Despite many companies’ staging date having been and gone, there is still an alarming number of employers who are unaware of auto-enrolment. Andrew Firth discusses the preparation companies need to do at this point.

Research by Wealth Wizards has shown that an alarming 38 per cent of working Britons are still not clued up on auto-enrolment or realise that they are entitled to a workplace pension. The research shows that working people aged 18-24 years old are the least aware, with more than 50 per cent of people stating that they don’t know what auto-enrolment is.

Even more worrying is the lack of knowledge that still exists among employers. According to The Pensions Regulator, hundreds of thousands of the smallest companies are still lacking the awareness of what auto-enrolment entails, and don’t even know when their ‘staging date’ is.

Around 1.8 million employers are due to reach their staging date by 2018 (the vast majority of them by 2017). This is the day on which they must have a qualifying pension scheme up and running for staff.  Employees must be automatically enrolled in the scheme, unless they have specifically opted out, and employers will have to make a pension contribution on their behalf.

Given that many of these employers are small businesses, they are likely to have little or no experience of running a workplace pension, and therefore it is essential to start planning well ahead of the staging date. Although it may be tempting to put off preparation for auto-enrolment, it is advised that a business begin preparing 18 months in advance, allowing enough time to ensure it is compliant with the new regulations. Failure to comply will result in a financial penalty.

What preparation has to be done prior to auto-enrolment?

An organisation’s staging date is based on how many employees it had on its PAYE scheme on April 1st 2012 and their PAYE ref numbers.

Once an organisation is clear on its staging date, it will need to start by assessing the eligibility of its workforce (which in itself can be an extremely time consuming task), and reviewing its existing pensions arrangements. It is then important that an organisation provides the relevant information to its workforce. Opting out requests and refunds may need to be actioned, and all records must be maintained accurately.

How can I help raise awareness and understanding of auto-enrolment among employees?

As you may be aware, as an employer you are legally obliged to automatically enrol your employees into a workplace pension scheme, rather than them actively choosing to join your scheme; and if they don’t want to be in, they must actively opt out. For this reason it is crucial that employees are made aware of auto-enrolment from the beginning of the process, and are given all the necessary tools to help them make informed decisions about their future.

With more small businesses approaching their staging dates, employers and employees alike must prepare themselves for auto-enrolment. Businesses should feel reassured that there is plenty of information and support available to help them through this process, both through the Federation of Small Businesses (FSB) and the Pensions Regulator. According to John Allan, FSB national chairman, most businesses which have already set up a workplace pension said they found the process fairly straightforward. The message for small businesses is clear: auto-enrolment is coming; the sooner you get to grips with what you need to do, the better off you will be.

Once auto-enrolment has taken place, employees will benefit from the provision of advice to support them with pension decisions. Online advisers (or robo-advisers) can be the answer for businesses as they offer employees access to expert financial advice (through online web apps or wizards) for a fraction of the cost of face-to-face advice. Providing employees with access to low-cost pension advice will ensure that they fully understand their entitlement and are more engaged in the process. This will guarantee that employees are clear on the benefits a pension can bring, which in turn will help to secure their futures.

For more information on how we can help you with your auto enrolment, please click here

Here are some top tips from Emily Coltman to help you brush up your bookkeeping and get your business set for fresh new growth in the months ahead.

Now that winter is winding down and self-assessment season is over for another year, it’s a great time to start thinking about how you could do some early spring cleaning to tidy up your figures and make your business more efficient.

Review your transactions for VAT

If you’re registered for VAT, it’s not always easy to know how much you should charge to your customers and how much you can reclaim on your costs.

What you charge to your customers depends on which goods and services you sell. If you’re not sure whether a particular item should be standard-rated, reduced-rated or zero-rated, or exempt or outside the scope of VAT, check HMRC’s guidance or ask your accountant for confirmation.

You’ll often be charged VAT by your suppliers and you may be able to reclaim this, but you can’t reclaim all the VAT you’re charged. For instance, if the cost you’ve incurred relates to exempt sales, or if you paid to entertain clients, you can’t reclaim the VAT on those costs.

Check the rules to make sure you’re comfortable with how much VAT to charge and reclaim on your historic transactions.

Look back at how you’ve paid for your costs

You may pay for business costs from the business’s own bank account, or from its credit card, or from your own back pocket. Make sure that you’re tracking these separately, so that you can easily see how you paid for each cost.

This is important because if you want your business to pay you back for costs you’ve personally paid for, then you need to accurately track the amount it can pay you. If your business is a limited company, you could pay more tax if the company pays you back more than it owes you.

