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VAT – The basics!

We’ve mentioned registering for VAT in a recent blog but as we didn’t go into detail we thought we’d add a bit more now.  VAT is essentially a tax on the sales of services & goods, that you as the seller collect on behalf of the government. There’s a few different rates but the main one you’ll come across is the standard rate, currently 20%.
 
You have to register for VAT when your turnover goes over the HMRC set threshold, currently £85,000. However, this isn’t based on a tax, financial or calendar year, it’s based on a 12 month rolling period so it’s another good reason for keeping your books in good shape and up to date, it’s up to you to monitor this and be ready for it (we of course keep an eye on things for you when we know you’re approaching and will help you prepare for this).
 
You can register voluntarily, so if you’re nearing the threshold you could join when you want to, rather than when you’re forced, which could help you prepare your customers.
 
A common concern for businesses nearing the threshold is if they can remain competitive when their customers are non VAT registered business customers or individuals, as ultimately the addition of VAT will just be an increase in cost for those customers.
 
For example, you’ve got an item you buy for £50 + VAT (£60) and sell for £100, so you currently make £40. You can obviously set your sales price to what you want, the below table shows a few options after registering for VAT, just adding VAT to your existing price which increases your profit, sell for the same but including VAT which lowers your profit to £33.33 or keep your profit the same by increasing your sales price. 
 
  Cost of item Sales price Profit Net VAT to pay to HMRC
Net VAT Net VAT
Before registering for VAT £50.00 £10.00  £100.00  – £40.00 – 
Registered – sell for same plus VAT £50.00 £10.00  £100.00  £20.00 £50.00 £10.00
Registered – sell for same inc VAT £50.00 £10.00  £83.33  £16.67 £33.33 £6.67
Registered – same profit as before £50.00 £10.00  £90.00 £18.00 £40.00  £8.00
The table also shows how much VAT you’d have to pay to HMRC on your VAT return. Looking at the line where we just add VAT, you receive £20 VAT for each sale, which is tax you collect on behalf of HMRC. You’ve also paid out some VAT of £10, which you’re allowed to reclaim but you need proof, a VAT receipt.
 
Think of it the same way you do if someone spends your money with expenses, you want some proof of what was spent, you’re spending HMRC’s VAT money you’ve collected so they want proof too! As a minimum the receipt must show the VAT number of the seller. 
 
To balance the VAT you’ve collected & spent, you do a VAT return (or we will for you!). These are most commonly done every quarter, you can choose when these occur when you register – most businesses will align with their year end to keep things tidy. Returns and payments are due a month and a week after the quarter ends.
 
VAT was never going to be the most exciting blog subject but hopefully if you’ve made it this far it’s helped! 

Mythbusting

My (not so) little boy has recently got into watching Mythbusters on TV and it got me thinking about some accounting and bookkeeping myths that I thought I’d tackle (not in the same way as the TV program if you’ve seen it!).

Myth – You can put all your food & drink through as an expense
HMRC disagree with this, as they see food and drink as something you need to live (understandably!) so you can’t claim it as an expense. What is allowed is the cost of basic food & drink for your staff, including free meals at a canteen, as long as they’re available to all – this doesn’t apply if you are the only employee/director. When you’re travelling for work you can claim for food & drink, including overnight stays. If you’re travelling to a temporary workplace then you can claim, such as a temporary work site or a meeting.

Myth – You can claim for your clothes you where for work
This one isn’t as clear to bust, as you can claim for a uniform you purchase and any clothing that features the company logo. PPE is also an allowable expense, but that nice pair of shoes you’ve brought yourself are not going to be justifiable!

Myth – Having your books done by a bookkeeper/accountant is expensive
I’d love to say that this myth is busted but it’s actually down to personal opinion – we certainly don’t believe it’s expensive, especially if it’s freeing up your time to expand your business and do what you do best (or just to give you your weekend back to spend with your family) – it’s essentially the same as any business expense, if you feel the service is worth the cost then it’s worth it!

Myth – Dividends are classed as an expense
A lot of people seem to think that dividends are taken out of the profit before corporation tax is paid like an expense would be but this is incorrect, they are drawn on the profit after it has been taxed.

