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Last month we shared some top tax saving tips! Was there anything that surprised you? Did it prompt you to look a bit closer at your business finances?

Any potential savings in tax could be put towards a social event for you and your team. A Christmas party perhaps? If you are planning a Christmas party, or any staff social for that matter, here’s what you need to consider from a tax perspective.

Will our Christmas Party be exempt from tax?

The answer is it can be exempt from tax. As we’re sure you know, any tax exemption comes with a set of criteria defining what exactly will qualify. Here are the three golden rules which all must apply:

1. It’s an annual social event. Depending on the time of year that could be the Christmas party or a summer BBQ (it could be both).
2. The event must be open to all employees. If you have employees at several locations it must be all employees at one location.
3. The total cost of the event, from start to finish, must not exceed £150 per head, including VAT. This means if you’re paying for food, drink, entertainment and taxis home for staff, it mustn’t exceed the limit £150 per person. We also need to add that ‘per person’ encompasses any external guests attending the event, not just the employees. If partners or spouses are invited to the Christmas party, they should be included in the total number of attendees.

What are the tax implications if we’re holding a Christmas and Summer event?

Providing that the total cost of both events is no more than £150 per person, then the tax exemption can still apply.

Once you’ve reached the £150 inclusive of VAT per person limit, you’ll then be liable to pay tax on the full costs of the event (even if the events individually cost less than £150 per person). Don’t forget that the employee will also get taxed through the Benefit in Kind regime.

Always remember, this is a tax exemption, not a tax allowance, and it applies to the whole tax year. As soon as you go over the limit of £150 per person (even by just a penny) the full cost becomes taxable. This is why it’s important to keep track of all costs involved with any staff social events.

Not keen on a Christmas party?

A Christmas party isn’t everyone’s cup of tea. The time of year might be extremely busy and with everyone working so hard, they might prefer to give it a miss.

Remember that the tax exemption is relevant (as per the criteria above) to annual social events. If the team would prefer to get together in February or October, host a party then! It could boost morale and even alleviate stress levels in December.

If the cost is a concern for your business year, then why not consider giving staff time off for Christmas shopping, or attending school plays if they have young children. There’s no tax implications for either of those and your team members will probably be just as happy to have the time back as they would for the party.

The best advice is to find out what your staff would enjoy the most. And if you’re concerned about how that impacts your tax obligations, get in touch.

Tax is one of life’s certainties and it has a purpose: the money it raises is for the benefit of the economy and those who live in it. In today’s society, it contributes to our welfare and social services, the NHS, our defence services, education, infrastructure, industry… and that’s not an exhaustive list!

How much tax we pay is directly related to our taxable profit (or income as an individual), so it’s important that it gets calculated correctly. Naturally, you don’t want to end up paying more tax than you need to. There are legitimate ways to reduce your profit (or income) and therefore the amount of tax you pay which is what we’ll cover in this blog.

 

The difference between tax relief and tax avoidance

Some people get nervous when the words ‘tax’ and ‘saving’ are coupled together. The correct terminology to use is tax relief.
Tax reliefs exist to benefit the taxpayer and the government actively encourages you to claim them. They are not tax avoidance schemes! Tax avoidance is against the law and carries very punitive penalties.

 

The importance of planning for the tax you’ll pay

The tax relief landscape has changed significantly over the years so tax planning has increased in importance for just about everybody. You need to understand what tax reliefs are open to you from a corporate and personal tax perspective or risk losing out. There’s no one-size-fits all when it comes to tax advice – what we’re offering here is some general guidance on the areas you should be looking into.

 

Legitimate ways to reduce the amount of tax you pay

1) Know (and diarise) your tax deadlines!

If you pay your tax on time, you’ll avoid the unnecessary cost of penalties and interest being applied to the amount you owe HMRC. Money spent on penalty fees and interest is simply a waste. All you need is a bit of forward planning and good record-keeping.

2) Utilise your tax-deductible expenses

Everyone has expenses associated with running their business and there are lots of expenses which you can claim tax relief against. These tax-deductible expenses all add up, so preferably use accounting software to keep accurate records of them.

3) Take money out of your business tax-efficiently

The amount of tax you are liable to pay is directly related to your taxable profit, so utilising methods to reduce your profit before tax is calculated will reduce the amount you pay. The legal ways of taking money out of the business are through salary, dividend, pension, and bonuses. The best advice here has changed a lot over the years but should always come back to what your personal and company financial goals are.