Also, if your bank balance in your accounts doesn’t match what’s on your bank statement, a visiting HMRC inspector could be concerned that you’re concealing income and charge you more tax.

Review your books and make sure you’ve put all your costs where they belong.

Is your categorisation consistent?

When you’re deciding which category to put your costs into, such as stationery or postage, you may well find that some of your business’s costs could easily go into more than one category. For example, a monthly subscription to a software provider could be Computer Software or Subscriptions.

While there may not be clear-cut guidance from HMRC about which category to choose in these situations, make sure you allocate these costs consistently as they recur. That way, if your accountant needs to move the cost to a different category for tax reporting, it’ll be quicker for them to do that. Also, it’s much easier for you to track how much you’re spending in each category if you always put the same costs in the same places.

Go back over your historic transactions and make sure that you’ve categorised your costs consistently.

Close any cancelled invoices or bills

You may have had to cancel an invoice that you’ve issued to a customer, or a supplier may cancel a bill they’ve given you. If this is the case, make sure these items aren’t showing in your books any more. Usually the best way to do this is by creating a credit note and netting this off with the invoice or bill. This will also reduce the income or cost accordingly in your profit and loss account.

Review your banking

Think about the service you’re getting from your bank.

How much are they charging you for your account, and for other services like cheque payments and foreign currency payments? Might another bank offer services you require at a more reasonable price, perhaps because they charge more for services you don’t use?

Take some time now to review what your bank offers, because there may come a time when you need to ask them for extra services (such as a loan, or insurance), and you need to make sure that they’re the best provider for you.

Emily Coltman is chief accountant at FreeAgent.

 

Read more by Emily Coltman.

The majority of small and medium-sized enterprises (SMEs) want the Chancellor to reduce the complexity of the tax system and introduce a flat rate of tax in the upcoming Budget.

Some 55 per cent of SMEs are in favour of the change, according to a survey commissioned by accountancy firm Moore Stephens.

Moore Stephens’ clients say this would help to simplify the tax system, which is currently too complicated and time consuming for many businesses.

The joint most popular measure among survey respondents was a further crackdown on tax avoidance, particularly VAT avoidance, by large multi-nationals, also favoured by 55 per cent of SMEs.

Simon Baylis, partner at Moore Stephens says that, above all, small businesses want simplicity in the tax system.

‘Our clients are not necessarily appealing for a lower overall rate of tax, but for a removal of red tape and complexity that will make dealing with taxes easier, faster and more certain,’ he adds.

‘Reducing the complexity of the tax system would provide a boost for businesses as owners and managers would regain time for productive work that is currently spent on tax issues.’

Additionally, Baylis points to the perception among SME owners that they are not operating on a level playing field with big businesses in terms of tax management.

‘Many small businesses believe that if the tax system had fewer ‘nooks and crannies’ then they could pare back some of the advantages big businesses enjoy,’ he adds.

Each successive government has introduced more complex taxes and levies on businesses, and SMEs are desperate to see that reversed, Moore Stephens claims.

Baylis says that entrepreneurs in sectors such as property development could be hit very hard by the changes to Entrepreneurs’ Relief – which may make some projects less viable.

‘Also the planned increase to tax rates on dividends will see the income of many SMEs fall substantially.

‘Overall I expect that the Budget will contain a larger number of measures intended to raise revenue than it will giveaways.’

Read more by Ben Lobel 

“8 of 10 Accountants recommend Sage Software”, said Sage’s extremely successful advertising campaign of 20 years ago. Limited competition at the time made it easy for accountants and bookkeepers to recommend Sage 50 to SMEs, in the knowledge that they were recommending probably the best software in the market. Sage is still recommended as a solid reliable accounting system, because its name is synonymous with small business accounting software.

 

Sage is now running behind other accounting software due to their Cloud solution not meeting SME’s needs. Now, businesses have a greater range of accounting solutions to choose from that are instantly accessible online and providing significant benefits. These cloud based versions are showing improved service levels with the potential for cost savings and in some cases, a simplified and more streamlined solution.

We look at the benefits of three main cloud solutions for SME’s looking to grow their business in 2016, Sage, Xero and the fully integrated Pegasus Cloud.

Sage

Application

Sage is a UK company and has been building and supplying software to businesses for many years. Their best selling software is the Sage 50 product range, which is a comprehensive generic accounting application, built for small and medium sized businesses. There are Sage Additions which builds industry specific add-ons to extend the functionality of Sage 50 to a wide range of industry sectors. However, these have been reported as difficult to integrate and can cause problems when businesses grow larger than Sage 50 can handle.

