Seven things to do before the end of the tax year

The tax year end for individuals is 5th April. Many self employed people also have their accounting year end as 5th April or 31st March to coincide with the tax year. For private limited companies, 31st March is also a common date for the year end.

So what's the big deal? Another tax year ends, on to the next one. Well the deal is, that now is the ideal time for tax planning. There are decisions you could take now which could result in significant savings in the tax year or accounting period. Here are some ideas:

1) Buy business assets before the year end

If you are thinking of investing in business assets - new plant & machinery, vehicles, office furniture, computer equipment it is sensible to make your purchase before the end of current financial year, rather than the start of the next one. This provides a significant cashflow benefit so is worth planning for.

See this link for more details http://www.base52.co.uk/resources/tax-rates-and-allowances/capital-allowances

2) Manage your income

If you are in the fortunate position of being able to manage your income, plan now to optimise your income for tax purposes. For example, as a company director and shareholder, you may be able to reduce salary or dividends to keep your income below the key tax thresholds of £41,865, £100,000 or £150,000.

The £100,000 threshold is particularly painful from a tax perspective as the personal allowance is withdrawn. This gives an effective rate of tax at an eye watering 60%! So best avoided if you don't need the income and can defer this to another year.

3) Contribute to a pension

Pension contributions before the year end are a tax efficient way of saving for the future and reducing your tax bill.

http://www.base52.co.uk/news/latest-news-for-business/archive/news-article/2014/march/pension-changes

4) Use gift aid for donations

Using gift aid for charitable donations has the effect of raising the basic rate tax band and saving 20% tax for higher rate tax payers. So for every 80 pence you donate, your chosen charity receives £1.00. 

5) Use your tax free savings allowance

If you are lucky enough to have surplus cash, make sure that you use your annual ISA allowance. Within an ISA, all income and gains are tax free. 

From 1 July 2014, the rules were relaxed. You can now save up to £15,000 in 2014/15 and £15,240 from April 2015. You now get to choose how you split this between stocks & shares and cash ISAs. 

http://www.base52.co.uk/factsheets/personal-tax/individual-savings-accounts

6) Use your annual capital gains exemption

If you have personal assets (shares, property etc) and are intending to sell them soon, consider the capital gains tax implications in advance. You may be able to time the sales of shares for example to spread over 2 or more tax years and utilise your £11,000 annual exemption effectively.

http://www.base52.co.uk/resources/tax-rates-and-allowances/capital-gains-tax

7) Set money aside for your tax bill

If you take some of the steps above you should be able to reduce your 2015 tax bill. 

If you are a high earner however and your income is not taxed at source, no amount of planning will eliminate your tax bill. Setting a percentage of your income to one side to cover your tax bill and placing it in a deposit account is a sensible measure and will help avoid any last minute scraping around in January to find the funds.

www.base52.co.uk

Take control of your accounting routines

High profile entrepreneurs like Richard Branson and Felix Denis, the late publishing billionaire and author, have stressed the importance of having excellent financial management and accounting routines. I can't think of any successful business I know that doesn't manage their finances well, but have come across many that have failed or lurch from crisis to crisis, who are not in control of their finances.

In my experience, many small businesses deal with some aspects of financial management but focus mainly on compliance. They deal with tax returns and Companies House administration with help from their accountants. Often the parts that get ignored, or are done less well, are monitoring performance on a regular basis and looking forward rather than backwards. I would argue that these aspects are critical for business owners who are serious about building sustainable, profitable businesses.

It is difficult for small businesses to find the resources and skills in-house to put in place comprehensive and effective financial management routines. This is why outsourcing is a sensible option. At Base52 we provide affordable outsourcing solutions to small businesses. As well as providing essential compliance services like year end accounts, payroll and tax returns, our outsourcing service also includes:

* Bookkeeping
* Credit control
* Monthly or quarterly management accounts
* Forecasting
* Financial management advice
* Advice on tax effective drawings for the business owner

Another advantage of outsourcing is that it is scalable. We adapt the level of support your business needs depending on your stage of development. For example, some businesses may require bookkeeping support at the start-up stage. When they are more established they may recruit their own bookkeeper but continue to outsource management accounts which require a higher level of skill and expertise to prepare.

