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Business Matters - Spring 2005Contents Reaping the rewards Reaping the rewards:
|
Yes |
No |
|
1 If
you are the owner of a limited company, have you considered
the extent to which there is an advantage in receiving
dividends instead of salary/bonus? |
1 |
1 |
2 Have
you considered giving up the company car and instead
claiming at the official mileage rate for business
use of your car? |
1 |
1 |
3 Are
you satisfied that your liability to income tax and
capital gains tax, and your potential exposure to inheritance
tax, is as low as possible? |
1 |
1 |
4 Have
you considered maximising your contributions to pension
schemes this year, whether company, additional voluntary
contribution, retirement annuity or personal pension
schemes? |
1 |
1 |
5 Have
you considered claiming a CGT loss for assets which
have become of negligible value? |
1 |
1 |
6 Have
you thought about the ways in which you can reduce
the possibility of a substantial tax bill when you
leave your business? |
1 |
1 |
7 Are
you and your spouse making the most of the independent
taxation rules which give each of you your own allowances
and tax rate bands, and are your children using their
personal allowances? |
1 |
1 |
8 If
you are in a position to determine your total remuneration
package, have you fully considered tax-efficient benefits? |
1 |
1 |
9 Is
your business’s tax burden as low as possible? |
1 |
1 |
10 Are
you satisfied that your savings will be adequate for
retirement? |
1 |
1 |
Taking stock...
Inefficient stock management can seriously damage the profits of any business. Holding stock ties up valuable cash, and incurs costs in warehousing, personnel, transportation and insurance.
In an ideal world, every business would have no stock at all but would operate entirely on a well-tuned just-in-time system with materials and parts arriving in the order and quantities in which they are needed for retailing, or for the manufacturing or assembly process.
But since most small and medium-sized businesses do not have the resources to implement just-in-time, here are some suggestions for reducing stock costs:
- Identify those materials that are commonly used in numerous different products – and use them as widely as possible
- Check the quality and accuracy of goods received from suppliers. If you only spot the poor quality at the end of the process, it is too late
- If you work closely with your suppliers and build up a relationship of trust, you may be able to reduce the time spent checking the goods received
- Wherever possible, reduce the lead time for ordering materials, but take care not to unwittingly create hold-ups in production
- Constantly review sales trends and cross-reference them with stock requirements
- Make sure delivery schedules are well choreographed with production – try to avoid holding more finished products than you really have to
- Try to negotiate discounts on virtually everything that you buy and then negotiate terms for payments and interest rates.
Caution
Finally, a note of caution: although it is generally best to keep stock as low as possible to avoid locking up capital, this might not always be the case if there are really significant bulk discounts available.
If you decide to make changes to your stock levels or procedures, be sure to do so within the context of the business as a whole: never make stock decisions in isolation.
Filing: Is it time to get online?
PAYE: Why fifty employees is the limit
Fifty employees is a significant number by anyone’s standards, but it has particular relevance for a small business with a growing payroll.
From the 2005/06 tax year all employers who have fifty or more employees on one PAYE scheme will have to file their end of year PAYE forms (P14 and P35) online. This means these forms must be sent to the Revenue either through the special Inland Revenue website: (https://online.inlandrevenue.gov.uk/index.jsp) using approved software, or through Electronic Data Interchange (EDI) which uses a direct connection between the employer’s computer and the Inland Revenue without going through a third system such as the internet.
The Inland Revenue surveyed all current PAYE schemes in October 2004 and wrote to those employers with fifty or more employees to warn them to prepare for online filing. Those employers with 250 or more employees should already be well on the way to e-filing as their end of year PAYE returns for 2004/05 must be submitted online by 19 May 2005.
If your payroll has only recently tipped over the fifty threshold, but you didn’t receive a letter telling you to file online, don’t worry. You will not be forced to file online until the tax year starting after the next Inland Revenue survey, which is likely to be undertaken in Autumn 2005.
Large employers (over 250 employees) also have to pay all their PAYE liabilities electronically for payments due in May 2004 and beyond. Other employers are not yet obliged to pay PAYE electronically but if they do so they can take advantage of the extra three days to pay. This means the PAYE tax and other payroll deductions must reach the Revenue’s account by the 22nd of the month rather than the 19th (or, if at a weekend, the Friday before).
Fifty employees is also one of the three thresholds that define a small company for the audit exemption, R & D tax credits and first year capital allowances. However this limit can be breached if the other two tests of turnover (no more than £5.6 million) and gross asset value (no more than £2.8 million) are met.
VAT: online returns made easy
A VAT return is not a particularly complicated form to complete. So why would you want to do it online?
With online filing you receive an automatic acknowledgment, so you can be confident the form has arrived safely and hasn’t been lost in the post. Penalties for the late submission of VAT returns should be a thing of the past.
The other major advantage is that you have up to seven extra days to pay the VAT you owe. Online filing must be accompanied by any VAT liability being paid electronically. The BACS, CHAPS, or bank giro transfer must reach Customs’ bank account by the seventh day after the normal due date, or the last working day before this deadline.
