We’ve recently been contacted by Yellow Pages, the paper directory published by Yell,  about renewing our advert.  We’ve had the advert since the business started 7 years ago.  However, the way that people and businesses find information has changed a lot since then – it certainly has for us.

As a result, we started to question the benefit of advertising in a directory like Yellow Pages.  So we did a bit of research.  We asked whether anyone actually uses the paper directory.  It appears that quite a few go straight to recycling!  Our copy at GBM Towers goes into a drawer, replacing last years, and will next see the light of day when it is replaced 12 months later.

Ultimately, the assumption is that any business in the Yellow Pages will also be on Yell.  If your first port of call is a website, why would you go to the book when it is going to be easier and quicker to get the info (and links) from Yell?  Of course, the next question may be why restrict yourself to Yell when you can simply search in Google, Bing, Yahoo or whichever search engine you wish?

So why would anyone advertise in a medium that could be viewed as an anachronism?  Well, not everyone uses the internet by default.  There is a large section of society which does not use the internet, namely the elderly, but this is also changing, particularly as some retailers save their best prices for online transactions.

Many businesses use several different forms of marketing, but what may have previously worked may no longer be relevant.  Like any aspect of business, they should be measured and reviewed regularly to see how effective they are.

* although we’ve referred to Yellow Pages and Yell, the same principles apply to Thomson Local, the BT Directory and any other paper based directories.

If you advertise in a paper directory, does it work for you?

This blog first appeared on the ProTelp website in November 2011.

Does Anyone Use Yellow Pages Anymore, or Should We Shout About Yell?

When we talk to directors about how to take money out of a company, the concept of the Directors Loan Account (DLA) is often mentioned.  This is where the director lends money to the company, which may be for short term investment, to pay wages or to introduce assets to the company.

Conversely, an overdrawn DLA is where a company lends money to a director, either directly or by paying for his personal liabilities.  In this situation the following 2 tax issues arise:

1. Firstly, a benefit in kind is due on interest free loans in excess of £5,000: either income tax is payable personally by the director on the taxable benefit (through a P11D) or the company charges interest to the director, which increases the loan.
2. Secondly, if the loan is not repaid within 9 months of the accounting period end, a corporation tax liability of 25% of the overdrawn amount is paid by the company.  This tax is, however, repayable by HMRC 9 months after the end of the accounting period in which the loan is fully repaid.

Obviously both of these issues should be avoided; the interest is a cost and the 25% tax can create significant cash flow problems.

This position can arise quite frequently given the current tax efficient advice of taking a small salary and the balance of funds required to live on as a loan, or when the director effectively uses the company bank account as their own personal bank account, which should be discouraged where possible.

Usually the easiest way to repay the overdrawn loan account is by voting a dividend which is credited to the loan account, in the absence of funds available to repay to the company.  However, this carries a risk; if the company has insufficient retained profits or reserves, it will be unable to declare a dividend.  Therefore, we recommend that the situation is monitored and controlled.

The Overdrawn Directors Loan Account

We see many businesses and the question of whether someone is either employed or self employed comes up quite a lot, either when employing ‘help’ or for the person themselves.  It can be a complex area!

Why is this an issue?
There is a lot at stake for both sides.  The ‘employer’ has legal obligations for employees, including sick pay, holidays, and the whole issue of discrimination law.  They may even have to register as an employer.  If the person is self employed, they don’t have to worry about this.  It is easier and more flexible to have an ‘employee’ classed as self employed – if the work isn’t there, you can simply dispense with their services.  Financially, the ‘employer’ avoids paying employers national insurance, currently 13.8% of earnings over £144 p/w.

From the ‘employees’ side, it can also be more flexible.  They may even decide not to declare their income and evade tax (I cannot believe I just typed that!).

There is a perception that this kind of activity happens a lot with small businesses, fuelled by ‘cash in hand’ kinds of arrangements, although it is also common in larger organisations in certain industries, such as construction and security.

