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Business Bulletin By business owners, for business owners
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PRACTICAL ADVICE
Issue #9
Are you keen to see your business grow? Then you need to keep track of the gures… Building a successful business takes determination, energy, focus, and know-how. But even the best business idea cannot ourish without one additional critical input; information. At Essendon Accounts & Tax, we love nothing more than helping a business thrive. In fact, it’s become our speciality. Are you a Family Business? We can act as your virtual Financial Director providing expert advice through a hands-on approach. Whatever accounting and tax support you need, we can help. Want to make a prot? Let us take on the grind of tracking what’s coming in and going out, so we can then model your cash ow and provide you with the information you need to make swift and critical business decisions. Looking to outsource your payroll and bookkeeping? Payroll and bookkeeping exist in ever-changing complex landscapes that require up to date knowledge and expertise. Would you prefer to spend your time working on your business? We can help.
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Need assistance with a tax issue? Whether you are a sole trader, in a partnership, a director of a limited company, or simply an individual with a regular income, expert knowledge that enables you to maximise the numerous tax allowances and reliefs that are available can save you a fortune. Speak to us. Looking for support from a Financial Director? All top athletes achieve the peak of their career by working with a coach, and we know that every business keen to reach the top needs a team of trusted advisors. We have the expertise you need.
At Essendon Accounts & Tax, not only do we believe that building a long-term relationship with our clients makes a difference, but we do it through taking a practical hands-on approach. Whilst you work on your business, we’ll pour over your paperwork, balance the books, provide you with the information you need, and tackle the tax man on your behalf. We will save you time and stress, so you can enjoy seeing your business grow. Give us a call today on 01908 774320 or visit www.essendonaccounts.co.uk
3 Warren Yard, Warren Park, Stratford Road, Wolverton Mill, Milton Keynes, MK12 5NW
The Business Bulletin
A magazine that works for everyone Paul Green Founder & Chief Editor
Welcome to the ninth edition of The Business Bulletin. Hopefully you will enjoy this edition which focuses on finance. Published every four weeks, it will cycle through the following themes: ■ Finance ■ Sales & Marketing ■ Operations & Resources ■ Strategy & Personal Development It will bring together a collection of articles aimed at any small business owner who doesn’t have all the answers and is open to some thoughts and advice from some of the leading experts in their fields. So what makes this different to any other publication? I’m glad you asked! For the reader – no more advertorials. All the featured articles have been chosen for their valuable content, not because the author has paid to be published or taken out an advert to get their slot! For the contributor – you can submit articles for inclusion without having to pay for the privilege or having to advertise. If your article is deemed suitable based on its merits – that it is relevant, good and engaging content and not promotional of your business,
All the articles featured in this magazine have been chosen because of their valuable content
then it will be published. For the advertiser – if a publication is more engaging due to the content, then it is more likely your adverts with be noticed. The number of full-page and half-page ads is limited for each edition and there will be a limit on the number of advertisers from a given industry sector. This means your advertisement is more likely to stand out from the crowd and not be lost in a sea of competitors. Your feedback and thoughts on this magazine are welcome – let us know your experience. Thanks,
Join in! Contact us to contribute an article or place an advert for future editions contribute@business-bulletin.co.uk
Design & Layout: Pixooma Ltd.
Proof-reading: James Tarry
© Copyright 2021 The Business Bulletin. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means electronic, mechanic, photocopying, recording or otherwise without prior permission of the editor or the author of the article. Disclaimer – no responsibility can be accepted for any actions that you take as a result of the content provided in this magazine. There is no guarantee that implementing any of the advice contained in the articles will definitely ensure your business success or have a positive impact. They are presented as information based on the experience of the authors working with many different types of businesses in their field of expertise and are provided as a choice for you to consider if they will be useful for your business.
Issue 9 – Finance | 3
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The Business Bulletin
Contents This edition focuses on finance and brings together a wide range of topics with a selection of quality articles from leading experts in their field.
Micawbering and insolvency – why you 6 shouldn’t trust your break even point Gavin Bates
Domestic Reverse Charge – say what now? Wendy Tate
How a virtual financial director can boost your business growth Roger Eddowes
Spotlight on
28
9
32
Rob Harris
Are we heading for an economic cliff? 12 Jamie Cochrane Navigating your way around business insurance Heather Coupland
14
What impact is the “new normal” going to have on procurement Martin Wallis
36
The advantages of having your tax return filed early Paul Simpson
17
What is the best way of taking money out of my business? Matt Goude
39
My bank won’t finance my business – now what? James Blacklaws
19
Are your employees benefiting from you? Andi Herrington
42
What are the pros and cons of having investors? Peter Douglas
22
Getting your financial life in order Neil Wattam
44
Ask the Experts
47
To be or not to be competitive Margot Clarke
24
SME survey
50
Making Tax Digital – unraveled! Ruth Chettle
26
Issue 9 – Finance | 5
The Business Bulletin
Micawbering and insolvency –
why you shouldn’t trust your break even point I assume you have already worked out your break even point (BEP). If not, you really should because it would be ill advised to run any business without knowing it. If you haven’t done it, go and do it now. Actually, more sensibly, read this article first and then go and do it.
6 | Issue 9 – Finance
The Business Bulletin
It’s not complex, it is the point where
and avoid the mistakes people often
your monthly overheads are £10,000
your revenue is the equal to your
make when working the numbers,
then you need to manufacture and
cost. In simple terms if it costs you
by looking realistically at what it all
sell 10,000 widgets to break even.
£100 to run your business, then when
actually means.
If you are someone who provides a service and your overheads are £2500
your income reaches £100 you can put a tick against your break even. Clearly then, it is a figure that every business should have a very clear understanding of, because below that you are officially insolvent. Your income is lower than your outgoing costs which is where you are in serious trouble. As Charles Dickens so eloquently put it: “Annual income twenty pounds, annual expenditure nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds and six, result misery.” Hardly rocket science is it? It stands to reason that if you earn more from
The ‘formula’ for a break even line Whatever your business there will always be a series of fixed costs. These will be the obvious list of things that you must pay on a regular basis. Usually they will be a mixed bag of the following: Fixed costs, i.e. things that rarely change, such as ■ Rent ■ Agreed monthly cost for utilities or services
your business than you spend on your
■ Insurance
business you are going to be OK. Well
■ Rates
possibly, but this only a half truth. At the risk of being a bit of a cynic here it
And so on. These will vary
is probably worth remembering that
depending on your business of course
the quote above is attributed to the
but whatever they are you will be able
character of Mr Micawber who was in
to predict them clearly and account
debtors’ prison for not keeping up with
for them easily.
a month then the sale of your ‘time’ needs to add up to £2500 worth of income (see figure 1). Right? Well, no, not really. In fact, that kind of thinking is sometimes one of the causes of financial problems within a business. The issue with looking at things based on your BEP is not so much that there is anything wrong with using it as a benchmark, it is more what it is a benchmark of. We often see businesses that use the BEP as a kind of badge of honour. It’s as if the break even point is a measure of success and it isn’t. The break even point is a measure of survival.
Thinking realistically about break even points Firstly, there is nothing wrong about being an optimist about your business as long as you are using a healthy dose of reality to keep it in
his payments to creditors. Isn’t it odd that Mr Micawber could be so on the
Variable costs, i.e. things that
ball with his fiscal philosophy yet still
change or vary according to the
not able to keep himself out of debt?
circumstances of business, such as
Maybe it is because he is also known for his other approach to life which was
■ Cost of labour
that something ‘would always turn up’.
■ Material used
We see a lot of businesses on the verge of insolvency and it is not
■ Consumables
uncommon for part of the problem
■ Variable utilities
to be that they have ‘Micawbered’, to
■ Shipping and logistics
coin a phrase. They have focused only
Gavin Bates Smart Business Recovery
on the break even point and the result
And many others. Some of these
is that their business is in debt beyond
you will be able to isolate and predict
all aspects of corporate and personal
redemption. Like Micawber they have
with some accuracy and others
insolvency, and business recovery. He
been labouring under the belief that
you may need to be a little more
any amount above your base income
pragmatic about.
line is enough and, as long as you hit that, then something will turn up to keep your business going. This article is about how to work out a more practical break even point
The formula then is to take your fixed and variable costs and use them to work out how much you must sell to break even. So, if you manufacture
For over 30 years Gavin’s helped with
also helps directors deal with solvent companies and S110 reconstructions and believes that taking earlier advice is the key 07583 863195 gavin@smartbusinessrecovery.co.uk smartbusinessrecovery.co.uk
widgets that sell for £1 each and
Issue 9 – Finance | 7
The Business Bulletin
check. Micawbering, as we said earlier,
amount for the business to have
COVID-19 and other factors a lot of
is just making enough above your
in the bank and pay your personal
people are occasionally punishing the
BEP in the belief that something
income. Make you’re your effective
credit cards or having a slow month.
will turn up soon. The fact that you
BEP. Worry when you drop below it.
In difficult circumstances, when
are pennies above your BEP is not
If you are in manufacturing, look to
everything is against you and you
something to be celebrated. It means
every aspect of your cost and sales
should be failing, to survive is a win.
you are always working on the edge.
and work on making them pay your
Right now, we all need a win. However,
That your business is simply moving
upper BEP. If they aren’t doing that
if you find that you are dipping
from one moment of treading
then do something about it quickly. If
below the break even point and then
water to the next and never really
you are in the service or consultancy
returning to it on a regular cycle, it
swimming in the full pool.
areas, you may also want to give more
is strong indicator of trouble ahead
focus to the hours taken to achieve
and you should act. Get advice and
your financial goals as well. I know
take stock of where you really stand.
several businesses where the owners
Under no circumstances fall into the
spend 12 hours a day on their business
trap of Micawbering repeatedly in the
and walk away happy because they
hope that something will turn up to
are hitting the break even point. Sorry,
lift you above it. Nothing may turn up
but when you stand back and look at
and if it does turn up it may not be a
that from the outside, what they are
good thing. If it is an unexpected bill
doing is working unreasonable hours
from HMRC or some other aggressive
to achieve a survival level. Using a
creditor, you could be in real trouble.
In fact, the swimming pool analogy works really well here. Rather than thinking about your BEP as the point at which you are not drowning (hooray!) think of it as the deep-water line (woah!) beyond which you are in danger. Sometimes we see people in real financial trouble who will tell us ‘but I was usually above the BEP’ and in fairness they probably were. This is because treading water and surviving is only fine until you get an unexpected current that pushes you out of your depth. As well as the BEP being an unsuitable measure of success it is sometimes unreliable. If you get the numbers wrong, it can be misleading, and break even is a very dangerous place to be misled. Fixed costs are easy but variable costs are more difficult. If things get difficult a forgotten variable, even a small one, can be the difference between solvent and insolvent. It is really important that you put a good buffer amount into your variables to account for the unexpected.
What is the alternative to focusing on BEP? Let’s be clear, nobody is suggesting that you don’t bother with the BEP because you must know where you stand against cost. Try looking at things differently though. Instead of your break even being your benchmark aim higher and go for an upper BEP. Make this a target figure that covers your costs, a comfortable
8 | Issue 9 – Finance
higher, more realistic BEP, that allows you to work a reasonable number of hours and take a reasonable living makes much more sense, doesn’t it? Now, just for balance, a little splash of cold water on the upper BEP approach. If you hit your lower break even point a few times it is probably not the end of the world. With
BEPs can lull you into a false sense of security and have a siren call of false hope that will put you on the rocks. Treat them as a warning and they will become far more useful.
