Yeovil Business News

Yeovil Business News
Winter 2014
listening, analysing, advising
2
Chris Bowles,
Head of Business
Services
What would be the effect of
a ‘full employment
economy?’
Businesses will also have to be aware of the potential
for client service standards to drop if they cannot
find the right quantity or quality of labour. This could
have dire consequences for business outlook.
According to the monthly statistics not
only has unemployment been falling
steeply for the past year or so but the
number of people being employed has
been rising – the two things are not
always linked.
Business owners also have to think in the longer
term about succession. Are they able to recruit the
right senior staff to help develop the business – and
perhaps to take it on through a management buyout
when they are looking to exit. Even more worrying is
that many small businesses are reporting a lack of
appetite from people to take on running businesses.
Old patterns of career progression are not as evident
in the younger generation and as employment
options increase it becomes ever more comfortable
to stick to a comfortable job without taking on the
hassles of running a business.
There are those who are slightly suspicious of the
figures – pointing out the de facto raising of the
school leaving age to 18 – but the strong trend
cannot be gainsaid. In fact we are not far short of a
‘full employment economy’ where everyone who
wants a job can have one.
Owner managed businesses need to consider what
effect this may have on their business. Many are
already reporting that it is hard to find the right staff –
especially where they are looking for particular skills.
Speaking to Old Mill client Ewan Smith of
recruitment agency Skills Direct, he is reporting that
drivers are particularly hard to find. An experienced
driver can now pick and choose where they work
and are naturally going for where there is the best
deal. He says that as a consequence their wages are
steadily creeping up and despite the current relapse
in fuel prices this will have an impact on costs for the
supermarkets, food services and other businesses –
prices will have to rise.
One option that some businesses are looking at is
recruiting graduates from Spain, Italy and France.
There are currently very few opportunities for them
in their own countries and they are willing to come
over to Britain and work hard, with ability and
flexibility, probably for a lower salary than a British
born person would consider. In driving too there
would now seem to be a European labour market.
Whatever the future holds for owner managers of
local business there is one clear priority – make sure
you are looking after your existing workers first – in
particular your senior managers. There are various
options including Share Options schemes that can
help build staff enthusiasm and tie workers to your
business. Old Mill can help with these and they can also
be tax efficient for both the business and employees.
Please contact us if you would like to know more.
3
Christmas is a time for giving
Graeme Tate,
Manager
Once again, Christmas is looming large
on the horizon and you may be putting
the finishing touches to the Christmas
Party plans or considering well-earned
gifts for your staff and customers. It is
therefore perhaps a good time to
refresh our memories of the tax
treatment of these gifts.
the employee and will therefore need to be correctly
included through the payroll.
However, a seasonal gift to an employee such as a
turkey, bottle of wine (not vintage or champagne)
or box of chocolates will not be taxable provided
the gift is reasonable. If the gift is seen as greater
than reasonable then the value becomes taxable
and would need to be included on the employees
P11d form.
Christmas gifts – customers
Christmas party
Tax relief is given for ‘annual parties’ available to all
staff, the cost of which does not exceed £150 per
head (including VAT). All costs of the party, including
taxis home and accommodation need to be included
in calculating the cost. The £150 limit applies to all of
those attending, not just employees, so if people
bring guests then they will be included in calculating
the cost per head figure.
Normally any gifts to customers are treated as client
entertaining and therefore disallowable for tax
purposes. However, small promotional gifts are
treated as tax allowable if they cost less than £50 and
carry a clear advert for the business. As a note, relief
is not available for gifts of food, drink, tobacco and
gift vouchers.
VAT
If the cost exceeds £150 per head then all the costs
and not just the excess are taxable as a benefit in
kind. As a result, this will need to be included on the
individual employees P11d forms or settled through
a PAYE Settlement Agreement.
Although, input VAT cannot normally be reclaimed
on entertaining costs, it can be reclaimed on staff
entertaining. Staff does not include guests or
partners, so if the party includes these, then the
input VAT should be apportioned and reclaimed
Christmas gifts – employees
accordingly. With regards to customer gifts, VAT can
If you give an employee a Christmas present of cash
or gift vouchers then the full value will be taxable on
be reclaimed on those small promotional gifts which
Class 2 National Insurance
update
Stacey Morrison,
Assistant Manager
HM Revenue and Customs (HMRC)
have recently been informing selfemployed individuals that from April
2016 their Class 2 NIC will be collected
through their Self-Assessment tax
return each year.
This will replace the existing monthly/quarterly/
annual statement and Direct Debit collections.
This information is detailed within the letter
which HMRC are sending out regarding each
individuals Class 2.
cost less than £50.
