Browsing Category

Stories from an Accountant

0 In Stories from an Accountant

The Language of Accountants

The Language of Accountants - Account-ant

To most people who are not Accountants, the terminology we use can be down right confusing.

It’s like we’re speaking a different language…

The truth is, we’re all from “Planet Abacus” and want to learn this Earth thing you call “plain speaking”…

But we haven’t quite got a handle on it yet…

But we’re trying!

Rachel Account-ant

*jokes*

On a more serious note, I’m sure there are the odd few Accountants out there that give us all a bad name, by purposefully confusing people with jargon to inflate their own ego. 

The good news is they few and far between.

Most Accountants want to see you thrive and achieve your dreams. Because that in turn will help us thrive and achieve OUR goals!

Super happy clients are THE best advert you could ever wish for.

Here’s an opportunity to go and grab yourself a coffee and a biscuit and settle in to learn a little bit of our language!

Below are the financial terms you’ll come across during the running of your business.  You may not be aware of them all yet, but as your business progresses, you’ll gain a better understanding of them all…(And it’s not really that hard!)

Accounts Payable – Purchases you’ve made on credit.  i.e. you bought some stock and need to pay in 30 days.


Accounts Receivable 
– Sales you’ve made on Credit.  i.e. a customer has purchased something from you and is due to pay you in x number of days.


Assets
– Big things you own, e.g. buildings, stock, vehicles.


Balance Date – The last day of your financial year.

Beneficiary Current Account – A detailed account showing the amount that has been distributed to a beneficiary from a Trust and the amount that has been withdrawn by the beneficiary, like a bank account. The balance shows the amount available to the beneficiary to withdraw at the end of a period. When the balance is in brackets, it is overdrawn and the beneficiary has withdrawn too much.


Cost of Goods Sold
– These are the direct costs involved in getting goods / services ready to be sold, e.g. if I was a joiner, it would be the timber it took to make my product.


Creditors
– People or Companies you owe money to.  i.e. Suppliers

Current Assets – Cash and other assets that could be liquidated (sold) to cash within 1 year 

Current Liabilities – Obligations payable within the next year, e.g. creditors, PAYE, short term loans. 

Depreciation – Spreading the value of an asset over its expected useful life.

Directors’ Annual Report – A company report which presents financial information such as business activity, donations, employee remunerations, audit expenditure, etc.

Dividends – Distributions of cash or other assets from a company to its shareholders.

EBIT – Earnings Before Interest and Tax – a measure of your firm’s profit excluding interest and income tax expenses.


Gross Profit – The difference between income and cost of goods / services sold.

Liabilities – Things you owe, e.g. bank loans, creditors.

Net Loss – You’re expenses are more than your income! Net Profit

Non-Current Assets – Assets that are not expected to be consumed or sold within one year, e.g. investments, goodwill.


Non-Current Liabilities – Liabilities that are not expected to be paid within one year, e.g. bank loans, hire purchases.


Notes to the Financial Statements
– Notes that clarify information presented in the financial statements, as well as expand on information where additional detail is needed.

Retained Earnings – You’ve made a profit, you’ve paid your tax and dividends and well done – you have profit leftover!  This is a running total.


Share Capital – The total amount paid in by shareholders for shares in the company.  When you set up a Limited Company, Companies House Defaults to £100 (£1 per share).  Most people therefore pay £100 on set up.


Shareholder’s Equity – This is the amount that would be returned to shareholders if all assets were liquidated and all its debts repaid.


Work in Progress (WIP) – You’re in the middle of making your product at the end of a month/year.  That is WIP. 


Shareholder Current Account – This is also known as Director’s Loan Account or Current Account.  When you set up a business you inenvitably end up having to inject some cash in.  This is a record of that as well as any non-business related expenses you’ve had paid by the company.  You can withdraw this within the year.  If the number is in brackets, it means it is overdrawn and you will need to pay money into the company within 9 months of year end or face taxation fees.  

Statement of Financial Performance / Profit and Loss Statement – A statement that reports on the income and expenses of an entity for a period, and the resulting net profit / loss.


Statement of Financial Position / Balance Sheet – A statement that reports on the assets, liabilities and owners’ equity of an entity at a specific date.


If it’s still a bit alien, give me a call and we can go through your questions in more detail!

