Get Your Personal Tax Return in on Time

Yes, the deadline is almost upon us. If your on-line tax return and payment doesn’t arrive at HMRC by January 31st, the initial penalty of £100 will be levied. Greater amounts will soon accrue and could add up to £1,300 over six months. And that doesn’t include the interest that will be added to the tax due. Clearly it makes sense to submit and pay on time.

Get Ready - and Go!

Hopefully, you are already registered with HMRC for on-line self- assessment. If not, get to it right away at http://www.hmrc.gov.uk/sa/. It will take a few days to receive the activation code you need to access your tax return.

Collect together all the information you need to complete your return, such as
· P60 or P45 (Part 1A)
· P11D or equivalent information from an employer
· Profit or loss accounts
· Records of business receipts and business expenses
· Letters received from the Department for Work and Pensions
· Notices of tax coding for 2010-11 and 2011-12
· Details of pension contributions or receipts
· Details of gift aid payments to charities.

You are now ready to start your submission, unless you need professional help with anything unusual that happened during that tax year. In that case, hopefully you have already accessed the help you need from your accountant or via your local bookkeepers.

When you click on submit your tax return, you will be guided through the HMRC software on the site. You don’t have to do it in one sitting. If you need to leave it, the software will save your data until you log on again.

Pay Attention to Accuracy

When you submit on-line, make sure you haven’t made any mistakes before clicking that submit button. Transposing numbers, such as 150 to 510, could make a significant difference to your tax liability. If you have a paper copy of the return from the revenue, it might help to fill that in so you can copy it on-line. If you do find an error after your return has been submitted, the revenue will allow you to resubmit an amended return, but only until January 31st.

Getting someone else to help you check it also makes good sense. An obvious choice for this, or to help in any way you want with the submission, would be your outsourced bookkeepers. Many of them, including Office Assistants, offer a far wider range of services than just keeping the books for you.

Bribery Act Sentencing a Real Deterrent

Earlier this year, we brought you the news that the new Bribery Act came into force on July 1st. Now we are able to report on the sentencing of the first case brought to the courts under the new Act.

On 18 November 2011, Munir Patel, a clerk at a magistrates’ court, received a 3 year prison sentence after pleading guilty to receiving a bribe of £500 in exchange for removing motoring offences from official records. He also received a concurrent 6 year sentence for misconduct in public office, since he had previously committed a number of similar offences that netted him in the region of £2,000. This was before he was filmed in a newspaper investigation pocketing the cash received from a motorist on 1 August 2010, after which he was prosecuted.

Will There be a Trend Towards Harsher Sentencing?

The sentence was something of a shock to the legal community since there have been earlier trials relating to bribery by international business people and overseas government officials where the sums of money involved have been significantly higher and the sentences much less severe. Speculation ranges from whether this was a response to calls for harsher punishment under the reformed legislation, to whether it was about a need to protect the English criminal justice system. Most arguments favour the former, and lead us to believe this sentence is meant to act as a deterrent to anyone considering any form of bribery.

The Onus on Business Chiefs

A business owner or director now has a responsibility to prevent bribery offences being committed in the name of the business. It is not enough to be squeaky clean yourself. If a member of your staff takes or accepts a bribe in the course of their work, perhaps to be awarded a contract, or to select a specific supplier, you could be prosecuted.

So what steps can you take to prevent this happening? It is important to have a written anti-bribery policy and procedures which are communicated to everyone. The procedures should include logging reports of any incidents that might be construed as attempted bribery by outsiders, or internal disciplinary activities to prevent bribery.

Some members of staff may be ignorant or unclear about what constitutes bribery, so training sessions to get the message across and reinforce it could be a good idea, and should also be noted on your log. If the worst were to happen, and someone from your organisation was prosecuted, you would at least have documented proof of your own anti-bribery activities.

A Taxing Christmas?

At this time of year, along with many other longstanding traditions, business owners like to reward their loyal staff with gifts, bonuses and parties. But don't forget that the tax man is also rubbing his hands together in anticipation of extra income for the Revenue. There are some rules to be aware of if you don't want to have extra tax or NI liabilities for the company or your staff.

Taxing Gifts

Small seasonal gifts can be treated as trivial for tax purposes. If you hand out a few Christmas turkeys or boxes of chocolates to members of staff, they won't incur a benefit in kind tax charge. But if you made your gift an expensive Christmas hamper or bottle of vintage champagne, it won't be seen as trivial, and the employee could be taxed on it.

