Time to Make Sure your PAYE Payments are Made on Time

It has been long-threatened, but the introduction of in-year interest being charged by HMRC on late payments of PAYE and National Insurance Contributions is now a reality. The change came into effect from the start of the 2014/15 tax year and means that from 20th May 2014 any payments that are late (i.e. after the 19th of the following month or 22nd if paid electronically) will be subject to an interest charge at a rate of 3% per annum from the date payment is due to the date that it is paid in full. This interest will similarly be charged on late payments of Construction Industry Scheme charges. Previously, HMRC had not charged interest on late-payments provided that the payments were brought up to date by 19th April following the end of the tax year but unfortunately that grace period no-longer applies so it is more important than ever that you make your payments on time. Annual payments such as the payment of Class 1A and Class 1B National Insurance Contributions will continue to to be charged interest on any amounts which remain unpaid after the annual due date.

On a brighter note, HMRC has indicated that in-year interest will also be paid to employers in the event of over-payments being made where an employer makes a payment and the charge is subsequently reduced. This will happen regardless of whether the over-payment is repaid or simply reallocated against a later charge. Unlike other changes that have been made regarding PAYE and CIS recently where there has been one set of rules for the taxpayer and one for HMRC, it at least appears that there will be an even-handed approach in this respect.

Motor Expenses under Attack by HMRC

HMRC have won a significant case relating to motor expenses which, if not subject to a successful appeal by the appellant, Dr Samadian, is likely to be extremely bad news for business owners in general and professionals who have a home office base.

The doctor in question lost his claim to deduct travel expenses from his home office to the hospitals where he undertook private work.  One of the most significant factors in the decision against Dr Samadian was the fact that there was a mixed motive involved in the traveling, as this involved returning to the place where he lived.

There was no doubt in this case that the doctor performed a significant amount of his professional services at his home office, as indeed many professionals do.  HMRC attacked both journeys between his home and the locations for the private clinics, and also journeys from NHS hospitals, where he was employed, and the private clinics.

HMRC successfully argued that the motive, objective, and purpose of Dr Samadian’s journeys between his home and the private hospitals were to take him from the location where he lived and to get him back to it.  Despite the business activity that was undertaken at his home office, it is evident that part of the expenditure was simply to get him to and from his home.  For expenditure to be deductible for a business it has to be “wholly and exclusively” for the purpose of the business.  Where there is mixed use, then it cannot fulfil this test and there have been a number of court cases that have upheld this decision.

Whilst this seems in essence to be extremely unfair, the law is the law, and if the decision is not overturned on appeal it will stand.  Armed with this new weapon in their armoury you can expect an attack on travel expenses where such travel includes journeys between home and a regular workplace.

If you feel that you are affected, then you need to discuss this with your accountant to determine a plan of action.  Alternatively please contact us at DEB Chartered Accountants where we would be delighted to discuss this or any other business matter with you.

HMRC Gives With One Hand….. Then Takes Away With The Other

Great publicity has been given to the new Employer’s Allowance whereby employers can reduce their Class 1 National Insurance liability with effect from 6th April 2014 by up to £2000.  This is aimed at encouraging businesses to take on new employees where the cost of National Insurance can be a significant disincentive.  Surely this is good news for all business owners?  But apparently not!  Not  all businesses can claim the  allowance – there are many exceptions.   You thus need to ensure that your business is not excluded.  If you wish to know if you are eligible for this allowance you should consult your accountant, or indeed speak to us at DEB.

It is not all good news however. As is so often the case, HMRC bestows benefits upon us but then takes away at the same time.  The Percentage Threshold Scheme enables employers to recover some of the Statutory Sick Pay paid to their employees if the total falls below certain limits.  This enabled small employers to recover the larger part of any Statutory Sick Pay that they incur when their employers are absent due to illness.  However,  from now on the cost of SSP falls fully upon the employer.  The associated reduction of the related record keeping requirements will provide little compensation for the cost that now falls squarely on employers, no matter how small.

