5 essential tips to keep your business running smoothly Posted 04/07/2016 by Jen Smith & filed under Run your business. Can I make a confession? I am probably one of the least organised entrepreneurs out there. It feels so good to get that off my chest. Now, why is someone who’s inclined to work with piles of paper surrounding her plus a desktop of screenshots waiting to be trashed giving tips on monthly business tasks to help you keep everything running smoothly? Because I have learnt, through three years of practice, that there are some things that you can’t avoid organising and that if you leave, will jam up your business like nothing else. Not fun I can tell you. Also, because I don’t mind working in clutter, you can be sure that the five monthly business tasks I’m sharing with you today are essential. You’re a busy business owner with no time for ‘nice to have’ tips and I respect that. So without further ado, let’s dive in: 1. Get that inbox cleaned out One-two hours Go on admit it, you’re inbox frequently fills up with non-essential mail and starred items you can’t remember why you starred? Yep, mine too. It’s time for a monthly clear out. All it takes is discipline and a bit of time. Go through your inbox and unsubscribe from and delete any junk mail file all client email into folders reply to anyone outstanding, then file into folders if necessary only allow pending emails to remain in your inbox Be aware of email time suck whilst attempting to reach inbox zero. It’s like when you clean out the loft and get stuck in your mementos box, cooing over old photos and reminiscing. Before you know it three hours have passed and you’re no more organised than you were before you started. In fact, it’s worse. Don’t let your inbox trap you with the same temptation. Set a timer if you know this will be an issue for you. 2. Do your bookkeeping Two-three hours I have an accountant that I meet with quarterly and who prepares and files my tax return for me, but I still have some monthly bookkeeping tasks to handle so that I can hand over my books knowing everything is there, and in reasonable order. For me, this includes: organising the mountain of receipts and expenses into chronological order logging each expenditure on a spreadsheet (or in my online accounting software printing and filing copies of all paid invoice noting invoice references against payments on bank statements filling in income and expenditure log 3. Chase and pay your invoices One hour Cash flow is one of the most important things to take care of in your business. Yes, sometime you’re at the mercy of your clients actually paying you on time, but often you don’t help yourself by invoicing late or forgetting to follow up. Do yourself a favour and get those invoices out, chase outstanding payments and be a good business citizen and pay your suppliers whilst you’re at it. (I believe in business karma. Paying others on time helps you get paid on time). Here’s a handy checklist for this task: raise new invoices and send via email chase any outstanding invoices with a polite but firm email or phone call pay outstanding suppliers 4. Gather testimonials and ask for referrals 30 minutes A lot of my business comes from kind things other people say about me, and direct referrals from past clients. It’s one of the nicest ways to get new clients and doesn’t take much time to nurture either. First up, you want to reach out to anyone who you’ve worked with this month or who’s project has come to a close and ask them for a testimonial. These should be uploaded to your website as soon as you receive them (or there’s a danger they’ll be left to linger in your inbox for all eternity). Whilst you’re at it, ask them if they know anyone who’d benefit from working with you in a similar capacity they would happily recommend you to. And, if appropriate (i.e they are also a business and you trust in them and their services), ask what kinds of clients they’re looking for right now and see if you can refer business their way too. 5. Plan next month’s marketing and editorial calendar One-two hours The last task on the list is to plan the following month’s marketing campaigns and editorial calendar for my blog, email newsletter and social media. I won’t create any of the content or undertake any specific tasks, but it ensures that week by week I’m not twiddling my thumbs trying to think about what content to create and share online. You could plan social media posts, blog topics, email newsletter subject lines, advertising campaigns, and target PR publications. I suggest you carve out a day a month for the above tasks. I do it on a Friday where possible so I can celebrate completing them with my preferred alcoholic tipple and two days off. Over to you in the comments – what are your essential monthly business tasks?
Choosing an accountant or tax adviser Posted 04/05/2016 by AAT Comment & filed under Accountancy resources, Tax. At the time of the transfer of HMRC’s webpages to the GOV.UK website, the page advising taxpayers on how to “Get help with tax” was lost. This meant that taxpayers looking for an accountant or tax adviser were no longer being referred to AAT or the other professional accountancy and taxation bodies. Government Digital Services (GDS), the custodians of the GOV.UK site, informed AAT that as the new site was required to be non-partisan it was necessary to: remove any reference to specific professional bodies; and to only permit a single link to a stand-alone document called “Choosing an accountant or tax adviser” which would be hosted on an external site. After sustained pressure from AAT, its fellow representative bodies and supported by HMRC, GDS is now signposting taxpayers to a fresh choosing an accountant or tax adviser webpage. This is hosted on the Consultative Committee of Accountancy Bodies (CCAB) website.
