Archive for April, 2013

A sales tax to level the internet, retail playing field?

Tuesday, April 30th, 2013

In the United States a piece of legislation is slowly winding through the approval process and if it becomes law would allow state governments to force Internet retailers to collect sales taxes from their customers and remit the proceeds to state and local government – the so-called Market Fairness Act. The states would be required to provide free software to be embedded in retail Web sites to work out taxes due. Could this be coming to the UK?

The impetus to introduce the legislation in the States is the realisation that many local businesses are suffering taxes that overseas internet businesses are not. As a result Americans are buying from internet businesses that can sell at lower prices and still make cash profit due to their lower tax hit.

This has parallels with the experiences of high street organisations in the UK who complain that Amazon and other large, international retailers, with tax paid in off-shore, low-tax jurisdictions, effectively have an unfair trading advantage over their UK resident competitors.

If George Osborne is looking for a way to gather more tax revenue from economic activity in the UK and please the voters at the same this must be a tempting route to follow. One would assume that retailers selling on the internet would have to apply to HMRC, for exemption from the Sales Tax, on the basis that their business was registered to pay tax on its business profits in the UK.

What is overtrading?

Tuesday, April 23rd, 2013

Imagine that for the next quarter your turnover doubled from £60,000 to £120,000. To achieve the extra turnover you had to purchase product that cost you £60,000.

 On the face of it this is great news for your business. In three months you will have generated £60,000 (Sales of £120k less direct costs of £60k) of additional profit for your business. In this example we are going to assume that there were no increases in your fixed costs. Unfortunately, business up to this point has not been good and at the beginning of this exceptional quarter’s trade increase your overdraft is almost at maximum – you are £20,000 overdrawn and your limit is £25,000.

In order to buy the additional product you agreed to pay thirty days after invoice date. You were not in a position extend these payment terms as you were not purchasing for stock but to meet sales orders as they were placed. However, you advised your customers that they would need to pay you within thirty days. Quite reasonably, you were reassured that cash inflow each month would more than cover cash outflow and all would be well.

At the beginning of the second month you needed to pay your suppliers £20,000 and as planned you received £40,000 from customers. Your bank manager was pleased.

At the beginning of month three of the quarter you were obliged to pay your suppliers a further £20,000 but this time half of your customers were a week late paying you and the rest advised you that they would need to pay after sixty days due to their own cash flow problems. So for that week you had to use most of your overdraft facility.

 At the beginning of month four you were unable to pay your suppliers as agreed as all your customers pushed to extend their payment terms to sixty or even ninety days. You had very little room to manoeuvre. In order to continue trading you needed to pay suppliers otherwise they would withhold deliveries for month four. Your bank was unable to increase your overdraft as you were unable to offer further security and in the time available you could not raise additional private funds to introduce into your business.

Even though on paper you had generated £60,000 of additional profits cash flow was a nightmare. Overtrading is the term used to describe this type of short-term trading crisis that is created by sudden boosts in sales volume.

In order to work your way through these issues you need to plan ahead. Not only do you want to demonstrate that you are going to make more profits, you must also work out how and where you are going to find the cash flow to support the increase in trade. Otherwise…

If you want to set up effective cash flow management for your business we can help. Don’t wait until you have exhausted your working capital. Planning is the key to surviving short term overtrading conditions.

Interested in making more profit?

Tuesday, April 23rd, 2013

 We would guess, yes you are? But how?

 The problem with stagnant markets (i.e. verging on recessionary) is the amount of ‘talking down’ that goes on: don’t know about you but sales have taken a hammering, don’t get the support we need from the bank, and so on…

 We would like to offer you a different perspective.

Profit is the difference between your sales and costs, ipso facto if you are going to increase your profits, you need to impact the £ value of either variable. In this blog post we are going to concentrate on sales.

 There are three features of your sales that you need to examine:

  • Price – the amount you charge for your goods and services
  • Number of customers, and
  • Number of times your customers buy from you in a trading cycle.

