Businesses can breathe a (temporary) sigh of relief after the Government quietly put its Making Tax Digital plans on the backburner.
You might have missed this latest backtrack, following on from the debacle over NI changes for the self-employed, because it was ‘announced’ around the time the General Election was called.
The plans were due to have been included in the final Finance Bill of the Parliament, but were dropped along with a number of other items. However the Government isn’t saying the scheme has been scrapped, so small businesses are not out of the woods yet.
We blogged about this brainwave from the Treasury back in March. The main proposals are:
All businesses with sales of more than £10,000 will be required to maintain their accounting records in a digital format.
Not only will there be a requirement to complete an annual tax return but also quarterly returns.
This means that not only will your records need to be in a digital format but they will need to be up to date, at least on a quarterly basis.
Making Tax Digital was due to begin a roll-out next April. But the consultation period saw it come in for a barrage of criticism, not least from accountants, tax experts and even the cross-party Treasury Committee.
Now it is hoped that some of these criticisms may be listened to and the scheme amended. I suspect that far too much time and money has already gone into this for it to be abandoned, but here’s hoping the Treasury sees sense and drops the requirement for sole traders and very small businesses, and rethinks the quarterly returns which will add so much to the workload of people trying to run businesses.
As we said in March, having up-to-date information is so important, helping people make better informed business decisions. But this was a badly thought-out scheme which was in danger of being rushed in too quickly.
In order to get the Finance Bill through before Parliament was dissolved, some 600-odd pages were dropped from it. So perhaps we are being optimistic in seeing this as the Treasury realising MTD needed more work – or was a plain dumb idea. It may well be back on the table under the new Parliament, so watch this space!
If your business receives payment by debit or credit card, you may get a letter from HMRC asking you to check it has all been declared on your 2015/16 tax return.
Last month HMRC launched its Card Transaction Programme – a chance for businesses who may not have declared all their sales to get their affairs up to date under the best possible terms. Laws passed in 2013 give HMRC the power to access data from organisations that process credit and debit card transactions for businesses, which is how they are now able to check.
Some businesses (and their accountants) are now getting letters from the HMRC Campaigns and Projects team, giving them 28 days to:
Check the income on tax returns for 2015/16 is correct
Go back and look at earlier years if a discrepancy is found
There are then 3 ways to respond:
1.If you have additional income to declare, go to cardtransactions.campaign.gov.uk which explains how to bring your tax affairs up to date in a straightforward way
2.If you have declared everything, call 0300 123 9272 to avoid further unnecessary contact
3.If you need more than 28 days to check your records, call 0300 123 9272 to arrange this.
If you get a letter it is because HMRC suspects you of under-declaring income, so don’t ignore it! It is possible that there will be no penalty to pay, or perhaps up to 20% of the tax due, depending on the circumstances. However failure to declare the underpayment is likely to lead to higher penalties or even a criminal investigation.
Providing you have a 64-8 in place your accountant should also get a copy of the letter, but knowing the vagaries of HMRC and the postal service, don’t rely on this!
For help and advice on this or any issues contact Altus here.
Have you ever received your final year accounts from your accountant and realised that the year didn’t go quite how you expected it to?
You didn’t expect the profit to be that low, or you didn’t think costs would be as high. Oh well, it’s too late now, the year is over, the money has been spent, and you have already started the next year.
The following year end comes around and you have the same thought process… sound familiar?
Then it is time to be proactive – and create a budget!
You may budget for your weekly shop, for your holidays or for your wedding; you may budget for your mortgage, for Christmas, for birthday presents, or even budget for your monthly clothes shop. All of us have budgeted for something in our personal lives even if it is just kept in our heads.
So if we budget outside of work then why do many company owners not budget for their business?
The act of creating a budget for a business is very useful, and can be an eye-opening experience.
It forces you to stop and look at what you have spent in the past and make decisions about how much you want to spend going forward. You set an amount and you stick to it.