The Business Bulletin
How a virtual financial director can boost your business growth
Running an SME is a full on roller coaster of a ride. As time ticks, you’re thrown in all sorts of directions and can even feel as though you’re in free fall going backwards sometimes. At the start that’s all really exciting, of course, and you’re able to juggle several aspects of the business yourself whilst you focus on getting the right foundation in place and the orders coming in.
stay up to date, and how much
with your staff knowing their roles and
Taking the next step for the development of your business
responsibilities. But your role becomes
Outsourcing some or indeed all of
need highly experienced individuals
more strategic, and you start to realise
those functions makes a lot of sense
possibly only working part-time on
some of the more specialised jobs now
at this point. Think about the specific
your business. Those are not easy
need a specialist’s eye. For example, HR
knowledge and experience needed to
people to find or keep. And they’re
and recruitment, marketing, IT… and
fulfil job roles effectively, the ongoing
pretty expensive to have on your
finance.
training required to ensure people
headcount too. However, the problem
As your business starts to embed, however, your attention has to split. The day to day running begins to tick over,
working time in a week is actually needed. Every business is different, of course, but odds on you’re going to
Issue 9 – Finance | 9
The Business Bulletin
is you still need them because you know they’ll make a difference to the success of your business. So how do you solve that problem? Being accountants, we’ll take the example of a virtual financial director to illustrate what we’re trying to say. By the time an entrepreneur is considering specialist input as described, the business will have begun to take shape. Within the ranks you will have an overseer (aka Managing Director), a sales leader, an operations leader, an output leader (depending on your product/service
Splitting out the strategic thinking You will hopefully have some idea of where you’re wanting your business to
Your time is freed up
go. If you’ve got a marketing strategy
The role of a finance director is time-
and plan, that’s fantastic. If you’ve got
consuming, particularly if it’s not your
the right people helping you recruit
specialism and you just want to get on
and manage the HR side of your
with running your business. So having
staffing, that’s great. If you’ve got an
a qualified and experienced individual
IT support company ensuring your
carrying out that work on your behalf
communications and technology work
will free up your time and save you
well, then good. Now you need to get a
money.
proper grip on the finances.
administrative function, plus there
How a virtual financial director can help
may be other departments too. All
Strategic financial planning and
these are very much part of the day
reporting takes time. Having someone
to day running. You, as the manager,
working as though they’re a part of
are overseeing everything though and
your team will free you up to manage
strategic thinking is necessary but
the strategic elements of your business
hard to fit in.
as well as the day to day. They will:
offering), and an accounting and
■ Improve the efficiency and effectiveness of your financial reporting ■ Provide detailed analysis of your business activities ■ Identify financial risks to your business ■ Identify profit opportunities for
Roger Eddowes Essendon Accounts & Tax Roger trained at Edward Thomas
Benefits of a virtual financial director
your business ■ Liaise with and manage HMRC, banks, etc.
They’ve already travelled up the learning curve you’re experiencing with regard to finance, so they can work quickly and effectively on your behalf. And you can focus on seeing through the strategic plans you have for growing your business. You have expertise on tap Many SMEs reach a certain size and need the expertise of a finance director; the problem is they can’t justify having one on board full time. A virtual financial director gives you the best of both worlds. Knowledge on tap without the burden of another full-time salary and all that’s incumbent with that. You know the details are being taken care of A virtual financial director will ‘own’ key reporting and financial oversight responsibilities. They will track your
Peirson & Sons in Market Harborough
The right virtual financial director
before working at Hartwell & Co, followed
will have considerable experience of
cashflow and report to you on a regular
working in a business of your size. They
basis, making you aware of concerns
will understand your industry. They
on the horizon before they appear in
his hands dirty’, working with emerging,
will know the traps to watch out for
the business. They will also help you
small-to-medium and family businesses
and how to spot new opportunities.
get to grips with your debtors and
to ensure they receive the best possible
And they will be happy to input the
reduce the delay in you receiving
amount of time your business needs;
payments. Cashflow is still king!
by Chancery, as a partner. He started Essendon Accounts & Tax with Helen Beaumont in 2014. Roger loves ‘getting
accountancy advice. Using an extensive network of business contacts to leverage the best guidance and practical solutions, he has been called a Business Godparent due to his caring, hands-on approach. 07595 021376 roger.eddowes@essendonaccounts.co.uk essendonaccounts.co.uk
10 | Issue 9 – Finance
whether that’s two days a week, or a few hours a month. This gives you access to the
They provide expertise for budgeting and forecasting
expertise your business needs to
They will help ensure your strategic
grow and flourish, without the time
plans are informed by considered
and expense involved in recruiting a
forecasting and supported by
permanent head on a full-time salary.
appropriate budgets.
The Business Bulletin
They provide meaningful information
you in a meaningful way. For example,
effective processes are the equivalent
to aid swift decision making
profitability across product ranges,
of that oil. Your virtual financial
One of the fabulous strengths of
opportunities for profitable upselling,
director will be able to spot where
profiles of profitable customers etc.
problems are occurring from the data
With their input you’ll be able to
they analyse regularly, and highlight to
increase margins, control business
you areas in need of improvement so
costs, and snap up opportunities.
your business can grow unhindered.
being an SME is the ability to be extremely agile. However, to make swift decisions you need useful up to date information to hand. Whether it’s regarding your cashflow, your key clients, or other KPIs, your virtual
They flag risks early
financial director will provide that
A virtual financial director proves
information and help drive your
their worth with enabling business
business forward.
opportunities as described above, but they also help prevent disaster by
They make sense of the data It’s easy for a keen business owner to be swamped with information.
spotting risks in advance too. They ensure your internal processes
A good virtual financial director
support your business
will make sense of the myriad of
A successful business needs to
information available and present it to
operate like a well-oiled engine, and
Is your business in trouble? Whether you have an urgent financial issue, need a plan to deal with growth, or you simply want an exit strategy, we’re here to help. We’ll give you clear, straightforward and empathetic guidance and support.
Call 0116 2967507 (Leicester), 01926 969000 (Warwick), 02476 0179639 (Coventry) or 01604 263179 (Northampton) Or email us on info@smartbusinessrecovery.co.uk smartbusinessrecovery.co.uk
Issue 9 – Finance | 11
The Business Bulletin
Are we heading for an economic cliff? How prepared are you for when the COVID-19 related financial support and other interim measures fall away?
To deal with the financial impact
debt has accrued, including over £4.5
months, these early signs of trade will
of coronavirus the Government laid
billion in rent arrears.
continue.
down what was to become the Corporate Insolvency & Governance Act 2020 (“CIGA”), which became law in June 2020 and had retrospective effect to March 2020. CIGA was seen as a balancing act between the detrimental impact the severe restrictions would have for trading on one hand against shielding business from depleted cash flow on the other. In January 2021, the House of
Furthermore, there is an estimated
announced an easing of bounce back
lending, together with deferred tax
loan repayments in an effort to ease
liabilities, which is most likely going
cash flow demands.
to make HM Revenue & Customs (“HMRC”) a major creditor in most insolvencies, resulting in them having significant influence on the destiny of businesses. This influence is made all the greater following the recent upgrading of HMRC to
Lords debated over the continued
secondary preferential status when
restrictions on creditor enforcement
formal insolvency is required. In short,
imposed by CIGA. These restrictions
this means HMRC are virtually first
were intended to expire on 30
in the queue and this will result in
September 2020 but were extended
all likelihood unsecured creditors
to 31 December and subsequently 31
(including all general trade creditors)
March 2021.
receiving no or a minimal return in
At pretty much the eleventh hour following a budget completely
Furthermore, the Government have
£70 billion of Government-backed
most insolvencies. So, is there any good news I hear
This is welcome news as my concern is many businesses will have taken these loans when they were first launched at a time when COVID-19 would “be over by Christmas” and none of us had heard of the Kent strain – i.e. the business would have several months to recover before the first payment was due or the loan was taken as an insurance policy which was going to be repaid in full with no consideration given to affording the extra monthly repayment should the situation arise. The second and third lockdowns put pay to that and with repayments
silent on this area, the deadline was
you ask? As I sit writing this article
becoming due, many businesses
extended in late March to the end of
on the afternoon on April 12th,
will not welcome the extra payment
June 2021. In general, the restrictions
non-essential retail is open and
now due. Therefore, hopefully the
prevented the service of statutory
there were queues this morning at
extra breathing space will enable the
demands/winding up petitions,
pubs, hairdressers and Primark with
recovery to match the repayment
landlord enforcement and suspended
consumers eager to spend and return
schedule.
wrongful trading provisions. As a result
to normal. Hopefully for businesses
of these restrictions, the latest data
who have been closed for a
suggests an unprecedented level of
considerable portion of the last twelve
12 | Issue 9 – Finance
In addition, recognising the resulting position of HMRC and the detrimental effect COVID-19 has
The Business Bulletin
caused generally, the House of Lords
economy will experience a gradual
have stressed HMRC need to be
slope.
co-operative and engaging with a supportive approach on proposed COVID-19 affected corporate restructuring. Clearly, time will tell on this recommendation and it has certainly not been a strength of HMRC in the past! I would also say this commercial understanding needs to be widened to include landlords and credit controllers who are all seeking recoveries and racing to be first in line for repayment. I asked in the title whether we
Whatever the outcome businesses need to be proactive. Review your cash flow and look at ways of reducing overheads, particularly while your turnover gradually starts to return to pre-lockdown levels. You should engage with your creditors and for those who are owed money, a
Jamie Cochrane PBC Business Recovery PBC is a specialist business rescue
commercial understanding and
and insolvency practice that provides
forbearance is going to be the order
practical, helpful advice with financial
of the day. If all fails, the advice has to be to seek early advice. It is no coincidence those who do seek early
are heading towards an economic
advice find they have more options
cliff. Personally, I would suggest
available than those who leave it until
“normal” (whatever that is) will not
the last minute. As a scout will say,
occur overnight. So, rather than a cliff
“Be prepared” or as Benjamin Franklin
as COVID-19 restrictions continue
said, “By failing to prepare, you are
to (hopefully!) ease off, maybe the
preparing to fail”.
problems. Our approach is friendly, professional and effective and has resulted in us becoming a trusted and respected firm in the business community. 07525 807225 jamiecochrane@pbcbusinessrecovery.co.uk pbcbusinessrecovery.co.uk
The Business Bulletin
Navigating your way around business insurance
14 | Issue 9 – Finance
The Business Bulletin
Starting a small business requires tireless effort and endless financial reserves. Besides dealing with necessary tasks to start the business—affording exorbitant start-up costs, establishing a customer base, forecasting cash flow problems—new small business are besieged on all sides by risks.
The only sure-fire thing you can count
of insurance your business needs to
on during the tumultuous beginning
survive. All businesses, however, can
stages of your business or later in
benefit from the essential covers listed
its development is the protection
below.
offered by commercial insurance. Avoid losing everything to a disaster that you could have easily insured— purchase robust and comprehensive commercial insurance to keep your small business protected on all sides.
■ Employers’ liability is mandatory for all UK employers. It covers employers’ liability for bodily injuries or diseases their employees may suffer in the course of their employment.