4) Tax reliefs can also be applied to the investment of capital items in your business

Bigger purchases, like computers or machinery, can also be treated as a deduction against tax to reduce your tax liability. Here you use capital allowances which allow you to deduct some or all of the value of an item from your profits before you pay tax. Some allowances, First Year Allowances even allow you to deduct the full cost from your profits before tax

5) Tax Reliefs for personal income

Everyone has a personal allowance, but this will be reduced if your total income goes over £100k. Allowances for Dividend and Interest on Savings are also available to reduce your personal tax liability. If you are an employee only of a business, you should consider pension payments to a pension fund to help reduce your tax exposure.

 

Personalised tax advice will save you the most

We’ve offered our best ‘general’ tax relief advice in this blog to help as a guide. The fact is, every business is individual and therefore different tax reliefs and allowances will apply. We’d love to be in a position to say to everyone reading “this advice definitely applies to your business” but unfortunately that’s not the case. There are lots of factors to consider which is why tax planning has become so important to business owners

Tax reliefs and allowances have changed a lot in the last few years and if you don’t keep a watchful eye on where they are, you could find yourself landing in a tax threshold you weren’t expecting.

The best port of call if you’re unsure is to ask your accountant. They can consider the tax perspective of both the business and you as an individual and advise accordingly.

Here’s how to make a start.

Without sounding political, we all need to do our bit to help reduce our impact on climate change. The world as we know it today won’t be there for generations to come if we continue as we are. Understandably, it is a daunting task to change daily habits and reduce the amount of carbon our lifestyle creates.

Before we jump into some friendly advice on how to go about making some changes, let’s explore the benefits of having a more sustainable business beyond having a positive impact on the environment.

Why should you make your small business more sustainable?

The ethos of sustainability is to reduce, reuse and recycle. By doing any one of those, you will be saving your business money. If you lower your costs, you can (in theory) increase your profit.

Having a more sustainable business can also win you new customers. A First Insight study back in 2022 found that 72% of consumers consider sustainability in purchasing decisions – what’s more they are happy to pay a higher price for sustainable products and services. Your sustainability efforts could see customers pick you over the competition.

You may even come across suppliers enquiring about your sustainability credentials or practices for the same reason, using it as criteria to select who they work with. It’s worth noting any sustainability efforts you are making and adding this detail into relevant proposal or quotation documents.

Make a start with making your business more sustainable

If you feel overwhelmed by the thought of making major changes to your business, it’s OK to start small. Don’t underestimate the impact that lots of small changes can create. Take that first step and start with committing to a single change.

1. Review and reduce your energy consumption. What equipment might be left on or in standby mode when not in use? Lights, computers, other machines? Make sure they are turned off properly when not in use. Save the planet and reduce your energy bills.

An area which uses a lot of energy is your website (well, the data centre which hosts it). A single data centre can produce as much carbon as a town with 50,000 residents! There are data centres which run entirely on renewable energy, so it’s worth having a chat with your website design or hosting provider if that’s something you’d like to explore.

If you’re able to, switch to greener energy like solar panels.

2. Reduce, reuse, recycle – identify items you use in a typical business day which can either be reduced (buy less of), switch to a reuseable alternative, or with a bit of careful through can be recycled. If you are making changes, make sure all your employees know what you are trying to achieve and give them the tools to support this change.
3. Challenge travel plans and deliveries – holding meetings online rather than in person can save you time, money and carbon emissions. That doesn’t mean you shouldn’t travel at all but consider the impact of that travel plan and if it’s worth it. The same goes for deliveries – a bit of planning can help you reduce the number of deliveries it takes to fulfil your orders (and some courier companies reward this behaviour too!)
4. Go paperless – we decided to do this ourselves during the pandemic. It did take time – firstly scanning and digitally filing every piece of paper we had, and secondly getting used to our new paperless processes, but it was worth it. Typically, paper is tied to transactional processes. There are lots of cloud-based apps and software which can manage the contractual elements of the transaction, it’s about finding the right one for your business. If you use accounting software, quotations and invoices can be sent digitally anyway.
5. Offset your emissions – there are lots of schemes available where you can support projects which help to offset the carbon emissions you produce. Organisations such as Mossy Earth and Ecologi will plant trees to naturally absorb carbon help clean the air. You can sign up to contribute to their projects as a one-off or regularly. Some businesses promote the fact they make donations when they win new customers, so the customer feels they’ve contributed as well.

