Buy green, and get £5,000 off a brand new car

JUST A QUICK NOTE FOR ANYONE THINKING OF BUYING AN ULTRA-LOW EMISSION CAR such as the ‘Smart fortwo’.  From January this year, the government has been giving a grant of 25% up to a maximum of £5,000 against the cost of a newcar.

How do you claim this?  Merely agree to buy the car from a recognised dealer who will automatically reduce the price by £5,000 but will ask you a few questions as to why you are buying the car.  More details on the Department for Transport website.

    I took a look at the first car on the Department for Transports list of qualifying cars, the ‘Mitsubishi i-MiEV’, which is small but is a four door hatch back.  The Mitsubishi company makes the following claims about running costs for this very innovative car:

• Costs just £270 to charge for 12,000 miles driving (£2.09 per full charge based on an average of 10p per kWh). If you are using the Economy7 tariff then the cost for 12,000 miles could be as little as £135 (£1.05 per full charge based on an average of 5p per kWh)
• Low servicing costs and downtime – only 4 major working parts compared to over 300 in a typical internal combustion engine
• The i-MiEV Mitsubishi Service Plan (MSP) covers the first three years servicing at a cost of just £300
• Servicing carried out by any one of Mitsubishi’s 133 service dealers
• Exempt from road tax
• First year capital allowances for fleet vehicles
• Zero benefit-in-kind company car tax
• Exempt from London Congestion Charge
• Free parking in some London boroughs and cities such as Milton Keynes
• 5 year battery warranty and 3 year vehicle warranty

Almost negligible running costs, free parking and the government gives you £5,000 to help buy it! 

    It would seem to me to be something that companies operating in and around the capital and larger cities should be at least considering, no car tax, not taxable as a benefit in kind, capital allowances available and exempt from congestion charge. 

About the author: Nigel Dack FATT is a client manager at Adams and Moore Charetered Certified Accountants.  Contact Nigel at Nigel@adamsandmoore.co.uk if you have any questions or wish to find out how we can help you. 

Performance Management – Food for thought

BUSINESS OWNERS AND FINANCERS NEED TO KNOW THAT THE COMPANIES THEY LOOK AFTER ARE IN GOOD SHAPE.  They can achieve this through the process of measurement, monitoring and managing.

    Reliance tends to be placed on annual report and accounts. Rightly so as more emphasis is usually placed on the verification of control accounts, which therefore more reliable.  A major problem with reliance on annual reports and accounts is that, by their nature they portray a historic view of the performance of the business.  An annual presentation therefore tends to more often be too late for decision making. 

    A better and more important tool in terms of day to day activity is the management accounts.

 Management accounts

In addition to the main body of the management accounts, a cash flow forecast, order book and above all a clear and concise analytical review of the figures should prove helpful.

Accounting ratios

 The starting points for analytical review are accounting ratios.

    Accounting ratios can offer an invaluable insight into a business’ performance. There are four critical ratios to consider –

• liquidity,
• solvency,
• efficiency, and
• profitability

Liquidity ratios

There are three types of liquidity ratio:

• Current ratio (calculated, current assets divided by current liabilities): This assesses whether you have sufficient assets to cover your liabilities. A ratio of two shows you have twice as many current assets as current liabilities.
• Quick or acid-test ratio (calculated, current assets (excluding stock) divided by current liabilities):  A ratio of one shows liquidity levels are high – an indication of solid financial health.
• Defensive interval (calculated, liquid assets divided by daily operating expenses. This measures how long your business could survive without cash coming in. This should be between 30 and 90 days.

 Solvency ratios

Gearing is a sign of solvency. It is determined by dividing loans and bank overdrafts by equity (shareholder funds).

The higher the gearing, the more vulnerable the entity is to increasing interest rates. Most lenders will refuse further finance where gearing exceeds 50 per cent.

Efficiency ratios

There are three types of efficiency ratio:

• Debtors’ turnover (calculated, average of credit sales divided by the average level of debtors):  This shows how long it takes to collect payments. A low ratio may mean payment terms need tightening up.
• Creditors’ turnover (calculated, average cost of sales divided by the average amount of credit that is taken from suppliers). This shows how long your business takes to pay suppliers. Suppliers may withdraw credit if you regularly pay late.
• Stock turnover – average cost of sales divided by the average value of stock. This ratio indicates how long you hold stock before selling. A lower stock turnover may mean lower profits.

