Keeping an eye on cash flow

  • By J ARMSDEN
  • 03 Jan, 2017
Cash is the lifeblood of a business, but with so much emphasis usually put on profitability, it can be easy to overlook this fact. Of course, the bottom line is important, but poor cash flow management can drive a growing and/or profitable company out of business.

The risk is especially great for expanding companies. For example, if billing is delayed at the same time as stock is accumulated to fulfil increased orders, you can find yourself short of the cash needed to pay suppliers and employees.

The benefits of projection:-

Cash flow projections are critical, especially in times of need, but you don’t have to wait for a crisis to benefit from good cash flow planning. A properly developed cash flow projection can help a business foresee and prepare for potential shortages. Cash flow management can also help you,

Maintain adequate cash reserves to pay bills, expand the business and invest in facilities and product development
Reduce interest costs through managed borrowing,

Increase interest income by transferring surplus funds into interest-bearing accounts
temporarily, if appropriate,

Receive discounts through bulk purchasing,

Improve relations with the bank manager,

Businesses that prepare cash flow projections often learn something about their systems, the dynamics of their business, and the process often has other positive outcomes. For example, you might discover that you need to pay more attention to certain customers, or that you can defer payments to suppliers more beneficially.
By J ARMSDEN 07 May, 2017

The new tax year which began last month and brought with it a series of useful tax-free allowances that you may not currently be aware of, including the Government’s new trading and property allowances.

Under the new trading allowance, anyone is able to earn up to £1,000 a year from a personal hobby or start-up business before income must be declared to HM Revenue & Customs (HMRC) via a self-assessment tax return.

This exemption applies to people who sell goods via online marketplaces such as eBay and also those who provide ‘casual services’ such as gardening or babysitting.

New self-employed microbusinesses can also take advantage of the new rules, but will be expected to pay income tax on their full profits once the £1,000 threshold has been exceeded.

Furthermore, under what is known as ‘rent-a-room’ relief, homeowners are now entitled to earn up to £7,500 a year from letting out furnished accommodation in their home. However, those who rent out rooms via short-term letting websites such as Airbnb could face a shock in coming months, as the Government is reportedly considering changing the rules so that such lettings are not entitled to the tax break.

Homeowners can also benefit from the new property allowance – which enables people to earn up to £1,000 tax-free by renting out the likes of driveways, parking spaces and loft storage to other people.

The property allowance also applies to Airbnb lettings, but an HMRC spokesperson has warned: “If someone is using the rent-a-room relief to let their home, they will only be able to use the new property and trading allowances for a separate source of income”.

They added: “They can use rent-a-room relief for letting out a furnished room and the new property allowance for renting out their driveway for a parking space. Or, they can use rent-a-room relief for letting out a room and the new trading allowance for doing some handyman work”.

Put simply, in order to take advantage of trading allowance, property allowance and rent-a-room relief in a single tax year, people will need to have three separate money-generating ventures.


By J ARMSDEN 21 Apr, 2017

Well, you have had an idea, you think you can turn it into a business and even better you can make a profit from it. You’re starting out small so you ask yourself, why do I need an accountant? Surely I am too small to employ the services of an accountant and they are going to cost me money, aren’t they?!

So here is something you should think about!

What business structure should I use?:

One of the most critical decisions you make at the start of your business is about the legal structure. So you don’t want to get it wrong. Your accountant can give you tailored advice depending on your individual circumstances so that you make the best decisions possible.

Legal Requirements:

You must register your business with the Inland Revenue whether it is full time, part time, profitable or not. You also need to consider whether you need to register for PAYE or VAT. If you ignore these or register late you will automatically be liable to penalties. An accountant is a good person to deal with all of that so you can get on with running your new business.

Advice:

When you start up you will soon find out that everyone is an expert on every topic. It is always good to have a second opinion. Your accountant has plenty of experience and advice they can give you. With years of experience they have seen it all before and you can benefit from their experience.

Accounting records:

Keeping proper accounting records is a legal requirement. A good accountant will take the time to understand your needs and recommend a suitable accounting system, it may be a simple spreadsheet, or a full blown accounting system like Sage. They will also take the time to make sure you understand the system and the need for the systems. Get it right and you can save a lot of time, money and trouble.

