Exit Strategy – Why Do You Need One?

An exit strategy is the preparation made by a business owner to leave their company on a permanent or semi-permanent basis. Departure from a business is normally followed by succession (passing the business onto a family member), a disposal (through a sale or a merger), or the permanent closure of the company.

 

Succession Planning And The Protection Of Value

A succession-focused exit strategy is about the protection of value. After working on your business for many years, maintaining the value and the viability of the company you’ve built up is important for both financial and personal reasons.

Many businesses are family-owned and -managed businesses. The hope for many exiting entrepreneurs is that the younger members of their family will lead the company eventually.

Once you have resolved that you do want to pass your business on to family members, you then need to plan how to do it. You can never start to soon in your preparation but we would advice that a handover period takes a minimum of 18 months to complete.

You need to consider your own role in the business – if you want one. If you want to no longer be involved in the decision-making process, you need to plan which family member will do what and provide them with the appropriate training and mentorship on their new responsibilities.

If you still want to be involved but at an arm’s length, you and other family members need to know whether your pronouncements are either advisory or binding on the company. In other words, are you going to be a backseat passenger reading out the directions the driver has given you or are you going to insist that your own route is taken regardless of the feelings and knowledge of the driver?

You’ll also need to consider whether you still wish to draw an income from the business and how much. If you take out too much, this could bring about negative consequences for both your company cash flow and your successors’ ability to pay themselves more in the future. If you take out too little, what has the point been in working for so many decades only to be a poor retiree?

Other aspects to consider could include:

  • leaving your company on your own schedule
  • choosing a strategic direction for your company before you leave
  • removing entirely or mitigating any capital gains tax liability
  • inheritance tax considerations
  • ensuring jobs to your current employees

In many ways, succession planning is the most complicated and emotionally-fraught exit you can choose because of the need to preserve the valuable relationships you have with the people who will in charge of the company you’ve worked so hard to build.

 

How To Exit A Business By Selling

There are two main ways to exit via the transfer of company shares, namely:

  • mergers – a merger usually brings your company and another together within one new organisation (a NewCo). You’ll have to negotiate your level of active involvement in the NewCo, any ongoing income you can drawdown, and consideration for the value of the shares you’ll be “selling”.
  • acquisition – your business is sold to another company, potentially a private equity firm or to another firm, and you receive a pay-out for the sale of the issued shares in the company.

The sale of a company is ferociously complicated and that complexity only increases for higher-turnover businesses. You should start the preparation you need to take your company to market at least 12 months before you start inviting others to bid for ownership.

You should ensure that, during both the negotiation and buying stages, that the following information is kept up to date:

  • financial accounts
  • legal issues and contracts
  • litigation and employee disputes
  • utilised debt

Once the initial negotiation is complete and a price has been agreed, expect the buyers and their solicitors to take every opportunity to denigrate as many aspects of your business as possible in order to secure a price discount. While you may be on friendly terms with your buyers, their solicitors are paid to secure your buyer the best possible deal so do not expect your interactions with them to be particularly cordial.

In addition to engaging us during and after the sale to provide financial information to your buyer and their solicitors, you’ll also need to take advice on taxation following disposal – please contact us for more.

Once the negotiations have concluded, you should budget 4-6 months for due diligence and the drawing up of the final sales and purchase agreement to occur.

 

Exit Strategy Support At Accounting Gem

Taking the decision to leave your business is an emotional decision. How you leave your business is a big financial decision whose consequences will dictate the quality of your life after you’re no longer a (major) part of the business you’ve created, nurtured, and grown.

Therefore, you need to have access to accountants and solicitors who are experienced in the sale of businesses or the handover of businesses to the next generation during this time. This is especially so if you wish to retire permanently and live off either the proceeds of the sale or the drawings from the company from which you’ve stepped back.

Your Accounting Gem partner is here to guide you through the entire process of exiting your business but please remember that it’s important to start your exit planning as soon as possible. Whichever method you choose to exit, the likelihood is that you’ll still be in situ for the next two years and you have to maintain the health and profitability of your business in the face of the multiple distractions that exit planning will present to you. Get in touch with us on 01473 744 700 or email us on contactus@aag-accountants.co.uk.

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What Is An Entrepreneur?

Broadly speaking, you can define an entrepreneur as someone who sets up and runs businesses in potentially lucrative unexploited or under exploited niches. The money needed to launch the business will be drawn from their own finances or finance they have raised from other sources. Entrepreneurs are notable because they have ambition in abundance, they want to get things done as quickly as possible, and they take big risks.

In this article, we will look at:

  • the main differences between being an entrepreneur and a small business owner
  • what key skills and character traits you need to succeed as an entrepreneur
  • how technology has enabled entrepreneurs to triumph
  • how entrepreneurs finance their fledging business ideas
  • what steps you need to take to become an entrepreneur in today’s marketplace

 

What Is The Difference Between Being An Entrepreneur And A Small Business Owner?

Owning your own business does not necessarily mean you are an entrepreneur. Typically, an entrepreneur will introduce a new product or service to market or amend an existing product or service. The idea they have, if it gains traction, could become very big very quickly if scaled up correctly and skillfully.

Very often, entrepreneurs will have delegated the management of their product or service to experts in that particular field as early as possible. This means the company can easily be managed by others and the entrepreneur can focus on further business development and fund raising.

Here at Accounting Gem, we have also noticed a recent trend in that entrepreneurs are now more likely to be involved in creating sustainable businesses – sustainability could be defined as either a donation of profits to charity or a commitment to zero carbon emissions.

Alternative to this, small business owners are more likely to be involved in running a more standard type of company like a local garage or bakery. They are generally lower risk as the market is already there for the products and services they offer. They are focused on building the business for themselves to create a reliable personal income stream more so than planning to scale it and sell it on.

