Who knew? We've just had a health and safety warning about the use of stepladders. According to the briefing, control must be exercised over who uses them and the appropriate permits must be completed before use. The person authorising use and the person actually clambering up must risk assess the task and complete a form to show that all the safety checks have been made. Over the next few weeks: how not to boil the kettle and pour the contents all over the nearest computer How not to smack the side of the face when lifting the phone receiver Calculators: how repetitive adding can cause RSI and ultimately death Inhaling permanent marker pens and brain damage Photocopying of buttocks causes cancer
A male team member has caused uproar in office dynamics this weeks as it transpires that for his (newish) girlfriend's birthday, he has booked a romantic dinner in a chi chi restaurant (not Waggamamas!), a coat (that she had hinted at) and her favourite flowers which had to be ordered from Denmark.
This information was wheedled out of him by a female colleague and then subjected to scrutiny. Without wishing to stereotype, (our sample is not statistically valid), the females were impressed and men aghast.
Tutting, head shaking and sharp intakes of breath preceded dire warnings of 'setting the bar too high'.
Men: take note: by the time his standards have dropped, they'll either be fully committed or history. In the meantime 10/10 for effort and no doubt he will reap his full reward.
You non flower givers, garage chrysanthemum buyers or standing order slackers take note: spontaneous blooms = sex
As part of our business development offering at Ducketts, we like to go and talk to our clients’ customers, to see what they really think.
Most people are very helpful, as we explain that our client is looking to develop/improve their business and that their feedback will be very helpful. They are likely to be more candid with a 3rd party than someone they deal with direct.
The interviews tell us a number of things, including, what our client is doing well, what they could do better and how they compare with competitors. Just as importantly, they tell us, what their customers “get”, as well as the product/service that they are purchasing.
For example, recently we had the following comments:
“by using Client X, we are seen by our customers as the go to people and they don’t approach any of our competitors”
“using Client X means that we don’t need to employ additional designers”
“the speed of Client X’s response means that our manufacturing process isn’t slowed down”
“Client X takes away my pain, so that I can concentrate on production. They make us look good with our customers”
So Client X, as well as providing an excellent product/service, make sure that their customers don’t lose production time (and therefore, money), don’t need to employ additional staff, again saving money and significantly improve their customers relationships with their customers.
This is important as it differentiates XYZ – the above extras mean greater profitability for their customers; better relationships, should generate more sales, whilst more efficient manufacturing processes/fewer employees mean cost savings.
Not all customer surveys are as positive – before I joined Ducketts, I was told of a customer survey meeting on behalf of a new Ducketts client. Ducketts were meeting our client’s best customer, whom represented a significant amount of their turnover. We were further advised that they had an excellent relationship and the client could count on their business returning year after year. Product was always sent out on time and there were no issues with product quality.
At the interview we were told, by our client’s customer, that they were looking to reduce the number of suppliers that they used and that our client would be one of the first to go. The reasons were that they didn’t have any contact with them and they were always late.
It turned out that when deliveries were made, they weren’t recognised by the warehouse scanning system. Consequently, they were dealt with when someone in the warehouse had some spare time. Inevitably, by which time it was after the due date and, therefore, was registered as being late.
Our feedback meant that the situation was resolved and the relationship retained.
When I first heard that story, I thought “Wow, I don’t know any other accountants that do anything like that”.
If you have thought Wow and would like to see how we can help develop your business (or your clients’ businesses, please contact either John or Martyn in the Ducketts Business Development Team on 01432 370572.
My client has acquired a buy-to-let property and will be carrying out some repairs before taking on tenants. Will the repair costs qualify for a tax deduction?
This is a fairly common question which is often fraught with difficulty. The answer very much depends upon the facts. The discussion which follows relates to genuine repair and maintenance costs and not to works which result in a significant improvement over the asset’s original condition. The cost of such works will invariably be treated as capital.
