Category: News

What is it?

The VAT Flat Rate Scheme has been popular with small businesses since 2002, enabling them to pay VAT at a considerably lower percentage of turnover rather than paying VAT on the difference between sales and purchases. It was a chosen scheme by many businesses as it helped to simplify accounting for VAT and in the majority of cases it generated VAT savings each year.

What’s changing?

All good things must come to an end of as of 1 April 2017 HMRC are implementing changes to prevent what they believe is abuse of the scheme and a new 16.5% flat rate is being introduced for businesses with limited costs to be known as a “limited cost trader”.

What’s a limited cost trader?

A limited cost trader is one whose VAT inclusive expenditure on goods is either:

• Less than 2% of their VAT inclusive turnover in a prescribed accounting period
• Greater than 2% of their VAT inclusive turnover but less than £1000 per annum if the prescribed accounting period is one year (if it is not one year, the figure is the relevant proportion of £1000).

Goods, for the purposes of this measure, must be used exclusively for the business so you cannot include anything partly used for private purpose. Other exclusions include:

• Capital expenditure (office equipment, laptops etc)
• Any services (rent, internet, phone bills and accountancy fees)
• Food or drink for consumption by the flat rate business or its employees
• Gifts, promotional items and donations
• Goods you will resell or hire out unless this is your main business activity
• Vehicles, vehicle parts and fuel (except where the business is one that carries out transport services)

These exclusions have been included in the new rules to prevent businesses buying either low value everyday items or one off purchases to inflate their costs beyond the 2% and avoid the increased rate.

Who will it effect?

The new change will increase the VAT bill of businesses that are labour based and which spend little on goods. Examples of the kind of businesses that may be affected are IT contractors, consultants and construction workers who supply their labour but are not responsible for purchasing the raw materials.

What do I need to do?

As business owners, it is your responsibility to ensure the correct flat rate scheme percentage is used on each and every VAT return. HMRC have published a tool to find out whether you meet the “limited cost trader” criteria:

https://www.tax.service.gov.uk/check-your-vat-flat-rate/vat-return-period

If you meet the definition of a limited cost trader and staying on the flat rate scheme means an increase in your VAT bill, you may wish to consider moving to the standard VAT scheme. It’s straight forward to do, ask your accountant for further details. Alternatively, if viable for your business, another option would be to consider de-registering for VAT. Seek advice from your accountant and whether it is beneficial for you to do so.

Can I still claim my first year discount?

If you are still within the first 12 months of VAT registration, you will still be eligible for the 1% first year discount. This would mean that you are still on the most tax efficient and simplistic scheme to calculate your VAT liability.

Need help?

For further advice on how the changes may affect your business, please contact us on 01386 366741. Alternatively, you can find further information on HMRC’s website: https://www.gov.uk/vat-flat-rate-scheme/overview

What is it??

MTD (Making Tax Digital) is the government’s new initiative to transform the current tax system into a fully digital system which will be implemented between 2018 and 2020. It is intended to make it easier for individuals and businesses to get their tax right and keep on top of their affairs – meaning the end of the annual tax return for millions of us. It affects everyone with a turnover of more than £10,000 per year – businesses, self-employed people and landlords with turnovers under £10,000 are exempt from these requirements.

Taxpayers will be required to keep digital records and send HMRC quarterly updates plus a final submission at the end of the year. This means using either an app or an accounting software package to submit your data directly to HMRC.  This is not the same as submitting a tax return online, many of us have been doing that for years. The distinct differences are below:

• Bank transactions and other financial information will flow automatically into taxpayers’ digital tax accounts, whether or not they declare that income or those expenses.
• Submissions will need to be made at least quarterly
• Submissions need to be made using accounting software or an app that is integrated to your digital tax account

Digital tax accounts will mean that taxpayers can see the information that HMRC holds and be able to check at any time that their details are complete and correct. It will also mean that taxpayers will not have to give HMRC information that it already has, or that it is able to get from elsewhere – for instance from employers, banks, building societies and other government departments.

Going digital will mean that taxpayers will no longer need to wait until the end of the tax year to know how much tax they should pay. HMRC will collect and process information affecting tax as close to real time as possible, to help prevent errors and stop tax due or repayments owed building up.

These changes are being introduced gradually from next year:

• April 2018 – unincorporated businesses including the self-employed that have an annual turnover above the VAT threshold (£85,000 from April 2017).
• April 2019 – unincorporated businesses including the self-employed that have an annual turnover below the VAT registration threshold.
• April 2019 – those who are registered for and paying VAT
• April 2020 – incorporated companies who pay corporation tax.

