Tag Archives: Finance

Cashflow Forecasting

Anyone who has ever studied anything to do with business will probably have heard the saying ‘Turnover is vanity, profit is sanity but cashflow is king’.  This saying is very true and poor cashflow management is the number one reason why over 50% of British startup businesses fail within the first 5 years.

It doesn’t matter how great your turnover is, how amazing your are at what you do, how brilliant your ideas are, if you haven’t got the money in your business to pay your suppliers, rent, staff etc you are going to fail.

So what is cashflow – it’s ensuring the amount of money coming in to your business is greater than the amount of money going out.  In business, as in personal life too, this needs to be monitored constantly so you can plan ahead for any shortfalls.

Having to rely on overdrafts and credit cards can lead to large charges making cashflow worse and an ever increasing downward cycle is created.

You need to pay particular attention to cashflow before any large purchases are made or new ventures entered in to.

Having a contingency fund (savings) of one months expenses will help ease cashflow when unexpected costs arise or money due in is late.

Don’t take it for granted that you will be paid on time.  Be very proactive when it comes to chasing money you are owed.  If possible have a contract or ‘terms of business’ with every customer detailing when payment is due.

Allow for fluctuations in income, do you close for Christmas, is your business seasonal.

Ensure you have good relationships with suppliers and financiers as they could help when your cashflow runs into problems.

The Cashflow Forecast

This is nothing more than a simple list but the more complex your business, the more complex your cashflow forecast will need to be.

Across the top will be 2 columns for each month (or week if needed).  One column for forecast and one for actual so you can compare results.

At the side you will have a row for each item of income and then each item of expenditure.

You can find many examples of cashflow forecasts on Google to give you an idea.  We can help set up a spreadsheet to do this for you but when it comes to applying the figures, you as the business owner are best placed to forecast your figures.

 

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Autumn Statement 2014 Review

So you would all have seen some sort of media coverage of the Chancellors Autumn Statement but most of what is in the press is just the headline grabbing key items.  In fact as usual there was a vast array of tax areas covered.  A lot, in fact most, of the changes do not affect the majority of people hence you won’t have seen them mentioned in the press.

Here’s my review of the main topics that will cover most of you and the topics that will cover at least one of my clients but there was much more.

If there are any areas that anyone wants me to elaborate on please email me directly.

Income Tax        

The Personal Allowance for 2015/16 will increase to £10,600.

As this exceeds the age allowance this will apply to everyone born after 6 April 1938.

The Personal Allowance for those born before 6 April 1938 will be £10,660.  As this is only £60 more than the standard personal allowance, those whose income exceeds £27,700 will only lose £60 from the age allowance write down.

20% rate band increases to £31,785 meaning the 40% rate band starts at earnings from £42,385, a much needed increase.  Threshold for the 45% rate band remains at £150,000.

National Insurance

No rate changes for Class 1 & Class 4 but the upper earnings limit has been bought into line with the 40% income tax threshold of £42,385.

The rates for Class 2 & Class 3 will be increased.

Class 2 will be bought into the self assessment tax system and be paid with your tax bill from 2015/16 so no more monthly or quarterly direct debits for the self employed.

Employers will not have to pay secondary Class 1 NIC on the pay of employees under the age of 21 years unless they earn over £815 per week.  This is extended to apprentices under 25 years old.

Extension to the £2000 employment allowance which reduces employers secondary Class 1 contributions.  This will now also include domestic care and support workers.

Pensions

Abolition of the 55% charge on death.

  • When an individual dies before age 75, the pension fund may pass tax free to the nominated beneficiary.
  • When an individual dies over the age of 75, the pension fund, when withdrawn, will be taxed at the beneficiary’s marginal rate of income tax or 45% if taken as a lump sum.

This is extended to Annuities as well.

Overseas Matters

The proposal to restrict the personal allowance to non residents has been delayed until at least 2017.

