Category Archives: Business

Keith Grover celebrates his 60th

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The 1st of December is the date when many people decorate their homes with festive decorations, in readiness for Christmas. At HB Accountants it’s a special day for another reason. Our very own Keith Grover turns 60.

Congratulations & Happy 60th Keith!

We’d like to wish him well. To prepare Keith for this milestone birthday we took him out for a special lunchtime celebration a few days ago to mark the occasion. 

60 years ago…

“It’s only make believe” was in the UK charts on this day 60 years ago with singer Conway Twitty; this track has since been covered by the likes of The Hollies and Fiona Apple.

Harold Macmillan was the Prime Minister and held this office from 1957 to 1963.

Musicians Jools Holland, singer Kate Bush and Duran Duran’s lead singer Simon Le Bon were born the same year as Keith, as were 5Live radio presenter Simon Mayo and Wallace and Gromit animator Nick Park.

Highlights: 2018 Autumn Budget

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As the Government’s last Autumn Budget before the UK’s scheduled exit from the EU in March 2019, the Chancellor framed his announcement as reflecting an end to the era of austerity. The budget includes the commitment to provide an additional £20.5bn to the NHS over the next five years, and a variety of measures designed to protect or stimulate business growth. Here we outline the budget highlights and as always there will be winners and losers. We encourage you to discuss the impact of the budget with the team at HB Accountants. If you need an update on current tax rates, allowances and duties please get in touch.

 

Small shops business rates cut by one third

Business rates for small retail properties in England with a rateable value below £51,000 will be cut by a third from April 2019 for two years, which the Treasury estimates will save these businesses a total of £900m altogether.

 

Higher personal allowance & raised higher rate tax threshold

The planned increase in the personal allowance has been brought forward and the threshold for higher rate tax has been raised.

  • The personal allowance, which is the amount someone can earn before they pay any tax, will be increased by £650 from 11,850 currently to 12,500 from 6 April 2019.
  • The threshold for paying higher rate tax at 40% has been increased by £3,650 from £46,350 to £50,000 from 6 April 2019.

From 2021, personal allowance and tax thresholds will rise in line with inflation measured by the Consumer Price Index.

 

£1m Annual Investment Allowance

In a move regarded as an incentive to invest, businesses can claim an Annual Investment Allowance (AIA) for capital expenditure incurred on most plant and machinery items. This allowance currently gives 100% capital allowances on expenditure up to £200,000 a year, in other words the full amount spent can be deducted from profits before tax. The AIA will be increased from £200,000 to £1m for a limited period of two years. This change relates to qualifying expenditure incurred from 1 January 2019 to 31 December 2020.

 

New Digital Services Tax

A new 2% tax will apply to annual ‘UK’ revenues over £25m of specific digital services businesses with global sales of more than £500m per annum, from April 2020. The move is designed to harness tax revenues from the new generation of large, successful digital businesses, such as Google. The tax will apply to profitable businesses involved with online marketplaces, search engines and social media platforms. The tax will be introduced following consultation, with legislation in the Finance Act 2020.

 

Further Stamp Duty concessions

Stamp Duty Land Tax is paid on properties and land in England and Northern Ireland purchased for over £125,000. Since 22 November 2017 first-time homebuyers in England and Northern Ireland qualify for a 100% relief if they buy a property for £300,000 or less, so that they don’t pay Stamp Duty. First time buyers also only start to pay 5% Stamp Duty on residential properties from £300,000 to £500,000, on the price over £300,000. Now first-time buyers’ relief will be extended to qualifying shared ownership purchases of up to £500,000 from 29 October 2018. The change will be backdated to 22 November 2017 to enable taxpayers that haven’t yet claimed first-time buyer’s relief to do so.

 

New non-recycled plastic packaging tax

The Chancellor has announced a new tax on the manufacture and import of plastic packaging which is comprised of under 30% cent recycled plastic. At the same time, a tax on takeaway plastic cups which had been mooted in the media, has been ruled out. The new tax is intended to reduce single use plastics and will be in place from April 2022 following consultation.

 

VAT threshold unchanged

The threshold for VAT registration remains unchanged at £85,000 until April 2022. The rates of VAT also remain the same with a standard rate of 20% and a reduced rate of 5%.

