Topical Issues

Interest on Beneficial Loans14 Mar

The official rate of interest on Beneficial Loans changed on 1st March 2009 to 4.75% ( previously 6.25%)

The Average Rate for 2008-09 is 6.10%

When an employee receives a cheap or interest free loan from their employer, this is the rate of interest used to calculate the value of the benefit provided.

The loan interest is then detailed on the form P11D at the end of the tax year, along with any other benefits such as Car and Fuel.

Topical Issues

Problem Paying your Tax14 Mar

In November 2008, H M Revenue & Customs launched a new dedicated Business Support Service.

It is designed to help businesses affected by the current economic climate. HMRC will review each business and discuss options such as arranging for payments to be made over a longer period. However, they will only deal with new enquiries – if you have already made arrangements you should contact the office you originally dealt with.

The service is available 7 days a week. They will need your Tax Reference, details of Tax due and basic details of your business income and outgoings. Interest will continue to be payable but no late payment surcharges will be added.

DONT’ WAIT UNTIL YOUR PAYMENT IS OVERDUE.

Contact them now on 0845 302 1435

Topical Issues

5 good reasons you should use online accounts packages13 Jan

aileenpic

Web based accounting is a relatively new phenomenon where the user can access and use a complete accounts package, through a customised web-site usually hosted by their accountancy provider. Following a good deal of research, the team here at FAB have identified Liberty Accounts as the best system currently on the market. We have come up with 5 key reasons as to why this might be just the solution for anyone considering changing from their existing system, or upgrading from a manual system.

1. No upfront cost or upgrades.

Unlike buying traditionally boxed software, there is no upfront cost with this option. You pay a small monthly subscription, which is scaleable depending on how much of the system you want to use. Because it is web-based, you are always on the latest version of software, so you never need to worry about being forced onto the next upgrade. All you need to start is a typically configured computer (Windows, Mac, Linux etc), with internet access.

2. Scaleable to grow with your business.

There is a pretty exhaustive list of features available, but many small businesses or start-ups may only wish to use a few of them to begin with, say raising sales invoices, or posting purchase invoices or bank transactions. As your confidence or your business grows, you can add on the bits you need e.g. stock, a fixed asset register, payroll. You can even file your VAT on-line!

3. We can see exactly what you see, so we can help immediately.

With this system, both accountant and client can access the same accounting information. You can opt to do as much or as little as you like. Some users might prefer to do just the basic data entry of invoices and bank transactions and let the accountant do all the VAT and the “clever stuff”. At the end of the year, there is no need to any backing-up and sending of data files as all the data is stored via the web browser, so we can access your data remotely (or at your office) to perform month-end and quarterly routines.

4. Easy to use with multi-user access.

Because Liberty Accounts is delivered as a service over the internet, it is inherently networked, available for any authorised user to have access wherever they are. With a lot of accounts packages, there is a charge for additional users

5. 100% security and back-ups

The system works over dial-up speed networks so if you have access to a wi-fi link you can use it while you’re on the road and be confident that your business data is secure, whatever happens to your laptop. We ensure that your data is stored in a way which minimises the risk of data loss. Daily backups are kept offsite and we regularly test restoration of those backups.

Sounds interesting? Call us today for more details, or e-mail us at: accounts@fabaccounts.com

Topical Issues

New Car – Lease or Purchase ?08 Jan

juliepic

Cars are a significant cost to everyone, and we’re often asked what is the best way to finance them , so I thought I’d work through the numbers to see what are the different ways of sorting out your next car. The two options your going to see most commonly are either leasing a car or buying one.

Of course this guide is only really relevant to right here, right now as lots of considerations can change, i.e. tax rules, interest rates, market price of cars etc. As always if you need any help with this feel free contact us.

