Starting a business is never easy. Recent statistics suggest approximately one in ten startups fail in the first year, and by year 5 less than half have survived. It’s never too soon (or too late!) to ask an accountant for advice when starting a business, and before starting up is best. For example, it’s not always best to start off as a company, and you could be missing out on a potential tax refund by assuming it is.

Good advice early on can save tax, accountants fees, and quite a few headaches. Not to mention helping you survive the first year, then year two and so on. A couple of the main reasons cited for startup failures are overspending on advertising, and getting the pricing wrong. So it’s crucial that you have a good pricing strategy and that you have, and stick to, a realistic budget. Of course you will need accurate bookkeeping records from the start to help monitor the spending against the budget, and online accounting is ideal for that. As we help many different types of business, our experience can also help you check there are no flaws or missed opportunities in your plan.

Many of our clients received our free advice and free help to setup a self employed business or company, and register it with HMRC. We even setup and train our clients on online accounting for free. Our range of business startup helpsheets below are written in plain english to help you start a business successfully. If you have any questions please contact us. We are happy to advise anyone looking to start a business, or have already done so.

Business Startup Guides

Go to our Resources page, Business Centre, Business Helpsheets, Business Startup Helpsheets, to find the following business startup pages:

Cutting costs to improve profits will not necessarily work if the quality of what you offer suffers. However a good financial information system will provide you with relevant information to help you make cost cutting decisions. Using an online accounting so your accountant can help with this and keep the information accurate throughout the year, will also help. The following are proven ways to cutting costs and reducing expenses…

cutting costs

General Ways of Cutting Costs

  • Sometimes, a high volume profitable business could make cost savings
    but the volume of their business actually hides that fact that there is
    room for further cost savings. You need to measure in detail, not
    globally in order to identify all areas you can save costs.
  • It is sometimes necessary to spend money in order to save money in
    the long term. For example, investment in machinery or redundancy
    payments.
  • Controls can help to reduce costs. For example, portion controls, stock
    controls, cash controls.
  • Measuring the efficiency of individuals or departments can identify
    where there is room for improvement.
  • Having budgets helps to identify when costs are out of control of
    something is going wrong. The best way to budget is not “what did we
    spend last year and add 5%” but by starting from zero and deciding what
    you should be spending in each area.
  • The lowest price isn’t always the best price when quality suffers.
  • Changing the sales mix, for example in a restaurant can reduce wastage
    of products with a limited lifespan. A limited menu will help sell more
    of those items.
  • Consider joining a buying group in order to take advantage of
    consolidated buying power.
  • Review all your standing orders and direct debits. Unless these are
    reviewed on a periodic basis, some can continue that you no longer
    want.
  • When making capital expenditure are all sources of finance considered
    including grants.
  • Never sign up at the first meeting. Take time to consider however good
    the deal looks.
  • Always ask for a free trial.
  • Do research to make sure you buy the right product.
  • Always read the small print on order forms.
  • Try to reduce frequency of purchases.
  • See if any items can be outsourced or a subcontractor used to save
    costs.
  • Weigh up the costs and benefits of all items.
  • Take advantage of free consultations from professional advisors.
  • Offer to settle bills early in exchange for a discount when you buy.
  • There are hundreds of grants available for businesses to offset against
    expenditure. Check you’re not missing any. Business Links are a good
    source of information on grants.
  • Many government agencies offer free or low cost business advice when
    you are starting out.
  • Are the advantages and disadvantages of buying outright, HP or
    leasing capital equipment reviewed before each decision?
 