It is generally accepted that the cost of routine repairs and maintenance, for example redecorating, carried out after a property acquisition is a revenue cost. Similarly, work to repair or reinstate a worn or dilapidated asset is usually deductible as a revenue expense and HMRC accept that carrying out repairs shortly after acquisition does not necessarily point to a capital expense. However, they also point out that if buying a property in good condition is capital then the combined cost of buying a dilapidated property and putting it into good condition must also be capital. So, in their view, the cost of repairs carried out after buying a property which was not in a fit state to let until the repairs had been carried out is a capital cost and even more so if the price paid for the property clearly reflected its dilapidated state.
This can perhaps be contrasted with the situation where the property is capable of being used in its current state but the new owner wishes to carry out some repair and maintenance work to appeal to a particular class of tenant, in which case the expenditure is, arguably, revenue in nature and deductible.
The weekend saw the release of the long awaited video epic by cult director David (call me Cecil B.) Lloyd. There was a moment of drama at the premier when the studio boss wanted to know why the film was 12 months late and over budget. Cecil B was heard to mutter “Michael Cimino didn't have this trouble” before flouncing off to his swimming session.
Some critics considered the car chases, shoot outs and sex scenes to be gratuitous, but Cecil B strongly defended his artistic credibility and stressed the need for realism. After all, we are talking about an accountant's office. His only regret that (rather like 9 and a half weeks), some of his best work ended up on the cutting room floor. He considered some scenes just too raw for the target audience, particularly those where the word “tax” was used.
Master cinematographer Maria Szabo was singled out for particular praise. Not only did she shoot the whole film on a hand held iphone, she also edited it on the phone lost the phone, lost the file and then found them again.
Praise from the critics:
Camilla Winkleman in the LA Times
I've seen some truly beautiful films in my time. This wasn't one of them.
The special effects were stunning. It's hard to believe the whole thing was shot at sea.
Andrew Haughton in the Winnipeg Chronicle
Clive Haughton's portrayal of a diamond geezer in a suit from Sarth London was awesome. Guy Ritchie eat your heart out.
When will John Thompson get his hair cut?
If I've missed a joke, please do let me know.
Watch it and weep. http://chrisduckett.co.uk/
There seems to have been a plethora of articles on cyber risks recently, so why the need for another one, you might ask? The reason is simple; businesses and individuals continue to be the victim of cyber scams.
It is also true that no matter how small your business, information that you hold in respect of customers, employees, product design etc. is of huge interest to cyber criminals.
The Current Top 5 Threats
Ransomware – a form of malware that attempts to encrypt your data and then extort a ransom in exchange for an unlock code. Usually delivered via e-mail. The key steps to protect your business are:
Phishing e-mails often look convincing, with faultless wording and genuine logos. Things you can do to help protect your business include:
What to do if you have been breached
But this is more about tax than farming.
On Tuesday morning we had a flying visit through the midlands to East Midlands airport for a farming conference. We had presentations by various people on the prospects of UK Farming, topical Tax issues and the importance of costings. Here is a bit of what we learned.
So there is a new five year averaging rules for farmers. However, they haven’t quite sorted out what the rules are and how it will work. At the end of the day, it may take far too much time and effort to actually save anyone any money. At least they have let us keep two-year averaging (although slightly tweaked).
Taxation of dwellings
The government is out to get private residential landlords, but the new tax rules which have come in are likely to catch other people out.
Now there is the extra 3% stamp duty on second homes, not just buy-to-let, but also people buying a second home. This could trip people up when people buying a new house before they have sold their previous one. Also, a useful rule to remember is that a married couple counts as one unit (note to self; I must buy a house before I think about getting married).
There is also a restriction on the amount of mortgage interest that can be offset against rental income – higher rate tax payers beware. How many people do we know who rent out a property and do the tax returns themselves (assuming they even do one!), so how many are likely to carry on as usual and get this wrong?!?
And to top it all off, when you sell the rental property you get hit with CGT of 28% (rather than the new reduced rate of 20%).