 Price is straight forward, you can either leave them as they are or, increase or decrease the amount you charge. The same is true for numbers of customers and the frequency of their buying events with your business. What is interesting is the propaganda associated with price increases and the neglected area of sales frequency: getting your customers to buy more from you.

 For example it may be possible to increase your prices, reduce the number of your customers and still make more profit. To achieve this apparently, impossible and unlikely transformation, you will need to focus on cross-selling: how can you tempt customers back to buy from you twice a week instead of once a week? (Or per month or per quarter the principle is the same.)

 Perhaps you could consider offering a new product or service? If you increase prices and expect that you will lose customers, it’s likely that the majority of the customers you will lose are the ones that take up your time with complaints and never pay their bills on time? What is certain is that selling more to the customers who are loyal to your business will impact profit growth and likely out distance the negative impact of losing custom.

 It’s always more productive to sell to existing customers, they know you after all… The trick is to find something to tempt them to increase their buying visits?

 If you would like to discuss these issues in more detail and see how they could be employed to increase your business’s profitability, please call, any time.

Tax Diary April/May 2013

Monday, April 8th, 2013

1 April 2013 – Due date for Corporation Tax due for the year ended 30 June 2012.

 19 April 2013 – PAYE and NIC deductions due for month ended 5 April 2013. (If you pay your tax electronically the due date is 22 April 2013.)

 19 April 2013 – Filing deadline for the CIS300 monthly return for the month ended 5 April 2013.

 19 April 2013 – CIS tax deducted for the month ended 5 April 2013 is payable by today.

1 May 2013 – Due date for Corporation Tax due for the year ended 31 July 2012.

 19 May 2013 – PAYE and NIC deductions due for month ended 5 May 2013. (If you pay your tax electronically the due date is 22 May 2013.)

 19 May 2013 – Filing deadline for the CIS300 monthly return for the month ended 5 May 2013.

 19 May 2013 – CIS tax deducted for the month ended 5 May 2013 is payable by today.

 19 May 2013 – The payroll forms P35 and P14s must be filed by this date – employers late in filing these forms may receive a penalty.

 31 May 2013 – Ensure all employees have been given their P60s for the 2012-13 tax year.

Real Time Information (RTI) slow down

Monday, April 8th, 2013

The following quote is from information recently published to HMRC’s website:

 ‘HM Revenue & Customs (HMRC) recognise that some small employers who pay employees weekly, or more frequently, but only process their payroll monthly may need longer to adapt to reporting PAYE information in real time. HMRC have therefore agreed a relaxation of reporting arrangements for small businesses.
 

Until 5 October 2013, employers with fewer than 50 employees, who find it difficult to report every payment to employees at the time of payment, may send information to HMRC by the date of their regular payroll run but no later than the end of the tax month (5th).

 This is a temporary relaxation to give some extra time to small businesses that pay weekly (or more frequently) but who only run their payroll (or use an agent to run their payroll) at the end of the month. This extra time will enable these businesses to adapt their processes or change their arrangements with their payroll service supplier so that they can comply with the new legislation.

 From April 2013, employers who choose to take advantage of this relaxation will still need to report their PAYE in real time by the last payday in the month or the end of the tax month (5th) at the latest.

 This is not a withdrawal of the requirement to report PAYE in real time. All employers are still required to operate PAYE in real time and we expect most employers to be reporting PAYE in real time from their first payday on or after 6th April.

 From 6th October all employers will be required to report PAYE in real time each time they pay their employees. However HMRC will continue to work with employer representatives during the summer to assess and understand the impact of RTI on the smallest businesses and consider whether they can make improvements to real time reporting which will address their concerns without compromising the benefits of RTI or the success of the Department for Work & Pension's Universal Credit.

 HMRC recommends that employers and agents move to real time reporting as soon as possible in order to give them time to refine business processes before automated penalties are implemented.

Employers using commercial payroll software will find that their payroll software is designed to submit their PAYE information as part of their integrated payroll processes. So these employers should continue to or start to report “on or before” each payment is made to employees as this will be the easiest and quickest way of operating their payroll.

 Software developers have been informed that they do not need to change their products to accommodate this relaxation.’

