News

When is the Self Assessment Deadline?

Posted on 08/01/2024 by Alison Harrison

You have until 11.59pm on 31^st January 2024 to submit your online self assessment tax return for the 2022/23 tax year, which ended on 5^th April 2022, to HMRC. This is also the deadline to pay any tax due. If you miss the deadline you will be fined £100. This applies even if you don’t owe any tax or are due a refund!

You’ll need to submit a tax return if, in the last tax year:

you were self-employed
you got £2,500 or more in untaxed income, eg from renting out a property or savings and investments
your savings or investment income was £10,000 or more before tax
you made profits from selling things like shares, a second home or other chargeable assets and need to pay Capital Gains Tax
you were a company director – unless it was for a non-profit organisation (eg a charity) and you didn’t get any pay or benefits, like a company car
your income (or your partner’s) was over £50,000 and one of you claimed Child Benefit
you had income from abroad that you needed to pay tax on
you lived abroad and had a UK income
you got dividends from shares and you’re a higher or additional rate taxpayer – but if you don’t need to send a return for any other reason, contact the helpline instead
your income was over £100,000
you were a trustee of a trust or registered pension scheme

Harmonea Ltd can submit your tax return for you but don’t leave it to the last minute!

VAT – an introduction

Posted on 05/01/2024 by Alison Harrison

VAT (or Value Added Tax to give its full name) was introduced in the UK IN 1973 and is the third largest source of government revenue after income tax and National Insurance. VAT is levies on the sale of goods and services by UK businesses.

The standard rate of VAT is currently 20% and this rate has been in place since 4^th January 2011. This rate covers most goods and services.

The other rates are:-

Reduced rate of 5%, which covers some goods and services, such as domestic fuel or children’s car seats.

Zero rate, examples of which are children’s clothes and some foods.

Some items are exempt from VAT altogether, such as postage stamps and insurance. No VAT is charged on anything that is outside the scope of the UK VAT system.

VAT is charged by a business at the point of sale of goods and services. The threshold for a business to register for VAT is when the VAT taxable turnover exceeds £83,000 (April 2016). (Taxable turnover is the total value of everything sold that is not exempt from VAT. There are, however, different thresholds for buying and selling from other EU countries).

To register for VAT, a business will need to contact HMRC if the business goes over the VAT threshold in a rolling 12 month period. In fact, a business should monitor its turnover regularly to check whether it will go over the threshold. It is generally possible to register with HMRC and it is possible to appoint an agent such as Harmonea to submit VAT returns behalf of the business.

The de-registration level for a business is less then £81,000 (April 2016).

There are various VAT schemes and here are examples of some of the schemes:-

The VAT Accrual Scheme:-

This is commonly used. The return is calculated on the difference between the sales and purchase invoices within the relevant period, in this case, the last quarter. The return does not take account of whether the sales and purchase invoices have been paid or are still outstanding. A return is submitted to HMRC every quarter.

The Flat Rate Scheme:-

With this scheme, a business will pay a fixed amount of VAT. The business will retain the difference between what it pays to HMRC and what it invoices its customers for. However, no VAT can be claimed on the business’s purchases. There is an exception to this, where it is possible to reclaim VAT on a single purchase of capital expenditure, where the amount of the purchase, including VAT, is over £2000.

The threshold for joining this scheme is £150000 and is over £230000 to leave. The scheme cannot be rejoined until 12 months after leaving.

There are incentives for the first year of registration.

Cash Accounting Scheme:-

With this scheme, VAT is not included on the sales of a business until the customer pays the invoice. With regard to the purchases, the VAT on these cannot be reclaimed until the purchases have been paid. Cash Accounting is ideal for those with slow payers.

The joining threshold for this scheme is £1.35 million and the threshold for leaving the scheme is £1.6 million.

Annual Accounting Scheme:-

If this scheme is used, the business will make advance VAT payments to HMRC. These payments are based on the VAT due for the previous year or on an estimated return for a new business.

Only once VAT return is submitted each year and this will include the balance of the VAT due. If the VAT has been overpaid , then it will be necessary to apply for a refund.

The turnover would need to be £1.35 million for joining the scheme and over £1.6 million to leave.

A VAT return can be submitted online and is due one calendar month and seven days after the end of the last quarter, (a quarter is known as the accounting period). The payment also needs to reach HMRC within this timeframe. There are various penalties for late submission of a VAT return, the severity of which depends on the amount of previous late submissions and the turnover of the business.

Please contact Harmonea if you would like any more information on VAT.

Credit Control

Posted on 03/01/2024 by Alison Harrison

What is Credit Control?

Credit control is a system of debt management which will allow a business to effectively monitor its cash flow.