It’s not uncommon for small business owners to be much more heavily involved in the day-to-day running of the service than an entrepreneur. This means the company relies massively on their input and attendance.

 

What Key Skills Or Characteristics Do Entrepreneurs Need To Have To Succeed?

You need business acumen and a wider vision to succeed as an entrepreneur. Being highly organised, having self-belief, being creative, and making use of sector-specific and in-depth knowledge are the building blocks to consolidation and growth.

What makes an entrepreneur stand out are the qualities that push you above and beyond the rest:

  • be a visionary– you need to have a dream but also the vision to see how it will work in reality
  • take the risk– be prepared to take calculated risks such as sacrificing short-term income for long-term gain
  • maximise your resources– use what you’ve got, who’ve you’ve got around you, and know how to create opportunities out of nothing
  • harness your passion– a genuine love of what you are doing will get you a long way
  • be flexible– you need to be able to do everything like sales, recruitment, marketing, and product development
  • innovative is the key word– you need to think outside the box to create better, each and every time
  • believe in your confidence– you need to have the resilience and decisiveness to push your idea forward and against numerous stumbling blocks
  • have persistence– as above, you will come across problems, but you need to get back up each time. foster the tenacity needed and it will stand you in great stead.

 

How Has Technology Evolved And Enabled Entrepreneurs?

By connecting people and by providing deeper financial and operational information allowing further fundraising, technology has helped significantly in the creation and success of today’s entrepreneurs.

Platforms such as Quickbooks has allowed for easy accounting while Kickstarter has helped with seed funding giving entrepreneurs the money they need to start their companies. Canva has helped businesses develop their image and branding and keep both consistent while iZettle allows you to take payments seamlessly.

Dropbox has allowed individuals to share large files easily (remember the old ISDN days prior to the internet?) whilst Shopify has made it quick and easy to sell products and services online without learning how to code.

There is an abundance of platforms available to you to make the journey as an entrepreneur smooth and consistent.

 

How Entrepreneurs Fund Their Businesses And Run Them In The First Few Months

No matter which business, its launch and early days need to be funded. Investors (and financiers) always want to see an entrepreneur make their own investment into their business whether cash, sweat equity, or a mixture of the two.

Initially, entrepreneurs can expect to work extremely long hours with very little (or no) recompense. For their first few ventures, entrepreneurs need to learn quickly about the more mundane aspects of running a business in the early days so that they are better able to understand the skills needed in people they appoint to take those responsibilities away from them later on.

 

Services For Entrepreneurs At Accounting Gem

Accounting Gem works with small business owners and entrepreneurs – for entrepreneurs, we’ve developed a more specialised group of business start-up services designed to help you get to your end goal quicker.

Key to finding early funding is a credible business plan backed up by 3-5 years of believable financial forecasts. Share with us your idea in full and we’ll translate your idea into a fully costed business plan showing growth milestones and the key performance indicators investors or financiers can use to track your progress.

After the launch of your business, we’re also able to provide you with bookkeeping and management accounting services so that you and your investors/financiers are working from the latest financial information.

Your Accounting Gem partner is here to help you at all stages of the business cycle from start-up to expansion to exit. Get in touch with us on 01473 744 700 or email us on contactus@aag-accountants.co.uk.

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The Advantages And Disadvantages Of Employing Staff

If you’re a business in the UK, hiring staff can be a big decision. Before taking on employees – whether on a full-time, part-time or self-employed basis – it’s important you have a good reason for adding to your workforce and understand the legal responsibilities that comes with employing new members of staff.

 

What Are The Different Types Of UK Employment Contracts?

With the time, costs and legal obligations that comes with it, taking on a new member of staff can be a big commitment. However, there are a number of different ways to employ a new worker – and hiring someone doesn’t necessarily mean offering a full-time, permanent contract.

Depending on the type and size of your business – as well as your recruitment requirements – there are a variety of ways you can hire members of staff. If you’re an office-based business offering services to clients around the clock then recruiting a worker on a full-time basis may be the most cost-effective option, whereas if you run a seasonal photography studio and require extra workers on a project-by-project basis, then working with a freelancer will likely suit you better.

Before deciding on which type of employment contract to offer any new member of staff, make sure you think carefully about the role of the worker, what they’ll be doing for your business and how often you’ll require their services – you don’t want to be left struggling to meet deadlines with too few employees, or paying over the odds for workers who aren’t really needed.

 

Fixed-Term Contract Employees

A worker who is on a fixed-term contract – for example, if they’re working for a set amount of time until a specific project is completed – has the same rights as a permanent member of staff. The main advantage of hiring an employee on a fixed-term basis is your obligations to them only last as long as the length of the contract, meaning you can hire workers as and when you need them.

You may take on an employee on a fixed-term basis to cover a seasonal spike in business or if you’re launching a new product or service and require an extra pair of hands.

 

Permanent Employees

A permanent employee can be hired on either a part-time or full-time basis. As an employer you are required to adhere to a full range of legal obligations to your workers, including sick pay and holiday entitlement.

Permanent employees are usually hired on an ongoing employment contract, and the advantages of hiring them includes predictability, loyalty and regularity in the workforce. The disadvantages of entering into a permanent contract for an employer includes increased management time, the strict adherence to legal obligations and a lack of flexibility.

 

Zero Hours Contract Employees

The main advantage of hiring a zero hours contract employee is the flexibility involved. A zero hours contract means that you can call on your workers as and when you need them, without meeting the legal obligations or costs associated with a permanent employee contract.

However, while a zero hours contract may be more cost-effective, it’s a two-way street, meaning the employee is not obliged to work a set number of hours per week. Depending on the type of industry you’re working in, zero hours contract employees can provide a flexible solution to your staffing needs.

