We previously let you know that HMRC were to host a Q&A on their ongoing e-marketplaces campaign. It happened earlier today and we’ve used Storify to make a transcript of the key points made.
Not much happened in an hour (at least in a Twitter hour, maybe a lot happened for an HMRC hour) but we’re still impressed that HMRC are trying this sort of thing:
@HMRCgovuk What if haven’t kept records of costs of all purchases but now realise might be trading as activity increased #emqaQuestion 6Random Comment about Working Tax CreditsCommon sense comment from Nick CooperAnd it’s all over already
As we previously blogged about, HMRC are clamping down on professional eBay traders who don’t disclose their income.
They’re trying an interesting method to start a dialogue with traders. At 3pm on 28 March 2012 they’re hosting a Q&A session on Twitter.
Marian Wilson, head of HMRC campaigns said: ‘We want to help people trading online to understand when they need to pay tax, and how to do that. This Twitter Q&A will try to answer their questions and clear up any grey areas.’
It will be interesting to see if anyone engages with it but it’s a very welcome and unusually modern approach for HMRC.
They’ve also added a bit of detail to how the clampdown will work. They will start contacting those that they suspect of not paying sufficient taxes from 14 September 2012 and reiterated that they are not targeting those that just sell a few items but those that aim to make a profit.
We’ll certainly be watching.
The credit control function monitors outstanding invoices by due date and when set dates are passed it automatically sends out a payment reminder email. KashFlow allows you to edit the emails but the templates are pretty good, take a look:
2 days before invoice due
This is just a quick reminder to let you know that [invoice number + hyperlink to view invoice ] is due for payment in two days.
I’d be grateful if you could ensure the amount of [invoice amount] is paid by [due date].
3 days overdue
We don’t appear to have received payment for [invoice number + hyperlink to view invoice ]. A payment of [invoice amount] is now overdue.
I’d appreciate it if you could make payment straight away and let me know when you have done so.
If you have any queries about the invoice then please don’t hesitate to get in touch.
7 days overdue
[invoice number + hyperlink to view invoice] is now a week overdue.
We need to receive payment for this invoice today.
If you’ve already sent payment for this invoice then please disregard this email.
However, if you haven’t yet paid then please do so today and let me know this has been done.
The amount you owe is [invoice amount].
14 days overdue
Despite numeorus reminders, [invoice number + hyperlink to view invoice] is still unpaid
Please send immediate payment for the full amount of [invoice amount] today and confirm to me that you have done so.
If for any reason you will not be making the full payment today then please contact me immediately to discuss this problem.
At Caprica Online Accountants we love this sort of thing. It’s nothing particularly clever but can make a real difference to a businesses cash flow. It also goes to demonstrate yet again just how much online accounting packages can simplify small business accounting.
To set it up go to KashFlow Settings > Configuration Settings > Automated Credit Control
Well done KashFlow.
According to Google a lot of people search for ‘Zero Accounting’ every month.
If you searched for Zero Accounting I think you probably meant Xero Accounting. You can find out about Xero Accounting here.
At Caprica Online Accountants we love KashFlow software and truly believe it will change the world of small business accounting.
The standard price for it is £15.99 + VAT per month.
We have a special agreement with KashFlow that allows us to sell them for just £140 + VAT per year. An annualised saving of £51.88.
We can get you started straight away. Just email us at [email protected]
I recently came across this news article about firms contracting on behalf of the government.
Government contractor companies are meant to pay their suppliers within 30 days. If not they are in breach of their terms.
Mark Prisk, the government’s Small Business spokesman is calling for those that are paid late to name and shame these firms.
I expect there are thousands of individuals contractors working for companies that are fulfilling government contracts but are continually paid late. If you want to take up Mr Prisks’ offer to name and shame you can contact him here.
I recently wrote a guest blog piece for Duedil.com on how to get the most from reading a set of abbreviated accounts. It is reproduced in full below:
Although all companies are required to file accounts with Companies House, small companies need only file abbreviated accounts that often comprise nothing more than a simplified balance sheet.
