This year, thousands of SMEs will reach their staging date and begin the process of auto-enrolment. Although it is a topic that is now on most small business owners' radar, it seems that many businesses are still unprepared or unaware of the changes afoot.
The Pensions Regulator has revealed that it issued 2,596 warning letters in Q4 2015 - roughly 28 warning letters a day - to those businesses who have failed to enrol their staff on a Government pension scheme.
This is supported by our research, which shows that 40% of micro-businesses are not aware that auto-enrolment will cost anything to set up. But when told it could cost up to £8,900 to implement, 34% admitted they would consider offsetting the financial implications from auto-enrolment and the increased contribution into staff pension pots by capping staff salaries and/or bonuses; with 19% claiming they would have to reduce employee benefits as a result.
Auto-enrolment will affect almost every person across the UK in some way, so it is worrying that micro-businesses aren't fully aware of the investments they need to make. Not only do they need to ensure they're compliant with their staging date, but they must be ready for the ongoing impact that workplace pensions will have on their employees and business.
To ensure employees are not negatively affected by auto-enrolment, business owners need to fully understand what processes need to be in place ahead of their staging date. Key to this is gathering staff information, such as pension percentage contribution and calculating the costs of implementing auto-enrolment.
All too often, small business owners and entrepreneurs ignore or simply don't have enough time to get clued up on the Government legislation that will affect them, and they end up paying a price down the line.
While it may seem daunting, there are a lot of resources available to help businesses navigate auto-enrolment and ease the administrative task. An accountant can also advise on critical business decisions to get finances in order and prepare employers to make contributions each month into their employees' pension scheme.
Additionally, small businesses should ensure that they have the right tools in place to assist in setting up the auto-enrolment process. Cloud software is available that will remind owners when to complete certain tasks in order to remain compliant, and will also help navigate the challenges of what to pay and when.
Armed with the right information and third party support, SMEs can stay ahead of the workplace pensions curve, remain compliant and avoid some of the unnecessary costs that some businesses are experiencing.
Copyright © 2016 Rich Preece, Europe vp and managing director at Intuit QuickBooks.
The UK's main political party leaders could be much less popular among the nation's small businesses than they'd like. According to a survey carried out by Crunch Accounting, based on responses from 500 freelancers and micro businesses, 27% "would not hire any of the political party leaders if they applied for a position".
More than a fifth (22%) would hire David Cameron, while only 13% would give a job to Ed Miliband. The SNP's Nicola Sturgeon came third (12%), ahead of Liberal Democrat leader Nick Clegg (11%).
Nigel Farage has said he'll stand down as UKIP leader if he loses the South Thanet election, but he's unlikely to try to find a job with a UK SME if he does. That's probably just as well, with only 9% of those polled saying they would give him a job. Far fewer (4%) would employ Green Party leader Natalie Bennett, fewer still (2%) Plaid Cymru leader Leanne Wood.
The survey also asked respondents which party best understands the needs of small firms and the self-employed. Almost a third (32%) said the Conservatives, with Labour attracting a 25% share (Liberal Democrats 10%; UKIP 8%; Greens 4%; SNP 2%; Plaid Cymru 1%).
The UK's main political parties have been at pains to highlight their pro small-business credentials. The Daily Telegraph, of course, recently published a letter reported to be signed by 5,000 "business owners" warning that "a Labour government would be 'far too risky' for the economy". The stunt was organised by the Tories and their small business ambassador Karren Brady, and in truth many signatories were not business owners.
UKIP also claims to be the party of small businesses. In April, its deputy chairman Suzanne Evans commented: "The Conservatives are in the pockets of the multinational corporations and Labour has become the anti-business party. We have a fully funded £1.2bn plan to provide 20% rates relief on premises with a rateable value up to £50,000. That will potentially cover 90% of business premises."
Sadly, none of the UK's main political leaders has ever worked for a small business or been self-employed. After leaving Brasenose College, Oxford, Eton-educated David Cameron joined the Conservative Research Department and became a special adviser. After a seven-year stint as Carlton Communications director of corporate affairs, he became an MP in 2001.
Like Cameron, Ed Miliband studied philosophy, politics and economics at Oxford (Corpus Christi College). After graduating, he worked in TV as a political researcher before becoming a Labour Party researcher, soon rising to chair HM Treasury's Council of Economic Advisers. He became an MP in 2005. Nick Clegg studied social anthropology at Cambridge and before becoming an MP in 2005 he was a lobbyist, then FT journalist and then MEP. Nicola Sturgeon studied law at Glasgow University and worked as a solicitor at Drumchapel Law Centre. She was elected to the Scottish Parliament in 1999.
Grammar schoolboy Nigel Farage didn’t go to university, but nonetheless enjoyed a successful career in the City as a commodities trader before becoming an MEP in 1999. Natalie Bennett was formerly editor of Guardian Weekly and wrote for The Independent and The Times, while Plaid Cymru’s Leanne Wood was a probation officer before becoming a political assistant and lecturer in social policy at Cardiff University.
If you still haven’t decided which party you’ll vote for tomorrow, Real Business Rescue (the "Company Recovery & Closure Experts") has created a clever online questionnaire, so you can find out which party best represents your opinions on key issues. Why not take the test?
Blog written by freelance editor, copywriter and Start Up Donut editor Mark Williams.
Global office broker Instant Offices has created a graphic that gives a comparative summary of what the Conservatives, Labour, Liberal Democrats and Greens say they will do if elected on key issues that directly affect SMEs. These issues include corporation tax, business rates, minimum wage, zero hours contracts, energy bills and broadband and the information is taken from the parties’ manifestos.
Click on image for full graphic and click again to enlarge.
