Why does the tax year start on 6th April?

It seems like a random choice, 4th month of the year and 6 days into it, so why is it the start of the tax year? The start of the tax year was, a long while ago, New Years day.

It was in 1752 that we moved to the Gregorian calendar which meant new year’s day changed from 25th March to 1st January. As part of this, 11 days were dropped to make the calendar fully align with Europe, meaning the day after 2nd Sept was 14th Sept!

This led to complaints that not only were people feeling like they were loosing 11 days of their lives but more that they were expected to pay a full year of tax despite having only 354 days in it. The Treasury decided to keep the tax year as 365 days and the start of the tax year then moved from 25th March to 5th April. 

Fast forward another 48 years and the Treasury decided that because under their old calendar system (the Julian calendar) it would have been a leap year but it wasn’t under the Gregorian that the tax year needed to move once again, just the one day this time to the 6th April we know and use now. 

So there you go, not useful information (unless it comes up in a pub quiz one day!) but interesting to know why it is what it is!

How to find a good accountant

A few years ago we did a blog asking the question “Do I need a bookkeeper?” – today’s blog is looking at this from a slightly different perspective, you’ve decided you need or want to use a bookkeeper/accountant but now need to choose one! There are a lot of accountancy practices around and with the ability to work remotely with the use of cloud technology being proven because of the COVID-19 pandemic, distance is less of a factor than it previously was. 
 
There’s a number of reasons why you’ve decided to get yourself an accountant, your last self assessment could have been harder than usual, maybe you are spending too much time on the bookkeeping or maybe you’d like to get something more out of the figures than just the figures for your self assessment – whatever the reason it’s important you find an accountant that is a good fit for you. 
 
First off, you need to make sure your accountant understands your business. Here at PBATS, we’ve got a number of specialities when it comes to business types, ranging from building contractors to application designers, engineering to make-up, so we’ve got a wide range of businesses that we’re in a great position to help. 
 
One thing we pride ourselves in is not being stuffy accountant types – we talk in English, avoiding accounting terms wherever we can (sometimes it’s unavoidable!). We want you to understand the information we give to you. 
 
One time you might have to talk in accounting terms is when you have a problem that needs to be addressed by HMRC – we’ll register as your agent with HMRC which will then allow us to talk to them on your behalf, saving you the time and avoiding a lot of backwards and forwards between us, them and you to get an issue resolved.
 
We like to think that we go above and beyond what other accountants do – it’s certainly the feedback we’ve had recently on our COVID newsletters! We won’t just crunch your numbers for you, we’ll help you save on your tax bill (in ethical and legal ways!) and ensure you’re up to date on the latest changes through our newsletters (which we only issue when there’s something to say, we won’t clog up your inbox!), we produce these after government announcements such as the budget and coronavirus support updates.
 
Finally, we know that people like to know what they’re spending and dislike a big bill – that’s why almost all of our services are available to pay for over 12 monthly instalments at a fixed fee. 
 
Hopefully that highlights why we should make your shortlist for your new accountant or bookkeeper, get in touch to have an informal chat about how we can help you. 

VAT Reverse Charge

You may have already heard about the new ‘VAT reverse charge for building and construction services’ rules coming into effect on 1st March 2021, you may already know all about it or you might have arrived here to find out more! 

The new rules are summarised below, which will hopefully help you understand your new responsibilities. 

The main point to remember is that the rules apply to works which fall under the scope of CIS with both the contractor and subcontractor being VAT registered – if you don’t fall within the scope of CIS then they do not apply to you!

New Rules
In summary the new rules mean that any payments made to subcontractors or payments received from contractors who fall within the scope of CIS will not have VAT on them, even if the parties involved are VAT registered. Instead, the invoice should clearly state that it is a reverse charge invoice. 

The VAT is then calculated at the point of payment and included within the next VAT return.

Works which fall outside of the scope of CIS should be processed and paid with VAT calculated as normal.

Working for a Main Contractor
If you are a subcontractor, you likely invoice a main contractor for works which fall under the scope of CIS. In this case, from 1st March your invoice to the main contractor should not show any VAT. instead the invoice should clearly state that it is a reverse charge invoice. The Main Contractor will then account for the VAT on their VAT return.

Paying Sub Contractors
This rule needs to be noted when you are paying Sub Contractors for works which fall under the scope of CIS. A VAT registered subcontractor will need to invoice you for services without VAT and clearly state that this is a reverse charge invoice. It is then your responsibility to account for the VAT element of this invoice on your next VAT return.

Exceptions 
There are a couple of exceptions to the above new rules which include:

End Users – if you are invoicing an end user, including those who receive building or contraction services within the scope of CIS but do not supply those services on and use the building themselves, the new rules do not apply. This would also be the case if you use subcontractors for a project on your own business property (as you are then classed as the end user).

Zero rated contracts – if you are working on a zero rated contract the new rules do not apply as there is no VAT to calculate.

