Accounting Software

This is a question that comes up time and time again, and it depends on what you want out of your system, or out of your business.


Choices are vast, from Sage, Xero, FreeAgent, Quickbooks, Clearbooks, Kashflow, Freshbooks or even just the humble excel file. It is often a personal preference and you could try them all. Some need more set up than others, some you can invite an accountant to monitor what goes one, and some will supposedly hook into the HMRC tax return system (i’ve not tried this).

Ask business colleagues that you trust what they use, how they use it and how they find it. My preferences are Excel, Clearbooks or Xero. For startups, I recommend excel, for people that want something a bit more professional to send invoices and the such, then Clearbooks, but for ability to integrate to other software like a CRM system, bank feeds, scanning systems – then I would recommend Xero in one form or another. We use Xero here at Performance Accountancy. Of course there are times I could have thrown it out the window, and there are things I am still discovering, but it is work the upfront effort somebody needs to put in.

Yes, Children Do Pay Tax

Stars Word On Stage Means Famous People Like Celebrities Divas And Superstars

I get asked a lot by parents whose children work in the theatre or in films about whether the children are supposed to pay tax, and what happens about the costs the parent spend in order to get tax relief for these costs wholly & exclusively incurred.

There is a common misconception that children don’t have to pay tax on earnings and therefore tax returns are not done. Unfortunately, this is not the case, and the taxman wants to get his fair share of the child’s earnings.

Everybody needs to pay tax, no matter their age, and like adults, children have the same personal allowance. Normally children don’t work or if they do the pay is low so would not reach the personal allowance. People under 16 don’t pay national insurance so when you add the two together, it comes up with the idea that children don’t pay tax.

A child actor / model / performer effectively is their own business so the guidelines of keeping records showing income and expenditure need to be kept, and the records need to show that the payment was made to the child. If the child is under the personal allowance for all taxable income, there is no need to pay tax, but as soon as it’s likely to go above the personal allowance, then the child will need to be registered with HMRC in order to do a tax return. Once the child turns 16, national insurance kicks in, class 2 and 4 will need to be paid, so registration will have to be done. OK – so the budget of 2016 says class 2 will be disposed of for everybody – but they will find something else.

 

Whilst we are talking about children, if a parent gives a child money and that money earns more than £100 before tax in interest, then the whole amount (not just the amount over £100) is deemed to be the parent’s income. The parent will be taxed on it. This limit is just for parents and not other family members. If the £100 limit is likely to be breeched, then you may want to consider a tax free investment like a tax free Junior ISA. Always speak to a financial adviser about investments.

 

 

 

Always speak to an accountant or financial adviser before taking any action.

So what if you have poor business processes?

business hand hold light bulb and business process

Sometimes it can be an uphill struggle to get owners of growing businesses to understand the need for sturdy & documented business processes to not only help when things need to get done but also when things go wrong and need to be corrected.

The definition of the word “process” according to the Cambridge dictionary is “a ​series of ​actions that you take in ​order to ​achieve a ​result”. A business process is a group of activities that convert inputs to outputs by using an organisation’s resources. A breakdown somewhere in the process can have serious implication for a business.

For example: You can purchase a great product from a company that you love to use, but if the customer support from the company was poor, you would be reluctant to buy again from them. The company concerned are then always struggling to find new customers rather than nurture the ones they have. Effort and money are likely to be put to the marketing and sales activities without addressing the real issue of support.  Process implementation and improvement can then result in direct savings but also improves the image of the business in the customers’ eyes. That can lead to recommendations, referrals and repeat business.

If you focus on growth as a goal and that’s all you want to do, then you’ll probably be changing your business processes and systems to cope with it. It becomes easy to cut corners to push that growth through, but there are not steps in place to make sure it is effective and efficient, and the back office processes can cope with the growth. Rapid growth can lead to great PR and with companies riding that wave, they fail to look internally to see what rot may be setting in. Throwing people at a system & process issue does not solve the problem, just covers it up and then just gets bigger over time as the business grows.