The Chancellor of the Exchequer, George Osborne, will announce the 2014 Autumn Statement on Wednesday 3 December. Throughout the day, Start Up Donut will be covering the key points from the Autumn Statement 2014 affecting small businesses:
Autumn Statement 2014
We’ll update the list above with the latest Donut coverage on Autumn Statement 2014 as it goes live.
For most start-ups, bookkeeping might seem like a daunting task. However, when carried out properly, up-to-date financial records can bring about huge benefits to a business.
Apart from ensuring that financial records are correct for the end of the financial year, it can also provide businesses with a realistic and forward-looking view of how the company is performing.
Fortunately, there is technology available to relieve the burden of bookkeeping. And with the right system in place, online accounting systems can enable small business owners to stay on top of their books.
Although some people may be put off by technology, online accounting systems are actually designed to be very simple to use. Financial information can be uploaded automatically through electronic files or even scanned directly into the system. This can dramatically reduce the time it takes to enter data.
The information is stored and analysed in the system and small-business owners can look at key reports (eg outstanding bills, outstanding invoices) anytime, anywhere, from all devices that can launch an internet browser.
Not only are these systems a cost-effective option for businesses, with a pay-as-you-go model, a growing range of customised solutions delivers vertical market specific bookkeeping to add further value.
Don’t throw the book at bookkeeping – business owners should embrace technology and stay on top of the books!
Blog provided by Barbara Kroll, managing director of online accounting services provider Twinfield UK.
George Osborne’s 2014 Budget was announced on Wednesday, bringing with it tax changes, legislative tweaks, gains for some and losses for others. With little spare cash to play with, what did the Government announce for the UK’s entrepreneurs?
UK workers can currently earn £9,440 before they start paying income tax. A rise to £10,000 was already planned for April 2014 and on Wednesday Osborne said this would rise to £10,500 in April 2015. This means £800 a year more for the average taxpayer and also means that three million workers won’t have to pay any income tax at all.
The amount of money you earn before paying the higher 40% income tax rate is going up from £41,450 to £41,865 in April 2014, then up to £42,285 in April 2015. Employer National Insurance contributions for under-21s were also scrapped - this is relevant if you employ young workers.
If you have ISAs (Individual Savings Accounts) you’ll know there are currently two types: Cash and Stock. These will be merged into one product, making things simpler, and you’ll be able to save £15,000 tax free from July.
The 10% tax rate on savings has also been scrapped, as well as many of the rules on accessing your pension savings.
To encourage new investors to back social enterprises, the government has introduced 30% income tax relief for social investment. Eligible social enterprises will be able to receive maximum investment of £290,000 over a three year period.
Also, startups are being encouraged to invest in innovative ideas in risky markets, with Research & Development tax credits available for loss-making SMEs increased from 11% to 14.5%.
Finally, the 50% relief on capital gains tax for VC reinvestors has been made permanent, which will help to continue investment support for small businesses.
A small but welcome change for the self-employed. Class 2 National Insurance contributions, which are currently paid weekly by Direct Debit, will be collected via Self Assessment.
There was a reform of Air Passenger Duty, which will reduce the cost of international travel. Extra support was also announced for UKTI - the body which helps UK firms do business abroad - and the lending available to exporters doubled.
A £200 million pot was announced for local councils to help repair infrastructure damaged by recent floods. There will also be support for 200,000 new homes at designated sites across the country, potentially creating thousands of new jobs.
The budget was fairly average for start ups and entrepreneurs - not bad, but not great.
The encouragement of business investment was the most positive news and this should help out a lot of firms, especially in the manufacturing sector. Personal tax cuts will also help to keep a bit more cash in your pockets. Finally, there was some excellent support for specific industries, but obviously this is only good news for a limited number.
Blog supplied by Nick Chowdrey of Crunch Accounting.
The Start Up Donut and Tax Donut were busy this afternoon Tweeting the main announcements from today's budget. But elsewhere in Twitterland, this is how Twitter reacted to announcements made in the Chancellor’s #Budget2014 speech...
What the Chancellor announced: Deficit forecast to be 6.6% of GDP this year, 5.5% in 2014-15, falling to 0.8% by 2017-18 with a surplus of 0.2% in 2018-19. UK GDP forecast to grow by 2.7% this year. Borrowing forecast to be £108bn this year and £95bn next year, leading to a surplus of almost £5bn in 2018-19.
What you said:
@mehdirhasan - Osborne mentions that the deficit is down by a third. But still almost double what he said it'd be back in 2010. #austerity #budget2014
@SkyNewsBreak - Chancellor George Osborne says "we are putting Britain right" and the economy is recovering faster than forecast #Budget2014
@RBSBusiness - #Budget2014 is about building a resilient economy and security for the British public
@FraserNelson - “We're getting on top of our debts” says Osborne. As if. Debt getting on top of us. #Budget2014 pic.twitter.com/xveVxJ5R9l
@jrfKathleen - 2.7% growth forecast from OBR for 2014 #budget2014 > wonder what BoE will do with interest rates, following Carney's strong hints?
@labourpress - Growth in 2014 still lower than OBR was forecasting in November 2010 (2.7% versus 2.8%) #Budget2014
What the Chancellor announced: Official forecasts for UK economic growth have been raised for the next two years but cut for later years. UK GDP forecast to grow by 2.7% this year, 2.3% next year, 2.6% in 2016 and 2017 and by 2.5% in 2018. Today it was announced that the unemployed figure fell by 63,000 to 2.33m in the three months to January 2014.