4
The importance of cashflow
and credit management for
every business
Craig Howes,
Director
Officially the UK economy has been
growing quarter after quarter since early
2013 and it’s a well known fact that the
period following a return from economic
growth is the most dangerous for
businesses.
Almost without fail, business failures peak around
18 months after positive growth returns, and
mismanagement or irregular cashflows are
commonly cited reasons.
Cashflow management is vital to the health of your
business. It’s the “lifeblood” and is the primary
indicator of business health. The often used saying,
“revenue is vanity, profit is sanity; but cash is king”
remains sage advice for anyone managing company
finances. To put it another way, most businesses can
survive several periods of making a loss, but they can
only run out of cash once.
Cash is generally acknowledged as the single most
pressing concern of most small and medium sized
enterprises (SMEs). The importance of cashflows is
particularly pertinent at times when access to cash is
difficult and expensive and the credit crunch created
extreme forms of both of these problems.
If you are to successfully navigate the difficult times
ahead, you must ensure that you have mechanisms
in place to properly regulate your cashflow.
Set your payment terms – and stick to them
As a supplier, you have the right to set your own
payment terms. In some cases your freedom in this
area may be curtailed by convention; for example, in
some industries potential clients will assume that
they have 30 days to settle an invoice, and will look
elsewhere if you demand payment sooner. But unless
you find yourself in this situation, you should set
payment terms that help you regulate your cashflow.
It is important that your clients are aware of these
terms. Make them clear from the outset and include
them on any invoices you raise. You should also
remember that you are well within your rights to
chase clients that are late with payment. You might
want to send out reminders close to the end of the
payment term. If a payment is late, start chasing on the
first day that it’s overdue. Often, a single phone call or
email is enough to ensure that an invoice is settled.
Manage your expenditure
As well as making sure that your invoices are paid
promptly, you must also keep a close eye on your
expenditure. Draw up realistic cashflow forecasts
to help you identify potential danger areas.
If you are considering expansion, make sure that
you retain enough cash to meet your existing
liabilities. A significant number of firms fail not
because they are in bad financial shape, but
because they expand too quickly.
Credit checking
Very few SMEs utilise credit checking services for
clients. Remember that when you give your clients
30 days to pay, you are essentially offering them a
30 day loan. You would not think twice about
being asked to submit a credit check if you were
applying for a loan, so why should it be any
different for your clients?
Credit checking can help you identify and filter out
clients that are likely to have problems paying their
invoices. There are several credit reference agencies
offering affordable solutions for SMEs. If you are
concerned about your clients’ ability to pay, you
should seriously consider investigating these facilities.
Consider factoring
Factoring is an invaluable tool for businesses of any
size. Factoring and invoice finance services mean
that you can receive up to 90% of the value of
invoices you raise, within 24 hours of raising them.
The factoring partner will then chase the invoice
when it becomes due, and pay you the remaining
value, less a small fee.
Factoring has a variety of applications. Many firms
use it to smooth over unexpected troughs in
cashflow. Increasingly, though, factoring is being
used by businesses that wish to quickly seize an
opportunity for expansion when they are unable to
secure credit from a bank or other lender.
5
CLIENT
PROFILE
Client
Profile
Cutting Edge Technologies
Since 2010 domestic, commercial and
industrial data cabling and electrical
installers Cutting Edge Technologies
based in North Perrot near Crewkerne
have been providing data cabling
services to a wide range of businesses
within the local area as well as nationally.
Husband and wife team Shane and Sharon Manley
decided to set up Cutting Edge Technologies back in
February 2010. Previously Shane had been in a
management role in a separate business, but the
couple felt it was the right time to set up on their
own. This proved to be the right move for the
couple, as since setting up four-and-a-half years ago
Cutting Edge Technologies has roughly achieved
25% growth year on year.
Cutting Edge Technologies has achieved this growth
by being flexible enough to be able to provide their
services to a wide range of businesses across the
country. Customers have ranged from small schools
to larger engineering firms. Sharon said; “We have
seen a huge variety in the customers we deal with
and we are now starting to see more reoccurring
work with previous customers retuning to us.”
Cutting Edge Technologies assists this wide range of
businesses with their data cabling needs and ensures
that their customers have the correct IT, phone and
electrical cabling installed in their business premises,
whether that be for office expansions, relocations or
the need for businesses to updated their IT and
phone systems to keep up with the change in
technology. This has seen a high demand for Cutting
Edge Technologies services.
Cutting Edge Technologies is truly a family business
with husband Shane doing the majority of the
installation work, wife Sharon running the office and
the admin side of the business and on occasion the
couple draft in their son Alex who whilst still in 6th
Form helps out on days when he’s not studying and
during the holidays.