Individuals in employment and pensioners will not have to use the digital service unless they have secondary incomes of more than £10,000 per year from self-employment or property.

HMRC state that support has been planned for those who cannot file digitally. They recognise that for some, digital is genuinely not an option and where this is the case, an alternative will be provided. However, no details have been published yet as to how HMRC will deal with those who struggle with IT or do not have access to reliable internet or phone signals.

What do I think?

I’m yet to be convinced that Making Tax Digital will reduce the administrative burdens on business, particularly small businesses. Without doubt, the role of accountants will change and it’s highly likely that their role will become more of an essential advisory one rather than an annual compliance one.

Very simply, yes. There are financial penalties for filing your self assessment tax return late and for late payment of any tax due.

One Month Late

If you fail to submit your self assessment tax return to HMRC by 31 January each year you will receive an automatic late filing penalty of £100 for missing the deadline. Most taxpayers are aware of this but many do not realise that the penalties keep coming! On top of the £100 late filing penalty, there is a 5% interest surcharge on any tax due from that tax return which hasn’t been paid within 30 days (by the end of February).

Three Months Late

If you you have still not filed your tax return within three months (by 30 April) daily penalties start to kick in for late filing from 1 May at £10 per day for up to 90 days (up to 31 July), so that’s a maximum of £900.

Six Months Late

If your tax return is still outstanding by the end of July, you’ll face a 3% interest surcharge of any tax due or £300, whichever is the largest amount, simply because your tax return hasn’t been filed. On top of this, if the tax due remains outstanding then there is a 5% surcharge on the amount of tax outstanding.

Ouch!

Failing to file your tax return is very costly with penalties of £1,600 or more over the first 12 months from the filing date!

Other considerations

If you’re claiming tax credits, you will need the figures from your tax return in order to complete the annual renewal by 31 July. If you don’t complete the renewal process HMRC may stop your payments.

It’s not just about the money. Even if you pay HMRC a lump sum to cover your tax bill, if your tax return is still outstanding then the financial penalties still continue for late filing.

Can I appeal?

Yes, if you have a “reasonable excuse” but HMRC have a very narrow definition of what a reasonable excuse is.

Contact Us

If you would like help or advice without obligation, please get in touch on 01386 366741 and we will be happy to advise free of charge.

Making Tax Digital (MTD) has been removed from the Finance Bill 2017, along with other clauses due to the forthcoming General Election. Public Bills cannot be carried forward into a new Parliament so they must either be scrapped or passed before the General Election takes place.

The Finance Bill cull has been nothing short of shambolic, leaving taxpayers in limbo and important provisions being dropped at the last minute, despite all the work that has gone into finalising the legislation.

It is very likely that this is only a temporary measure and I do not believe that it is the end of MTD. The dropping of MTD from the Finance Bill may not even delay its implementation date of 1 April 2018, we will have to wait and see if it will be pushed back. Whatever the outcome, I am confident that MTD will resurface in the near future and that the UK will move to a fully digitised tax system sooner rather than later.

Sarah

Looking to cut down on your accountancy costs? Here are our Top Tips on how to avoid more than you need to!

1. Go Paperless by Using Cloud-Based Accounting

There are a number of cloud based products and apps available to reduce the bookkeeping burden, making it easier for you to keep on top of your finances wherever you are. Cloud accounting increases efficiency for both you and your accountant. At AO we only use Xero, just because it’s really great.

2. Keep track of your expenses.

Always obtain a receipt for every purchase you make. If you can’t get a receipt for any reason, make a note of the purchase details and the reason why a receipt isn’t available. When entering your expenses into your accounts, make sure each item is categorised correctly, i.e. telephone, rent, stationery etc.

3. Keep Personal & Business finances separate.

Wherever possible, avoid mixing the two up because it can make the accounting more difficult. It’s easier to keep track of what you’re spending within your business if you only have one type of expenditure going through your accounts.

4. Avoid cash wherever possible.

With the technology available today, it is easier to make payments electronically from literally anywhere. It is harder to keep track of cash spending and often records of purchases are missed. By using a debit or credit card you can keep track of the amount spent, where it was spent and what it was spent on. This makes tracking your expenses far easier.

5. Set money aside for your tax bill.

Keeping on top of your financial records efficiently and in a timely manner can help you prepare for your tax bill early on so that you know exactly how much you need to pay later on. It’s good practice to set aside some money every month towards paying your tax bill so that you’re prepared for the payment.

