This week I have a Guest Blog by Helen Steel of Streamlion Consulting Ltd, giving great advice on obtaining funding for your business.  Contact Helen for more advice or assistance.  (https://www.streamlionconsulting.com)

“I heard on the radio this morning that this is the time in January when most employees sit back and reevaluate their jobs. The excesses of Christmas and New Year are behind them. Any New Year’s resolutions are in full force or have already been binned! Thoughts they had over Xmas of “my job’s not that bad” or “I can stick this out for another year” have proved to be just as undoable as the New Years resolutions! Why not make a change! If you’ve always dreamed of running your own business and have a good idea, why not go for it? What is holding your back?

Well, if it’s money, there are some excellent start-up loan schemes that offer unsecured funding to entrepreneurs who meet certain qualifying criteria. These loans are just what you need to get up and running and the scheme has been created to give you the cash needed to sort out the first few months of your business trading. I am a business advisor for Transmit Start-Ups (https://transmitstartups.co.uk), now the number one provider of start-up loans in the country and I can honestly say that they have your back. This is a government scheme so there are certain processes to follow but I have had loans approved amazingly quickly for entrepreneurs eager to get out there to start making money! With interest rates of 6% and max lending of £25,000 per eligible director, it’s a great place to start.

There are other lending routes available if your business has been trading for more than 2 years or you just need a larger loan. Some of the banks offer unsecured lending themselves or through the EFG scheme. Knowyourmoney (https://www.knowyourmoney.co.uk/business-loans) has a great list of approachable lenders, some of whom will lend up to £1.2 million per year. I’ve recently been working with NatWest who have been very supportive of local entrepreneurs.

Another lending route is via “Angel” investment. Over the last few years, I have put together a portfolio of go-to private investors who will invest for an equity stake in a fast growing new venture. This is a bit like “Dragons Den” and I love working with the entrepreneurs to develop slick and professional business plans and investors deck to attract the best investor for their business. Investors can bring money and mentoring advice if wanted. Again, loan amounts vary but seed capital can be raised from either one investor or a number of smaller contributors.

Lastly there are traditional lending routes via your bank. These loans tend to be secured and you will need at least one year of company financial statements, possibly two. Interest rates tend to be slightly higher (around 9.3%) but there are always many options to chose from.

So, if you are having those “it’s now or never” or “I’ve got to give it a go” thoughts, act on your impulses and start your own business. I have yet to come across an entrepreneur who regrets making the break, but I have chatted to many who wished they had done it sooner!”

Helen Steel, MD for Streamlion Consulting Ltd (https://www.streamlionconsulting.com)

One of the most common questions I get from sole traders is about allocating a cost to the business for working from home, especially this year when so many of us have spent a lot of time working from home.

If you are in a panic trying to get your tax return done before the end of January, you might forget to include a cost for this in your accounts, but this would result in you paying more tax than necessary – so take 5 minutes and think about what you might be able to claim.

If you are self-employed and work at least partly from home then you are entitled to include part of the running costs of your home in your accounts.  But how much is a reasonable amount?

You have 2 options as to how to work out how much you can claim.

1  Flat Rate Method

If your sales are under the VAT threshold (currently £85,000) and you are self-employed then you can use this method. You simply work out how many hours a month you spend on average running your business from home and then include a fixed amount in your accounts, as follows:

25-50 hours: £10 per month

51-100 hours: £18 per month

101 hours or more: £26 per month

The flat rate covers the running costs of your home; you can also claim a proportion of the fixed costs and your phone/broadband as per option 2.

2  Actual Costs

 This method requires a little more effort, but it may give you a higher figure and therefore save you more tax.  Under this method, you need to apportion the running costs of your home on a “fair and reasonable” basis between those that are personal and those that relate to the business.

This is usually done by reference to the number of rooms you have in your house and the amount of time you use them for business.  There is no laid out formula though and therefore how you allocate costs will vary from business to business.  Keep any workings you have done so you can back up your figures to HMRC if necessary.

The costs you can actually claim can be spilt into fixed costs, running costs and phone/broadband.

Fixed Costs

• Mortgage interest (not capital) or rent
• Council tax
• Insurance
• Water rates

Running costs

• Electricity
• Gas
• Repairs and maintenance
• Cleaning

For example, assume you work from your sitting room 8 hours per day 4 days per week.  Your total fixed costs are £6,600 per year and your running costs £1,500.  You have 6 rooms in your house. A reasonable allocation of the fixed costs would be £6600 x 1/6 x 4/7 x 8/24 = £210.