There are several symptoms of inefficient business processes and implementation:

  • Lack of standard processes to address business requirements and improvements needed;
  • Business expectations may be unmet;
  • Poorly implemented business processes can result in a lack of effective training to new employees or subcontractors and therefore leads to longer time for staff to be useful to the business;
  • Challenges faced may be dealt with in different ways rather than in an agreed pre-defined method;
  • The organisation becomes very reactive and developing processes on the fly to deal with issues faced with there and then, rather than creating proactive processes to deal with issues before they come about;
  • No method of continuous process improvement to maintain business needs. Often they are set in stone but never reviewed months/years down the road.

There is a soft metric of poor processes, and that is the one of staff morale. A poor process can really zap the energy of your people as when they are energised and engaged, they feel that there is nothing they can’t do. If they are disengaged, then everything that needs to be done will be a struggle, and that leads to high staff turnover. It may be customer service systems as talked about before, or simple things like the time taken to pay an employee’s expenses. If they feel like they have to fight to get their money, they are less likely to incur future cost and a feeling of resentment kicks it. It will not be a productive place to work.

Clunky, ineffective processes frustrate your employees & customers and gives the impression you really don’t care about them.

Sometimes it’s all about flow and things just work:

  • A team firing on all cylinders
  • Where people, processes and technology all seem to slip into place and make everything seem effortlessthree_custom_gears_13895

What has to be remembered is that when a process is designed around people that use it, or are affected by it, then it’s more likely to achieve flow for the business. Having it designed round a whiteboard by people who have no direct input to the process, then it’s likely to fail.

There are three interrupters to flow:

Friction:

  • Too many steps in the process;
  • Too much manual intervention or too much paper;
  • Major bottlenecks & delays;
  • Recurring errors;
  • End user frustration;
  • Customer or stakeholder complaints.

Noise: – often known as data overload

  • Slow decision making that often comes too late;
  • Inaccurate decisions based on bad data;
  • Complex reports that people can’t understand therefore don’t use;
  • Excessive meetings interrupting the day;
  • Data silos
  • Lack of visibility into critical factors;
  • Unable to take a holistic view and join the dots.

Drag: – This is the dead weight

  • Managers spend too little time on critical tasks
  • Admin costs spiral
  • Performance suffers in important but non-core areas of the business
  • Bottlenecks slowing the processes
  • Experts spending time on housekeeping tasks

 

Time and resource is needed in a business to document out what is supposed to happen for its key processes and to try and mitigate the flow interrupters. We will be holding a webinar that covers what a business can do to start the documentation process and buy in in order to help the business get on an even keel with happy staff and with the aim for growth. Contact Louise for further details.

 

Louise Herrington

Business Process Expert at Performance Process

Tel: 01344 834258

Email: [email protected]

Is Your Clutter Clearance Taxable?

I’ve done it myself – got rid of items (mainly clothes) that I no longer fit into in order to Sell Keys On Monitor Showing Online Marketingdeclutter the wardrobe, garage, loft and other hiding places for this stuff. I could spend a week doing it – no, maybe a month. I’m then left with what am I going to do with it all so I turn to eBay to get something out of my investment. Would I consider it a business – nope, not at all. Would I declare it on my tax return? No as it’s not a business and just a sale of personal property.

 

But HMRC have been looking at the online marketplaces such as Amazon, Gumtree, eBay, Itsy, Music Magpie, Pre-loved and have used their extended powers in order to obtain user information as they are looking for traders suspected of running a business selling via these routes and looking for undeclared income on self-assessment.

 

This then brings up the question of when does a seller become a business or online trader?  The only guidance we are given is in BIM20205 (and others in the same number range) which talks about the badges of trade. These determine if something is of a hobby or personal use, or a business. These are:

  • Profit seeking motive – do you intend to make a profit;
  • The number of transactions – if they are systematic & repeated, then that is likely to be a trade;
  • Are there similar transactions outside online trade – do you have an existing trade that is sold in the traditional way therefore online activity is just a new route to market;
  • Interval of time between purchase and sale – this implies the purchase or resale processes
  • Amount of time dedicated to these activities;
  • Method of acquisition – if acquired by inheritance or gifts, then the sale is not likely to be a trade.

