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Champage Problems – What is that and How do I get it?

Hitting the VAT threshold where you must charge VAT on sales and reclaim VAT on purchases is a point in time that strikes fear and dread into a lot of business owners (particularly those serving the public)…. But, it should be something to celebrate (at least momentarily). First let me give you a bit of background.

Businesses in the UK are required to register for VAT purposes once they reach a TURNOVER of £85,000. Some industries can hit the threshold quickly i.e. Sam is a builder based in Keighley. He started up mid 2020 and has completed about 30 projects in that time. Some tiny and some as big as lifting the roof off 😅. Material prices are sky rocketing, and as an industry, they charge materials and labour to the customer. But that means his turnover has now reached threshold. There are ways of delaying the enviable but its quite a lot of faff and ultimately not really worth the hassle if it is inevitable.

However in the instance of Keith, a self employed delivery driver based in Bradford who deals mostly with domestic customers (i.e. people, not businesses), he will need to add VAT onto his prices from the date of VAT registration. If he takes the 20% increase and hands it straight onto his customer, it instantly makes him 20% more expensive than his non VAT registered competitors.

So why in the heck should I celebrate?! I hear you asking…..

Hitting a turnover of £85,000 per year is a BIG deal. It most likely means what you are doing is a success and you deserve to celebrate your hard work and success.

If you reframe your thoughts about VAT then you’ll be a lot happier.

Don’t treat your VAT like a fine, treat it as a sign that you are doing the right thing. If your taxes are increasing then so is your profit.

Let’s go back to the issue of being 20% (or whatever rate your industry needs to use – I’ll speak to you about that individually, if needed) higher than your competitor….Let’s have a think. If you are Keith the delivery driver then you can reclaim the VAT on your fuel so you shouldn’t need to add the full 20% onto the customer quotes just because you’ve become VAT registered. You should be able to work out your profit margin with and without VAT and then uplift your customer prices to reflect a deficit, if, in fact, there is one….again I can help you with this if you need it.

And what about Sam the builder? Well Sam, were you savvy enough to increase the cost including VAT to your customer invoices before becoming VAT registered? If so, then you’ll be in a happy place. You’ve just gained the VAT on your PURCHASES back! Yay!

If you are not sure when you will hit the VAT threshold just add up the last 12 month’s Sales, take off the sales from the first month and add on what you think you’ll do next month. If that number is over £83,000 then register for VAT.

You can register for VAT by yourself or you can ask an Accountant for assistance. When you go into your Business Tax Account there are lots of options. If you find this in any way overwhelming then shout for help rather than potentially get it all wrong.

So you see, VAT is not something you should be overly worried about. Get the champers out instead to toast your success.

I really hope this short post has helped you. If you have any questions at all, please shout now!

February 18, 2022 By Rachel

0 In Stories from an Accountant

Do you want to build a Snowman? Or a Sustainable Business

The inspiration for this blog post came whilst building a snowman on our front lawn with my little one. Up here in Denholme it’s known to be “two coats colder” so we get the opportunity at least once a year to hone our Snowman building skills.

We tried a couple of methods but ultimately a solid foundation of compact snow was the winner….it’s the same in business.

You must start with a solid foundation or risk a collapse at the first sight of adverse conditions (or a car tyre hurtling towards you at speed…but that’s definitely a story for another day 😊)

So what do I mean by that? You need a really good idea of what you want to achieve. Is this a side hustle or is it going to become your life for a number of years until you retire or potentially sell your business?

In both cases you’ll need to register as self employed, limited or partnership with HMRC. The time to do this is either before you start your business or within a few weeks of starting. Not in December when your first (self employed) tax year is closing or even almost a year since you set up.

How do you know that your business is turning a profit? Spreadsheets (I mean, I’m an Accountant, I love a good spreadsheet…..) are all well and good, but you do need to set some time aside to actually input all your receipts and sales into said spreadsheet.

Then there’s the problem with making sure you keep all your receipts so you can backup your expenses. I bet some of you, like me, forget to check your pockets before your pants go in the wash…. Bye bye receipt, nice knowing you 😅

“So how can I do that?” I hear you yelling at your phone screen? Software is key. In 2024 HMRC are bringing in MTD ITSA…. because they love a confusing acronym or two (Do not get me started 😂😂😂). It actually stands for “Making Tax Digital for Income Tax Self Assessment”

If you earn more than £10k in TURNOVER (ie Money In) you will be required to use software to submit your returns. I bet you’ve noticed all the Quickbooks, Xero and Sage adverts on TV, Radio and Social. I see or hear them every single day… But maybe I’m wired that way, like when you see your first Tesla driving down the road then all you can see is Teslas 😂.