An allocation of the running costs could be £1500 x 1/6 x 4/7 x 8/12 (as gas etc not used during the night) = £96

The phone and broadband is claimed on a usage basis only, so if you use your internet 50% business, 50% private you can claim 50% of the cost, including line rental.

If a property repair works solely to the area that you use for business, you can include the full cost in your accounts – for example, your office roof needs repairing.  If the repair is to the whole house – then claim in proportion as above.

So claiming costs of working from home is not as simple as it sounds.  The flat rate method will give you a quick answer, but the actual costs option may give you a higher figure.  If you need any further help then please contact Rosie Forsyth at Wilkins & Co.

Note – these rules only apply to the self-employed and not to owners of limited companies.

Do you need to file a tax return this year?

The tax year runs from 6 April to 5 April, and tax returns for last year (that’s 6 April 2020 to 5 April 2021) are due to be filed by 31 January 2022.  There has been no extension to the filing deadline as there was last year.

If you meet any of the following criteria – then YES you do need to file a tax return.

• You were self-employed at any point between 6 April 2020 and 5 April 2021 and your income from this was more than £1,000
• you received more than £2,500 from renting out property
• you received more than £2,500 in other untaxed income, for example from tips or commission
• your income from savings or investments was £10,000 or more before tax
• your income from dividends from shares was over £2,000
• you made profits from selling assets eg shares or a second home
• you were a company director and received income that needs to be declared
• your income (or your partner’s) was over £50,000 and one of you claimed child benefit
• your taxable income was over £100,000

You also need to send a tax return if you:

• need to prove you’re self-employed, for example to claim Tax-Free Childcare or claim Maternity Allowance
• want to make voluntary Class 2 National Insurance payments to help you qualify for state benefits

To file a tax return, you need to have first registered with HMRC.  You should have done this by 5 October 2021, but if you haven’t, then you need to get on with this ASAP, by following the link here if you are self-employed:

https://www.gov.uk/log-in-file-self-assessment-tax-return/register-if-youre-self-employed

HMRC will then send you your UTR (unique taxpayer reference) number.  Without this, your tax return cannot be filed, either by yourself or by an accountant.  The reference can take a few weeks to come through, so do not leave this until January!!

If you are going to file your tax return yourself, you will need your government gateway ID and password.  If you are using an accountant, they can generally file your return using their own software and government gateway log-ins, but will also need time to set themselves up as your agent.

It is your responsibility to let HMRC know if you have to file a return – so if you have a new source of income in the year, or a one-off capital gain from selling an asset or shares, then don’t wait for HMRC to ask for the information!

Penalties for late filing are an automatic £100.  Even if there is not any tax actually due, if you are required for file a return, and this is not with HMRC by midnight on 31 Jan- you will get a fine!

The tax is also due to be paid by 31 January.  When you file your return, you will get a calculation of the tax due as part of the submission process, or your accountant will tell you when they send you your return for approval and signing, so the sooner you do this – the sooner you will know the amount you have to pay.

For any more information, or help with your personal tax return, please contact Rosie Forsyth at Wilkins & Co

MTD goes live in less than 6 months, but research shows that 40% of small businesses that will be affected by MTD, are not yet aware of it, and have certainly not begun to prepare for its impact.

So are you affected and what do you need to do?

HMRC are about to launch their publicity campaign to increase awareness, but here are some frequently asked questions from small businesses:

Does MTD apply to me?

If you run a VAT-registered business (limited company OR sole trader) with a taxable turnover above the VAT registration threshold (currently £85,000) then YES it applies to you from April 19.

I have registered for VAT voluntarily, so I am VAT registered – but my turnover is less than £85K. Does MTD apply?

No it will not apply from April 19.  MTD is planned for all businesses over time, but you not caught in this first batch of people!

What does MTD mean anyway?

MTD means that you will have to keep digital VAT records and send VAT returns using “MTD-compatible” software from April 19.  The deadlines or frequency of returns are not changing, it is just how the information gets to HMRC.

If you are already using commercial accounting software, it is likely that the provider is working hard to make it MTD compatible, and you should be OK, though you will need to upgrade to the latest version that is compliant.

HMRC have provided a list of suppliers it is working with to provide MTD compliant software so you can check:

https://www.gov.uk/government/publications/software-suppliers-supporting-making-tax-digital-for-vat/software-suppliers-supporting-making-tax-digital-for-vat

I keep my accounts on a spreadsheet – is that still OK?

Technically yes, but I would be thinking about switching to a digital package!

