But what about when the bookkeeping stops being new and exciting and becomes repetitive and mundane?

Little and often

Bookkeeping can be a chore and there’s no getting away from it. You should do a little bit regularly, rather than leaving your papers to pile up and then having to spend hours organising and cataloguing them.

Set aside a regular slot to do your books. This will not only make the job feel less onerous but will also help you have accurate, up-to-date information available for your business. Make it a time when you’re fresh and alert and have enough energy to get past the ‘oh, I don’t want to’ groan in the back of your mind.

Keep it simple

Don’t make your bookkeeping more complicated than it needs to be, because this will only take up more time than it needs to. For example, if you’re paying your costs straight away, don’t worry about entering bills. Put them into your books as bank payments to the appropriate category.
Entering a bill and then showing that bill as paid would take twice as long, and if you’re paying immediately, you don’t need to do that anyway!

Prompt invoicing

Issuing customer invoices on a timely basis is crucial. For one thing, if your customers don’t have an invoice, they can’t pay you, which means you could run out of cash to pay your bills. Also, if you’re registered for VAT and are invoice accounting you should invoice your customer within 14 days of supplying the goods or service; otherwise you have to include the VAT on your return at the point when you make the supply, not as your invoice date. Make sure you include time to issue your customer invoices in your bookkeeping period each week.

Don’t lose that piece of paper!

If you miss expenses out of your accounts then you could end up paying too much tax! By using an accounting system, you may be able to record an expense such as a train journey or cup of coffee as soon as you’ve incurred it, and then you don’t need to worry about losing the receipt.

Let the software do the work

As well as the tools we’ve already seen, you can save yourself a lot of time in other ways. Check whether your accounting software makes use of automated bank feeds, which pull in your transactions from your online bank account directly into your online accounts. This way, you won’t have to log into your bank account, download a file and manually upload it.

You can also file your VAT return online direct with HMRC, instead of having to enter your details on to a separate screen. It gives your accountant access to your accounts so that you don’t have to go through the trouble of exchanging spread sheets with him/her and wondering who has got the latest version.

In conclusion, bookkeeping may never be your favourite business task, but by making it as simple and as automated as possible, you can at least save yourself the spectre of the looming pile of paperwork to plough through!

If you would like to discuss anything regarding this article, please contact us.

Tax break recap

Until 6 April 2011 Companies could give directors and employees tax and NI-free financial support for childcare of up to £55 per week. Those receiving this at that date continue to qualify for the full tax break, but those who started subsequently might only qualify for a reduced tax break.

Reduced tax relief

Where a director or employee pays tax on their salary at the higher rate of 40%, the tax and NI-free amount is reduced to £28 per week. This drops to £22 where they pay tax at the additional rate 50%.

However, it’s not as straightforward as that. The rate of tax for this purpose is worked out at the beginning of the tax year on the level of annual pay you expect to get. Variable elements, such as performance or profit-related bonuses, can therefore be left out.

Because dividends don’t count as earnings, you can draw as much of these as you like without affecting your entitlement to the childcare tax break.

Childcare options

To qualify for the tax and NI exemption your childcare costs must be paid for directly by your company. If it gives you the money to pay for childcare this counts as normal pay and is liable to tax and NI. Therefore, the tax-free options are to get your company to:

- Set up an on-site nursery

- Contact directly with a registered nursery or carer to supply childcare services to you

- Pay for vouchers which you can redeem for childcare with a registered nursery or carer

A qualifying carer can include a nanny as long as he or she is ‘registered’ or ‘approved’.

Choosing the second option above means that any amount it pays in excess of the £55 per week exemption, while counting as a benefit liable to tax and employers’ NI, will be NI free for you.

The bad news is that to qualify for the tax and NI break it must be offered to all of your employees. However, the good news is that you can pay it for your employees using a salary sacrifice deal which means it won’t add to your costs; in fact it will save you a little extra NI.

Double your money

Even where your company consists of just you, or you and your spouse or unmarried partner, you’re entitled to take advantage of the childcare tax break.

Double the tax and NI-free benefit from £55 to £110 per week by getting your company to pay for childcare for the both of you. HMRC doesn’t mind that you only have one child to care for between you as the rules state that you’re both entitled to the £55 per week tax and NI exemption. 

RTI is just around the corner. Although some headlines indicate that RTI will apply to all employers from October 2013, those with 250 or fewer employees will be required to operate RTI from the start of the next tax year.

What will RTI change?