Now the software mentioned above can be used by anyone, but my experience is that unless you have some basic accounting knowledge, you will mess it up. I’m not saying that because I want to sell you bookkeeping services, honestly. It’s just my experience so far. The software people make it sound easy and they are user friendly but do you know how to categorise your costs or post your assets so your Accountant can easily process your return at year end? Then there’s payroll which is a very emotive subject for most. You don’t want to muck it up.

Plus most Accountants charge a larger fee for tidying up work because they have you over a barrel. Not me by the way, I do charge a catch up/set up, but it’s not going to give you a heart attack… You’ve got enough surprises on this roller-coaster we call life.

So my advice is speak to an Accountant..

Your chosen provider can be anywhere in the world now that cloud accounting and meeting software is widely used. However, some people find some comfort in knowing their accountant is close by. So start by doing a search for “Accountant near me”, “Accountant Bradford”, “Accountant Haworth” (you get the gist) and have a look at their Google My Business page, reviews, social media, website. Really get a feel for them and whether you think you’ll get on. This person will be part of your business, providing key information in a timely manner, so you need to at least like the person!

Speak to them about your particular circumstances and they’ll recommend a course of action, their preferred software provider and of course a fee proposal.

Set up and tidy up can take 6-8 weeks at least, but from then on in you’ll have regular information you can act upon. For instance how are your Sales comparing to prior months? Are your costs spiralling?

When you have this, you can then forecast your future earnings using actual data rather than a daydream.

Other things to consider are:-
What’s your message? Your personality? Who do you want to attract.
Website optimisation
Google My Business
Social pages that are active (you can automate posts to save time)
Calender software
Card payment options
Other automation (such as Zapier)
Meeting software
Networking events
PR opportunities

There’s a lot to consider but there is also a lot of help out there for start up businesses, particularly in the business to business sector. I personally have had some great experiences with Leeds Ad:Venture for free training, mentoring and grants. If you are not in Leeds then there will be one in your local town and its usually related to the local Council.

Also, I’m always here for a chat if you need. Having business buddies and networks are going to be a great asset. So make sure, even if you are introverted like me, you push yourself to try!

Good luck with bossing your year! Let me know how it goes!

January 21, 2022 By Rachel

0 In Stories from an Accountant

Holiday, (on the business) Celebrate?!

As the October Half term approaches your thoughts may be turning towards a little getaway with friends and family. Be that jetting off for some Autumn sunshine (Vitamin D is very important!), staycation or just little day trips.

Our happy place is Scotland, the Highlands to be exact. So much so that we got married there and the retirement dream is to run a small “The Shining”-esk hotel. We ALMOST took the leap a few years back, but that’s another story.

As a self employed person you may dread holidays to some degree. After all, who’s going to pick up the slack and you don’t get paid holidays like your employed friends.

Your mind starts whirring and, ding, a light blub moment hits you…. Surely my holiday can be a “Business” Trip (and therefore tax deductible).

Well…. Hold your horses there matey. Although we would all LOVE for that to be the case, it’s not.

However, there are some instances where you can team up business with pleasure and save yourself a little cash.

For instance, say you need to fly abroad for business but your family are bugging you for a holiday. They can tag along. The business can pay for your tickets BUT not your family’s fares.

But what about connecting flights? For instance, you have business in China and you and your family have always wanted to go to Australia. You could claim your flight to China and the equivalent cost of a return flight from China. However you would most definitely need to keep evidence of what the return leg would have cost at the time of booking your outward journey.

Now you might think this is an extreme example for most “ordinary” folk but I do know people who have taken advantage of this opportunity.

“How about day trips?” I hear you say. You would need to keep proof of a genuine business reason for the trip.

For instance, you are a Carpet Fitter based in Halifax. Your family is going to Flamingoland for a day trip so you tee it up with some quotes near Malton. Well that’s fine but is it realistic? Are you really going to take a small job on such a distance from your home? If yes, then you could claim your travel cost, but if you’re just doing it to get around a loophole, don’t bother. If you get an inspection from HMRC, it will be disallowed AND trigger a more in depth look into your affairs.

OK, last example for you. You’re a Mortgage Broker in Thornton who regularly travels for work. Hotel stays are a regular occurrence. Could someone tag along on a trip and stay in your room? Yes. As long as having that person along with you did not change the ordinary costs of the trip.