There will be winners and losers from these changes.  Employers who are not excluded and who have little or no employee absence will win.  Those who are excluded and who have high absenteeism due to illness will feel the full impact of the new changes.  Many will fall between the two extremes.  Indeed the Government suggest that employers should be able to compensate for the loss of SSP by being able to manage sickness absence.  Of course they will, won’t they?

Those of us old enough to remember will recall a time when sickness benefit was something that was paid via the post office and was nothing to do with employers.   This was replaced by employers being given the task and cost of administering and paying SSP with the ability to recover the cost from their PAYE/NI contributions along with compensation for their efforts.  First the right to recovery for larger businesses was removed, and now it applies to all businesses.  Thus the cost of SSP has been successfully transferred from the Government to business owners.   Strangely, this news hasn’t received as much publicity.

Business owners could be sitting on a pot of gold

Business owners who own commercial properties are likely to have considerable capital allowances related to the property that they could claim to reduce their tax liabilities, but many are unaware of their existence.  These capital allowances are available on what are referred to as Property Embedded Fixtures and Features (PEFFs).

So what are PEFFs?  PEFFs are integral fixtures and fittings which are generally included within the price that you paid for the purchase, extension or improvement to the commercial property. They include, but are not limited to, items such as central heating systems, telephone and electrical sockets, air conditioning units, fire alarms and CCTV. The list of integral features on which capital allowances can be claimed is quite extensive and, because they are wrapped up in the total purchase price of your building, they are often quite difficult to quantify and value.

You may feel confident that your accountant, acting in your best interest, will have claimed all the capital allowances that you are entitled to, but, many accountants are either unaware of the availability of these capital allowances or, more commonly, are unable to quantify them.  Irrespective of whether you are a DEB accountancy client or not, we have the means to unlock this valuable resource for you and the amounts involved are often very significant.  For example, we have just identified in excess of £200,000 of PEFFs for an office building.  The capital allowances associated with these PEFFs could save up to £80,000 for a higher rate tax payer so are well worth taking advantage of.

New rules were introduced in April 2014 which could result in these valuable allowances being lost if they are not identified and quantified prior to the sale of your building, so there is no better time to act than now. If you think we could be of assistance in helping you to identify these valuable tax benefits on your business premises please get in touch with us for a free meeting to discuss your situation.  We would be happy to hear from you.

A New Era for Pensions?

Investing lump sums into pensions has historically represented a means by which business owners could seek to reduce their tax liabilities.  The popularity of this practise has, in recent times, been eroded by a combination of the low returns that poor performing funds have achieved, the high charges imposed by pension companies, low annuity rates at maturity and the attraction of property as a so-called “alternative pension” investment. In recent years, the fall in house prices and the difficulty in obtaining funding for buy-to-let properties has reduced the attraction of this latter option to an extent, but what of pensions themselves?

The principle problem with pensions historically has been the imperative to buy annuities, even though this could be mitigated to a degree by various draw-down options that have been available.  In recent times annuity rates have been falling as a result of low interest rates and increasing life expectancies and consequently many people have considered purchasing an annuity to represent a very poor investment.  This lack of appeal is further magnified if the person taking the annuity feels they may die within a short time period of purchasing it.

The Government has been long aware of the inherent problems relating to annuities, but the fear that people will blow their pension funds and become a burden on the State has, until now, made them reluctant to make any significant changes. The changes that were announced in the 2014 Budget have therefore come as somewhat of a revelation.

Whilst it is inevitable that a minority of people will foolishly fritter away their pension funds, there now appears to be an acceptance that the sensible majority, having carefully accumulated their funds over their working lives, will not. This has prompted the present Government to  remove the compulsion to invest in an annuity and instead allow people to take the whole of their pension funds once the age of 55 is attained.  The proposals would allow 25% of the pension fund to be taken as a tax free sum with the balance being subject to tax at the individual’s marginal tax rate, leaving them free to invest the net amount in any way they deem fit.