These points have hopefully given you some ideas to investigate within your own business and reassured you that sustainability changes don’t need to be huge transformations. Simple changes that you stick with are far better.

If you’re yet to make the switch to cloud-based accounting software, or you don’t feel you are using your current software to its full advantage, the team at Accounting Clarkes can help you. Book in a discovery call today by calling 01252 612484.

The school summer holidays acts as a natural break in the year. Even if you don’t have school aged children, September brings with it a renewed sense of focus and energy. It’s the dawn of a new term and people want to get off to a good start. It’s also approaching the last quarter of the calendar year, and just over the horizon are the twinkling lights of Christmas. A sustained focus for 3 months doesn’t feel too much, it feels achievable.

Another year end

Some of you reading this may have just had year end pass, or perhaps it’s approaching. Those filing deadlines will be with you before you know it. In our experience, it’s best not to procrastinate too much. All too often we see business owners fall into planning for next year or managing the day-to-day tasks. Filing deadlines which they had ‘plenty of time for’ are fast approaching and understandably panic (and stress) sets in.

It doesn’t have to be like that. You can absorb the focus and energy at the start of the new term and use it to your advantage. We’ve pulled together our best advice to help you refocus on your business after the summer break and to make your year end accounts a positive experience!

Five steps to help you refocus on your business after a break

1. Realise those deadlines

Whenever your year end is, make sure you are crystal clear on the deadline to file your year end accounts (9 months after your company’s financial year ends). Those of you with 30th June year ends, you’ve only got 6 months left until your accounts are due. It is easy to fall into the trap of believing you have plenty of time, but unexpected issues crop up in business, at home, on holiday. Getting it done and out the way means you won’t be rushing to file at the eleventh hour. Mark your filing deadline clearly so all those involved in pulling information together know what they need to deliver and when.

2. Revisit your goals

When you’ve had time away from work, take a fresh look at your goals. Are they still relevant? Are they working towards what you plan for your business in the next 5-10 years, and beyond? Taking stock of where you are today and revisiting your goals is good thing to do at this time of year. With that ‘new term’ energy, you can achieve great things – just make sure your goals are SMART (specific, measurable, attainable, relevant, and time sensitive).

3. Identify the priorities

Understanding what your priorities are (or should be) is much easier once you’re goals are defined, but business owners can get caught up in the day-to-day running of the company, getting side tracked from what’s important. Get clear on exactly what YOUR priorities are to move the business forward and achieve those goals. Then look at the work you’re doing each day and see if those actions are aligned to the list of priorities. If not, maybe you need the next step.

4. What can you offload?

If your time is being sent on tasks which are not on your list of priorities, then either:

a) You’re procrastinating and avoiding the work you should be doing, or

b) You’re responsible for too many areas and this needs to be addressed.

The tasks you are doing which are not a priority will fall into one of two categories – they still add value to the business and need to be done, or they don’t. It’s quite simple. If these tasks do not add any value or take the business closer to achieving its goals, then they should be stopped immediately.

If they are of value or a task which needs to be completed, then you need to work out who else in the business can take responsibility (without taking time away from their priorities) or outsource to a suitable third party. Outsourcing will be a cost to the business but if you find the right partner, they will be adding value too.

5. Measure and reward

If you’ve written SMART goals then you will have this covered, but you need to measure the work you are doing and adequately reward yourself! The goal maybe a financial goal for the business and naturally tied to its own reward, but if it isn’t a financial goal, make sure you have a suitable reward lined up. You’re working hard for your business, and you deserve to have that recognised.

Great advice, any time of year

These steps aren’t solely for the purpose of returning to work after the school summer holidays. Use them after any break away from work where you feel you have switched off and you’re returning with a fresh perspective (and hopefully a burst of energy)

If you want to get ahead on completing your year end accounts, we’d love to hear about your business. Call us on 01252 612484.

When you take on your first employee, there’s a whole world of employment law to navigate. One of the key responsibilities you do not want to get wrong is paying them correctly. Of course, they need to be remunerated for the work you have employed them for but paying them correctly refers to holiday pay as well!

Calculating holiday pay is straight forward, isn’t it?

If you have employees on fixed hours and fixed pay, then yes, calculating holiday pay is straight forward: a week’s holiday pay is calculated as a workers pay for a week.
When you have employees with no fixed hours (casual work or zero-hours contracts for example) then you need to calculate a week’s holiday pay based on the average pay from the previous 52 weeks where they were paid (or how many weeks they’ve worked if less than a year).