What you said:
@RichardJMurphy - Don't crow about jobs Osborne: most will be self-employed earning £11,000 or less #budget2014
@stuart_rock - Faster growth alone will not balance the books #Budget2014
@RigelAcctsTax - We'll be in surplus by 2018/19 - really??!! I'll be very impressed if that comes true #budget2014
@sophiehobson - Osborne's most shouted-at statement so far: "Rich are making the biggest contribution the reduction of the deficit" #Budget2014
@MichaelWhite - #Budget2014 "income inequality the lowest for 28 years " says GO. That cannot possibly be true in any meaningful sense
@lucianaberger - No action from Osborne to actually fix our broken energy market. He needs to #freezethatbill #budget2014
What the Chancellor announced: Corporation main and small business rates will be aligned at 20% from April 2015. New 30% tax relief for social enterprises. Doubling of the 100% Annual Investment Allowance (AIA) from £250,000 to £500,000 from the end of next month. Scheme also extended until 2015. R&D tax credits for small, loss-making businesses increased from 11% to 14.5%. No fuel duty rise in September. Personal allowance increased to £10,500 from April 2015; 1% increase in higher rate threshold in 2015 to £42,285. Class 2 NICs to be merged with self-assessment.
What you said:
@RichardJMurphy - It sounds as if there are some welcome moves on avoidance – but the devil will be in the detail #budget2014
@nickknocker1 - Class 2 NICs to move to Self Assessment. About time. #Budget2014
@JONATHAN_RILE - #Budget2014 #gtbudget Tax simplification well overdue. Recommendation from OTS accepted
@accountancyEdge - AIA goes up to £500k. Not many small businesses spend £250k a year, never mind double... #Budget2014
@langbennetts - Annual Investment Allowance of £250k no longer set to expire but increases to £500,000 – a massive help to small businesses #budget2014
@CBItweets - “Doubling & extension of Annual Investment Allowance will be shot in the arm for many mid-sized firms"
@JournoSpursEmma - Income tax threshold up to £10,500. Oooh. Fair play Osborne that's a good one #Budget2014
@GlobalAccWeb - PTA will rise to £10,500 = £800 less tax paid each year #Budget2014
@lexauto_SME - Good to hear the freeze on fuel duty will remain in place, which will help businesses manage their costs #Budget2014 #SMEbudget
@ICAEW - Personal allowances for taxpayers to be aligned at £10,500 from 2015. Tax simplification will make this good news better. ^Anita #Budget2014
@LibDemBen - £10,500 tax-free threshold from next year! #Budget2014 It wouldn't have happened without the @LibDems in Government” Hear Hear!
@ConnectedRoots - And there it is folks, what we hinted at a month ago, a 30% tax break for those who invest in Soc Ents. #Budget2014
What the Chancellor announced: Extension of grants available to businesses, to increase the number of apprenticeships by 100,000. Development of graduate-level apprenticeships.
What you said:
@enforbusiness - Extend grants for smaller businesses to support 100,000 more apprentices #Budget2014
@CNKatieBarker - Doubled the number of apprenticeships – new degree level apprenticeships too. Maybe Osborne read my article on apprentices?! #Budget2014
@john_hocking - Increase in apprenticeships need to make sure these lead to skilled jobs #yorkreacts #budget2014
@The_FPB - #Budget2014 extension to AGE grants for apprenticeships, a key FPB ask for this year's Budget. Thanks!
@Alex_Kitching - FTSE only marginally down post #Budget2014
@CBItweets - Cridland: “The Budget will put wind in the sails of business investment, especially for manufacturers." #Budget2014
@IoD_press - Announcements on export finance and cut in Air Passenger Duty very welcome for UK exporters #budget2014
@FT - UK #Budget2014: Osborne is tinkering at the margins
@emmaljones - Not much good for majority of small business who are micro enterprises .. the doers & makers
The Chancellor, George Osborne, delivered his Budget Statement today. The recent decidedly spring-like weather reflects the brightening economic picture — the Office for National Statistics recently announced that UK GDP grew by 0.7% in the final quarter of 2013 and 1.8% in 2013. But should we worry that forecasts predict another cold snap?
Certainly, the optimistic outlook isn’t shared by all. The Bank of England remains cautious about the recovery, voting unanimously to hold the base rate at 0.5%. Minutes from their meeting state, "There were initial signs that the anticipated broadening from household to business spending might have already begun. Even so, there remained some way to go to ensure that the recovery was both balanced and sustainable."
With this mixed picture, The Chancellor undoubtedly had a challenge on his hands to convince businesses and the public alike that the corner has been turned. So what were his main headline announcements?
(Updated on Budget Day, 19 March)
The Chancellor of the Exchequer, George Osborne, announced the 2014 Budget on 19 March 2014.
Throughout the day, Start Up Donut covered the key points from Budget 2014 affecting small businesses:
Let us know your thoughts about the UK Budget 2014.
Budget 2014 announcements and response
What you told us you wanted from the budget
It’s not the CEOs of massive companies that are struggling, but the owners of the millions of small businesses and shops across the country. In his recent Autumn Statement, George Osborne acknowledged some of the issues that affect these small businesses, and laid down ways in which he hopes to help them.
George Osborne said in last week’s Autumn Statement, “There is one group of businesses that have found the recession especially hard – as it has coincided with a rising challenge from the internet that is only getting stronger. These are our local retailers – the shops, the pubs and the cafes that make up our high streets across Britain. With Small Business Saturday this weekend, I want the Government to do all it can to help them. We’re already changing the planning rules to help town centres compete. To get the vacant shops that blight too many town centres to open again, I am introducing a new reoccupation relief that will halve the rates for new occupants.”
His words are reassuring for many small business owners, but the question that may still be lingering in their minds is, “How does this all affect me?”
It’s clear that small businesses play a big role in the economy, and if the Autumn Statement is anything to go by, the future looks bright for SMEs. Time will tell whether the Chancellor’s promises come true, but for now, small business owners can rest assured that relief will be more available than ever. In the words of Osborne himself, “Britain’s moving; let’s keep going.”
This article was provided by 1st Contact Accounting, which gives forward-thinking individuals the tools to steer their financial affairs forward.