 

Temporary Agency Staff

A large number of start-up businesses begin their recruitment process by hiring temporary staff supplied by an employment agency. As these type of workers are often available at short notice and you don’t have a great deal of legal obligations to them, temporary agency staff offer a relatively low-risk way of bolstering your workforce.

However, as you’ll be paying commission and fees to an employment agency, it is a more expensive option that hiring full or part-time workers directly. Although things such as National Insurance Contributions will typically be handled by the agency, you are still obliged to provide things such as a basic level of pay, an appropriate amount of rest breaks and a safe work environment for your workers.

 

Freelancers, Contractors and Consultants

With an estimated 2 million workers, the freelance economy makes up a significant part of the UK workforce. As an employer, many businesses use freelancers, contractors and consultants to help complete specific projects as and when they’re needed. Professional service companies, meanwhile, typically call on consultants to help meet client needs on a seasonal basis. As the freelancer, contractor or consultant is self-employed, your legal obligations as a business are minimal.

However, in order to meet HMRC requirements, it’s important to check the legal status of any freelance worker you go into business with. The definition of ‘self-employed’ usually relies on the work that the freelancer is doing for you and where they carry out the work. As a responsible employer, you should check the employment status of anyone who works for you and we’d recommended drafting a contract with any self-employed staff you hire.

 

How To Resolve Workplace Disputes

A healthy and positive working environment is crucial for any productive and successful business. If problems within the workforce are not resolved in a timely manner, disputes can quickly escalate. As a business owner, make sure that you have suitable procedures and policies in place to resolve any workplace issues. For more information on how to maintain a healthy working environment visit Acas (Advisory, Conciliation and Arbitration Service).

 

Are You Considering Hiring Staff For Your UK Business?

An Accounting Gem can guide you through the process – including the pros and cons – of staff recruitment.

We pride ourselves on our open door policy. If you have a problem – we’ll make you our priority until it’s fixed! We work with individuals, sole traders and limited companies in Ipswich, Suffolk and Essex.

Speak with our friendly and knowledgeable team today by calling 01473 744 700 or email us at contactus@aag-accountants.co.uk and we’ll be in touch.

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How To Sell Your Business

There are many reasons that you, as a business owner, might decide to sell your business. The business might be failing, or you could be tired of running it. You might have a new opportunity you want to pursue or have other life changes that make it impossible for you to keep your business running successfully in the meantime.

Whatever your reasons, there are a number of factors involved in selling your business, that you need to be aware of so that you can sell your business for what it is worth and make the best return on your investment.

The reason that you want to sell will affect the way in which you sell. For example:

 

If your business is performing badly

A declining business will mean that you might have to take a lower price on your company. If you are in debt then selling the company could mean that you end up out of pocket after a sale. In this case it is worth thinking about whether it is possible for you to rejuvenate the business and rebuild a bit before you sell, in order to get a better price.

 

If your business is running at a sustained level, but with varied profits

You will want to base your sale price on the previous three to five years’ worth of profits, rather than just on where your company is now. You will have to be transparent with buyers about how the business is performing overall and will want to get all of your accounts in order so that you can prove your company’s viability.

In this case it is still important to put your all into the running of the company so that it does not stagnate while you focus on finding a buyer.

 

Preparing to sell your business

Even if you are ready to make a quick sale, chances are it will take some time to complete a sale. The average time for a small business to sell is around 6-8 months, depending on the deal you wish to secure and the industry that you are in. During this time it is possible that your business’s fortunes could change dramatically.

Before you even think about putting your business on the market you need to:

  1. Prepare full and comprehensive accounts for your last accounting period, and have full management accounts for every month after this
  2. Make sure that you have tied up loose ends such as legal issues, leases and contracts
  3. Settle any ongoing litigation and disputes with employees
  4. Reduce your personal expenses and bring your cash flow down to the bottom line
  5. Speak with professional advisers in order to put together the best possible deal
  6. Increase the responsibilities of your management and decrease owner responsibilities

 

Valuation

This can be a hard one for business owners, as you are likely to have given years of your life to the company and feel that it is worth everything that you have put into it. In this case you need to clear your mind of your own emotional bias towards the company and look at it objectively so that you are asking for a price that is better suited to what the company actually has to offer a prospective buyer.

Although it is important that you make a comprehensive pre-sale valuation of the company so that you know what you are marketing it for, don’t be too rigid on this. As the sales process goes on you will find out a lot more about the market that will help you to understand what your company is worth. You can look at what similar businesses are selling for, but again be prepared to look realistically at what your company has to offer.

 

Creating A Sales Profile

A simple, one-page sales profile offers potential buyers everything they need to know about the business without being too in-depth. All you need to include in this is the most basic information about your company, such as:

  1. What you do
  2. Where you do it
  3. Your reason for selling
  4. The company’s potential for future growth
  5. Differences between you and your competitors (your USP)
  6. Basic financial details (annual turnover, GP, EBITDA)
  7. Contact details

 

Negotiation

Once you have had your business up for sale for a little while and started receiving offers, you should have a much better idea of how your business is going to perform on the market. This allows you to finesse your negotiation process so that you can get the best possible price and make a decent return on your company.

Ask yourself:

  • What is a good price or deal for your business? Are the prices being offered acceptable, or are you being lowballed by potential buyers? You can start putting together evidence of why you think this in order to formulate a counter-offer to make to any serious buyers.
  • How many buyers do you really have? Try to work out who is serious and who wants to grab a bargain in order to sell it. Of the buyers that are left, you can start negotiating with them for a price that you are all happy with, or potentially start a bidding war.
  • If you say no to a buyer, will someone else come up? This is a tough one because you have to be honest with yourself about the viability of your business on the current market. If you feel that you are not being offered a fair price, but there are also no other options and no potential buyers on the horizon, you might just have to take the hit and sell for less than you want. You can still negotiate with the buyer to create a deal that bridges the price gap, such as a cash payment.