0 In Stories from an Accountant

I was my own Book-keeper and Other Stories

I was my own book-keeper and other horror stories - Account-ant

Anyone who knows James and I will know that there was a time when we’d relax on a Sunday morning and watch a horror movie or two…

This was obviously pre-children!  This blog post is somewhat inspired by those days 😊

Let me tell you a little story about… John the Joiner.

John the Joiner has been a sole trader for nearly a decade.  His business is steady away but the bookkeeping is the bane of his existence.  He must force himself to sit down and do what’s necessary in his Business.

Rachel Account-ant

Why is that?

Managing your own Bookkeeping and Accounts can seem like an obvious money-saving task for a small business.

However, it’s not always the best idea!! 

You might think I am biased but here’s a few little reasons why… 

Let’s use John as an example:

John approached Rachel at Account-ant totally frazzled and wanting a break from it all.  He wanted to go to work, make his money, and then just forget about it when he gets home. Weekends became paperwork days – not days with his family, which he craved!

He’d heard a few radio ads from Quickbook which extolled its virtues and apparent godlike ability to make having an Accountant on your side, completely unnecessary.

However, John got himself in a bit of a muddle!!

He didn’t have the time to go through the training.  

He wasn’t an Accountant or a Bookkeeper.

John found out that trawling through all those numbers, transactions, tabs, tools and tech ended up costing him more at his standard hourly rate, than if he had engaged with a good accountant in the first place!

Wasted time. Wasted money. Wasted energy!

Energy better invested in growing your Business and celebrating your Clients!

Here are the top 4 mistakes we, as Accountants see when a sole trader comes to us.

  1. They’ve either already completed their self-assessment or come to us very close to the deadline and asked for help.
  1. Not distinguishing between capital and revenue expenditure.
  1. Not utilising your tax-free allowance and the small amount of flexibility with your annual investment allowance.
  1. Getting caught out on the payment on account when completing your Tax return in January..

Capital vs Revenue Expenditure

Revenue expenditure is the day to day costs of running a business such as travel, rent and rates and professional fees (like accountancy costs 😉).

Capital expenses are big purchases that will be used recurrently over the years like laptop, machinery, or a vehicle.

These are treated differently in the accounts. If you get confused, you could end up paying too much tax! And no one likes that!!!

Your tax-free allowance is USE IT, OR LOSE IT. So only claim enough Annual Investment Allowance to bring your profit down to the equivalent of the tax-free allowance, and carry the balance forward into a pool to claim the Writing Down Allowance the following and subsequent years.

Doing this will save you overpaying tax in the following and subsequent years.

If “Annual Investment Allowance” and “Writing Down Allowance” has sent you into a bit of a spin, don’t worry – that’s what Accountant’s are for!

Perhaps that’s even another blog post idea 😊

January Self Assessment completion .

It’s January, you’ve put your self assessment through the Government Gateway and HMRC have automagically worked out that the tax due on your profits is £4,000.  

But HMRC are asking for £5,500 now and another £1,500 at the end of July…

duh duh duh…

You have been smacked in the chops by HMRC’s Payment on Account requirement!!

If you’ve read my blogs before then you will know that if your tax bill is over £1,000 then HMRC will ask for 50% of the estimated bill for the current year at the end of January, and the other 50% at the end of July; just after the current tax year finishes.

You’re now in shock because you thought that submitting your tax return in January would be done and dusted, leaving you to pay your next tax bill in January the following year.

Nope…

And now you have to scrape the funds together to pay your tax bill earlier than expected!!

Set a reminder for 6th April each year and get that tax return in – pronto!  Plus if you are due a refund, they will process it within days.  So why wait?!


The Payment on Account shocker is mainly an issue when you first get caught out by the Payment on Account, and it does balance out eventually.  But it’s still a shock to the system when it happens!

Hopefully this little blog post has not scared you too much.  It’s not even Halloween!  If it has raised any concerns at all, please do get in contact.  Do not suffer in silence! 

p.s. If you wondering how John is now.  He’s fine.  His accounts are tidy and we are ship shape and Bristol fashion.

0 In Stories from an Accountant

Storms Ahead?

Storms Ahead? - Account-ant

“Hurricane a comin’, Stand Fast, Secure the Rigging!”…..

This is a line from Disney’s The Little Mermaid and I thought it summed up at least one side of Forecasting for your business.