LEASING YOUR CARS

Pros
Cons
New car every 3 to 4 years Penalties if lease cancelled before end of the term
No hassle of selling when replacing Mileage restrictions
No huge repair/maintenance costs to fund (dependant on lease agreement) 50% of VAT charged cannot be reclaimed
Hi spec cars possible which are usually out of your budget
Low initial outlay

BUYING YOUR CARS

Pros
Cons
Full ownership Possibility of negative equity
Possible to make modifications Responsible for all costs after the end of warranty period
No mileage restrictions High initial outlay if not financed

EXAMPLE: VW Golf 2.0 Tdi 110 SE – Cost New – Approx £16000

BUY Loan over 36 month period – Approx £504 per month (inc interest £59.26)

LEASE Initial up front payment – 3 months £810 + VAT – thereafter £270 + VAT per month

AVAILABLE TO OFFSET AGAINST TAXABLE PROFITS

IF YOU BUY

Capital Allowances 1st & 2nd years 2500
25% of reducing balance thereafter
Loan Interest £59.26 per month 711
TOTAL FOR YEAR £3711

IF YOU LEASE

Lease Payments £290.25 per month 3483
50% of VAT not reclaimable
TOTAL FOR YEAR £3483

ACTUAL COST TO THE BUSINESS

IF YOU BUY

Capital and Interest £18144
Approx Value (after 3 yrs) £ 8000
NET COST £10144

IF YOU LEASE

38 Lease Payments £11029
Inc 50% of VAT not reclaimable
NET COST £11029

Although it appears to more tax efficient to buy the vehicle, in today’s economic climate flexibility is the key. Do you really want to be commit yourself to a long term loan,IF you can secure one. Also the second hand car market is unpredictable. In comparison the monthly lease payments are lower than the loan repayments, the lease can also be cancelled (with a penalty which tend to be 3 months payments which ) this can help with short term cash flow problems. For now, I would opt for the lease.

Topical Issues

Redundancy – Fact of life08 Jan

juliepic

Labour cost is usually the most significant for any business, which is why redundancy is one of the most obvious ways a company can reduce its overhead. Should the worst come to the worst and you have to reduce your costs to survive, just remember your considerations as an employer.

These considerations are there to protect both you, and the employees in the event there’s any disagreement on how redundancies are carried out.

As ever theres a lot of documentation on-line for this, but here are the basics.

What exactly is redundancy?

It is a form of dismissal from a job – reasons can include:

  • new technology/systems have made a job unnecessary
  • the original job no longer exists
  • essential cost cuts means staff numbers must be reduced
  • the business is closing down or moving

How much will I have to pay?

It depends….on:-

  • Their age
  • Length of continuous service
  • Rate of weekly pay

Important!!!

Normal notice conditions still apply. i.e. if an employee is contractually obliged to 4 weeks notice, this must still be given or paid for in addition to any redundancy pay.

Who is eligible?

It can be anyone in the organization, but you need to be objective and ensure that no-one is selected unfairly. There should also be an appeals procedure.

What can be taken into account?

  • attendance record (if this is fully accurate and reasons for and extent of absence are known)
  • disciplinary record (if this is fully accurate)
  • skills or experience
  • standard of work performance
  • aptitude for work
  • Formal qualifications and advanced skills, but not in isolation
  • Voluntary Redundancy

Who not to select?

There are a number of selection criteria which could result in an unfair dismissal claim, the most common of which are noted below:

  • being on parental leave, or maternity-related grounds
  • working part-time
  • requesting flexible working arrangement
  • Whistle-blowing
  • participation in trade union activities
  • taking action on health and safety grounds
  • refusing to work on a Sunday

What happens next?

Consultation
If you intend to make 20 or more employees redundant over a 90 day period, you must consult your employees. Lack of proper consultation may result in an employee being eligible to take legal action.

Other Obligations

Job Hunting

If eligible, reasonable time off with maximum of 2 days pay –to look for another job, attend interviews or training for future employment.

Other Help

In addition to allowing your employees time off to look for new work or for training, it’s good practice to give redundant employees as much information as possible to help them at this difficult period of their working lives. Where possible, some support and advice should remain available to redundant employees after their dismissals.

Alternatives to consider

Reduced Hours/Pay

It may be possible to reduce the working hours/pay. Normal practice would be for the workforce or their union to agree to short-time working as an alternative to redundancies. Employees placed on short-time working might be able to claim Jobseekers Allowance for the balance of the hours they don’t work.