For instance, you usually stay in a Premier Inn and get a breakfast on your business trips but your companion suggests something a little more upmarket. Well you would only be able to claim the Premier Inn equivalent as tax deductible and keep evidence of this!

I hope this Blog has cleared up some of your questions! Still got questions? Well count me in! No questions too big, no questions too small! Please do get in touch should you need any help at all.

October 19, 2021 By Rachel

0 In Stories from an Accountant

Here In My Car

Anyone that knows me, knows I’m not precious in the slightest about my car. It gets me from A to B. I NEVER, ever buy new. Maybe it’s an Accountant thing but I cannot BEAR the idea of the depreciation on a new car the second you drive it off the forecourt.

My main requirement in a car is lots of boot space and to feel safe (hence the title, I’m channelling Gary Numan Ft. Fear Factory).

One day I may even tell you about when we were being cheap and slept a few hours in Glencoe Visitors Centre carpark (or at least one of us did and it wasn’t me hahaha)

I only replace a car once its dead or close to death.

Recently my car started to show signs of heading to the great scrap yard in the sky. So as I waved it off on a tow truck it gave me inspiration for a blog post.

“You see, good things do come from bad”

This quote is actually a line from one of our Toddler’s bedtime stories, but, it’s actually very wise.

You’re probably thinking, get to the point Rachel and stop waffling about your cars!

As a self employed person you may be wondering what you can claim in terms of your transport.

There are many rules to consider so an in depth conversation on your particular circumstances will be needed but below are some instances that seem to cover most eventualities.

If you have your own car, it’s pretty simple. You can claim 45p per mile for BUSINESS use for the first 10,000 miles and 25p for any subsequent miles in a Financial Year.

You may think this is a bit stingy as it covers fuel, MOT, servicing and wear and tear on your car but hey, them’s the rules.

But just, if think you do 15,000 miles what’ll you’ll claim is £0.45 x 10,000 + £0.25 x 5,000 = £4500 + £1,250 = £5,750 x 20% = £1,150 is the amount by which your tax would reduce.

If you are a Limited Company, you can choose to pay yourself a higher amount BUT your Limited Company will need to produce a P11D and you’ll need to pay tax on the excess amount. Plus extra time for your Accountant to process the requirements with HMRC etc.

The mileage expenses paid reduces your Corporation Tax liability as it is an expense.

If your business owns the vehicle then it’s a company asset so the company claims capital allowances on the vehicle.

The company can pay for your fuel for business use but again, you will pay tax and NI on your private use which is calculated and reported through the PAYE or Self Assessment system and will update your Tax Code.

If your business leases then it depends on what lease you have. Are your handing it back at the end of the term? If yes, it’s an Operating Lease. If the emissions are under 110kg/m then you can claim 100% of the lease as an expense for a van and 50% for a car (i.e. the lease costs £100 and you’ll pay your tax rate on the expense, i.e. 20%).

If you are VAT registered then you can claim back 50% of the VAT in your quarterly returns.

So what’s better? own or lease? Depends if you want a newish car I suppose.

If you have an old banger (like me!), say it cost you £8,000 and it lasted 3 years. You needed to pay tax, service, mot and insurance personally so you’re looking at around £1000 for those expenses per year, top end.

It starts to play up so you sell it to webuyanycar (or similar) and get £1400 back.

That car has cost you £11,000 – £1400 = £9,600 whilst you’ve had it. So £3,200 per year. You claim 15,000 miles per the above calculation so you’re tax would reduce your cost per year by £900 = £2,100.

A lease will cost you £250 (estimate) x 12 x 3 = £9,000, maybe your maintenance package costs £1,000 per year = £10,000 for 3 years – £3,333 per year which is 50% deductible as it’s a car. £3,333 x 50% = £1,666 x 20% (tax relief) = £333

The Grand Total that you would pay for the use of the car for each of the 3 years would be £3,000. £900 more expensive than owning. However, you need to be careful of balloon payments and excess wear and tear costs on return.

The upside to a lease car is that you get a relatively new car which generally will mean it’s more reliable and therefore you don’t have a surprise bill when your car breaks down.

I hope this has helped you understand a little more about transport costs and related taxes. If you need any further information or a personalised calculation, let me know! I’ll be on hand with my customary brew and cake!

September 28, 2021 By Rachel

0 In Stories from an Accountant

Good Times Never Felt So Good

As the saying goes, there are no rainbows without some rain. It’s so true. In 2011, my family and I had a horrendous year. My mum was diagnosed with Lung Cancer, 2 weeks later my 19 year old brother died from pneumonia. Mum battled hard, but succumbed within 3 months.