When I was growing up I had one Disney movie on tape – It was “The Little Mermaid”. I’m 95% sure I know all the words from that film…. including songs.

So naturally it was going to make it’s way into my blogs at some point! Our toddler even tolerated 30 minutes of it a few weeks ago, and it was pure joy for me….

Yes! I have successfully converted the child to love Ariel, Flounder and Sebastian… my work here is done! 😊

On a more serious note though, as a Small Business Owner, cashflow is the key to success.

Forecasting is a way of looking ahead to see where you will be in the future.

Rachel Account-ant

The London School of Economics have said that the two biggest obstacles facing small businesses are:

  1. Poor financial processes.
  2. Lack of access to funding.

Whilst Albion Centures, a venture capital investment firm, says that only 1 in 5 SMEs believe cashflow is a major concern.


So there’s a difference between what business owners think are issues, versus what the actual concerns may be….

I’m a small business owner, what can I do??

Good Cashflow Management needs a few things (I go into this in more detail on the “Hold Back The River Blog Post), but if you missed it, in Summary;

  1. Processes – Do you have good Accounts Payable, Accounts Receivable, Stock Control & Bookkeeping in Place?
  2. Overheads – Review them regularly – quarterly is good. Cancel down any old subscriptions not in use. Do you have an Expense Budget that you can stick to?
  3. Profit – Is your Margin correct? Are your sales high enough to cover overheads?

But the main thing is ALWAYS LOOK FORWARD… or as Dory says “Just keep swimming” (Disney example again?!)

Why should I bother though?

Forecasting is Important. Period.

It will help you plan future decisions carefully (such as taking on a new team member, launching a new product, opening another office etc), but will also highlight any areas where you may struggle in the future and enable you to prepare for the potential issues.

If you forecast correctly, you will have a better idea of when to invest in new equipment, stock or services, rather than ploughing ahead as if blindfolded like Sandra Bullock in Birdbox… (okay, I’ll stop with the film analogies!).

With this information to hand, you can make decisions. For instance, shortening payment terms to get paid quicker, reviewing credit control, inventory and purchasing processes and potentially looking at your debt structure (is refinancing an option?)

If Forecasting sounds like a plan… and it should!!! give me a call and I’ll talk you through the options.

Lets ride this Hurricane into calmer waters and have a Lookout in that Bird’s Nest, keeping an eye out for Storms and Pirates…

0 In Stories from an Accountant

Profit!! Now What?!

Profit & What Now? - Account-ant

There’s something I pride myself on above all else…

And that is bringing clarity to small business owners!

“Scary Accountant Speak”, well I don’t think there’s anyone out there that actually “likes” talking to Accountants about Accounts…

The weather? Tick!

Dogs? Tick!

Cats? Tick!

Kids? Tick!

But Accounts… there’s a topic that has even Iron Maiden running to the hills!

So today we’re going to talk plainly about Profit….and Loss… and a story about dogs!

The Profit & Loss (or P&L for short) is a summary of all incomes and expenses for an accounting period.

Income minus expenses is calculated to give a Profit or Loss number.

We use the P&L to calculate the tax you owe to HMRC, but it can also help work out what your business is actually doing…

Which is a kinda cool and unexpected little bonus for you!

Rachel Account-ant

So…

How much does it cost to make a sale?

How much income is my advertising spend generating?

“How much revenue is my advertising campaign generating per £1 of expense?!”

It’s important to understand your P&L as it will help you understand where you can reduce expenditure to increase your gross or net profit.

OR

Where you can INCREASE expenditure (such as advertising) in order to INCREASE revenue.

And here’s my token Dog story…

I was playing in the local park with our son Xander and he loves doggies! So much so that he is a regular drill sergeant with the doggies of the park for the catching of sticks… which he throws, of course!

On one particular occasion the weather was turning and the sky was growing quite angry looking. I felt we needed to get our skates on to get back home before the deluge!

But Xander had other plans… he had taken up his regular sojourn of stick throwing with 2 particular doggies who were having a whale of a time catching his airborne sticks!

The more he threw, the more excited they got.

And why do you think that was?

Easy! It’s because when someone (or a dog) gets a positive response from something, they want more of it… more and more and more.

And that’s exactly what YOU want in your Business – more results from the activities that actually DO generate you profit in order to increase your wealth, health and happiness!

