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! 

Christmas isn’t for paperwork

In case you haven’t noticed, Christmas is coming! With the majority of our clients being small businesses, it probably signifies a time with a bit of down time where no doubt instead of resting you’ll be trying to catch up on paperwork. If that’s you then don’t forget, we’re here to help! Even if it isn’t directly bookkeeping related work that’s eating your time, we can relieve the pressure there to let you concentrate on running of your business and importantly at this time of year especially, take a break!

It may be there’s nothing obvious we can do for you but even just having a chat through might help – feel free to give us a call to chat things through! I often come away from networking sessions with little nuggets from others which can help a new idea grow or help improve our internal systems, one of our aims for next year is to share more of these and our customers posts through our facebook page (do follow us if you’re not already!) so feel free to give us a nudge if there’s anything specific you’d like us to share.

Prices for bookkeeping

When I was first starting out as Practical Bookkeeping, one of the things I was very unsure about was pricing. Not the amount to charge people but if I should advertise these prices. Partly I was put off as I didn’t want to give a cost out for a package and then have a client expect that price, even if they didn’t quite fit in that category, as everyone’s different. However, sounding this out with my Husband he (unsurprisingly!) disagreed with me, encouraging me to give some guide prices on my website. His argument was that he never used a bookkeeper or accountant when he was self employed as he assumed it would be expensive and that it was better to spend his Christmases holed up in his office at home doing a year’s worth of expenses, but if he’d known the costs he’d have probably used one. He didn’t try too hard to find the costs out, he certainly didn’t talk to anyone but did have a google and didn’t see anything obvious.

Although this was a few years ago and more people do put their prices online now, so he could have found them, it did make me pause and think, as I had done a few quotes where people had been shocked at the price, both for being too much and too little, showing they didn’t really know what to expect. So from a plus side for me, if the people who couldn’t afford or justify the cost had more of an idea they probably wouldn’t have asked for a quote so would have saved me time from quoting a job that didn’t happen. More importantly it means my potential customers are asking for quotes with an idea of what it might cost, so even if they need an extra hour of bookkeeping added to a advertised package to get everything done the cost will still be around the advertised amount, hopefully meaning they’ll go ahead!

So while I won’t say any costs here so they don’t go out of date if I change anything (There’s some package costs here for companies and here for self employed people on the website), I am now happy to say what we charge, especially as we feel our rates are very competitive and it means people are less shocked when they get their quote! We also try to charge a fixed monthly fee wherever possible to help our customers know what they’re going to pay, great for budgeting and cash flow!

Of course, like I said earlier, every customer is different and they don’t all fit into the packages we advertise, they are just guides which we can customise to fit everyone’s requirements. We also review the package and charges after the first regular 3 months (so after any catch up or set up work), then annually from there, ensuring that the package and price reflects the work required as businesses are always changing! For example, the hire of an administrative assistant might mean you need less from us so we can reduce, or you might take on additional contractors and have extra bills to process and CIS returns, we’ll always ensure that our packages are right for your business.

We also understand that some times things will be changing short term, for example if you provide seasonal services so are busier some months than others, while your work load for us will go up and down we are happy to bill you the same each month, knowing it will all average out over the year (obviously unless you don’t want us to!).

So don’t be scared to ask for a quote, if you fit into a package on the website then great, if not then we’ll make one for you! Just get in touch!

0% or no vat – Which is it?!

I often hear shouted from another room a question along the lines of “Is it No VAT if I’m doing a PO for someone who’s not VAT registered”, usually signifying my Husband is working from home and has forgotten the difference between 0% & No VAT entries on QuickBooks. He’s probably not alone, as they produce the same result for him when using either when raising a PO or processing his expenses, but they do make a difference further down the line, as using the wrong one can make things appear on a VAT return when they shouldn’t or the opposite, so it is important to get it right! Plus it makes life easier for your bookkeeper if you get it right first time, which will keep them happy!

Essentially, 0% is for zero rated items like most food & postage, plus suppliers that could charge VAT on their services if they were VAT registered, but currently aren’t. No VAT is for tax payments & wages. Simple as that. And now I’ve written this blog my husband can look at this rather than shouting through the house for help!

Welcome Susan!

May saw us taking on our first member of staff, Susan.

I originally met Susan when she was my maternity cover 5 years ago, when I returned part time so Susan stayed on where we became friends and worked well together. After I left we stayed in touch, Susan left and moved into another job and it was while she was there that I mentioned potentially needing to take someone on to ensure PBS could continue to provide the same level of service as we expanded.

She (thankfully) was interested in the role and officially joined us. She’s spent the first few weeks finding her feet, seeing how I’ve set the systems up and getting to know our client base, but is already proving a great asset to PBS.

Initially I’ll continue to be the main point of contact for all existing clients, with Susan assisting me where needed, but new clients will have the pleasure of dealing with Susan from the outset. 

I’m more than happy with my decision to employ Susan, I know we can get along both inside and outside of work and that her work ethic fits the PBS way of doing things. It’s not to say I’ll only employ people I know, but as the first employee she’s a great fit! 

Did you need to go digital?

With the first monthly VAT submission due a few months ago in June and the first quarterly MTD VAT submission due a few days ago on 7th August, we’ve heard of some people who were still unaware they needed to comply. Will there be a raft of fines sent out by the HMRC to businesses who haven’t submitted digitally or will there be any leniency? 

The official notice on MTD for VAT introduced a ‘soft landing’ on penalties for the first 12 months, but this is only in respect of the digital links used for transferring or exchanging data between programs, so claiming to be unaware of needing to submit digitally will fall outside of this scope. Indeed HMRC have the power to charge a penalty for failure to keep the required VAT records with a maximum penalty of £500. 

The HMRC also have the power to charge a penalty of up to £400 for filing a VAT return other than electronically without their prior agreement (VAT regulations 1995 reg. 25A), a power that’s not been used much but which will be extended to include using compliant software to file.

Again, a ‘soft landing’ approach is expected but only when a trader has made reasonable efforts to comply – saying you didn’t know you needed to is again unlikely to fit the bill. 

So if you find you should have gone digital but didn’t, please feel free to get in touch and we’ll help you get on the digital track.

We’ve moved!

We should have shouted about this more and definitely sooner than we are now but we’ve moved!

Originally run from my home, we officially moved into our lovely office in Leigh-on-Sea during April. We’re at 1168 London Road if you want to call in and see us, although do check someone will be there as we’d hate for you to have a wasted journey and we’re still on the road a lot visiting clients, that’s not going to stop now we’ve got an office! 

As part of our lease we’ve also got access to a meeting room within the Old Gasworks on Progress Road so if it’s easier for you to come to us then it will no longer involve my dining table at home! 

Finally, you may have noticed I’ve used the term us above, it’s not me being posh, we’ve also taken on our first employee in May too, however I’ll do a lovely blog introducing Susan soon!