Payments on account can be misunderstood, especially if you are newly self-employed. In simple terms, they help spread the cost of your annual tax bill.

People who submit self-assessment tax returns must make these payments twice a year.

In around six weeks (on 31 July), your next payment needs to be made, although this year you can defer it due to the coronavirus pandemic.

If the Covid-19 has left you with financial problems, you may defer the payment up until 31 January 2021. You can pay it at any time between now and 31 January 2021 without having to tell HMRC you are deferring.

We would recommend that if you can afford to you should pay as normal by 31 July.

What are payments on account?

Payments on account is a way for self-employed people to pay their tax bill. The amount is calculated by using last year’s tax bill.

To spread the cost you pay in two instalments. The first is made on 31 January and at the same time you make a ‘balancing payment’, clearing your tax bill for the previous year. The second instalment is due on 31 July.

You are given the sum you need to pay at the same time as you receive details of your January payment. This is calculated by HMRC using the details you present on your self-assessment tax return.

How does it work?

Each payment on account is usually 50% of your previous tax bill. The government’s website gov.uk uses this example:

Your bill for the 2018 to 2019 tax year is £3,000. You made 2 payments on account last year of £900 each (£1,800 in total).

The total tax to pay by midnight on 31 January 2020 is £2,700. This includes:

• your ‘balancing payment’ of £1,200 for the 2018 to 2019 tax year (£3,000 minus £1,800)
• the first payment on account of £1,500 (half your 2018 to 2019 tax bill) towards your 2019 to 2020 tax bill

You then make a second payment on account of £1,500 on 31 July 2020.

If your tax bill for the 2019 to 2020 tax year is more than £3,000 (the total of your 2 payments on account), you’ll need to make a ‘balancing payment’ by 31 January 2021.

Your payments on account include Class 4 National Insurance Contributions which, until a few years ago, were paid separately.

How to pay

Those completing self-assessment tax returns online have the opportunity to make their payment on account at the same time as their balancing payment for the previous tax year.

If your accountant completes your tax return they advise you of how much you need to pay. You can pay in a variety of ways and the government website explains how.

Reducing payments on account

The income of self-employed people changes each year. So if there is a tax year where you think your earnings will be lower than the previous one, you may apply to reduce your payment on account.

You can do this by logging into your HMRC account or sending a form SA303 to the tax office. You can always ask your accountant if you are unsure.

Think carefully before doing this because if it turns out that your income was the same or higher than the previous year you will likely have underpaid so will have a higher tax payment the following year.

Check your situation

We’re always happy to update our clients about their current situation. If, however, you want to check your own situation you can log into the Government Gateway to check your payments on account.

Once you have logged in (you can also register on the website) select the option to view your latest self-assessment tax return.

Then, click on ‘view statements’ and this will give you all the details you need. This includes payments you’ve already made and if you need to make others towards your next bill.

If payments on account worry you, why not contact us today for a no-obligation chat about self-assessment?

Lacking cash flow forecasts can cause real problems in a business. But many company owners don’t know how to prepare one.

In our last blog, we looked at how important cash flow is to a business. A forecast is a helpful tool to spot issues before they become problems.

Over the years since we set up to help small businesses in and around Newcastle, we have helped many of our clients with a cash flow forecast.

It’s not just small companies who prepare them. Large multinational firms are able to report the outlook to their shareholders using a cash flow forecast. It may sound scary but it’s worth doing.

Forecasting is done on several levels, but we share a simple version to help you understand the basics.

Preparing cash flow forecasts

Most business owners should be able to manage a weekly forecast by using software such as Excel. But it’s also a good idea to work on a rolling forecast, which will predict your position for the following 3 months.

If you have that information, it will make you aware of any problems 3 months in advance. This is crucial if you are a manufacturer. Due to the length of time it takes to sell and build products cash can be tied up on working capital.

Using a rolling cash flow forecast means you update what cash you have available at least once a week. Being able to watch your cash position mean you can spot and handle issues in plenty of time.

Any business that ends up with a crisis is probably not being managed as well as it should be.

Bills and overheads

The overheads of your business are faulty easy to predict over the 3 months. Rent, rates, insurance, etc are costs barely change from month to month. Wages are also pretty similar over a 3-month timeframe too.

Look at your past three bank statements to see what regular fixed costs you have to pay. Check invoices or purchase orders so you know what else needs paying.