 

Specific Examples of Cost Cutting

And For Some Specific Expenses For Cutting Costs…

  • Labour costs can be controlled by controlling overtime with planning
    and scheduling, labour saving equipment and improved layouts (e.g.
    drive through windows). Improved employee retention reduces
    recruitment costs.
  • Move employees onto yearly hour contracts to improve productivity.
    For example, rather than 48 weeks, 5 days a week, 7 hours a day, change
    the contract to 1680 hours a year. Then you can use staff more in busy
    periods rather than paying overtime. It gives staff blocks of time off and
    they don’t have to sit around doing nothing and being bored.
  • Can any of your staff be moved onto a self-employed basis to save
    employers national insurance costs as well as holiday pay, sick pay and
    maternity pay costs?
  • Phone costs – least cost routing can reduce phone bills by as much as
    40%.
  • A small business could do away with a separate fax line and use a fax to
    email facility whereby faxes appear in your email. Type “fax to email”
    into a search engine and many providers will come up.
  • Advertising – send camera-ready artwork with a cheque for 20% of
    the rate card price and a letter authorizing them to cash the cheque and
    run the advert whenever they have space. Many publications have space
    left they need to fill and something is better than nothing.
  • Consider an appeal against your rates assessment. Many are higher
    than they need be.
  • Rents can be negotiated in times of property crashes. You could ask
    for a lower rent in exchange for a longer lease.
  • Are bank charges and interest payments reviewed for accuracy? There are
    software programs that will do this and consultants who offer a checking
    service?
  • Leasing and interest costs should be reviewed regularly to see if
    better terms can be obtained.
  • Bank Charges
    • Always negotiate the charges with your bank.
    • Use BACS – charges will be cheaper than paying by cheque.
    • Don’t have more accounts than you need.
    • Most banks offer free banking for at least a year and maybe 18
      months to small businesses. Have you considered a change of
      bank?
  • Finally, the largest expense is often tax so use a great accountant who
    will slash your tax bills, will advise you on cutting costs, and one who uses online accounting such as the free Pandle to save you accountancy fees! See Our Prices or get an Instant Quote.

Whilst fiscal responsibility is OK don’t waste all your time looking for ways of cutting costs.

Stock Controls
The costs of holding stock are…

  • The money spent on it that is tied up and could be used
    elsewhere.
  • The risk of the stock reducing in value if it becomes obsolete or
    is perishable.
  • The risk of theft or damage.
  • The cost of storage.
  • Having to manage and organise it.

Stock levels need to be minimized without running out of items so that
you can’t supply what the customer needs. You therefore need a stock
control system to get the balance right.

As such, the best stock level to hold is normally one that keeps the level of stock
necessary to support your normal level of trade. By doing this you will be
able to supply what your customers want most of the time while cutting costs.

Also, the following tips will help with stock control…

  • Produce sales forecasts so that you know what stock levels to hold to
    meet that demand.
  • Speed up your production process as much as possible by
    developing good supplier relationships.
  • If you never run out of stock, you’re probably holding too much.
  • Form reciprocal relationships with non-geographically competing
    businesses to supply each other if you run out of stock.
  • Monitor your re-order levels.
  • Reduce duplication of stock holding that occurs with multiple stock
    holding locations. So try to keep stock in one place as much as possible.
  • Try to buy stock on sale or return, which will allow you to hold more
    stock without any risk or cost. Having a preferred supplier may make
    this more possible.
  • Apply Pateto’s 80/20 law to stock – concentrate on the 20% of stock
    lines that probably make 80% of your sales.
  • Only go for bulk discounts if they are beneficial after considering the
    cost of holding the extra stock.
  • Regular stock takes on the same day each week can help to determine
    usage levels.

 

Should you apply for voluntary VAT registration ?

 

If your taxable turnover is below £85,000 you don’t have to register for VAT. However, you may be eligible to apply for ‘voluntary VAT registration’ and one or more VAT schemes.

There can be advantages in registering for VAT such as…

  • increased business credibility;
  • potential savings if you have zero-rated sales but you can still reclaim VAT on your purchases;
  • savings if you mainly supply other VAT registered businesses so they don’t mind being charged VAT. You can then reclaim VAT on your purchases;
  • Potential savings on the Flat Rate Scheme , but only if you have a favourable flat rate for your industry. Watch out if you don’t buy many goods – you may have to use 16.5%.

However, you do need to weigh up the benefits against the hassle factor of completing VAT returns. Plus you’ll need to do a little cashflow planning to pay the VAT due every quarter. If you supply the general public you will probably not want to register for VAT as this simply puts your prices up by the rate of VAT.

