March 2018 Business Newsletter - Albert Goodman

MAR 2018

CHARTERED ACCOUNTANTS, TAX CONSULTANTS & FINANCIAL PLANNERS

NEWS

In this issue: General Data Protection Regulation ‘GDPR’ >>

View from the cloud - Client case study >>

Benefits of preparing your tax return early >>

P11DS >>

2018/19 Tax year >> Bad debt relief >> Hinkley Point - How can we help you? >>

Important changes to Auto Enrolment >> Book-keeping... I do that once a quarter when my VAT’s due... that’s ok isn’t it? >>

Welcome Michael Cahill - Partner There is a saying that “If you’re not moving forwards you’re moving backwards” and this will certainly be true over the next 12 months as lots of changes come into effect including the introduction of General Data Protection Regulations (“GDPR”) on 25 May 2018, and the introduction of Making Tax Digital for VAT in 2019. On top of this there is the never ending changes in tax rates and allowances, the continual development and improvement of cloud accounting technology (and related apps), and of course there will be changes happening in your own industries!! In my experience successful business owners are skilled at adapting to change, and with change comes opportunity. For example, the new GDPR regulations create an opportunity to demonstrate to customers that you are serious about looking after their data, to improve the quality of customer data held, and ensure your engagement with customers is only in areas they are interested in. Properly organised data will allow you to deliver a better customer service, an improved experience for the customer, and therefore for those who adapt best, and stand out from the crowd, there is a competitive advantage to be gained which could help accelerate business growth. Within this newsletter, we have articles on some of the topics mentioned above as well as other areas such as a reminder of VAT bad debt relief, which is topical following the collapse of Carillion, Toys R Us and other high profile businesses recently. I hope that you find something of interest in this issue, and please do contact us if you have a business issue that you would like to discuss further.

General Data Protection Regulation ‘GDPR’ Sophie Parkhouse - Director From 25 May 2017 the data protection regulations are changing as the new General Data Protection Regulation “GDPR” will be implemented. The GDPR applies to all EEA countries, and every individual and organisation trading with them, regardless of size. Although the UK is to leave the EU a data protection Bill will incorporate all of the GDPR as well as introducing new provisions to enable the UK to continue to be GDPR compliant. Whilst the data protection rules are being refreshed they are not being fully rewritten. The new regulations build on the current data protection act by adding enhancements in areas where the ways in which we work and the technology that we use differ from that of twenty years ago. The ICO has a range of resources on their website in order to support you with the implementation of the GDPR and these can be found here. Please be aware that this guidance is not yet finalised, and may change, as the ICO are continually updating this section of their website as new developments are made. We would recommend that you review the website and in particular the GDPR: 12 Steps to take now document, as failure to comply with the regulations can bring significant penalties of €20 million or 4% of worldwide turnover.

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Benefits of preparing your tax return early Sophie Harris - Assistant Manager “I hate being up against a deadline!”, crosses my mind as I make a start on this article, having avoided it until submission day. Appropriate (or not), given the subject… the benefits of getting your tax return submitted early: 1. Firstly, get that weight off of your shoulders! That awareness that you are putting it off but at some point you will need to face it. The chances are your tax return will actually become more painful the longer you leave it as memory fades and by January 2019 you can’t remember what that cheque in May 2017 was for or just how much stock you were holding in March 2018. 2. Bringing me to the next point - your tax return is likely to be more accurate if done sooner whilst fresh in your mind and when you (and your accountant) are not rushed at the last minute. 3. Your July 18 payment on account will be calculated as half of your 2016/17 tax liability. If it is possible that your income for 2017/18 has reduced compared to the previous tax year then you will be able to reduce your July payment to reflect the actual tax due. In which case it is beneficial to prepare your return, or at least have it drafted, before 31 July 18 so that you have less to pay. 4. Similarly, if you are due a refund of tax then you can get your hands on this sooner if your tax return is prepared earlier in the year. Also, as HMRC have less returns to process, it is likely that you will receive your refund quicker after submission than if you wait until January.