 

Due Diligence

Once you have a buyer and are ready to make the sale, due diligence is the part where most business owners trip up or lose the sale. This is the area where the more hidden aspects of your business come to light, and the buyer can back out at any time if they don’t like what they see.

In order to maintain buyer confidence and ensure that the sale goes through, ensure complete transparency, but be prepared to offer justifications and possibilities to get over potential roadblocks.

 

Protect Yourself

You can download sale and purchase agreements online that will walk you through the sales process, but it is a good idea to bring a solicitor on board at this stage, if you haven’t already. They can make sure that you have crossed all your ‘t’s and dotted your ‘i’s so that the agreement is solid and both parties get what they want.

 

Want to find out more?

If you would like any help in selling your company, then we are here to help. Get in touch with An Accounting Gem Limited on 01473 744 700 or email us on contactus@aag-accountants.co.uk to find out more.

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Ways To Improve Your Staff’s Mental Health

Mental health issues in the workplace can cause employees to suffer from feelings of nervousness, unease and anxiety, leading to a significant impact on their ability to work effectively. As an employer, mental ill health within your workforce can lead to lower productivity levels, increased absences and potentially staff conflict. As a result, raising awareness of mental health at work should be one of your priorities as a UK business.

In the UK, one in four people suffer from a mental health condition. Work-related stress is increasingly cited as a cause of anxiety and depression – leading to both physical and psychological damage and affecting how we think, feel and behave.

Regardless of whether work is causing mental health issues or employees are predisposed to a condition, employers in the UK have a legal responsibility to their employees.

What Is The Impact Of Mental Health In The Workplace?

According to official government statistics, the cost of mental ill health to UK employers is between £33 billion and £42 billion each year. 15% of workers consider themselves to have a mental health problem, with this figure rising to 27% in staff under the age of 18.

Nearly half of workers suffering from mental health problems have indicated that they have considered resigning from a job because it has had an adverse effect on their mental wellbeing, while almost 40% of sufferers are more likely to enter a conflict with their teammates.

In 2019, research by the Chartered Institute of Personnel and Development study found that mental ill health in the workplace has an even bigger impact on UK businesses, with their findings indicating that:

  • 80% of workers suffering from mental health issues find it difficult to concentrate
  • 50% are less patient with customers and clients
  • 60% take a longer amount of time to complete tasks
  • 57% find it more difficult to multitask

Encouraging positive mental health among your workforce is therefore vitally important for any business looking to improve productivity levels in the workplace.

 

How Can Employers Improve Mental Health At Work?

As a business owner and employer you undoubtedly have a lot on your plate, and we understand that you may feel you don’t have the necessary time or resources to dedicate to mental health in the workplace.

However, there are a number of simple measures you can take to boost the mental wellbeing of your workforce and reap the benefits of improved productivity for your business in the process.

It goes without saying that staff who feel happy and content at work are more likely to perform well in their duties, have strong attendance levels and be actively engaged with the aims and objectives of the business.

However, everyone is different and, as such, it can be difficult to create a positive working environment that meets the wants and needs of the entire workforce.

It is important that business owners are able to identify any signs of mental ill health in their staff and provide the appropriate levels of support and guidance where necessary.

Check out our top tips for improving mental health in the workplace below:

 

Offer your employees flexible eating options

We all know the old adage, ‘you are what you eat’. Well, it’s true! What we eat and drink at work can affect how we feel, both mentally and physically. And these changes can affect how well employees perform on the job. Encourage your employees to maintain a healthy routine of eating at work – healthy meals and regular water breaks are essential for maintaining energy levels throughout the working day. It may seem counterproductive as an employer but encourage your workers to get away from their desks when they’re on their lunch break. Taking a walk or enjoying a change of scenery is proven to reduce stress and revitalise the mind.

 

Encourage a positive work/life balance

Maintaining a positive work/life balance is essential for both employee and employer. If staff feel happy at work, are able to leave on time, and are able to relax when they’re at home without feeling pressured to check their company emails or do that one extra piece of work, then wellbeing levels will undoubtedly rise – leaving to less absences and increased productivity. Encourage your employees to listen to their bodies and gain enough rest. After all, our mental health and concentration at work is proven to suffer if we don’t have enough sleep and relaxation.

 

Allow your employees to take regular breaks

A change of scenery is proven to be good not only for mental health and wellbeing, but also for productivity. Whether it’s offering employees a five minute break after each hour of work, encouraging them to work in different environments throughout the course of the day, offering an extended lunch break outside of the office, or rewarding your employees with a team bonding exercise away from the workplace, it’s important to give your staff the flexibility to recharge their batteries by taking a break.

 

Talk about mental health matters with your team

Despite improving awareness levels, mental health is still considered a taboo subject with many people. It’s important to remove this stigma by encouraging workers to open up about their feelings and responding in an empathetic and caring manner. As an employer, nobody expects you to be a mental health expert, which is why investing in management training may be a good solution for introducing mental health awareness into the workplace.

 

Keep your mental health resources up to date

Even if you’re a proactive employer in terms of raising awareness and offering support for mental health in the workplace, just like in other areas of business it’s important to stay on top of any changes in research and legislation. Make sure that you regularly audit your mental health policies and keep them up to date with practical advice that your employees can use to maximise their productivity and happiness at work.

 

Are You A Business Owner Looking To Improve Your Staff’s Mental Health?

An Accounting Gem can guide you through all the options available to you and your staff about improving mental health in your workplace. Speak with our friendly and knowledgeable team today by calling 01473 744 700 or email us at contactus@aag-accountants.co.uk

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Why Should Self-Employed Taxi Drivers Use Our Service?

