadvantages of owning a franchise mentioned above, there are other areas which you need to consider as well.

1. Do your research

In London, there are at least a few hundred franchising opportunities available at any one time so take your time to research. Beware that some franchisors may inflate earning potential claims.

2. Look at hard data

To help evaluate your options, ask potential franchisors for specific data including financial information (this should include past and projected financial data), information on previous and current franchisees, disclaimers, as well as market reputation.

3. Ask other franchisees

Good questions to ask include:

  • How long did it take them to recover their investment?
  • What is their profit margin?
  • What are the hidden and unexpected costs?

It may worth getting an independent accountant to look at the numbers before you make a commitment.

4. Match your desire

Running a franchise means you must adhere to strict procedures, even if you do not agree with them. If you are after creative freedom to carve your own success story, then franchising may not suit you.

5. Match your personality

With so many opportunities available, find one that best fits your personality. For instance, if you are ecologically-minded, choose a franchise that promotes green energy, environmentally-friendly cleaning products, or a natural make-up range, to name but a few.

6. Work out your finances

Buying a franchise requires a substantial fee upfront, anything from the license fee to vehicle cost and/or premises rent. Work out how much money you need and how you are going to raise the fund.

Addressing all the points above should help you to decide whether or not franchising is suitable for you. At the end of the exercise, you may realise that instead of becoming a franchisee, you actually want to go into a business by yourself or with a partner. You may even be thinking of buying an already established small business, which may be less costly than buying a franchise while affording you the freedom to change the business as you see fit. If this is on the cards, this article The complete guide to buying a small business may be useful.

The importance of due diligence

Due diligence refers to the process in which you investigate, verify and confirm the claims made by the other party before entering into a contract with them.

Before making a large investment (in this case buying a franchise), you need to conduct due diligence by verifying the franchisor’s business practice, financial performances and even statutory obligations. The objective is to mitigate risks and avoid any unforeseen liabilities.

Good due diligence often starts with financial data and tax compliance but it quickly extends to include areas like legal, intellectual property, statutory and even environmental due diligence. As you are after sensitive data, some franchisors may ask you to sign a non-disclosure agreement before they can share the information with you; this is a common practice.

While you are likely to rely on your accountant and solicitor to assist with financial and legal due diligence respectively, you can definitely tap into your business acumen and conduct business due diligence accordingly. Some business questions may include:

  • Why has no one set-up a franchise in this particular area previously?
  • What market research can you conduct to determine demand in a local area?
  • How intense is the local competition? Are prices competitive?

Tax Agility is here to support small business owners

Deciding on the best route into business ownership is dependent on a number of factors such as the opportunities in front of you, your skillsets and the budget at your disposal. Whether it is the world of franchising, launching a start-up or buying a pre-existing business, there are advantages and disadvantages inherent with each of these entry points.

Despite some differences, these three pathways share one common hurdle to overcome: finance. Before making any decision on which option you want to pursue, it is important to do your due diligence and get sound financial advice that can help you decide wisely. At Tax Agility, we provide expert consultancy to entrepreneurs across London who are keen to get into business ownership for the first time.

Our chartered accountants for small business owners are here to offer solid advice on all matters relating to accounting and tax. We care very much about your success, which is why our advice is always centred around what is best for you and your business. Think of us as your financial controller but without paying big money. Use our expertise to help you make sure the financial side is strong, so you can focus on running the business.

Our accountancy, tax and payroll services are used by small and medium-sized businesses ranging from start-ups to franchises to established companies. Call us now on 020 8108 0090 to discuss how our small business accountants can help you.

 

You may also be interested in:

This blog is a general summary. It should not replace professional advice tailored to your specific circumstance.

by Donovan

Summary of government support available

White text of blog title over image of people in face masksWe highlight some guidance and advice the government has for employers and self-employed individuals.

At TaxAgility, we continue with business as usual, although operating remotely until further notice. We are contactable by email at taxsupport@taxagility.com or on our landline 0208 780 2349.

The government has announced numerous measures in the past week and has now updated their guidance for employers and self-employed individuals. The following is a summary of some of the measures available.

