Starting Your Business part 5- Starting to trade

What is Trading?

Before looking at the necessary accounting aspects, just a word of caution for those that may think they are not. HMRC has quite strict rules as to what constitutes a trade, and whether or not you need to disclose this to them. If you are interested check out their website , but essentially you could be trading if there is a profit motive in the transaction or it is done regularly enough. See this article from the Guardian  which highlights those who trade on ebay. With the New Year upon us and you are thinking of starting your own business you may wish to see my earlier blogs  Assuming that you have consciously decided to trade and have not done so by accident, lets look at some of the things you now need to consider.

Registering for VAT or not?

This is a thorny question, and you really need to think about a number of things this is something we at Sherlocks can help you with.

  1. Are your customers registered for VAT? If not then you will be increasing your prices to them by 20%
  2. Do you have a large capital outlay to start with that will have a large element of VAT attached?
  3. Are you importing from the EU and the imports eg stock for sale is in excess of the current limit of £85,000
  4. Have you been lucky enough to get a contract that you will be fulfilling shortly that will take your last 12 months sales over the £ 85,000 limit.

Interestingly it is actually possible to register for VAT and then de-register if your sales do not meet the current de-registration level of £83,000. The best thing to do is seek advice.

Opening a business bank account

Now you may have done this already, as we are well on the way to getting the business up and running, however most people tend to pay for the early costs out of their personal bank account, this is fine just keep your receipts and don’t muddle them up with your personal ones. The best advice here is to shop around and don’t automatically go with the bank that has your personal account. You may discover better service elsewhere. There are a number of banks aggressively targeting business banking at the moment and offering good deals and shock horror going back to a personal relationship manager.

From an accountants point of view it is much tidier if there is a business bank account but not essential. You do need to be ordered though otherwise this can affect your accountants charges. Sorting out the business expenses can be a time consuming and thankless task.

 Invoicing

So you have done some work for someone and now you need to give them an invoice. Whether they are going to pay you later or they are paying you straight away, you need to give an invoice and in many ways the sooner the better.

Some small businesses prefer to invoice monthly. If you chose to do this make sure you get your invoice to the company before they “close” the bought ledger for the month otherwise you might find payments being delayed. It might be  a good idea to do all the invoicing around the 25th of the month.

Make sure your invoices are numbered!!! If you don’t want to start from 1 make up a number to start from, but keep a numerical sequence. It’s fine to do them in word or from an invoice pad…… We’ll talk about accounting packages next time…… and remember don’t be afraid to ask…….Sherlocks

Starting your business part 4

Limited Companies

One of the key questions to deal with is whether or not to set up a limited company. As with many things there are pros and cons with this.

One of the major arguments at the moment with falling corporation tax rates is that it is better to have a ltd company, but it really does depend on a number of factors so you ought to seek advice in general some of these are:

  1. Losses. Should you make losses in the earlier years with a Ltd company these losses cannot be offset against your earlier employed income see part 2 and so a much needed tax refund maybe missed.
  2. Low Profits. If your earlier year profits are likely to be less than £20,000 (per partner) then it is likely that a Ltd company will be more expensive this is because of the personal allowance effect.
  3. Company car.  Generally if the car is in the company then this makes a Ltd company more expensive. In most circumstances the best option is to have the car as private and charge the company the HMRC mileage rates for business miles. However it may depend on the cost of the car, the CO2 emissions and how it is being paid for.
  4. Additional admin. With a Ltd company there are some set up costs and an annual return to submit and this is an additional cost it is also an additional thing to remember to do. There is a £150 penalty for late submission.
  5. Borrowing.  One of the advantages of a Ltd company is simply, the limited liability. Should it be necessary to borrow money and this can be done without giving personal guarantees then a Ltd company offers good protection. Also should the business have a high degree of risk then a Ltd company may offer a safe haven. Be warned though this is not an excuse to be reckless!!

Having decided to set up your company this is actually quite straight forward and can be done on Companies House websitebe sure to keep your login details.

Finding a company name that fits your business is quite important, but not as important as your trading identity and your domain name. The Ltd company can be something quite different, however in the first instance play it safe and try and get your brand/domain and company name to be more or less the same.

In the next blog we’ll look at starting to trade……

Starting your business part 3

Partnerships

Partnerships from a tax point of view are treated similarly to sole traders. Each partner in a business needs to submit their own tax return, showing their share of the partnership profits.

This means that a partnership set of accounts needs to be prepared and provided to all partners so that they can submit them if necessary with their tax returns.

Do not under any circumstances if you are in a partnership accept ” Don’t worry I’ve done the accounts and sent them off. ” That may only be part of the story you still have to do your own tax return and may need to send a set of accounts separately.

What constitutes a partnership is governed by The Partnership Act 1890 and if there is no agreement in place then the rules as in this act are applied. This can mean that even if one person does little work they could be entitled to an equal share. The advice here is get some help and have a partnership agreement drawn up.