If you work as a self-employed taxi driver, HMRC require you to file a self assessment tax return each year. This tax return is used to record your earnings and expenses, and to calculate how much tax you should be paying.

If you’re new to being self-employed and haven’t completed a self assessment tax return before, we know it can be daunting knowing what information and deductions to include, and indeed which form to fill out and submit in the first place.

HMRC penalties for filing an incorrect or late set of accounts can be severe, so it’s worth taking the time to understand how the system works.

However, using our handy guide we’ll help guide you through the process of filing your tax return as well as highlighting some of the tax benefits you’re entitled to as a self-employed taxi driver.

 

I’m a taxi driver – which self assessment form do I need?

You are considered a self-employed taxi driver if you work for yourself and set your own hours. Even if you use someone else’s vehicle for your job and use the services of a dispatcher, in the eyes of HRMC you are considered an independent contractor. Because of this, you will need to deduct expenses on your self assessment return, to lower your tax bill.

The two most widely used forms for self-employed taxi drivers are CWF1 which is used for newly self-employed workers, and SA1 which is used if you’re currently filing any other tax returns, such as if you’re a buy to let landlord.

To begin filing your tax return, visit the official GOV.uk website. You will need some basic information to hand – such as your name, address and date of birth – as well as your National Insurance number. You will also be asked about the type of work you’re doing and when you started working for yourself.

Once you’ve registered, HMRC will send you a unique taxpayer’s reference number (UTR) which should be used on all future correspondence related to your self assessment return. Keep this number handy as you’ll need it for any queries you may have about your taxes going forward.

 

When should I submit my tax return?

Your tax return should include your taxable income for the corresponding tax year. The UK tax year begins on 6 April and ends on the 5 April of the following year.

As a self-employed taxi driver, if the end of your business year is not the same as the tax year, you need to work out which accounting period to include on your self assessment tax return. The simplest solution is to align your business year with the tax year. So, if you started working on 1 January 2019, your first accounting period will run until 5 April 2019, before you start from scratch on 6 April for the next tax year.

Any tax you owe to HMRC, must be paid by the 31 January following the end of the tax year – this can be done online or via a Direct Debit.

 

Should I keep my receipts?

Yes, you should always save your receipts. Keeping a well organised record of your taxi fares, tips and other business earnings will make life much easier when filing your self assessment. Every year we deal with a number of drivers who could have benefitted from paying less tax if they’d kept evidence of their expenses.

As a self-employed worker, you should get into the habit of making a note of your business income and expenses. There are a number of apps and software programs on the market that offer an easy and hassle-free way of recording your expenditure, or if you require more personalized advice, get in touch with our experts on 01473 744 700 and we’ll be happy to help.

 

Taxi drivers – allowable expenses

If you’re a self-employed taxi driver, you’re able to claim a number of expenses when submitting your self assessment tax return, including:

  • Fuel costs
  • Repair costs
  • Annual road tax and MOT tests
  • Interest on loans taken out to buy your taxi
  • Washing and cleaning costs
  • License fees
  • Insurance costs
  • Breakdown membership fees
  • Office costs (if applicable)
  • Accountancy fees
  • Radio and communications systems
  • Business telephone costs
  • Parking fees
  • Airport, bridge, tunnel and other toll charges
  • Advertising costs

 

Capital allowances

In addition to the expenses we’ve highlighted above, capital allowance – also known as depreciation allowance – can be claimed for the cost of your vehicle. This rate is currently set at 18% per year. If you’re a Hackney carriage or black cab driver then you are also eligible for an annual investment allowance of 100%. Get in touch with our tax experts today to find out more about what allowances you may be entitled to as a self-employed taxi driver.

 

Fixed scale mileage rate

One alternative to claiming the running costs of your vehicle is to use HMRC’s fixed scale mileage rate which is currently set at 45p for the first 10,000 miles your car, van or minibus travels, and 25p thereafter. Capital allowance (see above) is included, but any interest on a loan made to purchase the vehicle is not, meaning this can be claimed alongside your mileage allowance.

nd that if you use your vehicle for your own personal use alongside its use as a taxi, then this will need to be factored in when you claim any expenses. As an example, if you use your vehicle 50% of the time for running personal errands, then your running expenses would need to be reduced by 50% accordingly.

 

Are you a taxi driver and need help with your self assessment tax return?

An Accounting Gem are here to offer you expert legal advice on how to fill in your self assessment tax return, and let you know about what tax breaks you may be eligible to as a self-employed taxi driver. Get in touch with our friendly team today on 01473 744 700 or via email at contactus@aag-accountants.co.uk

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Changes to VAT for CIS contractors

New VAT rules are about to come into play, which will have an impact on the cash-flow of thousands of small and medium-sized businesses in the UK construction industry, specifically those who are registered with the Construction Industry Scheme (CIS).

If you’re in the construction trade and are unsure about how these new VAT rules could affect your business, read our handy guide below which outlines what the new domestic reverse charge is and how it will be implemented.

 

What is the domestic reverse charge?

Currently, UK companies account directly to HMRC for the VAT they have charged their customers with most using the accumulated VAT as a form of working capital  – but from 1 October 2020, this will no longer universally be the case.

For those in the construction industry, the new reverse charge VAT initiative will change this and is aimed at reducing tax fraud caused when subcontractors disappear before passing on payments to HMRC.

These new rules apply to suppliers of certain services specified under the CIS, and on occasion, certain products too. As a result, thousands of businesses in the construction sector – particularly those who supply services to main contractors – are set to be affected by the domestic reverse charge scheme.

 

How does the UK reverse charge work?

Put simply, after the new rules come into effect, CIS registered suppliers will no longer be required to charge VAT on the invoices they issue to their contractor customers for construction-related services.