Job-hunting: the SME perspective Posted 04/05/2016 by Neil Johnson & filed under Job hunting. Looking for a job isn’t easy, it’s stressful and time-consuming, but spare a thought for those offering the jobs, there’s a chance the person interviewing you is as nervous as you are. Finding the right person is fraught with challenges and obstacles, and can also be stressful and time-consuming, as well as expensive and disruptive to business. This can be particularly exaggerated for smaller businesses that might not have the expertise or resources to hire efficiently. “SMEs are the growth engine of the UK economy and currently two thirds of the workforce work in this sector. They are also a good source of job creation, with positive hiring intentions,” says a research report by the Chartered Institute of Personnel and Development (CIPD) called Recruiting and developing talented people for SME growth. The challenges ‘Your people are your business’ goes the oft-cited SME mantra, so recruiting the right talent is imperative. But smalls firms often have limited material and financial resources, while one in four say that hiring skilled staff is a barrier to growth. Furthermore, growth can be quick and erratic in a small firm, with busy times of the year requiring temporary staff, while real growth calls for team structures to develop and operational functions to be introduced, which can be very disruptive to company culture. “Often the reason a company might say that recruitment has been unsuccessful is down to cultural fit,” says the report’s author Dr Jill Miller. “Some people have the expectation that working at an SME is going to be like working in a larger company, but it’s often not. You can have your job role, but you’ll be expected to get involved with other tasks, outside your remit, to get the job done.” This can be a very positive thing, as it gives you broad business exposure, especially if you’re newly qualified and fresh in the job market. Working for an SME quickly gives you a deep understanding of the business, whereas in large corporates you can be feel removed from the day-to-day workings. Cultural fit can be easier to develop and maintain earlier in a business’s lifespan. The business owner will likely do most of the recruiting and the they’ll have the right kind of person in mind, going on instinct or a hunch. “But as the firm grows more people will be hiring into individual teams and one of the challenges is making sure they’re recruiting on the same value system and recruiting for cultural fit, people who get what the company’s all about, who identify with what the company’s trying to achieve and feel inspired by it,” says Jill. How to impress small businesses? Small businesses can be very informal places and may not suit everyone. It’s perfectly okay to get a feel for a company before even applying; you can call to get a gist of its culture and business. It’s important, in general, to do a lot of preparation for interviews at small businesses. “When you’re meeting an owner/founder, the business is their baby, so you need to make sure you can prove a genuine interest in the company” says Jill. “A lot of preparation can be done around what you want to get out of an interview, because it has to be two-sided, you need to know if the role’s right for you, before you can prove you’re right for the role,” continues Jill. “Don’t be afraid to ask those questions of the interviewer, because if the person is inexperienced at interviewing, they’ll probably welcome that kind of interaction and discussion about the business and company culture. If you like the role, you could ask for a tour of the office.” “Researching the company also shows initiative,”says Jill, “which at small businesses is one of the things they’re definitely looking for, somebody who doesn’t need their hand held all the time, because you have to be able to fly straight away. Also you’ll change as the business changes, so be flexible and adaptable enough in mindset.” At interview it is very effective to highlight to the owner/manager, who may understand little of the accounting function, the value you can add to the business, says Jane. This could be strategic, business insight or operational/process improvements, which suits the ‘all hands on deck’ mentality in SMEs. Jill’s top tips on impressing an SME Show an interest in what the business actually does. If it’s something you’ve got no interest in whatsoever and you’re going to be working closely with the product or service, maybe it’s not for you. Come prepared with the questions to help get you what you want out of the interview. It’s not a one-way street. Ask what the future of the business is, where it’s going. It’s an interesting question as it demonstrates you’re thinking long term, but also to find out what the owner’s intentions for the business are and whether they’re right for your goals and ambitions. Honesty in the interview: be honest about what you want from a job; does it match your aspirations, values and career goals? The industry Small businesses accounted for 99.3% of all private sector businesses at the start of 2015 and 99.9% were SMEs. The combined annual turnover of SMEs was £1.8 trillion, 47% of all private sector turnover in the UK. There has been sustained growth in the total business population, with increases of +55% since 2000 and +3% since 2014. SMEs account for at least 99% of the businesses in every main industry sector. Source The Federation of Small Businesses Photo: Dr Jill Miller, CIPD