Shane and Sharon are looked after by Graeme Tate
and his team in Old Mill’s Yeovil office. Sharon said;
“The level of support and advice we get from Graeme
is excellent, it is always reassuring to know that he is
only a phone call or email away and is he always
quick to come back with the appropriate answers.”
Shane and Sharon’s future plans for Cutting Edge
Technologies is to continue the current growth they
have achieved over the years and also hopefully look
to employ extra engineers so they can to continue to
expand. For more information please contact Cutting
Edge Technologies on 01460 271677.
6
Tax Investigation – new
aggressive approach from
HMRC
Adam Morrison,
Assistant Manager
We have noticed a more aggressive
attitude from HMRC in recent years and
are very concerned about this new
approach, especially as this will mean
more and more innocent businesses and
individuals are likely to be investigated.
HMRC do not need a reason to
investigate you and they can investigate
anyone at random.
Old Mill run a Tax Investigation Service to help protect
clients against the professional costs involved in a
tax investigation or enquiry. This service is backed by
a comprehensive insurance policy with a market
leader. Dealing with a tax investigation is not
included in accounts or tax return compliance fees
and the costs involved could be substantial. A tax
investigation could last for several months if not
years and can be extremely stressful!
We have had cases where our fees can quickly run
into thousands of pounds, and this insurance policy
will cover all of those costs in full, and allows Old Mill
to carry out the work for you with our experience in
these matters and in your own affairs. In comparison,
if you were to take out this insurance with a third
party, they would likely carry out this work
themselves, so there is an added risk of mistakes if
they do not have the knowledge build up during
years of dealings with you.
HMRC collected £23.9 billion last year from tax
investigations. They conducted double the number
of tax investigations and have also announced that
they aim to bring in extra revenue of £7 billion a year
by 2015. Last year they redeployed more than 5,000 If you would like to discuss the benefits of this
people to new or different compliance roles to help
insurance policy please do not hesitate to speak to
your relevant contact at Old Mill.
meet new targets.
“Old Mill run a Tax
Investigation
Service to help
protect clients
against the
professional costs
involved in a tax
investigation
or enquiry.”
7
The cost of living
Anthony Hawes,
Financial Planner
Financial planning need not be
complicated and in fact sometimes the
simplest changes can lead to life
changing moments.
How much do you think you should save? How much
can you save and how much do you want to spend?
These are all questions most people ask in their
minds but find it hard to understand.
The thought of “adding up” your expenditure can
seem a frightening and daunting task, however, in
my experience this exercise will always lead to
This is especially true when it comes to understanding greater peace of mind and financial freedom. It
the importance of one element of your finances that should certainly not seem daunting – it should not
worryingly is often ignored or not deemed relevant – take more than an hour or so to get an initial idea of
your expenditure.
your spending habits.
In simple terms your lifestyle can be financially
quantified by working out how much you spend in
a year – everyone’s lifestyle has an average cost.
However, how many of us are in denial about how
much we spend or simply do not know?
There is a common misconception that “budgeting”
or understanding how much one spends a week,
month or year is only applicable for lower income
individuals or families where money is tight. Whilst it
is fair to say that in order to avoid potential debt
problems there may be more of an immediate need
to budget in this scenario, I would argue that for
those in a more “healthy” financial position the
longer term repercussions of not quantifying lifestyle
costs are still worth considering.
Once you have an understanding of how much you
spend each year this will allow you to start to see the
link between your lifestyle requirements and
financial situation. It should also start to answer
some pertinent questions you may have, depending
on your situation, such as:
n When
can I afford to retire?
n How
much can I afford to spend on holidays, cars,
and other one off capital items?
n How
much could I gift to family members without
harming my future?
n To
help answer some of these questions do you
think one hour of your time is too much to ask?
With the guidance and help of your financial planner
I do not see how you can plan for the future if you do we can help you understand your longer term
financial situation to make sure you can continue the
not know what you are aiming for? How much do
lifestyle you wish to lead.
you think you can spend this year?
8
Graeme Tate,
Manager
Micro-entity accounting
2. Tangible fixed assets must be disclosed at cost
and not revalued
From 1 December 2013 the European
Union brought in new legislation for
small companies in order to try to
reduce costs. It set out reporting
exemptions for ‘micro-entities’ that
aimed to reduce the administrative
burden of those companies.
3. Fixed asset investments must be disclosed at cost
rather than at market value
When did the changes occur?
The legislation is effective for financial years ending
on or after 30 September 2013.