Under the new regime contractors themselves will have to account for the VAT that their subcontractors have charged on the services provided to them, and pay the VAT they would ordinarily have paid to them directly to HMRC instead and account for it via their VAT return.

For contractors who are subject to the new reverse charge rules, subcontractors will need to issue them with domestic reverse charge VAT invoices which should include a statement about the new VAT rules and that the invoice has been issued is subject to them.

 

Who is affected by these new arrangements?

For these new rules to apply both customers (or contractors in CIS speak) and suppliers (subcontractors) need to be registered with the CIS, as well as for VAT. In addition, the invoice must be subject to standard or reduced rate VAT and be for construction services and/or materials.

It’s important to note that the new tax changes are not applicable to invoices where the service supplied is in certain excluded construction-related areas, for example, surveying, consultancy work, CCTV and HVAC systems, and supply of building machinery – as long as these services are supplied on their own.

If in doubt about whether these new arrangements affect you, it’s worth checking the HMRC website which provides a comprehensive list of the types of services that are either included or exempt.

As a general rule of thumb, when a supply chain features at least one reverse charge element, the whole supply would be subject to the new reverse VAT charge. As an example, the new rules would not apply for the supply of double glazing units for a development, but they would if the supplier charged for them alongside charging for their installation.

As CIS payments are currently apportioned with zero deductions made on the materials element of the invoice, this new approach represents a change that those affected need to be aware of.

What’s more, providing that the buyer and supplier are in agreement, once the initial supply has been made and is subject to reverse charging, subsequent supplies can have it applied automatically. The ultimate aim of this is to shorten the time it typically takes to work out whether a reverse VAT charge should apply or not.

 

Why are these VAT changes being made for CIS businesses?

One of the easiest ways to eliminate subcontractor VAT fraud is to remove the flow of money by taking away the option to collect or charge VAT from clients.

Due to the fact the reverse charge now makes it the duty of the contractor to account for any VAT, there is, therefore, no way for the suppliers, i.e. the subcontractors, to get away with not paying tax to HMRC.

 

What are the implications for contractors?

Whereas in the past you likely would have paid suppliers for their services with VAT included, these new rules mean that you will now need to pay them exclusive of VAT and record the appropriate amount of VAT that would have been owed under the old rules on your VAT return.

The information required to account for the VAT should be provided on the invoice your subcontractor sends to you, ideally with a reminder that it’s now your obligation to record the VAT using the new reverse charge system.

You account to HMRC for all the reverse charged VAT accumulated during a VAT quarter and pay for it at the same time and in the usual way as you would do for any VAT you have charged under the usual rules.

 

What are the implications for subcontractors?

When working with subcontractors, you will need to establish whether they are VAT registered.

Once you’ve confirmed that they are VAT registered, and what you are supplying or providing is covered by the new legislation, you should send them a reserve charge invoice at the point of billing along with a brief description stating that the invoice is subject to the new UK reverse VAT rules.

You will no longer receive VAT from customers to pass on to HMRC, and the responsibility for charging and accounting for VAT will fall to the contractor receiving your services.

 

What action do I need to take?

As these changes come into effect on 1 October 2020, if you’re working in the construction trade as a buyer or supplier, you should make sure that you’re up to date with the new reverse charge VAT rules and find out how they will impact your businesses’ sales and purchases.

As these changes will undoubtedly create more admin for you in the short-term, it’s important to set some time aside to do this.

Regardless of whether or not you’re at the end of the supply chain, as a CIS business, you should make it a priority to inform your contractors and subcontractors about the implications of the new VAT changes as you may be liable for any charges if the VAT is not accounted for properly.

However, there is no need to panic. HMRC have stated that they will overlook any genuine accounting errors for six months after the new reverse charge rules come into play, providing companies are proactive about following them.

 

Want to find out more?

If you would like any help in deciding if and when these rules apply to your company, then we are here to help. Get in touch with An Accounting Gem Limited on 01473 744 700 or email us on contactus@aag-accountants.co.uk to find out more.

 

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Marginal Gains, What Are They And Why Do They Make Massive Gains On Your Profits?

Marginal gains theory describes the idea that by making a number of small changes to the way you run your business or organisation, you can have a large impact on its overall efficiency which in time will result in a big boost to the bottom line.

The philosophy is that by making incremental improvements to a handful of key areas in your business – for example, sales & marketing, human resources or client retention, that when realised will have the same level of impact than if you’d spent the same amount of time just focusing on one area.

On the face of it, this does sound distinctly underwhelming, until you realise that it is a lot easier to improve many areas of your business by a small amount than it to improve one area by leaps and bounds.

Marginal gains theory was pioneered by Sir David Brailsford, the former British Olympic Cycling coach and performance director of Team Sky, who led his teams on to an unpreceded run of success – including eight gold medals at the previous three Olympic Games and three Tour de France wins – by making a number of small adjustments to the way the organisations were run.

 

What are marginal gains?

Brailsford’s idea of marginal gains comes from the notion that if you break down the various factors that go into riding a bicycle, and improve each part by 1%, the rider and their team will benefit significantly when all these parts are put together.

In addition to the physical components of riding a bike such as the mechanics and physical fitness of the athlete riding it, the marginal gains theory also looks at elements such as the implementation of modern technology and the automation of key processes.

 

How do marginal gains work for business?

In a wider sense, the philosophy of marginal gains effectively states that improving 25 factors by 1% offers the same result as improving just one factor by 25%. For this reason, the principle of marginal gains can be applied in many situations, including the running of a business.

Making incremental improvements to your business processes should be the aim of any marginal gains strategy. Using strategic thinking married to achievable goals and the embrace of modern technology – including productivity software, CRM systems, and automated apps – companies can realistically increase their operational efficiency while simultaneously cutting costs.