World leaders implicated in ‘Panama Papers’ tax avoidance scandal Posted 04/04/2016 by aatadmin & filed under News. Over the weekend 11.5 millions documents were leaked from Panama based law firm Mossack Fonseca to Germany’s biggest selling newspaper Süddeutsche Zeitung, which implicates world leaders and senior politicians in a global tax avoidance scandal. The files, christened ‘The Panama Papers’ contain passports, correspondence and financial records stretching back 40 years detailing 214,000 offshore entities across more than 200 countries. A string of high profile leaders have been linked to the scandal including Mauricio Macri – The President of Argentina, Petro Poroshenko – The President of Ukraine and Sigmundur Davíð Gunnlaugsson – The Prime Minister of Iceland who may face a snap election at the news. In the UK, senior Conservative MPs have been linked to the scandal including the MP Lord Ashcroft and MP Michael Mates. David Cameron’s late father Ian Cameron has also been linked to the scandal with several major newspapers claiming that he hid millions from HMRC in Panama based offshore funds. The UK government has taken an increasingly aggressive stance on the importance of clamping down on tax avoidance through offshore funds. Last year David Cameron gave a strongly worded speech to the Jamacian Parliament on the issue saying: “If we’re to beat corruption, we need transparency. I’ve taken the lead by pledging much more transparency over property and company ownership in the UK so that terrorists, tax-avoiders, money launderers and criminals have nowhere to hide their ill-gotten gains. “Some of the British crown dependences and overseas territories are making progress in this direction. Others, frankly, are not moving anywhere near fast enough. “I say to them all today, including those in this region, if we want to break the business model of stealing money and hiding it in places where it can’t be seen: transparency is the answer.” The biggest name implicated in the papers so far is Russian President Vladimir Putin who UK newspaper The Guardian have linked to a $2bn offshore fund set-up by friends of the premier. With over 2.6 terrabytes of data to analyse, more than Edward Snowden’s NSA files and US diplomatic papers released by Wikielaks in 2010, The Panama Papers story looks set to run for some time and could shed light on the financial arrangements of many more high profile figures. See our recommended links below for the full background on the story: What Are The Panama Papers? Panama Papers – The Power Players Tory peers, former MPs and party donors implicated in tax haven leak
Needs an accountant: How Nicolas Cage blew his millions Posted 04/04/2016 by Mark Rowland & filed under News. In 2010, a nine-feet-tall pyramid appeared on a particularly large burial plot in St Louis Cemetery, New Orleans, bearing the motto ‘omnia ab uno’ (‘everything from one’). It was soon revealed as the intended final resting place of Oscar winning actor Nicolas Cage – and a colossal monument to Cage’s eccentricity and uncontrollable urge to spend. One of Hollywood’s most highly paid actors, Cage earned $150m between 1996 and 2011. In 2009, however, he went bankrupt, following an epic spending spree. Here are just a few of his most extravagant purchases. A shark, an octopus and 2 albino king cobras In the immortal words of Cage himself: “Every great story seems to begin with a snake.” Throughout his career, Cage amassed a menagerie of dangerous and exotic animals, including two extremely rare albino king cobras named Moby and Sheba, an octopus, a shark, a monitor lizard and a crocodile. According to an ex-employee, Cage kept vials of antidote racked up on the walls of one of his properties, so, if guests were bitten, “they could save themselves”. He has now given most of the creatures away, mainly due to pressure from animal rights groups and Cage’s terrified neighbours. But Cage remains an animal lover: “If I could have been a marine biologist, I would have,” he said, “but I didn’t have that kind of intelligence. Numbers were never my strong point.” Two castles and a murder mansion In 2009, Cage filed a $20m lawsuit against his business manager, Samue Levin, who quickly filed a countersuit detailing his client’s more outlandish buys, including a whopping 15 personal residences, most of which were allegedly snapped up against Levin’s advice. Those properties proved to be a huge drain on Cage’s finances. They included an $8m castle in Bath, which the actor never stayed in. He also had a more modest, $2.3m castle in Germany. According to Levin, both piles were “decrepit and needed huge expenditures.” In New Orleans, he purchase the Madam LaLaurie ‘murder house’, where around 100 slaves were tortured and killed in the early 19th century. Throw in two private islands, and the total value of his portfolio exceeded $83m. Almost all of it was sold at a loss. Two superyachts and a Gulfstream jet At one time, Cage owned around 50 cars and motorcycles, including his rare Ferrari Enzo ($1m), a 1950s Ferrari 250 GT Pininfarina ($3.6m), nine Rolls-Royce Phantoms ($2.6m) and the last Shah of Iran’s confiscated Lamborghini ($500,000). His two superyachts had a combined value of $11m. Both were sold at a loss. He also had at least two non-superyachts. One of Cage’s single biggest purchases, however, was his Gulfstream private jet, with a price tag of $30m. Cage earned £150m between 1996 and 2011. In 2009, however, he went bankrupt, following an epic spending spree Cage’s more niche interests put a dent in his bank account too. He once outbid Leonardo DiCaprio for a Tarbosaurus skull, snapping it up for $276,000. He also had an extensive collection of shrunken heads, and a comic book collection that he eventually sold for $1.6m. As Cage once put it: “It may come as a surprise to people, but I’m actually quite boring and normal.”