Profitability ratios

Divide net profit before tax by the total value of capital employed (Profit before interest and tax divided by Total Assets less Current Liabilities) to see how good your return on the capital used in your business is.  This can then be compared with what the same amount of money (loans and shares) would have earned on deposit or in the stock market.

    You could also use the net profit ratio to evaluate your profitability.  Divide the net profit before tax by the turnover (net sales) to see how good your net profit is.  This can then be compared with the same ratio in other periods or with the ratio of your competitors.  Net profit ratio is one of the ratios used by analysts to determine whether a business is making progress.

Limitations of ratio analysis

When interpreting accounting ratios you should always bear in mind the following:

• comparative information is essential for any meaningful ratio analysis
• accounting ratios are based on profit and loss accounts and balance sheets which are subject to the limitations of historical cost accounting and one-off anomalies
• ratio analysis helps to build a picture of an entity, the effectiveness of the outcome depends on the quality of the financial information on which the ratios are based. The conclusions drawn from the accounting ratios will be flawed if they are based on poorly done accounts;
• past performance  is not necessarily the best indicator of future performance. 

Don’t run too quickly to conclusions

In conclusion, as good as financial ratios are, they should only be used as a starting point for further investigation into the performance of the entity.  Care needs to be exercised when formulating any conclusions; a change or difference in a ratio can usually be attributed to a number of factors not necessarily accounting in nature.

 At Adams and Moore we are empowering our clients with a set of management tools that assist them in understanding their figures and put them ahead of other businesses in competing for that limited resource – additional finance.

About the Author: Egbert Johnson FCCA is responsible for Audit and Accounts at Adams and Moore Chartered Certified Accountants.  For further enquiries or to ask how we may be able to assist you contact Egbert at Egbert@adamsandmoore.co.uk

Use (social) networking to your advantage!

IF YOU ARE NOT YET FAMILIAR WITH SOCIAL NETWORKING, have a good look at what’s out there and have a go; pick what you feel will be the most beneficial to you and your business. 

    Ask yourself questions such as, who is your target audience? Who will manage this? What key points do I want to get across?

    Once you have chosen what you feel will be the most beneficial site (you may want to use one, two, or even more!), you can begin creating your account.

First things First first     

The first and probably the most crucial step is to set up your profile. Initially go for the basics such as name, location, and email, but remember to choose wisely as an error at this stage could undermine your on line presence before you even get going!   The key is to ensure any profile expresses how you wish your business to be perceived, it is ok to include some personal/neutral points regarding hobbies and interests but keep it professional.

Be a friend to find a friend

You must participate in social networking sites in order to gain any visibility, recognition or traction.  Remember the idea is to get you and your business noticed!

    Create a list of messages you wish to convey. Never hard sell, however use links, conversation, short posts and help others to convey your brand or your expertise.

    “Hey, buy from me!” as your first post is like a used car salesman and will come across as too aggressive and hard-sell.

Blogs

Blogs make excellent items to talk about. Offer advice, links, help and conversation. But don’t get mean or post anything inflammatory.  Your posts remain online for a long time.  Google even archives some, such as Twitter posts, so be certain you want to say what you say before posting them.

    Once you’re up and running you will find that some will seem more natural and easier to use to you than others.   There’s no right or wrong site. Use what works.

   But you’ve got to be out there, networking, sharing something worthwhile to get noticed!

About the author: Gemma Petty is an assistant Client Manager at Adams and Moore Chartered Certified Accountants. For more information or to ask how we may be able to assist you, contact Gemma via email at gemma@adamsandmoore.co.uk

Recognising Income

FOR MOST BUSINESSES, INCOME RECOGNITION does not pose any problems. 

Income is recognised when a transaction is recorded with the certain expectation that payment has or will be received.

For most businesses, income is recognised on  the same date sales are made, which also tends to correspond to the date the sales invoice in raised.