The opportunities for using pensions as a means of reducing tax liabilities will significantly increase if the proposals achieve Royal Assent. If the pension investment achieves 20% tax relief as a minimum when the contribution is  made, and only 75% of the amount extracted is taxed at a similar rate this would potentially offer an attractive profit extraction strategy. Needless to say, this will need to be carefully planned.

We must wait to see whether the proposals as they stand make it into the Finance Act later this year but, assuming they do, they could significantly increase the opportunities open to business owner managers in the future.

What This Country Needs Is people In Work

The Government is actively pursuing policies aimed at creating new jobs for people who are currently out of work and providing help to employers, particularly small employers to keep on the people they currently have in employment.

One such policy, unveiled by the Chancellor of the Exchequer George Osborne in the 2013 budget, is that there will be £2,000 for each employer to offset against Employer’s National Insurance on wages they pay to their employees. This will be available to all employers, charities and community amateur sports clubs. This annual entitlement dubbed the ‘Employment Allowance’ it is hoped will encourage employers to retain their existing staff as well as encourage businesses to take on additional employees.

From 6th April 2014, employers will be able to start to use their £2,000 against payments of Secondary Class 1 National Insurance contributions due for their employees. They can continue to offset until either the £2,000 is exhausted or the tax year ends, whichever comes first.

The claim is made simply by setting a Yes/No indicator on your payroll software to ‘Yes’. Once this has been done the Employment Allowance will be available for 2014/15 and future tax years.

This initiative has particularly been aimed at helping small employers and, as a result, it is estimated that as many as 450,000 small employers will have no Employers’ National Insurance to pay while ever the initiative lasts.

At DEB Chartered Accountants we will be ensuring that our clients with employees or looking to take on employees will be taking full advantage of this initiative in the coming tax year and beyond. If you feel that we can be of any assistance to your business in respect of this Employment Allowance or any other accounting matters, please do not hestitate to get in touch.

Barnsley & Rotherham Business Awards 2013 – Taking Part

Reflection and Perspective – a personal view by David Edwards-Brown

Whilst DEB made the shortlist of five in two out of ten awards categorise at the Barnsley and Rotherham Chamber of Commerce Business Awards, the ceremony for which was held at Magna on Friday evening, we left empty-handed as we did not win either award.  Whilst disappointed for our team at DEB, who attended the night in force, I left the evening in an upbeat reflective mood about taking part in such business awards.

Whilst we did not win, we still remain the only accountant making the shortlist this year, as we were last year.  Indeed we were the only professional firm of any kind.  It is evident that in the categories that we entered size matters.  We were competing against businesses that have huge budgets and resources to fund innovation and technology, and for addressing the impact that they make on the environment.

From the criteria set for each category it is evident that the factors that matter are improving turnover, high profitability, boosting exports, and increasing employment.  DEB has always been run with two key motivating factors; maximising the benefits to our clients and providing them with the best value for money; and maximising the welfare of our highly valued and dedicated team members.  Neither of these categories naturally leads to high turnover or high profits.  As our catchment area is mainly within Yorkshire we have no opportunity to export.  As we develop innovative software this helps reduce the need for labour input and thus we inevitably do not expand our staff and increase employment.

Given the significance of the above factors that are at the forefront of most awards criteria, it is even more surprising that DEB makes the shortlists at all.  And yet we do on a regular basis.  In fact, despite Friday night’s results, we seem to specialise in being runners-up in many of the awards that we have entered.  Thus, despite not having the main criteria set for most awards as key drivers in DEB; despite not having the big budgets that other businesses have available; and despite being in a business sector that struggle to make the shortlists, we still generally do pretty well.  The conclusion that we can take from this is that we must be doing something right and consequently cannot be overlooked.  It is this thought that poured solace over my initial feeling of disappointment at not winning.  It is my hope that, on reflection, our team at DEB can view it in the same manner.

Consequently, rather than being disappointed at not achieving what we had hoped for, I left feeling surprisingly upbeat.  There is always another year to aim at.  I am aware of some of the exciting things that we currently have in development, which will enable us to compete again next year.  There still remains the drive to improve what we do for our clients and hopefully win local approval in awards in the years to come.