Our world was turned upside down and I was also sitting my CIMA finals.

That left just Dad and myself from our surprisingly small Irish family (if you know, you know 😉).

My Manager at the time had the audacity to point out that these events affected my work…. Well no doubt! In place of judgement, he might have suggested to go see the doctor for coping with my grief!

However, this experience taught me a few things.

I would NEVER be that kind of Manager

Life is too short.
Everyone needs a “community”.

To always have a plan.

To never, ever let go of what really matters to you.

So this blog post is actually about Goals and Horizons.

It’s important to have goals. In life and in business. I think it’s an evolutionary throwback to if you stood still, you’d die…. Rundown by a Mammoth or disease.

I like to have plans for our holidays. You’ll find me buying a Lonely Planet book whilst still on holiday. Getting excited about our next big Adventure (true story…. In Iceland, I ordered “Romania Lonely Planet”, inspired by What We Do In The Shadows…. If you have not seen this genius film, I would highly recommend 😂)

But I only had clear Business Goals once I made the leap from side hustling to setting up Account-ant with a name, a brand design, and a website (many thanks to my multi-talented hubster, James 😉), and an idea of how I’m different from the big accountants with high Street presence etc.

Do you have goals, have you written them down?

I keep mine on Google Keep. It sets out what I want to achieve in terms of client numbers, what I want to give those clients in return for their faith in me, (if you’re already my client, you know I love you 😘) and a point in time that I want to achieve each goal by.

Admittedly, it feels awesome when you look back and realise you are on track. But equally it could be upsetting you missed your goals.

So rather than boring you to death with explaining SMART goals et al (you probably know what they are anyway!) We’re going to talk about…..Horizons.

You can set your goals, and you’ll have an idea of where you want to be when x goal is achieved – you’ll see it far off…. in the Horizon. When you get to that goal, you’ll realise there’s something else that needs to be achieved. Again, you’ll see it off on the Horizon as you sail towards it, smashing tasks and missing some goals as you go.

It could easily be disheartening if you think at the beginning of any project that your end goal is in sight, only to find there are a few more hurdles. But as I have said before, there cannot be rainbows without rain, so steadfast my friend. You’ll get through it. You WILL smash your goals.

I find it’s important to have a Community. Especially if you work solo. Peers and people you can talk to that are in the same boat. I’ve found there are a few Facebook Groups for my profession that really help me. There’s also Networking groups etc, but they can be hit and miss.

When we had our Son it was super important to me to find some mummy friends and baby friends for our little one. That’s why I brought him to the local toddler group from 7 weeks old. Admittedly I arrived around half way through the session, but, the point here is that I ARRIVED. I showed up, no matter how late. I made some friends and connections in the village where I live. Connections that have helped my business and myself.

You might just be starting out on your self employment journey, or you may be years into it. You decided to make this leap (rather than being employed) for a reason. It must matter to you, otherwise you wouldn’t be doing it!

My life goal is to spend at least the 6 weeks holiday as a family, rather than having to worry about childcare and rushing our time together. That’s what matters to me. I also like to think that my Mum would be super proud of what I’ve achieved in a relatively short time.

What matters to you? Are your going to hold on tight and make sure you get what you want? Life is too short. Live your life, do what makes you feel alive. Because in the immortal words of Neil Diamond (my mum’s favourite singer) “Good Times Never Felt So Good”.

I’m cheering you on!

Do you need some help sifting through your goals and making sure all your ducks are in a row for your business? Give me a call and we’ll have a chat over coffee and the ever present cake!

September 21, 2021 By Rachel

0 In Stories from an Accountant

Show Me The Money

“Hi, I’m Adam, Prince of Eternia and Defender of The Secrets of Castle Greyskull….Fabulous Secret Powers were revealed to me the day I held aloft my magic sword and said “By the Power of Greyskull, I have the POWER!!!!!!!””

Prince Adam and He-man were the same person, BUT also totally separate people. This is kind of what it’s like to be a Sole Trader who is now the Director of a Limited Company.

When you were a Sole Trader, you’d make your money, you’d spend your money (and claim tax allowance on what is deductible) and the rest… well that’s yours…..

There are loads of reasons why a Sole Trader would want to become Limited, but there is a time, a place and a blog post for everything 😉

Now that you are a Director, you still have THE POWER!!!!! But maybe you’re more Adam than He-man now (or maybe Man at Arms, he’s still double hard)

One reason for Incorporating your business as Limited is…..Tax Efficiency….But what in the heck does that mean to anyone?