5. Alternatively, if your income has increased compared to the prior year then you are going to have a higher tax liability. Depending on your cashflow position, it’s usually better to know in advance the tax you need to pay in January and July 2019 to help plan for this. If you file your tax return straight away in April, then you are allowing nine months to budget for the January payment. 6. If you are in receipt of tax credits, these need to be submitted by 31 July each year. Whilst estimates can be given, it might be preferable to submit actual figures and avoid under or over payments in the year. 7. If you need to contact HMRC regarding your tax return, to request information or ask a question, it can be harder to get through and require a lot more patience around December and January! Furthermore, HMRC are now giving less information over the phone to agents, for example, P60 figures which if requested will now be sent by post directly to the client resulting in another time delay. Although, this is a great reason to set up your Personal Tax Account so that this information if available to you online. 8. Tax returns can be enquired into by HMRC for up to 12 months after they have been filed. Submitting the return earlier means the enquiry window will close that much earlier and you can have peace of mind that no further questions will be raised regarding your return. 9. Finally, your accountant will really appreciate it!

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2018/19 TAX YEAR Alex Manley - Business Services Assistant Manager With 6 April approaching, the tax year 2018/19 will be starting and now is a time to consider your tax position for the coming tax year. The changes to the allowances, tax bands and tax rates from 2017/18 to 2018/19 are as follows: The personal allowance is increasing from £11,500 to £11,850. The dividend allowance is decreasing from £5,000 to £2,000. The personal savings allowance will remain as £1,000 for basic rate taxpayers and £500 for higher rate taxpayers. The basic rate band will be increased from £33,500 to £34,500. The higher rate band will be £34,501 to £150,000. The additional rate band will remain at £150,001+. The income tax rates will remain as 20% for basic rate, 40% for higher rate and 45% for additional rate. The dividend tax rates will remain as 7.5% for basic rate, 32.5% for higher rate and 38.1% for additional rate. For those who trade through a limited company, your current remuneration package is likely to be a small NI level salary with the balance of your remuneration from your coming being received via dividends. The small level salary provides you with a qualifying year for state pension but is set at a level that there is no national insurance for the employee or employer. It also makes use of the majority of your personal allowance. The monthly salary figure for 2017/18 was £680 and this will increase to £702 for 2018/19. For 2017/18 all individuals were able to receive the first £5,000 of dividend income tax free however this will be reducing to £2,000 as of 6 April. This will result in a further £3,000 of dividend being taxed at 7.5% (£225 of extra tax) if you are a basic rate tax payer or at 32.5% (£975 of extra tax) if you are a higher rate tax payer. It is however still more tax efficient to receive a low level salary and dividends from your company than paying the same total income


via a salary. The lower salary saves the cost of the employers NI for the company, as well as employees NI and tax for the employee. The dividend tax rate of 7.5% in the basic rate band is much lower than the 20% tax rate for salary received above your personal allowance. If you have a director’s loan account with your company and the company owes you a reasonable amount throughout the course of the year, the company can pay you interest on the loan. This needs to be at a reasonable market interest rate. As a basic rate tax payer, you can receive £1,000 of interest and pay no tax on this; this is reduced to £500 if you are a higher rate tax payer. The interest charge in the company will also be a tax deductible expense for corporation tax. The company will have to pay the interest to you net of 20% income tax, but this will be recovered when you complete your 2018/19 tax return. The company will also need to complete form CT61 and pay the tax deducted over to HMRC. For your company for the new financial year from 1 April 2018, the corporation tax rate will remain at 19%. This is set to be reduced to 17% by 2020. When investing in new capital equipment, companies, sole traders and partnerships can all make use of the annual investment allowance (AIA), the allowance continues to be £200,000 and is not available on the purchase of cars, however vans are covered. This enables full tax relief in the year of purchase to be received. Any additions over this amount and cars will be subject to writing down allowances (WDA), receiving either 8% (special rate pool) or 18% (main pool) tax relief on the cost of the assets. If you have any questions on the above, please get in contact.