Cash flow

The most important thing about any business is cash flow. No business, no matter how large or how small, can survive without positive cash flow. You need to be in control of your cash from day one. A good accountant will explain the ways you can keep your cash flow under control.

Financial savings:

It’s true, accountants cost money, but in reality a good accountant will save you money. There are many ways a good accountant can save you money, they can help reduce your tax, VAT and even PAYE. They can also help with the commerciality or running your business from cost cutting to advising on your sales prices.

 

Many startup business owners think that an accountant will cost them money, quite the opposite, in most cases a good accountant will save  your startup business a lot of money and free up your time to concentrate on marketing and expanding your business. Many business owners see accountants as a necessary evil but a good accountant can be a real asset to your business. Take your time to find a good accountant, see more than one and make sure you ask them plenty of questions. Look after them and in return you will be well rewarded!


By J ARMSDEN 10 Apr, 2017

At Ball & Co, we appreciate how daunting it can be to start a business. We offer a fully tailored service, taking the stress out of your early months and allowing you to concentrate on growing your new company and getting your business off the ground.

Our first steps will be to advise on the best business structure for you and we will ensure that tax efficiency is at the forefront of our recommendation. We will then assist with formation of your business whether it is as a sole trader, partnership, limited liability partnership or limited company.

We will register you with HMRC for the taxes relevant to your business, from PAYE and CIS to VAT, you can be confident that you are fully compliant with all that HMRC requires of you.

Once we have set the foundations of your business you will be ready to build on them. We aim to build a solid, trusting relationship with our clients and will be pleased to offer you accounting and taxation services detailed in Our Services.

For pro-active support and assistance in getting your new business start-up off the ground, contact us to arrange a free initial meeting or discussion, with no obligation.


By J ARMSDEN 04 Apr, 2017

Many taxpayers struggle to understand the complex tax returns and complete them correctly. Furthermore, ongoing changes to tax legislation mean that taxpayers risk incurring more penalties through failing to complete their returns on time or correctly.

We aim to ease the stress often caused by self assessment burden and save you time, worry, and money by handling this process for you. We will do all the necessary computations, complete your return, and even offer advice on how you can minimise your tax liability.

We can deal directly with the HM Revenue & Customs on your behalf and, should you be selected for a self assessment enquiry, act for you at any meetings.

To find out how we can help you, please  contact us.


By J ARMSDEN 03 Apr, 2017

New National Minimum Wage (NMW) and National Living Wage (NLW) rates are set to came into effect from 1 April.

The NLW, which applies to those aged 25 and over, is set to rise from its current rate of £7.20 to £7.50 an hour, whilst the NMW rate for individuals aged between 21 and 24 will increase to £7.05 from its current rate of £6.95.

Workers aged 18 to 20 will see their hourly rate rise to £5.60 from £5.55, and the rate for those aged under 18 will rise by 5p to £4.05 from £4.00.

Apprentices stand to benefit from a 10p increase from £3.40 to £3.50 per hour.

Commenting on the wage rises, Bryan Sanderson, Chair of the Low Pay Commission (LPC), said: ‘The minimum wage increases on 1 April will bring another year of substantial pay rises for the lowest paid. The minimum wage will cover more workers than ever, and ripple effects mean that the benefits could affect people earning above the minimum as well.’

However, Mr Sanderson acknowledged that businesses may experience added pressure. He stated: ‘Accompanying pay increases, there will inevitably be pressure for employers. These are turbulent times and we will continue to monitor the situation closely.’

From April, the government will align the NMW cycle with that of the NLW. This means that any future NMW increases will occur in April of each year, instead of October.


By J ARMSDEN 30 Mar, 2017
From 6 April 2017, the new Lifetime ISA will be available to any adult under the age of 40. Individuals will be able to deposit up to £4,000 per tax year, and receive a 25% bonus from the government on any savings put into the account before their 50th birthday.

The tax-free savings and the government bonus can be put towards a deposit for a first home in the UK worth up to £450,000 at any time, from 12 months after having first saved into the account. Should an individual wish to make contributions towards their retirement, the funds, including the bonus, may be withdrawn from age 60 tax-free.