You can purchase Sage software and therefore own the rights to use it and to install it on your Computer. Sage regularly updates the product with “New” features, so you are recommended to take out annual Sage cover which includes upgrades to the latest versions when available. If you don’t take out Sage cover then you will have to pay for the upgrades. Sage 50 tends to be sold as a 1 Company 1 user initial licence, so you will have to pay more for Multiple Companies and Users.  However, all this has recently changed with Sage announcing a number of improvements to the latest version of Sage 50, which notably includes “Sage Drive”, a feature that allows you to access and share your data via the Cloud.  They have also changed their pricing policy, so you can now pay monthly and receive automatic upgrades to the latest version.

 

Technical

Sage 50 software can be described as a “Client Server” application i.e. software is installed on a PC and a separate database is installed. Sage 50 Professional can be installed on a network, so that multiple users on networked PC’s can access the database, usually installed on a network server. The software is hardware dependent, so issues can arise when running the software on older PC’s with limited processing power and memory. Sage Drive appears to be an extension of this logic, by synchronising a copy of the database to the Cloud, where it is available for other users to access and update.

Although Sage Drive offers this new ability and is looking to be competing with cloud software versions, it has been reported that there are regular problems with connection and crashing.

Sage recommends customers to always upgrade to the latest versions, which can sometimes include more than just additional features. They also provide a download facility from within the software to download important bug fixes and enhancements, so users should regularly check for updates and/or bug fixes and download and install them. For non-technical users, this can be confusing and we find this is an area often overlooked by Sage users.

You are responsible for backing up your data and Sage 50 includes a backup routine which backs up the data files to a chosen location. This can be a backup disk, device or Cloud service.

Security

You are responsible for securing your data, by taking adequate steps to minimise the risk of hardware failure and ensuring passwords are used to access the application. This will include such steps as perhaps taking out an IT support contract and using a Cloud backup service that should be run at least weekly.

Usage

Sage 50 can best be described as a generic accounting application. As well as having to choose which version of Sage is suitable for your business, your users will also need an understanding of accounting terminology and practices to be able to use the software to its full potential. Training is highly recommended to gain a full understanding of how it can be used and configured. It is recommended that you use the services of an expert to set Sage up with a logical chart of accounts appropriate to your business and to generally give advice on the software and usage.

Sage 50 Professional comes complete with Quotations, Projects, Sales and Purchase Order processing, Products for Stock control as well as standard features for the control of Suppliers, Customers, Bank and Financial Reporting. Foreign Trader can also be activated for handling transactions in foreign currencies.

Sage 50 has a level of integration with Microsoft Office (Outlook, Excel and Word) to import/export diary event and contacts or export data to Excel. You can also import specific data using pre-supplied Excel templates for customer and supplier records, product and project records etc.

Within the Help section, there are a number of video tutorials and PDF guides to help familiarise yourself with this comprehensive application.

Although Sage 50 Professional looks like a good accounting application for growing businesses, the version is not bespoke and therefore you may not require all of the features and end up paying for more than you require.

 Xero

Application

Xero is a New Zealand based company who initially build their software for the NZ market. The rapid adoption of the service encouraged the developers to go global and the service was made available in Australia, the UK and the USA. Their growth has been remarkable from 200 customers in 2007 to 157,000 by 2013.

Xero is updated regularly, but unfortunately, due to their worldwide growth, we are seeing a slow-down in promised feature releases and general improvements for the UK market.

As with Sage, there is an Add-on market, which produces industry specific Cloud applications that integrate with Xero using Web services.

Xero is a simple accounting system that allows add-on applications for smaller businesses, however with a fast growing company or more than 50000 transactions per year this system will not be able to cope with high levels of activity or comprehensive requirements.

Technical

Xero is a hosted application (Cloud), which is accessible by subscribing to the service either directly or through a Xero Partner. The service is accessed using a Web Browser, so a reasonably fast internet connection is required to see the greatest benefits. Multiple users can access the service at the same time and data is updated in the background to avoid any conflict. New features are rolled out centrally by Xero and users are notified in advance of this happening. A service delivery infrastructure is in place to achieve 100% uptime (actual 99.99% since 2007) and data security, so subscribers do not need to do anything extra.

Security

Xero take security seriously, as you would expect from a global organisation hosting thousands of customers’ data. Security is continually audited and tested for potential breaches and comprises “Internet Banking” levels of encryption, biometric systems based restricted access and 24/7 onsite security guards at the hosting locations. Multiple copies of customer data is held at multiple locations for real-time protection and as a further safeguard, data is backed up daily. This compares favourably to desktop software, where your data is at risk from hardware failure, theft or data corruption from power surges. Furthermore, Cloud data is available for sharing online with individuals you invite to share your data.