Businesses need to budget to control costs and understand where their money is being spent and on what. The only way that you can reduce costs is to understand what the costs are in the first place. This will improve efficiency and in turn improve your profits.
If you don’t stick to your budget, the costs get out of control and money often gets wasted.
When you set a budget it helps you to recognise problem areas and spot issues coming down the line. This means you can be proactive and plan for those times early instead of having to deal with them at a moment’s notice.
It also helps you to see when you are likely to have cash flow highs and lows and you can plan accordingly.
Therefore, set your budget – stick to it – your business will benefit.
If you would like any assistance in creating or using a budget to help your business move forward and grow then Altus is here to help. Contact us here.
Making Tax Digital (MTD) is the latest brainwave from the Treasury, and is going to impact pretty much every business in the UK.
We are finally beginning to get some detail fleshed out on the bones of this tax announcement, originally made in the 2015 Budget. We accountants have been pouring over the responses to the consultation process that has been taking place. So what is the digital tax revolution all about?
Making Tax Digital requirements
All businesses with sales of more than £10,000 will be required to maintain their accounting records in a digital format, so out the window with those manual records.
In what has been termed ‘the end of the tax return’, not only will there be a requirement to complete an annual return but also quarterly returns with varying levels of detail depending on the size of the business.
This means that not only will your records need to be in a digital format but they will need to be up to date, at least on a quarterly basis. They will have to be in sufficient detail and accuracy that you will be able - and perhaps more importantly be happy – to complete a return to HMRC.
Accurate bookkeeping
This truly sounds the end of bringing a box of receipts to your accountant at the year end. All businesses will need to either maintain those records themselves or ask their accountant or bookkeeper to keep those digital records up to date.
It is understood that spreadsheets will be an acceptable method, but of course they do need to be accurate enough to produce the necessary quarterly reporting. HMRC states that free software will be made available for the smallest of businesses with the simplest affairs but it is unclear at this stage how comprehensive that will be.
It is likely that this is going to force more small businesses to move over to cloud-based bookkeeping systems as they try to balance the additional cost of maintaining their records to the required standard (see more on cloud bookkeeping here)
Many businesses, whether they currently use digital methods of bookkeeping or not, will have to significantly change their current processes to comply. Especially those that are below the VAT threshold and have not had to deal with any form of quarterly reporting before.
Tax timetable
When is all this happening? Well, not as far away as you might think. The current plan is that Making Tax Digital will apply from April 2018 – yes, just 12 months away. In a concession HMRC has announced that businesses below the VAT threshold will have a further 12 months to comply (April 2019).
However, this change is starting with sole traders and limited companies will follow on afterwards.
Of course all businesses should have accurate and up-to-date accounting records already, to provide good information for business decision making. Unfortunately, it is still all too common for business owners to ‘learn to their surprise’ about the results for the year when they sit down with their accountant 6 months after the year end!
Perhaps MTD will have a positive impact on businesses. There is so much information for making better, more informed business decisions hidden away in the accounts systems of small businesses.
Too many business owners see the bookkeeping as just a cost necessary to keep the taxman happy. This new requirement may be the catalyst needed to push that information into the light. Perhaps it will get business owners to seek some value from the extra work that undoubtedly will be required.
If you are worried about getting compliant with new digital requirements, want assistance with your bookkeeping or need more information to make better business decisions then Altus is here to help. Contact us here
Remember your partner and kids? Chances are that if you run your own business, you don’t see as much of them as you’d like – or should.
Finding the right work-life balance is crucial for small business owners. The Mental Health Foundation calls the growing demands of work “perhaps the biggest and most pressing challenge to the mental health of the general population”.
Smartphones and tablets might help us keep in touch when we’re on the move during the working day, but unless we are strict with ourselves, they can extend our working week into 24/7 and intrude into our holidays.