Myth – VAT should only be registered for when you have to
The final myth is a bit of a trickier one, as it varies from business to business, there’s no one size fits all answer. One major concern will be the effect it will have on your customers – if they are other businesses already registered for VAT then although they’d physically (well probably not actually in this day & age) give you more money they’d be claiming the VAT back so it won’t change for them. If you’ve non VAT registered companies or the general public then they would feel the effect of the increase if you just add VAT to your prices so it would then be up to you to decide if you were going to swallow some or all of that increase. So the myth isn’t busted but isn’t confirmed either!  

Is there any you’d like to add? Email us and let us know and we’d be happy to do a second myth busting!

Team Update

Over the last few months we’ve had a few changes within the team at PBATS, here’s a quick round up of all the changes! 

James joined the team at the start of June, working on the accounts side of the business. He’s MAAT qualified with a background in Not for Profit accounts and will be working with Martin day to day. 

Charlotte has changed roles, now in the role of Accounts Junior. She’s working towards her AAT level 2 qualification while developing her bookkeeping knowledge.

Finally we’ve had Becky join the team as an Admin Assistant – yes, this could cause some confusion having a Becky & a Rebecca but we’re coping so far! 

Martin, Susan and myself are all still here in the same roles as before. 

The most important thing for our clients is that these changes will result in a better service for you, with more knowledge in the team and increased capacity to ensure we’re always here to support you and your business, your points of contact are remaining the same so no changes there!

What does this mean? – A guide to accounting jargon

One of the things that we pride ourselves on at PBATS is not following the  stereotypes of the industry, not just the stuffy suits but also avoiding using loads of jargon. However, sometimes we just can’t avoid a little jargon, so we’ve made this handy guide to help you out when you’re not sure what we mean!

  • Assets – These are things you own, not just physical things like your computers and equipment, but also your money in your bank.
  • Liabilities – These are what you owe, the bills outstanding that you need to pay.
  • Debtor – Someone who owes you money.
  • Creditor – Someone you owe money to.
  • Debtor days – How long it takes to be paid.
  • Prepayment – Something you’ve paid for that you’ve not yet received in full, such as an insurance policy, which may span more than one financial period.
  • Cost of goods sold – The total of your expenses for making your goods you’ve sold.
  • Overheads – Regular monthly costs such as rent & utilities.
  • Net profit – Your sales less all of of your business costs.
  • Gross profit – Your sales less your cost of goods sold.
  • Turnover – The total of all your income from sales & services sold.
  • Stock turnover – How long stock will take to sell
  • Break even point – The point at where your sales cover the cost of your expenses (so future sales would be profit).
  • Cash Flow – The money that is going in and out of your business account(s), income from invoices & outgoings for paying bills. A cash flow forecast will predict how your cash flow will be based on past information in your books and known future information (such as upcoming jobs or sales), predicting any potential issues you may have when funds get low. 
  • Accrual – This is a charge for work that has been done but not yet invoiced, such as if you pay for your annual accounts monthly in advance of them being done, for which provision is made at the end of a financial period.
  • Balance Sheet – A report that shows the value of your assets plus everything you need to pay out – this should be a positive figure, if it’s negative then we can help look at how to improve your finances.
  • Management Accounts – A series of reports produced regularly, usually monthly or quarterly, showing profit & loss and other useful financial information for the company, produced to suit your company and help you get useful information out of your books.

If there’s anything else you think should be on here please let us know! 

Can’t pay your creditors? Don’t panic!

*Note – Although we’ve written this during the COVID-19 pandemic the advice is relevant for other times too*
 
Everyone can have cash flow problems and these can cause a lot of worry for you, distracting you from running your business, so it’s important to ensure you get a plan in place to ease the worry. Speaking to your creditors is the first port of call, communication is key in a situation like this, many will have been there themselves and this is where those personal relationships you’ve built up will help lots, being honest with people and giving them an estimate for when you can pay will let them know where they stand and they can then decide if they’re happy with your plan, this could be the difference between them putting you on stop or letting you have another order of parts to complete a big project that brings in those much needed funds.
 