What I wish I’d known on day 1 – business leaders share their wisdom Posted 04/04/2016 by Mike Peake & filed under Run your business. What I wish I’d known on day one – business leaders share their wisdom In an interview with Foundr magazine, billionaire British businessman Richard Branson explained what he thought every new start-up needed in order to succeed – “If you can ensure your business responds to a real need out there in the market place, your business can punch well above its weight.” It’s a principle that can certainly be applied to his newest commercial venture Virgin Galactic – who doesn’t want to say they’ve been to space? – and has served him well ever since he first launched Virgin Records. Find your niche, make sure there’s a demand and then do your job well. But it would be foolish to pretend that the path to success is not lined with obstacles; according to Forbes, 90 per cent of start-ups fail. There are multiple reasons why this sorry majority become derailed (Inc. magazine suggests everything from arrogance to sloppiness), meaning that one of the smartest things any new business can do is listen to those who have been there before them and hear their war stories. For the benefit of every new business starting this week, this month or this year, we put one simple question to eight British enterprises and left them to mull it over. We asked them: “What do you wish you’d known on day one?” This is what they told us… Spend longer on your name and website “Like many people I came from a traditional accountancy background,” says Mahin Khawaja, Director of Adroit Accountax, “and this is a profession that for years has done things in a certain way. Knowing the online world and how it would shape my company’s work would definitely have been an early advantage.” He says that he and his colleagues have had to learn quickly about new and emerging technologies, such as the cloud, and that it’s an area no new business should overlook. “We’re now up to speed, but a head start would surely have helped,” he says. Don’t spread yourself too thin “When I first launched my business my biggest fear was whether I’d be able to pay the mortgage,” says Lynn Scott, founder of Lynn Scott Coaching, “So I spent hours doing necessary but non revenue-generating admin at the expense of focusing on building a good client base.” After a while, she says, she invested in someone to do that for her. “It freed up my time and energy to do the things I love, that I’m great at – and that bring the money in.” Think beyond the bank Every new business needs start-up capital, which is great news for the banks who are usually only too happy to snare a new client. But High Street banks are not the only people lending money. “When we started I assumed that the most cost effective place to go for finance was the bank,” says Anne Cantelo, MD of Onyx Media and Communications. “I wish I had done more research as we could have saved thousands a year by using alternative finance. You can now get products where there are no hidden fees, the interest rates are comparable to the banks and they don’t demand personal guarantees.” Most small businesses, she says, never even contemplate this less-travelled route to financing. Conquer social media “When we launched in 2008 there were a million things to organise and social media was not an immediate priority,” says Neil Westwood, Managing Director of Magic Whiteboard Limited. “It took us about 18 months to properly get our head round it. Once we did, business rocketed as awareness grew, and we found ourselves kicking ourselves that we hadn’t tackled it earlier. If I was starting again from scratch, social media marketing would be our number one priority.” Make the most of networking It seems such a 1980s concept and conjures up images of bored, grey people doling out cheap business cards, but networking remains the lifeblood of multiple companies – and Reina D’costa, MD and founder of legal and business service consultancy Bizlaw UK, wishes she’d been quicker to catch on. “When I set up my business I really didn’t realise how important contacts and networking skills were,” she admits. “In fact, most of our clients have come from word of mouth referrals.” Rather than spending a lot of money on advertising, Reina quickly latched on to a more personal approach and connected with people she knew: this, she says, helped them become part of her database for relevant updates on LinkedIn. She also made the most of client testimonials, which helped position Reina as an expert, and by making sure old contacts never fizzled out, she managed to ensure clients remembered her as they moved through their careers. Today, she says, many of them refer their own new contacts to her business. Don’t underprice yourself When starting out, the temptation can be to offer a deal that undercuts your competitors so that people will try you out. While this can work, Tim De La Salle, MD of Fly Marketing, says there are drawbacks. “What I wish I’d known on day one is not to undervalue, and thus underprice myself or the skills of my team,” he says. “It sounds simple but it’s all too easy to try and compete on price, especially in a commodity market like web design, digital marketing or accounting.” Tim argues that a better idea might have been to “differentiate ourselves from the crowd.” Now that Fly have done so, he says, “we command higher fees which are commensurate with the value we deliver.” Surround yourself with experts “I knew I had the technical knowledge to make my R&D Tax Credits business a success and after a quiet start, the second six months saw it really take off,” says Simon Bulteel, who set up Cooden Tax Consulting in 2013. The problem was, he says, he was “spending too much time working in my business rather than on my business.” Finally, after about 12 months of floundering trying to do everything for himself, he started looking for people who specialised in areas of the business he didn’t really need to master. “Now I am working with a social media expert, I have joined a sales and marketing support group, I have someone managing my website and a call answering service. I’ve even decided to let someone else do the bookkeeping. These people specialise in their areas for a reason and they let you get on with working on your business,” he says. Let clients know what makes you unique “When I started,” says Janice B Gordon, aka The Problem Solver, “I thought about delivering a great service and I did, but as I know now in a competitive environment if you stand for nothing in particular you fall for anything.” Customers must be able to distinguish you from other service providers, Janice argues, adding that she has learnt that the more niche she became, the more success followed. “If you are able to pinpoint this at the start of your business,” she says, “your message is clear to your customers.”