 

VAT Schemes

 

There are various VAT schemes, mainly for small businesses…

  • Cash accounting – If your taxable turnover is under £1,350,000 a year you can arrange to account for VAT on the basis of cash received and paid. The normal scheme is based on the invoice date or time of supply.
  • Annual accounting – You can complete one VAT return per year rather than four if your turnover is under £1,350,000. You must also make nine payments on account throughout the year, and a balancing payment with the VAT return.
  • Flat rate scheme – This is for businesses with a turnover of under £150,000. It saves on administration because you just pay a set percentage of your VAT inclusive turnover based on your business sector. The normal scheme accounts for VAT on each individual “in and out”. The Flat Rate Scheme can reduce the VAT you pay in some situations. See our Flat rate scheme calculator and guide for more details.
  • Retail schemes – These apply to retailers and offer an alternative if it’s not practical to issue invoices for a large number of supplies direct to the public.

 

When you must register for VAT

 

When your sales for the past 12 months exceed £85,000, you have to register for VAT within 30 days of going over. Not within 30 days of noticing! So, at the end of every month, you need to work out your total sales for the 12 months leading up to the end of that month. If it’s over £85,000, you have to register for VAT by the end of the next month and start adding VAT to your sales from then on. You’ll also be able to claim back VAT on your costs, so you may be able to lower your sales price.

 

How We Can Help You

 

We can assist you with Voluntary VAT Registration by…

  • helping you register for VAT
  • advising on suitability of VAT schemes
  • assisting with completion of VAT returns
  • setting up your accounting system to deal with VAT
  • helping remotely with any disputes with HM Revenue & Customs
  • providing VAT planning advice for complex transactions such as when buying property.

We’ve had a few new clients come to us recently from cheaper accountants reporting that their cheaper accountant had gone out of business, or at least they seem to have disappeared. We thought we’d just comment generally on why we think some cheaper accountants may go out of business, and to reassure our clients and others why some other cheaper accountants should not go bust.

Too Cheap to be true?

Some cheaper accountants offer to do company accounts for as little as a couple of hundred pounds with no VAT charged. Charging an extremely low price for an apparently good product or service that is in demand and marketed well, should sell very well.  However, selling well doesn’t always lead to success as the saying goes:

“Turnover is Vanity, Profit is Sanity, but Cash is King.

Here’s why:

Turnover

A high volume of sales means you need a lot of products or, in the cheaper accountants case, time to sell. A cheaper accountant may start out on their own at home with lots of spare time. But with fees so low they then get too busy which means either a poorer standard of service and/or hiring help. Finding more time or hiring other people’s time can be expensive and even more time consuming initially. An additional problem of increasing sales is when the VAT registration threshold is crossed. VAT must then be added to fees which effectively increases prices to non-VAT registered customers by 20%, unless a discount is offered and the VAT is absorbed by the business reducing its profit.

At CloudBook Accountants we work solely and securely in the cloud with clients and associates all collaborating online and on-demand without the need for expensive hardware and one big office. This helps us cope with a high turnover, and we are already VAT registered.

Profit

Selling cheap usually means a low profit per unit, or even a loss per unit or job. A low profit per job is fine if you sell enough, and other administrative expenses (overheads) are low. Even losses are ok if it means you’ll make more profit elsewhere from that customer (loss leader). The trouble with providing cheaper accountancy services at a fixed rate is that it is very difficult to control how much profit you make on each job. One client may have perfect accounting records and you make a profit, but another may have terrible records but you can only charge the fixed fee so less profit or a loss is made.

At CloudBook Accountants, for a start we’re certainly not as cheap as some cheaper accountants because we want to work with you throughout the year and save you tax, which takes a little more of our time. Also, all of our clients use online accounting or at the very least tidy spreadsheet records. Online accounting makes it much easier for our clients to produce tidy records. It also allows us to log into our client’s records at least quarterly to check everything looks ok, fix the odd thing or two, and offer any advice e.g. how to save tax. If something looks wrong, we’ll advise on what needs to be done to fix it. That way, we know you have good records helping you run your business well, and we can still make a profit and not go out of business.