More info can be found in this article: https://www.rossmartin.co.uk/vat/vat/4137-construction-industry-vat-reverse-charge-at-a-glance

As always with changes like this, we’re here to help you so please don’t hesitate to get in touch!

Pension Re-enrolment

We’ve had a lot of queries over the last few months regarding pension re-enrolment – usually a simple enough process but we’ve found people are slightly confused as to when to do it!
 
There’s an example letter here but we’ve got a screenshot here for you showing the two dates: 
 
Pension letter.png
 
The first date is shown in the letter as <<Third anniversary>> – this is the date in which you need to make sure you’ve done everything needed by, such as re-enrolling any staff that have opted out. You need to do this even if they tell you they want to opt out again, your duty is to make sure they are automatically enrolled every three years, unfortunately for them if they don’t want to be in the pension they will have to opt out every three years. If you go to the link shown it asks a few questions and will then let you know if there’s anything to do before the date, so try and do this as soon as you can.
 
The second date is the <<re-declaration deadline>> date, this is when you need to confirm with the pensions regulator that you’ve done everything required. 
 
The really good news is that we can manage of all of this for you; as part of our payroll service we ensure that any employees that need to be automatically enrolled are enrolled, all of your contributions are processed and importantly keeping on top of things like this re-declaration. 

The PBATS Year

When anyone looks back at 2020, it’s going to be impossible to not mention Covid-19. We’ve had, like many businesses, had to adapt to having some staff working from home & different working conditions when we are in the office. We’ve had to add services, such as processing furlough claims, offered lots of advice on the ever changing government announcements and worked hard to ensure our clients have received as much support as possible.

Away from all of that, we’ve still managed to grow – we started 2020 with a team of 3 and end it with a team of 8. We’ve expanded in all areas of the business, in our accounts & bookkeeping teams and now with dedicated support staff to assist wherever required. 

One area we’ve seen growth is our virtual accounts department, especially in relation managing payments for our clients, taking away the need to monitor those bills that must be paid on time and helping to manage the cashflow of the business. 

We’re hoping to continue this trend in 2021, not just in terms of the easy to measure numbers, such as clients and profit, but in growing PBATS, ensuring all staff expand their knowledge to improve the support and advice we give. 

Happy New (calendar) Year!

What are management accounts?

We prefer to call them a business review, which is a better description of what they are – they’re not compulsory but this is a benefit as it allows them to be completely customised to your business to give you the insights you want about your business.
 
They form a financial report to be used by the owners and management to aid them in their day to day decisions along with planning for the future. They’re usually produced monthly or quarterly. It’s important to make sure they only contain the information you want to see, we’d be happy to advise what kind of information people usually like to see and this can be tweaked from report to report to ensure they are giving you the insights you want, otherwise you probably won’t actually read them! 
 
Most to start with will contain a summary of your accounts, profit & loss and your balance sheet. As your business develops you’ll want to add more detail in, such as debtors and creditors, budgets and cashflow analysis, plus comparisons to previous periods to see how your growth is going. 
 
So why not do this yourself? All this information is available within your bookkeeping software so you could but it comes down to time – it’s not just a simple click and it’s there for you to read, the information you actually want will often be spread over a number of reports and need to be collated together so you’ll need to decide if it is time well spent for you to create these yourself. 
 
If you’ve never had management accounts before we’d be happy to discuss them with you to see if we feel they’d help you within your business, just get in touch to arrange an informal chat. 

A year since we moved!

I was chatting with my son about how we’d moved the office around and he said to me that it’s a shame we don’t have any before and after photos from when we first got the office, it was at that point I realised we’ve been in our current premises a year already!
 
The move was prompted by our merger to create PBATS but the increased space and more accessible location has helped us no end, especially having our own meeting & training room it’s allowed us to increase our training offering and made it much easier to deal with ‘walk in’ enquiries (not that we’ve had many over the last few months for the obvious reason!)
 
We’ve also just launched our fancy new website, including a nice new meet the team page, take a look and let us know what you think! 

COVID 19 – October Update

So last week we did a little message on our various social media accounts (Facebook, twitter & Instagram for those not following us) just giving a heads up that this weeks blog would be a copy of our analysis on the latest government support for businesses during the COVID-19 pandemic. However, I am going to back track a little! Let me explain….

So in the past week we’ve had a lot of feedback from our clients who we’ve emailed our advice out to, thankfully all positive! Everyone has found our analysis very useful as it’s allowed them to carry on running their business and have it all summarised by someone who knows what is relevant to them, a lot easier to read than sifting through the various statements that we did (Ok, another honesty moment, it was mainly Martin!). We covered the Self Employment Income Support Scheme (SEISS), Bounce Back Loans, VAT & Personal Tax payments.

But, we’ve decided to not just pop it on our blog, as we’d like to know who else finds it useful, so would like to know who else is reading it, so if you’d like a copy just send us an e-mail and we’ll send you a copy across.

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!