The Chancellor George Osborne delivered his Autumn Statement this morning against a backdrop of quietly increasing confidence. The International Monetary Fund (IMF) increased its growth forecast for the UK from 0.9% in July to 1.4% in October and the Bank of England announced in November that the UK’s economic recovery has “finally taken hold”.
Whilst the Chancellor undoubtedly has one eye on the next general election in 2015, there is still work to do to ensure the improving economic picture continues. With this balancing act in mind, the Chancellor announced:
When announcing the business rate reliefs, the Chancellor said: "There is one group of businesses that have found the recession especially hard – as it has coincided with a rising challenge from the internet that is only getting stronger. These are our local retailers – the shops, the pubs and the cafes that make up our high streets across Britain. With Small Business Saturday this weekend, I want the government to do all it can to help them.
"We’re already changing the planning rules to help town centres compete. To get the vacant shops that blight too many town centres to open again, I am introducing a new reoccupation relief that will halve the rates for new occupants."
He went on to say, "I can announce today that for the next two years every retail premise in England with a rateable value of up to £50,000 will get a discount on their business rates."
Responding to this announcement Vince McLoughlin, partner at business and tax advisory firm Russell New, said “Something had to be done with business rates and by extending the relief beyond April, this gives businesses of all shapes and sizes some breathing space in which to grow and boost local economies in 2014.”
For more on the Autumn statement, see:
To find out more about Small Business Saturday and how you can get involved, see our blog.
New tax rules introduced in April 2013 allow sole traders (ie self-employed, unincorporated businesses) to use simpler rules for recording their business expenses. So what are they and how do they make life easier?
The first new rule is that sole traders can record their costs on what is called the ‘cash basis’, which means when they are paid. For almost all sole traders, this will not be very different from what they already do, even though previous rules stated that transactions should be recorded when they are incurred rather than paid (known as ‘accruals basis’). The subtle difference is when items are bought or sold on credit or paid for at a different time.
Under the new rules, instead of recording the actual costs and expenses incurred, a flat rate amount can be claimed for certain costs. You can claim these flat rate amounts regardless of whether you decide to cash account or not.
45p a mile for the first 10,000 miles and 25p a mile thereafter. If you use a motorcycle for business, you can claim 24p a mile.
If you elect to use this method you cannot claim any other motor costs.
Instead of claiming a portion of actual expenses you can claim the following amounts:
To use the cash accounting rules your yearly turnover in a year must not exceed the vat registration threshold. You must leave this scheme when your turnover exceeds twice the VAT registration threshold.
If you opt to use cash accounting there are a couple of pitfalls to be aware of:
You can find out more about the ‘cash basis’ and ‘simplified expenses’ schemes by visiting the Tax Donut.
Running a small business can be an isolating experience for owners. They often lack people to confide in who have a sufficient understanding of their business – which is why a good accountant is so vital.
The right accountant acts as a business mentor, helping with so much more than tax strategies, business structure and the usual compliance services. In my experience, growth is best achieved if an accountant applies their skills to identify strengths and weaknesses, using the figures as building blocks to drive the business forward, tasking the owner with addressing limitations and building on assets.
But with so many accountants advertising their services, how do you select the right one for your business? The following may help to guide you in the right direction.
SMEs rarely have the advantage of large management teams with a wide range of specialisms and expertise. So, having access to suitably qualified professionals in the form of a knowledgeable and proactive accountant is essential. Someone who will keep a professional confidence and who understands a company well enough to offer constructive advice can make the difference between getting by and running a thriving and growing business.
By Carl Elsby, MD of chartered accountants Elsby & Co
There seems to be some confusion about the new Real Time Information rules (RTI) and when penalties apply. There are three situations where a fine can be imposed.
There will be no penalties if your RTI returns are submitted late for 2012 – 2013 (if you are in the pilot) or 2013 – 2014.
According to HMRC: “Penalties for inaccuracies may apply from the 2013-14 tax year. HMRC will continue to use a risk-based approach to identify employers who may be submitting incorrect returns.”
The rules here do not change with the implementation of RTI.
“HMRC will continue to use a risk-based approach to identify employers who are not complying with their payment obligations and who therefore might be liable to late payment penalties.” Full guidance from HMRC can be found here.
My advice? If you don’t think your data is accurate, don’t submit a return until it is. You won’t be fined for a late return, but will be fined if you submit inaccurate data.
Of course you will need to make sure your data is accurate and submit on time for your April 2014 payroll runs, although it’s worth noting that the last day for your RTI return for 2013-2014 is 19 May 2014.
If in any doubt about RTI contact your payroll provider or your accountant.
** After this article was published, HMRC announced a "relaxation of reporting arrangements for small businesses". According to HMRC: "Until 5 October 2013, employers with fewer than 50 employees, who find it difficult to report every payment to employees at the time of payment, may send information to HMRC by the date of their regular payroll run but no later than the end of the tax month (5th)." We’ve put together an RTI resource page that contains a handy checklist, various articles, blogs and news.
Deadlines, deadlines, deadlines! There is nothing like a good deadline to get you motivated, especially when it comes to that glorious time of year when taxes are due. Still, as we all get busy with our daily lives and other obligations, that 31 January deadline can creep up on us and leave us scrambling to complete them on time.
By mid-January an astonishing half a million people will not have filed their taxes with just two weeks left to do so. The result: many late filings and post-deadline tax returns. So, what can you expect if your tax return does not get there in time?
Okay, chances are if you file your tax return after the deadline your life will not be over with. There will be no execution mob that comes after you, but there may be something much worse – the government.
The government has not, in recent decades especially, taken lightly to the idea of missed or late tax returns. In 1992, it began to reassess the laws and provide individuals and businesses with stiffer penalties for not paying their taxes on time.