Coronavirus Job Retention Scheme (furlough guidance)

This scheme is aimed to encourage employers to retain staff through these unprecedented times. Where employees are no longer required to perform work duties due to the coronavirus impact, the employer can make a claim for a grant from the government amounting to 80% of their furloughed wages and employer’s national insurance up to a maximum of £2,500 per employee per month.

These employees are termed furloughed. You must notify your staff that they are being furloughed formally in writing. HMRC are working as quickly as possible and anticipate to have the online portal ready by the end of April 2020 for claims to be made by the business.

The salary used to compute the funding for furloughed employees would be based on the February 2020 payslip.

As an illustration, if your gross salary was £719 in February 2020 you could receive funding of £575.20 for any months in which you were officially furloughed. At present, the measure is in place for three months but may be extended.

As a director of a limited company, you may be able to apply for the Coronavirus Job Retention Scheme if you are being paid a salary through a PAYE scheme. Directors can be furloughed in the same way as other employees. The furloughed employee must not undertake work for the company during this time.

Deferring VAT payments

HMRC are supporting businesses by offering to defer your VAT payments for 3 months if your VAT payment is due between 20 March 2020 and 30 June 2020. HMRC will not charge interest or penalties on any amount deferred as a result of the announcement. You will still need to submit your VAT returns to the HMRC on time. Refunds will be paid by the HMRC as normal.

If you choose to defer your VAT payment it will need to be paid up by 31 March 2021. You do not need to tell the HMRC you are deferring your payment.

It is your responsibility to cancel your VAT direct debit which you can do by contacting your bank or you can cancel the direct debit payment online which will prevent your VAT liability from being automatically paid when your VAT return is submitted.

VAT payments after the deferral payment will need to be paid as normal within the normal time frame which you will need to do manually as your direct debit will have been cancelled.

Deferring Income Tax payments

For Income Tax Self-Assessment, payments due on the 31 July 2020 may be optionally deferred until 31 January 2021. You do not need to be self-employed to be eligible for the deferment. This is an automatic offer with no applications required. No penalties or interest for late payment will be charged if you defer payment until January 2021.

HMRC Time to Pay Scheme

If you can’t pay any other taxes due to the impact of Coronavirus a payment plan can be negotiated through calling the HMRC Payment Support Service line on 0300 200 3835, open Monday to Friday, 8am to 4pm.

Self-employment Income Support Scheme

The Self-employment Support Scheme has been announced and expected to be made available in June 2020. HMRC will contact individuals who are eligible to apply for the scheme. You may only be eligible for this scheme if you’re self-employed or a member of a partnership and you have traded in the 2019-20 tax year and have lost trading/partnership trading profits due to Coronavirus.

You must have submitted your self-assessment tax return for the year ended 5 April 2019, if not this needs to be submitted by 23 April 2020. HMRC will use this data to determine eligibility for the scheme and they will invite you to the scheme if you qualify, you cannot apply for the scheme.

This scheme is only available to individuals who have a trading profit of less than £50,000. The grant will be 80% of the average trading profit from the last 3 tax years and it will be up to a maximum of £2,500 per month. The initial scheme is available for three months.

Please note the Self-employment Support Scheme is not available to directors of limited companies who draw a salary and dividend income. Directors who take a salary may be eligible for the Job Retention Scheme as mentioned above.

Statutory Sick Pay relief packages for SME businesses

SME businesses and employers can reclaim Statutory Sick Pay (SSP) paid for sickness absence due to Coronavirus. The refund will cover up to 2 weeks’ SSP per eligible employee who has been off work because of Coronavirus. It is available to businesses with less than 250 employees claiming SSP due to Coronavirus.

12 Month Business Rate holiday for retail, hospitality and leisure businesses

Properties that will benefit from the relief will be occupied properties that are wholly or mainly being used as shops, restaurants, cafes, drinking establishments, cinemas and live music venues for assembly and leisure and for hospitality, as hotels, guest & boarding premises or self-catering accommodation.