Non-domiciliary  Remittance Basis Charge (RBC)

Resident in the UK but not domiciled here for:

  •    7 out of last 9 years – charge £30,000 per yr unchanged
  •  12 out of last 14 years –charge now £60,000 per yr
  •  17 out of last 20 years – charge now £90,000 per yr

Property Owners

Stamp Duty Land Tax on residential property has been reformed.  Before if you were buying a property which falls into the 3% bracket you would have to pay 3% on the whole value, now you just pay the appropriate % on the value over each threshold.  Rates as follows:

  • Upto £125,000                                 0%
  • £125,001 to £250,000                      2%
  • £250,001 to £925,000                      5%
  • £925,001 to £1.5m                         10%
  • £1.5m +                                          12%

Annual tax on enveloped dwellings (ATED)

Came into effect in 2013 and has raised 5 times more revenue than the government expected.

Applies to properties owned by ‘non-natural persons’ ie companies.  These businesses are structured in a way to avoid paying Stamp Duty on purchased and/or Capital Gains Tax on sale.  The ATED charge fills this gap.  Rates as follows:

  • Properties worth £2m to £5m       – charge £23,350
  • Properties worth £5m to £10m     – charge £54,450
  • Properties worth £10m to £20m   – charge £109,050
  • Properties worth £20m+                – charge £218,200

Business Owners

Intangible assets transferred on incorporation.  2 measures bought in to reduce the amount of tax relief available on incorporation of a business.

  • Entrepreneur’s relief will not be available on the disposal of goodwill where an individual or partnership incorporates their trade.
  • Corporation Tax relief is restricted on internally generated goodwill and customer-related intangible assets acquired from a related party on incorporation.

Employees

Simplification of expenses and benefits system.

Business Rates

The current doubling of Small Business Rate Relief will continue as will the 2% cap on the multiplier.

Shops, pubs, cafes & restaurants with a rateable value of less than £50,000 will see their current £1000 discount rise to £1500 pa.

Corporation Tax

The main rate will be bought into line with the small profits rate – both will be 20% from 2015/16.

Capital Gains Tax

Threshold increases to £11,100 for 2015/16

Inheritance Tax

No changes, it’s expected the current nil rate band will stay frozen until at least 2018/19.

ISAs

The annual savings allowance will increase to £15,240, currently £15,000.

ISAs are currently exempt from inheritance tax if passing to a surviving spouse but are taxable in the hands of the spouse.  Now the spouse will receive a tax free allowance to cover the ISA amount so no income or capital gains tax will be payable.

Travel Expenses for Local Authority Councillors

Mileage allowance will now be capped at the Approved Mileage Allowance Payment rates.

Peer to Peer Lending

Growing in popularity due to various new websites

New relief to offset losses from bad debts against other P2P profits.

Other

Numerous other areas which have had some reform, if you want to know more please contact me.

  • Non tax-advantaged share schemes
  • Anti-Avoidance, Fee income on fund managers
  • Special Purpose Share Schemes
  • Miscellaneous Loss Relief
  • General anti-abuse rule (GAAR)
  • Serial tax avoiders
  • Offshore tax penalties – now 200%
  • Disclosure of tax avoidance schemes (DOTAS)
  • Venture Capital schemes
  • High risk promoters
  • HMRC direct recovery of debts and the power to close aspects of an enquiry.
  • Research and Development relief schemes

VAT

VAT on Prompt Payment Discounts – you normally calculate vat assuming customer will take the prompt payment discount.  Now you will have to account for vat on the amount actually paid so will have to re-invoice for the extra vat if discount wasn’t taken.

VAT refunds for search & rescue and air ambulance charities, hospices, various government departments and the Highways Agency which will shortly be replaced by a government owned company.

Air Passenger Duty exemption for under 12 year olds, extending to 16 year olds in 2016.

Fuel duty of 7.9p per litre put on Aqua Methanol.

 

Data from Tolley via Association of Accounting Technicians

Picture courtesy of Unsplash

Autumn

A Bit On The Side

A Bit on the Side

No, not what you’re thinking, I’m talking about the Side Gig, Side Hustle, Moonlighting, Homers, whatever you want to call it, it can be a very good idea.