If you use a spreadsheet, then that spreadsheet must be able to submit the required data to HMRC digitally and to do this you will need to add “bridging software”.  This is a piece of software that will extract the data from your spreadsheet and send it to HMRC in the correct format.

What you will no longer be able to do is physically retype in figures from one piece of software to another.

We have no examples yet of what this “bridging software” might look like – all we do know, is HMRC aren’t providing a free version for you to use!

My accountant does my VAT return from the info I send them so won’t they just deal with it?

Sadly no!

The portal that accountants use to submit vat returns will be closing, as this requires someone to type the information into it – and this will no longer be allowed.  Nor can your accountant take your spreadsheets, correct a few errors, and then retype the information into a vat return and submit it, as the information flow has not been digital.  HMRC have said that “cutting and pasting” information will be acceptable for the first year only, to give people time to update systems.

So what do I need to do if I am affected?

You need to look at how you keep your accounts, and if you have not yet moved onto a digital package, now really is the time to do it!  The start of your new financial year is the perfect time, so if that falls between now (or even a couple of months ago) and 31 March, then I would switch your accounts over now, so you are up and running smoothly when the changes come in.

Digital accounting packages are not expensive – prices can be as low as £9 per month, with add ons that allow you to submit receipts electronically.  Switching to digital will save your business time, and give you more accurate data about your business in real time, so be brave – bite the bullet and go digital!!

HMRC are still wanting to bring in MTD for everyone, so although the timetable has been pushed back to at least 2020, even if you don’t have to make the switch before April 2019, it is worth assessing how you keep your accounts and if it could be more efficient!

For more information please contact Rosie Forsyth at Wilkins Co.

There are 2 ways for the self-employed to reclaim the costs of using their own car for work – the first is to charge 45p per business mile (up to 10,000 miles) and the second is to tot up the total costs of running your car, and then allocate a percentage to the business based on business usage of your vehicle.

But which journeys can you actually claim for, especially if you work from home?

The general rules are pretty obvious.

1. Commuting is not an allowable expense – so if you travel everyday to an office, then you cannot claim the costs of getting to work as a business cost.
2. You can claim for business travel – so if you go from your office to see a client or perform a work task, and come back to the office – you can claim the cost of getting there and back as an expense.

But what if you do some work from home – as so many of us do?

The rules here are not so clear cut and you need to establish your “permanent place of work” or your “business base”.

If you genuinely run your business from home, then the cost of visiting clients from your home is allowable.  I have an office at home, all my files are here, and I work here every day- so for me, I can claim the cost of travelling to see a client.

My client however is a marketing consultant.  She does her admin at home, and an hour or so in the evening sometimes, but she generally works 2 days per week at one client and 2 days per week at another.  Her permanent place of work is really at those clients, not her home, even though she is self-employed, so she should not be claiming the costs of getting from home to those 2 offices.

A good rule of thumb is that if your journey is “regular and predictable”, then it’s effectively commuting, and not allowable.

If you are an “itinerant” trader, and your base of operations is at home, then you can claim the costs of travel between home and the places you work.  This is someone who travels to a number of different locations for the purely temporary purpose of completing a job there – such as a mobile hairdresser, or a plumber.   The fact they go to different places every day make the costs business travel.  However, if the plumber rented a separate business premises and went there first every morning to pick up tools and print out his schedule for the day, this first cost would become commuting and should not be claimed.

So you need to think about where you genuinely run your business from, and if this is not at home, then be careful about the amount of travel you are treating as allowable in your business.

For more information contact Rosie Forsyth at Wilkins & Co

Statements are arriving in the post and payments on account of 18/19 tax are due at 31 July.  What are they and how are they calculated?

If you pay your tax under self-assessment – you will probably have to make “payments on account” of your tax bill at 2 stages during the year -31 Jan and 31 July.  They are just that – a “part payment” of your anticipated tax bill for the year and are calculated based on your tax bill for last year.

An example is the easiest way to explain the calculation:

You started your business in May 2016, prepared your accounts and calculated your tax bill for 16/17 to be £3,000. This was due for payment at 31 Jan 2018.  But you also had to pay a payment on account of your next year’s (17/18) tax bill – and this was automatically calculated at 50% of the previous year – so £1,500.  So actually at 31 Jan 18 you had to pay £4500.  You may have just paid this at the time, thought it was a lot, but not really grasped what it was for.

The second payment on account for 17/18 is due by the end of July and again is 50% of last year’s bill – so another £,1500.

So by now – you have paid £3,000 on account of your 17/18 tax bill – even though, if you have not yet filed your tax return, you don’t actually know how much your final bill will be.