Whatever you need, it's important to find a team you can work with and rely on in what is a vital part of any growing business.

If you would like to find out more about our outsourcing solutions please contact me on  fred@base52.co.uk or call 01462 423152

www.Base52.co.uk

Tax tips for the 'Comfortable poor'

The brilliant author and publisher, Felix Dennis, who sadly died this year, created various categories to compare relative wealth of individuals. These range from the 'Comfortable poor' who have quickly realisable assets of £50,000 to £200,000 to the 'Filthy Rich' with quickly realisable assets of over £100m. Mr Dennis himself was amongst the select group of 'Filthy rich', his fortune built on his entrepreneurial endeavours.

We don't have any clients in the 'Filthy rich' category but we do have some who are 'Comfortable poor' or aspiring to be so. These will often be higher rate or additional rate taxpayers, still working hard in employment or in their own business, often with young children still living at home. These tax tips are aimed at this group and could help them to keep more of their hard earned income.

1 Use your annual ISA allowance

Anyone over 18 can now invest up to £15,000 in a tax year and receive all their interest or returns tax free. The investment can be split between cash and stocks and shares.

2 Make pension contributions to keep child benefits

Over 1m people have been adversely affected by the child benefit changes which were introduced in 2013. The benefit starts to withdrawn when one earner in the family has income of more than £50,000 and is taken away completely if earnings are £60,000.

If you are earning a little over £50,000 you could invest some of your income into an Additional Voluntary Contribution into your corporate pension scheme or into a personal pension scheme. As well as being a tax effective method of saving for retirement this could enable you to retain your entitlement to child benefit by reducing your qualifying earnings to below the £50,000 threshold. An extremely attractive double benefit.

3 Keep your personal allowance and save 60% tax with pension contributions

Following a similar approach to that described above can enable you to retain your personal allowance and save 60% tax.

For earnings between £100,000 and £120,000 the £10,000 personal allowance is gradually withdrawn. The effect is that the rate of tax on these extra earning is a painful 60%!

Making pension contributions to reduce your earnings below £100,000 can avoid this punitive tax rate.

4 Share your personal allowance

From April next year basic rate taxpayers will be able to transfer up to £1,000 of their personal allowance to their spouse or civil partner. 

So just a few tips here to help the 'Comfortable poor' keep a little more of their income. These are all reasonable planning steps introduced by the government to encourage saving, investment in pensions and recognise the value of marriage and civil partnership. If these leave you feeling slightly guilty for keeping this money out of the chancellor's coffers you could always donate more to charity. That could potentially save you more tax but I will save that for another blog.

www.base52.co.uk

The tax man cometh

We have had some recent successes with dealing with HMRC enquiries on behalf of our clients. These have included enquiries relating to tax returns, an IR35 review, a special relief claim and others. Although we have achieved good outcomes, the enquiries have been stressful for our clients and the Revenue have taken quite a tough line in some instances.

So it is good to be prepared if HMRC knocks on your door (metaphorically speaking, normally they would send a letter) to limit the risk of any nasty surprises.

The first and most obvious thing you can do to reduce the risk of an enquiry (or HMRC finding something wrong in an enquiry) is keep good records and take care to work within HMRC guidelines. Another sensible precaution is to take out tax investigation insurance. This will cover the professional costs associated with dealing with an enquiry. Enquiries can often be protracted and knowing that most of your accountancy fees are covered can at least reduce some of the stress and worry. Most accountants offer this insurance as part of their service and for a few pounds a week I think it is a sensible thing to have.