RTI is essentially a change in the way that employers must report to HMRC in regards to pay, tax and NI. Until now this has been a one time job annually carried out around May following the end of the tax year. From April 2013 the details must be reported each pay day or penalties expected to start at £100 can be charged.

Is there anything new about RTI?

RTI has vastly moved on to the extent that thousands of companies are now using it. Some of the faults have been ironed out, and more have cropped up, along with a number of myths about how RTI will affect directors.

Will RTI apply to me? 

If your employers pay you a salary below the level at which PAYE tax or NI is payable, you might think that RTI won’t affect you, but it will where the following conditions exist:

- Your pay is above the NI lower limit (currently £107 per week, £464 per month or £5,564 per year)

- You’re paid below the NI lower limit, but your fellow directors or employees are paid above it.

In both of these cases you must report details of your pay to HMRC using RTI. However, your company can only operate RTI if it’s registered for PAYE. If it isn’t you need to act now or you will not be ready in time.

Where RTI applies, the data must be sent to HMRC using approved payroll software.

NMW scare

A requirement of RTI is that the number of hours directors and other employees work must be reported. According to some this will lead to more National Minimum Wage enquires. This is somewhat unlikely. Firstly, you’ll need to report the number of hours ‘normally worked’, not what you have actually worked. Secondly, the report is in bands, for example, 0 to 15.99 hours, 16 to 29.99 hours. HMRC won’t be able to work out your exact rate of pay from this.

Tips

- Where RTI applies, the data must be sent to HMRC using approved payroll software.

- Directors that do not have a contract of employment are exempt from the NMW.

More problems!

There are still problems with RTI, particularly regarding the timing of directors’ pay. These are to be ironed out with HMRC, although when they have been we’ll let you know.

Hello and welcome to the latest article from CMA, a proactive accountancy firm based in Appley Bridge. By the time you read this article most tax returns will have been submitted and it will be time to plan for the future.

It is time to reflect on the past 12 months, and look at what was successful, what we have learned, and what might have been.

To make 2013 the year you want it to be – plan it out. Unless you plan, events, and other people will decide how you will spend your time. It is a good idea to look at what is important to you, such as visiting family, planning a holiday or changing jobs, and then putting these plans into action.

If you are a business owner it is a good idea to spend time working out in detail what you want your business to be doing this year. Financial and business planning can seem tricky, so it is really helpful to have someone to bounce ideas off. Here at CMA, as well as making sure your businesses finances are in the best shape we are also experienced business advisers and provide assistance to help you grow. We like to go the extra mile and work with you to discover your business goals, so that you can devise a plan to make sure you achieve them.

Here are some useful steps to take to build a great business:

- Assess where you are today – make a realistic assessment of your business and look at your strengths and weaknesses and what do you need to build on.

- Failure to plan is plan for failure – Set your targets for the new year and think about any new products or services you can offer your customers.

- Look at your business key performance indicators and start to measure them – What gets measured gets managed!

It’s your business, your future – so make sure you plan to make the most of 2013!

We are happy to talk to anyone about their plans for the next year and look at ways to help you grow your business.

Tax Tips of the Month – How Much Tax Could You Save

- The PAYE system is complicated and as a result there are vast numbers of incorrect PAYE tax codes. The personal allowance will increase to £9,440 from April.

- Make sure your code is right!When setting up as a sole trader, you can claim against your profits for items used in your business even if they were purchased prior to commencement of trade.

- If you are a business owner, the amount you can spend on purchases of equipment and vans will increase dramatically from January. It is important to seek advice before you make a purchase.

Background – Last year HMRC started a programme of business record checks (BRCs). They aimed to review the bookkeeping of 50,000 businesses, but they encountered problems from the start. This was mainly due to their idea of good record keeping not being coherent with that of the experts, for example, accountants. So in February 2012 HMRC suspended the checks. However, just eight months later a re-launch has been announced.

More Focused – HMRC say that the new BRCs will be better targeted. From the end of November 2012 letters will be sent to the types of businesses they think are at greater risk of having record keeping problems. It’s been suggested that companies with cash sales may be a prime target; however this has not been confirmed by HMRC.

After the letter – HMRC’s letter will say that they intend to call and ask several questions. From this, they will then decide whether to go ahead with a BRC. We do not know what these questions will be, however as soon as it is confirmed we will let you know.

Cut Out the Middleman – We have it on good authority that HMRC wants to avoid the involvement of accountants and prefers direct contact with businesses. We’re worried that HMRC sees companies which aren’t represented by their accountant as a soft target.