Credit control will help a business to monitor which customers it will be able to give credit to (i.e. it will give credit only to those customers who are able to pay). Credit control is also used to ensure that customers pay on time, thus preventing the business from developing cash flow problems.

Should credit control not be properly monitored, then the business could be affected by cash flow problems, either due to credit incorrectly being given to customers, or due to a lack of payments received. This could potentially affect the cash flow of your own business and thus potentially the success of your business, which is why credit control is so important.

Methods of Credit Control.

Prevention is one method of maintaining credit control. If it is felt that a business may be heading towards cash flow problems, then a creditor may decide that stricter terms of credit control may be required. This could be achieved by reducing the amount of credit allowed to the customer. Another option would be to allow existing customers to pay by agreed instalments. Early payment may also be encouraged by allowing a discount for early settlement. Such discounts are normally around 2.5% of the invoice and the terms of the discount would need to be included in the content of the invoice.

It is important to have a clear strategy of credit control.

The first step in any strategy is to know the customer and to establish, from the outset, the terms of credit control. It is then important to send the customer the initial invoice promptly. It is also important to ensure that the initial invoice is correct. .If the invoice is not initially correct, then payment could be delayed whilst the customer queries any errors.

The invoice should be addressed to the correct person and contain details of the goods or service supplied, the date of the invoice, the invoice number, the date that the payment is due and the terms of any credit allowed. Bank details may also be included to allow payment to be made directly. It is important to enable the process of payment to be as straightforward for the customer as possible so as to encourage prompt payment and to ensure that funds reach the business bank account quickly. Payment by cheque, for example, may cause delay as the cheque has to be received, then paid into the bank account. The funds will then need to be cleared. Electronic payment can avoid these issues.

Once the initial invoice has been sent, then it will need to be monitored. It is, therefore, important to be aware of then the payment is actually due. The invoice may be followed up shortly afterthe date of issue with a courtesy call to confirm that the invoice has been received and to clarify the date that the payment should be expected.

If the invoice remains unpaid 28 days after being issued, then the customer should be called again to remind the customer that the payment is still outstanding. This call may be followed up by an email, again to remind the customer that the payment is due.

If the payment still remains outstanding, then a letter should be sent to the customer to advise that the payment is late. The customer should be advised that as the payment is late, then interest may be charged on the debt under the Late Payment of Commercial Debts (Interest) Act 1998.

If the payment then still remains outstanding, then a further letter should be sent to the customer to advise that the debt may be passed to a debt collection agency.

Throughout the whole process of credit control, it is important to ensure that accurate records of any written correspondence are kept. Any phone calls should also be logged.

It is possible to use an outside company for credit control. The advantage of this is that the process of credit control can be followed professionally, but impartially, without the additional burden of personal interest.

If you have any further questions on credit control, then please do not hesitate to contact us at Harmonea.

Construction Industry Scheme

Posted on 29/12/2023 by Alison Harrison

What is the construction industry scheme?

Construction Industry Scheme (Often shortened to CIS) is a scheme put in place by HMRC in 2007 where contractors deduct a percentage of money from a subcontractors payments which is then passed on to HMRC.

The scheme only requires contractors to register however subcontractors are advised to register as unregistered subcontractors have a higher rate deducted from their payments.

Why should a Subcontractor register with the scheme?

Subcontractors are advised to register with the scheme to reduce the rate of deduction from their payments. Unregistered subcontractors must have 30% deducted from their payments whereas once registered, this is reduced to 20% deducted. Please note the contractor is liable for any errors within the deductions made and ensuring the subcontractor is verified.

How do I know if I am a contractor or subcontractor?

You are a contractor if you pay subcontractors for construction work and/or your business doesn’t do construction work but you spend an average of £1 million or more a year on construction within any 3 month period.

You are a subcontractor if you complete or aid completion of any construction work for a contractor.

How are the CIS Returns submitted?

All contractors must submit a monthly return to HMRC by 19^th of each month. This return can only be submitted online via the HMRC website. If the return is nil this still needs to be submitted however this can be submitted on the phone.

When submitting the monthly return contractors must make sure throughout the month they have deducted the correct rate from their subcontractors. These subcontractors can be verify online where you will need their Unique Tax Reference (UTR), Trading Name, National Insurance Number (if they are a sole trader) OR Company Registration Number (if they are a limited company).

What if I miss the submission date?

If a CIS return is submitted late HMRC will issue a penalty depending on how late it is.

For any returns submitted later than this an additional penalty can be issued of £3000 or 100% of the CIS deductions on the return, whichever is higher.

When and how does a contractor pay this?

Once the monthly return is submitted by the contractor, the total of the deducted amounts must be paid to HMRC by 22^nd of the SAME month (by 19^th if you’re paying by post). This can be paid by any of the below.