Essential covers Small businesses vary widely in their insurance needs. Many different factors—including industry, location, and size—will determine the type
■ Property protects your
■ Business interruption
■ Public liability covers your liability for third-party injury and property damage arising
in the business insurance and risk for companies. She is passionate about helping companies of all sizes to protect and grow their business through bespoke insurance and risk management programmes. Her focus is on being an extension to your business for you to enjoy enhanced insurance protection, competitive premiums as well as a
from your business’ operations.
heather.coupland@konsileo.com konsileo.com
following additional covers. Many businesses cannot afford to go without them. ■ Motor fleet ■ Legal expenses
■ Equipment breakdown ■ Stock ■ Loss of money ■ Trade credit ■ Professional indemnity ■ Crime ■ Key person ■ And much more
■ Products liability insures against damages and costs injury or damage caused by
Scrutinise your business weaknesses
products supplied by your
Harshly scrutinising your business’
business.
weaknesses can help you choose
arising from accidental
■ Cyber liability provides protection against a host of cyber threats, including hacking, stolen data, and system failure.
professional and efficient service. 07925 817624
insurance protection? Consider the
■ Theft by employee
broad range of risks.
to temporarily close.
management sector providing protection
about it that would require additional
■ Goods in Transit / Marine Cargo
damage causes your business
Heather has over 20 years’ experience
business—is there anything unique
buildings, and contents from a
event that insurable property
Konsileo
Carefully consider the needs of your
commercial property,
recoups lost profits in the
Heather Coupland
Additional covers to consider
which covers you need and devise a long-term plan to strengthen your business against foreseeable risks. Part of investigating available insurance covers is determining the points where your business is weakest.
This list is not exhaustive. Depending
Pinpoint the spots where your
on your specific business, you may
business is the most vulnerable, and
need to consider additional cover
secure insurance that bolsters those
options to fully protect your business.
vulnerabilities.
Issue 9 – Finance | 15
The Business Bulletin
Flexibility Insurance brokers allow you to communicate with them through the
Harshly scrutinising your business’ weaknesses can help you choose which covers you need
medium that is convenient for you. This way, you are allowed to express yourself in a way that is convenient for you. The method of communication is key when purchasing insurance programmes and the broker may need time to explain to you the existing products in the market, alternative solutions / options available. Honesty All brokers work is based on the principles of good faith, therefore they
Risk management Many start-up/SMEs choose not to implement robust risk management programmes until a workplace incident forces them to, which is a mistake that can cost them a significant amount of money. Are you taking the proper steps to keep your workers and business safe? Creating a culture of safety in the workplace is central to keeping your employees healthy and productive together with having risk management policies and procedures in place to keep your business assets and reputation safe. Keeping updated on new legislative developments that impact your business
Mistakes in buying insurance cannot be easily undone and can ruin your
interest.
lifetime achievements and reputation with one incident. Expert opinion/knowledge
Advocacy Apart from obtaining the most suitable insurance product, they also
Brokers are licensed officials who are
help when you need to make a claim.
capable of offering professional services
They are there to ensure you get an
to their clients. Insurance brokers
immediate and fair compensation
serve at your best interest to ensure
when you make a claim.
that you find the most suitable deals in the market. A broker recognises extraordinary requirements, identifies the cover you need, arranges it with an appropriate insurer and makes sure your documents are present and correct too. Brokers are knowledge banks concerning all aspect of insurance including risk assessments in determining the best possible ways in which you can protect your property / reputation from damage.
Staying abreast of new legislative and
They are there to assist you in
regulatory updates can be exhausting,
providing professional education on
but it is necessary if you want to avoid
insurance programmes and protection
whopping fines.
mechanisms.
Benefits of using an insurance broker to assist with insurance/risk management
A wide range of selection
Insurance is a necessary part of our life
prices and save you from the hassle.
and although it seems like a chore,
The cheapest option is not always the
you must make sure it is done right.
best option.
16 | Issue 9 – Finance
ensure that they serve your best
Brokers can access a wide range for insurance companies that you may not be aware of and obtain competitive cover and competitive
Responsibility Insurance brokers should be part of your safety team in the event a catastrophe occurs. They will be the first respondent to the calamity to ensure that you have all the support that you need. A broker can only work according to the information that is offered to them. Ensure you find a broker that you trust and spend a bit longer with them to discuss your risks and how to minimise these risks to ensure you are protected properly either by insurance programmes or other risk transfer mechanism. Trust the insurance professionals to craft you a sturdy bespoke policy that offers reliable and comprehensive protection.
The Business Bulletin
The advantages of having your tax return filed early According to HMRC, there were around 700,000 taxpayers racing to hit the deadline of 31st January having left their tax return submission to the last day – with 26,500 people submitting their return in the final hour between 11pm and midnight.
But after many months of upheaval
all expenses that you are entitled to
and, for many, lost earnings, it’s more
and reduce your tax liability.
important than ever to make sure your tax affairs are in order in plenty of time. to pay any avoidable fines for being
There is less chance of you making a mistake
late. While the new tax year may have
While it’s important to make sure
only just begun, did you know you can
both your tax return and tax bill are
file your self-assessment tax return
submitted and paid on time, note
any time after 6th April 2021? I look at
that HMRC can also impose fines
some of the benefits of having your
if it thinks you’ve made careless
annual tax return for the 2020/21 tax
or purposely misleading mistakes.
year filed today.
Careless mistakes are much easier to
This will help guard against having
make if you’re in a rush – which you
You will have more time to pull your information together
likely will be if you leave it until the final deadline day to start thinking about getting all of your paperwork together to file your tax return.
Rather than rushing around at the end
The penalties are based on the
to find receipts, you can take your time
amount of tax you owe and depend
now to pull together your financial
on the kind of mistake HMRC deems
information and ensure that you claim
you to have made.
Paul Simpson Tax Assist Market Harborough Paul has spent his entire working life in financial services, first in banking, then as an independent financial adviser and estate planner. Now he is running his own TaxAssist Accountants business in Market Harborough. Paul uses all of his years of experience in running his own businesses and his extensive tax knowledge to help small businesses and personal tax clients pay the right amount of tax and remain compliant. 01858 383159 paulsimpson@taxassist.co.uk taxassist.co.uk/market-harborough
Issue 9 – Finance | 17
The Business Bulletin
You won’t get fined for being late
bill will be in January 2022 will help
The great thing about being early is
be able to pay it, be that through bank
that you definitely won’t be late, which rules out some pretty hefty fines that can be levied on those who miss the deadline – which you’ll face if you’re just a day late.
HMRC’s call centres are always overwhelmed in January If you’ve ever attempted to get in touch with HMRC’s personal tax helplines in January, you’ll most likely know their hold music by heart. The taxman doesn’t have the best reputation for customer service, and unfortunately, that reputation is hard-earned. Not to scare you, but with increasing pressure on already stretched resources due to the Coronavirus pandemic, and new customs requirements due to Brexit, it all looks set to get even worse. According to HMRC’s own data, released in January 2021, the average waiting time for callers had risen to almost 14 minutes, and 49.2% of callers had to wait for more than 10 minutes to be answered in January 2021. Almost 400,000 callers, around
Knowing exactly how much your tax you to plan effectively for how you will funding or by preparing to engage with HMRC and asking for a phased payment arrangement when the liability falls due. Remember just because you file your return early does not mean that you must pay the liability immediately. That only becomes due for payment in January 2022.
Receive your tax refund earlier There are many reasons why you may be due a tax refund, including excessive payments on account based on the previous year’s income, and for employees and directors where HM Revenue and Customs (HMRC) have made errors with their tax codes. Building subcontractors who have had tax deducted at source through the Construction Industry Scheme (CIS) are often in a tax refund position. Therefore, the sooner you file your tax return, the sooner any refund you may be due can be processed. What better way to boost your cash resources than
Have more time to focus on your business If business is quieter for you now, your income tax return is a job that you could get done and out of the way. When business is back to normal then you will have more time to focus on getting your business back on track rather than on your tax returns.
Your Christmas won’t be ruined A survey we carried out a few years ago found that over 50% of small businesses were stressed about Self Assessment. With the number of selfemployed workers in the UK growing faster than ever, more and more people are facing their first ever filing – in fact the number of people required to file has increased by over 1 million in just the last four years. Filing early will mean you can avoid the mid-January dread felt by many freelancers and contractors, and enjoy a well-earned worry-free rest over the festive period. HMRC even used this angle in its most recent advertising push, promising taxpayers they would “find inner peace” by filing on time.
by claiming a refund from HMRC?
1 in 5, didn’t manage to get through at all, abandoning their attempts whilst waiting in the 3 month period from September to November 2020. The moral of the story, folks, is that if you think you might need help with your Self Assessment, don’t leave it until January or you’ll have some lengthy hold times.
Work out your tax bill to help plan your cash flow Many businesses are trying to forecast their cash needs for the year ahead and one of the biggest expenses the self-employed will have before the end of the tax year will be their income tax bill.
18 | Issue 9 – Finance
If you think you might need help with your Self Assessment, don’t leave it until January or you’ll have some lengthy hold times.
The Business Bulletin
My bank won’t finance my business – now what? Bank bashing has become a national pastime since the financial crash of 2008. The sight of bankers receiving a taxpayer bailout while continuing to pay themselves bonuses, plus the public scapegoating of the likes of Fred Goodwin made these institutions public enemy number one.
Even now, over a decade on, I hear
with restrictions being harder and
if they have turned you down, leaving
daily complaints about the major High
more expectations of clients when
you wondering what to do next.
Street banks with the most common
it comes to providing personal or
complaint being (certainly before
business security and deposits.
the COVID crisis anyway) that they have either declined some business lending or, if they haven’t declined it, that the terms and conditions offered are so onerous that they might as well have declined it. It is unquestionable that the risk appetite of banks has
This article hasn’t been written to
In truth, this would be a useful guide to read even before approaching your own bank for a
discuss the merits of dealing with a
request as they are not always the
High Street bank and the pros and
best option for you.
cons of this. It is rather about what to do if you have been to your own bank for a lending request and what to do
changed dramatically since the crash,
James Blacklaws JB Commercial Finance James, an ex-banker, is a highly experienced and fully Independent Commercial Finance broker, authorised and regulated by the FCA. With whole-ofmarket access. He specialises in helping businesses declined by their banks; businesses looking to grow, survive and purchase commercial property. 07722 432128 james@jbcommercialfinance.co.uk jbcommercialfinance.co.uk
Issue 9 – Finance | 19
The Business Bulletin
Approach another bank This may seem strange, but just because your own bank has declined your request, doesn’t mean that another bank will. All lenders have different criteria and banks are no different with emphasis on differing sectors and industries depending on their risk appetite at a particular time. Having a trading history with a bank doesn’t mean they are always the ones most likely to support your business. Banks lending policy is generally reasonably rigid so you may ‘not fit in the box’ for your own bank but, for
percentage of the business lending
treated? Are the trade terms given
market in recent years. We have seen
too generous? Can trade credit
this continue with the involvement
days given be reduced or incentives
of fintech lenders in the Government
offered for early payment, reducing
Loan Schemes during the COVID era.
the businesses outstanding invoices
The banks have also been reluctant to deviate outside ‘traditional’ lending products such as straightforward business loans and overdraft facilities. There are services available outside these which have been pioneered by alternative lenders which can offer a more bespoke offering to a business customer.
