What do you do when the phone stops ringing?

Business owners like being busy. Too busy to get through the urgent task list, speak to that important customer, deal with a tricky problem raised by a member of the team.  They like the buzz, the adrenaline rush, up and out of the door early, in the office before everyone else and work, work, work. Doing stuff until it's time to go home.

But suddenly it seems, something strange happens. The customers who used to contact you directly are dealing with members of your team. The volume of emails and phone calls you have to deal with has slowed down to a trickle. Business is still coming in and work is getting done but it's happening without you. 

It's a strange and unnerving feeling.

So what do you do? Well for some the need to be busy takes over. They will pile in and take on some work from the team to fill up the time. Before long they have their head stuck in a tricky customer project and they don't have time to sort out their important jobs again. They are needed and fixing problems. Job done? Well maybe not. They are busy but busy in their own comfort zone and the cycle starts again.

So if you are a business owner and this happens to you, my advice is pause and take some time before doing anything. Embrace not being busy for a while and use this time to think. What should your role be? How can you really move your business forward?

Steve Jobs at Apple went through a period of restructuring and consolidation and building up reserves in his business. Someone asked him what his plans were and why he wasn't moving forward with new initiatives. His reply was, 'I'm waiting for the next big thing'. That big thing was the change to downloading music and out of that came iTunes and the iPod and the resurgence of Apple.

As small business owners we maybe aren't setting our sights as high as Steve Jobs but we all have 'things' happening in our industries which will affect how we do business in the years to come. Maybe we should get busy seeing how we can exploit this rather get busy doing what makes us feel comfortable? 

www.base52.co.uk

Tax planning makes perfect sense

In this age of austerity, taking steps to minimise your tax bill can be seen by some to be a little selfish. The Social Market Foundation reported last year that the gap between rich and poor has widened significantly in the last decade. So for the wealthier members of society to take steps to save tax, when such planning opportunities are less readily available for the less well off, perhaps increases the sense of unfairness.

We need to make a distinction here between tax avoidance and tax planning. Tax avoidance schemes are often complex and high risk arrangements that take advantage of loopholes in the tax regulations. A high profile example was the case of the comedian Jimmy Carr using a legal but morally questionable scheme several years ago which led to him paying as little as 1% tax on his earnings. HM Revenue and Customs has tightened up the rules on tax avoidance schemes in the last few years. Promoters of such schemes have an obligation to disclose them to HMRC and they have specialist task forces to seek out rule breakers. Many accountants and professional advisors would not recommend avoidance schemes to their clients. Leaving aside the ethical arguments, the risks are high with HMRC winning 80% of avoidance cases the taxpayer chooses to take to court.

Tax planning however, that is, working within the tax regulations to minimise your tax liability, is a sensible approach for many people, particularly those with more complex tax affairs. One of the most famous quotes in tax planning comes from Lord Clyde in a decision he gave in 1929, ‘No man in the country is under the smallest obligation, moral or other, so to arrange his legal relations to his business or property as to enable the Inland Revenue to put the largest possible shovel in his stores’.

So what kind of measures would come under the scope of tax planning? Well often this is taking advantage of tax breaks the government has put in place to encourage savings and investment eg maximising pension contributions, making use of annual ISA allowances, using business investment allowances etc. There are also planning steps for married couples and civil partners to spread asset ownership to make maximum use of capital gains exemptions and income tax allowances. Planning the timing of asset purchases and disposals across tax years can also be a useful planning step. For business owners, drawing income from their company in the most tax effective manner is good practice. None of these are radical steps likely to attract the attention of HM Revenue and Customs. With care and often with professional support such steps can help you keep more of your hard-earned income and gains. What you choose to do with the extra money is then up to you, rather than HM Government.

www.base52.co.uk

Thoughts on starting a business

Lots of people start business, for all sorts of reasons - they have a great idea, they have a particular talent for something, they get made redundant, they get fed up of being an employee. These are all good reasons, but what does it take to stay the course and build a business that gives you a regular income and is maybe something you could sell one day for a pot of money?

Although having a great idea or a particular talent or fancying a change may be reasons to start a business, none of these will guarantee success in themselves. It's often not the person with the great idea who runs a successful business, it's the one who implements the idea well. You can be a brilliant painter or architect or plumber but is you are rubbish with money or no one knows how good you are, the business will not fly.

Breaking it down into its essential components to run a successful business you need the following:

To provide a product or a service that people need or want

To let people know about it and sell it

To agree your prices up front

To collect money and get paid

To make a profit, ie get more income in than you spend

If any of these components are missing or not done properly the business will struggle and probably fail.

So how does a one person start up business manage all these different activities? Well if they are serious about wanting to succeed, they do all of the above themselves or they find someone who can do it for them for an affordable price.