Cash

With traditional accountants and some cheaper accountants, the time they spend during the year working on accounts etc. is billed some time after the year end, after the accounts are completed. Sometimes giving you a nasty surprise of extra fees. Then some time afterwards the bill is paid, hopefully. So cash is received potentially a couple of years after starting some work for a client which, when coupled with very low profits, would make it difficult for a cheaper accountant not to go out of business!

CloudBook Accountants bill their clients small fixed monthly amounts throughout the year (see our fixed fees here), helping you (and us) manage cashflow more easily, and gives you the reassurance that we’re there to help you throughout the year, which we make a point of doing anyway with our quarterly reviews.

Cheapest or Cheaper?

The cheapest isn’t often the best option especially if it seems too cheap to be true. But if someone is cheaper than others, can justify why they are cheaper, and can demonstrate the quality standard of service you need from an accountant, why not save on accountancy fees?

CloudBook Accountants are fully qualified chartered accountants, with over 15 years experience, who collaborate with clients and associates efficiently using the cloud. Please contact us if you have any questions, or get an instant quote for accountancy fees using the button below.

This helpsheet gives you an outline of what you need to do when going self employed, and what it really means. There are a number of advantages of going self employed, but you must also comply with various regulations including the tax law and you must register as self employed with HMRC.

Form of Your Business

When you decide to work for yourself you need to choose which form your business will take. The most common forms of business are:

  • Sole-trader – you run the business on your own, usually under your own name;
  • Partnership – you and one or more other people jointly run the business;
  • Limited liability partnership – a special type of partnership that gives you and the other business owners more protection from creditors;
  • Limited company – an organisation that you own and control, which carries out the business on your behalf.

If you start your business as a sole-trader or as a partnership you are legally going self employed.

When you choose to start your business as a limited company you will normally be a director and an employee of that company. You will be employed rather than self-employed, but in practice you will work for your own business.

It is important to understand the difference between being employed by your own company, and being self-employed, as it will affect the tax you pay, and the regulations you have to comply with. This helpsheet deals only with the advantages and regulations of being self-employed.

Tax Advantages Of Going Self Employed

Cash-flow

Once you register as self employed you only have to pay income tax twice a year on 31 January and 31 July. This means you can hang on to your money for longer than an employee who has tax deducted under PAYE from every pay packet.

You must make sure you have the money ready to pay the tax when it is due as you will be charged interest on any tax paid late.

If you work in the construction industry you may have tax deducted from each of your sales invoices by the contractor you work for, under the Construction Industry Scheme (CIS). You may be able to reclaim some of the CIS deductions each year when you submit your tax return.

Expenses to Claim

  • The cost of any goods or services you use fully for your business (sometimes even if you paid for them before going self employed) can be deducted from your sales revenue for tax purposes. Where an item is used partially for your business and partly for private purposes, such as your private car or home, you can claim the business proportion of the costs against your business profits. However, you must be able to justify the business proportion with evidence such as the miles driven, or space used by the business.
  • Capital allowances – if you purchase an item that is expected to last several years, such as a van, you can claim a special deduction known as a capital allowance. The first £250,000 you spend on equipment each year qualifies for 100% capital allowances in the year of purchase. This does not include cars.
  • Loan interest – if you take out a business loan the interest paid on that loan can be deducted from your sales revenue. The loan must be taken out to fund your business, rather than a personal loan or credit card borrowings.

Government Support

  • Government funding – if you live in an area in the UK that has been designated as a regeneration area you may qualify for a government funded programme to help people going self employed or starting their own company.
  • Charitable support is also available from the Prince’s Trust throughout Britain for those aged 18 to 30 who wish to start their own business.
  • Self-employed credit – if you have been registered as unemployed for at least six months you may qualify for a self-employed credit of £50 per week if you start your own business. Ask at your local Jobcentre Plus office for more details.
  • Working and child tax credits – You may qualify for these after going self employed. Your tax credit award is based on your family’s joint income including your self-employed profits, but it will also be determined by the number of hours worked by the adults in the family, and the number of children aged under 16.