History’s greatest financial fools Posted 04/01/2016 by Adam Harwood & filed under News. They say that a fool and his money are soon parted. To mark this year’s April Fools Day, AAT (Association of Accounting Technicians) has researched memorable moments from history where individuals and companies have made a great financial mistake, either through failing to capitalise on a great investment opportunity, or through taking one that spectacularly backfired. Three foolish buying decisions 1. AOL – Back in 2000, the dot com bubble was booming and AOL bought rival Time Warner for around £127 billion. Just nine years later, Time Warner was again separated from AOL at a market value of just £25 billion, with AOL itself worth just £1.7 billion. 2. Scotland – Way back at the end of the 17th Century, the Scots attempted to establish the Company of Scotland Trading to Africa and the Indies, gaining public contributions of £400,000 (£54 million in today’s money) to support their growth as a European power. However, the company never gained access to European financiers or secured trade agreements with England, the project flopped and the money was wasted. 3. Martin Shkreli – The pharmaceutical executive bought the only copy ever made of Wu-Tang Clan’s 2014 album Once Upon a Time in Shaolin, for around £1 million. This may not sound like a huge waste of money for a super fan but, according to Bloomberg, he hasn’t even listened to it yet. Three foolish selling decisions 1. Leeds United – Then champions of England, Leeds offloaded talisman Eric Cantona to their Premier League rivals Manchester United for a fee of about just £1 million. Cantona inspired Manchester United to four Premier League crowns over the next five years – the first of which was their first championship in 26 years – while Leeds have not come close to winning the title since. 2. Ron Wayne – One of the three original founders of Apple, Wayne relinquished his 10 per cent stake in the company for £550, just two weeks after the company had started trading. Those shares would be worth over £24 billion as of 2013. 3. Russia – Way back in 1867, the Russian Empire received £5 million for its sale of Alaska to the United States, comprising of some 1.5 million square kilometres of land. Given the losses of oil, manpower and even cabbage that Russia would have otherwise benefitted from, even the Moscow Times has recently bemoaned the loss of such a profitable area. Three fools who should have taken the plunge 1. Shaquille O’Neal – The great American basketball player was approached by Starbucks CEO Howard Schultz about launching a number of Starbucks stores in black communities. O’Neal responded by saying that he had “never seen a black person drink coffee.” Schultz turned to fellow basketball star Magic Johnson instead, who sold his 105 franchises back to Starbucks in 2010 for nearly £50 million. 2. Decca Records – The leading record agency passed up on the opportunity to sign The Beatles on New Year’s Day 1962 after the band travelled to London to audition. They signed local act Brian Poole and the Tremeloes instead, claiming that “guitar groups are on their way out.” 3. Multiple publishing companies – It took the eight year old daughter of an editor at Bloomsbury to convince the company to publish Harry Potter and the Philosopher’s Stone, after the book had received 12 rejection letters in a row. Even then, the editor advised author JK Rowling to get a day job as she had little chance of making any money from the book. The Harry Potter series has combined sales in excess of 450 million on both sides of the Atlantic.
Finance Bill 2016 – what new legislation do accountants need to be aware of? Posted 03/29/2016 by Brian Palmer & filed under Accountancy resources. On 24 March 2016, the Government published the Finance Bill 2016, which will come into law when the Queen gives the Bill Royal Assent in July. Most of the Bill was exposed in draft form for consultation having been announced at one of the three ‘Budgets’ held during 2015 – March Budget, Summer Budget and Autumn Statement, although there have been additions following last week’s Budget 2016. Accountants and tax advisers will need to be aware of many changes that may affect their clients. Specifically, these may include: 1. Changes to Capital Gains Tax rates Legislation is being introduced to reduce the rate of capital gains tax (CGT) charged on most gains accruing to basic rate taxpayers from 18% to 10%, and from 28% to 20% for higher rate taxpayers. 2. Restricted tax relief for travel and subsistence Initially announced in last year’s Budget, the Bill intends to introduce legislation to restrict tax relief for travel and subsistence expenses for workers engaged through an employment-intermediary. This is with the intention to bring the rules for those affected into line with those that currently apply to those directly employed. 3. Income tax on sporting testimonials Income above £100,000 arising from either sporting testimonials, or benefit matches, for employed sportspersons will be subjected to tax, provided the event takes place on or after 6 April 2017. Following consultation the proposed tax exemption applicable has been doubled (from £50,000). 4. Voluntary payrolling Introduced by the 2015 Finance Act, this is to be extended to allow for the payrolling of non-cash vouchers and credit tokens from 6 April 2016. 5. Simplification of employee share scheme rules For non-tax-advantaged schemes, the tax treatment for internationally-mobile employees of certain employment-related securities has been clarified. Rules for Share Incentive Plans have been amended to enforce the principle that shares with preferential rights cannot be issued purely to selected employees. The late notification of tax-advantaged share schemes has now also been permitted, provided the taxpayer has a reasonable excuse. Finally, capital gains tax legislation has been revised so that a rights issue which takes place on or after 6 April 2016, regarding shared received on exercise of an Enterprise Management Incentive option, will be treated in the same way for share identification purposes as other rights issues. 6. Tackling disguised remuneration The Government has brought forward a number of changes to ensure that those who have used disguised remuneration tax avoidance schemes pay their fair share of tax and National Insurance contributions. These schemes often involve individuals being paid in loans through structures including offshore Employee Benefit Trusts. The Finance Bill 2016 can be found in full on the Government’s website here.