 

Employment Allowance for smaller businesses only

From April 2020 eligibility for the Employment Allowance will be restricted to employers with National Insurance Contributions NICs) below £100,000 in the previous tax year. This allowance lets employers claim back Class 1 NICs of up to £3,000 each year. The new restriction is aimed at targeting support to smaller employers, with 93% of small businesses still being eligible for the allowance, according to the Treasury.

 

Looking ahead to the Chancellor’s Spring Statement in March 2019, uncertainty over the final Brexit agreement means that the Chancellor has advised this may become a full budget announcement if necessary.

 

Tell me more

For further details of the 2018 Budget just ask us for a copy of our 2018 Budget Report.

Should you want to discuss ways to manage the implications of the budget for your business please get in touch. Contact HB Accountants by calling 01992 444466 or you can email directors@hbaccountants.co.uk

Does my organisation need an audit?

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Businesses and charities must audit their accounts when they have grown above a certain size. The smallest organisations are exempt from this legal requirement. There are also circumstances when you may need or want an audit regardless of the scale of your operations. If you are in any doubt as to whether you need to conduct an audit or not, just contact HB Accountants and we can talk you through the regulations.

 

Exactly what is an audit?

An audit is the systematic examination of an organisation’s accounting records, as well as the physical inspection of its assets. When performed by a qualified accountant, such as HB Accountants, it enables us to verify whether the financial statements have been prepared in line with relevant legislation and accounting standards, and importantly whether they provide a true and fair view of the organisation’s financial position.

When to book an audit – size threshold

When a private limited company hits two of these thresholds, in two out of three years, it’s time to book an audit.

  • annual turnover £10.2m
  • assets worth £5.1m
  • number of employees 50 on average

 

When a charity hits either one of these thresholds it’s time to book an audit.

  • gross annual income above £1m or
  • gross assets of above £3.26m and a gross annual income above £250,000.

 

Where a charity’s income is from £25,000 to £1m, external scrutiny in the form of an independent examination is still required by the Charities Commission. In addition, many charities require regular audits regardless of the size of the organisation, as set out in their constitution or legal instructions from donors or trustees.

Other reasons to book an audit

There are further reasons why organisations must or should complete an audit.

Regulated finance or legal industry sector firm

If you operate a regulated business, then there’s often a legal requirement that you undertake audits. For example, if your run a financial services business, friendly society or legal practice. These organisations operate in a position of trust with customers, and a regular financial audit provides much-needed assurance as well as compliance with the regulations.

 

Subsidiary of a company

If your parent company is legally required to audit its financial statements, then this extends to any subsidiary companies, even if they are individually below the legal threshold size unless the subsidiary exemption criteria has been met.

 

Shareholder makes a section 476 request

Under the Companies Act 2006, section 476, a shareholder can give notice that an audit is required. To be able to do this the shareholder must have at least a 10% stake in a class of the company’s shares or if there are no shares they must represent 10% of the members of the company.

 

Bank or lender audit requirement

In certain circumstances your bank or another lender may need the added assurance of an audit to assess your current financial position, and make decisions about the services it offers, such as a business loan.

 

Preparing for sale of business

It may be advantageous to audit your financial statements when you plan to sell your business to maximise the pay-out shareholders receive and to get the best possible terms.

 

Preference and good practice

Even when an organisation is not compelled to have an auditing regime due to legal regulations, many choose to have regular audits to provide stakeholders with complete confidence in their financial reports.

 

Audit exemptions

Some organisations are exempt from having full audits.

 

Small businesses

Small businesses may be exempt, provided they aren’t required to audit accounts due to being a charity or other regulated business. To be exempt as a small business, at least two of these figures for this year and last year must be below this size threshold:

 

  • Turnover below £10.2 million
  • Total assets below 5.1 million
  • Number of employees below 50

 

Subsidiary exemption

A subsidiary of a larger group may be exempt if the group meets certain criteria and the parent company gives a guarantee of all outstanding liabilities at the end of the financial year.

 

Charity exemption

Charities with a gross income of less than £1m can choose to opt out of a full audit provided that gross assets do not exceed £3.26m and gross income does not exceed £250,000 and provided their constitution does not demand an annual audit. Although if turnover exceeds £25,000 they will still need some form of independent examination.

