January is the perfect time for a health check.... for your finances

Happy New Year!

We all know the January feeling of resolutions, healthy eating and dry January, so we’re all used to health checks for ourselves, but what about our company finances?

We’re here to tell you it’s just as important to review your company books, and what better time to do it than the start of the new year?

Are you sure you’re making decisions based on accurate data and utilising cloud software to it’s fullest extent? We can tell you that the majority of small businesses aren’t!

Fear not, we’re here to help

Did you know that we offer a Xero health check service? We review your current processes to ensure you’re making the most of the subscription, and provide suggestions of better ways to do things. We also review your figures to ensure they are being processed properly and highlight problem areas.

Let us put your mind at rest and get in touch for your Xero health check today!

3 things you might not know about self assessment tax returns

With the tax return filing deadline just around the corner (31st January if you weren’t sure!), here are 3 things you might not know about self assessment tax returns.

High income child benefit charge

If you receive child benefit and your individual income is over £50,000 then you may have to pay a high income child benefit charge.

If both your and your partners individual income is over £50,000 then whoever has the highest income will be liable for the charge.

If you earn over £50,000 then you have two options:

1. continue to receive child benefit and pay the tax charge at the end of each year

2. stop receiving child benefit

If you choose to continue to receive child benefit then you’ll need to submit a self assessment return each year to pay the high income child benefit charge.

Trading Allowance

Started a side hustle during Covid?

The first £1,000 of income from self employment is tax free. This means you don’t need to submit a tax return until earning over £1,000 from that new side hustle!

If your other income is between £1,000 and £2,500 then you need to notify HMRC.

Earning over £2,500? Then you’ll need to report your earnings on a self assessment tax return.

Property Allowance

Do you earn income from property? If so, the first £1,000 of the gross income is tax free.

If you earn between £1,000 and £2,500 then you need to notify HMRC and if earning over £2,500 you must register for self assessment.

If in doubt get in touch and we can let you know your options!

Autumn budget 2021 - our top 5 announcements affecting small businesses

On 27th October Rishi Sunak presented his Autumn Budget to parliament. Here we summarise the top 5 announcements that affect small businesses:

1.

National Living Wage to increase next year by 6.6%, to £9.50 an hour from April 2022. This coupled with the new Health & Social care levy will have an impact on wage costs for small businesses. It’s important to model how this will affect your business allowing plans to be put in place to cover the cost.

2.

Business rates reforms include:

• A 50% business rates discount for the retail, hospitality, and leisure sectors in England in 2022-23. To support local high streets as they adapt and recover from the pandemic, the government is introducing a new temporary business rates relief in England for eligible retail, hospitality and leisure properties for 2022-23, worth almost £1.7 billion. Over 90% of retail, hospitality and leisure businesses will receive at least 50% off their business rates bills in 2022-23.

• Reform of business rates will make the system fairer, more responsive and more supportive of investment. The proposals set out will collectively reduce the burden of business rates in England by over £7 billion over the next five years.

• The government is freezing the business rates multiplier in 2022-23, a tax cut worth £4.6 billion over the next five years. This will support all ratepayers, large and small, meaning bills are 3% lower than without the freeze.

• From 2023, a new business rates relief will support investment in property improvements so that no business will face higher business rates bills for 12 months after making qualifying improvements to a property they occupy. This will enable businesses to adapt to meet rising demand and make improvements to their premises that support net zero targets and enhance productivity as employees return to the workplace.

3.

Investment in R&D and innovation will help drive economic growth and create the jobs of the future. The government is increasing public R&D investment to record levels: £20 billion by 2024-25.

Reforms to R&D tax reliefs will ensure that they better support cutting-edge research methods and that the UK more effectively captures the benefits of R&D funded by the UK taxpayer through the reliefs. This will take combined public direct and indirect support for R&D to 1.1% of GDP in 2024-25 – well above the 2018 OECD average of 0.7%.

The government will also set out plans to tackle abuse of and improve compliance with the R&D tax reliefs later in the autumn.

4.

Apprenticeships funding will increase to £2.7 billion by 2024-25 to support businesses to build the skilled workforce they need.

Funding for the Help to Grow schemes will help SMEs improve their productivity through world-class management skills training and support for digital adoption.

5.

The Recovery Loan Scheme will also be extended until 30 June 2022 to ensure that lenders continue to have the confidence to lend to small and medium-sized businesses. Finance will be available up to a maximum of £2 million per business, supporting them to recover from the impact of the pandemic and to grow. The government guarantee will be reduced from 80% to 70% to encourage the lending market to move towards normality as the economy continues to recover.

Bookkeeping - what do I need to do and how do I do it?

Have you ever thought:

“I won’t need to do bookkeeping if I’m using cloud bookkeeping software as it does it all for me?”.

Well, as much as cloud bookkeeping software, like Xero, make the bookkeeping easier, there is still some human interaction required. This can be done by you, the business owner, or a bookkeeper/accountant. Your choice is whether to give up time to do it yourself or money to hire a qualified bookkeeper/accountant to do it all for you.