The most common gaps I see are people who are lousy at finance and don't pay enough attention to it and people who don't do enough marketing and don't devote enough time to selling their product or service. Inevitably theses businesses will eventually fail. If financial management is poor, the end often comes quickly, with a surprise tax bill or similar occurrence. With poor marketing, the demise may take a bit longer but eventually the business stagnates and withers.

The early years for a start up can be a hard slog with uncertainty about income, long hours and not much time for relaxation or to spend with family. Get through this though and the rewards and satisfaction of being your own boss can be substantial. I hope these tips help start you on your way with your eyes open.

www.base52.co.uk

8 things to do before the end of the tax year

It's that time of year again when some planning in the last few weeks before the end of the tax year could provide a useful tax saving.

The tax year end for individuals is 5th April 2016. 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.

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. Timing your investment could mean that you can claim your capital allowances sooner, saving on cashflow:

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 £42,385, £100,000 or £150,000. An income level of £50,000 where child benefit is withdrawn from the highest earner in a household is another key threshold to monitor.

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% at income levels between £100,000 and £121,200. So best avoided if you don't need the income and can defer this to another year.

3) Consider the effect of the new dividend tax

A new dividend tax is being introduced from 6th April 2016. This will affect people who receive a significant amount of dividend income each year. There is a £5,000 dividend allowance where dividends are free of tax. Above this level however new rates of dividend tax will apply for varying levels of income. 

This will affect business owners in particular who may be used to drawing a relatively high proportion of their income as dividends. In some cases, if you are considering a substantial dividend, it may be advisable to bring this forward to 2015/16 rather than receiving the dividend in 2016/17 when the new taxes will apply. This will depend on your particular circumstances and it would be advisable to discuss this with your accountant before making any decisions.

http://www.base52.co.uk/news/latest-news-for-business/archive/news-article/2016/January/dividend-allowance-and-rates-of-tax

4) 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. Advice should be sought from a suitably qualified Independent Financial Advisor to ensure that your particular circumstances are considered.

5)  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. 

6) 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. 

You can now save up to £15,240 for 2015/16 and this limit will be maintained for 2016/17. You can choose how you split this between stocks & shares and cash ISAs. 

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

7) 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 £11,100 2015/16 annual exemption effectively.

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

8) Set money aside for your tax bill

If you take some of the steps above you should be able to reduce your 2016 tax bill. 

If all or some of your income is not taxed at source however, it is likely that you will be faced with a tax bill for 2015/16.

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 panics in January trying to find the funds. Another tip is to get your tax return completed as soon after the end of the tax year as possible. This give you an early warning of any additional tax due so that you have sufficient time before the payment deadline in January.

www.base52.co.uk

What has the government ever done for us?

Mimicking the famous line about the Romans in 'Life of Brian', let's imagine we have a group of men and women who run their own small businesses and one of them asks this question about the current government. Just to clarify, when I say 'small' business, I mean 'small'. Let's say below £200,000 annual sales. I don't have the precise numbers to hand but I would imagine that this would cover the vast majority of businesses currently trading in the UK. Typically the owners are not fantastically wealthy. The more successful ones will have taken risks and made sacrifices to get their business to a stage when they can draw a reasonable income from it. 

Let's look at the positive things the Government has done for this sector. Corporation tax rates are relatively low and are set to fall further from the current level of 20% to 18% by 2020. They have introduced an employment allowance for employers which reduces their national insurance bill. In 2016/17 this will be an allowance of £3,000 per annum. (Note though that this only benefits businesses that have employees on the payroll above the NI threshold and it does not apply to single director businesses). The capital allowance thresholds are relatively high but in reality these only benefit larger businesses who invest at a higher level. That's about it. Oh, there's also small business rate relief although that only benefits businesses that own or rent their business premises. 

Now let's look at the negatives. The biggest debit has to be the introduction of the new dividend tax from April next year. This will add a significant personal tax burden to small business owners who run their own limited companies. The stark choice is that they  will need to make cuts to their own personal drawings or cut back in their businesses. It is also becoming increasingly apparent what a huge overhead the new mandatory employment pensions will be for the smallest businesses. For businesses struggling to keep up with HMRC compliance this is another unwelcome administrative burden being foisted on them, with minimal practical support. Then there is the new National Living Wage being introduced from April. Larger businesses have the capacity to cope with this. Our smallest retailers, hairdressers etc will find this a major challenge, especially with the other measures outlined above compounding their financial difficulties. They have also made it more expensive for these entrepreneurs to exit from their business. Changes to the rules on solvent liquidations mean that entrepreneurs' relief will no longer be available in these circumstances from April. Many business owners will now face a much higher capital gains tax liability on exit than they had planned for.

So let's go back to the original question put to a room full of small business people. What has the government ever done for them? Well, looking at the most recent changes, the answer would have to be, 'Not a great deal and they are making our lives a lot more difficult.'

