Author: Alison Harrison

Childcare Vouchers and Tax- Free Childcare

Posted on 18/07/2025 by Alison Harrison

Childcare voucher schemes allow an employee to receive childcare vouchers in lieu of up to £55 per week of their wages and no tax or national insurance will be paid on this. However, this scheme was closed to new applicants with effect from 4^th October 2018 (although the scheme continues to run for successful applicants prior to that date, provided certain conditions are met).

The government has introduced a new childcare scheme, called Tax-Free Childcare. This could provide up to £500 every 3 months, up to £2000 per year, to help with childcare costs for each child. The funds must be used for approved childcare. Therefore, the childcare provider must be signed up to the scheme.

To qualify for Tax-Free Childcare, the claimant and partner must be in work for 16 hours a week. Single claimants may also apply. It is possible to claim if on sick leave, annual leave or parental leave (although it is not possible to claim for the child for whom the parental leave is being taken). If the claimant is not working but the partner is, then it may still be possible to qualify if in receipt of certain benefits or allowances.

Child(ren) are eligible up to 1^st September following their 11^th birthday. Adopted children are also eligible, but foster children are not. If a child is disabled, then it may be possible to qualify for Tax-Free Childcare for longer.

It is possible to receive Tax-Fee Childcare at the same time as receiving 30 hours free childcare if eligible for both. However, it is not possible to receive Tax- Free Childcare at the same time as receiving Working Tax Credit, Child Tax Credit, Universal Credit or childcare vouchers (if already in receipt of childcare vouchers prior to 4^th October 2018).

The HMRC website has a “childcare calculator” link, designed to help work out whether Tax – Free Childcare is the best option, as opposed to other benefits. It is also possible to apply online for Tax – Free Childcare, again through the HMRC website.

Please contact Tracy if you would like any further information on this.

What is reportable on a P11D

Posted on 04/07/2025 by Alison Harrison

Assets transferred to an employee – this could cover things like computers, televisions, furniture etc
Assets available to an employee at their home such as television, computer, broadband. They don’t have to be reported if solely for business use or personal use is insignificant. Mobile phones are now exempt
Pecuniary payments which would include paying personal bills, rent, parking fines for their own cars, speeding fines for all cars and payment of professional subscriptions unless the professional body is on HMRC’s list of approved bodies
Mileage – can claim 45p for up to 10,000 miles, over that should claim 25p. Anything over that should be reported.
Company cars – only exemption are pooled cars which must be available to all employees and stay on the premises at night
Fuel – The most straightforward way of dealing with fuel is to pay for it personally and claim it back under the advisory fuel rate. Fuel cards are reportable with the employee then claiming the business part back. Alternatively you could be given a car allowance through the payroll and be taxed at source.
Vans – Only reportable if there is unlimited private use and fuel. Normal commuting is acceptable
Beneficial loans – these include season ticket loans, credit cards and overdrawn director’s loan accounts. The overdrawn director’s loan account is reportable on a P11D in the year it occurs if it over £10k and still outstanding 9 months and one day after year end unless interest is paid at the official rate for every day outstanding.
Private medical insurance
Various expenses – Entertaining is a bit of a mine field. A birthday present would be deemed to be a “trivial expense” (ie under £50 on any one occasion), the annual Christmas party is OK up to £150 per head as long as everybody is invited but going to Costa for an appraisal is reportable. The rules around subsistence are £5 for breakfast if you leave home before 6am, £5 for a meal if at least 5 hours on business, £10 for 2 meals for 10 hours on business and a late meal rate of £15 for finishing work after 8pm. The cost must have actually been incurred. These are only available for staff whose working patterns do not usually fall this way. There is a maximum of 3 meals per 24 hours and you can no longer stay with family and friends and still claim the allowance.

How well is your business doing?

Posted on 27/06/2025 by Alison Harrison

Ratios

There are a number of different ratios that can be used by companies to help them measure and analyse their performance. The ratios are often compared to previous year’s performance as well as the average results for your industry. This can then be used to measure how well you may be doing in different aspects of your business. There are 5 different categories of ratios that each ratio falls under. These are: profitability ratios, market ratios, debt ratios, activity ratios and liquidity ratios.