6. Update your records regularly.

For most small businesses, updating your financial records is only a 5-10 minute job each day. Enter your sales and purchase invoices as you generate/receive them. Reconcile your bank account daily or at least weekly so that you know exactly what funds are available and what transactions have taken place.

7. Financial Agreements.

If you take out a bank loan, finance or hire purchase, make sure you keep a copy of the agreement and pass a copy to your accountant so that they can account for the purchase correctly and ensure tax relief is claimed.

8. Check your Books before handing over to your Accountant.

Always check your financial records before you hand them over to your accountant. As a taxpayer, you have a personal responsibility to ensure that your records are correct. Have you included all of your purchases, including cash transactions? Often regular standing order or direct debit payments are overlooked. Have you included receipts wherever possible? Are all of your bank transactions accounted for? Are all of the documents that your accountant requires available? If your accountant has to chase you for outstanding information it may cost you more in fees. Your accountant can work far more efficiently if they receive all that they need in one go rather than receiving varying amounts of paperwork sporadically.

9. Hand over your documents in plenty of time!

Make sure you give your accountant plenty of time to prepare your accounts and tax return and let them have all of the relevant information as early as possible. Most accountants will have a deadline for receiving your financial records in order to complete your tax return in advance of the filing deadline. If your tax return is filed late you will receive a £100 late filing penalty from HMRC.

10. If in doubt, ask.

Your accountant should be approachable and willing to help with any query that you may have. Ask them for assistance if you are unsure of how to process a transaction, it’s what you pay them for.

With over a million subscribers, Xero is a leading online accounting system designed for small business owners. It’s easy to use and the ultimate hassle free way to run and grow your business. With real-time access to your financial information, you’ll always have the numbers whenever or wherever you need them.

Here are our favourite ten reasons why you should invest in Xero:

 

1. Dashboard

The dashboard displays a snapshot of your organisation’s financials and transactions entered in Xero. So if you are sat on the train or waiting to go into a meeting, you can log in and see what money you have and what is due to come in or go out of the business account. You can customise the dashboard to suit your needs.

2.Bank Feeds

Direct bank feeds automatically import account transactions into Xero from your bank on a daily basis. This is a fantastic feature which simplifies the process of reconciling money coming in and out of your bank.

3. Bank Rules

Bank rules are a great tool which can really help to speed up the bank reconciliation process. They’re perfect for recurring payments such as standing order or direct debit for which there is no invoice to enter into Xero. Simply specify the amount and what the payment relates to and Xero will process this entry for you each time it appears in the bank account.

4. Expenses

There is no easier way to keep track of your expenses! You can record and claim expenses online or snap receipts on the go with the mobile app so nothing is missed. All done in a couple of clicks and no need to keep the paper receipt.

5. Xero App

Work while you’re on the move with the Xero mobile app. Reconcile, send invoices, capture expenses and look up contact details wherever you are.

6. Recurring sales invoices

If you’re invoicing customers on a regular basis for the same amount, you can set up a repeating invoice and let Xero do the hard work for you. Xero will automatically create and email the invoice to the customer for you whenever you need it to.

7. Payment Services

Accept online payments by adding a payment service to Xero. When you email an invoice, your customer can view it online and use the payment button to pay you securely using your payment service. This is great for speeding up customer payments!

8. Xero to Xero

If your customers and suppliers also use Xero, invoices and bills can be sent directly to each other’s Xero account by sharing your Xero network key. Xero really does simplify the invoicing and billing process and with over a million subscribers, it’s likely you’re already dealing with another Xero user!

9. Customer Invoice Reminders

This is great for keeping on top of your cash flow. Invoice reminders allow you to automatically send your customers an email reminder about their invoice, speeding up the payment process.

10. File Upload

You can scan and upload invoices, purchase orders and more, all of which will be securely stored in the Cloud. You can upload documents or email them directly to your Xero account. The documents can then be attached to your accounting transactions in Xero so you’ll always have easy access to the information without the need for storing paper copies.

6 July is the deadline for filing the P11D to HMRC but what is it?

The P11d is a statutory form required by HMRC from UK based employers to detail the cash equivalents of benefits and expenses that they have provided during the tax year to directors and employees.

The basic rule is that if you provide an employee with anything other than pay it may count as an expense or benefit, and you will need to check whether you need to report it to HMRC and pay any tax or national insurance on it.

Who completes the P11d?