Basically, the government wants us all to invest in companies rather than houses. That’s fine if you want to accept the risk, but the risk adverse among us will need to make a decision between stumping up the new tax or letting the money sit in a bank account getting peanuts in interest.
Then away from all the Tax we had an interesting talk from a farmer/contractor; all about how farmers should keep a track of all their costs. Everyone should know how much it costs to produce their particular product, be it milk, cereals, beef, lamb etc. However, this guy was no stereotypical farmer, and he was definitely a wizard with his spreadsheets. Not only did he have his machine costs per hour, but also had fully costed his implements including factoring in other variables such as soil type! I don’t know too many farmers who would have the time to do this!
Your overseas assets are going to be notified to HMRC
The UK has agreed with 100 other countries to exchange information with banks, Trustees, company administrators, insurance companies etc.
When HMRC have this information they will contact every affected individual to check that any and all income from these overseas sources have been declared.
It will start from September 2018 and in the meantime there is a new amnesty for declaring any omissions. While the amnesty is not terribly benign (no immunity from prosecution), it is significantly better than the options if found to have misbehaved. HMRC will be looking for penalties of between 100 and 200% plus a further 60% for extra bad behaviour.
Where this regime differs from previous actions is that HMRC will be checking on everyone for whom they receive information. Apparently the financial institutions making the reports will ensure that they have the right John Smith because he will have provided his tax reference. It remains to be seen whether HMRC can match the information to the right person and could be messy.
Hopefully none of our clients have overseas income that they have not declared. If there are any, a preemptive strike would be infinitely preferable to the s**tstorm that's coming after.
I've been on a tax investigation conference. It was more fun than you might think and all sorts of interesting snippets came to light which I've decided to share. There are currently 55,000 staff which is half what it was 10 years ago (and they weren't that great then). 137 offices are closing and there will be 13 regional centres only. Hopeless if you want to see the whites of their eyes. HMRC have proudly announced that 85% of staff are adequately trained: that means that 15% (7500 members of staff) are under/inadequately trained. Investigation cases are still on the increase. Primarily these are 'aspect' cases where HMRC look at a part of your accounts eg repairs. The other winner for them is a VAT or PAYE visit. Only 9% of investigation recently have been full enquiries. HMRC want to get in 'mug you for a quick buck' and go again. They have stated that they are going to pursue penalties at the higher 'deliberate' rate in 30% of cases and this is a stated target. They can get information on you from Airline passenger lists, Chip and PIN merchants, insurance companies and overseas information exchange (more on this later). This is in addition to banks, the land registry, DVLA and your Facebook page. Last year there were 100,000 calls to the HMRC 'report a tax dodger' telephone line and £600k was paid in rewards. In spite of published rules of how investigation cases are supposed to work, the Inspectors at the 'coal face' don't all follow them. Are we to assume these guys are part of the 15% who are not adequately trained? They ask for things to which they are not entitled and try to pursue tax which is out of date. The moral of this tale is to make sure you get professional advice if faced by an HMRC challenge. They may have a big stick, but they can be made to insert it up their own tax gap.
Earlier this week, I attended a HSBC Brexit seminar, where the key speaker was the Bank’s Head of Economics for Commercial Banking – Mark Berrisford-Smith.
The key messages I took from the presentation were as follows:
Fundamentally, the UK economy is doing okay and is currently growing at the same pace as France, and UK consumers are continuing to spend. The main area of concern is that business investment levels are low as businesses continue to delay investments.
The last few days have seen a further weakening in sterling. HSBC’s view is that this will continue and that by the end of 2017, the pound will have weakened to 1.1 against the dollar and will be trading at parity against the Euro.
This will impact on inflation, which is expected to rise to 2% by the end of Q1 2017 and to 4% by the end of 2017 – this may well test UK consumers spending appetite. Inflationary pressures are beginning to feed through into fuel prices and the spat between Tesco and Unilever.
HSBC still expect the MPC to reduce base rate to 0.1%, but expects the MPC to be split.