Lifetime ISA holders can also withdraw money before their 60th birthday for other purposes. However, a 25% government charge will be applied to the amount of the withdrawal, along with a 'small additional charge'.

Meanwhile, from 6 April 2017 the overall annual ISA subscription limit rises from £15,240 to £20,000. Additionally, the annual Junior ISA subscription limit will increase from £4,080 to £4,128.

An individual will only be able to pay into one Lifetime ISA each tax year, as well as a Cash ISA, a Stocks and Shares ISA and an Innovative Finance ISA.
By J ARMSDEN 26 Mar, 2017
We provide a comprehensive range of compliance services to support all aspects of business administration. We will make sure that annual accounts are prepared in the correct format, statutory books and other company secretarial records are kept up-to-date and that all statutory returns are completed. Our experienced team will relieve you of the regulatory burden and leave you more time to focus on other areas of your business.

Our range of compliance services includes:

preparation of annual accounts
preparation of monthly or quarterly management accounts
company secretarial services
payroll services
preparation of tax returns

Why not contact us for more details.
By J ARMSDEN 10 Mar, 2017
The IR will consider the whole picture but some factors can be:
• What is the client's business?
• Is there any form of contract?
• Is the contractor at financial risk in the project?
• Is the contractor working exclusively only for one client?
• Does the contractor work with their own materials on site?
• Does the contractor have to rectify work at their own expense?
• Can he or she provide substitutes to carry out the work in place of themselves?
• Is the contractor "part and parcel" of the client's organisation?
• Is the contract project based with deliverables and milestones?
• The intention of the parties
• The length of the contract
• Terms of contract – e.g. does the contractor have a notice period, the hours of work, where and how is the work carried out?
• The pay structure e.g. holiday pay, is the worker paid by the job/project or a fixed wage at a fixed time (as an employee would be);
• Are any benefits provided similar to employees (company car/van, sick pay bonuses etc.) and
• Has any Government Department (incl. the Revenue/Contributions Agency) ever provided a written status ruling in the past?

Each case is individual, so all factors must be considered to arrive at the correct status decision. It is worth noting that the Revenue questionnaire to determine status is over 80 questions in length as they will consider as many factors as possible. Do not leave the decision to the Revenue or it could be a costly exercise once additional Tax, NIC, interest and penalties are added.

The Revenue's view on the 'painting a picture' is this:

"In order to decide whether a person carries on business on his own account it is necessary to consider many different aspects of that person's work activity. This is not a mechanical exercise of running through items on a checklist to see whether they are present in, or absent from, a given situation. The object of the exercise is to paint a picture from the accumulation of detail. The overall effect can only be appreciated by standing back from the detailed picture which has been painted, by viewing it from a distance and by making an informed, considered, qualitative appreciation of the whole. It is a matter of evaluation of the overall effect, which is not necessarily the same as the sum total of the individual details. Not all details are of equal weight or importance in any given situation. The details may also vary in importance from one situation to another. The process involves painting a picture in each individual case."
By J ARMSDEN 15 Feb, 2017
If you buy a new car for your business that has CO2 emissions of no more than 75g/km, you can claim a full deduction against your business profits. There are approximately 30 cars that fall into this category, but the list is growing.

If you run your business as a limited company, the private use element is reflected in an income tax charge as a benefit. This is also based on CO2 emissions, but the tax charge is low to reflect low emissions.

If you are a sole trader or partner, the private use element is reflected simply by a reduction in the 100% tax write-off. For example, 10% private use means that 90% of the cost is tax deductible. If you reduce your self-employed activities while still owning the car (perhaps through planning a phased retirement), you can create a tax opportunity. Upon selling the car, the sale proceeds are charged to tax, as you originally obtained tax relief on the full purchase price. This charge to tax is then reduced by reference to private use on what is called a just and reasonable basis. For example, an increase in private use to 25% by the time the car is sold can result in a tax charge on only 75% of the proceeds, rather than the 90% you might have thought.
By J ARMSDEN 12 Feb, 2017


Purchasing a vehicle personally

Regardless of the method used to purchase the vehicle, the initial cost or finance costs are not tax deductible when you acquire a vehicle personally. Additionally you will not be able to claim tax relief on running costs such as road tax, insurance, fuel and servicing.