Usage

Xero is a simplified accounting solution for small and growing businesses. Users do not need to have any accountancy training and can learn how to use it quite quickly following a short introduction. There are also short videos on the Xero website covering virtually every area for ongoing learning and support. Nevertheless, it is recommended that you use an expert to set up the system appropriate to your business needs.

Xero opens with a Dashboard summarising key information. This can be configured to a certain extent to display key indicators and bank accounts. Key data is linked to the underlying detail so you can quickly check movements and drill down into detailed data using the hyperlinks littered throughout the system. When you try to drill down to further information it can become slightly confusing and is not set up to deal with complicated invoices therefore project management, business intelligence and other complex business requirements will not be available at the moment.

The Xero bank feed allows you to link your Bank Account data to Xero, so it is pulled in daily for you to reconcile and track your cash flow. It is easy to use but can cause a few errors and will affect the invoicing and other areas of the accounts if it is linked incorrectly.

All reports can be output as PDF files or to Excel and there are Excel templates for importing data from other systems. Xero also has a tracking facility, which can be used for departmental analysis and reporting and the top version of Xero includes foreign currencies.

Xero also has a separate website for comprehensive context sensitive help and numerous short video tutorials to help users reaffirm and extend their knowledge of the application.

Xero offers a sophisticated yet simplified way for small and growing businesses to run their internal accounting. If you need more sophisticated features then it is best to view Xero as a ledger to pull together your financial transactions and look at the wide variety of add-ons that will possibly provide what you are looking for.

 

Pegasus Software

Application

Pegasus have been producing accounting, business and payroll software in the UK for more than 30 years and are now part of Infor, a global supplier of business solutions.

The flagship product for Pegasus Software is Opera 3 which is aimed at Small to Medium Enterprises (SMEs). Opera 3 is available in both network and cloud forms and over the past few years Pegasus have also been focusing on Web based applications to surround the core business applications – payroll self service, timesheets and shortly mobile sales.

As well as the ledgers and supply chain elements of the product, Opera 3 also caters for CRM, Construction, Manufacturing, Business Intelligence and Document Management.

There are a wealth of add on applications written by authorised developers who are also able to tailor the product for a user’s specific requirements, which is often needed at this level of the market. Unlike many other business applications, with Opera 3 customisation and add-on applications can be developed within the original software framework and not as an external bolt-on.

Opera 3 comes with an Annual Maintenance Contract that covers users for legislative changes especially for payroll and general enhancements to the product on an ongoing basis. Pegasus work towards releasing versions on a quarterly basis.

Opera 3 is supported and sold through an authorised Partner network throughout the UK and Ireland who provide customers with installation, support and maintenance as well as general business advice on the best way to run the system, now and in the future depending on the needs of the customer.

Opera 3 can be purchased on an upfront basis, monthly subscription or cloud basis which therefore does not tie up capital on the initial purchase of the product.

 

Technical

Opera 3 can be run on a standard network with multiple PCs accessing the programs and data. There is a MS SQL version for customers with large data sets. With Pegasus Business Cloud® all that is needed in order to access the software is a device that has access to a browser via an internet connection. The data is hosted in UK data centres and conforms to ISO 27001 standards.

 

Security

Using Opera 3 on a network, Pegasus provide backup routines within the software itself but it is the users’ responsibility to manage backups. The software also contains a Task Scheduler to enable a backup to automatically take place out of hours. Pegasus Partners will train customers on the use of backups and many also provide separate routines to back up total systems and provide hardware such as UPS power supplies in case of issues such as power cuts or surges which can corrupt systems.

 

Usage

Pegasus is a powerful accounting and business system typically used where integration across the business is required with some level of tailoring to the customer requirements. Opera 3 comes with 5 companies as standard, more companies can be added, if required, as can features such as multi-currency. As Pegasus is sold only through local Partners, it is the responsibility of the Partner to provide all the necessary installation, training and ongoing support which will be required in order to maximise the benefit a product like Opera 3 can bring to a business.

 

Here, Ed Molyneux explores the changes to the tax process that will commence on April 6th.

If you are still getting over what was, for many, the stress of the January 31st tax self-assessment deadline, get set for another upcoming milestone.

April 6th fires the starting gun on a new financial year that will bring a raft of changes to the tax process for millions of businesses.

From April, HMRC begins a journey which will give everyone real-time insight and will automate more of their tax filing, eventually making the entire process digital.

These changes have been widely characterised, by business groups and 112,107 petitioners, as introducing the extra burden of not just one but four tax returns per year. But that is not what is happening, and there is no need to be afraid. The changes starting now will lead to less red tape, not more.