Taxing Bonuses

You can't avoid the tax due on a Christmas bonus. It is of course included in annual income and therefore taxable at whatever bracket is appropriate for the individual. And whether 80% or 60% or 50% of it becomes disposable income, it's sure to be welcome. Of course, it will also have an impact on levels of national insurance for both the individual and the company, so that must also be included in the bonus budget.

Taxing Christmas Parties

The tax rules about annual functions cover the Christmas party. If Christmas is the only time you have a staff get-together, as long as your costs do not exceed £150 per head, no additional taxes will be charged.

Everything you spend, including VAT, on venue, food, drink, entertainment, and transport or accommodation, must be taken into account as a benefit for the staff member. If the total divided by the number of staff attendees works out at more than £150, unless you have a PAYE Settlement Agreement with the Revenue, your payroll operatives have to include it as a benefit in kind for tax purposes. For any employee whose earnings come to £8,500 or more in the year, or for any directors, your company must pay additional National Insurance as well.

If you also treated your staff to a summer barbecue and/or any other annual functions, and the amount per head of all the functions added together exceeds £150, the rules become quite complicated. If this is the case, you may need some expert advice on what tax is due.

Ask your outsourced bookkeepers to help you make sure you comply with the rules. With the current special scrutiny by HMRC on small businesses, it's important to get your tax affairs right this Christmas.

Unfair VAT Relief to Change

How many small businesses can afford to send their low value goods to the Channel Islands for storing, packaging and resending out to customers in the UK? All to avoid having to add VAT to the purchase – a significant competitive advantage.

Large organisations have been doing it for years through the Low Value Consignment Relief (LVCR) arrangement whereby goods with a value of below £18, and more recently, £15, from outside the EU are VAT free. But from 1 April, 2012, this VAT relief from the Channel Islands will cease, as announced by the Chancellor in his 2011 Autumn Statement.

Bad News for Some

It's bad news for the major retailers who have been taking advantage of it. There will be no advantage for them of sending their goods out to the Channel Islands any more, and they will certainly be making other arrangements. So it's also bad news for island workers in the fulfilment industry, the ones who facilitate the logistics of this kind of order fulfilment. They will not be needed any longer. Others who are likely to suffer are island residents who will probably face higher postage costs and possibly air travel costs as the volumes of post and transport requirements reduce. And it's bad news for the consumers who have been buying these goods without having to pay VAT on top.

Good News for Others

Perhaps it's good news for you. It's certainly good news for smaller operators for whom the cost of making such arrangements would outweigh any benefits from the LVCR. They have been making reduced profit margins because of having to compete with the lower prices of goods with no VAT added. They see this new legislation as levelling the playing field and making the competition fairer.

It is also good news for the Treasury which stands to gain in the region of £100 million or more in additional tax revenues.

Is it Legal?

Since VAT is an EU law requirement in member countries, it has been argued that this proposed change is a breach of fiscal neutrality. A prominent tax accountant believes that the change should not be implemented without gaining permission from the European Commission for a deviation from the EU law. It could therefore be challenged. If you sell low value goods to consumers, ask your outsourced bookkeepers to keep an eye on the situation, and set a price review date for the next financial year.

Understanding Profit

Are you sure you understand the difference between gross and net profit, and how to calculate your profit margins? It's surprising how many business owners are vague about this. In a small business you may trust your accounts staff to give you the figures and reports you need, whether or not they are deserving of your trust. In a micro business, you may not have the staff to deal with these aspects.

Your profit margins are a key indicator of the health of your business. You need to know what they are, if they are changing and why. If your profit margin is going up, you can't afford just to sit back and congratulate yourself. The rise could be temporary and the fall that follows could be a serious crash. You need to recognise the reasons for the rise to predict what will happen next, and to learn the lessons that might help you to keep it high or repeat the momentum. If the margin is going down, you must understand the reason so that you can do something about it.

Gross Profit or Net Profit

Gross profit is the amount of income you receive from a product or service, less the amount it costs you to provide it. Knowing or predicting your gross profit helps you to decide what products and services to supply.

To arrive at your net profit, you have to add all your overheads into the equation. For interested parties, such as lenders, your net profit is what counts. It should also be the most important to you because, even if you are getting a good gross profit margin, if other expenses are too high, the net margin can still be very low.