It is really important, do this before you get too far down the road.

This helps with things like what happens when a partner wishes to leave/join, distribution of profits and so forth. You can even allocate salaries, account for things such as if the partnership needs funding who will put it in and what proportions, whether the partners will receive interest on their capital. It can also deal with difficult issues such as the passing of one of the partners and what happens to their share.

There is plenty of good advice from trade organisations such as FSB, WKCCI  or a reputable firm of solicitors such as Buss Merton, Warners or another reliable local firm that you know. A good firm will be able to tie this in to wills if necessary and how a partnership might be valued for estate purposes if necessary.

This was not meant to be a morbid piece of work, the best thing to do if considering a partnership is seek advice!!!!

 

 

Starting your business part 2

Limited Company or Sole Trader or Partnership

So you’ve decided on the name of your business and the design for your logo is underway. The question is now what sort of organisation are you going to start trading as and what difference does it make. In this blog we will look at sole traders with the others to follow later.

(Please remember that the comments in this blog give general guidelines and are not intended as specific advice to any individual or group. Neither is it intended to be totally comprehensive. Should you wish to check your own personal circumstances then please seek individual professional advice.)

Sole Trader

This is the easiest form of trading, you are on your own and you can just get going.  Buy something from someone, sell to someone else and there you are trading. Alternatively you provide a service to someone and charge them you’re in business.

Please understand that even if you are buying and selling things on ebay with the intention of making a profit this will be considered trading by HMRC so it is a good idea to check use the link or see your local accountant for help.

The safest thing to do is keep your receipts and a note of your income in any event, an excel spreadsheet will do. None the less if have gone to the trouble of giving your business a name then the chances are you are trading and liable to tax.

Many individuals start their business slowly and they say that they are not making a profit so there is no need to make a declaration to the tax man. This is poor thinking:

  1. If you are carrying out a business even if it is not profitable there is likely to be class 2 national insurance contributions to make see HMRC website.
  2. If you make tax losses when you start trading, not many people realise that these losses can be used to reclaim tax against income when you were actually employed. (potentially up to 3 years ago.) Or if you are just starting and are still working too then these losses can be used to reduce your current tax liability.

Potentially then in the beginning there maybe a tax refund due to you so don’t think that because you haven’t made a profit there’s no need to make a self assessment return. When you do make a profit it is the trading profit

Year End

When you start trading whenever it is in the year, you’ll need to pick a year end date. This can be no longer than 18 months after you start trading. Don’t just leave it and hope it’ll go away, discuss it with an adviser and actually even if the date has passed your first set of accounts can be made up to a time that actually suits your business.

Whenever your first accounting end date, though in your first period of trading you are always assessed for tax purposes up to the 5th April (31st March by concession) so in the beginning especially if you are not profitable there maybe some advantages to just picking the 31st March as your year end this certainly keeps things simple.

Allowable Expenses

Again HMRC can be of great help here but as a general rule you are allowed expenses that are wholly, exclusively and necessarily for the performance of the trade. Depreciation on fixed assets is not allowed, instead this is replaced by the tax mans version called capital allowances. There are some tricky little rules around this, so you may need advice. For most small businesses now unless they have very big capital expenditure it will mostly all be allowable for tax covered by the Annual Investment Allowance.

Cars are not well liked by the tax authorities and require special treatment. A quick chat with an accountant ought to sort this out for you.

Self Assessment

HMRC have actually got good software, which guides you through the self assessment process and for the simplest of cases you may not need an accountant. Here are a few considerations, when you start trading:

  1. You need to notify HMRC that you are potentially liable for tax by 5th October following the tax year (6th April-5th April) in which you  start your trade.
  2. When submitting on line the dead line for submission and payment of tax is the 31st January following the tax year. You may also need to make a payment on account for the next tax year.
  3. A second payment on account is due on the 31st July.
  4. Never ever ignore correspondence from HMRC especially if they are asking for something. (Information, returns, tax)
  5. Before you can submit on line you need to register with HMRC and for this you need logins and codes and your Unique Tax Reference (UTR). This can TAKE TIME and should never in the first instance be left until after christmas, there is always too much to do in the time.
  6. Get organised well before, have your sales total, expenses break down, an idea of capital allowances, and some personal information about, pension contributions and investment income and you maybe able to do it yourself. Otherwise you need to get some help, remember your local accountant, or find an adviser that can be trusted through a body like the ICAEW.
 To be continued with partnerships and Ltd considered in the following  blogs……..

 

 

Starting Your own Business

The Beginning

You’ve got an idea that you think will make money or at least earn you a living. There is quite a lot to do and often you’re not sure what order to do it in. That’s ok because many of the things can be done along side each other.