 

It is possible that something starts off as a hobby but after a while can turn into a business. When it turns into a business using the badges of trade assumptions above, then that is when the business needs to be registered with HMRC as a sole trader. It’s best to use an example here:

Sally works as a hotel receptionist and pays PAYE on this employment. In her spare time, she makes blankets for the elderly and occasional sells them when completed to friends and work colleagues for an amount that just about covers her costs, although sometimes not. Any money that comes in goes towards her holiday pot.

She then decides that the holiday pot was not growing fast enough to get to her holiday in Malta, so in order to get extra cash, she starts to sell online via an auction site and the initial experiment produces £30 profit per sale. Spurred on by this, she then buys materials and within a month is selling 10 to 15 a month all at a profit. It starts to get to the stage that she wants her own website to advertise her blankets and maybe take special orders.

The tax implication then is that the initial sale of blankets would not be considered as a trade as it was a few sales to friends and lacked commerciality therefore just a hobby. Once the blankets entered the auction state and materials being purchased to turn into the final product to sell at a profit, then commerciality begins. That is when Sally should have registered with a self-employed business.

 

The result then is the sale of personal items to clear clutter of unwanted goods etc. is not considered a trade unless several of the badges can be identified. Once those can be proved, you must register with HMRC (https://www.gov.uk/new-business-register-for-tax) as a business. It’s easier than you think, but if you need help, get in touch with us.

Right – must put in my calendar which month to declutter the house.

 

 

 

 

If you find this blog interesting / useful, please share with others

Always talk to your accountant before acting on any advice. If you’d like to talk to us about your accounting requirements, please complete the contact form     http://performanceaccountancy.co.uk/contact-us/ and we’ll get in touch

 

THE STING IN THE TAIL – You Will Be Paying Tax Each Month

Jelly fishNow for most people this is no different to what they normally do and if you are a PAYE only employee or self-employed, then this won’t be relevant to you now. BUT, if you are a Company Director/Shareholder (or plan to be), then this will affect you.

 

Dividend Tax – yawn yawn, it’s been mentioned all over the place by many accountants and observers that from 6th April 2016, you will get a £5,000 tax free allowance for dividends in the year, and any dividends after that will be taxed at 7.5% if you are a basic tax payer, 32.5% if you are a higher tax payer, and 38.1% if you are an additional tax payer.

 

That’s fine if you only own a few investments, but if you are a director/shareholder of your own company it can hit you hard.  It is likely that you’ll only be paying yourself a small amount of salary, maybe enough to get your national insurance credit, but not to pay NI or PAYE. Let’s say this is £8,000 as I like easy numbers. You have your personal tax allowance of £11,000 for the year, so you still have £3,000 of available allowance. Woo Hoo. At the moment, it appears that the first £3000 of dividends will be covered by the personal allowance and then you get the £5000 dividend allowance. So assuming you have no other income anywhere (I am ignoring the savings allowance), then you can have £8000 of salary and £8000 of dividends before tax is paid. Over £8000 of dividends  will be taxed at 7.5% etc. per the above.

 

A better example for those that have a bit more dividend income:

 

New rules of 2016/2017 Old rules if applied to 2016/2017
tax paid tax paid
Salary of £8000 0 Salary of £8000 0
Dividend paid of £50000 Dividend paid of £50000 = value £55,555
 – £3000 covered by personal allowance 0  – £32000 @ 10% 3,200
 – £5000 covered by dividend allowance 0  – £23555 @ 32.5% 7,655
 – £27000 taxed at 7.5% 2,025 Less dividend credit -5,555
 – £15000 taxed at 32.5% 4,875
Total tax to pay 6,900 Total tax to pay 5,300

The upshot here is you pay £1,600 more tax that you would have done.

 

If that is not bad enough, HMRC do not want to wait until January 2018 deadline for self-assessment to get their hands on the money. They have decided to change the PAYE code in order to get some of the tax from you each month. This will be seen as a line called “dividend tax” on your P2 coding notice.