Predicting sales with cash flow forecasts

Overheads are pretty simple to predict whereas sales can be more difficult. Manufacturers usually have several quotations out with customers at any one time. Using experience, it should be fairly straight forward to accurately predict how many of them turn into firm orders. They know the length of the manufacturing cycle and the terms of the sales. Using this information will help you predict when you will receive cash from the sales.

Retails or wholesalers that sell on an immediate basis can use historical data to predict their sales. Checking figures with the same week the previous year and adjusting them for your current customers will help your prediction.

Maintain your forecast

Set time aside each week to update your cash flow forecast. After doing that, add another week and modify it with any data that is likely to change, such as a customer telling you payments are being delayed.

Once you’ve inputted the new numbers you can see if it will make any difference to your cash flow over the coming weeks.

You can also add a profit and loss forecast to help you estimate how much tax you’ll pay over the next year too. The more details you have the easier it is to predict your forecast but these basic measures can help you.

If you’d like to discuss your cash flow forecast, you can contact us for more details.

Cash flow is vital to small businesses and is often one of the biggest problems business owners face.

Even before coronavirus, problems getting paid on time was a major issue with some business groups campaigning against late payments. In fact, QuickBooks’ most recent The State of Payments report reveals 44% of customers do not pay SMEs on time.

It says that 38% of SMEs have had cash flow problems that have left them unable to pay their debts.

Most problems for UK businesses are caused by late payments. But falling sales and a lack of thorough cash management also play their part.

What is cash flow?

Cash flow is the total, or net, amount of money being transferred into and out of a business. It can be in physical cash or in other ways, such as bank transfers.

As a business adds to its cash flow it indicates that the company is adding to its reserves. This allows it to reinvest in the company or pay money to shareholders or to pay debts.

Cash flow includes all the cash generated by a company’s main business activities. At a basic level, is the business’s ability to create value for shareholders.

In simple terms, there should be more cash flowing in than flowing out! Cash flow is an important measure of the health of your business but it should not be confused with profit.

Late payments

According to a study by SME Loans, 78% of small businesses have to wait at least one month after their agreement terms before they are finally paid.

It also states that 40% of SME owners say that large companies are the worst offenders.

The Department for Business, Energy & Industrial Strategy says 24% of businesses of all sizes say late payments threaten their survival.

Late payments contribute to 50,000 small business failures a year. As well as the amount owed, it costs businesses three days a month to chase money they are owed, which is about £5,000 in working hours.

The key to success

Cash flow is key for all businesses, which is why late payments cause issues. Without the cash flowing in it is impossible to buy stock or invest in vital equipment.

It can also have an impact on the company’s financial risk profile, which may affect its ability to borrow and raise funds.

How to solve cash flow issues

• The first thing to consider is what you’re spending. If your cash is flowing out more than in, check what you’re buying. It might be tempting to purchase new equipment that you don’t need, or to buy in services that you cannot afford.
• Next, look at your customers’ ability to pay on time. If that’s the case you need to improve your credit control processes. If you do not have the time or resources to do this, then consider outsourcing the task to an expert firm. Sometimes paying for their services is covered by fewer cash flow problems.
• What are your credit terms for customers? If they are out of sync with your suppliers’ terms you can often end up with a cash flow problem. If your suppliers want paying in 14 days but your customers’ terms are 30 then try renegotiating so they are the same.
• Profits are not cash flow, but they do affect it. If you’re not making enough profit you will run out of cash. So consider your prices, increase sales or control your expenditure.
• Lack of cash flow forecasting is essential. We can create these for customers but if you want to try yourself, we will give you some advice in our next blog. Forecasts highlight a lot of issues and if you can see the bigger picture it can help you with your cash flow.

Apart from these basic measures, there is a range of ways solve can flow issues. so if you would like our help don’t hesitate to contact us today.

The Coronavirus Job Retention Scheme is available to businesses that stopped working due to the lockdown or from the loss of business.

From Monday, (20 April) business owners who have decided to furlough staff will be able to make claims under the scheme.

And in the past day, the government has released more information about how it will work. They have also announced some revisions.

There will no doubt be a surge in demand as business owners head to the HMRC website. So be prepared to avoid delays to your application.

Coronavirus Job Retention Scheme changes

The scheme is for businesses losing work or closing due to the coronavirus pandemic.

Rather than make employees redundant they can furlough those workers until they can return to work, although the scheme is initially for only 3 months.