Early retirement – Any volunteers ?

Sabbatical – Some employees may wish to take time off to travel, take part in a charitable project or return to education with the option to return to work at some future date.

Before embarking on any decision making you should always take legal advice!.

Topical Issues

Ratios – Use or Ornament?06 Jan

aileenpic

There are lots of confusing sounding acronyms bandied about when it comes to accounting ratios – ROCE, ROI, ROA, EPS, P/E , etc.

What do they all mean, and can they give us the inside track into a company’s set of accounts or, for that matter, any insight into our own profit and loss or balance sheet?

The usual complaint about ratios is that they are based on historical data, and so may not be predictive. They need to be calculated on a uniform basis, from uniform data, otherwise comparisons can be misleading. Also, seasonal trends may have a distorting effect, i.e.stocks may be low after Christmas, debtors may be unusually high, or margins may be particularly low following end of season sales.

Here at FAB Towers, when Julie and I analyse the monthly management accounts for our sole trader or SME clients,there are probably only a handful of key ratios we look at:-

TYPE OF RATIO

RATIO

CALCULATION

Profitability

Gross Margin

Sales (minus direct costs) x 100%

Sales Turnover

Profitability

Net Margin

Profit before interest & tax x 100%

Sales Turnover

Liquidity

Quick Ratio (Acid Test)

Current Assets (minus stock)

Current Liabilities

Liquidity

Debtor days

Trade Debtors x 365 days

Sales Turnover

Profitability

ROCE (Return on capital employed)

Profit before interest & tax x 100%

Total assets less current liabilities

By and large, the profitability ratios are used as a basis for assessing the performance of a company and its managers, including the efficiency of its asset usage .

The main reason for looking at the gross margin on a regular basis is to monitor it against budget.What did we expect it to be?If the gross margin is lower than expected, it could be we had to drop our price to maintain sales volumes or we had to pay more for our direct labour, or direct materials. A couple of our clients import from overseas so any wrong way currency fluctuations will directly affect this figure. Equally, any increase in the sales price will have a positive effect here.

Any increase or decrease in the gross margin will have a knock-on effect on the net margin. What we are looking for here is to see that our overheads and fixed costs were as expected with no surprises and that any variable costs are in line with the achieved turnover.

We look at liquidity ratios to see whether the company has the cash available to meet its payments as they fall due. We tend to use the quick ratio, which uses debtors and cash figures only, and not stock.This ratio tells us how much of the company’s short term debt can be met. A ratio of less than one means a company will struggle to meet its immediate obligations, whilst a value over 2.0 generally indicates no short-term trading problem. This ratio is also called the acid-test ratio.

The debtor day ratio is a key calculation, especially in today’s economic climate with business failures on the increase and people generally trying to stretch out their own cash. Any increase should be investigated to make sure there is nothing sinister happening. While it may be necessary in some instances to increase terms offered to customers, if your stated payment terms are 30 days and your debtor days are 60, it means you are not collecting you debts quickly enough.

We probably would not look at the ROCE on a monthly basis, as it is more usual to use the year end figure for capital employed when calculating this ratio. One of the criticisms of the ROCE calculation is that is uses the book value of the assets from the balance sheet, so that ROCE will increase as the assets depreciate. By the same token, if a company has just invested heavily in new assets, the ROCE will be lower as the company has yet to reap the benefit of its new investment.

Just one more thing..

And finally, one of my favourite ratios which we use generally in preparing the annual budgets or sales forecast, is the c/s ratio.This is the ratio of contribution (gross profit) to sales.

This is a nifty little ratio which can help you calculate your break-even point.

Annual Sales Forecast:£1,000,000

Less Direct Costs:£600,000

Gross Profit (contribution)£400,000

C/S Ratio:= 0.40

£1,000,000

Forecast

Fixed Costs/Overheads £325,000

£812,500 Sales t/o required to break-even

CONCLUSION

Accounting ratios can be a useful means of identifying significant relationships between different figures.However, the financial statements will only reflect those activities which can be expressed in money terms.They do not give a complete picture of the activities of a business.