 Therefore, this should be considered a temporary relaxation of the obligations imposed on employers by the switch to RTI reporting. Readers who are still unsure how these changes affect their business should contact us immediately.

Mortgage support – Help to buy

Monday, April 8th, 2013

In the distant past Government supported home buying by offering tax incentives. It has been some years now since UK taxpayers could obtain tax relief for mortgage interest payments. The MIRAS arrangement, where tax relief at the basic rate was deducted from mortgage interest payments by the lender, was the last and fading effort at stimulating home buying in this way.

 Instead George Osborne and his team have elected to try out two alternative systems: an equity loan scheme and a mortgage guarantee.

 Help to buy: equity loan

 This scheme will run for three years from 1 April 2013 and is proposed to provide £3.5bn of additional investment.

  • The scheme will apply to new builds only
  • All home buyers can apply – this scheme is not restricted to first-time buyers.
  • Buyers will need a minimum deposit of 5%
  • Government will lend up to 20% of the value of the property as an equity loan – this can be repaid at any time or when the property is sold. The loan is interest free for the first five years. In year six borrowers will have to pay a 1.75% annual fee which will increase annually by 1% of the annual amount above inflation.
  • The equity loan arrangement will only apply to home purchases of £600,000 or less.

 Lenders using this scheme will share ownership of their property with Government, if the value of your property increases so will the equity loan.

 Help to buy: mortgage guarantee

 This scheme will run for three years from 1 January 2014. Buyers will need to secure a mortgage from a lender who should be encouraged to offer better access to low deposit mortgages by the Government guarantee.

  • Guarantee will apply to new builds and existing homes
  • A minimum 5% deposit will apply
  • Available to existing homeowners and first-time buyers
  • A maximum home purchase of £600,000 applies

 Both schemes are intended to stimulate the housing market and in particular new building.

New Childcare Scheme from autumn 2015

Monday, April 8th, 2013

A new Childcare Scheme will be introduced to support working families with their childcare costs and will replace the current salary sacrifice scheme. Unlike its predecessor, the new scheme will be available to the self-employed and those on a minimum wage. Also parents will be able to choose their own voucher provider, as the new system will not be administered by employers.

Claimants will fund 80% of their childcare costs up to £6,000 per child. The remaining 20% (up to £1,200) will be subsidised by Government. From the first year of operation all children under 5 will be eligible and the scheme will build over time to include children under 12.

The scheme will provide support for families where:

  • both parents are in work and not receiving support through the Childcare Element of Working Tax Credits/Universal Credit, and
  • where neither parent has an income over £150,000.

The scheme has been widely criticised in the press as it seems to discriminate against parents who elect to stay at home to take care of their children.

Support will be provided through a childcare account redeemable at any registered childcare provider. The new scheme will be phased in from autumn 2015 as the current system of Employer Supported Childcare is phased out. The Government will shortly consult on the detail of delivery.

National Insurance �2,000 employment allowance

Monday, April 8th, 2013

The Government is to introduce an allowance of £2,000 per year for all businesses and charities to be offset against their employer Class 1 secondary NICs’ bill from April 2014. The allowance will be claimed as part of the normal payroll process. The Government will engage with stakeholders on the implementation of the measure after Budget 2013 and is seeking to introduce legislation later in the year.

 Although this change is a year from now, the allowance should be factored into your payroll budgeting for next year. It is likely that payroll software will be updated to allow for the £2,000 reduction in employers’ Class 1 secondary NICs. For smaller businesses contemplating their first or further appointments into the employment arena this will be a welcome support.

 Employers’ Class 1 secondary contributions are 13.8% of any wage or salary that exceeds the secondary threshold, currently £148 per week (£641 a month, £7,696 per annum). New employers could pay a salary or wage of up to £22,189 per annum to one employee and be liable for no employer’s National Insurance – ordinarily, employer’s NIC on this level of salary would amount to £2,000.

 This scheme is not intended to replace salary sacrifice arrangements that will continue to offer employees and employers NIC savings. Whether it will help to stimulate new job creation or reduce unemployment is an open question.