Cutting the time taken up by inefficient tasks allows companies to spend their time and resources more effectively. The time saved by making marginal gains can be used to nurture new leads and drive more orders to your business, as well as allowing you to review your operational practices and identifying further areas for growth or improvement.

 

Make marginal gains by using modern technology

Using technology, marginal gains can also be made by automating areas of your business that don’t require the human touch. You could consider setting up automatic invoicing, enabling you to create and send invoices to your clients without having to manually type each one, and without you having to pick up the phone to chase late payments.

If your client or employee information is stored in an out of date or even paper-based system, you could also help make your business more streamlined by creating a single, centralised database enabling you to easily input and search for information at a touch of a button, and help eliminate potential human error associated with manual data processing.

By mapping your employees’ tasks and monitoring their workload via a virtual planning tool such as HubSpot or Wunderlist, you can also make efficiency gains by making sure that the correct amount of time is allotted to a certain task, prioritizing jobs, and helping ensure deadlines are met.

 

How do I achieve marginal gains?

Time is money and it can be difficult – and sometimes even overwhelming – to find enough of it to plan efficiency improvements, let alone implement them effectively. However, taking a few moments to think about your business goals has the potential to reap big rewards.

Take a step back and consider where you want your company to be, both now and in the future. Set a number of small achievable goals based upon measurable criteria such as sales figures or the number of clients you have.

Next, analyse the gap between your current performance levels and your goals, and create a way of measuring the improvements you’re about to make using a handful of KPIs. Remember, this is all about achieving marginal gains so aim for a number of small improvements, such as a 1% increase in turnover, or a 1% increase in the number of clicks your email newsletters receive.

If you require inspiration or unsure of how you can achieve these improvement levels, take a look at your successful competitors and find out if they’re doing anything well that you’re not.

So that you can effectively measure your improvement levels on an ongoing basis, compile regular reports and continually refine your work until you move closer to hitting your targets.

Although it may not feel you’re making a lot of gains initially, if you improve each of your KPIs by just 1%, over time you will start seeing tangible results.

 

Are marginal gains worth it?

The benefit of marginal gains can’t be ignored – as we’ve demonstrated, they have the power to make your business more streamlined and efficient, whilst boosting your bottom line. So, what are you waiting for? Get working on your plan for making marginal gains today!

 

Can we help?

An Accounting Gem has a wide array of clients all of whom have at some stage aimed at improving their internal processes to maximise efficiency – which essentially is what the principle of marginal gains is all about. We are all about sharing best practice so, if you are thinking about putting the principles into action and not sure where to start, then why not get in touch to see if we can help point you in the right direction.

Of course, if you have any accountancy or bookkeeping requirements then we would also like to hear from you. Please call An Accounting Gem Limited on 01473 744 700 or email us at contactus@aag-accountants.co.uk to find out more.

 

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Why Use Your Accountant’s Office As Your Registered Address

Whenever we receive a letter from a business or whenever we visit their website, the company’s registered address will be there for us to see. You don’t have to choose your home address or your office address as your registered address – in fact, there are good arguments on why you should select your accountant’s address as your company’s registered address.

In this article, An Accounting Gem considers:

  • what limited company registered addresses are:
  • registered office service providers
  • advantages of using your accountant’s office as your company’s registered address
  • disadvantages of using your home address as your company’s registered address

 

Limited company registered addresses

The registered address of a limited company is, for the Government and for HMRC, a limited company’s official address to which letters and other communications can be received by company officials.

A limited company registered address is required under Section 86 of the Companies Act (2006).

A limited company’s registered address is available for any citizen to inspect via the Companies House WebCheck service.

The registered address should also appear on a company’s website, on its marketing materials, on its invoices and other types of order forms, general stationery, email correspondence, and business letterheads. This requirement only applies to active companies – it does not apply to dormant companies.

Some companies may also use a Single Alternative Inspection Location (SAIL) at which members of the public may inspect a company’s statutory records.

 

Registered office service providers

Although many shareholding directors list their home or office address as their company’s registered office, many others use a registered office service provider.

Many registered office service providers are company formation agents – firms that help directors incorporate their business at Companies House. If you incorporated your company through an agent, you may well have been offered the opportunity to use their registered address as your own.

Companies must have their registered address in the country in which they were incorporated. For example, if your company was incorporated in England and Wales, your registered address must be within England and Wales.

 

Advantages of using your accountant’s office as your company’s registered address

A company’s registered addresses can be different from its trading address. If you wish to trade from home but you don’t want official documents or visitors to your home, you may wish to choose your accountant’s address as your registered address.

You may prefer this if you don’t want your home address to be searchable on Companies House. Likewise, with your home address for the details about you as a director on Companies House – you can also choose to make your accountant’s office address your director’s service address.

Many of the documents sent to your registered address from HMRC and Companies House will be official documents like your annual confirmation statement (this tells Companies House who your directors are, what shareholdings in your company they have, and so on).

For HMRC, your registered address will be the address to which they send references, tax codes, penalties, and so on so it would be quicker and easier for you to let your accountant deal with the communication from HMRC on your behalf to save an interruption to the day to day running of your company.

Don’t forget to ask your accountants to register as your “agent” for personal and corporate tax purposes so that your accountant receives direct correspondence about you or your company which they can deal with immediately.

SAIL records can also be kept at your accountant’s address in case a member of the public or a representative of another company or an official agency wishes to inspect your company’s statutory records.

 

Disadvantages of using your home address as your company’s registered address

In our opinion, there are major and distinct disadvantages to using your home address as your company’s registered address.

Perhaps the most important disadvantage is that, when official documents from HMRC and Companies House arrive, you will have to post them onto or drop them off at your accountant’s so that they can deal with them on your behalf. HMRC and Companies House do send a lot of correspondence so this is a trip you might often be making.