Customs and Excise have been accepting VAT returns online for some years through the Electronic VAT Return (EVR) service, but this facility is now being phased out in favour of a new system called eVAT Returns.
To use the EVR service you had to purchase an electronic signature or digital certificate, which cost about £50 per year. The new eVAT service doesn’t require a special electronic signature, but you do need to follow a three step registration procedure as follows:
1. Obtain a Government Account online user ID;
2. Enrol for the eVAT services; and
3. Activate the service required.
Step 1 can be completed at the Customs and Excise website: http://www.hmce.gov.uk. To sign up for an online account you need to create a password that includes both letters and numbers. You will then be given your user ID. Make sure you keep a record of both your password and user ID as they will not be sent out by post and you need to enter them every time you use the eVAT service.
For Step 2 you need to have a copy of your last VAT return and a note of the date you originally became registered for VAT. Once you have answered all the questions you have to wait around for an activation PIN to be sent out through the post.
Step 3 requires you to answer even more security questions. Only when these three stages are complete can you start to fill out your VAT return online. You should allow plenty of time before your next VAT return is due in, as the delay between Steps 2 and 3 can be up to a week.
There is a helpdesk, available on 0845 010 8500 on weekdays only.
Business Briefs
Preventing illegal working in the UK
The Asylum and Immigration Act, which came into force last year, contains new measures for employers designed to help prevent illegal working in the UK.
Under section 8 of the Act, employers must make basic document checks on all potential employees, to ensure that they are legally entitled to work in the UK.
The Government has now introduced some key changes to the list of specified documents which are deemed acceptable for the purposes of checking by employers.
Employers are only able to obtain a statutory defence against conviction for employing an illegal worker if they have checked and copied specific original documents belonging to the employee, from among the items on the approved list.
Employers must take reasonable steps to ensure that the documents belong to the potential employee, by checking details such as photographs, dates of birth, expiry dates, and any Government stamps or endorsements.
Employers must also ensure that their recruitment practices do not discriminate against individuals on racial grounds.
For further information and guidance, including information on what to do if you employ nationals from the European Economic Area, visit the Immigration and Nationality Directorate at www.ind.homeoffice.gov.uk.
Protecting your intellectual property
A recent study has warned that 67% of small businesses are failing to protect their intellectual property (IP).
Failing to register a company or brand name, logo, invention or concept means that your ideas are open to being copied by other businesses.
Setting up a trademark can offer protection for business owners, and firms are being encouraged to protect their intellectual assets by registering their ideas.
The Department of Trade and Industry’s Innovation Unit and the Patent Office have set up an Innovation Logbook, which business owners can use to log their ideas. More information is available at www.innovationlogbook.gov.uk.
Further information on IP, including trademarks, patents and copyright, can be found on the Patent Office website: www.patent.gov.uk.
‘Breakthrough’ on employers’ liability for smallest companies
The Government has announced that with effect from 28 February 2005, companies in which the owner is the sole employee will no longer have to buy employers’ liability compulsory insurance.
The measure is expected to save sole employee companies an average of £250 a year, and will benefit around 300,000 UK companies.
The announcement follows a consultation in which nearly 80% of respondents said that the requirement should be dropped.
Employers’ liability insurance has been a major issue for small businesses in recent months, with many suffering from the rapidly increasing premiums, and others finding it difficult to obtain insurance at all.
WEB WATCH
Essential sites for business owners
New legislation www.hmso.gov.uk/legislation/whatsnew.htm
Direct links to new legislation.
Transport Direct www.transportdirect.info
A complete transport journey planner for Great Britain.
Working in the UK www.workingintheuk.gov.uk
All about the rules for employing foreign nationals.
Sustainable Workplace www.sustainableworkplace.co.uk
TUC-backed site looking at business and the environment.
Reminders for your diary
March 2005
31 End of corporation tax financial year
End of CT61 quarterly period
Filing date for Corporation Tax Return Form CT600 for period ended 31 March 2004
April
5 Last day of 2004/05 tax year
Deadline for paying retirement annuity premiums to be carried back to 2003/04 and for 2004/05 ISAs
14 Due date for income tax for the CT61 period to 31 March 2005
19/22* Quarter 4 2004/05 PAYE remittance due
20 Interest will begin to accrue on unpaid PAYE/NI for 2004/05
30 Normal annual adjustment for VAT partial exemption calculations (monthly returns)
May
3 Last day for notifying car changes in quarter to 5 April 2005 – P46 (Car)
19 Last day for filing forms P14, P35, P38, and P38A – 2004/05 PAYE returns, without incurring penalties. Also last day for filing contractor's returns, including CIS36.
31 Last day to issue 2004/05 P60s to employees
* If PAYE is paid electronically, the due date is extended to the 22nd, or, if this falls at a weekend, to the previous Friday