Category: Start Ups

HMRC changes the rules again on the Employment Allowance!

Business team.

The employment allowance was introduced in April 2014 and employers can save up to £3000 in employers national insurance.

The problem is that HMRC wanted to stop one-person businesses from getting the allowance and from the 6th April 2016 new rules came into place.

However, many one-person business thought that employing another person, for example their Spouse would get round the rules.

So HMRC have tightened the rules a bit more in their Employer Bulletin April 2016 and set out the rules for employing another person.

employment allowance

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steve@bicknells.net

What expenses can the self employed claim?

Business people group.

The UK has seen the fastest growth in self-employment in Western Europe over the past year, according to the Institute for Public Policy Research (IPPR).

There are many types of expense that you can claim and HMRC have just created a new guide…

HMRC expenses

http://www.hmrc.gov.uk/courses/SYOB3/syob_3_exps/html/syob_3_exps_menu.html

Pre Trading expenses

Many business owners incur in costs before they actually start in business. You can go back up to 7 years can claim costs as pre-trading expenses.

Let’s says you want to start a home based business, you need to create an office at home or build an office in the garden. This means that you have building costs as well as equipment costs before you start trading. These costs are submitted to the new business as an expense claim by the owner on the first day the business starts.

Also you might have legal cost for contracts or renting offices or equipment, you could have costs for product development, stock, samples, or even a motor vehicle.

You can check more about pre-trading expenses legislation.gov.uk or at HMRC.

However, what happens when you have paid VAT prior being VAT registered? You can reclaim any VAT you are charged on goods or services that you use to set up your business.

Normally, this will include:

  • VAT on goods you bought for your business within the last 4 years and which you have not yet sold
  • VAT on services, which you received not more than 6 months before your date of registration

You should include this VAT on your first VAT return. If you have doubts as to whether you should be VAT registered or not, take a look at VAT Notice 700/1: should I be registered for VAT.

Simplified or Actual Expenses

Simplified expenses are a way of calculating some of your business expenses using flat rates instead of working out your actual business costs. You don’t have to use simplified expenses. You can just decide if it suits your business or not.

Simplified expenses can be used by:

  • sole traders
  • business partnerships that have no companies as partners

You can use flat rates for:

  • business costs for vehicles
  • working from home
  • living in your business premises

You must calculate all other expenses by working out the actual costs.

In order to find out which method works best for you, you can use the Government expense checker

Don’t forget Capital Allowances and the Annual Investment Allowance

Buying equipment, even if it’s on finance, is a great way to reduce your tax bill, the 100% AIA can be used on the date you buy the asset.

Currently, the Annual Investment Allowance is £500,000 and this has been reduced to £200,000 in January 2016.

It is not necessary to claim the maximum capital allowances available or even claim them at all, crazy as it might sound there are situations when not claiming capital allowances can reduce your tax bill!

Sole Trader Example

The personal tax allowance is currently £10,600 (2015/16)

Let’s assume profits are £15,000 and Capital Allowances available are £5,000, so that would reduce taxable profits to £10,000 which would waste £600 of the personal tax allowance.

It would therefore be better to only claim £4,400 in capital allowances and claim the remaining £600 in the following year.

https://stevejbicknell.com/wp-content/uploads/2014/05/workers.jpg

Employers are saving £6k by opting for Self Employed Freelancers…

A survey by PeoplePerHour has shown that the self-employed segment of the labour market in both the UK and USA is growing at a rate of 3.5% per year – faster than any other sector. Should this growth continue for the next five years, researchers predict that half of the working population could be self-employed freelancers by 2020.

The survey also suggests that small businesses that hire freelancers instead of full-time employees could save £6,297.17 per annum. The survey shows that the average waste or spare capacity for each employee in a SMEs is 1.9 hours per day.

The research identifies a number of key drivers behind the shift from employment to self-employment, including “the availability of ubiquitous and inexpensive computing power, sophisticated applications and cloud-based services“. [Lawdonut]

http://www.sage.co.uk/~/media/markets/uk/images/business-advice/infographic-starting-your-business.gif

steve@bicknells.net

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How can you limit a Directors/Personal Guarantee?

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If you have a Business and you want too borrow money, you will probably be asked to give a Personal or Directors Guarantee.

Most Directors don’t want to give guarantees as it makes them liable rather than their business and the purpose of having a limited company was to limit their personal liability.

So it’s a common dilemma.

What can you do to reduce your risk?

