Under company law, all businesses must prepare annual accounts, as well as annual tax returns, to file with HMRC and Companies House. Many start-ups and small businesses hire an accountant to write these reports and leave it there, but when a company begins to expand, they tend to hire a management accountant to not only generate quarterly or monthly management accounts, but also to make the accounts more meaningful for the future success of the organisation. Below is a management accounting guide for small business owners: 

Management accounting

With management accounting, the more frequent production of reports enables managers and directors to use the up-to-date financial information to help them make better-informed business decisions and maintain effective control over corporate resources.

After the production of each report, the accountant will help clients to analyse the figures in order to work out how well, or otherwise, the company is doing. The frequency of analysis can help flag up the products and services that bring in the greatest amount of money, and those that aren’t living up to expectations, as well as help, identify and control wastage, improve cash flow and reduce expenses.

The regularity with which management accounts are generated depends on the individual company. Most will only want quarterly figures, but larger companies tend to do theirs on a monthly basis.

Outsourcing

On the whole, a large number of companies outsource management accounting to specialist companies like HB Accountants. One of our directors, Keith Grover, explains the advantages of outsourcing your management accounting.

“On a quarterly or monthly basis, we will prepare a set of accounts, then sit down with you and discuss the findings. We’ll tell you what we think the important points arising from the analysis are, and advise on the best course of action. We are also happy to attend Board meetings.

“An additional advantage of doing the accounts on a more regular basis comes with making better tax planning decisions at the best time.

“In taking the role of a virtual accounts director, a management accountant can make a significant difference to a company’s success. ”

For more information about management accounting or to make an appointment to discuss it with one of our qualified team members, call us on 01992 444466 or email directors@hbaccountants.co.uk.

Because of the forthcoming General Election, the Government have been forced to cut down the size of the Finance Act (to a mere 156 pages!) in order to get essential tax provisions into law before Parliament is dissolved.

One of the omissions is MTD, although it is widely expected that this will be reintroduced after the election.

However, there has been more criticism of the proposals. The Office of Budget Responsibility has said that HMRC’s estimates of the improved tax take from MTC were highly uncertain and the House of Lords Economic Affairs Committee has also cast doubt on the estimates.

The Federation of Small Businesses has estimated that the introduction of MTD could cost businesses around £3,000 per year in time, salaries and fees.

Some member of the Treasury Committee have suggested that the Government should delay any implementation until a full pilot scheme has been run and assessed.

As ever with MTD, we will have to wait and see!

As you drive across the border into the county of Hertfordshire, you’re greeted by a road sign which says “Hertfordshire. County of Opportunity”.

When Hertfordshire County Council (HCC) published its Corporate Plan for 2013-17, they explained why they came up with this slogan: “We want Hertfordshire to remain a county where people have the opportunity to live healthy, fulfilling lives in thriving, prosperous communities”.

In terms of prosperity, HCC stated it was working towards a “business-friendly environment where initiative is encouraged and celebrated” in order to create a strong, resilient and successful economy.

But the Corporate Plan went further than just making Hertfordshire a great place to do business, it also encompassed the community as a whole. The plan focused on giving residents the opportunity to maximise their potential by supporting those in difficulties, giving them a clean and green environment to live in, and tackling the overall health and wellbeing of everyone living in the county.

The current situation

According to the Council’s latest Annual Report, HCC is doing very well. According to its latest survey, 74% of residents were satisfied or very satisfied with the way HCC runs things and the Council has been shortlisted by the Local Government Chronicle for the “Best Council of the last 20 Years” Award.

To increase the opportunities available to businesses, HCC is currently working to improve transport links which will have a direct effect on local businesses. It has given the go-ahead to the Croxley Rail Link that will bring the London Underground system into Watford, making commuting more attractive at the same time as taking the strain off road links.

HCC is an active member of the London Stansted Cambridge Consortium (LSCC) which aims to promote the economic potential of the London to Cambridge corridor. The Consortium’s Growth Commission described the corridor as sharing “a set of advanced industries characterised by rapid growth and high productivity, supported by a global centre for business and financial services. Productivity is 16 per cent higher than the national average, and growing”. HCC is supporting the LSCC’s economic vision for 2036 with ambitious targets to create 400,000 new jobs – half of which will be tech, life sciences and knowledge-based – as well as growth in productivity and the creation of 10 new companies each worth in excess of £1bn. Business growth will be backed up by an education and skills system that provides a skilled, qualified workforce, as well as high quality housing and diverse and vibrant communities.