You are entitled to claim a tax-free allowance from your company for any qualifying business mileage. The mileage rates below are calculated to include all costs associated with the vehicle, including purchase and running costs.

For a car or van you can charge your company a reimbursement expense of 45p a mile for the first 10,000 business miles that you travel in each tax year and 25p per business mile thereafter. These are the HMRC approved rates and are not subject to Personal Tax. The limited company claims Corporation Tax relief on the amounts reimbursed.

As an example, for a journey of 100 business miles the limited company pays you 100 x 45p = £45. You pay no tax on this and the limited company’s taxable profit is reduced by £45. At the current rate of CorporationTax this results in a saving of £9.

When calculating whether you have exceeded 10,000 business miles, therefore having to use the 25p rate, you need to look at the business mileage done in the 12 months from 6 April to 5 April of each year. The mileage clock starts again at 6 April each year.

The mileage rate for a motorcycle is 24p per mile for all business miles travelled.

If the limited company pays more than the approved mileage rates as shown above, tax and NI will need to paid on the excess as this will be classed as income. Only excess mileage paid will be shown on the form P11D with the relevant tax due being calculated on the preparation of your tax return.

Purchasing a car through your limited company

The tax treatment of the purchase costs depends on how the vehicle is financed. If a loan is taken out to purchase the vehicle or the vehicle is purchased on Hire Purchase, only the interest payments are an allowable company expense. Your company is also able to claim Capital Allowance to gain relief for the cost of the vehicle , which reduce the company’s taxable profit.

The Capital Allowance available for cars is dependent on the CO2 emission levels for 2016/17 as follows (see section below for vans):

Vehicles with CO2 emissions of 130g/km or below are entitled to an annual 18% allowance.
Vehicles with CO2 emissions above 130g/km are entitled to an annual 8% allowance.

First Year Allowances for electric cars are available at 100% if CO2 emissions are 75g/km or lower.
If the vehicle is leased so your limited company does not own it, the monthly lease payments can be claimed by your limited company as a business expense. However, there is a flat rate disallowance of 15% of relevant payments and applies only to cars with CO2 emissions above 130g/km. This means 15% of the expense is not allowable for tax purposes.

Your limited company will also pay for the running costs of the vehicle such as insurance and tax . These will be deductible expenses for Corporation Tax Regardless of how the vehicle is purchased the use, or availability to use the vehicle, will create a taxable Benefit in Kind on you as an individual. This is calculated as a percentage of the market list price of the car, based on the CO2 emissions. The list price is calculated as the market list price of the car when new, not the price you pay for the car, together with any extras added to the car. Some dealers sell new cars for less than the nationally recognised list price so you should be aware of this when making the purchase.

There will be an additional taxable Benefit in Kind if your limited company pays for your private fuel costs. This is calculated as £22,200 x Percentage used to calculate the taxable benefit of the car for which the fuel is provided. The charge does not apply to certain environmentally friendly cars.

Your limited company must then pay additional National Insurance on these benefits at a rate of 13.8% for 2016/17 and 2015/16 and a P11D form must be completed. This discloses the car details and the value of the benefit(s). Taxable benefits are treated as income and are therefore included in your total earnings for the tax year. In most instances this can mean that you are paying tax at 40% on benefits you receive if you are a higher rate taxpayer.
Purchasing a van through your limited company

Vans are classified as plant and machinery for tax purposes. As such they qualify for 100% allowances under the Annual Investment Allowance regime. This means you get a deduction for 100% of the cost to reduce your company’s taxable profits.

The assessable van benefit if it is used regularly for private use is £3,150 and the relevant fuel benefit is £594 for 2015/16. For 2016/17 the van benefit is £3,170 and the van fuel benefit £598. The van benefit exemption for zero emission vans has now been phased out and represents 20% of the van benefit charge for 2015/16 and 2016/17. Where there is an “insignificant” level of private use HMRC acknowledge that there is no benefit arising and these amounts do not apply.
Insignificant private use would be classed as, for example, calling at the dentist on the way home from an assignment. Using a van to do the weekly shopping would not qualify as insignificant private use. If there is an insignificant level of private use clearly there are substantial tax benefits in utilising a company van compared to a vehicle with high CO2 emissions.
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