For many other businesses, recognising income is no where as straight forward as that. For example, if;

• income is received prior to the goods being dispatched, manufactured or services performed,
• the services to be performed straddled more than one accounting year,
• there is some degree of uncertainty associated with the receipt of payments
• there are contract approval processes which are complex or under dispute

Left entirely to most directors, decisions to recognise income may not reflect the transaction in a clear unbiased fashion.

Accounting standards

To address this ambiguity, accounting standards which are usually derived from General Acceptable Accounting Practices (GAAP), have been established and adopted to guide the process of  income recognition. There are a couple of these, some of the most popular being;

1. IAS 18 Accounting Policies, Changes in Accounting Estimates and Errors
2. SSAP 9 Stocks and Long Term Contracts
3. FRS 5 Reporting the Substance of Transactions
4. UITF 40 Revenue Recognition and Service Contracts

As you may deduce from their headings, each of these cover different elements and scenarios associated with income generation for a range of business entities and transactions. However, they seldom cover every scenario, and sometimes conflict with other standards.

We could go into detail here, but the only party really likely to make a fuss as to when income is recognised is HM Revenue and Customs, because of the impact it ihas on the tax liability. For this reason, it is worth knowing whether an entity’s income is being recognised at the correct point in the trade cycle.

Get advice

Each case is different. If in doubt it is well worth getting some advice. The first point of call should be your accountants; given their knowledge of your business, they should be able to advice you without charging you an arm and a leg for what we generally consider to be routine advice.

About the author: Egbert Johnson FCCA is the Audit and Accounts Manager at Adams and Moore Chartered Certified Accountants. For more information and enquiries contact egbert@adamsandmoore.co.uk

HMRCs new late filing penalties

The new tax year inevitably means one thing – your tax return is now due!

You have until 31 January 2012 to get your 2010/11 tax returns filed online, but be mindful of the new HMRC late-filing penalty regime that packs much more of a punch than anything we have seen in recent times.

But if you are one of these upstanding citizens who always file their returns and pay their taxes well before the 31 January deadline, then carry on; there’s nothing to see here!

 

Key changes

For the rest of us, the changes to the penalty regime are well worth noting.

• From April 6, you can no longer use the well-honed get out clause ‘I’ve paid all my taxes’ or ‘I don’t have a liability so you can’t fine me £100 if my return is late’, because now they can.
• What’s more, penalty fines could increase to over £1,300 if HMRC get their way!

So what else has changed?

Well the new late filing penalty regime for tax returns is:

Day one: you will be charged an initial penalty of £100, even if you have no tax to pay or you have already paid all the tax you owe.

Three months late: you will be charged an automatic delay penalty of £10 per day up to a maximum of £900.

Six months late: You will be charged further penalties, which are the greater of 5 per cent of tax due or £300.

12 months late: You will be charged yet more penalties, set at the greater of 5 per cent of tax due or £300.

Defending this policy, HMRC have released the following statement

“The vast majority of people don’t have to pay penalties because they send in their return and pay on time. But there are always a small number of people who have avoided filing or paying on time. HMRC spends a lot of time pursuing late returns and getting involved in unnecessary appeals work. We want to focus our resources on more productive work such as catching criminals and collecting tax. The old £100 penalty was not much of a deterrent and these new penalties, which increase over time, will get people to submit returns as soon as possible. Basically, the greater the delay, the greater the penalty.”

It is important to note that these penalties are in addition to any interest charged on overdue payments, so can end up being fairly considerable. So don’t get caught out.

About the author: Richard Jepson ACCA is the Tax Manager at Adams and Moore. For more information or to make an enquiry contact Richard@adamsandmoore.co.uk

Audit Exemption Thresholds

Egbert Johnson FCCA, A&M Audit & Accounts Manager writes

I find the audit exemption threshold a very confusing concept for non-accountants. In my experience, whenever a query regarding the threshold comes up, most people tend to respond by asking,

“is it the 2 out of 3 criteria?”.

No. Actually, when you talk about audit exemption criteria, 3 out of the 3 pre-conditions need to be met to qualify for audit exemption.