 

It’s easy to be more audit savvy

These are broad guidelines about which organisations must audit their accounting records. If it’s obvious that you need an audit, then get in touch and we can explain the benefits of our audit service. If it’s not obvious whether you need an audit, then do talk to us to discuss your organisation’s circumstances. We can help you to identify if an audit is a legal requirement, or if it simply makes good sense, or if an audit is not required at all. We are always ready to answer questions and provide advice. Just call 01992 444466 or email directors@hbaccountants.co.uk

Working from home expenses

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When you’re working from home, your bills are bound to rise. You’ll be using electricity, your own broadband and phone line, as well as making more use of your electricity, water and heating (especially in the winter).

If you are self-employed

The Government has published detailed guidelines for business people working from home. The trickiest element of this is that most things will be used for both business and personal use.

HMRC guidance is that you can claim for the cost of business calls made on a private telephone line and also an appropriate proportion of the line rental. You may, therefore, need to provide an explanation for the proportion of the total telephone bill you are claiming. This will also apply to broadband.

You can also claim for other costs of using a room at your home for business purposes (typically for office work). The sort of costs involved could include council tax, rent or mortgage interest, heat, light, water, insurance and cleaning. These can be apportioned on the basis of floor area, usage or time, or a combination of these. Typically, you will use one room as a part-time office (using it full-time is not recommended as this would cause capital gains tax problems on a sale of the property). If this is one of (say) six available usable rooms (excluding common areas, toilets, bathrooms etc), your starting point will be to claim one-sixth of the overall costs. You then need to consider the proportion of business use of that room to private use and reduce the claim accordingly.

If you are an employee

There are allowances you can claim if you’re an employee of a company, but these are dependent on whether or not this is specified as part of your job, or whether you’re doing it voluntarily. If it is your choice to work at home, you will not be eligible to claim any expenses at all.

However, if your employer has specified that you work from home as part of your job, or you have a homeworking agreement, your company can contribute £4 a week, tax-free, to help towards your extra costs.

The allowance only applies for regular working hours – you cannot claim if you occasionally work from home, or do work in the evenings or at weekends.

As an employee, you also have to show that the expense was necessary, and this is a very difficult obligation. If you decide to make this claim it will be restricted to the extra cost of heat, light etc and no claim will be available for council tax, mortgage interest or rent, insurance, or the cost of broadband or telephone lines. That is because those expenses would have been incurred anyway in your private capacity as a homeowner.

If you are a director

If you own your own company, you can set up an agreement between you and that company requiring you to work from home for certain periods of time; you can also set up a licence agreement under which the company will pay you a rent for use of your room as an office. This would enable you to make a claim which is closer to the self-employed rules. You will need to include the rental income on your personal tax return and claim the expenses against that rental. In practice, you will set the rent amount to more or less cover the claimable expenses, because if you set the rent too high you may end up paying personal tax (perhaps at 40%) and only getting corporation tax relief (at 19%)!

If you would like help working out what expenses you are entitled to when working from home, contact us to arrange an appointment.

When is the right time to hire an accountant?

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Small business owners and entrepreneurs spend their time learning new skills. Whilst people generally set up their own company in order to concentrate on doing what they love, they also have to diversify their talents in order to do other tasks, from networking to cleaning, posting online content to submitting tax returns.

But unless your specialism is accounting, how do you know you’re getting your accounts right? It comes down to the fact that you don’t know what you don’t know. Whilst you may think you’ve got a handle on things, you may not realise that hiring an accountant could bring you business benefits you haven’t thought of. In terms of tax savings, growth plans and avoiding errors the money you save by hiring an accountant may well end up being more than the cost of the accountant themselves.

Here’s our guide to knowing when it’s time to hire expert help?

Growth

You’ve done brilliantly and people love your products and services. So much so that you can’t keep up with demand and need to take on staff, move to bigger premises and keep a close eye on your spending and future plans. But if you’re nervous about spending the money, think of it in terms of your own time. Work out how much per hour your time is worth, then multiply that by the amount of time you spend doing the accounts – including all that head scratching, crossings out and lying awake at night wondering if you’ve got it right.

Writing a business plan

An accountant will help you create financial projections on which to base a realistic business plan that’s more likely to benefit your company in the long run.

You need investment

You’ve got some great opportunities on the horizon, but in order to make the most of them, you’ll need to secure financial investment. An accountant can point you in the right direction.

Legal structure

You might be a sole trader now, but as you grow your company, there’ll come a time at which you’ll need to decide whether to make it limited or an LLP.

If you’ve reached the point where you need to hire an accountant, please feel free to contact us to talk about the services we offer and how we can help you take your company forward.