Tips

- Get in touch with your accountant as soon as you receive a BRC opening letter. It may mean your accountant spending some time reviewing your book keeping procedures, although this is necessary.

- You should make sure that the company’s records in relation to your director’s loan account are in order. These are sure to be near the top of the list that HMRC will ask about.

Ultimately your accountant is someone that you should regard as a trusted business advisor. When you are starting out your accountant can help you evaluate your business idea, help you plan for a successful future and make sure you keep proper financial records.

Don’t underestimate how important your accounts are. They are a representation of your company so it’s crucial that you keep accurate records from the start, remember you may need to produce them from external parties such as HMRC and your bank.

It’s not just bookkeeping; an accountant can help you in numerous areas of your business. These include preparing cash flow reports, management accounts, advising on which accounts system to use as well as helping you with VAT returns and payroll. How much you use them is ultimately your decision and it doesn’t have to cost a fortune.

So that just leaves whether or not you decide to use an accountant. In theory, that should be an easy decision and to help you make it, here are the many benefits of using an accountant:

Pay less tax

However good you are with numbers you’re not an expert. Take advantage of the skills of a qualified accountant and with their experience they may be able to find legitimate ways for you to pay less tax and save money.

Improve Profitability

An accountant will take care of your accounts. They can assist you with budgeting and forecasting your cash flow, they will be able to offer advice on how to free up cash flow and where you can make savings. As your business develops, they can advise you on managing growth to maximise your profits.

Save yourself time

Accounts can be time consuming; using an accountant allows you to concentrate on the stuff that you’re good at… Running your business!

Accurate Accounts

Accurate financial information will help you analyse your business performance, enable you to assess what you have achieved as well as forecast and plan for the future. Also, accurate accounts will prove advantageous with your bank manager in the future if you decide you need to raise capital for business expansion.

Invaluable business advice

Whether you’ve just started or are now beginning to expand your business, an accountant has experience across a variety of industries and can offer you the best professional advice and business solutions.

Reduce the risk of inaccurate figures

Everyone has to pay tax. You may try to calculate it individually; however there are expensive penalties if you get it wrong. Is it worth the risk? We are here to make sure that this does not happen, as we are aware of all of the relevant current legislation to ensure that your business complies with all legal requirements in the most efficient way.

If you are looking for a new accountant, please do not hesitate to contact CMA to make an enquiry.

Personal Recommendation – Word of mouth is a great place to start, ask any trusted friends or colleagues in business if they can recommend their accountant.

Good Relationship/Understanding – You need to get along with your accountant, someone you can speak to openly and honestly, who understands what you are saying and who you understand.

Size matters – Ensure you find an accountant who is appropriate to the size and nature of your business. A larger firm may have great experience and wider range of services, but you may get more personal support and a more flexible service from a smaller firm.

Fees – You need to know what it will cost. Never be afraid to ask about fees and enquire at the outset about the first year’s fees.

Qualifications – Make sure your accountant is fully qualified. The qualification will be displayed on their website and at their office.

Tax Advice – Ask them what tax advice they have for you. You want an Accountant who will proactively give you sound ideas to save you tax, ideas that work and someone you are comfortable with.

Commercial Awareness – Talk to them about your business and your ideas and see how commercial they are. Do they understand your business? Don’t be afraid to tap into your accountant’s knowledge for help with running your business.

Who will you deal with? – Find out who you will be dealing with in the firm or will you be passed around lots of different people?

Knowledge of Software – Are they familiar with the accounting software that you use?

Response Times – Make an enquiry and see how quickly they respond. The service provided needs to be efficient and fast, so that you can stay on top of any deadlines that need to be met.

Availability – When you have a question for your accountant you will want to speak to them while it is fresh in your mind. How confident are you of getting an answer in an acceptable timeframe? Will you be charged every time you speak to them?

Website – You can gain a good impression by looking at their website. A poor website may indicate the sort of service you are likely to receive.

Existing Clients – Ask if you can speak to some of their existing clients to see what they say about them. Look for testimonials on their website.

Convenient Location – Today with the Internet they can be based anywhere, but there is much to be said for having your accountant nearby. Are they willing to visit you?

Engagement Letter – If you appoint them as your accountant they should send you an engagement letter setting out their commitment to you as well as your commitment to them. Whilst this will be personal to your circumstances ask for their standard terms to make sure everything you need is included.

Your relationship with your accountant should be an all year round one, not just where they contact you once a year. At CMA we establish a key relationship with your business which will certainly benefit you in years to come.

If you would like to make an enquiry please do not hesitate to contact us.