Cash Grants for retail, hospitality and leisure businesses

The Retail and Hospitality Grant Scheme provides businesses in the retail, hospitality and leisure sectors with a cash grant of up to £25,000 per property.

Businesses in these sectors with a property that has a rateable value of up to £15,000 may be eligible for a one-off grant of £10,000 to help meet their ongoing business costs.

Businesses in these sectors with a property that has a rateable value of between £15,000 and less than £51,000 may be eligible for a grant of £25,000.

Coronavirus Business Interruption Loan Scheme (CBILS)

This temporary Loan Scheme supports SMEs with access to loans, overdrafts, invoice finance and asset finance of up to £5 million and for up to 6 years.

The government will cover the first 12 months of interest payments and any lender-levied fees, so smaller businesses will benefit from no upfront costs and lower initial repayments. The loans will be guaranteed by the government up to 80%.

These loans are accessed through the bank used by your business. If you have an existing loan with monthly repayments, you may want to ask for a repayment holiday to help with cash flow.

As of 3 April 2020, the government has made several changes to the scheme. It is now applicable to businesses regardless if they have been refused a loan on commercial terms. It also aims to help larger firms (with revenues between £45m and £500m) by offering government-backed loans of up to £25m.

Scams

Please be aware of scams relating to any of the above. If someone texts, calls or emails claiming to be from HMRC, saying that you can claim financial help or are owed a tax refund, and asks you to click on a link or to give information such as your name, credit card or bank details, it is a scam.

More information can be found at this link:

https://www.gov.uk/government/publications/guidance-to-employers-and-businesses-about-covid-19/covid-19-support-for-businesses

If you have any questions, please get in touch.

Please keep safe.

TaxAgility Chartered Accountants

Disclaimer

The information contained in this newsletter is of a general nature and no assurance of accuracy can be given. It is not a substitute for specific professional advice in your own circumstances. No action should be taken without consulting the detailed legislation or seeking professional advice. Therefore, no responsibility for loss occasioned by any person acting or refraining from action as a consequence of the material can be accepted by the authors or the firm.

by Donovan

Concept of a businessman fighting the COVID-19 crisis

Helping small businesses during this COVID-19 pandemic

Concept of a businessman fighting the COVID-19 crisis

The UK government has announced measures to support companies affected by the Coronavirus COVID-19 pandemic, learn what the measures are and how you can get assistance.

Many countries in the world have announced drastic stimulus measures to keep companies afloat and help people stay employed. In the UK, the government has also announced a string of measures. Quite a few of these announcements are made in a hurry with an attempt to abate fear first, while the exact processes are being worked out. As a result, the announcements have caused confusion among business owners. In this article, we aim to discuss what we know so far.

Government to pay up to 80% of wages

Known as Coronavirus job retention scheme, this measure is applicable to all UK employers who would otherwise have to lay off their workers during this crisis. A few important points are:

  • The government plans to have the grant available by the end of April, although the grant can be backdated to March.
  • You (the employer) must first classify the affected employees as furloughed workers and inform your employees accordingly.
  • Once the government portal is made available, you can submit the information of your furloughed employees and their wages.
  • HMRC will then reimburse 80% of wages of these furloughed workers, up to a cap of £2,500 per month.

Coronavirus Business Interruption Loan Scheme

You probably have heard from small business owners who are worried that they have to shut their business down because they do not have enough short-term cash flow to keep it going. If you are in this situation, explore the temporary Coronavirus Business Interruption Loan Scheme first.

  • There are 40 accredited lenders (including major banks) offering this scheme.
  • You can access to loans, overdrafts, invoice finance and asset finance of up to £5 million and for up to 6 years.
  • While you must repay the loans, the government will cover the first 12 months of interest payments and any lender-levied fees to help small businesses.
  • To be eligible, you must be a UK-based business with a turnover of less than £45 million per year. Your business must also meet the other British Business Bank eligible criteria.
  • To apply, talk to your bank now. Alternatively, talk to one of the accredited lenders available on the British Business Bank website.