It’s a simple science really!!

This is the precise way we work that out!

Example of a very Basic P&L below

  £
Sales 1000
   
Cost of Sales  
 Purchases500
 Carriage Inwards100
   
Gross Profit 400
   
Overheads  
 Staff Costs50
 Energy Costs50
 Premises50
   
Net Profit 250

Sales: Your income for an accounting period.

Purchases: These are goods bought for resale or the raw materials it took to make the item you sold.

Carriage Inwards: Delivery costs on items that are bought for resale (direct cost / cost of goods sold)

Gross Profit: This is the sales minus the direct costs.

Overheads: Overheads are indirect costs (not directly associated with the cost of sales).

Net Profit: This is the gross profit minus the overheads.

Your tax liability is calculated using this information fo’ sure…

BUT we also have allowable expenses to consider…

and that…

Well that’s a post for another time!

Still a little confused?

Honestly, whilst I’ve done my level best here to break it down, it’s still a frog in a bag and no one would blame you.

Throw me a bell and let’s chat about what this means for YOUR Business!

0 In Stories from an Accountant

DIY SoS!

DIY SOS! - Account-ant

Meet Annabelle. She’s a mobile beautician and reflexologist!

Annabelle had set up her Business a year before the dreaded pandemic hit and didn’t have enough accounting history to claim the support from self employed grants offered by the Government.

Annabelle didn’t earn much at all in the year 2020/21 – barely scraping the £1,000 threshold required to complete a self assessment form.

As if this wasn’t hard enough, shockingly for Annabelle, her Accountant’s fees were almost half her earnings!!!

Rachel Account-ant

“Don’t get too stressed, Annabelle” said Rachel.

If you need to complete your self assessment by yourself there’s a few key bits you need to know.

• First you will need a government gateway login.
• Apply for this and wait for the code & password to arrive.
• A list of your incomings and outgoings.
• A P60 if you are also employed.

The Government Gateway login can take a while to receive, so don’t leave it until the last minute.

The Deadline is 5th October for registration… but why not just get onto it today…

Go on, it’s one less thing to think about!

Deadlines

Assuming you’re set up for online, you have until 31st January to submit your return and pay your tax.

But beware!

The website is extremely busy on the run up to the 31st January, and it has been known to crash.

Why stress yourself out with that potential headache when you could start compiling your income and expenses now?

The added bonus to at least making a start on your tax return now is that you will know exactly how much you tax bill is now and not on the day that you need to pay it.

Record Keeping

As a Sole Trader you need to keep your records for 5 years!

So try not to keep your receipts screwed up in a bag – they’ll take up too much space, you’ll inevitably lose some… possibly even losing a few bags full!

It is also a pain in the bum when compiling your costs if all your receipts are in a muddle.

OK OK, it’s not a pain in the bum…

It’s a NIGHTMARE!!!

Quick Tip: If you are not using software such as Xero or Quickbooks, here’s some things that will make your life easier. If you could do just;

ONE THING get an envelope for each month and start putting your receipts in each envelope.

TWO THINGS before you put your receipt in your envelope write a category on the top.

THREE THINGS get those envelopes out once a quarter and enter them on my handy Self Assessment Entry Template.

Do all three and you’re literally making your life a thousand times easier!!

Categories

There’s a few categories to look at: –

• Office, property and equipment
• Car, van and travel expenses
• Clothing expenses
Uniform
Costume (Entertainer)
or PPE
• Staff expenses
• Reselling goods
• Legal and financial costs
• Marketing, entertainment and subscriptions
Advertising
Website costs
Giving away samples
Trade journals
Professional Memberships
• Training courses – i.e. refresher NOT learning to play the ukulele

Bung it in a spreadsheet

I’m talking to the people that don’t use receipt logging apps!!

And by the way, they are cool and would save you time!

The easiest way to compile the costs is in a spreadsheet – luckily for you I have created a template that will easily tell you what numbers to put in the boxes on your self assessment.

Compile this information for the tax year 6th April – 5th April each year. Keep this record saved AND backed up.

Time to enter the Gateway

HMRC, good or bad experience, their self assessment system is actually pretty good now.
You’ll need your Government Gateway login which is usually 16 digits long and your password.

You have two types of self assessment, one is where you have another income (but not a business), such as a rental property, the other one is self employment.