Employed and self-employed considerations Posted 03/29/2016 by Karen Thomson & filed under Accountancy resources. According to Luke Johnson, one of Britain’s most successful entrepreneurs and the author of Start It Up, “running your own business is easier than you think”. But what happens if, like many people you are a little cautious about trading in your current job and taking the plunge? What if, instead, you want to keep working for your current employer whilst running your own business on the side? If so, there are some considerations and future actions you need to be aware of in respect of tax. This article looks at the tax implications of being employed and self-employed, looking specifically at the Income Tax/PAYE side. Be aware however there are other areas you will need to be know of potentially too such as VAT. So let’s tackle what you need to consider for the self-employed part Firstly you need to decide what type of business you will be. This is important as the decision you make will determine what and when information needs to be submitted to HMRC. For this article I have assumed an individual would look to start their business as a sole trader but there are a number of different types of business, depending on your circumstances, such as a Limited company or perhaps a business partnership. A sole trader doesn’t mean you couldn’t employ someone and must work alone, it just means you are responsible for the business and are personally responsible for any losses your business makes and liabilities it incurs. From a tax perspective you will need to report your income received via a self-assessment form each year, pay income tax on any profits your business makes and pay National Insurance. As a sole trader your key responsibilities are: Register with HMRC and the advice is to do this as soon as possible after starting the business, but at the latest, you should register by 5 October in your business’s second tax year; Keep records of your business’s sales and expenses; Pay income tax on your profits and National Insurance. As the Chancellor announced in Budget 2016, Class 2 National Insurance for the self-employed will be abolished and only Class 4 will be payable to simplify the National Insurance system. Your business debts; The paying of bills for anything you buy for your business; Registering for VAT if your turnover reaches the VAT threshold of £82,000 How do you register? You should always aim to register online as its much quicker and less hassle. How you register depends on whether you are a new sole trader who hasn’t sent in any tax returns before or not. Not sent in a return before Complete the online process via Business Register for Tax Previously sent in returns Register for National Insurance (at the time of writing via a CWF1) Ensure you know your 10-digit Unique Taxpayer Reference (UTR) to ensure HMRC can link your tax records; this will be critical when being employed or having other income you report. Your employment There is no reason why you shouldn’t retain your current tax code and would most likely do this as your employment income may well be higher than your new business profits, especially if on the normal personal allowance tax code and earn over the tax threshold, currently £10,600 pa (£11,000 from 6 April 2016). However, your tax code might change when you submit your businesses profits via the self-assessment form. If, you owe HMRC less than £3,000 on your tax bill and you submitted your paper return by 31 October or online by 30 December, then HMRC will recover the tax due through your employment tax code. Three conditions must be met to have tax recovered in this way: You have sufficient income to collect the tax; You won’t end up paying more than 50% of your pay in Income Tax (payroll systems would prevent this); You wouldn’t pay more than twice as much tax as you normally do (50%) The way HMRC would calculate your adjustment for the tax code would be to divide the tax you owe by 12 equal monthly installments (from the start of the next tax year). Adjusting your tax code is the normal route HMRC use for recovering underpaid tax, but If you specifically ask them not to use this method then you will need to pay your bill via other methods eg. through a one off payment to HMRC. Employment contract Just as an observation, if you plan to set up a new business, do check your employment contract. Your employer may have included a cause that prevents you working for someone else and or setting up your own business. Clearly they wouldn’t be happy if you were setting one up in direct competition. Conclusion You can set up on your own, or with employees, but need to decide what type of business you will be. You can change the type at a later date but there will be tax consequences, so seek advice. As a sole trader you will report your income and profits by way of a self-assessment return. HMRC will link your employment and your business income records to ensure you pay the right amount of tax. This might be via your tax code, or via other payment methods, depending on the amount owed and your choices. It just leaves me to say, if you decide to embark on a new idea and start your own business; all the very best of luck. You can find more information on starting a business and the tax obligations via Business Legal Structures.
New UK GAAP: Overview of the new accounting regime Posted 03/29/2016 by Steve Collings & filed under Accountancy resources, Financial accounting and reporting. This is the second of a two-part series of articles that looks at the new financial reporting regime which all companies that are not part of the small companies’ regime will have to apply mandatorily for accounting periods starting on or after 1 January 2015, followed by small and micro-entities for accounting periods starting on or after 1 January 2016. The previous article examined the legislative changes brought about by the EU Accounting Directive which was transposed into company law in early 2015 and which primarily affects small and micro-entities. This second article will examine some of the main changes brought about by the new regime that are likely to affect all companies as they transition across to new UK GAAP. New standards were issued by the Financial Reporting Council in the summer of 2015 for small companies and micro-entities which reflect the provisions in the revised companies’ legislation. The most notable change for small companies is the withdrawal of the Financial Reporting Standard for Smaller Entities (the FRSSE) in its entirety for accounting periods starting on or after 1 January 2016. Retrospective application of the rules It is important to emphasise that the rules in new UK GAAP are retrospective; that is, they must be applied as far back as the date of transition and this rule applies to all entities making the transition. The date of transition is deemed to be the start date of the comparative period reported in the financial statements. Therefore, a medium-sized business with a 31 March 2016 year-end will have a date of transition of 1 April 2014. This is because the comparative year will be 31 March 2015 and the start date of this comparative year is 1 April 2014 and hence the opening balance sheet position as at 1 April 2014 and