Real Time Information on PAYE

HMRC is introducing changes to PAYE reporting, currently with volunteer employers. On April 2013 the changes will become mandatory and by October that year, every business will have to be compliant. The changes have been labelled Real Time Information (RTI).

Real Time Reporting

Under the RTI system, information will be collected by payroll software and forwarded electronically to HMRC every time the payroll is run. It means that the tax man will know what tax, national insurance (NI) and other deductions have been made for every employee as soon as they occur. It makes P14 and P35 annual reports redundant, and HMRC will be able to arrange any necessary adjustments through the year, rather than retrospectively after receiving annual reports.

What RTI Means for Employers

The most important aspect of this for employers is that they must have appropriate payroll software. If you have fewer than ten employees, you can use the free HMRC Basic PAYE Tools package, but software suppliers are producing upgrades to accommodate the change.

You would be wise to speak to your outsourced bookkeepers about it now, as you need to plan for compliance in advance to be confident about the changeover. There will, of course, be penalties for non-compliance.

HMRC will let you know the date they expect you to begin, which will be between April and October 2013 unless you make a voluntary arrangement to start earlier. They are seeking more volunteer companies under their pilot scheme.

Starting and Leaving Dates

There will no longer be a requirement to send forms P45 or P46 to HMRC as starting and leaving dates will be reported with the payroll information. However, these forms will still need to be used to pass necessary tax information on employees between employers.

Data Quality

It will be vitally important to hold accurate information on your employees so that HMRC can locate each individual’s account. Full forenames and surnames are required and when you enter a newcomer, you should check an official document to make sure the spelling is correct. A birth certificate or passport will show this and the correct date of birth. The format of dates should match HMRC requirements. The third piece of crucial information is the NI number. These can be checked at the HMRC National Insurance tracing service.

Either before, or at the time of, your first RTI submission, you have to make an Employer Alignment submission of the details of all your employees during the current year, with dates of starting and leaving where appropriate.

This is a big change to current practices, so do discuss it as soon as possible with your bookkeepers and payroll administrators.

More Ways to Get Value from your Outsourced Bookkeepers

Are you getting the most from your outsourced bookkeepers? You need them to keep your accounts up to date and make sure your business meets all those onerous HMRC deadlines. But they can do so much more than that for you.

Making Sense of the Figures

When they give you the reliable data you need to make the right business decisions, don’t just look at all those pieces of paper, or figures on screen, in isolation. Have a dialogue with your bookkeepers and make sure you know exactly what they mean, and what opportunities and/or threats they represent.

Discuss them in several contexts:

·         your business situation, of course

·         the current market in which you operate

·         your competitors’ performance

·         the wider economy.

Your bookkeepers’ viewpoint can be more objective than your own. They have a breadth of experience, from a wide range of clients, which can often supplement your own.

Helping you Meet your Business Objectives

If you involve them in discussions about your business plans, you might get new ideas in areas like improvements to processes and procedures; boosting the cashflow; raising funds, and so on. They would be invaluable in setting realistic and manageable budgets for proposed projects, and then overseeing them and alerting you to any potential overspends with possible solutions to problems.

Helping you Save Money

One of the most important ways that bookkeepers ease your finances is by making sure you don’t incur any late payment fines or penalties. For some this saving makes up for the cost of the service. Again, there are other ways they might help you save money.                                              

Your bookkeepers can often see new possibilities for cost cutting, but unless you ask them or provide opportunities for dialogue, they might not pass them on. It’s really important to talk to them. While you are the expert on your business, what it offers and how to offer it, their expertise lies in administration and finance. And these different aspects of commerce have to go side by side in any business for it to succeed.

You could get their help in installing a new accounting system, overcoming teething problems and getting it running smoothly. They could give your staff training in using systems and following accounting practices, and then take on a supervisory role.

Good bookkeepers can also save you some of the more expensive time of your accountant. When they produce everything needed for the year end accounts package in a way that is easy for the accountant to check, it will just be a simple matter to compile your Annual Accounts and confirm your tax position.

If you are not receiving all these benefits from your outsourced bookkeepers, it’s time you did something about it.

Olympic Inspiration

The incredible efforts of the 2012 Olympic athletes are inspiring both the young and the mature. Of course what we spectators have been watching is just the culmination of years of training and interim achievements. The achievements come when they succeed in meeting their goals, and there will have been many of those in the build up to the ultimate objective of winning an Olympic medal.

And unless they decide to retire, their efforts don’t stop there. After a well-earned break, they will be setting more goals for the future and working towards them.