 

In all the illustrations I have read, it only talks about basic rate tax payers, but the change will also be put through for higher rate payers which in theory will produce a negative tax code. Some say it’s fairer and will put director/shareholders in the same position as PAYE employees in paying tax monthly, but where the issue does come up is if you have had a bumper year and paid a lot of dividends in the year, your tax code will be based on that year. If things are not so good, you’ll be paying tax on money not received. .You could think of it as a savings plan, or you could appeal the notice of coding my calling HMRC or completing their on-line form found here >>>> (https://online.hmrc.gov.uk/shortforms/form/P2) <<<< and you can enter all your expected income and benefits for 2016/17 including expected dividend receipts.

 

 

 

If you find this blog interesting / useful, please share with others

Always talk to your accountant before acting on any advice. If you’d like to talk to us about your accounting requirements, please complete the contact form http://performanceaccountancy.co.uk/contact-us/ and we’ll get in touch.

 

 

 

 

 

VAT and Pre-Trading Expenses

Are you aware of the view change ?

Time For A RethinkOK – so this is not the most exciting topic ever, but one to know about.

Your business must be registered for VAT when your rolling 12 month turnover reaches £82,000 although you should register if you believe your rolling 12 month turnover will go over that threshold.

When you first register your business for VAT purposes, you can claim back the VAT on goods acquired within the previous four years as long as the items were used in the business and you still have them as working assets (or stock) in the business. The same rule applies to service but in the previous six months if the services were still ongoing at the time of VAT registration and the service was not fully consumed at the date of registration.  The VAT cost could then be reclaimed on the first VAT return (standard and flat rate scheme). Depending on the business, this would make a nice cash flow injection. This is all in VAT Regulations SI 1995/2518, reg 111 if you want to check it out.Character Thinking Shows Thought And Doubt

But, the VAT man has now changed his view on how much VAT can be reclaimed – OK so they changed their view in 2011, but it’s not really been publicised. For assets, the value of the asset would need to be written down in relation to its usage, and then claim the proportional VAT on that VAT

Let’s say you purchased £10,200 (includes £1700 of VAT) of printing equipment back in October 2013 and you’d expect a 7 year life from those assets. You registered for VAT in October 2015 so you have had 2 years use out of 7 of the assets. In the old days you would have claimed all the £1700 of VAT, but now, you would only be able to claim 5/7ths of it so a reclaim of £1214 can be made on the first VAT return.

It is only a change of view and not written down in VAT notices, indeed the government website still talks about reclaiming all the VAT cost. I guess it depends on your VAT inspector. But forewarned is forearmed, so just be aware of this for when you may register for VAT.

 

If you find this blog interesting / useful, please share with others and if you think this is going to affect you, then contact us for help. 01344 669084

 

 

 

 

 

 

 

 

Mixing & blending to get the right consistency

Getting the Processes Together

chef_team_standing_strong_800_clr_16151Over the Christmas period, I was playing “catch up” on the previous four weeks of Masterchef Australia as I love the format they have there, and the banter that comes with the judges. One of the challenges was trying to blend some obscure flavours together that came from historic Australian ingredients. One of them was black sugar ants !

Watching them mix and match (and many used the ants) reminded me of my corporate days when I was working in part of the airline & airport industry. Two companies had joined forces as they provided ancillary services in the bowels at London Heathrow, and the only thing they had in common was that they were people driven and serviced the end passengers through the airlines. Part of my role was to get the two businesses working together using the same systems & processes with shared resources and the same backing systems.

pilot_standing_in_front_of_airplane_800_clr_12991It all started with looking at what worked well within both companies, where there were holes in working practices and how they would like to work in the ideal world. Part of it involved a change of culture especially as a couple of other players came into the market to compete with their services. Their services had to be carried out on time and with the satisfaction of the customer – with flexibility for when flights come in late or early or when there was a stacking of planes when schedules change.

Documentation of working processes was the major task to be tackled. One of the companies had the bare bones of a manual that they kind of followed, but the other was built on a haphazard approach to business.  By getting people round the table to discuss how things currently work & how they should work, documenting it all in detail, and then obtaining agreement from all parties, it helped to ensure process were followed the same way across the business, irrespective of which terminal they were in or which line manager was on duty. The process manual became the guide for training new members of staff so they could hit the ground running. The result was a workforce that could happily cross over between the merged companies and be placed to carry out the service that was required of them.