As you may imagine, HM Revenue and Customs (HMRC) would prefer to treat everyone as employees, meaning that they would receive the employers NI.  Also, it avoids the scenario of income not being declared, and the tax would be collected under PAYE as opposed to in arrears under self assessment.

There are obviously some people who are definitely employed, some who are definitely self employed, and some who fall into the grey area between.

In order to try and establish whether someone is employed or self employed, there are certain areas which need considering:

Equipment
It is more normal for an employer to provide tools and equipment for an employee to do their job, whereas someone who is self employed would be expected to supply the equipment themselves.

Time and place
An employee may be expected to be in a particular location for a particular time dictated by the employer.  Someone who is self employed may have the flexibility of doing the work as and when they prefer.

Financial risk
Generally, an employee is paid to do a job with little prospect of financial risk.  However, someone who is self employed should have an element of financial risk.  They may be paid a set amount to do some work, which may be the same regardless of how long the job takes.

Right of substitution
This is the undertaking to provide a service regardless of who may be doing the work – a situation which wouldn’t happen with an employee.

This is obviously a subjective area; generally speaking, the more boxes which can be ticked, the more likely it is that someone is self employed, although it usually depends upon the circumstances of the individual case.  Additionally, the areas highlighted above should be genuine and documented.  However, simply having a contract from the ‘employer’ which says “Joe Bloggs is self employed and is responsible for his own taxes” is not sufficient.

If you need help establishing whether someone – a helper, or yourself – is employed or self employed, please contact us.

Employed or Self Employed?

If you are an employer and have a PAYE scheme registered with HM Revenue and Customs (HMRC), then you will have to complete and submit an Employer’s Annual Return, also known as a P35.  This summarises the PAYE and NIC deducted from your employees, and if relevant, any CIS tax deducted from your subcontractors and any CIS tax deducted from you by your customers.

The P35 must be submitted online to HMRC.  The deadline for submission of the P35 is 19 May 2012.

In addition to the P35, an employer must also issue P60’s to their employees, which summarise their salary and tax deducted for the year.  If an employee has left during the year, there is no obligation to issue a P60, as the necessary information would have been on a P45.

P60’s must be issued to employees by 31 May 2012.

More information is available here.

GBM Accounts provide a full payroll service, from calculating weekly/monthly salary and PAYE obligations, to filing annual returns.  If you would like more information, please do not hesitate to contact us.

The Employer’s Annual Return – P35

At the moment, the current threshold for compulsory VAT registration is VAT taxable turnover of more than £77,000 in the last 12 months.  This is a rolling measurement – if you look at the year to 30 June and you are under, you then need to review for the year to 31 July, and so on.  Note the test is on turnover, not profit, which can be a little unfair if your industry has low margins and you need volume sales to make a profit.

Being VAT registered can be a problem for some businesses, typically those who supply members of the public or customers who cannot claim their VAT back.  It effectively makes these businesses 20 per cent more expensive than their non VAT registered competitors.  There is a silver lining in that, if you are VAT registered, you can reclaim input VAT (ie what you have paid yourself on VAT-ted goods).

But if your prices are driven by the market, your ultimate cost may be lost business or lost margin.  So how can you avoid being VAT registered?

Here are entirely legal ways that businesses use to legitimately reduce turnover:

1. Get your customer to buy materials.  This is a common practice with builders.  Typically, if a builder buys materials for a job, he then invoices the customer for something that he doesn’t necessarily make a lot of profit on.  If he simply puts any profit from materials onto the labour element and asks his customers to buy the materials themselves, it will reduce his turnover.  He therefore makes the same profit but with a lower turnover.
2. Close your business for part of the week.  This seems mad in the sense that it is counter-intuitive to growing a business, but the effect on profitability can be significant.  This scenario is common to many businesses but principally takeaways who supply hot food (on which they must charge VAT) but with very little input VAT to reclaim.  The difference between being VAT registered and not being VAT registered can be as high as £12,000, so closing for one lunchtime to keep your turnover down and avoid breaching the threshold starts to make sense.
3. Ignore large one-off contracts.  When determining whether your turnover has gone over the threshold, the legislation allows you to ignore large contracts or pieces of work that are one-off in nature and not part of your normal work pattern.  This is obviously subjective, but if you can show that, say, your normal level of sales is £60,000 and it was boosted by a one-shot deal worth £15,000 that isn’t the kind of work you normally do (and won’t do again), then you can avoid having to register.
4. Your business has significantly changed.  We recently argued this successfully for a client whose turnover had just gone over the threshold, but who had also lost a member of staff who wasn’t going to be replaced.  This reduced the capacity – and future turnover – to a lower level.