Your Tax Obligations

Tell the Taxman

When you start your own business you must register as self employed with the Taxman (HMRC). It is best to do this as soon as possible after you start to charge your customers for the goods you sell or for the services you provide. There are a few ways to register as self employed…

You must register as self employed even if you make a loss from your business. Every partner in a partnership business must register as self employed separately. If you do not register with the Taxman by 5th October following the end of the tax year in which you started your business you may be charged a penalty of up to 100% of the tax and national insurance you do not pay as a result of the failure to notify.

National Insurance

If you’re going self-employed you will need to pay two types of national insurance contributions (NICs) known as class 2 and class 4.

Tax Returns

You must complete a self-assessment tax return every year to report the income and expenses from your self employed business and any other income you have to the Tax Office.

Register for VAT

When your sales for 12 months reach the compulsory VAT threshold, you must register for VAT within 30 days.

How We Can Help You

If you’re thinking of going self employed or already have done, it’s never too soon or late to talk to us. We can help you register as self employed with the Tax Office for tax, national insurance and VAT. We can show you how to keep accurate records for your business and complete tax and VAT returns. As your business grows we can discuss tax planning ideas with you to ensure your tax bills are kept as low as possible.

Disclaimer

Travel Expenses

The tax treatment of travel expenses can be surprisingly complicated. Here we explain what can you claim for travel expenses.

Cheap accountants

 

The starting point is that employees are entitled to tax free payments for a business journey. The employer can either pay the employee tax free for the cost incurred or the employee can claim for tax relief on any shortfall through their tax return.

The fact that an employee may have made a saving is irrelevant. So if the employee normally drives 10 miles from home to the office but is then required to drive 50 miles from home to a business client, the full 50 miles are claimable, not just the excess 40 miles. The rate of approved mileage allowance by HMRC for employees using their own cars for business travel is 45p per mile for the first 10,000 miles per year and 25p per mile thereafter. It should be noted that this mileage allowance rate includes a certain amount for fuel on which VAT can be reclaimed by the employer when backed with appropriate records.

If colleagues are in the same car for the same journey, you can claim an additional 5p per business mile per colleague.

 

Qualifying travel expenses

You can claim the cost of travel expenses incurred in the performance of your duties or travelling to or from a place you have to attend in the performance of your duties as long as your journey is not ordinary commuting between your home and your permanent workplace or private travel.

Therefore site based employees can claim the cost of travelling from home to site, although this is not allowed if the job at the site is EXPECTED to last for more than 24 months. If the position at site actually lasts longer than 24 months then they fail to qualify from the point at which they knew the 24 months would be exceeded. This should be distinguished from a permanent place of work which does not qualify at any time.

The subsistence expenses such as meals and accommodation in connection with this travel are also allowable. Car parking, toll fees and congestion charges are also allowable.

The fact that an employee may divert for a private purpose such as to do some shopping on the way home does not prevent it being a business journey if the primary purpose was business.

 

Permanent workplace(s)

A permanent workplace is usually the normal place where the employee goes to work although is actually defined as any place where an employee regularly attends in the course of their duties and which is not deemed to be of limited duration or for some other temporary purpose. It is possible to have two permanent workplaces and as a guide if more than 40% of your time is spent at the second workplace this can become a permanent workplace as well, although it is always necessary to look at the facts of the case. In some cases, spending less than this can also make it a permanent workplace.

 

Triangular Journeys

Where the employee travels from home to say a client and then to the office then the whole journey will qualify as business travel, which can be beneficial. However, it is important that the primary purpose of this is business and the work related diversion is not done just to claim the business journey.

 

Use of Home as Office

Aside from making claims for use of home of office, if the employees home can be classified as a permanent workplace on the facts then journeys to the head office should qualify as business journeys.

 

Record Keeping

Employers should keep records in support of all business travel expenses and subsistence expenses and where possible try to get dispensations for the amount of travel expenses paid agreed with HMRC.

 

How We Can Help You

We can advise you on the tax treatment of your travel expenses and subsistence expenses. Advice is included in our low monthly fixed fees.

Disclaimer