The penalties for filing your tax return late can be high. Firstly, there is an initial penalty of £100. You will then be charged £10 a day for the first three months up to the date that you submit your return, up to a maximum of £900. So, for example, if you file your tax return on the 12 February, you will incur a fine of £220 (a £100 initial penalty plus £120 for the 12 days you were late). If six months pass and you still haven’t got around to filing, you will either be fined 5% of the tax due or receive an extra £300 fine. And if a whole year goes by you will receive the same fine again. You may also be asked to pay your tax bill in full on top of all of the fines outlines above – which is something that no business wants to end up having to face.
With so many complications and filing issues, it would be better to avoid the late penalties and get on track with filing your return on time. Easier said the done! Rather than trying to take on the task all on your own, consider using the resources around you. Specifically, those in the financial fields well versed in the laws can help. Accountants are individuals who understand taxes and will be able to help you reach your end goal of filing more easily. Consider them as a great resource to avoid the penalties that late filing face.
Laura Ginn writes for www.realbusinessrescue.co.uk, a website that offers help to businesses that are in trouble.
For tips and practical advice on filing tax returns see the Tax Donut's latest blog.
Business owners take note. The self assessment deadline is fast approaching and if you haven’t filed by midnight on 31 January expect hefty fines from HMRC. Although many can take it in their stride, for the uninitiated, completing a self assessment can be a daunting affair – especially if you don’t have a head for figures.
Do a bit of research and approach your personal tax return sensibly, though (and, of course, follow our simple tips below), and you’ll have it filed in no time.
Give yourself time!
Your self assessment isn’t something you can just sit down and do in one evening. If it’s your first time, you’ll have to wait for two separate pieces of information to arrive in the post from HMRC (your Unique Taxpayer Reference number, used to identify you, and your HMRC Online Services PIN number, which gives you access to the online filing system).
Not only that, but you’ll need your previous financial years’ bank and credit card statements. Banks often make procuring these records needlessly complicated, so plan in advance to make sure you have everything you need.
A large part of filing a self assessment is just that – filing. You need to organise all your financial records sensibly, ready for entry into HMRC’s online filing system.
Categorise your records by income and expenses, and separate out revenue streams. For example, you may receive money directly through your business, but also own a rental property that nets you a few hundred quid every month. These need to be recorded separately.
Don’t rely on HMRC’s hotline
Although HMRC Online Services is full of helpful hints and tips, its self assessment hotline becomes virtually inaccessible for the last few days of January, as disorganised individuals rush to complete their tax return at the last minute.
You may be able to get through if you persist, but HMRC’s call centres shouldn’t be relied upon around personal tax season.
If in doubt – consult an expert
Those with more complicated finances may well be better off engaging an accountant to complete their self assessment. Many firms offer a one-off personal tax service for about £75, which can prove a real lifesaver if you get stuck.
Remember, you have to pay your tax on the 31 January, too
If you leave your filing to the last minute only to find out you owe HMRC thousands, that’s bad news for you and your bank balance. Filing early will allow you to find out how much tax you owe beforehand, so you can plan appropriately.
Self assessments aren’t always bad news, though. If you’ve overpaid your taxes in the last financial year you’ll be in line for a refund from HMRC and filing early means you’ll be at the head of the queue when the taxman’s purse open.
The introduction of Real Time Information (RTI) for PAYE is being billed as a positive step for all — making it easier for HMRC and employers to operate their PAYE systems. How difficult the transition will be remains to be seen but it is a significant change that every UK business needs to understand and prepare for.
Under the current system — which has remained pretty much unchanged since 1944 — employers are only required to send information about their employees' PAYE and NIC deductions at the end of the tax year. From 2013, they’ll have to do this every month — when they pay their staff. This migration process will take place between April and October 2013.
But businesses need to prepare for the change now.
Is your data accurate?
An important step, according to payroll software specialist Sage, is to make sure your records are 100% accurate. Sage provides nearly half a million employers in the UK with payroll solutions and it has been working closely with HMRC since RTI was conceived.
The wrong data about your staff, it warns, can cause inaccurate tax calculations or HMRC compliance checks.
The vast majority (80%) of data problems, according to HMRC, are concerned with inaccurate information about staff — names, dates of birth and NI numbers.
Its records show that 824 employees had the surname “unknown”, for example. 507 employees are called “A N Other” and over 2,000 have an NI number of AB123456. In addition, some 40 employees on payroll records purported to be over 200 years old!
Recording employee information for RTI
Sage has come up with a useful list of dos and don’ts to help businesses prepare:
• enter the employee’s full forename and surname
• enter a double-barrelled surname in full
• only enter an employee’s correct National Insurance number
• enter the correct date of birth in the format DD/MM/YYYY
• use “known as” names such as Bob instead of Robert or Sam instead of Samuel
• enter an initial in either the forename or surname boxes
• make up an NI number
• enter a default date of birth such as 01/01/1901
There’s more advice on data quality on the HMRC website.
Sage has produced a series of guides and webinars as well as access to training on RTI to help businesses prepare.
• After this blog was published, HMRC announced a "relaxation of reporting arrangements for small businesses". According to HMRC: "Until 5 October 2013, employers with fewer than 50 employees, who find it difficult to report every payment to employees at the time of payment, may send information to HMRC by the date of their regular payroll run but no later than the end of the tax month (5th)."
There is an ever growing number of accounting software packages available to suit businesses of any size and many that are particularly suitable for small business accounting. Making accounting easy is crucial for those running their own business, at whatever stage of development. However, should you choose to purchase accounting software from the start or is it a cost that can wait?
Generally, it’s advisable to have an accounting system in place when you start running your business. Free advice is available online from Business Link (and other sources) and it’s a good idea to make the most of such resources. Additionally, I believe it’s important to employ an accountant, if only for advice, in the early days. As your business grows, using the right system for you and taking further advice is crucial.