  1. Would you be prepared to pay a higher rate of interest? there are are lenders who for an increased rate will agree not to ask for PG’s or DG’s
  2. If you aren’t prepared to give a guarantee you should make this clear upfront with the potential lender, it will save time and money.
  3. Limit the terms of the Guarantee – don’t let the guarantee be unlimited or unconditional
  4. Agree terms for relief – for example when a % of the debt has been repaid
  5. Decrease the Guarantee if the business achieves specific goals, for example a target net worth
  6. Set rules for when the Guarantee can be called on for example when a set number of repayments are missed
  7. Avoid ‘Joint ans Several’ Guarantees as not all business owners may have equal shares
  8. Avoid co-signing by Spouses
  9. Avoid using your main residence in the guarantee
  10. Consider whether Personal Guarantee Insurance could be obtained and used

http://www.begbies-traynorgroup.com/articles/director-advice/what-is-personal-guarantee-insurance

What are the benefits of Personal Guarantee Insurance in more detail?

  • It allows directors to balance their risk evenly, so that no one director is taking on all the uncertainty of guarantees being called upon in the future

  • It can provide the incentive needed to grow the company by borrowing essential monies

  • This type of insurance is flexible, and can be increased if necessary as your business grows

  • Personal Guarantee Insurance provides peace of mind to directors that the full value of their personal asset is not at risk

  • Start-up companies have access to funding that they might not otherwise be comfortable taking on

steve@bicknells.net

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Online traders targeted by HMRC

Online Shopping

The Revenue has sent 14,000 letters to traders suspected of running a business and failing to declare this on their tax returns.

Of these, 1,000 letters are being sent to people where the taxman has already identified a shortfall on their self-assessment forms.

Some of those targeted make as little as £100 profit online.

It was reported in the Telegraph that eBay, Etsy, Amazon and Gumtree are being forced to hand over customer account details, including their selling activity, as part of the taxman’s legal powers that were extended last year.

The criteria used to assess if an activity is a hobby or a business are:

  • The size and commerciality of the activity.
  • The frequency of the activity and transactions
  • The application of business principles.
  • Whether there is a genuine profit motive.
  • The amount of time devoted to the activities.
  • The existence of arm’s-length customers (as opposed to just selling your wares to family and friends).

HMRC have some great examples to help you decided, for example

Gail is a full-time employee working for a stationery company. She pays her PAYE tax on this employment every month.

In her free time Gail makes cushions and uses most of them in her home. Occasionally she sells them to friends and work colleagues for an amount that just covers the cost of materials of £15. Sometimes she makes a loss. Any money she does make goes towards her holiday fund.

She decides to make extra cash by selling cushions on an Internet auction site and starts auctioning three or four to see how they go. They all sell for more than £50, a profit of at least £35 each.

She uses this money to buy more materials and within a month she is selling around ten cushions a week, always at a profit, and is considering setting up her own website.

Gail’s initial sales of cushions to friends are not classed as trading. It lacks commerciality and she does not set out to make a profit. The occasional sales are a by-product of her hobby. Once she begins to auction her cushions, she has moved into the realms of commerciality.

She is systematically selling her goods to make a profit. She will need to inform HMRC about her trade, and keep records of all her transactions. On the level of sales shown in the example the potential turnover of around £26,000 is well below the VAT annual threshold so Gail does not need to register for VAT.

Many traders start off in a small way and don’t realise that they need to register with HMRC, they assume their activity will be treated as a hobby, but things can grow quickly.

You should register as Self Employed as soon as your hobby becomes a commercial venture, even if you are losing money!

If you don’t register, HMRC will be looking for you and if you have an online business it won’t be hard for them to find you.

steve@bicknells.net

When will your company stop being small?

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Back in June 2013 the EU passed a directive 2013/34/EU which changed the thresholds for small companies.

 

Present Proposed
Turnover  £6,500,000  £10,200,000
Total assets  £3,260,000  £5,100,000
Average no. of employees  50 50

As before its a  2 out of 3 test. The Audit thresholds are unchanged.

The UK was required to transpose this into UK Law no later than 20th July 2015.

The Dept for Business Innovation and Skills (BIS) have just concluded their consultation (24th October 2014) and the plan is currently to implement the change for financial years starting on or after 1st January 2016.

As pointed out by SWAT

This could mean that a company with a turnover between £6.5m and £10.2m will be required to prepare its accounts for year ended 31 December as follows:

2014 as a medium sized company under present UK GAAP;

2015 as a medium sized company under FRS 102;

2016 as a small company under the applicable accounting regime for small companies.