The website is fairly intuitive and will ask you the question “did you earn more than £1,000 from self employment”. When you tick yes, it asks you to fill in your company details and take it from there.

Use my handy spreadsheet to pop the numbers in the boxes and hurrah, boom! whammy bash!

Congrats!!! You have a completed tax return!

Money

Payment for your taxes is due on 31st January each year at the very latest.
HMRC give you several different options for paying.

  1. If you are employed and this is your side hustle, you can request your tax code to be updated.

This is my least favourite option as you are handing control of tax deductions over to HMRC and you may end up with a significant effect to your tax code for which you are unprepared.

  1. Payment on Account.
    Again I am not a massive fan of this method. If your tax is estimated to be over £1,000 then you have no option BUT this option. You’ll be paying estimated tax for your current tax year.
  2. Payment by DD around 31st January
    This is the option I use with my own self assessment when the tax is estimated to be under £1,000.

Preparation for next year

Now that I have convinced you to record your income and payments regularly, you should be able to see how much profit (or loss) you are making at any point in time.

Plus, you’ll also be able to also see how much tax you expect to be charged at any given point.

“I’m still a bit worried Rachel, please help!” says Annabelle

Call me or drop me a line for a no obligation chat and we will see how I can help you. Even if it’s just registering you for the Gateway to take a bit of pressure off.

0 In Stories from an Accountant

Supermarket Sweep

Account-Ant Blog - Super Market Sweep

Say “hi” to Dennis!

Dennis has been running a fairly successful Amazon Reseller Store for a couple of years and is looking into how to improve his cash flow…

Particularly how to reduce his tax bill!!

Dennis overheard a rumour going around that went a little like this…

“Buying stock will reduce your tax bill”.

Being driven and determined to improve his Business, Dennis channelled Dale Winton in Supermarket Sweep and went Wild In The Aisle (well, to a point!)

This rumour that Dennis heard was, unfortunately, 100% FALSE!

Rachel Account-ant

Rachel explained it to Dennis like this…

“The only thing accomplished by buying stock too early is the draining of your bank account.

Unless you can shift the stock immediately, profitably, this leaves you with stock sat on the shelves with the potential to expire or get damaged.”

Not ideal!

Plus, your tax bill is actually calculated from your Profit & Loss.

Stock is an Asset of your business and sits on your Balance Sheet (which is basically your running total from day 1).

When you sell an item or use materials to make an item, you reduce your stock holding.

When you sell stock, it becomes a cost of Sales and is then included in your Profit & Loss…

Matching your costs and income against each other.

Only when we get to this point is it included in your tax computation!

Many companies will put the cost of stock as they buy it into “cost of sales” in their accounts.

But then at year end, their accountant must make adjustments to reflect the stock held when they do management reporting for you and subsequently produce your year end accounts.

At year end, your Accountant may request a year end stock count and backup paperwork.

The moral of the story is…

Buy your stock as close to the point you will make or sell as possible.

This is known as Just in Time principles.

And this is the most efficient way to run your Business by far!

I can probably help with developing systems that attain that level of efficiency with you.

Rather that worry about your upcoming tax bill, re-channel your attention into the successful management of your stock and cash levels.

Better yet, let’s do that together!

0 In Stories from an Accountant

Beware The Contractor Tax Pitfall!

Account-ant Blog - Beware The Contractor Tax Pitfall!

WATCH OUT FOR THIS PITFALL!

Meet Joshua, he’s a joiner and works alone but he’s been offered a role in a manufacturing business.  Currently, Joshua is self employed with his own Limited Company, so would much rather keep his own books, and wants to invoice the company instead.  He’s done this before for many years.

“Hold on Josh, you might be about to fall into a Contractor Tax Pitfall!” – said Rachel

IR35 has been around for a long time but the rules have tightened up.

The basics of this change are that your contract is either IN or OUT of IR35 and the rules around who decides that and what they do have changed as of 6th April 2021.

What’s the benefit of being a Contractor?

The benefits of being a contractor are retaining control of your contracts  – you decide which ones to take and what your terms are.

You can also enjoy tax efficiencies in the long run. The benefit to the employer is no sick, holiday leave or NI Contributions to pay.

Why the change?  It was working fine before!