Finally, beware the common myth that every time you get near the VAT registration threshold you can avoid registering for VAT by simply starting a new company, so that each company’s turnover is magically below the threshold.  It doesn’t work – when considering the turnover, HM Revenue & Customs use an anti-avoidance measure and add together all the income from a trade even when it is split between entities.

Some of the specific examples above are industry-specific, but the principles can be applied to other areas, so it’s worth thinking about.

This blog first appeared on the Tax Donut website in September 2011.

How to Avoid Being Registered for VAT

You may have seen recently that Royal Mail have announced that the cost of first class and second class stamps would increase significantly from the end of April.  This follows significant increases over the last couple of years to the face value of first class and second class stamps:

• 2010 first class 39p to 41p, second class 30p to 32p
• 2011 first class 41p to 46p, second class 32p to 36p
• 2012 first class 46p to 60p, second class 36p to 50p

Obviously, if you have business, the cost of your overheads will increase.  However, there are a couple of ways which you can mitigate the effect.  These are as follows:

1. Buy stamps now.  You’ve been given notice that the cost of stamps is increasing, so why not stock up?  After all, it is unlikely that the cost of stamps will go down next year.
2. Use a franking machine.  The cost of using a franking machine is already cheaper than the face value of postage stamps, but you have to factor in the fixed cost of actually having one.
3. Use technology.  Although rather obvious, it is a valid reason for any organisation to examine any correspondence which is sent out and to see whether it can be sent by either email, text or fax.  There are also websites such as Dropbox or Huddle which allow off-site storage of documents, which can be accessed by several parties thus meaning that they don’t have to be posted.

Of course, if postage isn’t a major cost in your business, you may wish to simply leave it, but it is another example of how changing factors should make you regularly examine how you do business.

Royal Mail to Increase the Price of Stamps – What Can You Do?

If you are in business, you know that cash is king.  No cash = no business.  This highlights how important it is to get paid for the work you’ve done or goods you’ve supplied.  The following are a few ideas on how to make the process as painless as possible.

Set out your expectations

This involves setting the terms and conditions, notably when you expect to be paid.  It should be relevant for the industry you operate in – some industry norms may be 30 or 60 days – and may build in some expectation of lateness.  For example, if you expect to be paid after 28 days, setting a limit of 14 days may achieve a ‘win-win’ for both sides.  You also need to communicate your policy, and highlight when you expect to be paid on invoices.

Make the payment process easy

After making sure that your invoices are correct and not subject to query (which can buy time for your customer), make it as easy as possible for your customer to pay you.  Include envelopes to return cheques if appropriate, or include your bank details for BACS payments.  Consider setting up standing order or direct debit facilities, or taking credit cards.  In essence, put yourself in your customer’s shoes and ask “what would make it easier to pay this supplier”?

Credit check customers

This obviously depends upon the amounts involved and the risk you are willing to take, but it may be worthwhile either obtaining references for new customers or even doing credit checks.  You can find information about limited companies at Companies House.

Encourage prompt payment

Provide an incentive for customers to pay you early by giving a percentage discount for early settlement (or even advance payment).  This is the carrot approach; the stick approach may be applying a credit charge or late payment penalty that doesn’t have to be paid if prompt payment is made.  These can be built into your pricing structure.

Have a clear credit control procedure

It is important that overdue debts are not allowed to drift, as this simply sets the standard for future transactions.  The process could follow the example below:

1. Invoice raised, due at the end of the month.
2. At the end of the month, statement sent out.
3. If still outstanding after 14 days, polite but firm letter sent.
4. If still outstanding after 21 days, final letter sent threatening legal action if not paid within 7 days.
5. If still outstanding after 28 days, take further action.