HMRC are likely to be one of those creditors and they shouldn’t be ignored, they too like communication and they’ll work with you to ensure you can pay you bill and get yourself back on track – they want you to stay in business so you’ll earn them more taxes! As soon as you know you’re not going to be able to pay your bill call HMRC to arrange your payment plan with them, don’t wait until it’s due or overdue, showing them you’re aware its going to be a problem and you want to sort a plan before will help a lot, they will be happier knowing what’s going on and it will remove a lot of stress from you too! 
 
Filing your return late won’t help, that just creates fines for late filing on top of the problem you have with not being able to pay, so keep on top of your filing. This will also mean when you call everyone is working from up to date figures.
 
Make sure when you call them you’ve got your reference number to hand and details of what it is you can’t pay. If you’ve an idea of what you can pay now and what you’d like your payment plan to be that will help, they will usually push for a payment of some kind to start the ball rolling while you’re on the phone so be ready for that! Again, having all this planned out shows you’re trying your best so helps with the situation. 
 
You will usually be asked why you can’t pay, as they’ll see it as you’ve had the money in so should have put it aside for them, although few businesses actually do this as using it to pay other bills is what everyone does! They may well ask about known future income, expenditure and savings & assets, they’re not just trying to squeeze every penny from you, they’ll be trying to make sure that the payment plan balances being realistic as well clearing your balance – neither of you want to be going through this again when you’re next payment is due and it will only cause you more stress! 
 
Right, now you’ve got it all planned it’s time to give them a call. You can contact the Payment Support Service on 0300 200 3835, Monday to Friday 8am – 8pm & Saturday 8am – 4pm (obviously at time of writing). If you’ve missed your Self Assessment payment date you’ll need to call 0300 200 3822. More information on the Payment Support Service can be found here.
 
Obviously if you’re a client of ours then we’re here to help you, we can help with all of the above, you don’t need to worry alone! Please do get in touch and please do not be embarrassed, it’s such a common problem for many companies so you shouldn’t feel ashamed! We know so many people delay asking for help and talking to creditors because of how they feel, we won’t judge you!
 
*During the COVID-19 pandemic they’ve temporarily changed the hours to Monday to Friday 8am to 4pm – They’ve also setup another number during this time, 0800 0159 559, again Monday to Friday 8am to 4pm*

You don’t have to wait until January!

April signifies the start of the new year (financial year obviously!), although we doubt this is news to any of you! (If you want to know why it’s April then have a looksie here). And what better way to start a new year than to tidy up last year?
 
Unsurprisingly, a lot of people don’t finalise their books from the previous year in April, with a large amount of people not getting around to their tax return until December & January, leaving them little to no time to prepare for the bill due 31st Jan – so why wait?
 
With so many people waiting until the last minute to file their returns, help may not always be available. So why not just do your return now? Getting it done early will mean it’s a weight off your mind, knowing what you’ll have to pay in January and gives you plenty of time to ensure you’ve got the money available, you won’t have to pay anything early just because you’ve put your return in early!
 
It also means that if there’s any questions raised that you stand more chance of remembering the answer as it won’t have been so long ago, if it’s about a transaction in April at the start of the FY and you wait until January it’s 21 months between them so the chances of remembering is slim! 
 
Of course, we’re not expecting an influx of people wanting to get their tax return done early, but if we manage to convince one person to do it sooner rather than later then it was worth the time it’s taken to write this blog! 

COVID-19 – Small Business Grant Scheme

Many small businesses are under the impression they need to be paying rates to received this grant – the opposite is actually true! 
 
The Small Business Grant Scheme is for businesses who pay little or no rates due to them being in receipt of either SBRR (small business rate relief) or RRR (rural rate relief). There is a government help page here that tells you the official wording.
 
Being a rate payer just means that you or your company are registered for business rates – you don’t actually have to pay anything! So if you get Small Business Rates Relief in full or partially, if you pay some rates or none at all, this grant is for you! It’s all done by your local council via their rates records to ensure only the right people receive it, it’s designed to help you cover rent and premises expenses during this uncertain period.
 
