The New Year has begun in the financial calendar. This is the time of year where the Government implement the new rules and laws. Changes have been made to your allowances, pension and minimum wage. In our blog we will touch up on the most popular and usually most important changes. Keeping you informed and up to date!
 
Your personal allowance has gone up to £11,850 from £11,500. Your personal allowance is the amount of income you can make before you must pay any tax over. The tax you pay over will depend on which income band you are in.

Income BandTaxable IncomeTax Rate
Personal AllowanceUp to £11,8500%
Basic Rate£11.851 - £46,35020%
Higher Rate£46,351 - £150,00040%
Additional RateOver £150,00045%
 
If your income is over £123,700 then you do not get a personal allowance. Dividends allowance has unfortunately gone down from £5,000 to £2,000. If you own shares in a company and receive dividend you will have to pay tax. You only pay tax if your dividends go above your dividend allowance in the tax year. The tax rate is different for dividends.

Tax BandTax Rate on Dividends over your Allowance
Basic Rate7.5%
Higher Rate32.5%
Additional Rate38.1%
 
There has been changes to the ever-changing employment tax laws. If you employ staff, you will have to adhere to these rules. As there can be heavy fines if the rules are broken. You will have to supply a workplace pension for all staff members that qualify. A percentage of the member of staffs pay is put into the pension scheme automatically every payday. The minimum employer contribution is 2% and the minimum employee contribution is 3%.
 
The national minimum wage and living wage have increased. As an employer you are legally obliged to pay the correct rate to staff. Wage is worked out on the age an employee is. Minimum wage bands are Under 18, 18years-20years, 21-24 years and 25 years old and over.
 
Take a read of our employment law blog where we go in to the finer details of pension contributions and the national minimum wage rates. This is the time of year when company accounts are due as the next financial year rolls over, if you are stuck with yours or want more information on what steps you need to take visit our website on www.crossaccountingservice.co.uk or call us on 02920 653 995

There has been a change in the VAT Flat Rate Scheme since April 2017. The government are concerned that some businesses are using the scheme to pay less VAT than appropriate. Read our blog to be reminded of the rules and regulations.

 

The Flat Rate Scheme is designed to simplify your records of sales and purchases. It allows you to apply a fixed flat-rate percentage to your gross turnover to arrive at the VAT due.

 

The scheme is for businesses with a turnover no more than £150,000 a year, excluding VAT. The Flat Rate Scheme is a simpler method of working out the VAT you have to pay to HMRC. The flat rate percentage you use depends on your business sector. The correct sector is the one that most likely describes what your business will be doing in the coming year. Click here to find out your sector percentage https://www.gov.uk/vat-flat-rate-scheme/how-much-you-pay

 

From 1 April 2017 the flat rate changes if you’re a limited cost business. The flat rate percentage will be 16.5% regardless of your sector if you are a limited cost business. You’re a limited cost business if the amount you spend on relevant goods including VAT is either, less than 2% of your VAT flat rate turnover or greater than 2% of your VAT flat rate turnover but less than £1000 per year.

 

You will also get a 1% discount if it is your first year as a VAT registered business. If you’re unsure about your VAT and would like to discuss, then please don’t hesitate to contact us.

Flat Rate Scheme

 

The Flat Rate Scheme is designed to simplify your records of sales and purchases. The process is to apply a fixed flat-rate percentage to your turnover to arrive at the VAT due. Fixed-rate percentage do vary depending on the type of business. You can find a list for percentage on this link https://www.gov.uk/hmrc-internal-manuals/vat-flat-rate-scheme/frs7300

 

From April 2017, there will be a new rule to start regarding the flat-rate scheme, this is because the government is concerned that some businesses are using the Flat Rate Scheme to pay less VAT than is appropriate. This will mainly affect businesses that spend very little on goods, such as businesses that provide service.

 

 So, what is changing? The new change will only affect businesses which have a very low cost base. These businesses will now be called “limited cost traders”. A business will be a “limited cost trader” if it spends less than 2% of its sales on goods or less than £1,000 a year, even if this is more than 2% of the businesses turnover on goods.

 

VAT returns can be a pain and take up time and not allow you to do what you do best, running your business! Visit www.crossaccountingservice.co.uk to discuss your VAT issues with us.

 

Restricting finance cost relief for landlords

 

From April 2017, there will gradually be an introduction of a basic rate reduction restricting the relief for finance cost. Finance cost includes mortgage interests, interest on loans to buy furnishings and fees incurred when taking out or repaying mortgages or loans.

 

Landlords will no longer be able to deduct all their finance costs from their property income to arrive at their property profits. Instead, landlords will receive the introductory basic rate reduction from their income tax liability for their finance costs.

 

The governments gradual change will be as follows:

 

·         2017 – 2018 the deduction from property income as it currently is will be restricted to 75% of finance costs with the remaining 25% being available as a basic rate tax reduction.