Infrastructure projects to be announce in the Chancellors Autumn Statement are expected to be local schemes and relatively modest.
Agreeing a trade deal with the EU is likely to be a lengthy process. The deal with Canada, whilst it has been agreed, now has to be ratified by each individual EU state!
Later in the day, I received an economics update from Lloyds, which concurs with much of the above, particularly with regard to the likely further cut in Bank base rate and the extent of the spending on infrastructure to be announce by Phillip Hammond. With regard to inflation they expect this to burst through BoE’s 2% target in Spring 2017 and to rise further, but haven’t forecast where they expect it to be by the end of the year.
It would appear that choppier waters are indeed ahead, although economists’ forecasts have been known to be inaccurate. [Ed. – this is Martyn doing under-statement]
You can see HSBC’s latest Brexit webcast, with Mark Berrisford-Smith on their website.
I've been on a tax course which always gets my dander up, so stand by for a procession of batterings along the line of '....and another thing'. I thought that the following facts were interesting, although Daily Mail readers may know already. The total public spending in 2016/17 is expected to be £772bn. Of this, £240bn is for social protection, health is £149bn and education is £102bn. EU transactions are included in 'other' which totals £49bn. Unfortunately public sector receipts are only £715bn. The shortfall of £57bn is currently funded by borrowings. It is a lower figure than it has been, but the 'outs' are still exceeding the 'ins' which, inevitably, at any level, calls for a day of reckoning. The ability to borrow is affected by credit ratings which have been wobbled by the recent vote. I make no comment on the result. In a tax context, the bulk of the public income comes from Income tax, then NI and VAT. Corporation tax (CT) brings in very little and there is a school of thought that it should be abolished. More on that later. Lagging behind is Inheritance tax (IHT) and capital gains tax (CGT). BUT the % increase in the yield from these taxes has increased by 48% and 66% over the last few years. One could infer that HMRC view these taxes as further income opportunities. Particularly as the amount of CGT paid is lower than the CGT saved by Entrepreneurs relief. It can only be a matter of time before the application of this relief is severely curtailed. Sadly CT will not be abolished because we've agreed via BEPS (Base Erosion by Profit Shifting) not to allow aggressive tax planning to entice our neighbours to play over here. Of course, our neighbours will also be gentlmenly enough to sign up too. Hah!
The National Franchise Exhibition was on at the NEC last weekend, so a few of us went along. My plan, with a couple of clients, was to broaden our thinking as to what a successful business looks like and to pick up some ideas.
There were plenty of interesting businesses there, but the notable thing was the startling variability of the people manning the stands.
I was trying to establish the sustainability of the business we were seeing so asked the question
“what makes your business different to the competition”
The Polish guys, who were outsourcing care for the elderly – Promedica24, www.promedica24.co.uk had if off to a tee and gave me several good reasons why they were special and why people would /should buy from them.
A lot of the other exhibitors told me it was because they had been established 23 years or gave good service.
The question is, what would any of your team say if they were asked what makes you different? Will it be the 1922 answer or something relevant to the enquirer?
What makes your business different and does anyone care?
Business Development Club 12th October 2016
Verzon Hotel, Ledbury: 6.00pm for 6.30pm.
Why should your customers choose your product/services rather than a competitor’s? The hard truth is that unless a business can articulate some unique reason why a customer should buy from it, then usually the customer will make a choice based on other factors, probably price, but possibly reputation/brand. That’s where marketing comes in.
It’s tempting to cut back on marketing in difficult times, but the real trick is to get value for money for the expenditure.
So, we’ve asked Chris Hutchinson, of Aardvark Consulting, to give us the wisdom of his experience. He worked for many years with some household names and now spends his time making marketing and advertising work for small business. We’ve involved him with a number of our clients to good effect. He’ll cover:
This is going to be an informative session where you will have something new to take away from the meeting. The cost is £40 per head and will include a superb meal in a beautiful setting.
If you wish to attend please confirm by email your response to firstname.lastname@example.org.
I hope to see you there.