So, what is happening?

Already, the majority of business owners file their returns online. As part of HMRC’s Making Tax Digital initiative, now every individual and small business will have access to their own digital tax account, showing a personalised picture of their tax affairs, like an online bank account. That will give them greater insight into payments required and amounts already paid. Some 80 per cent of people who tested the system declared themselves satisfied.

Anyone who has been frustrated by HMRC’s much-criticised telephone support should also be delighted that testing is now due to start on a webchat system, allowing taxpayers to live-chat with support officers.

But the biggest changes will come when the Revenue begins requesting more frequent updates than the current annual return. By 2019, HMRC wants to receive updates from most self-employed people at least quarterly.

This has sparked concern. But it need not have. The change does not amount to four tax returns a year, nor the complexity or anxiety that go with it. Instead, HMRC will only require very lightweight regular reporting, often submitted automatically by a range of online services and apps that will be in the market, many of them free, as well as HMRC’s own.

HMRC’s ambitious move is not about adding burden for busy freelancers and business owners – more regularly updating your finances makes for a better business, and actually reduces, not increases, the self-assessment headache.

For many self-employed people today, their business finances are fundamentally unsatisfactory, with poor record keeping, a box of receipts handed to an overworked accountant and a nasty unexpected bill to welcome in the New Year.

This is arcane. But more frequent updating for the Revenue is a step that will mean greater predictability and more oversight for the self-employed, too, allowing them to better plan their finances and tax payments.

Automation process

Much of the efficiency will come as HMRC begins automating submission of information you currently have to file yourself from the agencies which already hold it. From 2018, information on bank and building society interest will start to be included in tax codes, removing the need for many taxpayers to report this income separately in a tax return.

And the organisation will also consult this Spring on how it might automatically pull other third-party information, like investment income, into your account. By absolving taxpayers of the need to inform HMRC about already-available information, business owners will file tax return submissions more quickly and easily. The only people who should be worried are those who purposely fail to declare certain earnings information today.

That means the information HMRC will require quarterly will be far slimmed-down from today’s tax return tome, with the aim to take taxpayer submissions through online accounting software by 2019.

I know there is appetite for, not just resistance to, these benefits.

For many people, change is hard. But people are about to be put in control of their accountancy for the first time. It is only incumbent on the HMRC to ensure that it can turn around its less-than-impressive track record of IT implementation in order to meet these goals.

As we approach the end of the current financial year, it might be wise for small businesses to begin 2016/17 by adopting the digital filing mindset early, either by more diligently storing monthly paperwork, updating a monthly spreadsheet or testing out one of the many compliant online services.

Freelancers and small businesses are the lifeblood of the UK economy, and any measures that get in their way of building great businesses should never be passed. Digitised taxation will have the opposite effect, so have a happy new financial year!

Ed Molyneux is CEO and co-founder of FreeAgent.

 

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The start of 2016 has already seen widespread unease in the business world, with share prices fluctuating wildly. By Nick Martindale

There are real economic concerns in the form of the slowdown in China and the weakening oil sector, while closer to home the possibility of Brexit is causing a distinct sense of unease. The following provides a round-up of some of the more significant threats to UK firms this year, and examines how to protect your organisation:

Global economy

The slowdown in China and subsequent market reaction shows just how interconnected the world has become, says Olivier Desbarres, an independent emerging markets and G10 economist. “The financial crash of 2008 centred on the banking sector and mortgage market,” he says.

“Banks, manufacturing and energy sectors, to name a few, are all sluggish.” At the same time, growth in the eurozone remains unsteady, he adds, while the euro itself is still weak in the wake of the migrant and Greek debt crises.

How to protect your business: Make plans on how to cope with a global financial crisis, and keep options open in terms of targeting new markets should the eurozone again enter a recession

Uncertainty

The EU referendum is already causing ambiguity and uncertainty, and this is set to have an impact on the willingness of businesses to invest or grow. “The default operating mode for many is coping with constant revolution, and never more so than today,” says Patrick Gallagher, chief executive of distribution company CitySprint.

“Our research tells us the biggest uncertainty for the UK’s SMEs this year is a possible exit from the EU. This is causing them huge concerns, especially around their long-term growth plans. Some 1.45 million SMEs in the UK say they are looking to grow internationally this year, up from just a million in 2014. Uncertainty limits their ability to achieve this.”