Outside Investors
exposure in a certain industry, you may
If it is impossible to secure
be a very attractive proposition.
conventional lending, it may be worth considering an outside investor. There
Well, I would say this wouldn’t I? A commercial broker should have access to most of the High Street banks, plus multiple other lenders. They will explore the marketplace for you and ensure you get the most appropriate deal for your circumstances. A couple of pieces of advice if dealing with a broker. Always make
are multiple ways of doing this. It can be possible to secure business loans (at commercial rates) from third parties or even giving part of the business away to an investor in exchange for a capital injection, known as equity finance. While the idea of selling part of your business can be very frightening, it can be a way to bring expertise and investment in without having to go through the rigmarole of applying for bank finance.
sure they hold the required FCA authorisations and are a member of the National Association of Commercial Finance Brokers
business owners prefer to keep their business and personal finance separate, injecting funds personally into a business can sometimes be the most cost-effective way to facilitating a cashflow requirement. If a limited company needs funding, then a director’s loan can be a suitable way of doing this. It will
a lender desperate to increase their
A commercial finance broker
and aiding cashflow. While many
Other external finance methods Many businesses do not consider
not cost the business interest, can be repaid on demand if needed, and won’t require involving a third party to approve a request. This only applies if the funds are held in liquid form by the director. If they are having to borrow these funds personally to inject into the company then interest will have to be paid and an application process will be required. The important thing to remember is that despite the current economic climate, the business owner has never had more options when it comes to borrowing money for their business. Prior to the 2008 recession, the High Street banks controlled virtually all the business lending marketplace with a handful of alternative lenders offering nominal competition. Now, depending on the product
The secondary marketplace
looking at their existing trade
you wish to apply for, you are likely
arrangements when looking at
to have multiple options outside the
funding. While it is possible that they
more traditional lenders with a suite
No longer the alternative option
do require a form of bank funding,
of products where before there were
for many business owners. In fact,
it may be equally possible they can
one or two.
many well established businesses
tweak the way they currently work.
are funded exclusively by secondary lenders. In the wake of the banks contracting post 2008, the alternative market really stepped up to the plate with a range of innovative products being offered to help fill the gap. This influence continued to grow with the birth of the fintech lender who are responsible for a considerable
20 | Issue 9 – Finance
For instance, can more credit be
Being turned down by your bank does not have to be the end of the
extended by existing suppliers? If
road for your finance. It may just be
trade limits haven’t been reviewed for
the start!
a couple of years, then an increase in limit or an extension of terms can relieve the cashflow pressure in a similar way to a lending facility. Conversely, can amendments be made to the way customers are
Securing your business
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The Business Bulletin
What are the pros and cons of having investors? So, you’ve put some of that redundancy money into this business idea you had. Then you’ve borrowed a bit more from the family to give you enough to get the business up and running, and joy of joys you’re actually making a little money. The problem is now that, to start making some serious money, you need to grow the business significantly and to do that you need to raise additional finance. Before talking about potential sources
To cut a long story short a better
you will normally be able to negotiate
of finance, however, there is one
alternative might be to look for
a much better deal based on a
thing that needs to be mentioned.
investors. At this point many people
number of arguments e.g.
This is to make sure that you have a
shy away from the subject usually
proper, rock-solid business plan to
based on the argument “they will want
demonstrate to potential lenders/
to take control of my business”. In most
investors that you have a realistic
cases that will not be true, although
view of where you need to take the
in many cases they will be looking for
business and how you get there.
a reasonable share of the equity. The
Without such a plan the chances of
question then is “what is reasonable?
raising finance are greatly reduced. The obvious first choice for finance
Let’s say you (and the family?) have already put £50,000 into the business
1. The value of the business has already grown significantly since you put your funds into it. 2. You, and maybe other directors, have put a considerable amount of what is called ‘sweat equity’ into the business to get it where
is your bank. They might be prepared
but you now need to raise a further
to help but they will certainly want
£100,000 to take it to the next level
security against any loan. That will
for stock, marketing and a couple
usually mean a charge against your
of new members of staff. Does that
property (assuming you have one).
mean I have to give away 66% of my
Also you will be tied into a specific
business? No, it certainly does not!
to divide the total sum of
repayment schedule with its effect
With the help (if you need it) of a
investment between an
on cash flow.
good accountant or finance broker
equity-based portion with the
22 | Issue 9 – Finance
it is without taking significant amounts out by way of salaries or dividends. 3. There is often the option
The Business Bulletin
balance being provided as either a secured or unsecured loan at an agreed rate over an agreed period. Particularly if you are new to the game of running your own business then one of the advantages of taking on an investor (or investors) is that, because these are normally successful business people, they bring to the table not only the funding you seek but also a lot of knowledge and experience that can be of immense help when looking to develop the business. The ideal, of course, is to find investors who have in-depth experience of the market that you
It is always important to try to ensure that, for obvious reasons, whoever you take as investor, they are someone that you can get along with
are operating in. Their contacts in this regard can be invaluable. It is always important to try to ensure that, for obvious reasons, whoever you take as investor, they are someone that you can get along with, particularly if they are going to be involved in helping to run the business. The decision on this should come from the pre-investment discussions/negotiations. On this same theme it is also vital that you ensure that the terms of any loan/ investment are clearly defined in a legal document i.e. either a loan or shareholders agreement signed by all parties. Among other thinks the agreement should define clearly what the investor will get out of the deal and their possible exit route(s). Too many early stage companies overlook this important step, so choose carefully. As a friend of mine said “A good angel is a boon . . . a fallen angel can be a nightmare!” Much of what I have said so far relates particularly to investments into early stage businesses. It must be said, however that even mature businesses seeking additional investment need to give careful consideration of the
to ensure that there are no hidden
your choice of investor and the terms
traps in the proposed investment e.g.
under which the investment is made
anyone owning in excess of 25% of
are properly vetted.
shares in a company can veto board decisions unless otherwise stated in the SHA (Shareholders Agreement). I briefly mentioned the question of equity on offer in return for investment. This is always a difficult question. The most important factor is to be as realistic as possible. Offer a reasonable amount of equity. This can often be based on a ratio of amount to be invested against perceived value of the business. This in itself raises another potential ‘bone of contention’. Who is to say what a fair valuation
Peter Douglas Business Finance Services Having successfully completed a Degree in Business Studies Peter spent over 20 years in Export Sales and
of the business is? This is where a
Marketing. He then decided to give up
business valuation specialist may be
the globetrotting life and, with his wife,
the best solution. When seeking investment it is essential to ensure that there are no ‘skeletons’ in any cupboards as a competent investor will undoubtedly unearth them whilst carrying out their due diligence. So be warned! There is much else that can be said
terms of any proposed investment. It
about taking on board investors, but
is essential to always get the advice
in general this will be an action that
of a competent commercial lawyer
will benefit the business as long as
bought a small business which they ran together. Peter has been involved in running SME’s ever since and set up BFS in 2002 having spent time getting an education in commercial finance. He says “Whilst it is hard work I have never had so much fun as running BFS. Nothing gives more satisfaction than helping SME’s to grow or regain their strength”. 07770 866955 peter@bufinserv.co.uk bufinserv.co.uk
Issue 9 – Finance | 23
The Business Bulletin
To be or not to be competitive Used in the context of business, the word “competitive” takes on a different meaning to what you’d normally expect. When a business or a customer uses the word “competitive” they’re referring to low or cheap prices.
“Competitive” should be about the
needs of the customer in the same
lots of customers thank you very
ability to deliver better value or a
way. All these things make us unique
much.
better performance to your customers
and different to our competitors.
than your competitors and not about a better price and yet many
So why do we feel the need to be
Yes, it’s true we all like a bargain and don’t like being overcharged
competitive? Is it because we believe
but there are many examples of us
that the only way to win customers
being prepared to pay a lot more
is by charging the same as (or, even
for something we value. If we were
worse, less than) our competitors.
only driven by price, why would any
in your pricing and does it make it
Or that price is the priority for every
of us buy an iPhone or a BMW or a
easier to win customers? Who does
customer? Or that low prices attract
Fitbit when there are much cheaper
it benefit the most? The customer or
lots of new customers and lead to
alternatives that do the job just as
ourselves as the service provider? And
a higher volume of sales that in
well? It shows there is not always logic
can we win customers without being
turn leads to higher profits? Given
to what we buy and that price is not
competitive?
how often the word “competitive” is
always the deciding factor.
businesses promote competitive pricing as a USP. So is it good to be “competitive”
attached to a low price structure you
Is it a competition? I would argue that it isn’t. Whether we’re a website designer, an
have to assume that we do. Or at least believe that our customers do.
Higher volume of sales at a low price increases your workload with no guarantee whatsoever of it increasing your profits. If you really want to
media expert, a butcher, a baker,
So what’s wrong with these beliefs?
a candlestick maker or any other
Well, to start with, 85% of SMEs
profession for that matter, none of us
undercharge for their services. That
work in exactly the same way or end
means all you’re doing is helping to
up with exactly the same result as our
further drive down the price. If you
fellow service providers. No matter
were to take the time to do some
attracted to you because of your low
how crowded our marketplace is we
market research, you would find that
price will likely end up more time-
don’t have the same qualifications,
of the other 15% there are some SMEs
consuming and a pain to work with
experience, qualities, approach, ethos
charging eye-watering sums of money
than those that appreciate your value
or the same connection with the
for arguably no better results and
and are prepared to pay more. Is that
customer nor do we interpret the
they’re still winning (and retaining!)
the type you want to attract?
accountant, a business coach, a social
24 | Issue 9 – Finance
guarantee an increase in profits then it would be much better to increase your price rather than lower it with the added benefit that it would reduce rather than increase your workload. Frankly customers that are
The Business Bulletin
Are you wrong to be competitive?
many qualities and competences that
Not necessarily. There’s nothing
be brave enough to charge for them.
inherently wrong with keeping your prices low but make sure the amount of value you bring to your customers matches the amount you’re charging them. Don’t offer a British Airways service for a Ryan Air price. If you offer a low cost price then offer a low cost service. You can always offer additional services but on the understanding that you charge extra for them. Otherwise you may end up out of business and out of the competition. And there’s also a risk to the customer that they could end up with a low cost service that won’t bring them nearly as much benefit as a higher value, higher priced service. If you were to charge them more, and be in a position to offer them more value, that could be far better for them in the long run.
So what’s the advice? Be aware of what your competitors are
your competitors don’t have. Promote the heck out of those differences and There is absolutely nothing wrong with being more expensive. Like the Stella Artois slogan “reassuringly expensive” it could be an effective
Margot Clarke
selling point and make you stand
Clarke Consultancy
out. Many customers will often look at the price as an indication of the value they’ll get. The higher the price the more value they believe they’re getting… even when they don’t. And if you’re struggling to get new clients then it’s likely not a problem with your price but one of three other things. Firstly, you’re rubbish at selling yourself and need to do a crash
Margot provides business support to a variety of companies across a wide range of industry sectors. With an international background, she is highly experienced in helping business owners understand what’s really going on in their business. If you’re struggling to understand your numbers, Margot’s thorough approach to accounting allows you to control your cash flow and manage your figures, so you can meet your business objectives.
course on how to improve those skills.
07711 011368
Secondly, you’ve introduced your price
margot@margotclarke.co.uk
too early in the conversation and need
margotclarke.co.uk
a crash course on how to promote the value you bring. And thirdly you’re marketing yourself to entirely the wrong sector and need a crash course on customer profiles. If you want to charge premium
charging but then set the competition
prices you need to be working with
aside. You are you. An individual with
premium customers.
Issue 9 – Finance | 25
The Business Bulletin
Making Tax Digital – unraveled! Initially launched in April 2019 for VAT registered businesses with sales exceeding £85,000 but the government has recently announced the next phases of Making Tax Digital which will affect more and more individuals and businesses.
If you are not yet filing your VAT
their tax right and keep on top of
returns under Making Tax Digital or
their affairs”. This initiative will be
are self-employed or a landlord then
rolled out over a number of years
you may be affected over the next
and will eventually see every part of
couple of years.
the tax system being processed and submitted online using digital records.