·         2018 – 2019 the deduction from property income as it currently is will be restricted to 50% of finance costs with the remaining 50% being available as a basic rate tax reduction.

·         2019 – 2020, 25% finance costs deduction and 75% given as a basic rate tax reduction.

·         2020 – 2021, all financing costs incurred by a landlord will be given as a basic rate tax reduction.

 

This change is being implemented to make the tax system fairer. The government want to ensure that landlords with higher incomes no longer receive the most generous tax treatment.

 

For landlords in Wales, there is also a new law that has come in for self-managing landlords to obtain a licence or have an agent to deal with their properties. This is compulsory and to find out if you need to apply visit www.rentsmart.gov.wales

 

We have a lot of clients with a portfolio of properties and help them when it comes to their

self-assessment. If you’re a landlord and don’t understand the rules, you can contact us on 02920653995 or send through an email on nicola@crossaccountingservice.co.uk

I am bringing up the balance sheet again as we have been seeing some sets of accounts coming into our business with insufficient information to be a credible balance sheet.

I am seeing far too many prepared using the cash accounting system. I know this is not the easiest of documents to understand when you’re reading a set of accounts so I wanted to tell you some of the differences between a good balance sheet, and one that has been thrown together as a last resort.

I have been preparing and reading this document for a number of years and have seen all shapes and sizes. Part of my training was to read ones prepared by the FTSE 100 companies, not recommended. The financial statements can be complex and lengthy.         But micro and small companies are done fairly simply so you don’t have to read 50 pages of detailed technical language.

Be sure that not only does the balance sheet contain information about the profit or loss you’ve just made during your trading year but has a number of components.

I would expect you to receive a detailed set of pages describing the different figures in the balance sheet. This doesn’t need to go to Companies House as small and micro businesses are abbreviated, but you should have a full copy that you can use for your business going forward, if you don’t you need to question this.

If you are going to sell your business or go to the bank to borrow money, you are going to need this important document. This is an accumulation of your whole trading history whether you’ve been trading for a year, or 50 years. A company that is 50 years old balance sheet will look different and may have complexities that a new business will not.

Components to expect.

Fixed Asset Register

There should be a summarisation of the fixed asset register detailing accumulative costs and deprecation and changes happening during the financial year. There should be a net book value at the end so you know the value of your assets.  Fixed assets are your machinery, vehicles, refurbishment, furniture etc.

Intangible assets

These can be patents, trademarks, goodwill. This needs to be highlighted in detail, with amortisation or not.

Debtors

This can be money in the bank Trade debtors, customers that owe you money Other debtors can be prepayments, accrued income, if the company has loaned money to a member of staff etc.

Creditors

Overdraft facility at the bank Trade Creditors, Suppliers you owe money to Taxation HMRC any of the taxes, Corporation tax, VAT, PAYE Other Creditors Accruals, invoices you havent received from a supplier, but paid, directors loan etc.

Long term liabilities

Can be bank loans, lease agreements, hire purchase. If these components are known to you and are not in your accounts, you must question this.

The balance sheet is a financial document that tells the reader the financial position of your business it is vital to be correct. It is even more important than a profit and loss, that only tells you one year timeframe.

Make your business a strong one, a weak set of information will not help you move forward, it can have the opposite affect and hold you back.

Its in your hands!

What to do with your business if things have quietened down over summer

This may not be affecting you, but a lot of businesses suffer at some point during the year from seasonality or the great British weather affecting the productivity of their business.

Ive worked in the travel industry where if the weather is too good the telephone stops ringing, but Boxing Day the phone lines are maxed out.

Manufacturing tend to have a shut down over Christmas etc.

Everybody seems to be on holiday in July and August!

This might be adhoc or happens the same time every year, you know its going to happen, so planning ahead for that potential sales fall is vital to keep the operation moving and generating income for when the good times come back.

Keeping a buffer in the bank account certainly helps, you may need to scale back for a short period of time.

But for an ever growing business you are not going to want to scale back you want to keep on going.

Increase the marketing, do a special offer to either get things moving again in the Autumn, or get things moving now. The choice is up to you, but you are going to have to do something about it. Sitting on your laurels will not generate that income.

Use the time to look at your operation, are there systems you can tighten up on, costs to trim down. Think efficiency all the time, if you can do it better, add value, or save some time, its all a good thing.

Or a topical word at the moment, Collaboration. Get together with your network, maybe a couple of you have connected skills, and can promote each other, or do an event together and share the proceeds. What have you got to lose.

The important thing is to not sit back and wait for it to come, you make it happen.

 

 

 

 

 

 

This blog is intended for information purposes only and is only advice from past experience, you may have other suggestions of your own. It is not intended to be used to make all of your business decisions but as a guide only.