How to protect your business: Do your research into the possible implications of a Brexit and make sure you plan for all eventualities. Once it’s clear which way the vote has gone and the likely consequences, act fast

Currency volatility

All of the above means currency markets are extremely turbulent, with the pound hitting a new low against the dollar in February and speculation that it could fall by a further 20 per cent in the event of a Brexit. “This isn’t just a problem for City traders – it affects every British company that does business overseas too,” says David Lamb, head of dealing at FEXCO Corporate Payments. “Importers are being particularly hard hit, as a sudden depreciation in the pound can turn a profitable deal into a loss-making one in a matter of days.”

How to protect your business: Fix any amount that will be paid to a foreign supplier in advance using a forward contract. This will ensure you pay an agreed amount in sterling, and will protect you against any drop in the pound’s value

Talent

For many organisations, the challenge in 2016 will be to attract and retain the skilled employees they need, in the wake of competition from home and abroad. “LinkedIn data shows that markets such as the United Arab Emirates are the net winners when it comes to attracting professionals to their market, whereas the UK experienced a net loss in 2015,” says Chris Brown, director of LinkedIn Talent Solutions UK.

“This trend has been driven by a range of factors, from greater mobility in the workforce to social media giving employers greater visibility of the available talent in the marketplace, and the ability to easily contact them.”

How to protect your business: Build your own employer brand to attract people to work for you and safeguard your reputation – particularly on social media

Hacking

Cases of cyberattacks are on the increase, and this is increasingly becoming an issue for smaller businesses as well as multinational firms. According to a report by the Government’s Cyber Streetwise campaign and KPMG, only a third of small firms think they are fully prepared for an attack, despite the fact that 60pc have already experienced a security breach.

“As well as impacting the business and their customers, such an attack could hinder an SME’s future ability to win work,” points out George Quigley, a partner in KPMG’s cyber security practice. “Our research shows 86pc of procurement managers of large companies would consider removing a supplier from their roster if they were to suffer a data breach.”

How to protect your business: Take simple steps such as installing security software on all devices and updating operating systems, as well as using stronger passwords made up of three random words.

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Pantomimes and Christmas productions are in full swing. So, Emily Coltman decided to look at whether there was anything that our favourite panto protagonists should bear in mind when it comes to their tax.

Here are the tax dilemmas faced by a few of the characters currently gracing the UK’s theatre boards this panto season.

Sleeping Beauty

In Sleeping Beauty, the good fairies brought intangible gifts, a series of good wishes, to the baby princess. Would they be able to claim tax relief on those gifts in their accounts? Let’s ignore the fact that the wishes didn’t cost anything (as they’re generated by magic) and assume that the good fairies paid for them. Let’s also assume the fairies are employees of their own limited company. Because gifts count as part of entertaining, their employer would only be able to claim tax relief on these wishes if:

● they were not gifts of food, drink or tobacco, and

● they carried an advertisement for the donor, and

● they were small gifts costing under £50 per recipient per year.

Wishes aren’t food, drink or tobacco, but they can’t carry an advertisement for the donor, so that would appear to prevent a claim of tax relief. Cinderella Is Cinderella’s ballgown an item of clothing on which she could claim tax relief? The answer would be yes if Cinderella wore the ballgown in any of the following ways in order to do her job;

● as a uniform, or

● as protective clothing, or

● as an entertainer’s costume.

However, to fully answer the question we have to look at what Cinderella’s job actually is: is she employed as a scullery-maid, or is she the daughter of a noble house? If she is employed as a scullery-maid, then her ballgown wouldn’t qualify for any of the above exceptions and so it wouldn’t be eligible for tax relief. And being the daughter of her father’s house isn’t a job; it’s who she is, so she couldn’t legally claim any tax relief in that case either.

Cinderella also wouldn’t be able to claim any tax relief on her clothes by arguing that they’re vital for securing a new job (ie, the role of Princess). After all, HMRC won’t let you claim for a new suit that you buy for a job interview, even if you intend to wear exclusively for work, because you could potentially use that suit for personal use. The same would be true for a ballgown.

Sinbad the Sailor

As a seafarer, Sinbad would have to check the rules carefully to see if he would be liable to have UK National Insurance deducted from his wages. If his ship is registered in the UK, the Isle of Man, Bermuda or another country that has a reciprocal arrangement with the UK, then he would have to pay UK NI. He would also have to pay UK NI if his employer is based in the UK, even if his ship is registered elsewhere in the world. These are the rules he would need to follow.

Peter Pan

Was the fairy Tinkerbell an employee of Peter Pan and The Lost Boys, or was she an independent worker? The three key criteria HMRC use in this case are:

● Is Tinkerbell under the control of Peter and the boys? In other words, can, and do, they tell her what to do and when, and does she have to obey them?