What is Making Tax Digital (MTD)? Making Tax Digital is a government
What does it mean by digital records?
initiative to “make it easier for
HMRC have provided a list of the
individuals and businesses to get
information required to be kept in a digital format for MTD for VAT purposes. This includes: ■ your business name, address and VAT registration number ■ any VAT accounting schemes you use
Ruth Chettle Canary Accounting After spending the previous 12 years working in a number of Northamptonshire practices, Ruth decided to take the leap and set up her own practice in January 2020. Specialising in looking after individuals and owner-managed businesses her aim is to make accounting and tax less stressful, more affordable and make things as easy for you as possible. 07805 973447 ruth@canaryaccounting.co.uk canaryaccounting.co.uk
■ the rate of VAT charged on goods and services you supply ■ reverse charge transactions – where you record the VAT on both the sale price and the purchase price of goods and services you buy ■ your total daily gross takings if you use a retail scheme ■ items you can reclaim VAT on if you use the Flat Rate Scheme HMRC have not yet provided a detailed list like this for MTD for income tax but have said digital records are to be kept for all business income and expense.
you sell, lease, transfer or hire out
MTD Phase 1: VAT registered businesses with taxable sales over £85,000
(supplies made)
The first phase was introduced in April
■ the VAT on goods and services you supply, for example everything
■ the VAT on goods and services you receive, for example everything you buy, lease, rent or hire (supplies received) ■ any adjustments you make to a return ■ the ‘time of supply’ and ‘value
2019 for VAT registered businesses with taxable sales over the VAT threshold (currently £85,000).From this date those businesses were required to keep digital records and use software to submit their VAT returns. This was a major change for VAT registered businesses as they needed
of supply’ (value excluding VAT)
to change the way they did their
for everything you buy and sell
bookkeeping. This meant moving away from handwritten cash books or
26 | Issue 9 – Finance
The Business Bulletin
VAT workings scribbled on the back of an old envelope. Spreadsheets can still be used but you will need ‘bridging software’ to get the data in the right format which is required to submit the VAT returns to HMRC. Many businesses submitting their
Assessment tax return. As we are still quite a way from this date there are not yet many compatible software providers on the HMRC list but I would expect over the next year for more and more to be included.
VAT returns under MTD are now using MTD compatible accounting software such as Xero and Quickbooks Online. If you are currently voluntarily VAT registered (taxable sales under £85,000) then you can still sign up to MTD. HMRC has always encouraged this in preparation for the next steps. To sign up for MTD for VAT you just need to login to your HMRC online
Planning for MTD phases 2 and 3 If you are going to be affected by the
using compatible accounting software so that you have time to get to grips with it before it becomes compulsory. ■ Get into the habit of keeping on top of your accounting records quarterly. Not only will this be beneficial to your business it will mean it is not a big shock when the time comes. Speak to your accountant to
next phases of MTD it is worth starting
discuss the best options for you and
to plan for it now.
your business.
Things you could do: ■ If you are already VAT registered
services account and register. The
and using compatible
process is very quick and easy.
accounting software there is nothing to stop you registering
MTD Phase 2: ALL VAT registered businesses From April 2022 it will be compulsory for ALL VAT registered businesses to
with HMRC early to get it out of the way. ■ You can use the start of your next accounting period to begin
be signed up and submitting VAT returns under MTD. This means that those businesses not yet using MTD compatible software to submit their VAT returns will need to start doing so.
MTD Phase 3: Selfemployed and landlords with income over £10,000 From April 2023 it will be compulsory for self-employed businesses and landlords with income over £10,000 to follow MTD for income tax from your next accounting period starting on or after 6th April 2023. This means that self-employed individuals and landlords will need to be using MTD compatible software to keep your records. The plan is that you will submit your information every 3 months to HMRC using the software. Then at the end of your accounting period you will submit a final declaration. The final declaration will replace the Self
Issue 9 – Finance | 27
The Business Bulletin
Domestic Reverse Charge – say what now? In March 2021, the VAT position changed as far as certain construction services are concerned with the introduction of Domestic Reverse Charge (DRC). So what led to this momentous change?
HMRC has bought about this change in a response to sustained criminal attacks of stealing public money through missing trader fraud. They calculate that this will prevent losses estimated at £100 million per year. The DRC is already in place in 18 EU member states for various goods and services. The diagram right shows how missing trader fraud works.  The customer will account for the VAT rather than the supplier by doing a reverse charge entry on their own VAT return. This means that as the supplier you will neither charge VAT nor collect it from the customer.
28 | Issue 9 – Finance
The Business Bulletin
No VAT payment is made by the
■ Pipelines, reservoirs, water
customer to the supplier hence a
mains, wells, sewers, industrial
reduction in gross payments being
plant, and installations for
received by the supplier.
purposes of land drainage, coast protection or defence.
What services will the charge apply to? Only supplies of “specified” services will be subject to the reverse charge. Services supplied to nonconstruction businesses, such as a high street retailer, having their premises improved or any other end
■ Installing heating, lighting, air-conditioning, ventilation,
Wendy Tate
power supply, drainage,
Bean Counters
sanitation, water supply or fire protection systems in any building or structure. ■ Internal cleaning of buildings
Bean Counters is a forward thinking Accountancy practice, specialising in Xero Cloud-Based Software and have been a Xero certified practice since 2014.
and structures so far as carried
Whether your business is new or old it
user customer or building owner
out in the course of their
needs efficient accounting services for
are exempt from the new rules. It is
construction, alteration, repair,
only supplies between construction
extension or restoration.
businesses that are caught. The reverse charge will also apply to any goods supplied by a builder as part of their work. Supplies between landlords and tenants are excluded from the reverse charge as well as supplies involving connected parties. In such cases, the supplier will continue to charge VAT as happens now.
What services covered by the reverse charge? The services that will be covered by this are described as construction services based on construction
■ Painting or decorating the
■ Constructing, altering, repairing, extending, demolishing, or dismantling buildings or structures (whether permanent or not), including offshore installation services. ■ Constructing, altering, repairing, extending, demolishing of any works forming, or planned to form, part of the land, including (in particular) walls, roadworks,
to your needs. So speak to us about your bookkeeping, payroll, VAT and compliance needs.
inside or the external surfaces of any building or structure. ■ Services which form an
07810 562295 wendy@bean-counters.co.uk bean-counters.co.uk
integral part of or are part of the preparation or completion of the services described above. This includes site clearance, earth-moving, excavation, tunnelling and boring, laying of foundations, erection of scaffolding, site restoration, landscaping and the provision of roadways and other access works.
operation for CIS purposes, and will include the following:
growth and sustainability, we offer an outsourced accounting solution tailored
What service are excluded from reverse charge? There are a number of exclusions from reverse charge VAT and these include: ■ Drilling for, or extracting, oil or natural gas. ■ Extracting minerals (using underground or surface working) and tunnelling, boring, or construction of underground works, for this purpose. ■ Manufacturing building or
■ Manufacturing components for heating, lighting, airconditioning, ventilation, power supply, drainage, sanitation, water supply or fire protection systems, or delivering any of these to site. ■ The professional work of architects or surveyors, or of building, engineering, interior or exterior decoration and landscape consultants. ■ Making, installing and repairing artworks such as sculptures, murals and other items that are purely artistic. ■ Signwriting and erecting, installing and repairing signboards and advertisements. ■ Installing seating, blinds and shutters. ■ Installing security systems,
power lines, electronic
engineering components or
communications equipment,
equipment, materials, plant or
including burglar alarms,
aircraft runways, railways, inland
machinery, or delivering any of
closed-circuit television, and
waterways, docks, and harbours.
these to site.
public address systems.
Issue 9 – Finance | 29
The Business Bulletin
Taxpayer Impact There will be an impact on the cashflow of businesses making reverse charge supplies as they will no longer collect the VAT on their sales invoices thus reducing the cash received into their business. Affected businesses may go from a payment to a repayment on their VAT returns, as a result. To help manage cash flow it may help affected business to file Above is a simple flow charge that
invoiced under the new reverse
monthly VAT returns.
will help you decide whether you
charge rules are properly registered
need to apply the reverse charge to
for VAT and are bona fide. You should
you invoice.
consider asking new customers to
Reverse Charge VAT Return Entries
provide details of their registration as a
The entries for your VAT return will look
contractor for CIS purposes.
slightly different for both reverse charge
 To avoid complications with different VAT elements on the same invoice if any of the goods supplied
When it comes to your business
are subject to reverse charge this
records, sales invoices should include
should be applied to the entire
a reference to “reverse charge” so
invoice, this does differ from CIS
that the customer knows they must
treatment, so be mindful of this.
account for output tax with the
What amount of VAT the customer must account for? The reverse charge will be based on the rate of VAT that applies for the work in question but only supplies subject to either 5% or 20% VAT are affected, zero-rated work is therefore excluded. The same principles will apply to retention payments paid to suppliers of construction services, the reverse charge will apply if the supply relates to a specified service. NB: Employment businesses are excluded from the new rules, so you will continue to charge them VAT as normal after 1 March 2021. An employment business is making supplies of staff rather than
appropriate calculation. The amount of VAT should be shown on the invoice or at least the rate of VAT that applies in each case.
the following boxes on your return: Supplier ■ Box 1 – nothing is entered here. ■ Box 6 – enter the net value of the supply.
It must be extremely clear that the supplier is not charging VAT, and HMRC’s guidance suggests including the phrase: “Reverse charge: customer to pay the VAT to HMRC” on any such invoices. Xero allows for
Customer ■ Box 1 – Enter the amount of VAT due as if it were a sale. ■ Box 4 – Enter the amount of
different invoice templates so I would
VAT reclaimed, reverse VAT
suggest setting one up specifically for
recoverable.
this purpose. If a customer informs you that they are not subject to the reverse charge, they need to confirm this in writing so that you can charge VAT in the standard way. HMRC suggests that, if there are any doubts about the credentials of a customer, for example if they state
construction services.
that they have registered for VAT
What steps should you take if you supply construction services?
a deposit equal to the amount of
Checks should be applied to ensure
seek to collect the VAT due from you,
that building contractors being
not the customer.
30 | Issue 9 – Finance
sales and purchases, and will impact
but not received a VAT number yet, output tax not being charged should be collected. This is to cover you if the new rules don’t apply, as HMRC will
■ Box 6 – Nothing to enter as no sales has been made. ■ Box 7 – Enter the net value of the purchase. HMRC has set up a specific email address to support business who have further questions surrounding this issue, it is Indirecttax.vatsncfteam@ hmrc.gov.uk
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The Business Bulletin
Spotllight on…
Spotlight on Rob Harris Rob Harris is CEO of Your Financial Friend. He is a financial educator, teacher, mentor and friend. His passion is to empower each and every person he can with the tools, information and skills to grow their money, investments, pensions and to take ownership of their financial future. He gave financial advice professionally for over 30 years before setting up his own company.
32 | Issue 9 – Finance
The Business Bulletin
I will have to take you on, won’t I?”
then between a financial educator
So within about seven days, I came
exposed I’m sure. I think it’s key and
and a financial advisor?
back with three application forms, all
it does validate what I’ve explaining
Well, the regulator would say that
signed up for life assurance. He had
recently to people who have small
to take me on!
amounts of money in their pension.
the financial adviser will tell you what to do. The educator can give
In the 1960s there was no regulation
you guidance and information. An
of any sort. You could just become
educator can even suggest to you
an insurance broker if you wanted
what you might want to do but they
to. I bought myself a book from WH
can’t tell you what to do. It is a very
Smith, it was called “Teach Yourself
narrow borderline.
Insurance”. That’s how I began to learn.
They’re often not to access those pension funds without getting financial advice. That’s very sensible in many ways. However, if someone’s got a pot of £7,000, a financial advisor cannot afford to help them.