The treatment of training costs for tax purposes is a “grey area” and each separate case should be assessed on its own merits. However, we have provided some guidance to help you clarify what the situation will be for you and your business if certain types of training are undertaken.

Training costs if self employed

Obtaining new expertise/knowledge/skills:

Where attendance at a course is intended to give business proprietors new expertise, knowledge or skills, which they currently lack, it brings into existence an intangible asset that is of benefit of the business. HMRC takes the view that expenditure such as this is capital in nature, and therefore not deductible for tax purposes.

Updating existing expertise/knowledge/skills:

Where attendance at a course is merely to update the proprietors existing expertise, the expenditure is normally regarded as revenue expenditure and will be deductible for tax purposes if it satisfies the “wholly and exclusively for purposes of the trade” test.

Training costs for employees

Work related training:

Work related training for employees is a deductible expense for the business in terms of its tax charge and is also exempt from the P11D benefits.

Work related training is training which provides employees with practical or theoretical skills relevant to an employee’s current employment or a “related employment”. It is defined as any training course or other activity which is designed to impart, instil, improve or reinforce any knowledge, skills, or personal qualities which:

- Are, or are likely to prove useful to the employee when performing his or her duties

- Will qualify or better qualify the employee to undertake the employment, or to participate in charitable or voluntary activities arising through the employment

Related costs – allowable

- Travel and subsistence (that forms part of the course)

- Examination fees

- Obtaining qualifications

- Registration fees

Related costs – disallowable

- Entertainment/recreational activities

- Employee rewards

This follows on from the fact that the business is not legally separate from the self-employed person who is running it.

However, there are a number of reasons why it might be better to open a separate business account:

- The terms and conditions of a personal account may prevent it from being used for a business.

- If the sole trader is using a different business name, and receives cheques in that name, it may not be possible to pay them into a personal account.

- The business may wish to accept payments by credit card or debit card, which is unlikely to be possible with a personal bank account.

- The bookkeeping is made simpler if all transactions relating to a business are grouped together into a separate bank account. At the very least, it saves having to pay your accountant to filter out your personal expenses in the process of adding up your proper business expenses.

- By regularly monitoring the balance of a separate business account, it can give some indication of the profit/loss being made.

- Finance can be left in the account to pay the tax on the business profits, reducing the risk that the money might instead be inadvertently spent elsewhere.

For similar reasons, a person running more than one self-employed business may prefer to have a separate business account for each particular business, but again this is not a legal requirement.

However, the position is totally different in regard to a limited company. While it is not a specific legal requirement for a limited company to operate a business bank account, not doing so can lead to all sorts of tax and legal difficulties, and we would strongly recommend that every business has a separate bank account in its own name.

Why should you check?

If you set up a new account, its good practice to check the supplier’s VAT number. If it’s invalid, so is the tax invoice and HMRC may disallow your input tax claim. It’s equally important when dealing with sales to businesses in other EU member states because if you get the VAT number wrong you should not zero-rate the sale – HMRC will issue an assessment if you do.

The majority of mistakes are innocent. For example, printing mistakes. However, the fraudulent use of another trader’s number is prevalent in certain sectors of business.

How to check a VAT number

If you are in the UK you can ring HMRC’s helpline (0845 010 9000) or use a mathematical check that the number is correct. First check that it’s nine digits long, not including the GB that is sometimes stated at the beginning. The first seven digits are random numbers and the last two are based on a formula using the first seven.

If the mathematical check works out it only shows that the VAT number is valid, not that it’s proper to the business quoting it, or it could have been deregistered.

Use the internet

You can also check an EU VAT number online. However, the EU database is only updated monthly so including delays in the local member state; the information could be six to eight weeks out-of-date. Another downside of the system is that you can only check one VAT number at a time rather than numerous ones, so if you have various numbers to check it can be rather time consuming.

Always keep a record of the checks that you have made. Take a print screen showing that the VAT number was valid at the time that you checked it, in case it is queried by HMRC.

To confirm that both the number is valid and that it belongs to the trader quoting it, ring the VAT helpline. However, the 1998 Data Protection Act prevents HMRC from giving away information about other traders so you can only check the trader whose name and address have been quoted.

There was a change in the VAT number sequence which was phased in at the end of 2008/beginning of 2009 so you may have to use both systems to be sure that a VAT number is in fact valid.

EC Sales Lists

When completing an EC Sales List you will also need to obtain your customer’s valid EU VAT number, including the two-letter national prefix.

You should check the validity of your customer’s VAT registration number on a regular basis, to ensure that it has not been deregistered.