When originally announced, business owners could only claim for those employees who were working for them up to and on 28 February 2020. This led to some workers missing out because they were caught between jobs.

So the government this week announced that those who were employed on or before 19 March 2020 will be eligible for the scheme.

Businesses can pay these employees and then claim 80% of their wages from the government, up to a total of £2,500 a month.

It is up to each business owner or directors to decide whether they only pay the 80% they can claim back or pay the extra 20% so employees don’t lose anything.

How to make a claim

HMRC has published details of the job retention scheme in the past couple of days. It launches on Monday and you will not be able to prepare a claim before that date.

In fact, the website hasn’t been updated so there is nothing you can do until then. But on Monday you will be able to use the website for claims.

You can only claim online and only business owners can claim, not your accountant. The service also calculates the amount you can claim.

What will I need?

Before making a claim make sure you must:

• Have a Government Gateway ID and password – if not then register on the HMRC website.
• Be enrolled for PAYE online – if not, visit the PAYE page on the HMRC website.
• Have the following information for each employee – name, National Insurance number, claim period and amount, PAYE/employee number

Ask your ‘agent’ (usually your accountant) to claim if they are authorised to act on PAYE matters.

If you are a Concept Accountancy client, then contact us if you need help or want us to make your claim.

You need to inform us about which UK bank account the grant should be paid into. And make sure you keep records and calculations for your claim.

Many questions on the Coronavirus Job Retention Scheme and other measures are answered on our recent FAQs blog.

Self-Employment Income Support Scheme

Guidance has also recently been updated regarding the Self-Employment Income Support Scheme.

As with the Job Retention Scheme, this is for the self-employed who lost work as a result of the pandemic. Like furloughed employees, you will be paid 80% of your average turnover in a lump sum in June.

HMRC says it will use figures from your past 3 years (or up to if started your business within 3 years) tax returns for your total trading income, or turnover. They will then deduct allowable business expenses and capital expenditure.

That figure will be used to work out your average turnover. A full range of examples has been drawn up by HMRC here.

As Covid-19 continues to grip the country more people are looking for reassurance around what support there is for business.

While we featured this in a blog early last week, there were further announcements at the end of the week.

There were also a lot of questions from business owners about what the announcements actually meant.

Accountancy firms and tax advisers will be advised at some point soon but until then we can only highlight the measures that matter to most businesses.

Covid-19 support so far

This list of measures looks at the announcements that were either new or updated late last week:

• A coronavirus Job Retention Scheme
• Deferring VAT and Income Tax payments
• A Statutory Sick Pay relief package for SMEs
• A 12-month business rates holiday for all retail, hospitality, leisure and nursery businesses in England
• Small business grant funding of £10,000 for all business in receipt of small business rate relief or rural rate relief
• Grant funding of £25,000 for retail, hospitality and leisure businesses with property with a rateable value between £15,000 and £51,000
• The Coronavirus Business Interruption Loan Scheme, offering loans of up to £5 million for SMEs through the British Business Bank
• A new lending facility from the Bank of England to help support liquidity among larger firms, helping them bridge coronavirus disruption to their cash flows through loans
• The HMRC Time To Pay Scheme

Here we look at some of those announcements to clarify some points.

The Coronavirus Job Retention Scheme

Looking at this, it appears that this is aimed at supporting up to 80% of the salary of somebody that would have otherwise been laid off as part of this crisis up to a maximum of £2,500 per month – these are classed by HMRC as ‘furloughed workers’.

It is not aimed at those staff who are still working and working from home.

There will be no doubt further measures to be introduced to reduce the risk of this support from being abused.

Small Business Grant Funding

The small business grant funding of £10,000 for all businesses is for those in receipt of small business rate relief or rural rate relief.

There has been conflicting advice given around this so far that whilst it seems to suggest that the eligibility is very broad, there are likely to be restrictions elsewhere.

Some of the media report that it ‘up to’ £10,000 and not every business will receive it. The truth is that while such measures are announced at press conferences, the finer details do not always come out until a week or two later.

At the moment, local councils, who will administer these scheme, are still being briefed by the government. Once that has been completed we will know more, but it is clear that there is not an application process. If you qualify, you will simply receive the grant.

However, we will keep you posted and advise that you wait until an official announcement is made about how this will be administered.

For more detailed guidance around any of the above please click here.

If you want to speak to us about your business, contact us now.

Last month we looked at turnover and profit and explained the difference between the two. If you have a good turnover but poor profits, your business isn’t running as well as it might.