For the smallest of businesses a basic Excel spread-sheet is likely to be an adequate way to record your costs and income. You’ll need to know what costs can be included in this and if you are unsure, take professional advice. Setting up a spread-sheet that contains functions to calculate figures on an on-going basis will make the process simpler. If you don’t know how to do this, find someone who does. In addition to keeping the spread-sheet up to date you’ll need to create your own invoices, a Word document set up as a template is a simple way to do this. Keeping your own accounts in this way is certainly cost-effective, but is also probably the most time-consuming.
This usually comes in two types – desktop accounting software or online accounting software. Desktop packages come in the form of a CD or download that you install onto your computer. If your accounts are simple, a basic software package should be sufficient, although consider which features you will need in the future. Payroll and VAT functions may not be relevant now, but check to be sure that the package you buy can be updated with different elements as your business grows. Online accounting software is considered by many to offer more flexibility than desktop software. Accessing your accounting system via a web browser, your records and data are stored securely, which can combat any loss by theft of computer crashes, and can be accessed wherever you are or whenever you like.
Accurate record keeping is essential when it comes to small business accounting. It’s also a legal requirement (you can be fined if you fail to keep truthful and accurate financial records).
Certainly even for the smallest business, online accounting software packages can help to ensure that records are available when needed. Accounting software of both varieties will also help you to prepare simple and professional accounts for your accountant, saving them time – while saving you money. Professionally prepared accounts, invoices and reports are also well received by banks and other potential sources of funding.
Start-ups and small businesses need to ensure the records they keep are accurate and up-to-date. They also need to give serious thought to the systems they will use as part of their business planning. Preparation and accuracy in the early stages of planning and running your business will pay dividends in the future and may well be the two most important tools that will help you to establish your business.
See the Tax Donut for more information on business finance
The term “accountant” is not regulated, so anyone can call themselves an accountant regardless of their background, experience, training or professional qualifications.
Like any industry or profession, there can be cowboys or people who don’t have the ability to advise clients on all aspects of accountancy and taxation.
If the accountant gets it wrong it will be their client who ends up in trouble. This can result in HMRC imposing fines, penalties and at the very worst – a prison sentence on the client.
There are formal accounting qualifications and on gaining these, an accountant becomes qualified. Examples of qualified accountants are those that are members of recognised accountancy bodies such as:
An accountant who is a member of a recognised accounting body should adhere to rules/ standards/ethics/guidelines set by their professional body.
In addition, if they offer accounting and tax sources directly to clients, they must have gained sufficient experience to hold a “Practicing Certificate”, which is only issued by their accounting body once they have shown evidence of having the necessary experience.
Accountants holding such a Practice Certificate and providing services to clients must take out professional indemnity insurance, which gives their clients protection in the unlikely case of a complaint or litigation being brought.
Of course it may well be the case that a non-qualified accountant has the equivalent experience and insurance cover. It cannot be assumed that your accountant is qualified and you should always check.
There are many excellent qualified and non-qualified accountants around. Often an unqualified accountant is referred to by the term “QBE” (qualified by experience). The challenge lies in just how you measure the experience of a QBE accountant.
Formal training ensures that accountants have been exposed to many, if not all aspects, of accounting and taxation. While it is essential that the accountant keeps their knowledge up to date in a constantly changing space, at least they have a base knowledge.
A QBE learns by experience. If they have not experienced a particular aspect of taxation or accounting, they will not have learnt about it.
Qualified accountants who are members of a professional body must have a complaints procedure that explains what clients should do if they have an issue with their accountant.
Included in the complaints procedure will be the right for the client to complain to the relevant professional body if they aren’t happy with their accountant’s handling of their complaint.
In the event of a serious disciplinary matter, the accountant could be struck off by its professional body following a client complaint. Accountants who aren’t members of a professional body don’t need to have a complaints procedure nor is there any recourse to a professional body.
Traditionally, businesses have used a local accountant. However, businesses can now use remote/online accountants at a more affordable price.
Good remote/online accountants offer the same service and deliver the same quality as a traditional local accountant. They can be contacted, generally, by email and/or telephone when necessary.
Crucially, the credentials of remote/online accountants should be checked just as thoroughly as you would for a traditional accountant.
For a whole host of information about accounts, tax and finance, look at our Tax Donut.
We’re starting to see reminders from HM Revenue & Customs (HMRC) that the tax return season is fast approaching. So what are the key facts you need to know?
Most people who have to file a tax return do so online. It’s quicker and easier and means the deadline is later – 31 January 2012. That’s also when any tax and National Insurance will be due, whether you file online or use the paper form.
If you’re filing your tax return using a paper form, whether you’re filling that in by hand or printing it from tax software, you need to get that in to HMRC by 31 October 2011.
What if the tax year that ended on 5 April 2011 was the first one for which you have to file a tax return? You must file it by 31 January 2012 if you’re filing online, either via HMRC’s website or through commercial third-party software.
If you want to file your tax return online, you must register to do so with HMRC – and that’s a different process from registering with them as self-employed. HMRC, if you’re reading this – please could you combine these processes?
I recommend filing your tax return online. It’s quicker, kinder to the environment, and perhaps most importantly of all, commercial software and HMRC’s website will calculate your tax for you. That’s not to be sneezed at. Working out your tax, by the time you’ve included National Insurance, isn’t a walk in the park.
If this is the first year you have had to file a tax return and you haven’t yet registered with HMRC to file online, do so sooner rather than later – and not just because it’s easy to forget to do it.
HMRC have to send you an activation PIN for the online filing service. They send this by “snail mail” and this can take up to seven working days to arrive.