Direct Debit
CHAPS
Online or Telephone Banking
Online Card Payment
BACS
Post
Cheque

What if subcontractors pay too much?

Contractors throughout the year must provide each subcontractor with a Payment and Deduction Statement. This statement should show a breakdown of what was submitted on the monthly return.

Sole Trader

If the subcontractor is a sole trader the CIS deductions are recorded on their Self-Assessment Tax Return.
HMRC will then work out your Tax and National Insurance bill for the year taking off any deductions suffered.
If tax is still owed then you must pay this by 31^st If an overpayment has been made a refund will be issued by HMRC.

Limited Company

If the subcontractor is a limited company you will need to submit your monthly Full Payment Submission (FPS) as usual.
The subcontractor will then need to send in an Employer Payment Submission (EPS) at the end of the tax year showing all deductions suffered throughout the year.
HMRC will take the deductions off what you owe in PAYE and National Insurance

If you have any queries regarding this please feel free to contact us.

What do your numbers tell you?

Posted on 28/12/2023 by Alison Harrison

Ratios

To enable us to appraise the performance of a business there are a number of financial performance indicators that we can use. The key performance indicators (KPI’s) are sometimes referred to as ‘ratios’ and ratio analysis is an important part of how we can understand how well a business is doing. These KPI’s can be set as targets to help manage the performance of the business through the decisions made by management.

There are several categories of ratios that you can look at: profitability, revenue, cost and liquidity

Profitability Ratios:

Margins are a common way of measuring the profitability of a business by considering the profits earned compared to the sales revenue generated. They are sometimes referred to as measures of ‘return on sales’ for this reason.

Margin on Sales

There are two margins that can be calculated:

Gross Profit margin (%) = Gross Profit/ Sales x 100

Net Profit Margin (%) = Net Profit (profits before tax)/ Sales x 100

Falling margins may be due to increasing costs or reduced selling prices
Differences between the gross profit margin and the net profit margin allow you to establish whether changes in profitability are due to changes in cost of sales or caused by other operating costs
Useful for setting prices e.g. increasing your selling price relative to the direct costs will result in an increased gross profit margin.

Return on capital employed (ROCE)

Whilst margins look at profits in relation to sales revenue generated, ROCE looks at profits in relation to investment required to finance the business.

ROCE = Net Profit / Capital employed* x 100

*Capital Employed = Total Assets less Current Liabilities

It measures how much profit is generated for every £ of assets employed and indicates how efficiently the company uses its assets to generate profit
The only ration that compares profits to the overall size of the business and is sometimes viewed as the most important ratio for analysis purposes

Revenue Ratios:

Average Selling Price = Total Revenue / No of units sold

Average price charging for the units that we are selling
Can be compared to competitors prices to see how competitively priced your products are

Sales per employee = sales / No of employees

Measures the average value of sales generated per employee

Asset turnover = Sales/ Capital employed

Measures the value of turnover generated for every £1 of assets employed
Measures #efficiency’ of the use of assets that you have invested i.e. are the assets being used to generate adequate turnover

Cost Ratios:

It can be useful to measure how well a business is controlling its cost base as the level of trade grows.

Cost of sales as a % of turnover = Cost of sales/ Sales x 100

If increasing as sales increase it may indicate poor cost control and that that the company is growing to quickly
If falling as sales increase this may be due to ‘economies of scale’ as volumes rise e.g. bulk purchase discounts.

Liquidity Ratios:

Some ratios help us to consider the cash flow position of the business which is crucial for long term planning. Many profitable businesses become bankrupt due to poor cash flow management.

Current Ratio

This shows if the short-term liquid assets of the business (e.g. cash, trade debtors & inventory) are adequate to cover the short-term liabilities (e.g. Trade creditors Accruals & Tax).

Current ratio = current assets/ current liabilities

If it falls year on year it may indicate difficulties with cash flow and that we will have difficulty paying creditors when they demand payment which can lead to bankruptcy.

Average receivables collection periods (debtors days)

This shows how long it takes you on average to collect money from trade debtors. It is important that you collect money quickly as this helps with liquidity and cash flow in order to pay suppliers, staff etc.

Debtors days = trade debtors / Sales x 365

If increasing it indicates you are taking longer to collect debts. You may want to consider tightening up credit control or offering settlement discounts to encourage faster payment.

Average payables period (creditor’s days)

Shows how long you take to pay your suppliers

Creditors days = trade creditors / cost of sales x 365

By delaying payment to suppliers you can improve your cash flow. However, this can have a negative impact on your relationship with these suppliers.