Here, we’ll walk you through the 3 main areas of bookkeeping and what you’ll need to do in each area.

Sales

First things first, you need to know how much your turnover is and to do this, you’ll need to record your sales. There are a couple of ways to do this and the industry you’re in will decide which is the best fit for you:

Raise sales invoices - If you need to send your customers an invoice, you should raise these in Xero. The sales invoice template can be customised and emailed out to your customer straight from the software. Raising the invoice also accounts for the income in your software, so you’re killing 2 birds with one stone!

Feed sales through from another software - The other option is to feed your sales through from another software, this could be a sales channel for e-commerce businesses or project management/time tracking software for service based businesses. By finding a solution that connects directly with Xero, or via another app, you’ll be ensuring that the data is fed through correctly and automatically, meaning you can see your income position on a real time basis!

Purchases

Hands up if you’ve heard that old saying:

“Turnover is vanity, profit is sanity”

Well, by processing your sales as detailed above, you’ll be able to monitor your turnover, but without also accounting for your purchases, you’ll never be able to monitor your profit.

As a practice, we use Dext to process invoices for our bookkeeping clients as this helps automate the process, however purchases can be recorded straight into Xero, it’s just a lengthier process.

Each cost should be categorised accurately depending on the type of cost, is it a direct cost, an overhead, a capital item, a personal cost?

If you are a VAT registered company then the VAT rate also needs assigning correctly, is the cost vatable and if so, is that VAT claimable or is the cost client entertaining or a similar disallowable VAT cost?

Bank

The final main area of bookkeeping is reconciling the bank transactions. Xero supports bank feeds from lots of high street and challenger banks so the bank transactions are fed in automatically each day. Wahoo!

The human element is in matching and assigning these transactions. Each bank transaction must be matched against the corresponding sale or purchase invoice or coded to the correct code in Xero.

These are the basics of bookkeeping. There are other elements such as reviewing aged payables and receivables transactions, registering assets, posting payroll to name a few.

If you have any questions or would like assistance with your bookkeeping then get in touch!

VAT changes for goods sold to EU consumers

On the 1st July 2021, VAT changes were made by the EU which impact UK e-commerce companies who:

• export goods to the EU

• to consumers (not businesses)

• where the parcel has a value under 150 euros

IOSS - what is it?

Import One Stop Shop (IOSS) is a simplification procedure that the EU have brought in to help ease the administrative burden for businesses selling low value items to consumers in the EU.

Instead of having to register for VAT in multiple countries, an e-commerce company can now register for VAT in one EU country and file a single return to cover sales to all 27 EU member states

When registered under IOSS, a single monthly return must be submitted and payment made, to cover all EU states liabilities.

Do I need to register?

If you export goods to consumers in the EU that have a value under 150 euros, then it would be sensible to consider registering for IOSS.

The IOSS also makes the process easier for the buyer, who is only charged at the time of purchase, and therefore does not face any surprise fees when the goods are delivered.

If the seller is not registered in the IOSS, the buyer has to pay the VAT and usually a customs clearance fee charged by the transporter at the moment the goods are imported in the EU.

I only sell through an online marketplace, do I need to register?

If your e-commerce company only sells goods under 150 euros to consumers, through a marketplace such as Amazon, then you do not need to register for IOSS.

In these circumstances the marketplace is the deemed supplier of the goods to the consumer and so they will be registered for IOSS and submit the monthly return.

There is a deemed supply of the goods from your company to the marketplace which is exempt for VAT.

It’s all change and can be a bit daunting at first. As with all complex financial changes, it’s best to discuss your specific situation with your accountant.

New service! Learn about our Virtual FD package and who it's right for.

Roughly 50% of small businesses fail before their 5th birthday.

What a daunting statistic for any new business owner!

Obviously there are many reasons that businesses fail, but one of the most common is not making the wisest financial decisions. Most business owners have a million and one things on their to do list and almost always, analysing financial data falls to the bottom.

What is a Virtual FD and is the Lodestar package right for you?

Do you want to understand the financial side of your business without spending hours trawling through data? Do you lack information to enable you to make informed decisions for business growth?

If you answered yes to these questions, then you need a Virtual FD.

‘A virtual FD is a financial expert who offers insights and advice to businesses.’

Do you want an approachable team who care whole heartedly about the future of your business? Do you need a sounding board and someone to provide financial sanity? Do you use Xero?

If yes, look no further, we’re the ones for you!

What is included in the Lodestar Virtual FD package?

The Lodestar Virtual FD package includes:

* Monthly bespoke management accounts pack to include Xero Profit & Loss report, Balance Sheet and Aged Receivables/Payables where applicable, plus tailored reporting as agreed.

* Monthly KPI analysis

* Monthly Fluidly cashflow forecast report to assess the next 12 months cash position

* Annual budget and forecast

* Monthly meeting of up to 1 hour to discuss:

- business performance and management accounts

- future plans and growth opportunities

- identifying cashflow issues and providing solutions

* Interim meeting of up to 1/2 hour to discuss ad hoc queries

How much does it cost?