If you have a SAIL registered at your home address too, then others are perfectly within their rights to demand the opportunity to inspect your company’s statutory records within your property.

Another consideration is the image your company will project if it is a home-based business. There is nothing wrong with having a home-based business however some potential clients may worry that your company might not have the ability or the capacity to handle an order they would have considered placing with you.

All that a potential client has to do to discover whether your registered address is a residential address is to copy and paste it into Google. If they do, they will see how much you bought your property for, crime statistics in the local area, and, if they click on the Maps button, they’ll be able to take a virtual walk around your street.

 

Using Accounting Gem’s office as your limited company’s registered address

To talk with one of our team about whether it’s better for business to use our office as your limited company’s registered address, please get in touch with us on 01473 744 700 or email us on contactus@aag-accountants.co.uk.

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VAT Cash Accounting Versus Standard VAT Accounting

For the vast majority of goods and services we buy for ourselves or for our businesses, one-sixth of the value of each of our purchases will be for Value Added Tax.

In this article, An Accounting Gem

  • describes what VAT is and when you need to register for it
  • the different VAT schemes you can apply to join and under what circumstances
  • a comparison of cash accounting VAT with accrual (or standard) VAT

What is VAT?

When a business’s turnover exceeds £85,000 per year (or it looks likely to exceed £85,000 per year) on the sale of goods and services which are not VAT-exempt, its owners must register the company for Value Added Tax (VAT).

You can choose to register for VAT if your turnover is below that level if you choose. There may be advantages to doing so if you sell primarily to VAT-registered businesses, however, if you sell a relatively high gross margin product or service to consumers, registering for VAT may put your company at a competitive disadvantage.

When registered for VAT, you must charge your clients VAT on all of your invoices – the VAT you charge is your “output VAT”.

At the same time, when your VAT-registered suppliers send you an invoice on which VAT is payable, this is called your “input VAT”.

The VAT you pay to HMRC (or they pay to you) is the total value of the output VAT you’ve charged over a given period of time minus the total value of the input VAT you’ve paid. The normal period of time between VAT bills is three months.

 

Which VAT schemes are there?

There are multiple VAT schemes available for small-to-medium-sized businesses to choose from and An Accounting Gem will help you select the correct scheme for you.

  • VAT cash accounting is best for businesses which invoice over 30 days or longer and which turn over more than £150,000 and less than £1.35m a year
  • VAT accrual accounting is best for businesses which invoice over very short periods or take the money at the point of sale and turn over more than £150,000 and less than £1.35m a year
  • Flat rate VAT is a simpler form of VAT for companies turning over £150,000 or less
  • VAT retail scheme is a special retail-focused version of the flat rate VAT scheme offering greater flexibility for shops selling tangible consumer products like clothing, white goods, and more.
  • VAT margin scheme is the best choice for companies dealing in second-hand goods, antiques, art, and collectors’ items
  • VAT annual accounting scheme is a cash flow friendly version of VAT where you know the entire amount of VAT in advance payable for the following year, the dates (either monthly or quarterly) you make your VAT payment, and how much each payment will cost.

Your business needs change as time goes on and as your company experiences periods of growth and expansion. An Accounting Gem will advise you if your circumstances have changed justifying registration onto a different VAT scheme.

 

Accrual (standard) VAT versus cash accounting VAT

With standard accrual accounting, invoices issued within your company’s VAT quarter must be included within your VAT calculation. The amount of VAT you pay (or you are refunded on) depends on the total value of the output VAT on all invoices issued minus the total amount of input VAT on all invoices received.

For businesses operating on a longer client payment cycle (30 or 60 days after invoice issuance, for example), you will need to make sure that you have the cleared funds in the bank required to settle your VAT liability in full and on time.

All businesses with a turnover in excess of £1.35m per annum must operate the accrual system of VAT reporting and payment.

For companies with a turnover of £1.35m or less, their owners can choose to use the standard system or to use the cash accounting system instead.

With the cash accounting system, VAT is factored into your calculation based upon whether the invoices you have raised have been paid during the applicable VAT quarter.

For example, if your VAT quarter ends on the 28th of February and you issue an invoice on the 1st of January with 30-day terms which is not paid until 1st March, you do not have to include it in your VAT submission for 1st December to the 28th February. However, if your client pays you on the 28th February, the last day of that VAT quarter, then it must be included in the calculation for that quarter.

The cash accounting system is easier for cash flow management and it is relatively easy to calculate.

Let’s try a worked example to see how cash accounting might be more beneficial if you issue invoices with 30 or more days for your client to pay.

Let’s say that your business sells £20,000 a month worth of goods and services on which you charge VAT at 20%. Let’s also say that your average client takes around 60 days to settle their invoices.

At the end of a VAT quarter, you will have issued £60,000 worth of invoices generating £12,000 worth of output VAT. But because your customers are taking 60 days to pay you, you’re only actually banking £20,000 + VAT (£24,000) in cash although you have actually issued three times that cash amount in invoices.

On your first VAT bill after registering, you will pay VAT to the sum of £12,000 minus your input VAT if you are on accrual accounting. However, if you were on cash accounting VAT, your VAT liability would be the sum of £4,000 (the VAT on the invoices you’ve actually received money for) minus your input VAT.

For businesses new to VAT registration, more attention must be paid by directors to cashflow because, unlike prior to registration, there is now a sizable “cash event” every quarter for which you need to find the money. In nearly all cases, we would recommend that businesses registering for VAT whose turnover is less than £1.35m select cash accounting VAT if their customers take more than 30 days to pay them.

 

Want to find out if this will work for you?

An Accounting Gem is here to help you to decide whether the VAT cash accounting scheme would be better for you rather than the standard accrual VAT scheme. Get in touch with us on 01473 744 700 or email us on contactus@aag-accountants.co.uk.

 

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