BAD DEBT RELIEF John Coupe - Senior Manager - Business Services Suffering a bad debt can have a significant impact on a business, both to profits and importantly cash flow. The recent compulsory liquidation of Carillion Plc on 15 January 2018 is a high profile example and there can potentially be significant knock on effects to a business when a business that it has traded with collapses. Although clearly not always possible, preventing bad debts from arising in the first place is the first important step. Ways to help achieve this include: Setting credit limits. Rather than extending the credit limit when a customer wants to order more, consider asking them to pay the additional balance in advance. Staying organised and implementing a credit control and accounting process can help your business issue invoices and chase late payments as and when they arise. Credit checking customers. Requesting trade references for customers. Resolving any issues arising or disputes quickly. If you are unfortunate enough to then suffer a bad debt it is the amount net of VAT that becomes the cost to the business. If operating the cash basis VAT is only accounted for when the money has actually been received and thus VAT on a bad debt is never paid over. If accounting for VAT on the invoice basis then the VAT will have been paid over to HMRC and can then be reclaimed. Although there are others, the main conditions to claim VAT bad debt relief are as follows: You must have already accounted for the VAT and paid this to HMRC. The debt must have remained unpaid for a period of six months after the later of the time payment was due and payable and the date of the supply. You must have written off the debt in your day to day VAT accounts and transferred it to a separate bad debt account. The debt must not have been paid, sold or factored under a valid legal assignment. To claim a refund you should include the amount of the VAT you are claiming in Box 4 of your VAT return that covers the date when you fulfil the conditions to make a claim. Books and records need to be kept to support the claim, to include a copy of the VAT invoice(s) and full details of the amount written off in the bad debt account. For VAT purposes, therefore, a period of six months must elapse before the VAT can be claimed. However, for annual accounts purposes, provision can be made once there is a reasonable likelihood that a debt will not be recovered. A debt can, therefore, be provided against enabling tax relief to be claimed through the resulting reduction in business profits - without actually writing off the debt in the records, as required to claim back the VAT. Providing us with details of potential bad debts is important to ensure that accounts do not imprudently overstate profits and also to avoid paying tax to HMRC on resulting bad debts. If you would like further information then please contact us.


HINKLEY POINT - HOW CAN WE HELP YOU?

Nick Hancocck - Partner The building of the new nuclear power station at Hinkley Point C has been described as the biggest building project in Europe at this point in time. It will run for at least the next 10 years, and create over 25,000 job opportunities. Alongside this, EDF pledge to pass as much of the business opportunities as possible into the local communities. Since commencement on site just over 3 years ago, there has been a gradual ramping up of activity and workers. The recent stats, during January 2018 there were on average 2,500 workers on site each day, Monday - Friday. There is an anticipated continual increase of this over the next 4 years to peak, at which point there should, on average, be 6,000 workers on site each day. Numerous Somerset and local businesses are already involved. If you have not done so already, you should register on the “portal”, which you will find at www.hinkleysupplychain.co.uk Once registered on the portal, this should open up opportunities and awareness for the various new contracts which are being provided. This gives possibilities for either direct supply into EDF, or more likely into the different Tier 1, 2 or 3 contractors. For example there are 90 Tier 1 contractors alone, and many more at Tier 2 level. Sometimes supply is directly from the individual business, whereas other opportunities lay by forming consortiums and supplying in on a much larger scale. A great example of this is the Somerset Larder consortium, providing all of the food and drinks supplied on site for all of the workers. They started in earnest on site in 2015, and have increased rapidly since then. There is now a constant food and drink supply covering the 18 hour shift pattern, 5 days a week, plus food and drink provision over the weekends as well. That consortium has been formed through numerous local food and drink suppliers, plus the creation of an in-house catering team with 100 new jobs already formed. It is still not too late to get involved with the Hinkley Project, and we would recommend registering on the portal as soon as possible if you have not already done so. Nick Hancock leads our HPC team, and therefore for any further information or assistance, please do not hesitate to contact him.


VIEW FROM THE CLOUD Clare Blackmore - Director of Cloud Accounting

Background:

Client case study

Recent start up business Set up through a limited company by 2 friends in June 2016 Beauty salon offering a range of services in the salon or off-site for weddings and events 3 employed therapists Rent-a-chair for self-employed stylists in excess salon space Also sell beauty products

The stock control system in Xero gives them an up-to-date view on what their bestselling product lines are, they can also see how much profit they’re making, and use this information to make the right decisions about what to order and how to price it. The simple tracking software is great for independent retailers and wholesalers, or service providers who sell retail items. Using Xero payroll and giving their employees self-service access from any device makes it easy for employees to view their payslips, submit their timesheets and apply for leave. With our access to Xero Albert Goodman are working on the exact same data and are able to help Michelle and Kerry review their figures throughout the year which enables us to:

Kerry and Michelle met at college and remained friends and were both employed until 2016 when they decided to set up their own salon.