As business people, we may have lessons to learn from that. Whether your ultimate goal for your business is set for five years or twenty years on, you will have to build and develop it to get there. You need to set interim goals in realistic time frames, and give yourself time to celebrate when you have met them. Then you’ll be motivated and enthusiastic about moving on to the next goal.

The Right Goals Point you in the Right Direction

Effective goal setting is a skill that entrepreneurs need to acquire. If you get them right, you will be directing your efforts in the right direction and less likely to be side-tracked into unprofitable activities.

Most business people have heard about using a SMART technique to set a goal, making it specific, measurable, achievable, realistic and timely. But there is more to it than that. The most important aspect is that you really want to achieve it, and it’s not just something you think you ought to be aiming for. If you personally don’t have a passion for it, it will be very hard to summon up the drive you need to achieve it.

Goals Must Remain Dynamic

You will, of course, need to review your goals from time to time to make sure they remain appropriate if circumstances change. For this reason, goals should always be set out in writing which will also help you make them detailed and precise, so they they can’t be dissipated by vagueness. When you write up your goals, don’t include anything you don’t want that needs to be avoided. Keep your text positive and just leave the negatives implicit.

For each of your goals, you need a schedule that sets out the steps you will take to get you there, and when you will take them. This also can be changed at review stage if your plans are not working out as you hoped. External changes out of your control can make this necessary, and you shouldn’t ever blame yourself. You just have to take them in your stride and decide on other strategies to help you reach your goal.

Remember that your outsourced bookkeepers are on hand to discuss your financial goals and may have useful tips on different ways to reach them.

Good News on Bank Lending

When Mervyn King, Governor of the Bank of England, announced the £80 billion Fund for Lending scheme at his Mansion House speech in June this year, he said it would be a ‘joint effort’ between the Bank of England and the Treasury. On August 1^st, the Fund for Lending made cash available to high street banks at low interest rates specifically to be passed on to their small business customers. The aim is to encourage the banks to lend and businesses to gain the finance they need for growth which will help the economy. 

The First Response 

Banks involved included the Royal Bank of Scotland (RBS), which badly needs to lift its image following the technical problems that recently delayed incoming payments to the accounts of many of its customers. 

RBS has now announced that it will cut its rates on loans to small businesses by up to 1.6%. It will make £2.5 billion available for these loans to small businesses with a good business plan. This is really good news at a time when the rising costs of finance have been putting off many SMEs from borrowing to expand. It is especially welcome in London and the South East where finance under the Regional Growth Fund Scheme is not available. 

More Good News 

RBS has also decided to remove arrangement fees which can add an extra £1500 or so to a £100,000 loan. This plus the lower interest rates could result in savings of about £4,000 on the loan repayments. 

According to Chris Sullivan, Chief Executive of RBS and NatWest Corporate Division, this is the best ever offer for SMEs, and the best available in the UK. He said, “RBS and NatWest are determined to play their part in supporting the economic recovery. The clearest and strongest way we can do this is by letting people know that we are open for business and ready to support their ambitions on the best terms available.”

John Cridland, Director-General of the CBI also commented, “Rising borrowing costs have held back the growth ambitions of many small and medium-sized firms. This scheme should support banks to make finance more affordable to businesses and consumers, while also encouraging banks to lend more.”

Tips for a Smooth Running Cash Flow

This aspect of your business is so important that it’s worth looking at over and over again. The economy is still in the doldrums with more negative news recently, and it’s never been more vital to make sure the cash is flowing in as your products and services flow out. 

Regular Cash Flow Reviews 

You really need to review your cash situation regularly, once every week or two unless you are so confident that monthly will do. Sit down with your bookkeepers to see where you are at that moment and work out what cash you will need when. What will ensure you have it at the right time?

Do you have the right stock and resources, or do you need to buy in? Can you afford to or do you need to find more cash? Are your cost figures normal or do you need to investigate hikes? Can you cut costs? Most important: are payments coming in when they should? 

Consistent Credit Control Activities 

Consistency in this area is a must. It’s no good sending out a statement and not following it up for six months. Set up a credit control procedure of regular contact with debtors, and follow it to the letter. They will at least push you up their priority payment list to get you off their backs more quickly. If they are really stuck for the total amount, you might be able to negotiate staged payments and get your cash in that way.  

You could also talk to your outsourced bookkeepers about whether factoring arrangements are suitable for your business. That would take the credit control burden from your shoulders and guarantee at least some early income, although it will add to your costs. 

The Importance of Credit Checks 

Of course you would never offer credit to a new customer unless you were confident of their ability to pay. Or would you? People can do unwise things when they are desperate for business. While some are lucky, others are not and just get taken for a ride. Don’t be one of those. Always check their credit rating. 