A ratio figure on its own means very little, to make sense of ratios you need to compare them to something. This could involve comparison with budgets, against previous year figures, against industry averages or perhaps competitors.

Have you ever wondered why the UK tax year starts on 6th April?

Posted on 22/12/2023 by Alison Harrison

In 1582 Pope Gregory xiii grew tired of the inaccuracies in the existing ‘Julian’ calendar and ordered the calendar to be changed. The Julian calendar named after Julius Caesar had been in place since 45 BC.

Caesar’s calendar differed from the solar calendar by 11½ minutes.

This was not a big problem at the start, however, after 500 years this small inaccuracy had started to build up to 10 days off the solar calendar. With this in mind, Pope Gregory introduced the Gregorian calendar.

The Gregorian calendar reduced the length of the calendar year from 365.25 days to 365.2425, a reduction of 10 minutes 48 seconds per year!

This and a few other tweaks ensured Pope Gregory’s calendar was a much more accurate time keeper. The Gregorian Calendar was then introduced in Italy, Spain, Portugal and what was then the Polish-Lithuanian commonwealth.

The Gregorian Calendar was initially quite a slow burner in the British Empire, it wasn’t introduced until 1752. By then the British calendar was 11 days off the rest of Europe, with this due to increase as time passed, the British knew it was time for a change.

On the old British Calendar the tax year began on March 25 (the old New Year’s Day). In order to ensure against losing revenue it was decided by the British Treasury that the tax year, which started on March 25 1752, would be of the usual length (365 days) and therefore it would end on April 4, the following tax year beginning on April 5.

Time passed smoothly and most importantly accurately until 1800. Unfortunately 1800 was not a leap year in the new Gregorian calendar but would have been in the old Julian system. Thus the treasury moved the start of the UK tax year from the April 5 to the April 6 and it has remained there ever since!

HMRC phone scams

Posted on 18/12/2023 by Alison Harrison

You’ll never get an email, text message or phone call from HM Revenue and Customs (HMRC) which:

tells you about a tax rebate or penalty
asks for your personal or payment information

Reporting suspicious emails, texts or phone calls

You can report something suspicious to HMRC’s phishing team, for example:

a text message (forward it to 60599 – you’ll be charged at your network rate)
an email
details of a phone call asking for personal information or threatening a lawsuit

If you receive a suspicious phone call, you can help HMRC’s investigations by providing:

your phone number
the caller’s phone number
the time and date of the call
a brief description of the call

HMRC phishing team’s email address is phishing@hmrc.gov.uk.

Your email address and phone number will be shared with other organisations if that’s necessary to close down the scam.

Are you owed money?

Posted on 15/12/2023 by Alison Harrison

Are you owed money by an individual or a company?

Have you chased your invoice over and over again to no avail?

Do you want to take it further but don’t know how?

Contact Harmonea and they can help.

We can walk you through the steps on how to submit a claim through Money Claim online or submit the claim on your behalf.

Don’t forget to pay your PAYE

Posted on 11/12/2023 by Alison Harrison

PAYE

You must pay your PAYE bill to HM Revenue and Customs by the 22nd of the month (or the 19th of the month if paying by cheque through the post).

Are you giving out the wrong message for your business?

Posted on 08/12/2023 by Alison Harrison

I recently saw a leaflet for something I could be have been interested in. At the point of taking the next step I looked for an email address to email to arrange a meeting to discuss their offering. My impression of this business suddenly did a nose dive on the professionability scale. They had a hotmail email account. Was this a part time business? Another person involved in this business had an email address sexysuzy@……. For the cost of a domain running at around £6 for 2 years, why had they not grabbed it?

I then saw that they had a website with the business domain so why were they not using the domain with an associated email address? This person had a good website so I proceeded to email.

Not getting a reply I telephoned the number on the website but it went to the home phone answerphone. Had I got the wrong number?

It took three weeks for an email reply which was full of apology. Was this person taking their business seriously? Could they cope with the work I was proposing to give them?

We met up and he gave me his business card. Oh dear! I think it was a DIY job from Staples and was completely mismatched to the website. It was poorly thought out, poorly printed and was misaligned. It gave incomplete information and contained spelling mistakes.

This business was giving out all the wrong messages before we had had the opportunity to work together.

The meeting went well but the jury is still out as to whether to use him. I have my doubts.

What is the point of all this? This person could have made a much stronger impact with so little effort.

Had he had a consistent brand image – domain, logo, standard of presentation, my impression would have been very different.

Had the telephone been answered by a human or by a professional answerphone, my impression would have been very different.

Had the initial response been earlier and the final proposal sooner after the meeting, my impression would have been very different

By the time we got to the end of the sale process, I had lost confidence in this person which is such a shame. Time will tell if I made the right decision.