If your business is more profitable it is more likely it can cope better if you experience any downturns or unexpected events.

Having more profits means your business also has the cash to invest in new equipment, products or staff.

Being an accountant in Newcastle means we understand that market conditions can often affect this region more than other areas of the UK. But higher profits will help you weather storms better.

If you want to increase your business’s profits, here some ways that can help:

Cut what you spend

How can I reduce business expenditure? The first thing you need to look at is your outgoings. It sounds easy, but without having a proper review you may be spending something that’s unnecessary

For example, could any of your suppliers reduce their prices? Are you paying for services that you’re not using?

If you are a member of a professional body but never utilise their service, then it’s wasted cash. Cutting non-essential spending can increase your profits.

Are you efficient?

Are you spending time doing something where there are quicker processes? This could be affecting your profits.

For example, can an online bookkeeping app save time? Review your finances regularly too. If your mobile phone contract is up for renewal, don’t ignore it. Use the opportunity to ensure you are getting the best deal.

Again, it is a simple process but one that could be costing you money and impacting your profitability.

Prices mean profits

When was the last time you reviewed your prices? If you haven’t changed them for years you are likely to be underselling your goods and services.

It is acceptable to ask a client or customer for more if your prices haven’t kept up with increasing costs. Think about the last time you went to the supermarket to find a product price had increased!

You could try introducing small increases over time rather than a big hike to ensure it isn’t a big shock to your regular clients. And be clear about why you’re raising prices!

If inflation means production costs or prices in the supply chain have risen, let your customer or client know. It helps them understand why you have increased prices.

Up-sell or cross-sell

Your current customers are also your best customers! If someone is enjoying using your products or services, the chances are they will continue to use them.

If you offer a more premium product that offers a higher margin, then why not encourage them to choose that instead. That is up-selling!

If you offer a service that complements what you do (such as a photographer offering a framing service) why not introduce your customer to it?

If it complements the original service you could sell more and that could mean more profits.

Increase customers

Another straight-forward suggestion but one that will increase your profits!

If you have more customers you will increase your turnover. And if you have priced everything properly and you’re not absorbing the cost of new customers, your profits will increase.

Work out any increases in salary should you need to employ a new salesperson.

Also, consider the cost of bonus structures to encourage your sales team to sell more. That way, they will want to increase their sales and, in turn, it will show in your profit and loss account.

Look at what you offer and add new lines or services too. The cost of adding them may not be much more but your profits can increase.

Greggs decided to appeal to a new market when it introduced the vegan sausage roll. As a result, they increased customers and profits by appealing to a different market.

There are many ways to increase profits in your business and no list is exhaustive as each company is different.

If you would like more information, then contact us at Concept Accountancy.

Profit and turnover is something business owners love to brag about. But there is a big difference between the two.

Owning a business with a great turnover sounds impressive. But what really matters is how profitable a business is.

If the turnover sounds substantial but is smaller than what’s owed to suppliers, then the business may not be as healthy as it sounds.

Thomas Cook’s turnover was almost £10bn when it collapsed in September 2019. Its debts were almost £2bn and it was still paying out salaries, etc. and had to pay into a pension pot.

So, the turnover figure didn’t really reflect the health of the business. It was losing money quickly and couldn’t pay its debts.

As a result, investors were nervous and it couldn’t find anyone willing to finance its future.

So what is turnover?

In accountancy, turnover is how much a business makes in cash sales during a specific period, usually a tax year. The sales can be in cash, credit or debit card transactions.

Usually, turnover refers to net sales, which are sales after discounts, returns or allowances.

Your gross sales figures are what you have taken before such discounts. So, if your business doesn’t give discounts or refunds, then the figures may well be the same!

If you keep accurate financial records (and you should for your tax purposes) it should be easy to add your total sales together. The resulting figure is your turnover.

And what is my profit?

Have you heard the saying about turnover being vanity while profits are sanity?

Profit is how much money your business makes after you take away the cost of doing business.

For example, if you have made £10,000 profit you need to then subtract how much it cost you to make that money. This includes items such as overheads, buying supplies, travel, etc.

There are three types of profit too! Your profits are reported as being gross, operating or net. So, what is the difference?

Gross profit: This is sales less the cost of goods sold. What that means is you’ve taken into account, or subtracted the expenses that were needed to produce the goods and services needed.

Operating profit: This is your gross profit minus operating expenses. These expenses are the likes of your overheads, such as rent and heating.