If you are unlucky enough to be singled out for an enquiry, in most cases it would be advisable to work with your accountant to respond to HMRC and follow the enquiry through to a conclusion. Our approach as a practice is to be transparent and open and deal promptly with any requests for information from HMRC. Of course, if we disagree with decisions made by HMRC we will challenge these and follow the appeals process until the best outcome is achieved.

A recent report in the Daily Telegraph disclosed that thousands of people successfully fought the tax office last year after beings chased for money. The disputes were settled by the Tax Adjuducator, a little-known body that arbitrates between HMRC and individuals. In a staggering 9 out of 10 cases, the adjudicator found in favour of the individuals.

Most of the cases related to surprise tax bills, often due to incorrect PAYE codes. In these circumstances the Revenue needs to act fairly and is permitted to write off the debts under 'extra statutory concessions' if 3 conditions are met:

- Did HMRC make 'proper and timely' use of information provided to it?

- Could the taxpayer 'reasonably have believed their affairs were in order'?

- Was notification sent with 12 months of the end of the tax year in question?

So the first step if you believe you are being asked to pay unexpected arrears of tax unfairly maybe to ask your local tax office to apply the Extra Statutory Concession (ESC A19). If it refuses you can then file a complaint and ultimately after exhausting all other avenues, the next step would be to refer the case to the adjudicator.

If the tax man selects you for enquiry it is undoubtedly a cause of anxiety and stress. With help from your accountant and a dogged approach you can come out the other side with a good result. Remember to reduce your risks in the first place with accurate and timely record keeping and taking out insurance to cover your professional fees.

www.base52.co.uk

Is anyone else missing their business bank manager?

I am an owner/part owner in three businesses and I use the same bank for each of them for business banking. Earlier this year my bank decided to do away with 'relationship managers' for smaller businesses. There was no consultation about this (at least not with me!). I received a letter announcing the change and within a couple of months my relationship manager had moved on.

Progress? A logical step due to increased automation? I think not. I really valued my relationship with my relationship manager. (No pun intended). He had been my contact at the bank for many years. He knew me and my business. We met a couple of times a year for a catch up and he was supportive of my goals and offered good advice when it was needed.

Of course not all relationship managers have been removed. I think there is a turnover threshold of about £1m. If you are in this exclusive group you are allowed to keep your relationship manager. For me and thousands of other business owners we are now left to fend for ourselves. The 'personal' contact with the bank has been removed with the swish of an accountant's pen, or maybe spreadsheet.

So why do I feel that's a backward step? Sure the bank will save millions of pounds in the short term by removing a layer of relatively highly paid managers. But what will they lose? Well here are just a few thoughts:

• Customer retention - my relationship manager was the single biggest factor why I stay with my bank. We are loyal to people, not institutions. No personal contact, less loyalty.
• Less business - my relationship manager was always the first port of call if I wanted to open a new business account, take out a loan or overdraft, extend the scope of my services etc. If I need to do this through the internet or a telephone helpline I am much more likely to shop around
• Referrals - professionals like me refer our clients to our own bank if we like the service. If we don't we are far less likely to refer
• Competition - there is surely an opportunity here for one or more of the other banks to make a big splash about how they are continuing to provide relationship managers. 

I have had my first direct experience of missing my relationship manager this week. My business has been growing well in the last 2 years and I would now like to accelerate things a bit. I have healthy reserves and cash balances but I would like a little contingency to cover some of the expansion costs.

So I am thinking of taking out a relatively small loan just to have in reserve in case the plan goes a bit slower than anticipated. Normally this is something my relationship manager would have dealt with for me. Instead I have had to call a telephone help line. They don't know me or my business and they are just ticking boxes. I'm pretty sure the loan will be approved but there is more form filling, more time invested and, well, it's just a little less customer friendly. 

I think there is a lesson here. Banks need to manage their costs and increasing automation will inevitably reduce some of the 'human' element and personal touch. I believe that the personal element is still very important, particularly in a 'business to business' context. If the banks remove this, without listening to their customers, they should not be surprised if their customers become less loyal.