The Profit Margins

It's easy to arrive at your gross profit margin. You divide your gross profit per item by its sale price and multiply that by 100. That gives you your margin as a percentage figure.

To arrive at your net profit margin is a lot more complicated, because you have to get your overhead figures right. They might include wages and salaries; the expenses relating to your premises; equipment; travel and communication costs, and so on. You'll have to average them out to monthly, weekly, daily, or whatever period you choose to check your net profit margin. A similar calculation takes that into account as well as your total sales for the period and the direct costs of producing them.

Whether you do it yourself, or get these figures from staff or outsourced bookkeepers, to have real confidence in the health of your business, it's best to have a good understanding of where the figures are coming from.

How Healthy Is Your Credit Rating?

The credit rating of small businesses doesn't just affect how much cash you can borrow. It can also affect the amount and timing of the credit your suppliers will allow you, and whether you can source materials from new suppliers as quickly as you need them. It can even affect your order book if potential customers believe your finances are not sound enough to be sure you will be able to complete a contract. Some businesses will not trade with you at all if they believe your credit rating is poor. You really do need a good credit rating.

Different Credit Agencies May Give Different Ratings

That's okay, you say, you already have one. That's good, but unfortunately when other people check it, they may not get the same picture. It could depend whether they check it with the same agency as you do. If you compare recommended amounts of credit from several different agencies, you may get a very wide variation in the amounts.

Accountancy firm Shelley Stock Hutter decided to check 100 companies with three different agencies over a period of two years. They not only found these massive variations – one company's credit limit recommendations varied between £7,000 and £290,000 – they also gave very different limits when checked again a few months later.

At present the agencies do not have to divulge how they make their decisions. They all use different kinds of information to measure credit risk, but it is hard to see how they can justify such broad fluctuations. Nevertheless we have to live with them.

What Can Be Done About it?

When you are deciding whether to do business with other companies, you'd be wise not to rely solely on a single credit rating. Where appropriate, ask to see business plans and management accounts. Your outsourced bookkeepers would most likely be able to give these a once over for you, and let you know how they feel about them. Unless you can cover the risks, don't take any chances. Perform a mini due diligence exercise.

Where you are seeking credit for yourself, you need to offer your own up-to-date business plan and accounts for scrutiny. Again your outsourced bookkeepers could help with the preparation of these. It would be a really good idea to get at least a template of these prepared so that they can be made available at short notice whenever they are needed.

Go the Extra Mile for Your Customers

One of the current conundrums for small businesses is how to cut costs without letting customer service standards slip. In a recent survey of 2000 consumers by the accountancy software company Sage UK, they found that customer service performance was becoming even more important. Nearly a third of their sample reported that they wouldn't give a second chance to suppliers who let them down in some way.

Consumers are Getting More Demanding

Providing outstanding customer service has always been an important factor in business success. Keeping your customers happy brings you repeat business and saves on the time and money needed for marketing and pitching for new contracts. Now it seems that consumers are seeking more for their money in terms of the type of service they receive, both when they buy and following a purchase.

The basics of good customer service are just being polite, helpful and responsive to the customer's concerns. Whatever pressures you and you staff are under, they must be put out of mind at times of interaction with customers, so that you can all appear upbeat and friendly, and listen to what the customer is saying. In the Sage survey, only 22% believed that businesses they dealt with were giving outstanding service while riding out the economic downturn.

The Extra Mile Campaign

Sage's extra mile campaign has been launched to provide some recognition for companies providing good customer service. You and your customers can use the #extramile hashtag on Twitter to get public appreciation where you think it's deserved.

If you'd like to be nominated, get your staff to brush up their customer service practices. Set a good example by treating your personnel the way you'd like them to treat your customers. Welcome them each day with a friendly smile; get to know them by name and remember their birthdays and other things that matter to them; listen to their niggles and deal with them; ask for their feedback and give them credit for useful ideas.

Make yourself available to customers too, and always be ready to deal with complaints in a way that doesn't leave them feeling let down. Remember that statistic about not getting a second chance. Here's another one that comes from a different survey: of customers who are satisfied that their complaints are dealt with quickly and reasonably, 72% will continue to use the company they complained to.

Are you going the extra mile for your customers? Who would you nominate for the Sage UK extra mile campaign? Perhaps it will be your outsourced bookkeepers.