I went cold calling and that’s how I
Recently a lady was told that
How did you end up in the finance
came into it. That was the very early
she couldn’t access a pension fund
world as a young man?
beginnings for me.
without financial advice. She was
I was in a situation where I did an
recommended to an advisor who Is it a better world now it’s quite
wanted to charge £720. That’s quite
industry from the point when I left
heavily regulated?
understandable because the advisors
school, but it wasn’t really the right
An interesting question. I think in
got to cover all their costs. There’s
place for me to be. I was trapped
some ways, most certainly it is. And
in for about six years. I became a
in other ways, it most certainly is not.
qualified journeyman. I stayed in the
You have to have regulation. I do smile
industry for a while. In the church
sometimes. Every time the regulators
that I used to go to, there was an
fine somebody, I think they failed -
admirable man, whose name was Jim
regulation should have prevented the
- Jim always had a twinkle in his eyes!
wrongdoing in the first place. This is
So how does somebody going about
a personal view, but we do find at the
choosing a financial advisor as there’s
moment that the financial advisors
quite a lot of choice out there?
are often limited and can’t actually do
I’ve been in this industry for 50 years, so
apprenticeship within the print
Jim was an amazing man. In the Second World War - he trained our guys to fly and parachute down behind enemy lines. He would always be the first one out of the plane, then he would work his way back to the UK through enemy lines, and then do
what they believe is the right thing to do because there have been Financial Conduct Authority warnings. Perhaps the advisor believes a
nothing wrong in what the advisor’s doing with that. What is wrong is all the fear and warnings of going against the regulator’s advice to do what you think is the best thing.
I do feel as though I know the industry from the inside out. I’m aware of things that are outside of the industry, that as a client seeking advice, you wouldn’t
it all over again. I was fascinated by
concentrated portfolio, rather than
necessarily be aware of. There are many
him and his character. I kept nagging
a diversified spread of investments
different levels of financial advisor.
him – “Jim, I want to come and
would be the best advice. However
Please don’t choose your financial
work with you.” He was an insurance
the text book and the regulator
advisor, just because you like them.
broker. He said to me – “I’ll give you
would require diversification. The
It’s important if you have a chemistry
three life assurance application
economic background may mean
with the person you’re going to work
forms, go and see your friends and
diversification will not bring the best
with when they are looking after your
your mates. If you can sign them up,
result for the client.
wealth and your pension.
A fundamental mistake that is made is based on the textbook about financial advice Issue 9 – Finance | 33
Spotllight on…
That’s a controversial view I’ve just
What would you say is the difference
The Business Bulletin
However, you really must ask
Spotllight on…
them deep questions. In the world of business networking, we often talk about getting to know somebody, getting to like them, and then feeling if you like them, we trust them. We need to go deeper than just feeling. There needs to be a bit of forensic science around the question. The kind of question that I would be asking with the knowledge I have is: are you truly an independent financial adviser? By that I mean are you directly regulated with the Financial Conduct Authority? Or are you regulated through a company midway between you and the regulator, a kind of an umbrella company? That may not be a bad thing. In my view however, that could limit the kind of advice that the advisor could give you. I sometimes say to people, ask your advisor, if they felt with economic conditions were such that it was right for all your money to come out of investments and sit in cash for the meantime, would they do it? There are very few advisors that would do that because the principle is you should always diversify your money across different kinds of investments - some will go down, some will go up. You might be comfortable with that. But on the other hand, you might think I want to do a bit better than just the average. You need to find out whether your financial advisor you’re choosing is “outside of the box”, or is he or she rigid in the regulatory framework?
I bought myself a book from WH Smith, it was called “Teach Yourself Insurance”
A proactive financial advisor will always look two steps ahead of the market. For example, if there was going to be a sudden spike in inflation, I would hope that your financial advisor would be aware of that. Therefore they would be taking some steps; maybe to shape your portfolio to take care of that inflationary possibility and to take advantage of it. This might be changing your investment over to gilts that have an inflation linked rate of interest.
34 | Issue 9 – Finance
The Business Bulletin
A fundamental mistake that is financial advice and indeed regulators. Many advisors will decide that certain kinds of assets or investments are high risk and others are low risk. I shake my head controversially maybe with all my 50 years of background - I know that the risk of any investment is not what the textbook may tell you. The risk and reward for your investment depends on the economic and political conditions around the investment. So you see, you need a
w
Learn enough about investing to be able to choose a good advisor or take control and do it yourself.
financial advisor who is market aware. Why do you do what you do? What
want to do. That’s what I’m about. I
have that surplus to share with the
gets you out of bed in the morning?
help putting the light on for people.
world of people who are suffering
‘Why’ is the big question we all ask
An awful lot of our money and our
about life and everything else? Why
financial thinking and what we do
are you here? Why am I here? So if I
with it can often be traced back to
talk about why I do what I do, that’s
our parents’ attitude. I guess it’s that
just one little piece of the jigsaw. To
old thing of still keeping your money
understand why I do what I do, you
under the mattress! If you see it and
have to understand more about the
can touch it, you know it’s there.
rest of my life really to get the proper
Whereas if you invest, it goes into the
picture.
air a little bit, doesn’t it? I can totally
Some people are pretty knowledgeable about investments, that’s good. But the bulk of people actually know
and how to handle it and what to do
people’s attitudes. It’s very difficult
with it, or they are just dependent
to help people to move from one
upon a financial advisor. They don’t
attitude to another. The challenge
really understand where their money
isn’t competition in the wider
is or what it’s doing. For some people,
marketplace - it’s very hard to find
they’re completely in the dark, there’s
another financial educator. I have to
no light about the subject.
be very gentle and careful about how
it’s not going to be easy. That means we all need to make the most of every pound we’ve got. That actually means you’ve got to move money out of
If you were to give one top tip for any business owner out there, what would your top tip be? I’ve learned from quite an early stage
things I’m not good at. I don’t want to
I think the biggest challenge is
economic conditions we’re facing now,
wealth? Does it buy happiness?
What would you say has been your
greyness about investment of money
in a world now where because of the
people out there really is what is your
in my business life, to offload the
biggest challenge to date?
just missing out usually. We are living
things? An interesting question for
understand that fear.
very little. They’re in the stage of
People who are in this place are
from lack of food and all the other
I approach people. I can look over a roomful of people and know that if I
things that I don’t enjoy, to offload the learn how to do it and take up hours of my day. I can get more benefit to other people face to face, sharing my knowledge. That’s my income as well. So as much as I’m on the coalface and not in the admin work, that’s good for my business and other people’s business will flourish as well. You’re also gaining back the time which is an investment in itself – time to invest to make a business successful.
can get my message across to them, their financial well-being will grow; be substantial. The difference that
Watch the interview
handling money profitably, sensitively, prudently and knowledgeably can make is absolutely huge.
This is an extract of a video interview – to watch the
banks and building societies and into
In a world where we know there
proper investment. To do that, you’ve
are so many people struggling and
www.youtube.com/
got to understand what you’re doing
suffering, wouldn’t it be great if we
watch?v=YutaLvGu7zA
and weigh up whether it’s what you
could make some surplus profit, and
full session, visit: https://
Issue 9 – Finance | 35
Spotllight on…
made is based on the textbook about
The Business Bulletin
What impact is the “new normal” going to have on procurement Many of us are tired of the term ‘new normal’. We are used to, yet tired of social distancing, many of us long to walk into a pub and order at the bar ‘just like we used to’, but deep down we know, nothing is ever going to be quite the same again.
Almost every area of business life has
set up work stations in home offices,
channels, although they lacked much
been affected, but in this article, I am
at kitchen tables, and in garden sheds.
of the physical infrastructure to make
going to focus on issues related to
Elsewhere, the retail, hospitality, travel
it efficient. Inevitably, prices became
procurement and supply chain, looking
and personal service sectors effectively
negotiable as the key players tried to
mainly at ‘indirects’ – the goods and
closed for months.
defend their share of a much smaller
services which keep business running.
Unexpected consequences
The impact on some supply chains was remarkable. Almost overnight,
market. In other markets, demand held
food service suppliers saw a huge
up, but there was a dramatic shift
The UK underwent a dramatic
drop in demand as hospitality venues
from one supply chain to another.
structural change in March 2020 – one
closed and schools were only open
As workers remained at home, they
which disrupted infrastructures which
for a small number of pupils. Left with
still used pens and Post-It notes,
had evolved over decades. In a matter
few customers beyond healthcare,
but it stopped being economic for
of days, millions of workers stopped
wholesalers such as Brakes tried to
the traditional stationery suppliers
travelling to their places of work and
pivot and develop home delivery
to deliver to the point of use. Step
36 | Issue 9 – Finance
The Business Bulletin
forward Amazon, for whom the
was disrupted at the start of the
there has been some recovery since
pandemic delivered massive growth
pandemic. Now, there appears to
‘Lockdown 1’ the industry is reporting
in B2B and B2C, creating disruption
be the risk of disruption in India. It
that volumes are still down by 20-30%,
in multiple supply chains. Meantime
is more than time to interrogate the
in particular where home-working is
suppliers working to a more traditional
supply chains we do not own, but
part of the new normal. It could be
model have looked to deliver a ‘one
are business critical, instead of relying
a great time to negotiate if you are
stop shop’ by adding extra product
solely on third party suppliers to
confident of what you will require over
categories such as cleaning and PPE.
manage risk.
the lifetime of a new contract.
Finally, there have been areas
In other areas it is all about
Stationery and office furniture
of increased demand, often
loyalty. For key products, we may be
are other areas where there may be
accompanied by increased prices.
able to leverage long term supply
deals to be done as suppliers look
While the impact on pricing of
relationships, where suppliers may
to protect their share of a smaller
masks, aprons and gloves now
look after a limited number of key
market, while still searching for the
appears inevitable, the impact on the
customers. Communication is all-
markets of the future.
cost of the humble cardboard box
important, and better to be focussing
was much less predictable. Demand
on one or two relationships rather
of increased demand, uncertain
from e-commerce soared, while the
than fragmenting supply chains.
demand, or disrupted supply chains,
pandemic also reduced the amount
Communication is vital when it comes
including more costly and less reliable
of cardboard available for recycling.
to managing inventory across the
shipping from the Far East.
Twelve months and several price rises
supply chain. When the pandemic
later, there remain supply shortages,
was at its height in China, Jaguar
and many companies can no longer
Land-Rover were shipping small but
buy boxes on a ‘just in time’ basis, but
vital parts in suitcases on passenger
have to commit to long term supply
flights. Now, where finance allows,
programmes.
there is a case for higher inventory
Shortages coming here soon? So often American issues of today become our issues tomorrow, and the latest twist to this story of disruption is the Great American Chicken Shortage. The Washington Post reported
levels than before, but communication is a key to sharing the costs with the supply chain, while avoiding the cost
but it is a key to success in this new
and attributes it in part to increased
season. In rapidly changing markets, it
demand for comfort food caused by
is essential to have the data to support
the pandemic.
procurement decisions, to work with data-rich partners, and to re-visit, revisit, re-visit.
pandemic, some of them tactical, but
Three opportunities and three challenges going forward
others which seem likely to represent
Many of the procurement
the ‘new normal’.
opportunities relate to the office
Risk management and supply chain security have become key drivers. Many businesses identified
competition reduced by scarcity and discounts also becoming scarce. Bloomberg reported on the ‘Global Chip Crisis’ in April 2021 predicting pressure on supplies of routers, and
Finally, there’s agility – a term which is often over-used and under-specified,
procurement responses to the
seen extended lead times, with
stock.
causing US to run low on Poultry’,
We have seen a range of different
Laptops, printers and broadband, all now ‘home office essentials’ have
penalty associated with redundant
recently that ‘Fried Chicken Craze is
What are the strategies for today?
The challenges are in areas
environment, where demand has been low over the last 12 months. Photocopiers are an example of
the risks associated with single
a sector which has encountered a
source supply when so much of
perfect storm – demand was already
Chinese manufacturing and shipping
on a downward trend, and while
Martin Wallis Auditel Martin Wallis is a Specialist Procurement Advisor for cost management consultants Auditel UK. For over 15 years, Martin has been helping medium-sized enterprises to reduce costs and increase profitability, creating £millions of enterprise value. Over the years, he has bought everything from minibuses to mobile phones, and from paint to polo shirts. 07986 550864 martin.wallis@auditel.co.uk auditel.co.uk
Issue 9 – Finance | 37
The Business Bulletin
other products may come under
consensus about the way forward.
our stories of how procurement or
pressure too.