When I set my accountancy business Altus up, I was determined I would not be one of the many business owners who blurred the lines between work and home. So the mobile phone is switched off at evenings and weekends, and I will respond to any messages as soon as I can next day. Of course there will be times when you need to work that bit longer to meet deadlines, but unless you are a brain surgeon on call, the chances are that whatever issues arise outside office hours will not be a matter of life and death.
Busy-ness doesn’t equal success
Working long hours and at weekends can become a habit and we need to stop and ask ourselves if it is necessary, or do we do it because we feel we should? Being busy is not a barometer of how successful we are or how well our business is doing. The order book and P&L account will tell us that. It may have much more to say about our effectiveness.
It’s essential to honestly analyse your time – do you actually know what you have spent your time on? Spend a week faithfully noting down what you do and for how long – it may give you a shock.
There’s an old and true saying that sales are vanity, profit is sanity but cash is king. Are you spending your time chasing sales, running quicker and quicker to keep up, when it is profit you should be focusing on?
If you cannot get everything done in a usual working week, it can point to one of three things:
You are trying to do too much yourself
You are not working efficiently
There is something fundamentally wrong with your business model
Remember the 3 Ds – delegate, dump, do. When you have analysed what you are doing, identify the things you have to do.
Learn to step back
In my experience many business owners are by their nature control freaks – you have to learn to accept that someone else will not do it quite the way you would, but their way is not necessarily wrong. Do you think Richard Branson does his own payroll?
The age-old excuse is that ‘I can’t afford to pay someone to do it’ – no wonder when you are spending all your time doing ineffective, unnecessary things. Spend that time making profit and you will have plenty of cash!
I was delighted recently when one of my clients said that thanks to Altus, he was now able to spend more time with his family, doing the things he loved.
A good accountant should be someone who wants to support your business throughout the year, providing services that leave you free to focuson what you do best.
Having worked in companies of varying sizes, and building up my own business from scratch, I know the pull to put in long hours, but it should never become the norm. At Altus we work with businesses to provide the services that they don’t have the time or expertise for, and I can also act as a ‘critical friend’, advising clients on how to be more effective.
1st April sees what could be a significant change to the flat rate VAT scheme. It’s targeting what are being termed ‘limited cost traders’ – businesses where purchases of ‘goods’ are low. These are likely to be sole director/employee businesses, and in particular contractors providing services.
Small businesses can currently benefit from the ability to base their VAT liability, and therefore the amount of VAT they reclaim on purchases, on a fixed percentage depending on the nature of their business.
For many very small businesses this has meant a really quick and simple way to handle VAT and has seen some paying over less VAT than would have been the case under standard VAT accounting.
Changes were first mooted in the Autumn Statement, and we have been waiting to see the details before knowing how it would affect businesses. These details were finally revealed at the end of February.
The flat rate scheme remains in place but from 1st April a new higher rate (16.5%) is applicable to any business that is deemed to be a ‘limited cost trader’. The impact of this will be that for many the VAT flat rate scheme will no longer be beneficial.
You will be classed as a limited cost trader unless you have ‘goods’ in each VAT quarter of more than 2% of turnover (both calculated including VAT). You will also have to check each and every quarter whether this applies.
Goods are being defined as ‘moveable items or materials exclusively used in your business’. Critically for suppliers of services they do not include travel expenses, fuel, vehicle costs, telephone, rent, accountancy fees, training, memberships and also office equipment, computers and phones. This is not an exhaustive list, but you get the picture.
Clearly this excludes the vast majority of costs which many service businesses incur.
The options for a business caught by this change are:
1.Continue with the flat rate scheme and apply the new higher percentage, which may not be beneficial
2.If you are below the £83k VAT registration threshold then you could deregister for VAT
3.Change over to standard accounting or cash accounting methods
The best option will vary on a business by business basis. If you are, or think you may be, affected by these changes, then please do get in touch, and we will be happy to talk it through with you.
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