The company, as an employer, is responsible for preparing a P11D. When completing form P11d you must enter the total value of the expenses and benefits in various categories that you provided to your employee during the tax year.

What sort of expenses and benefits are included?

• Company cars
• Company car mileage allowances and fuel
• Company vans provided for private use
• Private car mileage allowances and fuel
• Motorcycles provided for private use
• Payments for use of home telephones
• Mobile telephone usage and reimbursements
• Private medical insurance
• Subscriptions and professional fees
• Living accommodation
• Credit Card payments
• Interest-free and low interest loans
• Assets transferred
• Assets placed at the employee’s disposal
• Employer supported childcare
• Other benefits or expenses such as childcare costs, spouse or partner expenses on business trips etc

Key dates

You must make sure that you give your employees a copy of the information from their P11D or P9D no later than 6 July. Payment of any Class 1A NICs owed on expenses or benefits you’ve provided must reach HMRC’s bank account by 22 July.

Exemption

You don’t have to report some routine employee expenses to HMRC. This is called an ‘exemption’ and business expenses such as travel and subsistence, business entertaining and professional fees and subscriptions do not need to be reported on the P11D. However, these expenses can only be reimbursed at the actual cost incurred or repaid using an approved HMRC rate.

Penalties

If you fail to meet the filing deadline of 6 July, you won’t incur penalties straight away. However, if the P11D isn’t filed by 19 July the employer will incur fines of £100 per month (or part month) per 50 employees.

YES. Sorry to be the bearer of bad news! As an employer, any staff you employ in your hairdressing salon will have to pay income tax on tips they receive, and national insurance sometimes too, it depends on who actually receives the tip and how it is actually received.

Here’s our 5 Top Tips all about…wait for it…tips!

 

1. Cash tips paid directly to your staff

Here’s a little good news! If your staff receive cash tips directly from customers, they have to pay tax on them but not national insurance. If they complete a Self Assessment tax return, they need to include the tips on it. If they don’t fill out a tax return then HM Revenue and Customs (HMRC) will estimate their tips based on information from you as their employer.

HMRC will give you a tax code so that any tax is collected through the payroll and deducted from staff wages before they get them.

 

2. Tips included in card payments

If your customers include a tip when paying by card, which is intended for the member of staff who provided the service, the tip is paid directly to you, the employer. You, as the employer, are then responsible for making sure income tax is paid through the PAYE system.

Sometimes the tips are pooled together and shared out – this is called a ‘tronc’. The person who looks after it is called the ‘troncmaster’ and they are responsible for making sure income tax is paid. You have to tell HMRC if there’s a tronc and who the troncmaster is.

As the employer, if you decide how the tips are shared out, national insurance is due as well as tax. You’re also responsible for making sure it’s paid through PAYE.

 

3. Bonuses

You’ve had a really busy month at the salon and you’ve decided to reward your staff with a bonus as a sign of appreciation for their hard work. Bonus payments are treated as part of your member of staff’s pay and they will pay tax and national insurance on the amount paid to them through PAYE.

 

4. VAT

Tips are outside the scope of VAT when genuinely freely given by customers. It doesn’t matter if they’re paid by cash or card, they’re not subject to VAT.

 

5. Tax Credits

Any tips received by staff will be considered as income for tax credit purposes. HMRC now uses the information provided by employers on their Real Time Information PAYE submissions as part of the tax credits renewals process. These submissions do not show cash tips, so unless staff declare these themselves, it is possible that their tax credits award will be too high which could result in recoverable overpayments and possibly a penalty.

We love working with hairdressing and beauty salons, helping them achieve their goals and setting them on a secure and tax efficient road for the future. You’re a creative and enthusiastic bunch, just like us, that’s why we’re a great fit. If you’re operating your salon through a limited company, then we’d love to work with you!

You can benefit from our wealth of experience within the industry, whilst we take care of all of the financial aspects of your salon. We know you want to focus your efforts on growing your salon and serving your clients so we’ll free up your time and make life easier for you.

We embrace modern technology. It’s clever stuff and helps us do our job better but it makes running your salon much simpler for you too. We’ll work with you closely throughout the year, using the very latest software and the financial data that we have at our fingertips, to help you make better decisions about the future, so you can grow your hairdressing salon and your profits. That’s what we do, it’s what we love!

Let’s chat

If you think we could be what you’re looking for or you’d simply like to find out more about us, please contact us to arrange a Discovery Call. It’s the first opportunity to get to know each other.