 Why Bother?

Given the tinge of disappointment that all but the winners feel, one is left to ponder, is it worth the effort of applying for awards?  It involves lots of work, cost and time to make a reasonable entry for awards.  If all you perceive is the most likely outcome of failure – then why bother to enter?

My belief is that, despite the possibility of disappointment of not winning, which, let’s face it, is a prospect that the majority have to face, the benefits of being involved vastly outweigh the downsides:

  • There is the buzz of being involved.  I personally am enthusiastic enough and find it easy to create my own self-sustaining buzz.  However, the whole team get the buzz of being in the race.  Seeing the excitement throughout Magna on the night of the ceremony, it was evident that this applies to the others businesses involved.
  • The hope of achieving an award is important in spurring you on to do better in whatever you do.  If you do not win, you aspire to be better.  If you do win, then you feel great and it can drive you on to do more in the hope that you can win again.
  • There is a great sense of achievement in being one of the finalists: Everyone cannot be the winner, but even getting on the shortlist shows that you are, in some way, commendable and seen as such by an independent judging panel.
  • In a publicity-conscious world, the exposure that you get is bound to do you no harm.  The name of DEB Chartered Accountants was printed in the brochures, displayed on the screen, and announced by the MC.  Over 500 people in the room became aware of us.  In addition there is the publicity that you can raise before the event about the achievement of being shortlisted.
  • More than anything it singles you out amongst your peers.  You have to be ‘in it to win it’ as they say.  The fact that we were the only accountancy practice in the awards says something in itself.  In November we attend the British Accountancy Awards as the only representative of Yorkshire in the ‘Independent Firm of the Year – North England’ category.  We also are finalists in the Online Accountancy section and are one of only nine selected throughout the whole of the UK. Whilst you may not achieve the status of being number one in the country, it is only important how you rank in the catchment area where you do business.  In this regard we appear to have little competition.
  • Awards provide you with an opportunity to match yourselves up against others and see how you fare.  There is always a need to try and do better but seeing how you stand against others gives you a degree of perspective that enables you to review what you have done and more importantly what you are going to do in the future.

Call to Action

It is true to say that not everyone can win awards.  It is, however, more true to say, that you stand no chance of winning awards if you do not enter.  Every business is likely to have awards that it can apply for.  For the reasons indicated above, I feel that they can have a very positive impact upon you personally and provide a welcome boost for your business. There are likely to be lots of things that make you special and good at what you do, that you simply take for granted.  By applying for the awards it brings home to you what you are good at, and perhaps where some improvements can be made.

The exposure and publicity that comes along with being shortlisted is bound be of benefit to your business.  You may feel that you have no chance of achieving this, but you simply will not know if you do not try.  You simply never know the priorities that will prevail with the judging panel so do not defeat yourself at the first hurdle by underestimating yourself.

You may feel that you would find it difficult to put what is good and special about your business into words and would struggle with completing the application.  However, there are people out there that can help you in this regard.  We can recommend the services of Lucinda White at Pure Event Management who has helped DEB in this regard.

Win or Lose

Whether you win or lose, I think you and your business could benefit from being involved in business awards.  You certainly will get encouragement from me.  If this is an area that interests you please do not hesitate to contact me.

David Edwards-Brown

 

 

Playing The Game

How do you play?

The extraction of funds from a company by owner/managers can be viewed as a game.  A game that has rules.  A game you can play well if you know and understand the rules.  A game you can be ahead of, if you have a strategy that is built round the rules, and a game that you will win if you play by the rules and do things properly.

This game has always existed but now the rules are getting much stricter.  As we visit new prospective clients, it is evident that many of them do not even know that that such a game exists.  They operate in blissful ignorance and in the blind faith that their accountant will wave a magic wand and make everything right at the year end, because after all that is what accountants are for isn’t it?  Why should they bother to understand the rules and do things properly when they can pay an accountant to do that for them?