This post covers a few tricks to get the most from this limited information, which I picked up screening potential acquisition targets for clients.
Bear in mind that these are only estimation techniques and should never be relied too heavily upon.
Here is a mocked up set of abbreviated accounts for you to work through:
The profit and loss reserve includes all the accumulated profits of the business to date that have not yet been distributed to shareholders in the form of dividends.
Therefore these accounts tell us that the business made profits of at least £3,924 (£14,363 – £10,439) in 2011 plus whatever dividend was taken out.
Sometimes a note to the accounts will say the amount of dividend taken. If, for example, a dividend of £40,000 was taken then we would know with a high degree of confidence that the company made profits of £43,924 during the year.
The opposite applies if the profit and loss reserve decreases year on year. Let’s assume that there was a negative reserve of £5,456 in 2010 and £10,535 in 2011 (not unusual for a startup). We can mine quite a bit of information from this.
First we know that over the lifetime of the businesses the losses to date have totaled £5,456. We also know that because a loss making company can’t take a dividend the actual loss in 2011 was £5,079.
We know that when the accounts were drawn up there were debtors of £16,717. Broadly this means that customers owe the business this amount of money.
If you are looking at the accounts of a company in a similar industry to you, you can probably assume they give broadly similar payment terms to customers. Perhaps you allow all customers to pay in 30 days but they actually pay in 45 days. This would mean that £16,717 represents 45 days worth of sales. A bit of maths (£16,717 / 45 * 365) tells us that annual sales are about £135,593.
When doing this beware the impact that cash sales (not included in debtors) or seasonal sales (the debtors might reflect an unusually busy time of year) could have!
Estimating sales growth
We already think £16,717 represents 45 days of sales, if the equivalent debtors for 2010 of £10,276 also representds 45 days of sales then we can work out a growth rate. These accounts suggest that sales have grown an impressive 63% year on year.
Estimating profit margins
The creditors number should tell us the amount of money due to suppliers of the company (though it may also include loans).
If we also assume suppliers are paid on 45 day terms then the company earns a profit margin of 39% (sales of £135,593 – expenses of £83,260 = profit of £52,333. Then £52,333 / £135,592 * 100). Note that this gave us another idea of the profits earned. Perhaps a dividend of more than £40,000 was taken?
If all this is correct then profit margins decreased year on year (from 46% in 2010), which could be because the company reduced prices to increase sale volume.
The Annual Investment Allowance is a tax break that began in 2008. It allows businesses to claim an immediate tax deduction for expenditure incurred on most types of fixed assets (cars are the most notable exclusion).
Without the Annual Investment Allowance it is normal to have to spread the tax deduction attributable to the asset over its life, so the AIA is a nice way to bring forward a tax deduction (it doesn’t impact the total deduction available over the life of the asset).
How to calculate the Annual Investment Allowance available in 2012
From 1 April 2012 the Annual Investment Allowance is set to decrease from £100,000 per annum to just £25,000 per annum.
Rather than a simple pro-rata calculation HMRC have made it complicated for companies that have a year end that straddles the date of 31st March 2012 (the majority of companies!). To make sense of it you have to think of two discrete periods. Using a 31 December year end as an example:
- Period 1: 1st January 2012 to 31 March 2012 – 3 months under £100,000 equating to £25,000.
- Period 2: 1 April 2012 to 31 December 2012 – 9 months under £25,000 equating to £18,750
If you spend £30,000 in period 2 you will only be able to claim a maximum of £18,750 for that period, if there is no spending in period 1 then this allowance will go to waste.
Similarly if you spend £30,000 in period 1 you will only be able to claim a maximum of £25,000 for that period and unless there is additional spending in period 2 the £18,750 allowed will go to waste.
Effectively you have two financial periods and are unable to transfer the allowance from one period to another.
Should you bring forward capital expenditure?