If your profits in Year 2 have gone up – and when you do your accounts and file your tax return, your tax bill for 17/18 is worked out to be £5,000, then you have already paid £3,000 of it during the year – so you only owe a further £2,000 at 31 January 2019.  But, the process is repeated – so at 31 January 19 you will owe £2,000 for this year – and your first payment on account of 18/19, calculated as before at 50% of the current year bill (£2,500) – so £4,500 in total.  You then owe at 31 July 2019 your second payment on account of 17/18 – another £2,500.

This is all fine if your profits have gone up.  If you are in the scenario where profits are lower than the year before, then you will have overpaid in the year with your 2 payments on account and you will be due a refund for that year.

In the example above, if your tax bill for 17/18 worked out to be £2,400, then because you have paid £3,000 during the year, then you have overpaid £600.  But, taking into account your first payment on account for 18/19 which will be 50% of £2400 = £1200, you still owe £1200 – £600 = £600 at 31 Jan 19!

Confused??  Who said tax wasn’t taxing!

If you know your profits are going to be lower in the next year, perhaps because you are doing less hours or lost a key client, then you can apply to reduce the payments on account that are going to make – to avoid overpaying in the first place.  Cashflow is crucial to a small business, so you don’t want to give the taxman anything that is not really his!

Getting on with your tax return for the year now will also give you certainty about your tax bill and how much you should be paying.  Why wait til January if you think you have overpaid and may be due a refund?

For more information or help with your tax return for the year, please contact Rosie Forsyth.

Hot of the press is my new tax planning brochure for this tax year.

This easy to read guide provides you with simple tax planning points for the current year.

Covering personal tax, and matters affecting both you and your family, my guide suggest many ways in which you can save money on your tax bill by taking full advantage of the current tax system, as well as highlighting some of the pitfalls that you should avoid.

Please download a copy with my compliments – and let me know if I can help you with any issues raised.

Download Your Free Copy Now

Managing cashflow is one of the biggest and most important challenges you will face in your business.

It doesn’t matter how brilliant your business idea is, the old saying “turnover is vanity, profit is sanity, but cash is reality” is so true.

Unless that fabulous new customer actually pays you, in full and on time, they are not a fabulous new customer at all.

It’s crucial, then, not only to effectively manage your finances and keep on top of income and outgoings – but also to do as much as possible to ensure you get your invoices paid as quickly as possible.

So what can you do to help prompt payment?

Before starting work:

• Make sure you have a signed agreement for your work. Ensure your terms and conditions are clear and payment terms are agreed.
• Check out who you are working for if possible – consider looking at Companies House or doing a credit check on your client. A client on the edge of going under is not going to pay you!
• If it’s a significant piece of work, consider asking for a deposit or part payment upfront, especially if you are having to incur costs from the outset.

Once the work is finished:

• Be sure to invoice promptly. This may sound obvious but many businesses don’t invoice as soon as the work is done, and if you are doing several things at once, it’s very easy to totally forget.
• Include a due date prominently on your invoice – in line with your agreed terms.
• Consider payment as soon as the job is done using a card reader. You wouldn’t expect to leave a restaurant and get an invoice next week, so why would you expect to eg pick up your printed fliers and not pay there and then?  If immediate payment on completion has been agreed, then make it easy for your clients to actually do this by having the right technology in place.
• Make sure the invoice is correct – and complete. Queries are a very good way of delaying having to pay!
• Consider checking the invoice has been received by your client and it’s all OK. This again stops any “I never received it” delay tactics later on.

Chasing payment:

• At some point you are probably going to have to chase up someone for payment and this may not come easy to you.
• Remember, business is business, it is not personal – and hopefully more often than not, the payment has just slipped your client’s mind and they will cough up with a gentle nudge.
• A couple of reminder emails initially, with a copy of the original invoice, is a good, professional, non-aggressive way to start.
• If that fails, then you are going to have to pick up the phone. If you are having to call a large accounts department, then do get the name of who you speak to and try to come off the phone with a positive step in the right direction.  If it’s not immediate payment, it may be finding out the date of the next payment run, and confirmation that you are on it, or the email address of the person who needs to authorise the payment etc etc.
• Hopefully you wont have to go as far as taking legal action as this is time consuming and takes your attention away from running your business. But don’t be afraid to follow this path, if you have done the work as agreed, then you deserve to be paid. Several small business schemes (such as the FSB) offer discounted rates and free assistance to help you chase slow payers, so if you are a member of such a group, make sure you use the services on offer.
• Whatever you do – don’t start a new project for a client who has not yet paid for the last piece of work – unless you have a very good reason to believe they are good for the money!