We’ll ask you a few important questions to make sure we can provide you with the service you’re looking for. Having a think about the following questions, they might seem a little intrusive but it’s to make sure we really understand your goals and challenges, so that we can maximise the value provided to you:

• What is important to you in your life?
• What would make this year a great year personally?
• What would you need to achieve in your business to achieve those goals?
• How can we help you to get there faster?
• What information would you need from us to know you’re on track in reaching those goals?
• How can we best help you to stay on track?

We’re sure you have lots of questions for us too and we’d be delighted to answers any queries you may have.

If after our initial conversation you wish to proceed further, we can arrange a Proposal Meeting, this can be done via video call or face-to-face, whichever suits you best. At our Proposal Meeting, we will agree the level of service to be provided, make recommendations and of course confirm the cost of those services.

If you wish to sign up, you can do so there and then at the Proposal Meeting using our slick proposal system. It’s that simple and hopefully this is the start of a great partnership with exciting times ahead!

Onboarding

Once you’re all signed up, we’ll begin working with you straight away. We’ll be in touch on a regular basis to make sure you have a smooth and efficient introduction. We’ll be finding out as much as we possibly can about your business and identifying where we can add most value. We’ll also take care of the set up of your new software and provide you with any hands-on training that you may need in order for you to get to grips with the range of apps we offer. You’ll have lots of opportunities to ask any questions that you may have.

We’ll continue working closely with during the year and you’ll be invited to attend webinars and workshops specifically aimed at the hairdressing industry during the year. You’ll also have access to our dedicated Facebook community, where you can share experiences with like minded business owners.

 

If you think that we could be the right fit for your hairdressing salon, or if you’d simply like to find out a little more about us and what we do, please give us a call. We’re always here to help and we’d be delighted to hear from you!

“Rent a Chair” is common place across the hairdressing industry. The salon owner will rent or hire out one of the salon chairs to a self employed hairdresser for an agreed period, who then utilises that space to serve their own clients. It’s a very popular way for salon owners to grow their business but there are also plenty of pitfalls so it’s important to plan in advance to avoid these:

1. Confirm the arrangement

There are three main types of arrangement to consider:

• Charge a flat weekly rental rate
• Share a percentage of the takings i.e. 60/40 split.
• A combination of both of the above 

Failing to agree the basic arrangement properly can lead to lots of problems down the line. Also consider the employment status of the hairdresser using the chair, in HMRC’s eyes, are they really self employed?  If they are a disguised employee then you will be liable for tax, national insurance and a great deal of employment legislation.

2.  Get a Contract

It’s absolutely essential to get a legal contract in place from the start so that both parties know their responsibilities and what is included in the rental charge. There is so much to think about!

• agree what days/hours the chair can be used
• agree the length of the contract – 1 year, 2 years? Also agree what happens at the end of the contract period. Can the contract be terminated earlier?
• what happens to clients appointments if the chair hirer is ill?
• who provides the hair products, towels and equipment?
• who actually takes ownership of the client?
• who is responsible for equipment damages or breakages?
• who is responsible for marketing and attracting new clients to the salon?
• does the agreed rent include laundry, use of salon receptionist, heating etc?
• agree the pricing – if the chair hirer prices are significantly less than salon prices, this may be an incentive for existing salon clients to move across to the chair hirer.
• how are client payments taken and who is responsible for managing these?
• how are tips managed and distributed?
• can the chair hirer sell their own salon products to their clients?

3. Get the right person

Whoever rents the chair space within your salon will not be a employee, therefore you will have limited control over their performance compared to your usual employees. Make sure they’re the right fit for the salon.

The chair hirer may wish to choose their own products, dictate their own working hours, set their own prices and possibly even attract a completely different type of clientele to yours, which may have an impact on your reputation. Make sure the hairdresser fits your salon both now and in the future. Watch them at work, obtain references and consider an initial probation period to make sure the arrangement is suitable for both parties.

4.  Insurance

The hairdresser hiring the chair should hold their own public liability insurance as a self employed person. If providing products and equipment under the arrangement, the salon owner should also make sure that the chair hirer is also included under their insurance policy as a contractor. In case things go wrong, it’s essential to make sure both parties are adequately insured.

5. Speak to your accountant

We couldn’t forget this one, could we?! Have a chat with your accountant to make sure that both parties account for the income and expenses correctly. Rent a Chair has a big impact on VAT so it’s vital that you fully understand what you need to do and that you’re doing everything correctly from the start.