● Does Peter have to provide Tinkerbell with work? Once given to her, does she have to do this work?

● Can Tinkerbell send another fairy to take care of Peter and the boys, or does she have to do the work herself?

Let’s take these one at a time. Firstly, although she does sometimes do as she’s asked, Tinkerbell very much acts independently, for example, drinking the poison Hook meant for Peter, and encouraging the boys to shoot Wendy.

Secondly, Peter doesn’t have to give Tinkerbell work to do. And lastly, we don’t hear mention of any other fairies that Tinkerbell could send as a substitute for herself. That is two out of three in favour of Tinkerbell being an independent worker, so I would argue that this is what she is, rather than being an employee of Peter and the boys!

She does however need to make sure she’s up to speed with all the rules for these kinds of businesses, especially when it comes to complicated issues like IR35.

Alice in Wonderland

Alice eats a cake, and drinks liquid, that changes her size. Could she claim tax relief on that food and drink if she’d bought it? If Alice is a sole trader, she would be able to claim the cost of food and drink only if;

● she’s on a journey outside the normal pattern of her business, or

● she’s away from home on business overnight, or

● her business is by nature itinerant.

Being in Wonderland is very much outside the normal pattern of Alice’s life, so my opinion is that if she had bought that cake and drink, she could have claimed tax relief on it.

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Next year must see local businesses and communities embrace change, says the Federation of Small Businesses.

In his New Year’s message, FSB policy convener Andy Willox says that businesses must exploit rather than fear new digital technologies. He also calls on the political parties to make building a more resilient Scottish economy their top priority for Holyrood’s May elections.

Willox says, ‘Change is hard, but often necessary. Well, that’s what we’ll be telling ourselves next week as we try to stick to the New Year’s resolutions. And, just as we swap the steak pies for salads at home, our minds also turn to how we can get our businesses into better shape.

‘This year, FSB published a report looking at digital disruption. We’ve urged our members not to end up like the video shop or film developer. Instead, we make the case that small firms should harness the opportunities unlocked by technology and put digital at the centre of their 2016 plans for growth.’

Looking forward to the Scottish Parliament elections in May, Willox says the manifesto for May’s Holyrood elections is full of practical ideas to make Scotland a better place to do business.

‘At its heart is a call for the next Scottish government to focus its economic strategy on building up the resilience of local economies and, hence, local communities.

‘While inward investment and key sectors remain important to Scotland, there is much more to real, sustained economic growth than that.’

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Ineffective planning could mean Britain’s small businesses will lose out on £25 billion in extra revenue in 2016, research finds.

More than a quarter (26 per cent) of UK small and medium-sized enterprises (SMEs) surveyed say they do not have a business plan in place and are therefore likely to have entered the new year without basic objectives, revenue targets or a plan to manage cash flow.

However, research by the Centre for Economics and Business Research (Cebr), commissioned by npower Business, reveals that more than half (51 per cent) of the UK’s best performing SMEs are working to a detailed business plan.

Among all SMEs with a detailed plan, 70 per cent anticipate an increase in their expected 2016 revenue growth as a direct result of developing and implementing their current business plan.

Cebr’s analysis finds that SMEs which are effective business planners also expect to see revenue growth of 8.2 per cent in 2016.

This is 1.6 per cent higher than revenue growth expected by the average SME in 2016, which equates to a potential increase in revenue of £25 billion above what is currently expected.

Even for the smallest businesses, the increase in revenue from more effective business planning could equate to thousands of pounds per year, but for bigger SMEs that increase has the potential to run into the millions.

Laura Holdgate, senior economist at Cebr says, ‘The research suggests that more effective business planning among the UK’s SMEs is directly linked to better business performance. SMEs have the potential to experience higher turnover growth as a result of more effective business planning, in turn boosting UK plc.’

Phil Scholes, head of npower Business adds, ‘Effective planning is essential for small businesses who are the backbone of the UK economy. Being in better control of their finances and the risks and opportunities facing their business enables them to make better, more effective decisions.’

Judy Naake, who launched St Tropez Tanning in the UK and Europe, is one small business owner who has been able to grow her business from nothing to a multi-million pound empire, which she sold for more than £70 million in 2006.

Judy puts much of her success down to good planning. She says, ‘It’s not enough to set up a business and hope for the best. Running a small business is tough and businesses who don’t plan properly aren’t giving themselves a chance of succeeding.

‘It’s so easy to overlook regular costs like heating, gas and electricity. Business owners need to get on top of those costs and do whatever they can to bring them down. Once the fixed and predictable costs are accounted for, they can get on with the exciting job of growing their business.’