HCC is also a member of the West Anglia Taskforce which is recommending that the Government brings forward the four tracking of the West Anglia Mainline to Broxbourne as part of a strategy to bring Crossrail 2 into Hertfordshire.

If you would like to explore the opportunities offered for your business, we offer full accountancy services for companies of all sizes. Contact us to find out more or to make an appointment.

Knowing what your gross profit and net profit are is a fundamental part of running a business. In the simplest terms:

Gross profit – you calculate what your gross profit is by taking your total turnover, minus the costs of the goods sold.

Net profit – this is what’s also known as your bottom line. It’s what’s left after you’ve deducted all your costs from your total turnover, i.e. the costs to you of the goods as well as all your business overheads, staff costs, interest on any business loans etc.

How to use gross profit to help you increase net profit

If you are taking steps to increase turnover, it will obviously have a knock-on effect on your net profit – ideally a very positive one.

You may want to offer discounts in order to get more business – “pile them high and sell them cheap” as the idiom goes. If your overheads stay the same, this is all well and good, but if your strategy to sell discounted products is successful, you may well need to increase your overheads in order to cope with the extra demand, and this will impact your net profit.

As soon as you understand your gross profit margin, you can use it to calculate whether any extra overhead costs involved in getting those extra sales are a justifiable business expense.

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 your small business is based in Hertfordshire and you would like to know more about our services and find out how our local Hertfordshire Accountants can help your business succeed, contact us to book an appointment.

At Budget 2016, the Government announced two new £1,000 allowances for property and trading income to take effect for income arising from 6 April 2017.

The Government also announced at Autumn Statement 2016 that the trading allowance may also apply to certain miscellaneous income to the extent that the £1,000 trading allowance is not otherwise used.

Further detail has now been released:

• Where the allowances cover all of an individual’s relevant income (before expenses) then they will no longer have to declare or pay tax on this income. Those with higher amounts of income will have the choice, when calculating their taxable profits, of deducting the allowance from their receipts, instead of deducting the actual allowable expenses. The trading allowance will also apply for Class 4 NIC;
• The new allowances will not apply to income on which rent a room relief is given; and
• The new allowances will not apply to partnership income from carrying on a trade, profession or property business in partnership.

From 6 April 2018 Class 2 NIC will be abolished and Class 4 NIC reformed to include a new threshold (to be called the Small Profits Limit).

Access to contributory benefits for the self-employed is currently gained through Class 2 NIC. After abolition, those with profits between the Small Profits Limit and Lower Profits Limit will not be liable to pay Class 4 NIC but will be treated as if they had for the purposes of gaining access to contributory benefits. All those with profits at or above the Class 4 Small Profits Limit will gain access to the new State Pension, contributory Employment and Support Allowance and Bereavement Benefit.

Those with profits above the Lower Profit limit will continue to pay Class 4 NIC.

From 6 April 2018 Class 3 NIC, which can be paid voluntarily to protect entitlement to the State Pension and Bereavement Benefit, will be expanded to give access to the standard rate of Maternity Allowance and contributory Employment and Support Allowance for the self-employed.

Changes from 6 April 2018 will align the rules for tax and employer NIC by making an employer liable to pay NIC on any part of a termination payment that exceeds the £30,000 threshold. It is anticipated that this will be collected in ‘real-time’.

In addition, all payments in lieu of notice (PILONs) will be both taxable and subject to Class 1 NIC. This will be done by requiring the employer to identify the amount of basic pay that the employee would have received if they had worked their notice period, even if the employee leaves the employment part way through their notice period. This amount will be treated as earnings and will not be subject to the £30,000 exemption.

Finally, the exemption known as Foreign Service relief will be removed and a clarification made to ensure that the exemption for injury does not apply in cases of injured feelings.

Legislation will limit the income tax and employer NIC advantages where:

• Benefits-in-kind are offered through salary sacrifice; or
• Where the employee can choose between cash allowances and benefits-in-kind

The taxable value of benefits in kind where cash has been forgone will be fixed at the higher rate of the current taxable value or the value of the cash forgone.

The new rules will not affect employer-provided pension saving, employer-provided pensions advice, childcare vouchers, workplace nurseries, or cycle to work. Following consultation, the Government has also decided to exempt Ultra-Low Emission Vehicles which have emissions under 75 grams of CO2 per kilometre.

This change will take effect from 6 April 2017. Those already in salary sacrifice contracts at the date will become subject to new rules in respect of those contracts at the earlier of:

• An end, change, modification or renewal of the contract; or
• 6 April 2018, except for cars, accommodation and school fees when the last date is 6 April 2021.