Benefits of Auditing

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There are legal requirements for companies to undertake regular audits once a company meets certain criteria about its turnover, assets and staffing levels.

Many people see an audit as a massive inconvenience, but it can actually turn out to be a useful business tool. An audit acts as a metaphorical mirror reflecting how well, or otherwise, your company is doing. And because an external auditor will have an objective overview of your company, they can use their review of the accounting information in order to gain insights into your business. They can highlight trends, deficiencies and errors, enabling you to do something about them before they become major problems.

Advantages of using a local auditor

Hiring a local firm to do your auditing has many more advantages than just saving costs on using a big London accountancy. Not least is the fact that you’re much more likely to build up a good working relationship with them and face-to-face meetings, which equates to better support and continuity.

As we are geographically close to the majority of our clients, we are more accessible to them. We are more likely to have meetings with them rather than rely on phone calls, and that kind of personal connection can be really useful. If there is an issue the client is unsure about, the fact that they have a good relationship with us means they’re more likely to get in touch for advice.

The way we work means our clients are more likely to see the same auditor for a number of years, and this continuity can be invaluable. Whilst the audits are lead by experienced managers, the majority of the onsite work is generally undertaken by our trainees – our policy is to take on school leavers who will train with us for seven years. This gives them the chance to get to know your company really well which will enable them to work more quickly and efficiently, as well as getting the chance to work with your team.

If you are based in Hertfordshire and would like to discuss your auditing needs, please contact us to arrange a meeting.

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Gross Profit Vs Net Profit

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If you are a business owner, then knowing what your gross and net profits are will be vital to your business. Whilst net profit shows how much money you made overall, knowing what your gross profits are in relations to them can help you form a better business strategy.

In a nutshell, gross profits are your turnover, minus the costs of the goods sold. This includes products, materials, shipping costs etc.

Your net profit is your gross profit minus all the other costs associated with running your business, such as salaries, rent, taxes, insurance, utilities etc.

Knowing what your net profit is at any given time will give you an indication of how much money your company has to reinvest in the business or distribute to shareholders… or alternatively how much you need to pull your socks up!

How to use net and gross to help your business succeed

The net profit alone doesn’t necessarily show the truth of how well your company is doing, and that’s where knowing what your gross profits are coming in handy. You may, for instance, have moved to larger premises or have had a recruitment drive for staff to handle an anticipated rise in work, in which case your net profits will have taken a hit. However, if your gross profits are good, you can attribute the downturn in net profits to the expenses incurred in the move and be confident that you’re still on the right track in business terms. Alternatively, high gross profits and low net profits will tell you that even though your core business is strong, you need to investigate where you’re spending the excess money enabling you to do something about it.  

We find that, as a general rule of thumb, if you are looking after your overheads properly, the net profit should take care of itself. There’s a great phrase, “turnover is vanity, profit is sanity but cash is reality”, which means you need to get your profit right before taking care of your working capital.

If you are looking for a Hertfordshire accountant, please contact us to find out more about the services we offer.

Some Relief for Furnished Holiday Lets

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For several years now the lack of availability of Business Property Relief (‘BPR’) for furnished holiday lets (‘FHLs’) has been well known and established through cases such as Pawson, Green and Ross. The courts in these cases ruled that the holiday lets were too much of a passive investment to qualify as a business, even though the owners were providing varying degrees of service it was often held to be no more than would be expected from self-catering (i.e. investment) properties. The boundary between a mere investment and an active business (not “trade”, the legislation says “business”!) is a hard one to cross with the level of other services provided to guests needing to be more akin to a hotel than a self-catering holiday let.

The loss of BPR can be a major blow to an estate. The 100% relief against inheritance tax afforded by BPR can be very valuable, hence why HMRC will be vigorous in their investigations into such a claim. For income tax and CGT purposes however there is usually no argument from HMRC. If the let is furnished, available for let for 210 days a year and let out for 105 days with no long term lets then as far as CGT is concerned the various trading reliefs are available. For income tax purposes too, if those criteria are met then the income is classed as trading thus allowing the owner to claim capital allowances. Such income is also qualifying income for pension purposes allowing for greater retirement planning opportunities. The loss of BPR for the estate after all those lifetime benefits can be most unfortunate.