Not knowing how to play

Such blind faith can lead company owner/directors, to play the game badly and leave them open to the likelihood of losing it altogether.  By simply taking funds from their company in any way that they want, such as cash from the ATM, bank transfers to their personal account, payment of private invoices, regular standing orders to non-business sources, including to themselves, they are breaking all the rules.  They think this is acceptable because their accountant has never told them what the rules are, or they have been lulled into believing that everything can just be made right at the end of the year.  Many accountants do this by retrospectively pretending that the rules were being followed, by making up a fallacy that a business declared dividends that in reality they never did, or by creating the pretence that salaries were paid, which simply were not.

Catch 22

At best such a strategy is nothing more than reactive.  They are making the best of a bad job and employing damage limitation techniques to do their best to protect you, even though the horse has long since bolted. The opportunity to discuss with you what the rules are, and how they can be used to your advantage to make you a winner is lost.  As a consequence you get a second best, or even worse, solution.

Worse still, if you have played the game badly, and not followed the rules you can find that you have large unexpected personal tax liabilities, in addition to the Corporation Tax paid through your company.  You could find yourself with a Catch 22 situation – the high “pretend” dividends that your accountant invents to cover your rampant withdrawals, results in high personal tax bills, which are paid on behalf of the directors through the company.  This causes the need for more inventiveness at the next year-end and more so-called dividends resulting in yet more tax to be paid.  As a result of playing the game so badly you could be endlessly paying tax both in the company and personally without a solution in sight.

Play a pro-active game

You cannot afford to play the game reactively.  You need to be ahead of the game.  Use the rules to your advantage, not suffer from them due to not knowing what they are.  At DEB we ensure you know what these rules are and what the best way that you can use them is.  We create solutions to get you out of the endless cycle of paying tax.  We discuss and design a game winning strategy for you so that can play the game with confidence as all winners should.  We are pro-active in helping you to play the game right and to your advantage.

A changing game

With HMRC desperate to take more cash from you, they have become, and are becoming, extremely good players of the game.  They constantly change the rules to their advantage and interpret existing ones in new ways.  In a game where the rules of engagement are changing so much, taking the view that you can do exactly what you have done in the past, and your accountant will sort it all out is naïve in the extreme.

HMRC are tightening the rules:

  • So that it is difficult to pretend that a wage was processed if the correct procedure was not followed.
  • So that they can challenge the legality of dividends that have not been processed correctly and cannot be supported by the correct documentation generated at the right time.
  • Affecting the repayment of director’s loans and new proposals could see charges relating to overdrawn director’s loan accounts become increasingly punitive in the future.
  • So that regular payments of cash not being processed as wages, and not supported by dividend documentation, are treated as being salary on which there is a liability to tax, employer’s National Insurance, and Employees National Insurance.  Not to mention the ever- increasing impact of penalties and interest.

 Playing the game right

Only by playing the game right can you hope to fend off HMRC and avoid unnecessary tax liabilities.  Knowing how to play and having someone to discuss your playing strategy with regularly is the best way to ensure that you win rather than lose.  Times are changing and you need to change with them.  You must not get left taking part in a game that you do not know how to play, simply because your accountant has not provided you with enough knowledge, guidance, tactics and strategy, to give you a better chance of winning.

 Learn to play with DEB

At DEB we have always ensured that our clients are effective players of the game.  We explain the rules to them.  We discuss with them how the rules can work for them instead of against them.  We discuss and agree a strategy with them, and show them how to get the best advantage from the rules.  We review this strategy with them throughout the year so that it can be amended if necessary.  We provide help and assistance to ensure that they abide by the rules and do not fall foul of them.  We also keep our clients ahead of the game by supplying regular information and updates on all rule changes and strategies being employed by HMRC that we distribute using DEB Connect, our unique client information system.

Need a better coach?