the 31 March 2015 comparative year will have to be restated to become compliant with FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland. The same principles apply to the small companies’ and micro-entities’ regimes. The reason that the rules are retrospective are so that the financial statements can be both comparable and consistent. It would be meaningless to prepare the current year financial statements to FRS 102 principles but have the comparative year prepared to outgoing UK GAAP as the financial statements would be incomparable and inconsistent because there are some accounting treatments which are markedly different in new UK GAAP compared with outgoing UK GAAP. The new small companies’ regime The new small companies’ regime has been split into two components by the introduction of ‘micro-entities’ (although the micro-entities’ regime has been with us since 2013 and is currently embedded within the FRSSE). Micro-entities are defined as a subset of small companies and are deemed to be the smallest of companies in the UK. Micro-entities can apply the rules in FRS 105 The Financial Reporting Standard applicable to the Micro-entities Regime which was issued in July 2015 if they so wish (it is to be noted that FRS 105 is optional and a micro-entity can choose a more comprehensive framework if they so wish). The thresholds for a micro-entity (of which two out of three for two consecutive years have to be met) are as follows: 1. Turnover not more than £632,000 2. Balance sheet total (fixed assets plus current assets) £316,000 3. No more than an average number of 10 employees Please note that the eligibility criteria for the micro-entities’ regime is very restrictive and only incorporated entities can use the regime. Recently the Department for Business Innovation and Skills changed the Limited Liability Partnership Regulations and LLPs will be able to apply the micro-entities framework to their financial statements for accounting periods starting on or after 1 January 2016 (the same mandatory effective from date as FRS 105 and early-adoption is available). FRS 105 The Financial Reporting Standard applicable to the Micro-entities Regime FRS 105 is based on the principles found in FRS 102, but significant simplifications have been made to arrive at FRS 105. The framework is available to all entities that qualify as a micro-entity, but certain entities are exempt from the micro-entities’ regime (such as charities, financial and credit institutions, insurance institutions and micro-entities who are consolidated in with a parent). Care needs to be taken when considering the application of FRS 105 to ensure that, at the outset, the reporting entity concerned is actually eligible to use the standard. FRS 105 has come in for an element of criticism from various commentators; however, whilst the Financial Reporting Council do advise to consider the appropriateness of FRS 105 on a case-by-case basis, it will be a suitable framework for certain micro-entities; although it will not be for others. Accountants will therefore need an awareness of the key technical points in FRS 105 so as to be able to advise clients accordingly. The table below outlines some of the most notable differences in FRS 105 in comparison to the outgoing UK GAAP although the table below is not exhaustive in terms of differences: Issue Outgoing UK GAAP (the FRSSE) FRS 105 True and fair view Accounts prepared under the FRSSE are required to give a true and fair view and additional disclosures are needed in order to achieve this. The legislation has been drafted to include ‘deeming provisions’ which say that as long as the accounts are prepared in accordance with the legally required minimum, they will be presumed to give a true and fair view. Fair values and revaluation amounts The FRSSE allows companies to carry assets in the balance sheet at fair value or at a revaluation amount. Revaluations are dealt with in the alternative accounting rules in the Companies Act 2006. The legislation does not recognise any of the fair value or alternative accounting rules and as such no assets can be stated at fair value/revaluation. Thus on transition to FRS 105, a micro-entity will have to remove all fair value and revaluation amounts. Profit and loss account The FRSSE allows a Format 1 profit and loss account which categorises expenses by function (cost of sales, distribution costs, etc.) Only a Format 2 profit and loss account can be prepared as follows: Turnover Other income Cost of raw materials and consumables Staff costs Depreciation and other amounts written of assets Other charges Tax Profit or loss Disaggregation of the balance sheet Fixed assets are disaggregated into their components (e.g. intangible assets, tangible assets and investment property) with further analysis in the notes. Similarly, current assets are shown in the order of liquidity (stock, debtors, bank and cash). The statutory formats of the balance sheet for micro-entities are only preceded by letters; they are not preceded by Roman numerals and Arabic numerals hence the balance sheet will not be disaggregated. Deferred tax Deferred tax is required to be recognised in respect of all timing differences at the balance sheet date. Deferred tax is prohibited for micro-entities on the grounds that it will not be possible to distinguish deferred tax amounts from current tax amounts due to the formats of the financial statements and lack of disclosures. Deferred tax amounts will be removed on transition with the corresponding entry going to profit and loss account reserves. Disclosure notes The FRSSE requires far more disclosures to be made in the financial statements (which has essentially lead to its demise because the disclosures it requires are incompatible with the revised Companies Act 2006 and would contravene the EU Accounting Directive). Section 6 of FRS 105 only provides for the two legally required disclosures which relate to directors’ advances, credit and guarantees and financial commitments, guarantees and contingencies for the company. There is an appendix to this section which drills down on the actual disclosures required and micro-entities can make voluntary disclosures if they so wish. Directors’ report A directors’ report is required for small companies reporting under the FRSSE by virtue of the Companies Act. A directors’ report is not required for a micro-entity for accounting periods starting on or after 1 January 2016. FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland FRS 102 is the new reporting framework for small companies and companies not required to report under EU-adopted IFRS (as well as micro-entities not choosing to report under FRS 105). The latest edition of FRS 102 is the September 2015 edition which supersedes the August 2014 edition. It was re-issued in September 2015 because this latest version incorporates the requirements for small companies by virtue of Section 1A Small Entities which is not found in the August 2014 version of the standard. Section 1A of FRS 102 deals only with the presentation and disclosure requirements for small companies; in terms of recognition and measurement, these are dealt with in full FRS 102. Small companies, and micro-entities that choose not to report under FRS 105, must comply