Advise on the level of salary and dividends Kerry and Michelle can take throughout the year and before 5 April for tax year end planning.

They researched the competition, did their market research and drew up their business plan. They both had savings which they introduced as directors’ loans to buy some equipment, pay other set-up costs and give them some working capital.

Give estimates of the likely tax liabilities based on the results throughout the year so they can plan for this and there are no shocks.

They wanted an accounting software package that allowed them both to devote their valuable time to promoting and growing the business, but which still gave them the financial information they needed when they needed it. Xero was perfect for them in lots of ways including: The direct feed from their bank account means bank transactions flow seamlessly into Xero, reducing manual admin work and the risk of data entry errors. The bank can be easily reconciled daily by either Kerry or Michelle using the mobile app wherever they are. Bank rules make this even easier by suggesting transactions based on previous activity.


See which areas of the business; retail sales, beauty treatments, chair rentals, are generating the most profit so they can make decisions based on valuable up to date information Monitor turnover so that they know when the need to register for VAT was approaching and could deal with this and also get Xero ready to be able to deal with their VAT returns. These concepts are not new and we have been providing these services to our clients for a number of years, but Xero and other Cloud accounting software makes it easier and more accessible to more businesses. Kerry and Michelle’s business continues to grow and prosper and we will continue to report their progress and further advances into the digital world.

P11DS Company Van and Fuel:

Holly Gough - Tax Consultant Benefits An employer can provide benefits to an employee which may have a tax and national insurance consequence. If this is the case, then the employer is required to report this to HMRC. How is it reported? A P11D form needs to be prepared for each employee who is provided with a benefit. In addition, a P11D(b) form needs to be prepared which reports a summary of the total benefits provided by the employer and the class 1A national insurance due. It is possible for the tax and national insurance on certain benefits to be collected via the payroll, but form P11D(b) must still be completed. Common Benefits Below are some of the common taxable benefits that an employer might provide: Company Car and Fuel: An employer may provide an employee with a company car to use. If they are able to use the car for private journeys (which includes commuting to and from work) then a benefit in kind will arise. The benefit is calculated based on the list price and the CO2 emissions of the car. In addition, if the employer pays for all of the fuel for the car (including the fuel which covers private mileage) a car fuel benefit in kind will arise. This is based on a fuel multiplier rate set by HMRC every year and also the CO2 emissions of the car. Private Medical Insurance: Often, employers will pay for their employees to be covered under a private medical insurance policy. Doing so is providing an employee with a taxable benefit in kind and the premium relating to each employee will need to be reported on a P11D form.


Similarly with a company car, if a company van is provided to an employee and they are able to use it privately then a benefit in kind will arise. Unlike a car, ordinary commuting does not constitute private use for a van and incidental private use will not trigger a benefit in kind. The benefit value is a standard rate set by HMRC. The van benefit rate for the entire 2018/19 tax year is £3,350 and the fuel benefit rate is £633. Interest Free/Low Interest Loans: You may wish to help an employee by providing them with an interest free or low interest loan. If the amount of the loan exceeds £10,000, a benefit in kind is triggered. The benefit value is calculated by working out the average amount of the loan outstanding during the tax year and multiplying that figure by the HMRC official rate of interest (currently at 2.5%). Tax Free Benefits You may wish to provide your employees with a benefit which will not attract a tax and national insurance charge. Here is a list of a few tax free benefits to consider: Parking at or near the employee’s place of work; Interest free loans of up to £10,000; Eye tests for employees who use visual display units; Bicycles for commuting and business travel; Workplace nursery; Annual events such as a Christmas Party with a cost not exceeding £150 per head (incl. VAT); Gifts costing no more than £50 per person; A mobile phone. This list is not exhaustive so if you are interested in providing a particular benefit to an employee and want to check whether it will be tax free, then please get in touch. Important Dates 6th July - Deadline for forms P11D(b) and P11D to be submitted to HMRC. 22nd July - Payment deadline for Class 1A national insurance (19 July if paying by cheque).