Will prices continue to rise, driven
even buying for home consumption
by a rebound in demand for future
has been affected. As in so many
years, or has the market over-
areas, agility, seizing opportunities,
corrected? Wholesale gas prices for
keeping great communication
2022 have already risen by around
and managing risk are some
20% this year, but with prices close to
of the keys to navigating the
a 3 year high, and no clarity on where
choppy waters which lie ahead.
There has been increased demand for packaging supplies, in particular cardboard boxes, where there have been multiple price increases due to the scarcity of raw and recycled materials. For the short and medium term it would be prudent to secure supply with an existing partner, but by re-visiting packaging specifications you can achieve better long term value for money. Finally, energy prices have risen
they will go next, a procurement strategy based on minimising risk looks to be the best approach.
In conclusion We have all seen more change over
consistently since the low point
the last 12 months than we could
in ‘Lockdown 1’, but there is little
have predicted. We will all have
The Business Bulletin
What is the best way of taking money out of my business? With the start of a new tax year comes a change in the rates and thresholds for PAYE and NIC. This article will explain the optimal salary for a personal and family company and how to use dividends to ensure tax efficiency.
Personal and family companies – optimal salary for 2021/22
Preserving pension entitlement
needs 35 qualifying years. For the
One of the main advantages of paying a small salary is to ensure that the
earnings limit. A director has an
A popular profit extraction strategy for shareholders in personal and family companies is to pay a small salary and to extract further profits as dividends. The optimal salary will depend on
year remains a qualifying year for state pension and contributory benefit
year to be a qualifying year, earnings must be at least equal to the lower annual earnings limit, and for 2021/22, the annual lower earnings limit is set
purposes. To qualify for a full state pension on retirement, an individual
whether the employment allowance is available to shelter any employer’s National Insurance liability that may arise.
Issue 9 – Finance | 39
The Business Bulletin
employee on the payroll. If the
Where any of the personal allowance remains available dividends sheltered by the remaining personal allowance will also be tax-free.
employment allowance is available to shelter the employer’s National Insurance that would otherwise arise, the optimal salary is one equal to the personal allowance, set at £12,570 for 2021/22. No National Insurance is payable until the primary threshold is reached. Above this level, employee National Insurance is payable at the rate of 12%. However, the additional salary saves corporation tax at 19%. However, once the personal allowance has been used, tax at 20% is payable as well as employee’s National Insurance of 12%, which exceed the corporation tax deduction of 19%. Thus, where the employment
at £6,240. Where the shareholder is not
higher salary equal to the primary
a director, earnings for each earnings
threshold of £9,568. Employer’s
period must be at least equal to the
National Insurance will be payable
lower earnings limit. For 2021/22, the
on the salary to the extent that it
weekly and monthly thresholds are,
exceeds £8,840 at a cost of £100.46
respectively, £120 and £520.
(13.8% (£9,568 – £8,840)), however, this
Contributions are payable by the employee at a notional zero rate on earnings between the lower earnings limit and the primary thresholds. The employee starts paying contributions once earnings exceed the primary threshold.
Once an optimal salary has been
do need to remember to make the
paid, it is tax-efficient to extract
regular monthly or quarterly payments
further profits as dividends. Making
to HMRC though).
family members shareholders allows
Once the primary threshold is
The employment allowance is not
paying a salary more than the primary
available to companies where the sole
threshold is not worthwhile.
For 2021/22, the primary threshold is set at £9,558 (£184 per week/£797
the combined National Insurance cost of 25.8% (13.8% + 12%) is more than the corporation tax saving and
Thus, where the employment
dividends to be paid to family members. Where dividends have not been paid, consideration should be given to declaring dividends to use up the dividend allowance to prevent it from being wasted. All taxpayers are entitled to a dividend allowance, set at £2,000 for 2021/22. Dividends sheltered by the
allowance is not available, the
allowance are taxed at a zero rate.
optimal salary is equal to the primary
Dividends are taxed at the top slice of
threshold for 2021/22 of £9,568 (£184
income and the dividends covered by
per week, £797 per month).
the allowance use up part of the tax band in which they fall.
per month) and the secondary threshold is set at £8,840 (£170 per
per week, £1,048 per month).
salary and the employer’s NIC (you
are payable at 12%. At this point,
be unable to claim the allowance.
personal allowance of £12,570 (£242
deduction at 19% on the additional
Optimal salary – employment allowance is not available
that personal companies will generally
salary for 2021/22 is one equal to the
Use the dividend allowance
is outweighed by the corporation tax
reached, employee contributions
employee is also a director. This means
allowance is available, the optimal
Where any of the personal
that can be paid without paying any
Optimal salary – employment allowance is available
National Insurance is one equal to
In a family company scenario, the
the primary threshold), dividends
the secondary threshold of £8,840
employment allowance will be
sheltered by the remaining personal
for 2021/22, it is beneficial to pay a
available if there is more than one
allowance will also be tax-free.
week, £737 per month). Although the maximum salary
40 | Issue 9 – Finance
allowance remains available (as will be the case if the director’s only other income is a salary equal to
The Business Bulletin
Dividends are paid out of retained
dividends, even though profits paid
earnings and have already suffered
out as dividends have already suffered
corporation tax. A company can only
a corporation tax liability.
pay dividends to the extent that it has sufficient retained profits. Dividends paid to the level of the dividend allowance and any unused personal allowance can be paid without triggering a further tax liability.
Extract further profits Having paid the optimal salary and utilised the dividend and personal allowance, further profits that are extracted will trigger an income tax
When deciding whether to pay a dividend either before the tax year or after the company’s yearend, consideration should be given
Matthew Goude
to whether the funds are needed
Zinc Books
outside the company. Where funds are needed by shareholders, it is better to extract them as dividends; if they are not required, it may be more taxefficient to leave them in the company (particularly where a dividend would be taxable at 32.5% or 38.1%)
Matthew is a chartered accountant and tax advisor based in Northampton. By taking the time to understand client’s short and long term objectives, Matt is able to provide solutions and advice to help meet those objectives. Zincbooks has invested heavily in the latest accounting software in order to make clients’ lives
liability. Beyond the optimal salary
easier and to give them time back.
level, the lower dividend tax rates (7.5%, 32.5% and 38.1%) and lack of
07498 202281 info@zincbooks.co.uk
national insurance make it more tax-
zincbooks.co.uk
efficient to extract further profits as
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The Business Bulletin
Are your employees benefiting from you? Retaining good quality employees can be difficult, for years larger employers have been doing this by providing their employees with perks or benefits.
Smaller employers are starting to
subject to tax (and class 1A National
join in and are looking into providing
Insurance) and has to be reported to
benefits to employees but can be
HMRC. Cycle to work is paid for by
concerned about the extra red tape,
the employee but can save both the
as well as having to consider not only
employee and employer money.
the cost of the benefit but the cost of administering that benefit. Two of the benefits that are
Private medical insurance As mentioned, this is taxable so
becoming more common with
doesn’t that mean that you will have
employers who have a smaller
to report it to the tax man on a P11D
number of employees are private
and won’t the employee get a bill
medical insurance and cycle to work
when they do their self-assessment
schemes. There are now a number of
tax return? Well yes, and no it doesn’t
providers who cater for or specialise
have to be.
in the Micro and SME market and many of these offer much more competitive rates than an employee can get independently.
Andi Herrington Wallis Payroll Andi’s mission is to provide the same level of knowledge and support to smaller employers as that afforded by large corporations. Having started her payroll career within the recruitment sector and spending a number of years working
From the 6th April 2016 ‘Payrolling
with corporates in the legal world Andi
Benefits’ was introduced. This means
has nearly 20 years’ experience in payroll
that the value of the benefit received can be taxed in real time removing the
and is a qualified CIPP member. Andi and her team work with micro and SME employers throughout the UK helping
requirement to report the benefit on
them with everything from pension auto-
in the way they are provided to
each employee’s P11D, thereby saving
enrolment and statutory payments to
employees. Private Medical Insurance
your business time and money by not
is paid for by the employer but is
needing the staff to process the P11D’s
These benefits are very different
expenses and benefits. 01933 409488 andi.herrington@wallispayroll.co.uk wallispayroll.co.uk
42 | Issue 9 – Finance
The Business Bulletin
inhouse or not using your accountant/
benefit. Most payroll software and
typically 12, 18 or 24 months, though
payroll provider to process these for
payroll providers should be able to set
sometimes as many as 60 months in
you. There is still a need to report the
you up for payrolling benefits on their
exchange for hire of a bike, at the end
total value of the payrolled benefit on
applications without any difficulty.
of the term of the hire the bike is then
the P11D(b) for Class1A NI purposes,
We are talking about private
transferred to the employee, often
but this is by far less time consuming
medical insurance here, but it is
for a nominal transfer fee of £1. The
than generating multiple P11D’s. The
possible to payroll all taxable benefits
employee saves both tax and national
other benefit of payrolling benefits
with the exception of employer
insurance and the employer makes a
is that employees pay the tax on the
provided living accommodation and
national insurance saving as well.
benefit while they are receiving it and
interest free/low interest (beneficial)
don’t have to pay a tax bill when they
loans. These benefits must still be
complete their tax return 10 months
basic rate (20%) taxpayer then on
reported on a P11D.
a £1,000 bike over 12 months they
after the end of the tax year.
If you do choose to payroll benefits
What can you save? If you had a
would save £320 in tax and national
you do not have to payroll everything
insurance, a 40% taxpayer would save
Benefits, then you will need register
that can be payrolled, for example
£420 in tax and national insurance. In
with HMRC prior to the start of the
many businesses start with private
both cases as an employer, you would
tax year through your Government
medical insurance as this impacts
save £138 in employer’s national
Gateway and speak with your payroll
the majority of their employees
insurance, and running the scheme
provider to ensure that all elements
and then move onto company
would usually cost you nothing more
are set up correctly. If you miss the
cars the following year once they
than a little admin time to set the
registration deadline it does not mean
are comfortable with the set up,
deduction up on the payroll.
that you are unable to payroll benefits,
each benefit must be registered for
this just needs to be done informally
payrolling separately.
If you are planning on Payrolling
you will need to write to the Complex Caseworker Team at HMRC and a
Cycle to Work
P11D must still be completed.
Cycle to Work is usually operated as a
Once you are registered for
salary sacrifice whereby an employee
payrolling a specific benefit with
agrees to reduce their contractual
HMRC then this registration carries
salary by a certain amount per
forward to the future years for that
month over a fixed period of time,
As Cycle to Work is a salary sacrifice scheme there are a few of things that both the employer and employee need to be aware of before signing up to the scheme. ■ Salary sacrifice reduces an employee’s contractual salary and can not take an employee below the national minimum wage. ■ A reduction in salary could impact other benefit
Cycle to Work is usually operated as a salary sacrifice – an employee agrees to reduce their salary by a certain amount per month
entitlement such as statutory maternity pay or state pension. ■ As a salary sacrifice is a contractual reduction it could impact mortgage applications. These are just two of the benefits you could offer your employees, but in an ever-competitive recruitment and retention market employers need to stand out from the crowd in order to attract the best talent and providing benefits to employees is one way to do this.
Issue 9 – Finance | 43
The Business Bulletin
Getting your financial life in order ‘ISA season’ used to be an event, where banks and other financial institutions would get their marketing teams going on offering the best cash interest rates on ISAs. With current interest rates being unlikely to move for some time to come, it’s somewhat of a damp squib. ISA=Individual Savings Account.