4. Investment properties must be disclosed at cost,
written down to recoverable amount rather than
at market value
What information do the accounts need to disclose?
A set of micro-entity accounts must include the
following information:
n Directors
n Profit
and loss account (format 2)
n Balance
Who is affected by the new legislation?
Only eligible companies can adopt the new
legislation, however as the adoption is optional,
directors can choose to continue using the previous
legislation that also remains in place.
What companies are eligible?
A company can qualify as a micro-entity if it satisfies
at least two of the three following criteria:
n Turnover
does not exceed £632,000
n Gross
assets (balance sheet total) does not exceed
£316,000
n Average
number of employees does not exceed 10
The company must satisfy the above conditions for
two consecutive years before it is able to report as
a micro-entity.
What has changed?
1. Under FRED 52 a micro-entity can disregard all
presentation and disclosure requirements under
the FRSSE, except for the following:
n The
balance sheet must be presented in either
format 1 or format 2
n Notes
report
sheet (format 1 or 2)
at the foot of the balance sheet, including:
• Historical cost convention
• Overdrawn directors loan account
• Secured creditors and other guarantees
• Accounts prepared in accordance with microentity provisions
report
n Accountants
Filing requirements
Micro-entities can file the full financial statements
mentioned above, however it is also possible to file
the financial statements without the profit and loss
account and the directors report (under s444(1)(a)
CA 2006).
Will it actually reduce costs?
In reality, it is debatable as to whether the new
legislation has reduced the costs for smaller
businesses. Indications are that there is no cost
saving by adopting the new legislation, especially
since HM Revenue and Customs and lenders are
likely to require more information than micro-entity
accounts disclose.
n The
profit and loss format must be the one set out
as in format 2
n Details
of overdrawn directors loan accounts and
any personal guarantees given must be disclosed
at the foot of the balance sheet
n Details
of any secured creditors or other
guarantees must be disclosed at the foot of the
balance sheet
Why would I want to file micro-entity accounts?
The main reason for wanting to file micro-entity
accounts would be the reduced disclosure. You can
file a set of accounts that shows very minimal
information, which in some circumstances can be
useful, for example limiting information available
to competitors.
9
An introduction to Cloud Accounting
Development in technology has meant that we have access
to a wealth of information at our fingertips whenever we
want it and wherever we are, so why not access your
businesses financial information in the same way
Cloud Accounting
Software packages
Xero
Sage One
FreeAgent
Clear Books
QuickBooks
Online
Kashflow
Quick File
No upgrades
No set up fees
Automatic back up
Simple data entry
No annual contracts
Advantages of
Cloud Accounting Software
Access anywhere,
anytime, on any device
Disadvantages of
Cloud Accounting Software
No more wasted
time sending your
accountant a back up
Extensive range of add
Real time
on applications that
information about
suit your business
your business
specifically
Internet access is required
Debates over security
of information
10
Research and Development
Tax Relief
James Fowler,
Senior Manager
This relief is aimed at trading companies
who are incurring expenditure on
qualifying R&D. The claim itself usually
goes in the Corporation Tax computation
and return however can be made as a
standalone exercise within two years
after the end of the accounting period
to which it relates.
n Externally
provided workers (effectively agency
workers)
n Payments
to subcontractors (can only include 65%
of these costs maximum)
n In
certain circumstances, payments to a qualifying
body e.g. university
The largest item is almost always staff costs and
whilst time-sheeting for a specific project would be
ideal in supporting the amount of time an individual
spends on qualifying R&D, HMRC do tend to be
reasonably pragmatic on this front and often we
would deem a suitable and defendable percentage
of an individual’s time to be included in a claim.
Qualifying R&D
There is still a perception that what counts as R&D
has to be very “blue sky” research, however the
Business Innovation and Skills Department (DTI as
was) definition which is used for tax purposes
requires that an advance is to be made in a field of
science or technology. This term “advance” covers
quite a broad area but the aim should be to seek to
extend overall knowledge or capability in a field. The
idea is that a technological or scientific uncertainty
must be identifiable i.e. a problem/ barrier to which
there is no publically available solution and the
company has to undertake work/ expenditure to
overcome this.
There is no need for the R&D to relate to an entirely
new product, service, device, material or process, it can
consist of an appreciable improvement to an existing
one or for instance using different materials to
replicate the effect of something already in existence
with a view to reducing say costs or weight or because
of patent protection around an existing process etc.
The other key requirement for the R&D is that it has
to be relevant to the trade undertaken by the
company or at least the trade which is to be
undertaken as a result of it.