HMRC have issued their response to the consultations on MTD.  The more cynical among us might take the view that HMRC have decided what they are going to do and any “consultations” are purely for cosmetic purposes!

Their response focuses on concerns about the pace of change; very small businesses; those who struggle with digital technology; burdens on business; data security; and the ability for agents to access clients’ records.

On the important questions of the turnover level at which MTD becomes compulsory and when MTD will be introduced, we are only told “the government will need to consider further issues such as the initial exemption threshold and deferring the changes for some small businesses”.  HMRC suggest that final decisions will be made before legislation is laid “later this year”.  HMRC proposed an exemption from MTD where turnover is less than £10,000 per annum.

A couple of things have been listened to.  Firstly, the proposed implementation in April 2018 has been deferred until April 2019 for businesses with turnover below the VAT threshold.  Secondly, HMRC have agreed to run a series of “pilots” for a full year starting in April 2017.

So, what has changed as a result of the “consultation”?

You can continue to use spreadsheets for record keeping but you must be able to combine these with software for MTD.

Businesses will still be required to submit quarterly updates but those below the VAT threshold will just be able to report turnover, total expenses and profit.

Free software will be available for very straightforward businesses (no details provided!).

Businesses don’t need to prepare and store invoices and receipts digitally.

The year-end reconciliation will need to be submitted by 10 months after the period of account ends or 31 January, whichever is sooner.  If you choose to prepare your accounts to 30 January, this would seem to require you to submit your accounts the next day!  Surely that can’t be right!  The wording about this is not very well presented but the intention actually seems to be that businesses with a 31 March accounting date will be the only ones to retain a submission deadline of 31 January.  If, for instance you prepare accounts for the year ended 30 June 2019, the new deadline will be 30 April 2020 rather than 31 January 2021 (under the current legislation).

Charities will not need to keep digital records.

There is very little information on agent access to client records.  HMRC merely say that the client will be able to choose how much access to grant but there is no practical guidance on how this is expected to happen.

HMRC believe that there will be a one-off cost of £280 per business followed by small ongoing annual savings.  This was in response to a suggestion that MTD could cost businesses over £1,000.

Revised timetable

The revised proposed timetable for implementation of MTD is now:

April 2018 for businesses with turnover above the VAT threshold

April 2019 for businesses with turnover below the VAT threshold, and for VAT purposes for all VAT-registered businesses

April 2020 for corporation tax purposes.

Small business planning is very important as SMEs that fail to plan are certainly planning to fail. You’ve probably heard that phrase many times but don’t dismiss it as a cliché, learn to live by its rules. Small businesses are often so busy treading water, they spend all their energy and attention on staying afloat. Learning how to write or make a business plan is quite essential and it’s a key step for most SMEs.  But if you want to do better than ‘just about managing’, you really need to plan for the future – after all, if you don’t know where you’re heading, how do you know which direction you need to go in?

There is a myth that a huge percentage of new start-ups don’t survive the first year, but this has recently been debunked – in fact, it appears that in the UK, more than 8 out of 10 companies succeed in the first 12 months, and between a third and a half are still trading after five years.

Plan to succeed

These success rates could be down to the support that’s now available for new entrepreneurs. There are a lot of organisations that help start-ups and small businesses succeed. In Hertfordshire, the organisation Wenta has been providing advice and support – a lot of which is free of charge – for entrepreneurs across the county for over 30 years.

Writing your business plan isn’t just a good idea when it comes to applying for loans and support, it will also help you focus your ideas about your company and clarify the direction you need to take it in. Online, the government has published advice about writing a good business plan, along with links to templates and examples to help you draw up your own plans.

Planning the accounts

Our director Keith Grover pointed out that when it comes to planning your accounts, it’s always useful to have a discussion with a qualified accountant as early as possible.

“If you’re borrowing a start-up loan from the bank, for instance, you will need to plan ahead to make sure your accounts system is in place to provide them with the documentation they’ll need in the future, e.g. Profit & Loss accounts, balance sheets, quarterly accounts etc.

“You will also benefit from advice about your business structure – limited company, sole trader etc – and the tax implications that might arise.

Some business people also find it useful to put in place a business agreements at this point, detailing the arrangements to extricate themselves from any trouble that might happen in the future.”

So, failing to plan could have disastrous implications for your new business – planning to succeed will put your company on the right road.

Keeping your accounts in order will help you make better business decisions. We can help you plan for the future when it comes to account management and your tax returns. If you would like to talk to us to see how we can help you, call us on 01992 444466.