Deferring VAT

This is an automatic offer with no applications required. If your business is VAT-registered, you can defer VAT from 20 March 2020 to 30 June 2020, meaning you do not need to make a VAT payment during this period. This is applicable to all UK businesses. Please note that it doesn’t mean you don’t have to pay VAT, you are simply delaying the payment.

Deferring Income Tax payments

This is an automatic offer with no applications required. If you are self-employed, your Income Tax Self-Assessment payments (originally due on 31 July 2020) will be deferred to 31 January 2021. No penalties for late payment will be charged during the deferral period.

Statutory Sick Pay relief

Applicable to UK-based small and medium-sized businesses (with fewer than 250 employees as of 28 February 2020), this relief covers up to 2 weeks’ Statutory Sick Pay (SSP) per eligible employee who has been off work because of COVID-19. How it works is that you (the employer) will have to reclaim expenditure for any employee who claimed SSP as a result of COVID-19. The process to which you can reclaim is still being developed.

Small business grand funding of £10,000 for all business in receipt of small business rate relief or rural rate relief

If you own a small business that pays little or no business rates, your local authority will provide a one-off grant of £10,000 to eligible businesses to help meet their ongoing business costs.

  • Your business must already receive Small Business Rate Relief and/or Rural Rate Relief.
  • Your local authority will write to you if you are eligible for this grant.
  • This will only happen when your local authority has received the money from the government, which is likely to be after 1 April 2020.

A 12-month business rates holiday for all retail, hospitality, leisure businesses in England

If your business is in the retail, hospitality and/or leisure sector, your next council tax (April 2020) should automatically exclude the business rate charge and it should continue to the 2021 tax year. You can estimate the business rate charge you will no longer have to pay this year using the business rates calculator.

Grants for retail, hospitality and leisure businesses

If your business is in the retail, hospitality and/or leisure sector, you can get a cash grant.

  • For businesses in these sectors with a property that has a rateable value of £15,000 and under, you can get a £10,000 cash grant.
  • For businesses in these sectors with a property that has a rateable value between £15,000 and £51,000, you can get a £25,000 cash grant.
  • Your local authority will write to you if you are eligible for this grant once they have received the money from the government. Any questions, contact your local authority accordingly.

Support for nurseries

Nurseries that pay business rates will be eligible for a business rate holiday, which your local authority will re-issue your bill to exclude the business rate charge. Nurseries that will benefit from the relief are:

  • Occupied by providers on Ofsted’s Early Years Register
  • Wholly or mainly used for the provision of the Early Years Foundation Stage

Time to Pay Scheme

If you have unpaid taxes and your business is struggling due to COVID-19, you can call HMRC on 0800 0159 559 to discuss a payment plan. Please note that HMRC will review each case independently. If you are worried about a future payment, please call HMRC nearer the time.

For more information, check out this gov.uk page. Alternatively, email us on taxsupport@taxagility.com if you are worried about VAT, bad debt, and the cash-flow in your business. We are London’s small business accountants and have helped countless entrepreneurs and small business owners to get their finances right. We can help you too.

This blog is a general summary. It should not replace professional advice tailored to your specific circumstance.

by Donovan

A message from our Managing Director

In light of the current global health concern, our Managing Director has a message for customers.

As per government advice, our staff are working remotely, therefore, our office has temporarily closed. Our team will continue to work as normal and can be contacted via email or mobile phone. If you do not have their email address to hand or are a new client looking to use our services, please email us on taxsupport@taxagility.com.

Although we can’t offer face-to-face meetings at present, we are operating conference calls and therefore can proceed as normal be it at a distance. We are monitoring all post that comes into the office as normal and ensuring this is distributed and actioned accordingly.

Keeping up-to-date with COVID-19 information

We are monitoring all news and government guidance very closely to ensure that our team have the latest knowledge. Government information for the public about COVID-19 can be found here:

For COVID-19 guidance and support for businesses and employees, please read the following pages:

Many thanks for your understanding during this time.

Sincerely,

Donovan Crutchfield FCA BFP

This page was first published on 18 March 2020 and updated on 23 March 2020.

by Donovan