HMRC were concerned about “disguised employees”.  It is to ensure that a contractor and an employee pays broadly the same tax.

There’s been many high profile legal cases with regards the determination of “in” and “out” of this rule so HMRC are changing who decides the Status.

What factors determine “in” Status

Factors used to determine your IR35 status include:

  • Control
  • financial risk
  • substitution (i.e. if you were sick, you’d be able to send someone in your place to fulfil your contact)
  • provision of equipment (your own van, tools etc)
  • right of dismissal and employee benefits. (do you get any bonuses or perks that are the same as employees?)

If  you have the same responsibilities, control and benefits as a permanent employee then you will more than likely be classed as inside IR35, and as such you should make sure you are paying the correct amount of tax.

Many of these factors will be detailed in your contract, which is why it is advisable to have an IR35 contract review and take advice from an IR35 expert before starting a new contract.

What are the 2021 changes?

Public Sector (i.e. government, NHS, Schools etc)

the hirer is responsible for working out whether the contractor falls inside or outside of IR35. If they fall inside, the hirer, agency or other third party who pays the contractor then needs to deduct tax and NICs and report them to HMRC

Private Sector (everyone else!)

When the client is a small business

  • Less than 50 employees
  • Turnover less than £10.2m
  • Balance Sheet of no more than £5.1m

A small business ticks at least two of the above boxes.  In this case, the contractor is responsible for working out whether they fall inside or outside of IR35. If they’re inside, they need to pay the tax and NICs due

When the client is a medium or large client

Your client will need to determine whether you are in or out.  If you are in, they will need to provide you with a Status Determination Statement and deduct tax and NI payable to HMRC out of your fees.

The client must prove that they have taken care when deciding the status otherwise this could land both client and contractor in problems with HMRC.

Should I be worried?

As the private sector holds the responsibility for contract status decisions, they may be more inclined to tick “in” as a precaution.

However, this is bad news for a contractor when their contract should be “out” because you’ll end up paying about 14% more tax!

So, when you get private sector jobs, make sure you check, or get someone to double check the status of your contracts to ensure you do not end up paying too much tax.

CEST tool 

If in doubt, HMRC has a tool to determine on a contract by contract basis whether you are in IR35 or out.

https://www.gov.uk/guidance/check-employment-status-for-tax

Can I be both?

Yes, you can have some contracts that sit in IR35 and some that sit outside IR35 but it’s a good idea to ensure you keep a compliance document for each contract should HMRC query anything.

We hope this post has helped.  If you need specialist tax advice, let us know and we’ll try our best to help you.

0 In Stories from an Accountant

Hold Back The River

Account-ant - Hold Back The River

As the great James Bay once said “Tried to keep you close to me, But life got in between” he wasn’t actually talking about money but we’ve all had that feeling – where does it all go?!

Am I being robbed?!

Do I purchase things from Ebay in my sleep? I SWEAR I didn’t buy that strange thing that’s just arrived 😉

Getting a bit serious now though, if this is you, there could be reasons why your cashflow is poor and it’ll be easy to fix, this, I assure you!

Poor Cashflow can be a make or break situation, so use these tips to get in shape.

Sales are too Low

If your income from Sales is not sufficient to cover your costs then you might be in hot water. If you need a bit of help understanding whether this is the case, Account-ant is more than willing to help. If you think there is a problem, then it pays to not wait until year end. Let’s nip it in the bud now!

Profit Margin (that’s the difference between what it costs to make vs what you sell at)

There’s loads of ways that this could be improved. Review your materials? Are there better ways to buy them? Are you paying unnecessary overtime in order to make your product?

There’s so many ways to improve this so perhaps that would be the perfect subject for another blog post!

Accounts Receivable (That’s Customers Paying you)

Are they paying you on time? If not, you should send a gentle reminder, followed by a stern reminder if the issue persists.

Accounts Payable (That’s you paying your Suppliers)

Are the payment terms shorter than the terms you give your customers? Could you renegotiate terms with suppliers? Are you entitled to any discounts?

Inventory

Full shelves but empty bank account means you are buying your stock too early! Can you place your orders a little more timely?

What about stock in process? Are your processes a quick as possible to convert that stock into saleable goods?

Overheads

This is where budgeting is key. Review every item that is going out of your bank, is it necessary? Can it be downgraded or put on hold? Are you spending lots on fuel? Could a fuel card reduce your overall cost?