You have to register with HMRC and be sent an activation PIN to use even if you’re going to use commercial software to file your tax return, rather than the HMRC website.
So why not make registering a task for later this month, or November, before the Christmas rush hits? Not only will you be very busy in December, so will Royal Mail, which might mean your activation PIN might get delayed in the post.
Don’t risk being late in filing your tax return. HMRC have changed the rules so that if you do file your tax return late, you’ll pay a £100 fine, even if you don’t have any tax to pay. (Historically, the fine was limited to the amount of tax payable.) And the fines increase the longer you delay filing. You will almost certainly also have to pay interest and penalties if you pay your tax late.
Don’t give more money to Mr Osborne than you have to. Register now and file your tax return on time.
Emily Coltman ACA is Chief Accountant at FreeAgent, an online accounting system designed specifically to meet the needs of freelancers and small businesses. Try it for free at www.freeagent.com
“Buying an existing business can be less risky than creating one from scratch. If the business has customers, it has income. Risk is also easier to assess because you can calculate costs, turnover and profit – and thereby predict cashflow”
Emilie Corbille of www.daltonsbusiness.com
“If you want to form a new company, you must send Companies House your registration fee plus a memorandum of association, articles of association and a completed IN01 form, which details the company’s registered office and the names and addresses of its directors (and company secretary, if applicable)”
Andrew Millet of Wisteria Formations
“By putting away some money from your earnings each month – say, 25 per cent of your gross earnings – you should have more than enough money in the bank to take care of your tax bills”
James R McBrearty of www.taxhelp.uk.com
“Even if you believe you have an excellent idea for a business, you mustn’t allow yourself to get fooled into a false sense of optimism. Test it thoroughly by doing some basic market research. Only then can you move forward on any sound basis”
Start-up author Kevin Duncan
“You should minimise your start-up costs because then you’ll stand a better chance of surviving that crucial first year. Also, it’s a good discipline to get into from day one. In business, you must keep your costs as low as possible – and avoid buying things you don’t need”
Martin Dunne of Sayers Butterworth chartered accountants
“The old saying ‘turnover is vanity, profit sanity and cash reality’ remains true. Businesses go bust in the long term through lack of profit, but in the short term, they fail because they don’t have enough cash to pay their bills on demand. Cashflow is the lifeblood of any business”
Chartered Accountant Howard S Hackney
“Having a written contract clearly sets out the roles and responsibilities of both parties, which is helpful when it comes to monitoring the relationship’s success. It can also act as proof if a supplier’s performance falls short”
Marie Kell of Andrew Jackson solicitors
You are responsible for the health and safety of everyone affected by your business - including employees, other people working in or visiting your premises, people affected outside your premises (for example, by emissions) and anyone affected by products or services which you design, produce or supply. You are also responsible for the welfare of your employees.
“Editorial is regarded as more believable than an advert. I’ve read that it’s 50 per cent easier to sell to someone who has read positive things about your business, products or services. And such publicity is usually no cost or low cost. Even if you have to pay someone to do your PR, gaining one piece of coverage per month can be much cheaper than advertising”
Jane Lee of IT PR specialist Dexterity
“It’s low cost and therefore less risky, because there aren’t any expensive premises overheads. You can also claim for a percentage of your domestic bills, for lighting, heating, telephone calls, etc. A home office means no commute, so you save money and time, too”
Emma Jones of Enterprise Nation
Every business has different needs when it comes to using an accountant. Indeed, some may decide not to use one at all.
Only a limited company with a turnover of more than £6.5m and a balance sheet total exceeding £3.26m needs an audit – which would require an accountant. Most other businesses can do their own accounts and tax returns, if they so choose. However, running a business is hard enough without having to learn every accounting and tax rule, regulation and law.
Most businesses need their accountant to complete what we accountants call “compliance work” – basically, filing your accounts and tax returns (eg statutory accounts, annual return, VAT, Self Assessment, Corporation Tax, PAYE, etc) in correct format, ahead of deadline.
Most small businesses have very simple accounting and tax needs. Accounts usually consist of:
So how many individual transactions would this be a year? 100? 200? 500? Not too many, really. Add a free or inexpensive accounting system to your PC to record these transactions and you won’t have to face the nightmare of bags overflowing with receipts, invoices, statements, etc.
You can save a lot of money simply by doing your own bookkeeping, of course. Modern PC-based systems also grant better control of the financial side of running a business. Thanks to accounting software (or even just a basic Excel spreadsheet system), you no longer have to wait several months after the year-end to find out how your business has performed.
Keeping your accounts up to date in this way allows you to make better decisions based upon current financial data. It also allows your accountant to provide appropriate advice based upon your current trading rather than on previous accounts, which could be two years or so out of date.
Occasionally, you might need clarification on a financial or tax matter – so being able to quickly pick up the phone to ask your accountant questions can be hugely beneficial.
Accountants like to give this advice the grand title of “tax planning”. For some businesses (ie those with a high turnover or value), it’s important to have a clear and documented tax strategy. But in most cases, a tax planning strategy can be quite simple.
Your accountant should also make sure you claim all allowable costs – those that are “wholly and exclusively for business”. Many myths exist about what you can claim (eg clothes, all lunches, etc). Some seem to think that unless you hire an ‘expensive’ accountant, you won’t get the right advice on allowable costs. Utter nonsense! The advice you get depends on the accountant – there are good and bad ones – whatever price you pay!
Planning for the long term may give you a different tax plan, for example, if you intend to build up and sell your business. In addition, your circumstances could change and it may be necessary to discuss your tax plan with your accountant if, for example, you separate from your spouse, want to retire or buy property, etc.
Trying to account for “ifs, buts and maybes” in a tax strategy can make it unnecessarily complex. Taking into account events that may never happened can lead to a flawed plan, so keep things simple, based on what you know and what is likely to happen. Make sure you keep your accountant informed of any likely or forthcoming changes in your circumstances. This will help them ensure your tax plan remains valid.