Initially I built up my accounts practice on the side of my day job before leaving that job to grow my business full time.

More and more people are moonlighting on the side of their day job – so why is this such a good idea?

Test the waters

If you eventually want your side job to become your full time job, growing it on the side gives you time to test the waters, experiment and learn.  It lets you try out different strategies to see what works and allows you to fail, all whilst keeping the financial security of your day job.

Not having to rely on your side gig for income allows you to focus on the long term success rather than short term income.

Extra Income

You’ll no doubt make some money from your side gig to compliment your full time income.  Whether you use this extra income to grow the business, save or dig yourself out of debt is up to you but the extra cash will always be nice.

Cash lets you fund your own start up or take a pay cut when you eventually want/need to ditch the full time job and make your side job the full timer.

Money can make you feel that you have options, that you have some backup, that you can afford to fail.  In other words it makes you feel safe, and if you feel safe you are more likely to take the small risks necessary to start up.

What to do

You need to establish what your side gig is going to be – what are you good at, what do you know how to do, what would you like to do, what would others pay you to do.

Getting started

Once you’ve decided what you are going to do you need to work out how you are going to get clients/customers.  How are you going to get the word out about what you are doing and what platforms are you going to use to do this.

Keeping it going

Office management – even if your side job is something low tech such as dog walking, don’t think you don’t need to get involved in office management.

A side gig doesn’t have to be about money.  It can be for fun, to gain experience or self education.   However, if money is the main objective you need to take it seriously.  Dealing with administrative tasks, paperwork, income, expenses, taxes and marketing all need to be done.  If you are making money you have a legal obligation to declare this for tax which requires some record keeping.

Stay Organised

If you’re working 9–5 and then moonlighting on the side, you are going to be busy.  You must stay on top of the admin and if you are making money you need to stay on top of the finances.  Keep track of all income, expenses, bank and paypal accounts.  You may need to develop systems for tracking this, customer/client relationship management and other items relevant to your line of work.  These systems can be anything from notebook scribbles or spreadsheets to specialised software.  The more you have going on, the more you need to attend to these back office tasks.

Word of warning

If your side gig is something that could tread on the toes of your full time employers business, you should get their permission first as there may be clauses in your employment contract to stop employees setting up in competition against them or stealing their clients.

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Photo Credit: Splitshire.com

Passwords

As more and more aspects of our lives are going online our internet security is becoming increasingly important. It’s no longer ok to have the word ‘Password’ for a password or to have the same password for everything, so what are we to do?

Firstly, what not to do

We post so much personal information online via Social Media or have information about ourselves held by others, some publicly available on mediums such as the electoral role that using any word or name that is related to you such as your son, daughter or even pets names are easy pickings for hackers, even if you add a number to the end.

Never use the word ‘Password’ or simple combinations like ‘qwerty123’ or ‘abcd123’. The shorter the password, the easier it is to crack. The average home PC is capable of being programmed to crack a 6 character password in a under an hour, 8 characters would take 24 hours, 10 is apparently about a month.

You need to come up with strong passwords

What is a Strong Password – A strong password contains at least 8 characters and should contain both UPPER and lower case letters and numbers.

A Superstrong Password is as above but with at least 10 characters and could also include special characters such as ‘!*&{@’ but not all systems allow these.

Here are some tips for coming up with a secure password which is still memorable.

Think of 2 or more words, convert the first word to all lower case and the second to Uppercase or vice versa. Then convert certain letters to numbers for example:

  • I or i becomes 1
  • E becomes 3
  • g becomes 9
  • o or O becomes 0
  • B becomes 8
  • S becomes 5
  • and becomes &
  • at or a becomes @

Examples in use:

  • Happy Chappie    –           h@ppyCH@PP13
  • Foolish Password –          f001!5Hp@55WORD
  • Off Down The Pub –        0ffD0wnTH3pu8
  • Strong and Secure –        5tr0n9&53CUR3

This works best if you choose words that have meaning to you.

Try not to re-use passwords – its ok to do this on unimportant sites such as forums but not for online shopping or banking.