These options can all be explored by going through your costs with your Accountant.

Financing your Business

Are you relying on credit cards or overdrafts. Could you refinance with your bank? Are there Grants available (Account-ant particularly loves helping with grants!)

Still a bit worried

Don’t panic, let’s sit down with some coffee and cake and work through it together. It’ll save you time and stress in the long run.

0 In Stories from an Accountant

Becky was Stung!

Account-ant Becky was Stung!

Say hello to Becky, Becky is a self employed seamstress by night and Admin Assistant by day.  She completed her first self assessment last year.

At some point during the year, she received a PAYE coding notice and just chucked it in the bin.

She’s just started to notice her pay from her day job is different….why would that be?

“Did you tick “update my PAYE code”? on your assessment” asks Rachel (Account-ant)

YES says Becky

Well, what that means is that your “self employed tax” is being deducted from your Admin Assistant wage via an adjusted code.

Most (more than 80%) of her income comes from her “day job” so she IS allowed to pay per self assessment tax separately, rather than through her tax code.

When Becky got to the bit in her self assessment which said “if you have not paid enough tax” the following two questions would have been asked: –

“If you are submitting by 30 December, owe tax for 6 April 2019 to 5 April 2020 and have a PAYE tax code, do you want us to try to collect the tax and Class 4 NICs due (if below £3,000) through your tax code for 6 April 2021 to 5 April 2022?

You either answer “yes” or “no” to this but what it is asking is, shall HMRC adjust your tax code and take what you owe out of your wage.

The second question it asks is;

If you are likely to owe tax for the current tax year (ended 5 April 2021) on income other than employed earnings/pensions e.g. savings or the High Income Child Benefit Charge, do you want us to use your 6 April 2020 to 5 April 2021 PAYE tax code to collect that tax during the year?

Again, you can answer “yes” or “no”

What does it mean, huh?!

NEXT YEAR’S tax estimate will be taken out of your “employed” salary THIS YEAR and THIS YEAR’S tax will come out the following year.  Confusing right?!

There’s potentially two issues with this –

  • If you submitted your self assessment in December 2021 and asked for your PAYE code to be updated, HMRC may try to catch up the tax year therefore you would pay 12 month’s estimated tax in 4 months. Or, you’ll get to the point where you’ve submitted your next self assessment and still have tax to pay.
  • You do not know at this point in time what your “self employed” income may be next year so you may end up over paying your tax. You won’t be eligible for a tax refund until after 6th April if this is the case.

If you suspect your Tax code is incorrect, you can get a breakdown from the HMRC website.  If it doesn’t make sense or you want another pair of eyes on it, contact your Tax Advisor or Accountant.

What can I do?

You can contact HMRC and ask for your PAYE code to be adjusted back to what it was and you pay your “self employed” tax in January (if your tax is LESS than £1,000) or in two instalments.

At the moment, HMRC are really struggling with workload and calls so this might be tricky.

What would an Account-ant do in Becky’s shoes?

I was a side hustler too, once upon a time!  I personally didn’t like my tax code being faffed with so I set aside an estimated tax bill each month to pay in January, I worked out income, less expenses roughly and then times by 20%.  If you put it in a savings account, you may even earn a little bit of interest on that money.  Either way it’s likely you’ll have at least enough for a posh coffee (which to me is any shop bought coffee 😀) left over!

How can I prevent this palaver in the future?

Please, please, please check your coding notices when they arrive.

If you’ve opted to pay your tax in January, you might not realise you have an issue on your tax code until the end of the year (good or bad!)

If you have an accountant / tax advisor you should send them a copy of the full breakdown or ask them to look at it via their agent’s gateway – we can see them on the gateway but we don’t get notified of new codes being issued so if in doubt please draw our attention to it!

Main information to check:

Name and address
Employer / pension provider’s details
Correct split in codes for expected income from each employer / pension provider
Correct personal allowance (Standard is £12,570 2021/22)
Tax relief for employment expenses / marriage allowance etc.
Deductions for state benefits / tax debts etc. (i.e. if you have an attachment of earnings due to none payment of council tax)

Once you’ve checked the numbers (i.e. 1257L),  also check the letter applied to your code (i.e. 1257L).  There’s a full list on HMRC https://www.gov.uk/tax-codes which tells you what each letter means (i.e. L is Standard Personal Allowance)

If in doubt, ask your advisor or give me a call and we’ll talk it through.

