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When the HMRC inspector visits get some extra help
HMRC campaigns and task forces are on going and Compliance checks are becoming common. As stated in the HMRC Infographic record compliance yielded £20.7bn.
So its worth knowing that you can appoint an extra adviser to help you answer the inspectors questions, its quick and easy to to arrange using this link
http://www.hmrc.gov.uk/forms/Comp1.pdf
Its a temporary authorisation that does not cancel or amend permanent authorisations ie your normal advisers/accountants
HMRC have also issued new Fact Sheets for Compliance Checks and Penalties
http://www.hmrc.gov.uk/compliance/factsheets.htm
Sometimes we all need a little help and specialist advice can be invaluable
steve@bicknells.net
9 steps to a perfect Xero implementation
- Discuss the requirements with the client and then document the project plan to deliver in the time-frame and budget. Understand which team members are accountable for what deliverables.
- Define the chart of accounts and tracking codes so that the right level of analysis can be obtained for tax, accounting and management control purposes.
- Ensure that the final trial balance from the legacy system is accurate and balances before you load into Xero. Get all the invoices that make up the accounts receivable and accounts payable balances and load them into Xero via invoice import.
- Get bank feeds working for all bank accounts – don’t import CSV file bank statements – this is where productivity is improved.
- Define your record keeping system – how do you find the payable invoice to match that in Xero – you can scan it and attach the image to the Xero transaction or keep a hardcopy or softcopy outside Xero. You want a system that is robust if it is inspected.
- Setup up your sales invoicing templates in word for invoices, statements and credit notes and upload into Xero. Use repeating invoices where possible to get the productivity. Set up inventory items for the things you sell and you can analyse volumes and margins by item for goods or services.
- Define when you will reconcile the bank statement – continuously, weekly etc. Setup bank rules to improve the speed and consistency of matching and coding. Understand the reconcile and cash coding screens. Understand how the reconciliation report works. Understand accounting transactions and how Xero presents a bank account.
- Decide if you need to use Accounts payable or can you code expenses after you have paid them.
- Review the report suite and get the reports you want into your favourites list.
david@graceaccountants.co.uk
What expenses can I not claim when I am self-employed?
When you are operating a business as a sole trader, you will need to complete a self-assessment return for your income. Self-employed income is taxable after deducting allowable expenses. Previously I talked about the expenses that a sole trader can claim but now I am going to tell you about the expenses that you cannot claim.
Non allowable expenses for sole traders include:
Your own wages and drawings, national insurance contributions and pension contributions.
Childcare costs. These can only currently be claimed through a limited company scheme.
Subsistence. You can only claim for hotel and meal costs if you have an overnight business trip. You cannot claim for other meals including lunches, snacks and coffee.
Any business entertaining including entertaining clients and suppliers and hospitality at events.
The purchase cost of business premises and any costs relating to a non-business part of your premises. Also the cost of improving and altering premises and large equipment.
Motoring costs like fines, purchase cost and travel between home and work.
Repayment of loans, overdrafts and other finance solutions.
Some professional fees like the legal costs of purchasing property and large assets. Also the cost of settling tax disputes and fines.
Payments to clubs, charities, political parties.
Cost of ordinary clothing even if you only wear it for work.
Personal use including goods bought for personal use, the personal proportion of your home costs if you work from home, personal phone calls on your mobile phone etc.
Rebecca Taylor
What expenses can I claim as a sole trader
When you are operating a business as a sole trader, you will need to complete a self-assessment return for your income. Self-employed income is taxable after deducting allowable expenses. None of us want to pay more money than necessary to HMRC so use this guide as a starting point to ensure that you are claiming all you can.
There are two main types of expenditure:
Capital expenditure
Capital expenditure is money spent on items (assets) that will have a useful life to the business of more than one year, for example premises, furniture, machinery, vehicles, tools, IT equipment.
These costs cannot be included when working out taxable profits. However you can claim Capital Allowances which give tax relief for the reduction in value of the assets.
Revenue expenditure
Revenue expenditure is the allowable expenditure which is incurred in the general day to day running of a business. This can include:
Cost of goods bought for resale and cost of producing goods that you are going to sell or use in providing your goods or services to sell.
Employee costs including wages, employers’ National Insurance, benefits for employees, agency fees, subcontractors and training.