The Government will point to the positive measures above and the difficult decisions they have had to take to stabilise the public finances. In my opinion, some of the burden is falling disproportionately on the smallest of small businesses. Some of these adverse measures will really start to bite this year and particularly in 2017/18 and I believe there will be a negative impact on business profits and investment in these businesses. By nature this group tend to be positive and resilient and not given to making a fuss. I believe the government should not take their goodwill for granted however and they are running the risk of alienating a cohort who should be their natural supporters.

www.base52.co.uk

Tax doesn't need to be taxing. Does it?

Well, Christmas is over and for accountants it's back to working towards that tax deadline at the end of end of January. This is often the busiest time of the year for accountancy firms with a rush to complete the remaining tax returns.

So why does the bulk of the tax work often fall in December and January? After all the tax year ends in April, almost 10 months before the January deadline. Surely that's plenty of time to get the bulk of the tax work done, just leaving a bit of mopping up work in December and January? Well yes, you'd think so but the things that need to be factored in are human nature and individual preferences. 

We start requesting records from clients in May or June and then send regular reminders well into January. We try and spell out the benefits of getting tax returns done early - it's off your list, you know what tax is due and can plan for this, it stops us pestering you etc etc. Most of this is to no avail. The clients that want to send us their records early will do so. Those that don't, don't. If that sounds a bit fatalistic I'm sorry, but the evidence bears this out. Individual clients (I'm not mentioning anyone by name so I'm sure they won't mind) will not even think about their tax return until after Christmas. If we are lucky they will give us the records in mid January and give us a fighting chance of meeting the deadline. One or two will wait until a week or so before the deadline before they are motivated to dig out their records. 

So we kind of gear ourselves up for this and try and keep things flexible in January so we can get the work done.

We are not complacent though. In February we will sit down and say, 'How can we do this better?' 'How can we encourage clients to bring in their records earlier?'. We will then work hard to implement any improvements. Maybe next year will be the year we will have a less frenetic January.  I'm always optimistic about this but I won't be booking any holidays in January just yet.

Three weeks to go and we might allow ourselves a quieter day or two in February before we move onto the next round of deadlines. Well we'd get bored if we weren't busy.

Www.base52.co.uk

New dividend tax will hit small business owners hardest

In the summer budget this year, George Osborne quietly announced the introduction of a new dividend tax. I say 'quietly' because there seems to have been very little fuss about this, very little in the way of challenge from business groups and it now seems to have slipped away under the radar. Compared to the current rumpus about tax credits it seems like the government has been able to make this change very easily.

The impact on many small business owners however will be very significant indeed. For an owner/director of their own limited company drawing say £40,000 net income per annum they will be over £1,500 per annum worse off from April 2016 as a result of this dividend tax. That is nearly 4% of their net income which the chancellor will be taking from them, every year.

Let's not forget too that this is double tax hit for these small business owners. The company will also pay corporation tax on the profits before they are distributed as dividends. I can't help thinking that this is a way of raising revenue from a group who as a rule tend not to protest but roll their sleeves up and get on with it. A classic 'stealth tax' where a small group will be seriously affected but unlike with tax credits, the people affected are, wrongly in my view, perceived to be wealthy, and will draw little public sympathy.

Drawing £40,000 net per annum is not untypical for many business owners. Personal drawings above this level are taxed at higher rate so are less attractive and in any event, many entrepreneurs want to retain any surpluses in their business, as contingency or to fund growth. In leaner times, many of those affected by this tax will have forgone any income at all in an attempt to sustain their businesses. The chancellor has now seen fit to impose a new tax on income from their 'risk' capital which will hit small business owners very hard.

This is one of those taxes where the effect is not immediate but I believe will have a material impact on the household incomes of small business owners and on their businesses, when it starts to bite. The tax starts in the next tax year 2016/17. It will be collected via personal tax returns and will not be payable until January 2018. As well as the dividend tax due, taxpayers will need to pay a further 50% 'on account' for tax year 2017/18. So it will perhaps be from Autumn 2017 to January 2018, as tax returns are finalised for the previous tax year, when some business owners will realise how much they are going to have to stump up.

If they have not already made provision for the tax or have savings to draw on, they will have a choice of tightening their household budgets or drawing more from their businesses to pay the tax. Either way, I believe a small, hard working, enterprising group, exactly the people the chancellor supposedly wants to help, have been targeted unfairly by this tax. The government will point to positive measures like the planned reduction in corporation tax rates and the increase in the employment allowance which underline there 'business friendly' credentials. For owners of smaller limited companies, with modest profits and no other employees, where these changes deliver less benefit or do not apply, they will not compensate for the adverse impact of the new dividend tax.

Our focus now as business advisors will be to help our clients plan for this new tax and to take steps to mitigate the impact where possible. 

The summer budget received a broad thumbs up from small business groups when introduced earlier this year. Now that the dust has settled it is becoming clearer that for owners of the smallest limited companies, they will be significantly worse off as a result of the new dividend tax.

This link gives further details: 

http://www.base52.co.uk/news/latest-news-for-business/archive/news-article/2015/September/taxingdividends-from-april-2016