Qualifying costs
There used to be a de minimis qualifying spend of at
least £10,000 however this was removed from April
2012 onwards. The costs which can be included are
only those which relate directly to overcoming the
scientific or technological uncertainty indentified
above. Costs to be included are:
n Staff costs (salary, NIC and pension only)
n Software
or consumables (incl water, heat, power
attributable to the R&D)
Other criteria
There used to be requirements around the ownership
of the IP (although again recent legislation has
changed this) and also with regards any grants or
subsidies (including payments from customers)
received however many of these areas are quite
specific and might be better talked through if relevant.
Relief available
There are two schemes available: the SME (Small and
Medium Entity’s) scheme and the large company
scheme (which covers not only those who by virtue
of their size don’t qualify for the SME relief but others
which fail other criteria in terms of grants/subsidies
received etc).
The SME scheme is very generous and works by
uplifting qualifying expenditure by 125% (previously
100% before April 2012) to be offset against taxable
income e.g.
Every £100 of expense in the profit and loss
ordinarily reduces a company’s tax liability by the
effective rate of tax – say 23% at the large
companies’ rate.
£100 of qualifying R&D expenditure is uplifted to
£225 and tax relief claimed on this at the same
rate of 23% saves £51.75 of tax compared with
the £23 above.
In summary, under the SME scheme £100 of
qualifying spend actually costs your company
£48.25 net of the tax relief.
Note that in the event that your company is lossmaking for a year in which qualifying R&D
expenditure is incurred, it is possible to generate a
repayable tax credit i.e. actual cash back, though this
is at a slightly lower rate than the ordinary tax relief.
11
Traditionally under the large company scheme, the
uplift has always been a much less generous 30%
which works out at an additional 6.9% tax relief for
every £100 assuming the same 23% Corporation Tax
rate as above. There have been some recent changes
to the large company scheme however which enable
companies claiming under this regime to opt for a
taxable above the line credit rather than taking the
“enhanced deduction”. This has a marginal
advantage in terms of tax savings compared to the
original scheme but is likely to be of most benefit to
loss making companies who can then claim a
repayable tax credit as with the SME scheme.
significantly on the relief you may be able to claim
however as this is a complex area, it is probably best
to discuss specifics with your accountant.
Other reliefs
The R&D relief detailed above relates to revenue
items i.e. the type of costs which ordinarily would be
expensed through the P&L (although where such
costs are capitalised as an intangible, relief may still
be available). In addition to this, there are 100% first
year allowances (FYAs) available on any capital items
which are utilised in the undertaking of qualifying
R&D. Where the use of a piece of equipment/a
Impacts of grants and subsidies
building is split e.g. between R&D and quality
Note that grants or subsidies received (which
includes payments from customers) can impact
testing, a just and reasonable apportionment of the
cost can be allocated to the 100% FYA.
“The other key requirement for the R&D
is that it has to be relevant to the trade
undertaken by the company or at least
the trade which is to be undertaken
as a result of it.”
Recruitment
At Old Mill we are always interested in
talking to people who are looking for a
career in Accountancy or Financial Planning.
Our business is our people. We have a high
commitment to training our staff for professional
qualifications in both disciplines.
If you know of someone looking to develop their
career, maybe a graduate or somebody who already
has some level of qualification or experience and
wants to develop further, it is well worth them
contacting us.
While our website contains details of our current
vacancies, we are always on the lookout for talent.
CVs should be sent to [email protected]
with a covering note.
The Old Mill Business Services team
Head of Business Services
Chris Bowles
Tel: 01749 343366
Email: [email protected]
Jon Burt, Melksham
Wessex House, Challeymead Business
Park, Melksham, Wiltshire SN12 8BU
Tel: 01225 701210
Fax: 01225 709817
Email: [email protected]
David Maslen, Dorchester
The Old Rectory, South Walks Road,
Dorchester, Dorset DT1 1DT
Tel: 01305 268168
Fax: 01305 268688
Email: [email protected]
Adam Morrison, Wells
Bishopbrook House, Cathedral Avenue,
Wells, Somerset BA5 1FD
Tel: 01749 343366
Fax: 01749 344986
Email: [email protected]
James Fowler, Exeter
Leeward House, Fitzroy Road, Exeter
Business Park, Exeter, Devon EX1 3LJ
Tel: 01392 214635
Fax: 01392 214690
Email: [email protected]
Craig Howes, Yeovil
Maltravers House, Petters Way, Yeovil,
Somerset BA20 1SH
Tel: 01935 426181
Fax: 01935 431852
Email: [email protected]
www.oldmillgroup.co.uk
The content of this newsletter is for general information only. It should not be relied on and action which could affect your business should
not be taken without appropriate professional advice. Please contact your usual Old Mill contact or local Old Mill office.