Net profit: This is your operating profit less your taxes and interest from any loans.

Turnover and profit

Both turnover and profit are ways to measure the earnings of a business. Turnover is a measure of the earnings without taking the costs into account.

Profit is the earnings of a business after costs. You can think of profit as the money your business gets to keep after spending on all your necessary expenses.

Those expenses can be the cost of wages, suppliers’ costs and overheads such as rates or rent.

If you fail to make profits, then your business will struggle or you will need to look at other means to raise the funds necessary to run your business.

But remember, the interest on any loans or credit then becomes one of those costs, and they can build up, as happened to Thomas Cook!

If you are a business owner looking for no-nonsense advice about your financial position and your accounts. We’re based in Newcastle but we deal with companies across the North East.

Contact us today for more information.

Bookkeeping is an essential job when running a business. It’s part of the process in accounting and involves recording financial transactions.

Many small business owners, particularly sole traders or small companies, may find bookkeeping to be a real chore.

But without it, you won’t know what’s happening in your business financially.

At Concept Accountancy, we offer bookkeeping services like many firms in Newcastle. But it is a different service to accountancy.

For anyone new to business or who confuse bookkeeping with accounting, let me explain what you need to know.

Is there a difference between bookkeeping and accounts?

Bookkeeping is the regular task of recording and monitoring the financial transactions of your business. It is usually carried out by a qualified bookkeeper in accountancy firms like Concept.

Accountants tend not to carry out bookkeeping because their specialism is in interpreting and analysing the financial data.

But if that data isn’t recorded correctly, an accountant will have real problems analysing the data. This is where bookkeepers come into their own as they monitor the cash that’s coming in and out of the business.

Let us say you are a small business or SME in Newcastle and need to know how healthy your business is.

If you haven’t kept bookkeeping records correctly you won’t really understand why your bank balance stands at any particular time. Just looking at the cash in your bank doesn’t always tell the full story.

Some business owners will keep their own books, but many will employ the services of bookkeepers.

Many are individual specialists but here at Concept Accountancy, we offer a bookkeeping service. So what do you need to record?

The essentials

Bookkeeping is, as we have said, a way of tracking and recording the numbers in your business. It is essential and good bookkeeping allows you to track the performance of your business.

Correctly recording the data makes it easy for an accountant to assess your business and it means you will always pay the correct taxes.

The person or people responsible for bookkeeping will look after, among other things:

• Expense payments to suppliers
• Loan payments
• Customer payments for invoices
• Monitoring asset depreciation
• Generating financial reports

Why does it matter

You need to keep up-to-date records of what cash is coming in and out of your business so you know what you’re owed. If you know that you will know if you have enough money to pay what you owe, whether that’s bills or for staff or contractors.

Recording transactions

To keep tabs on financial transactions that happen daily, you need to record them into your accounting system. Although that’s often digitally these days, they’re still known as books.

For each transaction, there must be a document that describes the business transaction. This can include a sales invoice, sales receipts, supplier invoices, bank payments, etc.

The documents provide an audit trail for your transactions and are an important part of maintaining accurate records. These records help your accountant understand the strengths and weaknesses of your business. They also ensure you don’t over or underpay HMRC!

Traditional way

As already mentioned, the name goes back to the days when physical books were used to record transactions.

Each transaction created a paper-trail of finances and it traditionally involved ledgers, charts of accounts and a double-entry system.

Double-entry is based on the fact that every transaction has two parts, which affects two ledger accounts.

Each transaction involves a debit or credit entry in an account. It is very much like an error-detection system and if, at any point, the sum of debits doesn’t quite equal the corresponding sum of credits, there is an error in your books.

Debits are the sum owed and are recorded on the left side of the double-entry book. Credits – such as income and other financial gains – are recorded on the right side.

Modern way

For anyone who dislikes the idea of buying hard-backed books, don’t worry! Technology means bookkeeping is a lot easier than it used to be.

Software has been developed over the years which allows transactions to be tracked simply, even via smartphones.

You may have heard of Xero or Quickbooks. These and other platforms allow you to keep records without fearing you may lose the receipt or piece of paper given.

At Concept Accountancy, we are official partners of Xero or Quickbooks, but we also work with other types of bookkeeping software as each offer something different to the user.

Whether you use paper or software, bookkeeping is something you can’t ignore. If you’re still unsure or want to know more about our bookkeeping services, you can contact us today for details.