Important Changes to Auto Enrolment Michael Evans - Payroll Manager Under Auto Enrolment the minimum contributions in place will be changing with effect from the 6 April 2018. By law the minimum contributions will be increasing in two phases; on 6 April 2018 and once again a year later on the 6 April 2019. If you are an employer operating an auto enrolment workplace pension scheme you will be required to increase the contribution levels for your employees accordingly to meet these minimums. Although there are no additional duties on you as the employer to inform your employees of these increases, you may wish to do so. This should help to minimise any queries or questions your workforce may have. The tables below show what the base contributions are for each earnings definition, and the dates they will increase. You can also choose to give more than the minimum amount should you wish. Banded (qualifying) earnings Date effective

Employer minimum contribution

Employee minimum Total minimum contribution contribution

Currently until 5 April 2018

1%

1%

2%

6 April 2018 to 5 April 2019

2%

3%

5%

6 April 2019 onwards

3%

5%

8%

Date effective




1%

1%

2%


2%

3%

5%


3%

4%

7%

Date effective




2%

1%

3%


3%

3%

6%


4%

5%

9%

Total pay

Basic pay

If as a business your present contribution levels to auto enrolment are above the new minimum percentages there is no legal obligation for you to increase these further, unless you wish to do so. If you should have any questions or would like clarification of any of the detail noted within this article then please feel free to contact a member of either the Financial Planning Department in our Taunton office or your pension provider who can assist further with this. National Minimum Wage Increase The National Minimum Wage is the minimum pay per hour that most workers under the age of 25 are entitled to by law; these rates are due to increase from the 1 April 2018, the new rates are as follows: Age 25 and over From April 2018 £7.83

21 to 24 years old 18 to 20 years old

Under 18 years old

Apprentice

£7.38

£4.20

£3.70

£5.90

Please be aware there are some workers who are not entitled to these rates, for further guidance and clarification on these then please refer to https://www.gov.uk/national-minimum-wage/who-gets-the-minimum-wage


Book-keeping... I do that once a quarter when my VAT’s due... that’s ok isn’t it? Sharron Quick - Manager Business Services For most business owners, the accountancy/financial side of running your business is probably the bit that gets left until the last minute. With pressure to finish projects or get orders dispatched, writing up the books is usually the last thing on your mind. In any sort of business, it is important to have a handle on the financial position of the company at all times. So often we see businesses that are driven purely on sales/turnover, with little thought to cash flow and margins/ profitability. As a general rule it is important to know the following about your business, at any given point in time: How much money do you have in the bank? How much are you owed by customers? What stock do you have? Who do you owe money to? This would include HMRC for all forms of taxes, as well as trade suppliers and any lenders (bank, hire purchase etc..) These are the real key factors that you must keep on top of in order to operate a successful business. You need to know if you are going to be able to pay those bills as they fall due, particularly with staff wages. Cash-flow is vital and if customers haven’t paid, you should regularly chase/remind them of monies outstanding. Other important area’s to be aware of are things such as the amount of profit you are making per sale or contract and to understand what your overheads are. This will enable you to calculate the level of turnover you need to achieve to cover your overheads and then to make a profit. Without up to date financial information, this will be difficult to properly assess. The only way to have all this information at your fingertips is to maintain proper accounting records on a timely basis. Writing up your books once a quarter/year, may leave you with a few nasty surprises. Doing this on a daily, weekly or monthly basis is best. Not only will this enable you to fully understand how the business is performing, it will enable you to accurately calculate money available to take out of the business or to use to make an investment in, say new equipment. You can also estimate any tax payable on profits and endeavour to set funds aside for this. Making Tax Digital is expected to become mandatory from April 2019, at which time any VAT registered business is going to have to submit information to HMRC on a quarterly basis, from a digitally enabled system. This means that some form of software will have to be used. You will no longer be able to submit your quarterly VAT figures to HMRC via the current HMRC portal and it is unlikely that excel records will qualify. Keeping your books doesn’t have to be a difficult or time consuming task. Cloud based accounting products such as Xero and Quickbooks have really transformed the way this is done and have made it a lot simpler to keep on top of and understand. If you would like further information about book-keeping and management information, please feel free to contact me. At Albert Goodman, we offer a full service and can keep your books for you, if this is an area that you really don’t have time to keep on top of yourself.


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