If you are not being given the help and coaching that you need to make you a winner then DEB Chartered Accountants can help.  Contact us for a no obligation, free meeting to discuss your present situation.  We have recently been shortlisted for the British Accounting Awards, and the Barnsley & Rotherham Chamber of Commerce Awards in recognition of the innovative things we are doing to help our clients.  It is these things that we can use to make a difference to you and your business.  We would love the opportunity to discuss our ideas with you.  If you would like a free meeting to discuss your situation with us please contact us on 01226 245824 or email lisa@deb-accountants.co.uk

NMW – National Minimum Wage changes from 1st October 2013

If you have any employees who are paid at the minimum wage then please be aware that from 1st October 2013 the rates will change.

It is important that you make appropriate changes as it is a criminal offence to pay someone less than the National Minimum Wage.

The new rates are as follows:-

Age

From 1st Oct 2013

To 30th Sept 2013

21 and over

6.31

6.19

18 to 20

5.03

4.98

Under 18

3.72

3.68

Apprentice

2.68

2.65

If you find you have underpaid an employee you must pay them any arrears as soon as possible.You can use the National Minimum Wage calculator to help you.

Please be aware that if an employee is paid on a piece rate basis it is your responsibility to convert that to an hourly rate and ensure they are still paid highly enough. This particularly relates to outworkers. Also, if employees are salaried, they are also entitled to achieve at least the National Minimum Wage when converted to an hourly rate.

Payroll is one of the many services we offer here at DEB Chartered Accountants, so if you need any assistance please get in touch for a friendly and personal service.

Beware Of The Warning Signs Of Insolvency

Trading whilst in an insolvent position is an extremely risky situation for Directors. If the directors of a business continue to trade when they know that the company is unable to pay its debts they could be exposed to personal liabilities (and possible prosecution) and lose the usual protection offered by the limited liability status of the company.

For this reason company directors need to keep a careful eye out for the early signs of the company drifting towards insolvency.  These may include:

Negative Reserves
When the company’s annual accounts are prepared (or interim management accounts) the directors should take careful note of the balance sheet to ensure that there are no negative reserves due to the company’s assets exceeding its liabilities.  This often arises when losses have been made, or funds in excess of profits have been extracted.

 Negative Net Current Assets
Whilst the company may have positive assets overall, it is the company’s ability to pay debts as they fall due that is the real issue.  A company’s ability to meet short-term liabilities depends upon liquid assets (cash or assets that can be quickly converted to cash) available.  Looking at the Net Current Assets figure in the balance sheet you can provide a good indication of this.  Where Current Liabilities exceed Current Assets then this will warn of probable cash flow problems and the risk of subsequent insolvency.

 Over dependence on one large Customer
This is always a dangerous situation to be in.  Effectively your company is dependent upon the fortunes of your principle customer.  If they are in difficulty then so are you.  An extremely large bad debt, or simply a delay in them paying you, may cause your company to fail.  Diversify your client base as best you can, and ensure you keep a tight control over your debtors so that they do not build up large debts that you cannot afford to go ‘bad’.

 Taxation Arrears
Of all your creditors HMRC is often the last to be paid as they are not considered to be critical to the continuation of your business in the way that key suppliers and employees do.  However, HMRC is often the most likely to take action to put your company into liquidation.  As such, not paying HMRC is simply not a good idea.

 Aggressive Bank Action
In the past banks competed for the opportunity to lend you money.  Today it is a very different situation.  If your company is struggling, rather than holding out a helping hand they are often quick to try to withdraw their lending facility.  Overdrafts are repayable on demand and you may find that their action to reduce the facility may be sufficient to tip you over the edge into an insolvent position.

 Unexpected or Unusual Events
The receipt of a winding up order from a creditor, a demand for repayment of a loan, or the consequences of a County Court judgement going against you may be an indicator of you heading for trouble.

If you feel that you are having difficulty then you need to speak to your accountant about this.  Accountants are best placed to give you initial advice and should be your first port of call, although ultimately you may need to be referred on to an authorised Insolvency Practitioner.  If you are concerned about the risk of your business becoming insolvent and are not getting the help and support that you think you need from your accountant, please do not hesitate to contact us at DEB Chartered Accountants.