This might depend on whether the company could early adopt the new regulations for its 2015 accounts. The possibility of early adoption is one of the questions asked by BIS.

Surely BIS can see that not allowing early adoption will place an unnecessary reporting burden on Small Companies?

 

steve@bicknells.net

Will you be exporting in Export Week?

Export - Red Hanging Cargo Container.

Its the UK Trade and Investment’s 6th annual Export Week (10 to 14 November).

Previous Export Weeks have seen over 17,000 companies in the UK attend exporting focussed events. This week we will again have over 70 events across the UK; there will be at least one event per day in every part of the UK.

According to a recent survey by Barclays Corporate Banking, in new emerging markets 64% of consumers are more likely to buy a product which displays the Union Jack.

A survey by Exact back in June 2014 showed…

The survey of 453 SME leaders found that 54% of SMEs now sell products or services abroad. It found that exporting is the biggest growth area for 19% of the UK’s SMEs, and 68% of those who currently export saw export sales increase in 2013 over the previous year. For 18%, exports now account for over half their sales.

HMRC have a helpsheet TH/FS15 which has some helpful advice on importing and exporting.

So will your business be exporting this week?

steve@bicknells.net

We love Self Employment in UK…..

Business people group.

The UK has seen the fastest growth in self-employment in Western Europe over the past year, according to the Institute for Public Policy Research (IPPR).

The number of self-employed workers rose by 8%, faster than any other Western European economy, and outpaced by only a handful of countries in Southern and Eastern Europe.

The IPPR’s analysis shows that the UK – which had low levels of self-employment for many years – has caught up with the EU average. If current growth continues, it says, the UK will look more like Southern and Eastern European countries which tend to have much larger shares of self-employed workers.

According to Tax Research UK…

Something like 80% of all the new jobs created since 2010 are, in fact, self-employments, and there are a number of things that very significantly differentiate self-employments  from jobs.

The first is security:  there is none.

The  second is durability:  vast numbers of new small businesses fail, which is one reason why I doubt the official statistics.  I am sure they record the supposed start-ups  correctly but seriously doubt if they have properly counted the  failures.

Then there is  the issue of pay. The evidence is  overwhelming  that in recent years earnings from self-employment have, on average, declined significantly.

A worker’s employment status, that is whether they are employed or self-employed, is not a matter of choice. Whether someone is employed or self-employed depends upon the terms and conditions of the relevant engagement.

Many workers want to be self-employed because they will pay less tax, this calculator gives you a quick comparison between being employed, self employed or taking dividends in a limited company.

HMRC have a an employment status tool to help you determine whether a worker can be self-employed or should be an employee http://www.hmrc.gov.uk/calcs/esi.htm

In summary, why is it attractive to use Self Employed Freelancers?

  1. Skill is more important than location in many business sectors – we live in world where internet can allow you to work with anyone at anytime, you can now track down the best person to work with even if they live thousands of miles away
  2. Lower fixed costs – Using Freelancers will lower your fixed costs (in similar way to Zero Hours Contracts), you employ them for a specific project and only pay for what you need so there isn’t any surplus capacity
  3. Tax advantages – Freelancers run their own business and that means they pay less tax than employees. Employers save tax too, such as Employers NI.
  4. Competitive Advantage – You can put together a team for a contract rather than finding contracts that fit your workforce, this means you can hire the best.
  5. 110% Commitment – A Freelancers success and future work depends on them performing to the highest level on every contract, failure is not an option for a successful contractor.

So do you think self employment is good for the UK?

steve@bicknells.net

What is the 10% Crowdfunding Rule?

Crowd and piggy bank

Crowdfunding is a way in which people and businesses (including start-ups) can try to raise money from the public, to support a business, project, campaign or individual.

The term ‘crowdfunding’ applies to several internet-based business models, only some of which we regulate.

The Financial Conduct Authority don’t regulate:

  • Donation-based crowdfunding: people give money to enterprises or organisations whose activities they want to support.
  • Pre-payment or rewards-based crowdfunding: people give money in return for a reward, service or product (such as concert tickets, an innovative product, or a computer game).

The FCA do regulate:

  • Loan-based crowdfunding: also known as ‘peer-to-peer lending’, this is where consumers lend money in return for interest payments and a repayment of capital over time.
  • Investment-based crowdfunding: consumers invest directly or indirectly in new or established businesses by buying investments such as shares or debentures.