with the September 2015 edition of FRS 102 for accounting periods starting on or after 1 January 2016 (although earlier adoption is permissible). Some of the most notable differences between FRS 102 and the FRSSE are outlined in the following table (although the list below is not exhaustive): Issue Outgoing GAAP (the FRSSE) FRS 102 Deferred tax Deferred tax is calculated using the timing difference approach and is to be recognised in respect of all timing differences existing at the balance sheet date where such amounts are material. Section 29 Income Tax requires deferred tax to be calculated using the timing difference ‘plus’ approach. There are three new situations which will give rise to deferred tax under FRS 102: Revaluations of non-monetary assets (e.g. investment property). Fair values used in business combinations. Unremitted earnings in overseas subsidiaries and associates. Financial instruments Derivative financial instruments are not brought onto the balance sheet under the FRSSE as they are accounted for on settlement. Derivative financial instruments must be brought onto the balance sheet at fair value through profit or loss (unless the entity is applying hedge accounting). Section 12 Other Financial Instruments Issues deals with the recognition and measurement requirements of such instruments. Short-term employee benefits Many entities previously did not account for unpaid holiday pay under the FRSSE (although technically they should have as FRS 12 Provisions, Contingent Liabilities and Contingent Assets did cite unpaid holiday pay as meeting the definition of a liability). Section 28 Employee Benefits requires any short-term employee benefits accrued by employees, but not paid until the subsequent accounting period, to be accrued in the accounts. This will affect entities whose holiday year is not sequential to the financial year, or where staff are permitted to carry over holidays to the next holiday/financial year. Long-term loans at non-market rates Long-term loans at non-market rates were simply accounted for at transaction price under the FRSSE (i.e. the amount paid out of, or received in, the bank account). Long-term loans at non-market rates may cause a problem in the form of measurement differences (the difference between the fair value and present value of the loan) as Section 11 Basic Financial Instruments uses the amortised cost method to account for such loans. Loans which are ‘on-demand’ will simply be accounted for within current assets/current liabilities at the amount immediately repayable (which will usually be at fair value of the loan made or received). Investment property Fair value gains and losses in respect of investment property are taken to a revaluation reserve in equity and reported through the statement of total recognised gains and losses. Deferred tax is generally not brought into account for such properties. Fair value gains and losses are taken to profit or loss (as operating gains/losses) with associated deferred tax implications taken to profit or loss also. Please note fair value gains (net of deferred tax) are not distributable as a dividend to shareholders. Leases A lease is treated as a finance lease if the present value of the minimum lease payments equates to 90% or more of the fair value of the leased asset. There is no 90% ‘bright line’ test in Section 20 Leases and the standard instead offers eight indicators that a lease is a finance lease; one of which says that if the present value of the minimum lease payments equates to ‘substantially all’ of the fair value of the leased asset, the lease is a finance lease. Hence the 90% test has been replaced by the term ‘substantially all’. Other applicable standards in the new suite There are some other standards which the Financial Reporting Council have issued as part of the new UK GAAP as follows that accountants will need an awareness of: FRS 100 Application of Financial Reporting Requirements This standard outlines which entities can use which set of standards. For example, a micro-entity can use FRS 105, or it can use a more comprehensive framework if it so chooses. FRS 100 also says that financial statements required by the IAS Regulation or other legislation or regulation to be prepared in accordance with EU-adopted IFRS must be prepared in accordance with that regime. FRS 101 Reduced Disclosure Framework FRS 101 offers qualifying entities (i.e. qualifying subsidiaries) which report under EU-adopted IFRS to take advantage of reduced disclosures in their financial statements provided certain protocol is followed and certain disclosures are made. One of the qualifying criteria is that the subsidiary must be consolidated in with a parent company whose consolidated financial statements are intended to give a true and fair view and are made publicly available. There is an equivalent reduced disclosure framework in FRS 102 for UK GAAP reporters which is contained in paragraphs 1.8 to 1.13. FRS 103 Insurance Contracts Reporting entities that write insurance contracts or hold reinsurance contracts will apply the provisions of FRS 103. FRS 103 will only have a limited lifespan because it will be reviewed when the International Accounting Standards Board (IASB) issue the new insurance contracts standard (which will replace IFRS 4 Insurance Contracts). The IASB have said they intend to issue this new IFRS towards the end of 2016 but in the meantime periodic amendments to FRS 103 may be made so accountants dealing with such contracts will need to keep abreast of developments in this specialist area. FRS 104 Interim Financial Reporting FRS 104 is not actually a Financial Reporting Standard because there is no new requirement for entities to start preparing interim financial statements. The Financial Reporting Council have issued FRS 104 for those entities that are required by law or regulations (or who voluntarily choose to prepare interim financial reports) to voluntarily apply FRS 104. It is intended for use by entities that prepare annual financial statements in accordance with FRS 102. Conclusion Some accountants may find the new regimes take some time to get used to, particularly with the revisions to the Companies Act 2006 to get to grips with and advising clients on which financial reporting framework to report under. It is always advisable to consider the impact that some of the frameworks will have on financial statements prior to transition; for example, a micro-entity that has an investment property on the balance sheet might not want to report under FRS 105 because this standard does not allow such properties to be carried at fair value. Therefore, in such situations the client will have to be advised to report under FRS 102 Section 1A as a minimum to allow the use of the fair value model for such properties. Each regime has its advantages and disadvantages and accountants are strongly advised to gain a sound understanding of the technicalities of each standard in order that they can advise their clients/directors accordingly which will avoid the need for any further costs being incurred further down the line once the new UK GAAP has started to settle down. For more articles on financial accounting, reporting and more, visit our CPD resources by clicking the image below