Many accounting software packages now can greatly help with your debtor management.  The invoice can be prepared quickly and emailed over to your client, standard reminder letters and statements sent out and reports easily prepared to show you who still owes you money and how long it has been owed for.

Chasing for payment takes time and its not fun; so automate as much as you can, and concentrate on keeping your clients happy – as happy clients tend to pay up!!

For more information, please contact Rosie Forsyth at Wilkins & Co.

The new Tax -free childcare scheme began in 2017 and is now available to the employed and self-employed where both parents are in paid work for more than 16 hours per week and neither parent earns more than £100,000.

The scheme is run via an online account and the government tops up 20p for every 80p you pay into the scheme up to a maximum of £2,000 per child up to the age of 12 (and therefore an £8,000 contribution by parents).  Grandparents or employers could contribute instead of parents.

The scheme replaces the employer childcare vouchers.  These schemes were due to close to new entrants at 5 April 18 but will now remain open for an extra six months until October 2018. Parents already registered at that time can continue to receive vouchers for as long as their employer offers them, or switch to tax-free childcare instead.

If you already receive childcare vouchers from your employer, then you have to decide whether you want to continue with this scheme, or move to the new scheme.  The website https://www.childcarechoices.gov.uk can help you decide which is better for you.

In general, the new scheme is better for the self employed and those with more than one child and high childcare costs, as the vouchers are per child.  The old scheme, if offered, favours couples where one parent does not work and high earners – but it worth doing the sums in your particular case.

If you want to leave your employer’s voucher scheme you must provide them with a Childcare Account Notice (CAN). This can be sent by email and states that you wish to leave the voucher scheme and use tax-free childcare instead.

There were lots of teething problems when the online accounts were set up, so much so that ‘Childcare Service compensation‘ is now available from HMRC  – www.gov.uk/government/publications/childcare-service-compensation

It offers parents compensation if they have been subjected to various technical difficulties in relation to its online Tax-free Childcare account. Problems with the service include technical issues, mistakes and unreasonable delays.

Parents affected by technical issues may be able to ask the government for a top-up as a one-off payment for Tax-Free Childcare or apply for reimbursement of any reasonable costs directly caused by the service not working properly.

You may be eligible if you have:

• been unable to complete your application for Tax-Free Childcare
• been unable to access your childcare accounts
• not received a decision about if you’re eligible, without explanation, for more than 20 days

If you require any further information then please get in touch.

With the tax year ending soon have you been as tax efficient as you could have been this tax year?

What can you do before the year end to maximise your tax efficiency?

Here are a few of my tips for tax efficiency:

If you have a limited company – make sure you have paid £5,000 in dividends if profits allows.  The tax free allowance for dividends is reducing to £2,000 after 6 April 2018

Transfer income-producing assets to a spouse if you pay tax at different rates.  If you have a limited company, should your spouse also have shares to get their tax free dividend allowance and potentially pay tax a lower rate on additional dividends?

Check your total income for the year if you receive child benefit payments.  If you have the ability to determine your income for the year, by varying the level of dividend paid, keeping your income below £50,000 will ensure you retain your child benefit.

Trivial Benefits – limited company directors can get £300 a year tax free using these.  If you have not used your full allowance yet, get down to John Lewis and stock up on vouchers.  Conditions do apply so check my early blog for full details

If you are considering buying capital equipment for your business, doing if before the end of the tax year will give you the tax deduction this year rather than next

Pension contributions – very tax efficient for the company to contribute to your personal pension.  Review any payments made in the year and take advice from an IFA.

If you have taxable income over £100,000, you will lose your personal allowance on a sliding scale, so your marginal tax rate may be as high as 60% on part of your income.  Consider making additional pension contributions or gift aid donations which may restore your personal tax allowance.

Use your allowance for tax free ISA saving; that’s up to £20,000 in this tax year. Under 18s can save £4,128 in a Junior ISA.  Also consider LISA’s to help your children get on the housing ladder.

Inheritance tax – often forgotten, but if you have spare cash available, consider making gifts to take the funds outside of your estate.  If you don’t have the cash, bring this up with grandparents over Sunday lunch!  Up to £3,000 per tax year can be gifted as one off capital sums and will be exempt from inheritance tax. Any unused part of this allowance can be carried forward 1 year.

Often simple steps can be taken to minimise your tax bill, so hopefully the above list has added one or two items to your “to do “list.

Please contact me for any further information.