Companies seeking exemption must:

• Qualify as ‘small’
• Have a turnover of not more than £6.5million
• Have a balance sheet total of not more than £3.26million

The confusion seems to lie with the first pre-condition. To qualify as a small company, a company must meet 2 of the following 3 criteria:

• The average number of employees must be 50 or fewer
• The balance sheet total must £3.26million or less
• Annual turnover must be £6.5million or less

Other considerations

Having met the minimum requirements to quality for exemption, the company’s articles and memorandum of association should not include any stipulation overriding the exemption.

It is important to note that even when all these criteria are met, the exemption will not be granted should the pre-requisite proportion of members move or vote for a company’s accounts to be audited.

About the author: Egbert Johnson is the manager responsible for Audit and Accounts at Adams and Moore Chartered Certified Accounts. For more information contact Egbert on Egbert@adamsandmoore.co.uk

Better late than never – get connected

Gemma Petty, Assistant Client Manager at A&M writes

Social networking has effectively invented new ways for people to connect and build relationships, but it is essentially more or less like personal networking, without the badly cooked meal.

Just like a Chamber of Commerce meeting or a professional networking event, through the wide array of social networking tools and sites, you will meet many people.

Some you will do business with, some may turn may turn out to be much more, others you may choose to ignore. But you’ve got to be out there, networking, sharing something worthwhile to get noticed.

The big players in social networking include LinkedIn, Twitter and Facebook. 

LinkedIn is the world’s largest professional network with over 80 million members and still growing. LinkedIn connects you to your trusted contacts and helps you exchange knowledge, ideas, and opportunities with a broader network of professionals. If you are in business, you should be on LinkedIn.

Twitter is a real-time information network that connects you to the latest information about what you find interesting. Simply find the public streams you find most compelling and follow the conversations. At the heart of Twitter are Tweets – small bursts of information no more than 140 characters in length. Connected to each Tweet is a rich details pane that provides additional information, deeper context and embedded media. You can tell your story within your Tweet, or you can think of a Tweet as the headline, and use the details pane to tell the rest with links to your website, photos, videos and other media content.

 Facebook is a social networking website intended to connect friends, family, and business associates. It is the largest of the networking sites. It began as a college networking website and has expanded to include anyone and everyone.

Facebook advertising works a bit like Google Ad Words in that you bid for keywords and compete to get your ads shown. Your choice of keywords determines how effective your advertising campaign will be. Facebook has an analytical tool that gives you some information and reports on click rates, etc. These reports will help you to refine your target market more effectively.

 All 3 of these social networking sites can be accessed via your blackberry, iPhone or android smart phone which will enable you to stay connected even when you do not have access to your computer.

 With social networking and online businesses booming all over the world make sure your online footprint is a huge size 12 and get yourself connected!

About the author: Gemma Petty  is responsible for providing A&M clients with ad hoc advise and support, and on their behalf, oversees the delivery of the entire portfolio of compliance and advisory services delivered by A&M specialist teams. For more information email Gemma on gemma@adamsandmoore.co.uk

It all comes down to bookkeeping

Nigel Dack FATT, Client Manager at Adams & Moore CCA writes  

The 2008 Finance Act has given HM Revenue and Customs the power to investigate up to 50,000 small and medium-sized businesses books and records. This is over and above their normal investigatory power.  The checks on business records are due to start in the second half of 2011. Businesses could face fines of up to £3,000 if their records are found to be lacking. 

 Why wait for the Revenue to come knocking and find weaknesses in your records that could open you to potential fines, when you can be proactive and ensure that your business records are up to scratch? 

 The Revenue has produced a very helpful fact sheet in their ‘Tax help series’ which outlines the records that are required by law. It is probable that this will be the bench mark from which they will work in the forthcoming investigations.

 The fact sheet above covers various types of business, but specifically I turn my attention to the records required to be kept by organisations liable to Corporation Tax. In the main, we are talking (but not exclusively) about companies.

 The Revenue say:

‘If your company or organisation is liable for Corporation Tax, you must keep and retain adequate business and accounting records to file an accurate Company Tax Return and calculate how much Corporation Tax you need to pay.’