Final Point

It is vitally important that you NEVER EVER use your email account password anywhere other than on your email account. Alot of sites automatically use your email address as your username. If you then use the same password as you do for your email and that site is hacked, the first thing a hacker will do is hack into your email account and then try all the other sites you use with that email address and the first site they will try is your Paypal and other bank accounts where they can get something out of you.

Stay safe.

Acknowledgements and credit for content to S Watts of Siwis Ltd

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Funny Tax Laws from around the world

A collection of amusing tax laws, past and present.

Peter the Great introduced a beard tax. Any Russian wanting to remain beardy had to pay an annual amount and was issued with a beard token which he had to carry with him in public to prove he had paid.

Roman Emperor Nero introduced a tax on the collection of urine. Back then it was used to prepare animal skins – and you thought today’s taxman was taking the piss!

In Canada children’s breakfast cereal is tax exempt if it includes a free toy. The free toy must not be beer, liquor or wine – yes, they actually thought they needed to clarify that, imagine Coco Pops with a free beer toy!!

In Sweden there is a tax for naming your baby something that is not already in use. It is also applied to the misspelling of names and names like ‘Apple’ regardless of income, status and tax bracket.

Scaredy-cat tax was introduced by Henry I for English knights that didn’t want to go to war. It was originally very low and meant as a deterrent but King John later raised it by 300% and even collected it when not at war. This led to the formation of the Magna Carter.

In 1988 a stripper in the US called ‘Chesty Love’ successfully claimed her boob job as a business expense. This paved the way for anyone in the adult entertainment industry to claim cosmetic surgery expenses if it would lead to more work.

In UK tax law biscuits and cakes are deemed necessities and are exempt VAT but cover biscuits jaffacakein chocolate and they are luxuries that have 20% vat added to them. So Jaffa Cakes – are they biscuits or cakes? McVities invented them and they make biscuits so they were forced to go a tribunal and prove they are cakes – they won so they are non vatable chocolate covered cakes.

In the Netherlands tax deductions are allowed on training in magic and witchcraft after an actress claimed £1500 tax relief for a year long course in potion making, spell casting & crystal ball reading.

Cow Flatulence Tax – This is a new tax being introduced in EU countries. Cow farts cause 18% of global warming. Large clouds of methane hang in the air over slaughter houses where they store thousands of cows causing negative effects on air quality. Ireland tax $18 per cow while Denmark charges $110.

HMRCs Home Office Policies

How much can you claim, for using a room in your home for business purposes?

HMRCs guidance uses typically vague words such as ‘fair & reasonable’ and ‘modest or excessive’. The trouble is someone earning mega money will think one figure is fair and reasonable but to most of us the same figure would seem excessive.

HMRC believes just £4 per week is all that should be claimed for the use of a home office. This measly amount is deemed as a ‘significant’ expenses and any claim over this amount must be justified by providing records or demonstrating your calculations.

How to can claim over the £4 per week

One way to prove your claim is reasonable is to calculate your monthly outgoings for gas, electric, rent, water etc then divide this by the number of rooms in the property (excluding kitchens & bathrooms).  For example if you have 5 rooms (Lounge, Dining Room, 3 Bedrooms) and one is used as an office take 1/5th of these bills.

If this amount seems too substantial for your business use you could divide it down further by the number of hours you spend in it working each day eg, 8/24 hrs or by the number of days per week that you work or by square meterage if known.

Beware

Be careful if claiming for more than one room as you will need more justification but it is possible ie a photographer could have an office and a darkroom (days before digital).

You should never claim the room is ‘solely’ for business purposes as this could lead to a business rates claim by the local council for part of your home or even Capital Gains Tax when you sell your property. Most people’s home office also doubles as a spare bedroom or is home to the unused exercise bike or the kids use it for doing their homework.

If you run your business through a Limited Company you can draw up a lease agreement so your company is reimbursing you for the costs of the room thus reducing your Corporation Tax but again, to be exempt from Capital Gains Tax when you sell the property make sure the agreement doesn’t state that it is solely and exclusively for business purposes.