But there’s another element of pay to factor in… bonuses and overtime.

How does overtime factor into holiday pay?

If you have employees who regularly work overtime or regularly receive bonuses or commission on top of their standard rate of pay, then this additional income will need to be factored into their rate of holiday pay. Any employee should receive the same pay when they’re on holiday as when they’re at work.
If the overtime or bonus varies from week-to-week or month-to-month, then you’ll need to calculate the average across the previous 52 weeks (or however many weeks they have been employed). A week’s holiday pay would be paid as a week’s basic pay plus a week’s average overtime/bonus pay.

Is overtime factored into all statutory annual leave?

Statutory annual leave is 5.6 weeks’ paid holiday however overtime, commission and bonus income are based on the EU Working Time Directive. This means that an employer must include overtime or bonus payments in a least 4 weeks of paid holiday.

Need a helping hand with payroll?

Lots of clients chose to outsource their payroll needs to our experienced team. It’s a very important part of running a successful business and as a business grows and employs more people, it can become more time consuming (and stressful).

If there’s one thing we want to achieve for our clients its less stress when it comes to their business finances. Call us today on 01252 612484 for an initial consultation free of charge.

We frequently come across the fact that business owners rarely use their accountancy software to its full potential. They are comfortable using it to send out invoices, quotations, and track payments (some even go as far as submitting their self-assessments) but that’s it!

There is SO much information feeding into your software and all the insights are sat there waiting to be discovered. It’s such a waste that business owners don’t know what’s in there (remember our blog on “you don’t know what you don’t know”) so we’ve decided to do what we can to put that right. Here’s an insight into what you’re missing and how to go find it!

Pre-defined reports which are already part of your subscription

We work with all the major accountancy software providers (Xero, QuickBooks, Sage, FreeAgent et al) and they all have a reporting section to navigate to when you login. There’s no need to build a report from scratch (or revert back to an Excel document), they all have pre-defined accounting reports set up and ready to go. The typical high-level reports you’ll see:
– Profit and loss (view your income and expenses over a period of time)
– Balance sheet (a summary of what your business owns and owes at a given point in time)
– Cashflow forecast (an estimate of the expected flow of cash in and out the business over a period of time)

Our best advice here is take a look at each report and build your understanding of what the report is telling you.

A word of warning – the reports are only as good as the data feeding into them

Put in the nicest way, putting rubbish in will mean you get rubbish out. For example, the cashflow forecast will be most effective if you input all your expected billing (when it’s likely to be paid) AND your known expected outgoings.

If you had to, you could write a list of all your expected business costs for the next 12 months. If you’re unsure, use all the costs you paid in the previous 12 months as a starting point. Rather than hold that information in your head, input it into your software so that when you run that report it’s as accurate as it can be.

It will help you to spot cashflow issues if you have a run of bad luck with late paying clients – and it might even incentivise you to keep on top of them!

Customise the reports to your business – not forgetting the accounting dashboard

Once you’re a bit more familiar with the reports, customise them to meet the needs of your business. Your accountancy software provides standard templates that fit most businesses but to get the most insights you’ll need to tailor them. If you’re unsure how to edit the reports, there’s normally a help or FAQ section to assist – sometimes they have short video clips to show you exactly what to do. If all else fails, ask your accountant.

We also recommend customising your accounting dashboard or the overview page you first see when you login. Here is where you want to be able to get a clear snapshot of the financial position of your business. Ask yourself “what information do I need to make daily decisions about my business?”

Once you’ve got the basics right, then move to the add ons

From our experience, the standard accounting reports are included with any basic subscription from the main software providers. As you start to dig deeper into the insights or you add more automation into your transactional processes, you may wish to explore add ons which usually come as an added cost (typically a monthly subscription fee). Typically, the value of these add ons lies in:

– Saving you time
– Improving the customer experience i.e. adding a payment system like Stripe or Zettle
– Helping you to track business costs more accurately i.e. electronically capturing receipts with Dext
– Helping you to track billing time for clients i.e. MinuteDock.

What your basic accountancy software subscription should be doing for you:

– Showing you your financial position in real time
– Giving you an understanding of what is going to impact cashflow in the near future
– Enabling you to make smart business decisions

We always have time for our clients if they are wanting to get more from their accountancy software. It often prompts great conversations about their business! If you like to explore working with Accounting Clarkes as your accountant, let’s have a chat. There’s no obligation with an initial meeting but we could find we’re a great fit and we can help your business to grow. Call us on 01252 612484.