But what do they mean by this?

 There is a legal requirement on companies to keep accounting records as stipulated by Companies House. These are:-

• a record of your company’s assets, for example, a record of ‘capital expenditure’ such as the purchase and sale or disposal of company assets, equipment, office furniture and vehicles
• a record of your company’s liabilities
• a record of your company’s income and expenditure
• details of any stock on hand at the end of your financial year.

The Revenue says that if your company keeps these records then ‘you will not need to keep any more for Corporation Tax.’ However the Revenue goes on to say that all the records you do keep must:-

• be complete and up to date
• allow you to work out correctly the amount of Corporation Tax you owe to HM Revenue & Customs (HMRC), or can reclaim from HMRC
• allow you to file an accurate Company Tax Return
• be easily accessible if HMRC asks to see them during an enquiry into your Corporation Tax affairs

And then goes on to ‘suggest’ records that you may ‘find useful’ to keep, these are:-

• annual accounts, including your profit and loss statement and balance sheet
• bank statements and paying-in slips
• a cash book and any other account books you keep
• purchases and sales books or ledgers
• invoices and any record of daily takings such as till rolls
• order records and delivery notes
• a petty cash book

About the author: Nigel Dack FATT is responsible for providing A&M clients with ad hoc advise and support, and on their behalf, oversees the delivery of the entire portfolio of compliance and advisory services delivered by A&M specialist teams. For more information email him on nigel@adamsandmoore.co.uk

2011 Budget Summary

CHANCELLOR GEORGE OSBORNE presented his second budget on Wednesday 23 March 2011.

In his statement, Mr Osborne began by saying,

” this budget is about reforming the nation’s economy so that we have enduring growth and jobs in the future.”

The Budget updates previous announcements and also proposes further measures. Some of these changes apply from April 2011 and some take effect at a later date, so the timing must be factored into any tax planning that must now reflect these changes.

Main Budget proposals

• A 2% cut in the main rate of corporation tax to 26%
• Enhanced tax incentives for investment in higher risk companies and for SMEs investing in research and development
• Reintroduction of Enterprise Zones
• Entrepreneurs Relief doubled to £10m
• An increase in the mileage rate payable to own car drivers
• Consultation on integrating income tax and national insurance contributions
• Reduced inheritance tax rates for those giving one tenth of their estate to charity

Our summary focuses on the issues likely to affect you, your family and your business. We have included our own comments to help you understand how what was said could impact you.

Click here to read our summary of the Budget 2011

Please do not hesitate to contact us for advice.

New government tax proposals may impact those with unearned income

CHANCELLOR GEORGE OSBORNE is expected to outline how he will merge income tax and national insurance contributions (NICs), and phase out differences between the tax and what is technically a contribution towards welfare and pension provision, in tomorrows budget speech.

In 2011, income tax and NICs are forecast to raise c£250billion, or approximately 45% of tax revenues. If the recommendations of the Office of Tax Simplification (OTS) created  in July 2010 by the Chancellor of the Exchequer to review small business taxation are fully implemented, the Chancellor could announce a timeline for the unification of income tax and NICs in the House of Commons tomorrow.

This is not a new issue. HM Treasury last publicly commented on this in the 2007 paper Income Tax and National Insurance Alignment: An Evidence Based Assessment. Since then, the Mirrless Review  produced by the Institute of Fiscal Studies has come out in favour of integrating the two systems into a single tax.

In a move Sir Humphrey from the 1980s hit satirical sitcom ’Yes Minister’ would describe as ‘courageous’; if this goes ahead, there are bound to be winners and losers.

The approach will make it easier to deal with the outstanding issue of IR35 and the fairly complicated taxation of the self-employed; but with different thresholds and rules to be aligned, it is likely that attention will concentrate on those who will lose out, including those with unearned income such as pensioners who at present pay no NICs and higher earners, such as company directors who try to ‘disguise’ some of their earnings.

“We will carefully study the Chancellor’s proposals in order to be in a position to advice our clients on how they may be impacted by the proposed changes”                                                                                                                                - Richard Jepson ACCA (Tax Manager at Adams & Moore Chartered Certified Accountants)