 Read more by Ben Lobel

 

2015 was a surprisingly good year for small businesses. While many of these trends are likely to continue, there are a number of areas to watch as you grow your business in 2016.

Why 2015 was a great year

The Conservative party formed a majority government in May

The key word here being ‘majority’. Regardless of your political persuasion, the key concern of all businesses in the run up to the last election was the uncertainty caused by a hung parliament.  Right up until the exit polls on May 7^th this was considered the most likely outcome, but was thankfully avoided. We’ve ended up with a relatively strong Conservative government, keen to take the centre ground. While the National Living Wage caused some concern this should be largely offset for smaller businesses with the increase in the employer national insurance allowance to £3,000 per year, along with future falls in the corporation tax rate.

The economy was one of the strongest in the G7

Despite the headwinds of fiscal austerity, collapsing commodity prices and the ongoing Euro crisis, Britain remains one of the fastest growing large economies in the world. The latest OECD forecasts put Britain level pegging with the USA at 2.4 per cent real annual GDP growth, creating a robust environment for business growth.

Alternative lenders became a dominate force in business finance

2015 was the year alternative finance providers came to dominate small business lending. The Liberum AltFi Volume Index UK shows nearly £1.2 billion in small business lending in 2015 representing annualised growth of 119 per cent. Alternative lenders are starting to become the lenders of choice for SMEs, with Funding Circle third behind RBS and Lloyds in terms of volume of new business loans.

Apprenticeships received a huge funding boost

The 0.5 per cent apprenticeship levy was an unwelcome announcement for big businesses in the Autumn Statement and is set to raise £3 billion annual tax revenue from 2017.  However, the Federation of Small Businesses reported in September that skills shortages were reported by over a third of SMEs. This new levy will fund 3 million apprentices over five years, helping to close that gap but with the cost borne by larger firms.

Cloud accounting software made huge inroads, with more to come

SaaS accounting platform Xero announced it has reached 100,000 licences in the UK, nearly reaching Sage’s reported total of 130,000 users. A study by PANALITIX reported that 11 per cent of UK firms are using cloud accounting packages, with accountants reporting that they expect that to increase to 35 per cent in 2016.  Firms on cloud accounting enjoy multiple productivity benefits, including automated bank data feeds and e-invoicing, helping to improve financial controls and gain access to finance.

What to watch out for in 2016

The EU referendum distracts from real business issues

David Cameron is aiming for an early referendum in June 2016, although the referendum bill allows him to put it off until the end of 2017. This means potentially another year and half of the political cycle being dominated by questions on EU membership.

With more than £400 billion of trade with the EU, SMEs are understandably concerned about the consequences of a British exit, or Brexit, from the EU. However, even if the public votes to leave, it seems unlikely Britain would not remain in the European Economic Area (with exactly the same fundamental freedoms as EU membership!). The reality is that the EU referendum is nothing more than a sideshow distracting from the real issues facing SMEs.

Price deflation hurts profit margins, just as low unemployment starts to drive wage inflation

With the rise of the National Living Wage to £7.20, wage inflation will start to bite in 2016, putting a considerable strain on service businesses. With inflation forecast to stay low, businesses will continue to face difficulties in raising prices, meaning that profit margins will likely suffer.

Finance providers drive borrowers into expensive facilities

With the fall in traditional bank lending since the financial crisis, asset based finance has grown to £19.3 billion. While unlocking considerable finance, this comes at a cost. A recent campaign by lending platform Growth Street has revealed that seemingly standard pricing for borrowing facilities can have APRs of up to 90 per cent when all the hidden fees are included. Furthermore, with the SBEEA referrals scheme due to start in 2016, the lack of a clear and transparent means of comparing pricing makes it likely more businesses will be pushed into expensive facilities.

Auto-enrolment pension regulation brings unwelcome cost and distraction

Stemming from the ‘nudge’ school of public policy, auto-enrolment is liable to cause chaos for SMEs as firms with fewer than 30 staff are required to offer a pension scheme from January 1 2016. With fines for non-compliance and few pension providers willing to deal with small clients, SMEs face a potentially expensive, confusing and above all distracting double bind. Worst of all, just as firms pay for this new set of regulations, the government has committed to completely overhaul pensions again in 2016!

Cloud accounting brings an unwelcome storm

The move to the cloud offers many opportunities for small business accounting, but there are some potential storms on the horizon.  While data security is high on the feature list for most cloud accounting platforms, the profit motive is never far away.  With fierce competition for customers keeping headline prices low, be sure to watch out for platforms looking to monetise your data in order to raise their revenues.

Greg Carter is founder of Growth Street.