Further details on their website

The Financial Conduct Authority is proposing that starting from this year inexperienced investors in equity schemes will have to certify that they will not invest more than 10% of their portfolio in unlisted businesses.

Firms that run the website platforms say the rules are too tight and will put off potential investors.

Barry James, founder of The Crowdfunding Centre, says: “Make no mistake, the infamous 10% rule – however it’s dressed up – does just that: it takes the crowd out of equity crowdfunding.”

Despite the crackdown, investors who lend to small companies will not be covered by the Financial Services Compensation Scheme which protects investors if they are mis-sold an investment or if the company they invest in goes into liquidation.

The FCA believe there is high risk that consumers could suffer losses from peer-to-peer lending.

Is the risk too high? would you invest?

steve@bicknells.net

10 reasons why UK Micro Businesses are taking off

e commerce

New analysis from Direct Line for Business (DL4B), based on data from the Office for National Statistics (ONS), reveals that just over half of all UK small firms are run from the home of the business owner.

The findings show that there are currently 2.5 million home-based business owners in the UK, representing just over half (52%) of the total number of UK SMEs. These home-based business owners now account for 8% of the UK’s total workforce.

The largest concentration of all is in Herefordshire – where 27% of the county’s 92,000 total workforce is a home-based business owner. Pembrokeshire is second with 23% and Eastbourne is third with 20%.

Men are more than twice as likely as women to run their own business from home, with 1.7 million male home business owners across the country, compared to around 818,000 female home business owners.

http://www.itdonut.co.uk/news/it/most-small-firms-are-now-home-based-businesses

Small businesses are a vital part of the UK economy.

BIS Chart

Marketing Donut reported this week that a study of UK small businesses has shown a rise in the number of people setting up micro businesses and hiring people for part-time work.

The study by Freelancer.co.uk assessed 300,000 businesses over the past 12 months and it concludes that an entrepreneurial boom is taking place in the UK, with significant numbers of people starting up new ventures across the country.

According to the study, Brighton and Newcastle have seen the highest growth in the number of new micro businesses being launched (up by 24%), followed closely by Manchester and Southampton with 23% growth. London has seen 21% growth, Edinburgh and Liverpool 20%, Birmingham 19% and Sheffield 8%.

The research also shows that there have been positive knock-on effects for freelance workers in business support sectors, such as website design. It found there has been a 19% increase in the number of micro businesses commissioning new ecommerce websites.

In addition, orders for shopping carts to be installed on new small business websites are up 18%, email marketing is up 20%, graphic design is up 12% and logo design is up 6%.

So why are micro businesses taking off:

  1. You can start off working at home
  2. Your start up costs are low
  3. You can do it part time when it suits you
  4. With wages frozen and costs rising it can provide a useful additional income
  5. Its easy to be price competitive with low overheads
  6. The Internet makes it easy to sell your goods and services
  7. Your social capital can be used to generate sales ie use your contacts and connections
  8. There could tax advantages – employees generally pay more tax than sole traders
  9. Some clients prefer the personal touch
  10. It could be start of something big

steve@bicknells.net

 

 

5 reasons why Freelancers are taking over the world

MISSION: IMPOSSIBLE

Last week Zero Hours Contracts were in news, the BBC reported on 5th August 2013:

The Business Secretary Vince Cable fears zero-hours contracts are being abused after research suggested a million people could be working under them.

I think that employers may be tempted to switch from Zero Hours to Freelance Contractors.

PCG published this story on 3rd July 2013:

Demand from UK businesses for contract workers is continuing to rise in 2013, which could be good news for freelancers looking to get their foot in the door on a lucrative new project.

Why is it attractive to use Freelancers?

  1. Skill is more important than location in many business sectors – we live in world where internet can allow you to work with anyone at anytime, you can now track down the best person to work with even if they live thousands of miles away
  2. Lower fixed costs – Using Freelancers will lower your fixed costs (in similar way to Zero Hours Contracts), you employ them for a specific project and only pay for what you need so there isn’t any surplus capacity
  3. Tax advantages – Freelancers run their own business and that means they pay less tax than employees. Employers save tax too, such as Employers NI.
  4. Competitive Advantage – You can put together a team for a contract rather than finding contracts that fit your workforce, this means you can hire the best.
  5. 110% Commitment – A Freelancers success and future work depends on them performing to the highest level on every contract, failure is not an option for a successful contractor.

So is it a mission impossible for salaried employees to make the transition to Freelancers

steve@bicknells.net