Business premise costs including rent, rates, utilities, maintenance and cleaning.
A proportion of your home costs if you work from home, including a proportion of the costs for rent, rates, utilities, mortgage interest, maintenance and cleaning. The costs should be apportioned based on how much of the home is used for business and for how much time if not exclusively. Or you can claim a fixed rate of £4 per week (from 2013-14).
Office running costs like phones, mobiles, broadband, email hosting, postage, stationery, printing, software and small office equipment.
Vehicles including the running costs (petrol, car tax, insurance, repairs, MOT and servicing). If the vehicle is also used privately, you can only claim for a proportion of the cost in relation to how much the vehicle is used for business mileage. Business mileage includes trips to the bank, post office, business meetings and networking events.
Mileage can be claimed instead of a proportion of the running costs of a vehicle if your turnover is below the VAT threshold when you acquired your vehicle. Mileage rates are 45p a mile for the first 10,000 business miles a year, then 25p a mile.
Travel, meals and accommodation including hotels when an overnight stay is required for business.
Business insurance including public liability, professional indemnity and employer liability.
Marketing and advertising including PR, free samples, networking, website maintenance costs, printed ads and brochures.
Magazine subscriptions if they are relevant to your business or are for client reading in a reception area.
Professional fees are usually allowable. Legal fees for drawing up contracts and terms and conditions are allowable as are your accountant’s fees for completing the year end accounts. Architect and surveyors fees are also allowable.
Bank, credit card and other finance charges including overdraft charges, hire purchase interest and lease payments.
If the expense relates to business and personal cost, only the business cost is deductible but also if the expense is dual purpose then no deduction is allowed. Always remember to keep detailed records of your transactions and keep copies of receipts and invoices as back up (these can be the originals or scanned copies on your computer).
Rebecca Taylor
12 ways to get your invoices paid faster
- Discuss credit terms with your new client – set the expectation
- Change your credit terms to be less than they are right now – research has shown that invoices are paid 2 weeks late. So better to be paid late on short credit terms than late on long credit terms
- Get invoices out on time – be clear about what makes a service or product billable and bill it. Don’t be shy about billing promptly, the client has had the service\product, they need to pay for it
- Make it standout – clients processing lots of invoices may put it on the pile with the rest, but if it stands out then chances are that it will get paid faster
- Be able to report your aged debtors and then chase the late ones rigorously. Send a statement and call them – some people get so much email that it gets ignored
- Add late payment charges – you can always reverse them but it will generate a conversation where you can re-iterate your priority to be paid on time
- Get the entity right that you are invoicing – if it is called Jupiter Construction Limited, don’t put JC limited on the invoice
- Make it get to the right person – does it need to go to the budget holder or accounts payable or both
- Do you offer multiple payment methods – cheque, bank transfer, paypal, debit card, credit card – the more methods the more likely you will get paid faster.
- Review the average days to pay for your clients and target the late ones – don’t treat all clients the same
- Delegate your credit control – if you are running the business and delivering to clients you won’t focus on this and a part time resource can
- Send electronic invoices with Pay Now feature – Xero cloud accounting does this
david@graceaccountants.co.uk
10 ways to improve your business credit rating
Having a good credit score is essential in the current economic climate, your credit score will be checked by Customers, Suppliers and Banks/Lenders, so how can you improve your score?
1. Pay your bills on time – many credit rating agencies (Dun & Bradstreet, Creditsafe, Risk Disk to name a few) now collect payment data from your suppliers every month and update your score, often showing days beyond terms (DBT), if you have a dispute with a supplier try to resolve it quickly as it could affect your credit score.
2. Don’t make multiple applications for credit – credit searches by lenders leave footprints on your credit file and could make it look like you have cash flow problems.
3. File your accounts on time – late filing can really hurt your credit score, sometimes it can reduce your score by 50%.
4. Avoid CCJ’s – Getting a judgement against your business even for a small value is extremely damaging to your score.
5. Retain Profit – this increases net worth and shows you are investing in your business.
6. Record Borrowing Terms – in your published accounts and notes makesure you explain the terms and split the loan between short and long term, if all your loans are shown as short term this will damage your score because it will impact on working capital.
