The Business Bulletin Issue #9 - Focus On Finance

The

Business Bulletin By business owners, for business owners

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ENGAGING CONTENT

Focus on Finance Spotlight on Rob Harris

PLUS What impact is the “new normal” going to have on procurement The advantages of having your tax return filed early To be or not to be competitive

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Issue #9

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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

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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

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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

C4 Secure

With , administrators can set which authentication methods will be offered to users based on the sensitivity of the application. For example, administrators may decide that SMS authentication is suitable for low assurance applications, but not for those that require a medium or high level of identity assurance. Also, with RSA SecurID Access, users have the flexibility to choose from the allowed authenticators at runtime, which makes a convenient experience for users.

Usernames and passwords are not enough.

Thousands of employees require on-demand, 24/7 access to your VPN. Revoking that access is not an option and neither is making the authentication process for complex. A recent Data Breach Investigations Report found that

If your employees rely on usernames and passwords alone, you’re at risk for a VPN security breach. Are you sure your users are who they say they are? Can simple authentication and vigorious security co-exist?

Found out in the RSA eBook:

is a powerful, feature-rich platform that delivers substantial productivity gains and cost savings. However, organisations rushing to adopt Office 365 risk creating holes in their wider security architecture.

See where you could be exposed and what to do to get protected, if you’ve migrated to, or are considering migrating to Office 365, contact to learn about: ● ● ●

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

Figure3

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