So in short, if you have a rate demand for your premises (even if it is credited in full for rates relief) you can definitely apply!
 
Most councils have online forms to complete, others are sending application forms via post, a few of the one’s we know are relevant to our clients are below:
 
 
 
At time of writing, Chelmsford are aiming to have their online form up by the end of 3rd April, Castle Point haven’t indicated any dates as to when their application system will be ready and Braintree were saying they will post applications forms which can be scanned and e-mailed back to them.
 
Please note this information is correct as of 2nd April.

COVID-19 – Self Employed Help

You may be here looking for our advice to the self employed following the announcements made by the government, but we’re not actually going to do a blog about it.

Why?

Because we feel the advice needs to be interpreted for everyone, we’ve already been in touch with all of our self employed clients to tell them what help is available for them and will of course update them if the situation changes, that’s not to say we’ll only advise our existing clients but we don’t want to add to the vague advice and opinions floating around, if you’ve any specific questions about how the help for self employed will affect you please do get in touch!

COVID-19 Help

We’re doing our best to digest the information coming from the government and advise what it means for everyone, we’re doing regular e-mails for all of our clients but we’re repeating that information here for all.

We’ll be putting that disclaimer at the start of each of our posts, along with the date that the information was correct as of so you know how old the information is. 

We’ve added a new menu item on the left to keep all the information in one place for you, check there for any updates.

As this is an ever changing situation please do get in touch with us, we are extremely busy helping people at the moment but will do our best to help as quick as we can.

COVID-19 – Government Assistance Update

We’re doing our best to digest the information coming from the government and advise what it means for everyone, we’re doing regular e-mails for all of our clients but we’re repeating that information here for all. Please note this information is correct as 21st March 2020.

Further to our previous blog, further assistance for businesses has been announced by the government during the week.
 
The headlines are as follows:
 
Coronavirus Business Interruption Loan Scheme (CBILS)
The detailed terms and conditions for this loan will be released on Monday 23rd March. 
 
It was announced this evening that these loans would be interest free for 12 months.
 
The loans we be accessed via banks rather than HMRC. We are happy to assist with the loan application.
 
Small Business Grant
A £10,000 grant will be available to small businesses who let premises with a rateable value that falls under the Small Business Rates Relief (usually £15,000).
 
A £25,000 grant will be available to small businesses in the hospitality, leisure and retail sectors who let premises with a rateable value of between £15,000 and £51,000
 
These funds will be provided by the local authority in which the premises are situated.
 
The local authority will contact your business during April with details of the grant and how to access this. To ensure more straightforward access to these funds you should ensure that your business is properly registered as the tenant at the premises which you are letting. We are happy to discuss this with you further.
 
Coronavirus Job Retention Scheme (CJRS)
We await detailed guidance next week to confirm the following information which was announced this evening:
 
If businesses cannot afford employees as a result of COVID19, from the 1st March 2020 to the 31st May 2020 the government will pay 80% of employee wages up to a maximum of £2,500 per employee.
 
These funds will be obtained via a grant from HMRC before the end of April.
 
This grant could be extended to wages payments beyond the 31st May 2020.
 
VAT Payment Deferral
We await detailed guidance next week to confirm the following information which was announced this evening:
 
The next quarter of VAT payments will be deferred.
 
No business will pay any VAT from now until the end of June.
 
The exact definitions here will be clarified next week when additional information becomes available.
 
Self Assessment Payment Deferral
We await detailed guidance next week to confirm the following information which was announced this evening:
 
The 31st July 2020 payment on account of income tax for the self employed will be deferred until the 31st January 2021.
 
At this point, the deferral of payment does not appear to relate to directors / owners of limited companies.
 
Self Employed
Those who are self employed, with reduced income as a result of COVID19, will benefit from increased levels of available Universal Credit.
 
If you are concerned by your business survival and personal finances please do not hesitate to contact either myself or Martin to discuss this further. We have already discussed business finance survival strategies with various clients and would like to offer this help to everyone who requires it. Please do not hesitate to contact either of us should you need to.
 
Rebecca and Martin