Profitability ratios are probably the most commonly used ratios, they measure how a company would use its assets and how it controls its expenses to produce a good rate of return. Market ratios are used to show the return on investment for the business. They are often used when trying to sell a business to show potential investors that the company is worth buying into and will be profitable. Debt ratios are often used to measure how quickly a business can pay off any long tern debts, for example a bank loan or mortgage. Activity ratios are used to measure whether a business is getting the most out of their resources and also whether their cash is being utilised. Liquidity ratios are used to measure whether a business is capable of paying of their debts, for example a business may have a lot of cash in the bank but if their liabilities are higher than their assets then their company is not liquid.

You do however need to be careful when using any single ratio as it will never give you the full picture of how well your business may be doing. An example of how this may happen is if you use the gross profit margin ratio and compare it to the net profit margin ratio.

A simple example of this is shown below.

Looking at the results above you can see two very different results but they are both correct so must be used correctly. If for example you had set a target at the beginning of the year to make a 25% profit. If you were to use the gross profit margin you can see that the profit you have made would be 30% which is great as it looks like you have beaten your target. However as you are able to see this doesn’t show you the full picture as the 30% doesn’t include any of your expenses. When you take your expenses into account you can see that your profit margin falls to only 5%.

Another ratio that is good to use is the current ratio (also known as the working capital ratio). This is one of the basic liquidity ratios as it simply uses the company’s current assets to see if they would be able to cover their current liabilities. An example of this is shown below:

As you can see in this example the company’s current ratio is 2.0. This means that for every £1 of liabilities that they have, it is covered by £2 worth of assets. A common rule of thumb that is used is that if you have at least a 2.0 current ratio your company is often in a good position.

What Does Your Account Manager Do

Posted on 20/06/2025 by Alison Harrison

Below is a guide to just some of the tasks that your Account Manager might undertake before your draft accounts can be prepared.

Enter all sales and purchase invoices and receipts onto relevant software (unless this is done by the client).

Ensure that payment has been received for all sales invoices. Check with the client if any payments to the client remain outstanding.

Ensure that all purchase invoices have been paid. Check with the client if any invoices appear to be unpaid.

Complete a bank reconciliation (if there is a business bank account).

Reconcile the VAT paid if VAT-registered, to ensure that the correct VAT has been paid.

Monitor sales to ensure that a client is registered for VAT if the VAT threshold is reached.

Reconcile the PAYE if PAYE-registered, to ensure that the correct PAYE has been paid.

Reconcile CIS if registered for CIS, to ensure that CIS payments are up to date and that the correct amount has been paid.

Check with client as to whether there are any expenses that we should expect to see in the draft accounts, but appear to be missing, e.g. mileage, phone and internet use.

Submit VAT if VAT – registered (unless client does this).

Submit CIS if CIS – registered (unless client does this).

Prepare CIS deduction statements for sub-contractors.

Add payroll journals to the appropriate software package used by or, on behalf of, the client.

Prepare management accounts to show client how the business is doing at a certain point in time, including calculating an accrual for how much Corporation Tax is due at that point in time. Prepare working papers at the end of the financial year, from which the draft accounts will be prepared.

Check allocation of any dividends and issue dividends where appropriate to cover an overdrawn Director’s Loan Account.

Answer any client queries as they arise.

Use the above information as a starting point in the preparation of the client’s personal tax return.

Please contact your Account Manager if you have questions regarding any aspect of the above information.

2025 Personal Tax Returns

Posted on 13/06/2025 by Alison Harrison

You must submit a Personal Tax return if, in the last tax year (6 April 2024 to 5 April 2025), you were:

self-employed as a ‘sole trader’ and earned more than £1,000
a partner in a business partnership

We will require the following information, in order to complete your tax return, original documents where possible.

P60
Any P11d benefits
Property income
Savings income (even if less than £1,000)
Capital gains
Pensions
Dividend vouchers
Sole trader accounts
CIS deduction statements (if self employed)
Student loan statement
Child benefit figure received
Non-resident information

If you are registered on our Online portal, through Accountancy Manager, we will be uploading a new custom form to make giving us this information quicker and easier.

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.