If you are anticipating to invest a sizeable amount of money in plant and machinery this year you should try to time your investments to maximise the tax saving in both periods. This might mean you want to bring forward planned capital expenditure into the first quarter of the year or delay some expenditure to after 31 March.
I appreciate this isn’t always practical but the tax saving might make it worthwhile.
HMRC are soon to being what they call their e-marketplaces campaign. This is aimed at those who are using eBay or similar services to trade online and are doing so in a way that HMRC construes as a trade or a business.
The campaign begins on the 14th March 2012.
They offer some questions to help you decide if your eBay activities are as part of a trade and here they are:
Question 1. How, and why, did you get the things you’re selling?
Answer A: you bought them so you could sell them again to try to make a profit.
Answer B: you’re selling personal possessions you don’t want anymore, or things given to you or inherited.
Question 2. How often do you sell things?
Answer A: you make regular sales.
Answer B: you have only ever made one sale and you don’t think you will make any more.
Question 3. How do you sell?
Answer A: by registering as a business seller or as an online shop with an internet auction site.
Answer B: when you have something you want to sell you advertise it, but you don’t sell enough to make it worth setting up as a business user or shop.
Question 4. Do you change or improve the things you’re selling?
Answer A: you mend or change the things you buy (that might include splitting things up into smaller quantities), so you can make more profit on them.
Answer B: you sell things as they are because you just want to sell them quickly.
Question 5. How quickly do you sell things?
Answer A: you sell things that you’ve only just bought and you’re hoping for a profit.
Answer B: you’ve had the things you sell for quite a while.
Question 6. Are you running a business selling similar things?
Answer A: the things you sell are related to your own trade or business.
Answer B: the things you sell are not things you would sell in your own trade or business.
Question 7. How did you pay for the things you’re selling?
Answer A: you had to borrow money to pay for the things you’re selling.
Answer B: you were given them or you paid for them out of your normal living expenses.
Question 8. If you make the things you sell, do you charge more than they cost you to make?
Answer A: you try to sell them at a price that covers your costs and brings in a profit.
Answer B: you sell things that you make as a hobby and you only want to cover your costs.
It would be fair to assume this lays out the criteria they are using to decide who is carrying out a trade and should be paying taxes and who is selling off unwanted stuff around the house.
How will they find offending traders?
HMRC have previously said that they will be using eBay records and comparing them to their own records to identify those that they believe are running a business. They haven’t said exactly how this will be done but presumably it won’t be too difficult to identify those that sell a high volume of goods if eBay is cooperating.
What to do if you think you should be paying tax as an eBay trader
Normally when HMRC runs this sort of campaign they offer an amnesty of sorts to let people come forward voluntarily. They are yet to provide full details of how it will work in this case but the chances are you will be given the opportunity to work out how much tax you owe and pay it without any penalty.
You may also want to take this opportunity to really start thinking of yourself as a business owner and formalise your accounting arrangements. At Caprica Online we offer a great service to eBay traders helping them to set up KashFlow software which can then be easily intergrated with your paypal account. Follow the link below for more details.
I recently spoke to James Austin, Director at the Business Growth Fund (“BGF”) for the South East.
The Business Growth Fund was set up by a consortium of big banks as a vehicle for investing in UK SMEs. The banks have provided an initial £2.5bn to the BGF, which started investing growth capital in late 2011.
I thought it might be useful to outline the sort of investments that James says the BGF considers:
- The BGF injects cash of between £2m and £10m into UK based SMEs using a combination of equity and loan notes.
- They will only ever take a minority stake so are not interested in owners looking for an exit but instead are looking for businesses with ambitious growth plans and a solid business plan to support it.
- Participating businesses should be earning annual profits of around £1 million or more and turnover between £1m and £10m.
- They are open to all industries, James mentioned a particular interest in renewables.
- There are restrictions over investing in property, the UKBF is looking to invest in solid businesses not to make bets on property.
When I spoke to James they were getting close to completing four deals but hoping to do about 25 in 2012.
If you think your business fits the characteristics of what the UKBF is looking for and want help approaching them then please get into contact.