The haphazard mentality also carried through to the financial systems and processes with everything having to be started from scratch. With solid operational foundations, financial systems & processes could be built to guide people through their numbers and know effects of missed calls, additional work load from aircrafts and hence the disparate ingredients all blended together as one complete dish. I won’t say perfect dish as everything need refining and tweaking initially – but knowing when to stop is another skill to make sure your dish does not get burnt.

 

Performance Process

Making processes work for you

01344 834 258

January Tax Blues – 01344 834 260

[countdown]

It’s that time of year when the tax adverts are shown more often on the TV exclaiming that “tax does not have to be taxing”. For most people though, it is, especially if you have not been organised during the year and are now racking your brains trying to remember what you did 18 months ago, and digging round the back of the sofa searching for receipts. You look in the expanding file where you promised to put all your receipts and it is decidedly empty. Last years resolution went to pot quite quickly!

There are many reasons why you may need to complete a self-assessment tax return, but the main groups of people are*:

  • the self employed;  Help Ponit 1
  • people that earn money from property;
  • a director of a company – unless no income or benefits were received;
  • those that claim child benefit and they (or their partner) earn more than £50K;
  • people that earn over £100K.

Notices would have been sent by HMRC April 2015 for you to complete a tax return, although if you didn’t inform them of any new income, then they won’t have known to issue you a return – catch 22 situation.

The paper return should have been in to HMRC by the 31st October, but the online version has a deadline of 31st January. The good thing about the online version is that it automatically calculates the amount of money you owe, or indeed are owed. There are help markers and worksheets for any questions, plus HMRC are rolling out an online chat service if you hoover on the page long enough. If you miss the 31st January deadline, then late penalties kick in on the 1st February, and delay too long and you could face penalties of up to £1,600.

Of course you need to be registered with HMRC in order to deliver an online tax return. If you have not done so, then you can find out how to do it  >>> here  <<< . Beware, this is the first stage of the process, as HMRC send you an activation code in the post which you need to allow 10 working days to receive it.

Already Registered?

Should you already be registered for taxes and have a unique tax reference number (UTR), then it’s just a case of pulling all the data together and completing the form. Often this is where the fear kicks in that you may “do something wrong”. However, help is at hand and it’s not too late to ask for help.

We’ve managed to add some more capacity for January, so if you have your UTR and your bookkeeping records and need to get your return submitted on time, then contact us before the 18th January and we can probably do it for you. Should you need your bookkeeping done as well, then we need it all before the 14th January.

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A word of warning: You need to ensure you have given yourself and your accountant enough time to gather all the information required for your tax return and complete the return appropriately, plus the review and submission. We do as much as we can electronically and have checklists in place to help gather information so scream if you need them when coming on board.

 

 

 

*this is not a complete list but just an example

 

That P11D Time Of The Year

woman_puzzled_7863Do you get the sinking feeling that you need to go through your accounts for the previous tax year and work out what expenses & benefits you have paid/given your staff or yourself? You heart sinks and you wish you’d sorted out that dispensation during the year as you were recommended. Woo hoo – it is only for staff that get paid over £8,500 so you are in the clear.  Well, not just yet.

The £8,500 is for their salary/wages plus the value of benefits. BUT – all directors need to complete one even if they are below the threshold. BooHoo. There is a get out on that one – more below.

There is a deadline of course – 6th July is when they have to be in to HMRC for each person they are needed for.  If they are not received by the 19th July, then a penalty will be incurred. These are £100 per 50 employees for each month or part month that the return is outstanding. So if it is just yourself and one other, that’s still £100 per month.

Once the P11D has been received, the employee will have their tax code changed for these amounts, and of course you as an employer will need to pay class 1A national insurance on the benefits given by the 22nd July (19th July if by cheque). Makes you wonder if it’s worth giving staff benefits.

So what is a P11D?