Why bother with the balance sheet?

I'm going to make a confession. For most of my career as a management accountant I didn't pay much attention to company balance sheets. As a management accountant at Boots the Chemists and Tesco my focus was mainly on gross and net profits. Tracking these by week, month, product, department etc was the priority and other accountants worried about the balance sheet. Of course I understood the make up of balance sheets and the importance of archieving a good return on capital employed. But monitoring assets and liabilities, looking at trends, making improvements, was not part of my remit.

This has all changed in the time we have been helping our clients with financial management at Base52. Sure, profits are important and a business that is not making profits will not last long but the balance sheet shows how tangible those profits are and what is left after distributions to the shareholders.

So our management accounts for clients show the profit & loss and the balance sheet too. We take time to review and prove every asset and liability total on the balance sheet. Are the fixed assets all still held by the company and are the values realistic? Are stock and work in progress valuations accurate? Are there any bad debts? Is the company collecting receipts from customers fast enough? Are liabilities affordable when coming due for payment and does the company have enough cash? Are dividends set at an appropriate level and affordable? These are all key questions which can only be answered by a thorough review of the balance sheet.

The best businesses have strong balance sheets. In other words, there are no hidden nasties, like bad debts or inflated stock valuations waiting to pop out and there is a healthy surplus of net assets. Perhaps 10% of sales is a desirable minimum level for net assets but 25% or more would be preferable and provide a contingency in the event of a downturn in business. Too many small businesses have negligible net assets and this exposes them to significant risks if trading is worse than anticipated. A weak balance sheet will also affect a company's ability to gain credit or loan finance. 

If your business is profitable that is great news. If after tax and dividends there is still a good surplus on the balance sheet that is even better and essential if your business is to thrive. So take the time to understand your balance sheet. If it is not part of your regular monthly routine, I would argue it should be if you are serious about building a solid business. 

www.base52.co.uk

Breaking up is hard to do?

Changing accountants is a difficult decision. You may have had a relationship for several years and have shared highs and lows on your business journey. There can come a time however when it is in the interests of both parties for there to be a change. Usually this comes down to capability. Is your current accountant capable of meeting the needs of your business as it develops over the next few years? If, after a careful and considered assessment, the answer is no, it is time to move on.

In my experience, many business owners put this decision into the 'too difficult' pile and things trundle along in an unsatisfactory manner, often for several years. 

As Neil Sedaka says, 'Breaking up is hard to do', but it may not be as difficult as you think.

Here are the usual steps:

Step one

Find your new accountant. A good starting point is talking to your business colleagues and asking who they work with and how the relationship works. Build up a short list of 2 or 3 candidates and meet and talk to them. Ask to speak to their clients to try and get a real understanding of how they work. You need to find someone who can support your business over the next few years. Take your time and broaden your search if you need to. It's a big decision and you want to get it right.

Step two

Let your current accountants know of your decision to change and let them know the name of your proposed new accountants. The 'ideal' time to change is after any major 'work in progress' is completed. So for example, changing whilst your accountant is in the middle of preparing your annual accounts is probably not a good idea.

Step 3

Your proposed new accountants will then contact your outgoing accountants and ask if there are any professional reasons why they should not accept the appointment and also to request the formal handover of records and working papers. The records requested enable the continuity of accounts and tax work.

Step 4

The handover of reponsibilities and records takes place

Step 5 

Your new accountants will prepare formal terms of engagement and when these are in place they can commence work

The handover process normally takes 2 to 3 weeks and usually works smoothly and effectively. There can occasionally be delays if outstanding work is to be completed by the outgoing accountant or a final invoice to be settled, but complications are rare.

Breaking up is undoubtedly hard to do. It is sometimes necessary however and choosing the right advisor can have a very significant impact on your business. So don't put this decision off because it is 'too difficult'. Grasp the nettle and you and your business could reap the benefits.

www.base52.co.uk