Getting saving early really can pay
degree by inflation. Inflation (CPIH)
off. Think about it – if your money is
is 1% as of Apr’21, meaning this 1.1%
have both a LISA & HBISA. You can
invested or earning interest today,
interest rate is barely above inflation.
no longer open HBISAs and therefore
you’ve a better chance of that money growing over a longer period of time. Getting your financial life in order will pay dividends.
Remember, some basics… ISAs are tax efficient ‘wrappers’. This means any future gains or income are free from tax. Simple. Some ISAs are
It is sensible planning to retain a cash reserve for emergencies, holidays and other purchases, but holding too
of your cash into a Stocks & Shares ISA for example. Over the longer term (we would horizon of 5 years), history suggests
again, using the ISA allowance based
investing, alongside dividends received,
the net of these transactions.
will outperform cash returns. There
Lifetime ISAs (more on this later) and
then a LISA is the only option and
the long term. You could invest some
in & take it back out & put it back in
Finance ISAs (peer to peer lending),
already have an HBISA. If you don’t,
assets is not going to work for you over
flexible, meaning you can put money
Shares ISAs (investing!), Alternative
this quandary is only applicable if you
much cash as a percentage of your
always suggest a minimum investment
You can have cash ISAs, Stocks &
The good news is that you can
are no guarantees of course. You could invest in a tracker fund, which essentially follows a stock market index of some sort, for example the top 100
Junior ISAs (for children <18).
listed companies in the UK.
What are you doing with your cash? A brief search recently (Apr’21)
Can I have a Lifetime ISA (LISA) and a Help to Buy ISA (HBISA)?
suggested a top interest rate in a cash
These are ISAs designed to help first
ISA of 1.1%, if you lock that cash away
time buyers when buying their first
for 5 years. For the privilege of locking
property by providing a government
your money up for 5 years, at 1.1%, the
bonus towards the purchase. The LISA
interest earned would be just £562.
is also a quasi-pension that allows
Over that period, the value of the
non-first time buyers to save towards
cash will have been eroded to some
their retirement.
Neil Wattam Wattam Kirby Mee Neil has worked in various finance and accounting roles since 2004, starting as an auditor, followed by senior positions within FTSE 100 and FTSE 250 companies, including as Finance Director. His experience of working in numerous
44 | Issue 9 – Finance
businesses and sectors, including running a limited company, provides a sound base from which to help clients. Neil is a Chartered Accountant (ICAEW) and holds the Diploma in Regulated Financial Planning (CII). Neil is studying towards Chartered status with the CII. 0116 218 4891 neil@wkmwealth.co.uk wkmwealth.co.uk
The Business Bulletin
even then, you have be aged between
offers more potential. It is possible to
sometimes possible to consolidate
18-40 to open one.
transfer a Help to Buy ISA into a LISA
these into a defined contribution
(but counts towards the £4,000 LISA
pension, but unless there are specific
annual contribution allowance)
reasons for it, this is normally not
■ Help to Buy ISA has a max bonus of £3,000, and outside of London, can only be used on homes up to £250,000. ■ LISA bonus is potentially larger (up to £1,000 a year for up to 32 years!) so depends when the LISA is opened and can be used on a first property up to £450,000 anywhere in the UK ■ You can’t use the LISA for a
suitable for most people and if the
Pensions These aren’t linked to ISA season, but often come up in conversation alongside ISAs and tax year reviews each year. Pensions are for your future. The State Pension should provide a basic income for you, but in current terms it’s around £9,000
value of that pension is >£30,000, you legally have to take financial advice. If you have a more common, defined contribution pension, it is normally possible to consolidate, but it is not a given. There may be benefits that would be lost on transfer. If you’ve done your reading and
per year, per person. That’s not a
research, you could transfer older
house until you’ve had the
huge amount of money and certainly
pensions into a current workplace
account for 12 months – Help
won’t pay for many holidays and new
pension (which is likely to be with
to Buy ISA is once you’ve got
cars.
someone like Aviva, Scottish Widows
£1,600. ■ You can’t invest a Help to Buy ISA (cash only). You can invest a LISA if you want.
or Nest). You could consider opening
Should I consolidate my pensions?
a Self Invested Personal Pension
There is not a straightforward
and potentially more flexibility at
(SIPP), which provides more flexibility in terms of investment options
question, but good to see you thinking
retirement, but the downside is
house purchase, when you plan to
about the subject. Firstly, gather your
that either you or a professional will
purchase it and what’s been saved in
recent statements from your pension
need to manage it and select the
which account so far. If the purchase is
providers. If you have a defined
investments for example.
1 or 2 years+ ahead, the LISA arguably
benefit (aka final salary) pension, it is
So, it depends on the value of a
Issue 9 – Finance | 45
JB Commercial Finance
Don’t be put off by some administrative work – having pensions in one place, that’s easier to manage and maintain, is potentially better for you in the long run.
Some homework for you…
Does your business need cashflow finance?
■ What pensions do you have? ❙ Where are they, how much is in them? ❙ Are there any guarantees or bonuses that would be lost? ❙ Is there an option to take more than 25% tax free cash?
Are you looking to buy a commercial property and require funding?
❙ What investment options do you have? ❙ Is there a penalty or cost to transfer? ■ Are your savings in ISAs? If not, why not? ■ How much of your savings / assets are in cash? ❙ Consider the purpose for the cash ❙ Investigate the potential for investing
Has your bank turned your business down for finance?
some of your cash ■ What are you doing with your savings for children? ❙ Is this also in cash? Is that the best place for the long term?
Dont know where to turn for business funding?
This document is for general information and is not intended to address your specific requirements. In particular, the information does not constitute any form of advice or recommendation by WKM Wealth Ltd and is not intended to be relied upon by users in making (or refraining from making) any investment decisions. Appropriate independent advice should be obtained before making any such decision. Any arrangement made between you and any third party named, is at your sole risk and responsibility.
Call JB Commercial Finance for a free initial consultation
For your information we would like to draw your attention to the following investment warnings: ■ The price of shares and investments and
Telephone: 0116 3440 322 Mobile: 07722 432 128 Email: info@jbcommercialfinance.co.uk Website: www.jbcommercialfinance.co.uk @jbcommercialfinance
James Blacklaws
the income derived from them can go down as well as up, and investors may not get back the amount they invested ■ Past performance is not necessarily a guide to future performance.
The Business Bulletin
Ask the experts Do you have a burning question that you would like the answer to? Or maybe you’re looking for some advice to help your business? In each edition some questions will be shared and answered by some of The Business Bulletin experts.
Q. I’m struggling with debt at the moment, how can I best handle it? A. The trick to solving a cash flow problem is to fully understand the options that are available (and those that are not!). This is the point at which, in all honesty, the harassed business manager is best advised to consult an expert who can provide a full picture of what the true options are. The other thing to be considered is time. If you have a cash flow problem, time is most likely something you will not have a lot of, especially if you are being chased by creditors. Also, if a business manager has to spend their time trying to solve this difficult financial problem, it is taking them away from the other aspects of running the business. Not a good idea! Peter Douglas Business Finance Services
owe could be broken down into a
now and put plans in place so that you
payment plan that is affordable to
are not left in this predicament.
you and acceptable to them so that they recover their money rather than potentially lose it.
A. There are a number of things to consider if you are having problems paying your bills. Firstly, it is best to communicate with people you owe money to and let them know you are having problems. There is nothing worse for someone who is owed money to be “ghosted” and not know what is going on.
Look at who owes you money. Start chasing your debtors (as I am sure there will be some overdue) and if they are struggling, then arrange payment plans with them. Going forward, consider a cashflow forecast of money coming in and going out over the next 3, 6 or 12 months. This will enable you to see
There are usually options open to you. The following sites will also provide useful guidance: ■ gov.uk/options-for-paying-offyour-debts ■ citizensadvice.org.uk/debtand-money ■ moneysavingexpert.com/loans/ debt-help-plan If it is too overwhelming for you
Work with a creditor to look at
where there are any gaps of deficits in
then seek advice from you accountant,
payment options – maybe what you
the future that you can better manage
bookkeeper, debt specialists or
Issue 9 – Finance | 47
The Business Bulletin
possibly a business turnaround/
good local accountant or experienced
insolvency practitioner. Don’t sit on it –
business coach/mentor. Key KPIs from
seek help and put something in place
a finance perspective are:
that helps you and protects you going forward. Paul Green The Business Community
■ turnover (total sales) ■ gross profit margin (are you selling tenners for a fiver?!) ■ net profit margin (how much
Q. What finance KPIs (Key
are you spending for each
Performance Indicators) should
pound you actually make)
I be measuring? A. There are many KPI’s you can look at and turnover trends and profit margins are usually where you start but there are other KPI’s you can look at which will vary from business to business. For example if you ran a restaurant you could look at food costs or staff costs as percentage of sales to see if there is food wastage or too many chefs in the kitchen. Roger Eddowes Essendon Accounts & Tax
■ net worth (the actual ‘on paper’ worth of the business) James Blacklaws JB Commercial Finance A. There are many different KPIs to consider and some will be specific to your business and industry. Whatever you are looking at, be it a raw number, progress, percentage change or some other metric you will need to consider… ■ how you are going to measure them
A. So many things you should look at but I would talk this through with a
■ what impact will these measures have on your business? ■ how often you are going to measure them? ■ what the targets are that you are trying to achieve? Looking across the “pillars” of business, here are some typical KPIs to track: ■ Finance: turnover, profit, breakeven point, cashflow ■ Sales: leads, conversions, average sales value ■ Marketing: spend, return on investment, website visits ■ Operations: overheads, fixed/ variable costs ■ Resources: productivity, staff costs The only other thing to be wary of is “paralysis by analysis” – that you are spending too much time and energy
■ are they leading or lagging measures?
measuring too many things that it is not serving you or your business. It is about getting the balance right and focusing on what is “key” to your business. Hence the name!
Contributing experts
Paul Green The Business Community
Got a question? If you have a question – then Peter Douglas
Paul Green
Business Finance Services
The Business Community
email us and these experts will set about answering it for you. It can be on any business topic you like, be it finance, sales, marketing, operations, resources, strategy or personal development. If you would like a more immediate response, then raise
Roger Eddowes
James Blacklaws
Essendon Accounts & Tax
JB Commercial Finance
48 | Issue 9 – Finance
your question on the “Ask The Experts” forum.
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The Business Bulletin
SME Survey Did you take advantage of any of the Government schemes to support small businesses during COVID-19? Whilst not every business owner had access to financial support, there were various funding options available for those that were eligible. The intention of this survey (39 respondents) was to explore which streams of funding were taken up, what the money was to be used for and to discover whether there was a liability from businesses not being able to pay back any loans received. As you can see from figure 1, the Bounce Back Loan (BBL) was popular with 65.7% of those eligible taking advantage of this low-cost option for funding. With 80% of those who took advantage using it to bolster cashflow (figure 2).
Figure 1
Reassuringly, from all the answers provided, the funding was used for
they can repay the loan. However,
legitimate business use as it was intended. Not as in some cases using the funding to purchase a new car or house extension!! From figure 3 you can see that the majority (80%) are confident that
Hopefully the potential extension
that leaves 20% that are either a no or
of the initial five year pay back term to
unsure. This is of some concern if you
10 years will help ease the ability
extrapolate these results across the
to repay. This “Pay as you Grow”
country for the amount of loans taken
scheme also allows businesses to
out and the potential bad debt that it
delay their repayment start date by a
leaves the lenders.
further six months.
Get involved To take part in the next survey – Are you going to increase your sales over the next 12 months? – visit here: https://forms.gle/ vqViFtFx9udHzN1c9. The results will be shared in the next edition of this magazine. Figure2
50 | Issue 9 – Finance
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