Clean up your Finances

Tips for sorting out your personal finances.

There is a philosophy that says you should ‘spend a third, save a third, invest a third’. For most people this is unattainable but it is something to aspire to!

The last thing I want to do is tell people how to spend their money but if you are interested in spending a bit less or saving a little bit more or paying off debts here are some tips. Mostly common sense things that we’ve all heard before but sometimes we can all do with a reminder to get a grip on the situation.OLYMPUS DIGITAL CAMERA

Here goes:-

Change your attitude towards spending your hard earned cash. Aim to consume less and cut unnecessary expenses. Place less value on material things and more on experiences.

If you’ve ever done a car boot sale you’ll know what an awful experience it is, standing in a damp field at 5am on a Sunday morning with people refusing to pay 50p for something that cost you £20 only a few months ago. A good thing to come of this awful experience is that it makes you look at things differently. When you go to purchase something, think ‘will this go in the car boot pile in a year’s time?’ If the answer is yes then you really don’t need it. It’s usually impulse buy decorative ornamental nick nacky cheap plasticky kids gimmicky toy type things that fall into this category.

Set financial goals for motivation – what are your priorities and what dreams do you want to turn into reality? Create a plan and make it happen.

Try to save something each month then aim to increase the amount every so often.

Track your spending, including the little things like Costa’s and newspapers as they really add up. Create a budget, then stick to it.

Go through every item of your expenses and try to reduce them where/when possible. For example never just renew insurances, always shop around. Change your mobile phone contract as soon as you are able, I changed mine from £37 per month to £11 per month for better usage allowance with the same provider. Our AA contract had gone up year on year, when it got to £230 (including our ‘valued customer discount’) we looked online to see they were offering the same deal to new customers for just £99. When we queried this with them they told us you should phone and cancel every year and then renew online to get the best deal.

Again, look at the little things, Costa’s – buy a flask, newspapers – get the Sky or BBC News apps and read the important stuff for free, everything else is pure trash (although I also have the ‘OK’ app to keep up to date with the trash/gossip). I don’t think I’ve ever bought a newspaper. I could go on and on with things like this and it depends on how much disposable income you have or how much you want to save. If you are seriously strapped for cash you can save loads on the little things.

Move your credit card balances to get better deals.

If you have debt you need to decide whether you should still save or put more into paying off the debt. The general rule of thumb is to first save an emergency fund and keep it for real emergencies. Then start paying off debts with the highest interest rates. If you are left with debts with interest rates of less than 5% it may be better to invest rather than pay off. If you debthave several debts it can be motivating to pay off the smallest ones first. As each debt is paid off use the money you are saving each month against the next debt to create a snowball effect. The more you get paid off, the more you have available to pay off the next debt.

Cancel any payments you no longer need – subscriptions, extended warranties, unused gym memberships.

Don’t pay for things twice, e.g., when you bought your freezer did they sell you extra insurance to cover your freezer contents if it breaks down, this is usually covered on your home insurance.

Don’t be afraid to change your current account even if it’s with the same bank, it’s not as difficult to do as you may think. Try to get a better deal for your circumstances, e.g., I pay £2 per month for my account but I get back around £12 per month in cash back (partly because my mortgage is with the same bank and I get cash back on the mortgage payments). But beware if you regularly go overdrawn this type of account can be very expensive.   It has to suit your circumstances.interest-rate

Check your savings accounts interest rates, including ISAs. Banks are forever lowering the rates for existing accounts and then bringing out new accounts with higher rates. It’s usually really easy to stay with the same bank but just switch to their latest offering.

Just one final point, a friend of ours is a mortgage advisor and he is on a crusade against payday loans. We all know they cost a fortune if you don’t repay in time but what you may not know is that even if you repay every penny on time it will seriously dent your credit rating. If you try to apply for a mortgage after you have had one of these loans, most banks will not touch you with a barge pole because you are deemed to be not very good with your finances if you have had to resort to that type of loan. It is stereotyping people and unfair if you did repay on time but that is how it is.