A P11D is a statutory form required by HMRC from all UK based employers, and directors of companies, detailing the value of expenses paid to employees and themselves and the cash equivalent of certain benefits during the tax year.

As mentioned above, for employees, they have to earn over £8,500 including benefits to be caught by the P11D process.  For those who have benefits & salary of less than £8,500, then there is a form P9D. All directors if they receive benefits & expenses must complete a P11D no matter what their salary is.

Common Examples of reportable items:

  • Employment benefits such as health insurance, dental insurance, gym membership
  • Car & fuel benefits
  • Reimbursed expenses
  • Business entertainment expenses
  • Directors beneficial loan

P11D screenshot

What do I include?

The heading information for each person is bulk standard:

  • Employers name & reference number
  • Employees name
  • Employers national insurance number
  • Employees date of birth and gender
  • The tick box if a director

From your accounting records, you should be able to complete the rest of the information. Some of it can come from service providers such as your health care provider can give you a statement for benefit for the tax year; a car leasing company (if that is how you finance a car) can give the list price and things like the engine size & CO2 emissions.

The 2014/15 form can be found here:   http://bit.ly/P11D-2015

 

You mentioned Class 1A National Insurance. What do I do there?

There is something called a P11D(b). This is a summary of all your P11Ds that you have completed and with a bit of jiggling with it, you get to see how much national insurance you have to pay on these benefits. The P11D(b) only applies if you have more than one P11D to submit.

The basic process for the P11D(B) is:

  1. Enter the total value of expenses & benefits provided for the year
  2. Adjust the total for all those expenses & benefits that do not attract a Class 1A payment
  3. Calculate the 1A amount
  4. And complete the declaration at http://bit.ly/P11D-b-2015

 

I can hear you – “but I don’t know what is removable and what remains”. There is a useful guide to what attracts a class 1A charge. This can be found here: http://bit.ly/P11D-2015-Guide, but if you look at the P11D form you are completing, it has a gold 1A at the side of it which indicates that you need to pay NI on these items.

The price you have to pay on benefits that are deemed class 1A’able is 13.8%

The directors get-out

If you are a director or a company, have not received benefits & expenses, and have not previously had to complete a P11D, then you do not need to submit a Nill return.

If you are a director that has done a P11D before but now has a dispensation, then assuming all your expenses and benefits are covered by the dispensation, then you don’t need to complete a P11D.

Some payroll systems have a year end filing report and you can tick the box for no P11D’s but some software doesn’t. Ask your payroll provider if you have one.

 

Conclusion

I always get professionals to do payroll as there are so many little slip ups that will cost me money.  It may seem expensive, but I’d rather have the right boxes ticked and submitted on time, than make a hash of it and have the HMRC wrath on me. If you are late by 1 day, you can get a £100 fine, 4 months late is £400. Seems daft if you can avoid it.

You may also consider getting a dispensation for the expenses site o f the P11D although that is all changing from 5th April 2016.

For more information on Expenses and Benefits, please go to >>>this page<<<.

 

 

 

Always talk to your accountant before acting on any advice. If you’d like to talk to us about your accounting requirements, please complete the contact form http://performanceaccountancy.co.uk/contact-us/ and we’ll get in touch.

 

 

 

 

 

 

 

 

New Introductory Training Course

URGG – Accounts & Tax

Most small businesses who fail within the first year do so because they  have struggled to understand the financialIts a long way off ! basics. The end result within your business journey can seem so far away and can make you feel like you are walking though miles of mud or quicksand.

As the owner of a new venture your financial responsibilities in setting up and growing  your business, whether a sole trader or a company, can feel overwhelming and leave you feeling confused.

To help you on your journey to success, Performance Accountancy has created a small business accounting course that will provide you with the knowledge to understand your accounting and tax responsibilities and remain compliant with HMRC and companies house.

The value of this essential training workshop, will help you as the owner of a growing business avoid fines, penalties and cashflow woes which can bleed your business dry in no time.

Please watch the video below, which will provide you with more information regarding the course for owners of growing businesses and help you decide that the training is right for your needs.

Ensure your start-up business grows and flourishes, book your place on our course, now. 

 

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