It’s wise to keep tabs on existing customers too, especially in the current economic climate. You need to know who is in trouble, so you can make sure it won’t be you next. 

If you get a whiff of negativity, don’t ignore it. The next step is to talk to your customer and renegotiate your terms. In an extreme case, you might need to stop doing business with them. You may not want to add to their troubles, but you certainly don’t want to land yourself in a cash drought. 

Don’t forget to discuss things with your outsourced bookkeepers; they may be able to offer ideas you haven’t thought of yourself.

Finding Alternative Funding

It’s still horrendously difficult for SMEs to prise funding out of the banks. Despite the government’s best efforts, they just don’t seem to be cooperating. Even Vince Cable, the Business Secretary, appears to have given up. Last month, at the Investec Entrepreneurs’ Summit, he said that the banks have their own problems and entrepreneurs should stop blaming them and find alternative funding for survival and growth.

When they are battling to survive or move forward because of late payments, small businesses may only need short term loan arrangements. There are several options for these.

Wonga.com

Originally a pay day loan company for individuals, Wonga recently began offering short term business loans. These have a very high APR but as short term at Wonga means a month at most, it doesn’t add up to much unless you default on the repayment, which could be very costly indeed. Don’t use Wonga unless you are completely confident that you will have the repayment funds in your bank account by 5am on the date you have chosen for the end of the loan. The amount will be collected from your debit card on that day. Your loan can be up to £400 initially. After that the ceiling may be lifted by negotiation.

Invoice Finance

If you use a factoring company, you send them copies of your invoices and they will release up to 85% of the amount payable to you straight away. This is particularly useful if you have your own suppliers to pay and can avoid interest being added, or take advantage of discounts for early payment. In some cases it’s been known to make a difference to whether or not an employer could pay wages and salaries on time. And because they will do the credit management work for you, you have the time and money to concentrate on other aspects of business success. The downside is that they will take a cut of the balance when the invoice is paid, or there may be a monthly fee to pay whether or not you use the service.

Market Invoice

If you are in the business to business sector, you might be able to avoid the monthly fee by using marketinvoice.com, which acts as an invoice auctioneer. The buyer of your invoice pays you the agreed percentage at the close of the auction and once your client has paid the invoice amount to Market Invoice, you and the buyer will be paid the appropriate amounts less a small fee. Market Invoice typically deals with large invoice amounts and will scrutinise your company before accepting your invoices for auction.

These are just a few of the alternative funding options available. If you are having cash flow problems, your outsourced bookkeepers should be pleased to discuss these or tell you about others they know about.

Consultation on Business Insurance Law Reform Proposals

Have you ever had a claim rejected by an insurance company because you failed to disclose an element of risk before signing the contract? This is a fairly common occurrence that has been the cause of many disputes which have been resolved in and out of court. It can have a devastating effect on organisations of any size, but small businesses are naturally less able to cope with the losses.

It has happened so often that the English and Scottish Law Commissions have been jointly reviewing insurance contract law. They recently issued their third consultation document focusing on this aspect, which they say will be the last one before they pass proposals to Parliament.

The Law as it Stands

Insurance law is governed by the Marine Insurance Act of 1906. Originally designed to insure ships and their cargoes, in the absence of a more general law, the Act has been applied by the courts to all forms of insurance.

It places a duty on the business to disclose all possible risks to the insurer before the premiums are decided and a contract raised. Business policy holders rarely understand the importance of this disclosure, but insurers are not required to intervene even though they are much better placed to know what questions should be asked and answered. Even some insurance brokers have little understanding of what is needed for a good presentation of risk.

An Unfair Balance

It means that the letter of the law supports insurance companies to collect premiums and then refuse to pay out following a claim on the grounds that they were not made aware of a particular risk. Policy holders may believe they have disclosed everything relevant when they have actually missed something that would have made a difference to the premiums charged. In these circumstances, even if the non-disclosure is not relevant to the specifics of the claim, they will not be entitled to benefit from the policy.

Small businesses may actually have a slight advantage here, because insurers are often more wary of doing business with them than they are of the business giants or even medium sized organisations. They may therefore ask questions and be more probing than the law currently requires them to be before setting premiums and issuing policies. If a claim is disputed, though, they are likely to be less able to pursue it and reach a favourable solution.

Redressing the Balance

So an implied suggestion in the consultation is to place a duty on insurers to follow up disclosure with their own investigations where they are not completely comfortable with a risk area. Another is that the remedy should no longer be an automatic withholding of claim payments. All the circumstances should be considered so that some benefit can be received by a business that has acted in good faith.

If you would like to take part in the consultation, you can find it at http://lawcommission.justice.gov.uk/consultations/business_disclosure.htm.