A full time Finance Director (FD) will cost a company anything from £50k in salary, plus perks and holiday leave on top. This is out of reach for many SME’s, but why should a small business miss out on the valuable services that an FD can offer. This is where the Virtual FD role comes in!

The Lodestar Virtual FD package, provides all the priceless information to you from only £845 + VAT per month.

Want to know more? Get in touch!

Super deduction, are you making use of it?

For expenditure incurred from 1 April 2021 until the end of March 2023, companies can claim 130% capital allowances on qualifying plant and machinery investments.

But what does that mean?

During this period, for every £1 that a company spends on qualifying assets, they will receive a £1.30 deduction from their taxable profit. That’s a tax saving of 25p for every £1 spent!

Why has this been introduced?

Making capital allowances more generous works to stimulate business investment. As a result, these measures can promote economic growth and counter business cycles. In short, this should give a much needed boost to the economy which has suffered greatly during Covid.

What can I claim it on?

The super deduction can be claimed on most new assets that would qualify for the existing 18% writing down allowances, which includes but is not limited to:

• Computer equipment

• Office chairs and desks

• Vans

How much can I spend?

There is no limit on the super deduction.

What happens when I sell the asset?

When the asset is sold, the sales proceeds will be multiplied by 130% and added on to taxable profit to repay the relief on that proportion of the asset.

Does AIA still exist?

Prior to Super deduction being introduced, AIA allowed business to deduct 100% of a qualifying assets value from their taxable profit, up to a maximum limit, which is currently £1m.

AIA will exist alongside the new super deduction until 31st December 2021, this can be used for second hand assets as well as new. This means companies can benefit from a 130% deduction for new qualifying assets under Super deduction and a 100% deduction for second hand qualifying assets under AIA.

Should I invest in qualifying assets?

This is the most generous tax relief that has been given by UK government to companies in recent history and is one of the most competitive reliefs in the world. If you are considering investing in plant & machinery, now is most definitely the time to do it.

As always, discuss any purchasing plans with your accountant to ensure you understand the reliefs they qualify for before purchasing.

Selling on eBay? Make bookkeeping simpler with Linkmybooks.

eBay is a great marketplace for selling your products, but do you find it difficult to account for the income, fees and VAT? You’re not alone.

Fear not, there is a solution available to streamline the process, save time and ensure your income/costs/VAT are accounted for correctly. Linkmybooks.

Some of you may have heard of Linkmybooks before as they offer a similar amazing solution for Amazon sellers. If not, Linkmybooks sits in between eBay and Xero, collating the data from eBay into invoices which are posted to Xero. These invoices can then be matched against the eBay bank receipts. Simple eh!

We’ve helped many clients get set up on Linkmybooks for both Amazon and eBay so if you need help getting started then give us a shout!

Electric cars, should I get one through my business?

At the end of May 2021 there were 260,000 electric cars on the UK roads with 1 in 4 UK households intending to buy electric in the next 5 years.

With a greater range of electric cars on the market and prices coming down, you may be considering going electric and putting it through your business. Let us tell you what the impact of doing this will be.

1. Employee consequences:

Cars paid for by an employer that are available for private use, are a benefit in kind. This means that the employee pays tax on the benefit that they are receiving.

Over recent years, the tax payable on diesel and petrol cars has been rising significantly, making company cars less attractive to employees.

In an effort to increase electric car purchases, the tax for electric company cars was stopped altogether in 20/21. For 21/22, tax is payable on 1% of the list price (compared to up to 37% for petrol cars and up to 41% for diesel!)

For example, if the list price was £50,000, the employee would pay tax on £500. If the employee was a basic rate taxpayer (earned under £50,270) then they would pay 20% tax on this, so tax payable of £100. If the same car was diesel, the tax would be up to £4,100!

It’s easy to see that employees might favour an electric vehicle based on these savings alone.

2. Employer consequences:

As the company car is a benefit provided to employees, the employer must pay National insurance on that benefit. The taxable benefit is still £500 but the employer pays 13.8% NI on this, so a charge of £69. If this was a diesel car, it could be as high as £2,829.

The employer will also benefit from Corporation tax relief. The relief gained depends on whether the car is purchased outright or leased.

If purchased outright, the car could be eligible for first year capital allowances, meaning the taxable profits would be reduced by the cost of the car. For example, the £50,000 car example above would save £9,500 of Corporation tax!

If leased, the company would receive tax relief on the lease payments.

Overall, from a tax perspective, an electric company car is a much more attractive option for both employee and employer (and the planet!). However, there are practical effects to consider such as driving range and charging points when coming to a final decision.

If you’d like any specific advice on the tax effects please get in touch!

More changes to the furlough scheme

Hands up, be honest, how many of you had heard of the word furlough before March 2020?

Neither had we!

Furlough changes from July onwards:

If you are an employer with employees on furlough then take note, more changes are coming over the next few months.

Employees will see no change to the amount received, this will still be 80% up to £2,500, subject to the normal rules.

The change is on the side of the employers who will be required to contribute towards the 80% starting from July 21.

Beneath is a handy table which summarises the changes taking place…unless further changes are announced!