For the last five tax years, the dividend allowance (the amount of dividend income you can earn each year without paying tax) has been set at £2,000. But from 6 April 2023 that allowance is changing.

In the 2023/2024 tax year, the dividend allowance reduces to £1,000. The following tax year it reduces further to £500.

Although this looks like a small change, it could significantly impact the amount of tax you pay on your dividends.

How much tax will you pay on your dividends?

That depends on the income tax bracket you fall into.

If you’re in the basic rate of income tax (£12,571 to £50,270) you’ll pay basic rate dividends taxed at 8.75%. If you’re a higher rate taxpayer your dividends will be taxed at 33.75%, and if you’re an additional rate taxpayer your dividends will be taxed at 39.35%

If dividends are your sole source of income, then the point at which you pay tax on your earnings is £13,570 (the £12,570 personal allowance plus the £1,000 dividend allowance).

Taking positive action

The changes in the dividend allowance can’t be changed but following these steps could help you to manage the impact:

1. Talk to your accountant. We’d hope that your accountant will have flagged this change in allowances to you already. Get a meeting with them in the diary sooner rather than later to discuss the impact of this change on your personal finances.
2. Forecast your predicted sales and income. Utilise cashflow forecasting reports from your accounting software or together with your accountant to build a picture of how your company is likely to grow over the next 12-18 months and what this could mean for future dividend payments. What could your tax liabilities look like?
3. Review your options. We much as we’d love to give you the key to unlocking further allowances, we’re unable to without knowing the specifics of your personal circumstances. BUT good practice says to look at your income streams with a fresh pair of eyes. Just because you’ve structured your income in such a way previously doesn’t mean that it’s cost effective to continue.

Fail to prepare and you prepare to fail

Any change in tax allowances and thresholds, no matter how small, can have a big impact on the amount of income you take home. With inflation rates, increased utility costs and generally everything costing more right now, these changes can cause a lot of disruption to your personal finances and your well being.

One of the values we pride ourselves on at Accounting Clarkes is that we look after you as well as your business. We keep our clients informed of upcoming changes and help them make informed decisions to achieve the outcome that’s best for them.

If you have concerns about these changes or feel you aren’t well informed about your business finances, then we can help. Call us on 01252 612484 and we’ll find the right time to sit down and talk about your business.

 

If everyone is totally honest, we’d admit we don’t know everything. And actually, that’s OK!

American politician, Donald Rumsfield, famously said:

“There are known knowns. These are things we know that we know. There are known unknowns. That is to say, there are things that we know we don’t know. But there are also unknown unknowns. There are things we don’t know we don’t know.”

What we often come across is business owners claiming they fully understand an accountancy issue, when actually they don’t. Again, that’s OK because it’s our job as your accountant to know these things and advise you appropriately.

In the early days of starting a business, a business owner will try to do all they can from a bookkeeping and accountancy perspective until they reach a certain size. They most likely want to ‘keep costs down’ or believe their business finances are relatively straightforward. During that time, should something a bit tricky crop up they will ask a friend for a bit of advice, Google search or even just wing it without fully understanding the implications of what they are doing.

They’ve tried to turn a known unknown into a known known. The problem is the unknown unknowns are still there, and their actions could do more harm than good, particularly in the longer term.

The potential impact could see you financially worse off or penalised for getting things wrong. If you’ve made an error which impacts the level of tax you pay, HMRC are fairly swift at the action they take to recover the amount owed – best not to give them an excuse to come knocking in the first place!

What can you do to mitigate your accountancy unknown unknowns?

Unfortunately, you won’t know what you don’t know, until you know it.

Instead, take a moment to think about what your accountancy known unknowns are. What questions keep you awake at night? What gaps in knowledge do you have about your business which would help you make a strategic decision? What would you like to understand better?

If you already have an accountant, speak to them about those questions you have. Speak to them as soon as new questions arise – closing gaps in knowledge or potentially tackling problems early on will be better than letting them fester.

If you don’t have an accountant yet, consider who you might like to work with and start building that relationship. A common unknown is the right time to engage with an accountant. You probably don’t realise how soon you could benefit from working with one.

The services of an accountant will have a cost, but that shouldn’t be the reason for not working with one. The right accountant will ensure your tax affairs are set up efficiently and will help you avoid unnecessary penalties with HMRC.

If you’d like to talk to a friendly accountant in Fleet, call our team on 01252 612484 or use our contact form.