There is also plenty of advice available and sometimes the problem with that is there can be too much of it. However here are a few suggestions, well of course there is us Sherlocks we can help, but if you prefer to look around try the ICAEW or the Federation of Small Businesses or the local chamber of commerce like ours West Kent Chamber of Commerce. Whoever you use as a sounding board for your ideas, make sure you can get along with them, and they can at least challenge your thinking.

Alright so you decide to go it alone for a bit how hard can it be? Well here are a few things to consider in no particular order.

The name of your business.

This is important. Don’t be lazy. The name of your business may need to convey what you do, but it may not. What do you want to do with your business in the end. Should you wish to sell it then its best that the name doesn’t include yours, otherwise the brand that builds up around the name will be too attached to you and a prospective buyer maybe put off.

Remember too that the name of your business is going to be built into a brand, hopefully a successful one, so you are going to need some support to the name.

Try and think of a strap line that supports your business name too. This can help any designers when talking about your logo, which will form a big part of your presentation when you finally get your website underway.

Domain Names

When you are getting close to selecting your name check to see if the internet domain names are available or at least something that can resemble your name. It is quite easy to do there are quite a few domain name providers available 123-reg, Godaddy, 1and 1 and others do a search.

Finding whether there is a domain name available may also affect your choice of name in the end, because the way the internet works you need the name of your business to be reflected in your domain name.

Email

Make sure you look like a proper business. All of the domain providers will give you a business email address for not much money and they will host it for you. This puts your business on a proper footing. Using your personal email for your business does not give the right impression.

Business cards and design

It might be a good idea to get a few different names done up with strap lines and logos, and see what they look like on business cards or on a web page. There are plenty of designers out there who will be able to set you on the right path. They may even do you a good deal as you will be a customer for life potentially. At the risk of upsetting those left out by mistake here are some suggestions. Identity, Kent Social Media, Ditto, Heliocentrix, Holman Design, Creative POD well that’s me doomed, but over to you to find someone that you can work with in your area.

Keep your receipts

Don’t forget this is an accountants website, and for any costs you incur even at this early stage will be useful to keep the receipts, we can do things with them, potentially reducing your tax liability so keep them. Better still get that excel spreadsheet working that simply lists any costs you incur even during the germination stages of your business idea.

To be continued………

 

 

Christmas is coming the tax mans getting fat.

The 31st January deadline for filing online tax returns will be here sooner than you think. In fact every year over a million people are late, which at £100 each minimum makes a substantial contribution to the tax revenues every year.

So make sure you are not late. If you are doing it yourself make sure you have all the necessary information available. Some documents or copies may take time to get so do this now so that they are available in January.

If you are getting your accountant to do it and they are a new accountant for you then they will need to be given access codes to file for you on line. This is done by completing a form called a 64-8. The problem is that HMRC are likely to run into backlogs in January so get this done early.

Generally its a good idea to have your accountant local to where you are although with cloud technology this is becoming less important. However if you want your accountant to make a valuable contribution to your business, best that they understand it and even better if they come to see you.

Don’t delay get this job done and then you can really enjoy Christmas and not give gifts to the HMRC.

We are based in Tonbridge, Kent. If you need help pop in and see us or give us a ring.

Beware the Jabberwock or “the friendly chat”

Management Accounts

So we are at the end of week one and depending on the size of your business the management accounts should be just about ready. They don’t need to be perfect, they do need to be more or less, so that you can see trends from last month, get any discrepancies looked at while the issues are still fresh in peoples minds and you can catch any errors in peoples thinking. The management pack ought to contain Profit and loss account, Balance sheet, Top 10 customers, aged debt summary, aged creditor summary and a ……..

Cash flow

There must must must be a cash forecast for the next 12 months in the pack. This does two things. It shows that you are going to be alright for this month ( or not, take action now) and it shows what the pinch points maybe in the coming 6 months that allows you to plan your action ahead of time. If your cash flow designer is good it will also contain on the summary sheet, forecast invoicing and sales ledger balances.

And Now ACCA exam results out to day good luck…

One of my students from Moore Stephens and a number from Deloitte have both said a book should be written of stories and sayings relating to accountancy. So perhaps this is the place, as finding a publisher to take it on is probably as remote as  well an accountancy student passing all their exams first time…… So if you have well done and if not no disgrace, just try try and try again.

Beware the friendly chat.

Just recently bumped into a bank manager who it appears was the boss of the bank manager that pulled the overdraft from under our feet in about 2001. This is the story that usually prefaces a discussion on the pros and cons of factoring and invoice discounting verses overdraft.

So here we are the factory is in Cwmbran, the distribution outlet is in Tonbridge (so was home) and the bank is in the Crawley area. It had been a heck of a week. We had completely ditched the old product range in 2000 and as this was imported some of our staff had jumped ship to sell it against us. The new product range was taking off slowly, the cash was going down and the asset base eroding. Non the less future prospects were good, we just needed time.