Of course, if legal action is threatened, it is important that it is followed through, otherwise it will simply be a hollow threat that will be ignored next time.  Legal action may involve a solicitor or a debt collection company.  In many instances, the threat may be the wake up call required.

Credit control should be done regularly

You shouldn’t resort to credit control when funds are running low in the bank – by then, it may be too late!  A policy of little and often is more effective.  Practices like email reminders just before a debt is due and regularly sending out statements – some companies only pay statements – show that you are serious and on top of things.  It also avoids debts piling up, customers being put on stop, cash flow problems, and time being taken from more productive areas of business.

Credit Control – Getting Paid

The Chancellor announced his 2012 Budget on 21 March.  The following are some of the major announcements which are relevant to the self employed and small business:

Income Tax

The personal allowance threshold is due to increase to £8,105 from 6 April 2012.  It is set to increase to £9,205 from April 2013.

The 40% tax rate is reached in the 2011-12 tax year when income is £42,475.  This is the same in the 2012-13 tax year, but will be £41,450 for 2013-14.

The top tax rate of 50%, payable on income in excess of £150,000, is to be cut to 45% from April 2013.

National Insurance

No major changes

Corporation Tax

The main rate of corporation tax, which applies to profits in excess of £300,000, is currently 25%.  It will reduce from next month to 24%, and will fall to 22% by 2014.

Other Issues

A consultation has been announced in respect of simplifying the tax system for small unincorporated businesses with a turnover up to £77,000, enabling them to use a cash basis.  This is in response to the Small Business Tax Review published by the Office for Tax Simplification in February 2012, and would be a major change from the fundamental ‘accruals’ approach which is currently used.

Also, effective from January 2013, details of the loss of child benefit have been clarified.  Previously, it was to be lost completely if one earner in a household had income over the 40% band (approx. £42,000).  This has now been set at £50,00, but it will be lost gradually at a rate of 1% for every £100 additional income, so that it will be completely lost when one person is earning over £60,000.  However, it does appear that it can still be received if two earners are both receiving £49,000, so there are opportunities to retain it if you are self employed, by trading through partnerships or limited companies (as appropriate to your circumstances).

The Budget 2012

HM Revenue and Customs (HMRC) first made businesses file their VAT returns online in April 2010.  This ruling applied to all businesses with a turnover in excess of £100,000, plus all new registrations.

From April 2012, virtually all VAT registered businesses will have to file their VAT returns online.  See here for more details.

NB there are penalties for businesses who still file their VAT returns by paper instead of online, see here.

It is obvious that the message here is: file your VAT return online.

We provide this service for clients who do not wish to get involved, please contact us for more information.

VAT Returns – Online Filing For All Businesses

We’ve processed a lot of 2011 personal tax returns over the last year, a few of which have resulted in refunds.  The question which our (happy!) client asks is “when will I get my money back?”

Note the phrase “MY money” – a tax refund arises because a taxpayer has paid too much tax.

Unfortunately, the answer is: it depends.  It depends on the size.

If it is less than £1,000, then chances are it will be sent out no fuss.

However, if it is more than £1,000, then you may encounter the phrase ‘pending’.  A more detailed enquiry may throw up another phrase, ‘security check’.  This means that rather than simply rebating money due as determined by the taxpayer – i.e. by self assessment – it is subject to human examination.

At this point, the injustice of the situation results in the cry “but that’s my money, they don’t hang around when they want it from you”.  To be fair, if you complete your 2012 tax return in April and are due a refund, it will be paid to you shortly afterwards (subject to all I’ve said above), but if you owe tax, it won’t be due until January 2013.

So if you think you will be due a refund, get it claimed sooner rather than later.

Finally, just remember – if you are due a tax refund, but don’t ask for it to be repaid, HMRC aren’t going to tell you.  However, if you DO get an email from them letting you know, it’s a scam!

I am Due a Tax Refund – When Will I Get Paid?