7. Review Share Capital – if you have directors loans that you have made to the business and you aren’t expecting repayment in the near future convert them to Share Capital, this will increase net worth.
8. Keep Credit Card Balances below 30% – Its bad for your credit score to max out your business credit card and its also bad to have too many business credit cards, it makes your business appear desparate for cash.
9. Avoid Negative Net Worth – it can wipe out your score.
10. Fix any mistakes – if a credit score is wrong and contains errors speak to the credit agency and get it fixed.
Do you have any tips to share?
steve@bicknells.net
How do you claim R&D Tax Credits?
Research and Development (R&D) tax relief (or credit) is a company tax relief that can either reduce a company’s tax bill or, for some small or medium sized (SME) companies, provide a cash sum. It is based on the company’s expenditure on R&D.
For there to be R&D for the purpose of the tax relief, a company must be carrying on a project that seeks an advance in science or technology. It is necessary to be able to state what the intended advance is, and to show how, through the resolution of scientific or technological uncertainty, the project seeks to achieve this.
http://www.hmrc.gov.uk/manuals/cirdmanual/cird80150.htm
These are the key questions that you will be asked when requesting an R&D Tax Credit from HMRC:
- How was it decided that R&D had taken place
- A description of the scientific & technological advance sought
- The uncertainties involved
- How and when the uncertainties were resolved
- Why the knowledge being sought was not readily deducible by a competent professional
- Were any grants, subsidies or contributions received for the project within the claim
- Who owns the Intellectual Property of the products resulting from the R&D
- Was the R&D carried out for others ie clients, this could mean your claim is rejected
Amount of relief
For expenditure incurred up to and including 31 July 2008 SMEs can deduct 150% in respect of their qualifying R&D expenditure and the payable tax credit can amount to £24 for every £100 of actual R&D expenditure. For expenditure incurred on or after 1 August 2008 SMEs can deduct 175% in respect of their qualifying R&D expenditure and the payable tax credit can amount to £24.50 for every £100 of actual R&D expenditure. The rate is further increased from 1 April 2011 to 200%, and a payable credit of £25 for every £100 of spend.
Large companies can deduct 125% in respect of qualifying expenditure incurred up to and including 31 March 2008 and can deduct 130% thereafter.
Here is a template (originally created by HMRC but updated by me) to help you calculate the value of your claim it has references to relevant HMRC guidance.
The claim is made on your corporation tax return (CT600) if you discover that you should have made a claim in a prior year its not too late, follow this link to find out how to correct prior year returns http://www.hmrc.gov.uk/ct/managing/company-tax-return/amend.htm
Case Studies and Examples
Here are some excellent examples http://www.bis.gov.uk/files/file36112.pdf
It is possible to claim for software http://www.bis.gov.uk/files/file34845.pdf
Software could be tool to enable the R&D or a goal in its own right, but simply modifying existing software isn’t R&D. It has to follow the same rules as other R&D and be an advance in science and technology.
Construction companies have claimed R&D for developing new building systems and new building technologies.
R&D could be a new process rather than an invention.
It doesn’t have to have a patent but there could be advantages to having one, such as patent box tax relief.
steve@bicknells.net
Top 5 accounting mistakes made by small businesses
Statistics show that businesses that keep good accounting records are less likely to fail.
HMRC have some excellent advice on how records should be kept
So here are my top 5 mistakes that small businesses make:
1. Not doing any accounts – the shoe box approach to business
This is the most common mistake, book keeping is best done as you go along, putting all the paperwork in a shoe box or carrier bag is a really bad idea as you have no idea how your business is performing.
2. Not keeping receipts
Often small business miss out on claiming all their expenses because they fail to keep receipts and lose track of their spending
3. Not reconciling
Reconciling your bank statements to your cash book is vital to make sure that all of your income and expenses have been recorded in your accounts.
4. Using the wrong accounting system
For some businesses a manual cash book and records are fine but for many accounting software will be needed to keep track of debtors, creditors and VAT. Make sure you understand your accounting system and operate it correctly.
5. Mixing business and personal expenses
Some sole traders even mix up business and personal bank accounts and in extreme cases don’t even have a business bank account. This can cause errors and often means that a sole trader will either claim to many expenses or to few.
Improve your chances of business success, avoid the common mistakes listed above.
steve@bicknells.net
Business Accountant 