Other considerations

When you do get to the end of your self assessment and it tells you what your tax liability is, it will also have a “payment on account” which again is an estimate of your next year’s tax liability.

In the below example I would need to be able to pay £1948.20 in January 2022 and then £649.40 in July 2022 which would pay my tax for next year too.  Essentially that means you are paying next year’s tax early.  It could be earning you interest rather than being sat in an HMRC account.

Total amount for 2020-21 £1,298.80
Plus
First payment on account for 2021-22 £649.40
Total to be added to Self Assessment account due by 31 January 2022 £1,948.20
Second payment on account for 2021-22 will be due by 31 July 2022   £649.40

If you earn more than 80% of your income from “employment” you CAN request the payment on account be taken off.  BUT only if your tax is less than £1,000 so, I would need to pay in two instalments.

PLEASE only do this if you are going to set up a Direct Debit for the payment on 31st January so you won’t forget to pay your tax and risk a fine!

FREEBIE Announcement 😀

For all you lovely self employed people out there who are trying to complete their self assessment alone this year, I have put together a little spreadsheet that should help you keep an eye on where your tax bill is likely to cost at any point in the year.  Then you can plan for the outlay rather than worry about it in January!

Drop me a line rachel@account-ant.co.uk and I will send it over to you.

****Correct at the time of publication, ALWAYS check current rules and regs with your Accountant!****

0 In Stories from an Accountant

How Ben Improved His Year!

Say Hello to Ben, he owns a small decorating firm in Yorkshire which is set up as a Limited Company. Ben has just received his end of year accounts from his Accountant. 

Ben was CONFUSED!

He’d made so much less money than he expected, and was panicking, wondering what to do about it.

Ben sat down with Rachel from Account-ant for a coffee and a chat.

“Ben, have you heard of Management Accounts?” asked Rachel. 

Once a month (or quarter) Account-ant looks at your books and breaks down your results.

 So rather than waiting 12 months and discovering everything is not how you imagined, or even how you would like…

We Say…

“right, this month you didn’t make much, why is that and how can we help that situation to improve?”  We drill into it.  Did you buy lots of materials so your materials costs are high BUT they will last for more than one job?

Account-ant could help by showing your actual cost per job rather than a finger in the air, for example. 

Plus, there’s so much more we can do… 

Going from “oops that job cost me more than expected” or “I’m not earning enough”…

To “that cost me more than expected, but I now know the exact costs including time and materials”.

Knowledge is power!

We could do a few things to improve this situation:

  • Review your processes, can I save some time?
  • Review the tools of your trade, is your van costing you more than it needs to?
  • Is it time to take on an apprentice and how will this positively benefit my business?
  • How can I effectively absorb price increases from my suppliers?
  • Are there Grants that I could apply for? (Account-ant can MOST DEFINITELY help you with this!)
  • BASICALLY – Is my Accountant helping me grow my business?

So how do Management Accounts differ from Year End Accounts? – The lengthy explanation

The short version is Management Accounts allow businesses to look forward, whereas Year End Accounts (or Financial Statements) look back at the year you had.

Management Accounts are generally produced on a monthly basis (but can be quarterly) and include all costs and income relating to the month.  Bank reconciliations and stock are as accurate as possible. 

Because they are produced in a timely manner it allows the business owners and managers to react quickly and make changes and improvements where necessary.

A Management Accounts Pack will include: –

  • Profit & Loss Account including full Overhead costs broken down into categories.
  • Year to date Balance sheet i.e. if January was the start of your Financial Year and your Accounts are made up to April, the Balance sheet would be for Jan-Apr inclusive.
  • Debtors (who owes you) and Creditors (who you owe) Reports
  • Key Performance Indictors schedule
    • Debtors & Creditors Day (how long it takes to receive payments/make payments)
    • Inventory Days (i.e. how long it takes you to convert stock into Sales) (This is for you, Ben 😉)
    • Gross Profit vs Budget
    • Staff Absences
    • Stock Accuracy % (otherwise known as Perpetual Inventory)

Let’s grab a virtual coffee (I’ll bring the cake!) and discover how Management Accounts can propel your business forward like a Japanese Bullet Train.