There’s no need to pay fancy fees for specialist services you’d rarely, if ever, use. You can get the best of both words by making sure your accountant provides the service you need as and when you need it – at a fair price. An accountant with core trained and qualified staff, plus access to specialist services, should easily be able to do this for you.
Since 1 April 2011, the tax paid by small limited companies (Corporation Tax) is the same as the basic rate of income tax – 20 per cent. In addition, the increase in Class 4 National Insurance contributions (NICs) should prompt sole traders to review their business structures for potential tax savings.
Maybe you decided to be a sole trader because you thought it was easier. Deciding which business structure to go for isn’t always simple. There isn’t a ‘one-size-fits-all’ answer.
Your personal circumstances should determine your choice – and only you can decide.
Putting aside the misleading perception that a limited company gives you greater status or credibility then, in my opinion, there are two major issues to consider when deciding your business structure.
As a sole trader there is no distinction between you and your business. You do not need to have a separate business bank account. All the debts of the business are your debts. If the assets of the business do not cover the debts, your personal assets could be used to pay the debts – and that includes your house.
The debts of a limited company belong to the company, which is a separate legal entity. Except in cases where personal guarantees have been given, your personal assets will not be used to pay the company’s debts. Maybe this is a more attractive proposition than a sole trader or unincorporated business structure.
The second reason for a limited liability business is based on tax savings. As a sole trader you pay:
If your profits are below the personal allowance of £7,475, in all likelihood it would be better to operate as a sole trader. You will pay no income tax and will only pay a very small amount of Class 4 NICs if your profits exceed £7,225.
If you profits are below £5,315, you can also apply for an exemption to Class 2 NICs.
A limited company pays Corporation Tax at 20 per cent on its profits (up to £300,000, after which the rate rises).
Profits can be withdrawn from the company by way of a salary for the director(s) and dividends for shareholders. Again, this assumes that the directors/shareholders have no other income.
I’ll illustrate with an example… Say your business has profits of £15,000 and you have no other income.
Tax as a sole trader would be:
Total tax = £2,335. So profits after tax are £12,665.
Tax as a limited company would be:
The profit of £7,932 is distributed from the company as a dividend and no further income tax is due on the dividend, because the total income is below the higher rate threshold.
The total available after tax is the available profits + salary – Corporation Tax = £13,413. With profits of £15,000 you would be better off as a limited company to the tune of £748. If your profits are higher the savings may also increase.
Some may argue that this would be wiped out by an increase in accounting fees – I usually respond with “not if you are using CheapAccounting.co.uk”.
There may be the opportunity to sell your sole trader business to your limited company. In doing this you may realise significant tax savings. It would be inappropriate of me to give a specific example here, because savings are absolutely dependent upon your circumstances.
So my advice is to get someone to review your circumstances and work out a specific projection for you.
This week’s Budget speech was full of references to enterprise, start-ups and growth. But it remains to be seen just how much George Osborne’s budget will actually do to help small firms in the UK.
Like every Chancellor of the Exchequer, George Osborne has had to try and deliver something for everyone — and in business terms that includes local shop-keepers and high-growth technology firms, big businesses and the city.
But while there was some good news for small businesses — and lots of talk about helping entrepreneurs — many of the substantial changes look set to benefit large companies.
In fact, as Robert Peston noted in his BBC blog, this was a budget for big businesses.
First and foremost, the surprise two per cent reduction in Corporation Tax is good news for big companies. But what about the small business rate? That drops one per cent (as previously announced) to 20 per cent but there’s no extra reduction for small firms in this Budget.
The relaxation of planning restrictions will be music to the ears of some of the UK’s largest corporates such as supermarkets and construction firms. But will it really make a great deal of difference to the average small business?
George’s big moment was the announcement that fuel duty would be reduced by 1p, effective immediately. In addition, the planned inflation rise in fuel duty due in April was delayed and the annual 1p above inflation “fuel escalator” rise was scrapped until 2015.
But these gestures mostly represented a chance to grab — and make — the headlines with the clever message that this is the Budget that “fuels” growth. Do you see what they did there?
In fact, the price of petrol has gone up by 17p in the past 12 months and the price of diesel has risen by 23p. That’s the reality on the forecourt for small firms.
OK, yes we’re getting 21 new Enterprise Zones — but how these will work has yet to be revealed.
And yes, from April, there will be a moratorium exempting start-ups and all businesses employing less than ten people from new domestic regulation for the next three years. That’s just new legislation, mind.
And yes, the tax code is being simplified, with 43 tax reliefs being abolished. Call me cynical, but I would bet these are the 43 most obscure parts of the tax code — the removal of which may not radically reduce red tape for the average business.
OK, the government has agreed with the banks a 15 per cent increase in the availability of credit to small businesses. But how that translates into real lending remains to be seen. Does that mean that your business will get the lending it needs to invest in people, product development, equipment, stock — all necessary for growth.
Then there’s the merging of National Insurance and Income Tax. With NI costs rising, this sounds like a plan that could make a very real difference to SMEs. But it’s only a consultation. And the government is looking at merging the administration of NI and income tax, not necessarily fully merging the two systems. And anyway, it’s going to take ages…
Much of the talk about encouraging enterprise in the Budget was full of soundbites — tell the world, “Britain is open for business”, we are making the UK “the best place in Europe to start, finance and grow a business” and this is a “budget for making things not for making things up”.
But soundbites don’t fuel growth. And, as important as Wednesday’s Budget was, the effect of the sweeping cuts is about to be felt. With this year’s growth figures revised downwards, we’ve got a long way to go.
Rachel Miller, editor, Marketing Donut.