The phone rings on Monday, its the bank manager who wants a friendly chat about this months numbers. So we arrange for me to pop in on Friday afternoon on the way back from Cwmbran. Great, early finish, cup of tea with lets call him George and home before all the rush hour traffic.

All is well, except that bank managers tea/coffee are never of the greatest quality. Now we’ve known each other 4 years me and George so the “Friendly Chat” takes a while and then it turns with the news ” We need the overdraft repaid immediately” apparently Georges boss has issued instructions. The best part of 200k not a hope. So George is politely informed through churning stomach that we will have to put the company into liquidation and they are unlikely to get a penny.

George never fear has a plan to move us to the banks highly expensive and unreliable factoring arm. Not on your nelly. Told him we would rather liquidate. Remember they can’t force you to these agreements. George was politely informed that we would need 12 weeks to find alternative funding. Let the haggling begin…. We settled on 8 weeks, George had never lost a client and the thought of losing one now gave us a lever.

The restrictions of course were that the directors did not want to give personal guarantees. And why should you? Don’t give personal guarantees unless they are really necessary. Also we needed 3 quotes, due diligence phew all done in the eight weeks… hard luck George business lost.

Everything done and dusted, including some expensive debtor insurance…. All’s well except that 4 weeks later we only did 50k worth of sales in the month………. which for factoring is near disaster but that’s for another day.

 

Training

Lunch on the third day, no not just of the test match, but of the TOPCIMA course at First Intuition .

CIMA the institute of management accountants producers a scenario and the students get 3hrs plus 20 mins reading time to write a report that prioritises, discusses and recommends practical solutions to business problems.

The students by now will be part way through their first mock, which is normally unfinished, however they should at least have some decent discussion with some recommendations otherwise they will definitely fail.

This season is about a retail company like Debenhams, John Lewis, House of Fraser. At Sherlocks as we have great expertise in business strategy, supplying Finance Directors and Non Executive Directors to many different types of industries, so we are helping these students put together some hopefully decent reports. This means that at the start of next week there will be lots of marking.

ACCA Exam Results

Good luck with exam results next week, you never know there may even be celebration drinks near you. If you’re looking for a mentor for the Oxford Brookes degree programme then we should be able to help you at Sherlocks

ohhh and remember have a good weekend, we are having a BBQ tomorrow with some choice cuts from Ian Chatfield who opened up in Tonbridge High St in the spring. Fingers crossed on the weather.

 

Sherlocks Chartered Accountants

1st August 2013

Lunch on the first day of the test match. Lunch on the first day of the new month. Priorities!! 

Now in small businesses your bookkeeper should be well on the way to posting the cash for July and being able to do the bank reconciliation sometime today or tomorrow. This is absolutely important and there is no excuse for not having it done. 

The reason is that by the third of the month latest business owners need  to have a cash flow forecast in there hands so they can plan the months payments strategy if required. Really bad news getting to the month end and finding that there is not quite enough for payroll and you have to go without.

If you don’t have a cash flow model get one!! Excel or other packages available. Easier than getting a fashion model.

So while your all doing that here at Sherlocks its Saturday, which means chores. The reason its Saturday is that last weekend teaching the new TOPCIMA scenario took place @first_intuition which is great college for accountancy training, so that means the weekend has to be transplanted.

Kitchen has been spring cleaned so there is no excuse for misplacing those important bits and pieces :) 

Ohhh yes also need to up date you on last nights activities at the Buxted Park Hotel with www.wkcci.com who were kind enough to give me and Alan certificates for turning up.
Alan comes from www.extech.co.uk and was kind enough to get me lunch earlier this week. 
Don’t think we need to disclose this on the bribery act forms though.

Met Gareth from Triple Star Fire  @GareththeSoutie and he was right didn’t get back to him after the presentation or he escaped!! Interesting business though check him out.

Also managed to catch up with @hannahditto who has been kind enough to say nice things about the blog. They also have nice design business up in Sevenoaks. Its by the scaffolding on the London Road. Come on workmen give them a break, they need the windows open in weather like this.


Payment on Account Day

31st July. In the UK you need to have made a tax payment on account with HMRC by close of play today.
So get going, or phone your accountant in a hurry.

Otherwise today has been great. Breakfast with the Tonbridge BoB club, and then down to “The Carpet Centre” where Mervyn has a great little business that has been going for 30 years and he was kind enough to show me round. Followed by a drop in to @dropmyleaflet which in comparative terms has been going for 30 mins, but excellently put together by Louis Ayre.

Then back to base to loock horns with the HMRC website, which although improving can still be a little tricky….. see your accountant. ohhh thats me. Well even for us it can be a little awkward.

Off to Buxted House Hotel tonight to meet with the West Kent Chamber of Commerce. May see you there!!