However, an estate recently succeeded in obtaining the coveted BPR for a holiday let business. The executors of Mrs Grace Joyce Graham claimed the relief for holiday flats on the Isles of Scilly. Smelling blood HMRC contested the claim but the First-Tier tribunal dismissed HMRC’s challenge. In this instance the amount of work the deceased and her daughter put into the business (up to 200 hours per week between them at busy periods) and the level of extra services available to the guests were more akin to a hotel to anything else. New guests were given personal tours of the property and the level of personal attention was such that several TripAdvisor comments highlighted it was this personal input and hospitality which made their holiday special. In addition to the 4 flats on offer, there was: a swimming pool, a croquet lawn, a prize-winning garden (from which the guests could help themselves to herbs), a games room with a snooker table, table tennis, board games and videos; there was a sauna, the laundry room and a BBQ. Each flat was fully furnished and had its own kitchen and dining/living area. Basic foods were provided, flowers were delivered into the flats for new guests along with home-made marmalade (and wine or champagne for special occasions). Golf buggies and bicycles were available to borrow, the guest lounge contained books, an open fire and leaflets on local attractions.

The court pointed out that “it will only be the exceptional letting business which falls on the non-investment side of the line” – making clear that this finding did not alter the recent hard-line taken by the courts. But in this particular instance, Mrs Graham’s personal attentiveness in her lifetime pushed her estate’s BPR claim over that line:

“The pool, the sauna, the bikes, and in particular the personal care lavished upon guests distinguished it from other “normal” actively managed holiday letting businesses; and the services provided in the package more than balanced the mere provision of a place to stay. An intelligent businessman would in our view regard it as more like a family run hotel than a second home let out in the holidays”.

Non-tax-deductible expenses

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If you’re running a business, it’s as important to understand the type of business expenses you cannot claim against tax as those you can. Deductible expenses are those where making a purchase is essential for your business operation. Non-tax-deductible expenses on the other hand, are those that are not necessary for the operation of your company.

With most expenses, it’s straightforward to work out whether or not they are tax-deductible, but with some expenses there are grey areas. This could mean that companies erroneously claim for expenses that aren’t deductible, and conversely, others could be not claiming for expenses that are.

Entertainment

Holding a meeting over a working lunch is a great idea in terms of client relations, but sadly, it is not a tax-deductible allowance. According to the bureaucrats, client meetings can be held without any refreshments at all, which is why refreshments are non-tax-deductible (… although try not offering your potential clients or suppliers a cup of tea and see how fast they go to the competition!)

On the other hand, when it comes to your staff, entertainment expenses are tax-deductible … but only to a point. If you spend less than £150 per employee across the entire year on staff parties (which includes food, drink, taxi fares home etc), then it is tax-deductible. But if you spend £150.01 upwards, then it counts as non-deductible. And as it’s an ‘all or nothing allowance’, meaning the entire amount is taxable – even if you only spend £150.01 – and must be declared as a staff benefit on the P11D form.

Some travel expenses

It depends how generous your company is feeling when it comes to travel expenses, but if you want to push the boat out and send your staff first class to stay in five-star hotels, you need to understand that lavish extravagances aren’t tax-deductible. Sorry. You can only claim for employees’ ‘reasonable’ expenses.

Asset depreciation

It’s a fact of life that your company vehicles, equipment and technological assets will depreciate in value as they get older. As an unavoidable consequence of usage and time, depreciation is non-tax-deductible.

However you can deduct capital allowances from your profits for various elements of your business: see the Government’s website for details, or ask us.

Building improvements

Necessary repairs to the building, plumbing or electrics are tax-deductible, but if you want to upgrade, update or rebrand the place, it’s classified as non-essential work and is therefore non-tax-deductible.

However, improvement costs will be deductible for capital gains tax purposes as enhancement expenditure when selling the asset

Legal fees

Legal fees are a complicated thing when it comes to whether or not they are tax-deductible. To be on the safe side, it’s best to check with your accountant.

We have highlighted some examples of allowable and non-allowable legal expenses:

Allowable

  • Legal fees relating to debt collection
  • Legal fees relating to employment matters
  • Legal fees relating to disputes regarding trading matters

Non-allowable

  • Legal fees relating to a company reorganisation
  • Architects fees for building improvement work
  • Legal fees relating to the acquisition of investment property i.e. shares in other companies

If you want help navigating through the maze of deductible and non-deductible expenses, contact us to make an appointment with one of our tax specialists.