I’ll try to make it simple for you. As your business is now Limited, the assets of the business (i.e. cash in the bank) belong to the business. Therefore you can’t just pay yourself out of the bank/till etc without jumping through some hoops (or getting your Accountant to do this for you).

So how do I get paid? I hear you yelling at your screen!

There are two main reasons why as a director of a limited company you should pay yourself a salary.

Firstly, it’s counted as an allowable business expense, which means it lowers the amount of Corporation Tax.

The second is that if the salary is above the Lower Earnings Limit (which is £6,240 in 2021/2022 tax year), you will accrue qualifying years towards your state pension.

Although I think Pensions might be a guest blog at some point……Let’s face it, State Pension is unlikely to cover your living costs once retired!

Once you have decided to pay yourself a salary, you need to decide at what level, be that lower or higher salary.

What are the advantages and disadvantages of both?

Low Salary:

The aim is to set your salary at a level that is above the Lower Earnings limit in order to obtain the benefits of qualifying for a state pension, but below the level that you need to pay either employee or employer’s NI.

The threshold before Income Tax is payable for the 2021/22 tax year is £12,750. There are also National Insurance thresholds that you should be aware of, which are currently lower than the personal allowance, and are important when setting your salary.

Be careful if you have converted from “employed” to Limited as you will be likely to hit the NI threshold immediately, and the tax threshold shortly after.

The Disadvantages:

If your salary is at a low level, or if you do not take a salary at all, there are disadvantages such as:

· Reduced maternity benefits, technically to qualify for maternity benefits, you need to be employed, and thus compliant with National Minimal wage regulations. Which is currently approximately £145 per week profit.

· You could miss out on part of your annual tax-free personal allowance if your salary is paid at the NIC threshold, and you have no other sources of income.

· Reduced cover under permanent health, Critical illness, personal accident, or similar policies where pay-outs are calculated based on your earnings.

· When applying for a loan, or mortgage, you may need to meet certain criteria which are unsympathetic to a low salary. However, this is best discussed with a mortgage broker (I know some fab ones if you want a referral)

Tax implications of taking a salary.

As with regular employees, all salaries will be subject to tax via Pay-as-you-earn (PAYE). With three separate PAYE ‘taxes’, the benefit of reducing your corporation tax liability by taking a higher salary can soon be outweighed by the additional tax paid.

Income tax

Income tax is cumulative on all employment earnings and other sources of income in a tax year. For example, if you have already earned £10,000 from any employment in a given tax year, your tax-free personal allowance would be reduced by this amount.

For instance if you’ve gone from working for a company to working for your own Limited company, you need to factor in the earnings already made in the tax year before deciding what your self employed salary will be.

Dividends

Fingers crossed, you have made a profit. If so, you have two options.

Reinvest

Keep it in the business. For instance if you were planning on making a big purchase in the next year that would potentially lead to your business being loss making next year.

Pay a Dividend

Pay shareholders by issuing a dividend. “Shareholder” means “Owners” and you can pay yourself a dividend.

This could be a tax efficient way to take money out of your own company, due to the lower personal tax paid on dividend, the rates for this year are 7.5% / 32.5% / 38.1%.

Also with dividends you receive an allowance of £2000 per year at 0% tax rate.

Through combining dividends payments with a salary, you can make sure that you are at optimum tax efficiency.

For instance, you’d pay approximately £8000 salary and £2000 dividends and have no tax or NI to pay.

Employee National Insurance Contributions

Employee National Insurance Contributions (NICs) are not cumulative. This means each new employment has a separate earnings threshold before NICs are due.

However: For employees who are Higher Rate taxpayers, there is a maximum limit on the amount of NICs to be paid. So if your last job was well paid, you need to review this with your Accountant before deciding on your self employed salary.

Directors have an annual threshold, which is 52 times the weekly threshold amount. When salary starts to go over this, they pay NICs.

In Summary

Congratulations on your Limited Company. Be that a totally new venture (exciting times ahead) or your business is going from strength to strength (again, super exciting).

You CANNOT take money out of limited company without someone running a payroll for you or it going on your Director’s Loan Account (this is only useful if you have large set up costs to pay back).

You can manage your pay to reduce your tax liability.

You can process life/health insurance through your limited company and even with the P11D requirement you will be saving some pennies.

If you want to discuss a personalised illustration of the above, give me a call and we’ll go through it step by step.

September 16, 2021 By Rachel