PS. Advertising has been described as “the science of arresting human intelligence for long enough to get money from it”. To discuss.
Most self employed clients will be aware that they are no longer paying their Class 2 NI (stamp) monthly by direct debit. HMRC stopped collecting this over 12 months ago as they concluded that it would be easier to collect it via self assessment from January 2017. I have been completing tax returns over recent months and for the purpose of completeness and because the software allows, I have included this extra payment (£145.60) in the calculation of the amounts payable. After all, if I tell someone they need to pay £1,000 in January, but they get a bill for £1,145, they would be bemused. The problem I have found is that HMRC cannot decide if they want this included in the tax calculation or not. AND WHATEVER I DO, THEY SEEM TO WANT IT THE OTHER WAY! So if I include it, they send a calculation to remove it and if I leave it out, they send a calculation to include it. So much for reducing the flow of paper. In the meantime, I'm going to stab someone with a fork.
It is entirely possible that this tax snippet may only be interesting to insomniacs and anoraks but I liked it so read into that what you will.
Rupert Grint (Ron Weasley of Harry Potter fame) decided, or rather, his accountant decided to organise his accounts so that a chunk of profits fell into a tax year where the highest rate was 40% rather than the later year when it was 50%.
Who can blame them? There is nothing wrong with that even in today’s climate of ‘tax puritanism’.
They did this by extending the accounts from a year end of 31st July to the following 31st March. This meant that he paid tax on 20 month’s worth of profit but over the 2 years he saved £x at 10%. I don’t know the sums involved but 10% of £500k is worth having.
HMRC managed to overturn this simply because the accountant prepared one set of accounts for 20 months rather than 2 sets: one of 12 months and one of 8. There is a rule which says that you cannot have a set of accounts for longer than 18months.
The result being that the profits were moved into the later tax year and he paid 50% tax on them rather than 40%, plus interest and probably penalties.
It’s interesting that something so apparently trivial ie the sensible move to only complete one set of accounts could have tripped them up. This result may well be challenged but often it’s not worth the costs and so stupidity prevails.
What is ‘Making Tax Digital’?
This is a big deal. HMRC’s ultimate objective is to drive the self-employed (others) into paying tax monthly ideally on the basis of what goes into their bank accounts.
I’ve therefore faithfully reproduced the missive issued by our consultants Francis Clark, which takes a rather less reactionary view of the world.
This is going to happen in 2018.
What is ‘Making Tax Digital’?
Making Tax Digital (MTD) is part of HMRC’s plan to transform its current system into one of the most digitally advanced tax administrations in the world. Their vision is that paper tax returns will be abolished and digital records will enable taxpayers to update HMRC frequently on their tax position and therefore have a ‘real-time’ idea of their tax liabilities. The intention is that a taxpayer should not have to tell HMRC something that HMRC should already know.
HMRC’s plans are still evolving and they recently released six consultation documents on the various aspects of how MTD will work. Although we don’t yet have all of the answers, we do have a broad framework within which MTD will sit and how HMRC see it working. MTD builds on real time information (RTI) which is already in place for PAYE and the plan is that RTI combined with digital tax accounts will enable paper notices of coding to disappear.
The starting point is for every taxpayer to have a digital tax account through which they can access their tax affairs and state pension entitlements.
Do I have a digital tax account?
Yes. These are already in place, although you may not have activated yours yet. This needs to be done via the Government Gateway at: www.gov.uk/personal-tax-account.
What will MTD mean to me?
HMRC want to abolish annual tax returns. Business owners and taxpayers with property businesses will need to update HMRC every quarter (or more frequently if one chooses) with details of their income and expenditure. This will be done via software no later than one month after the end of the quarter.
However, even with quarterly reporting and more use of the cash basis HMRC recognise that there will need to be an ‘end of year’ report for such businesses to make adjustments and confirm that the data supplied throughout the year is correct. This will be due nine months after the end of the accounting period. Apart from some limited exemptions and the few ‘digitally excluded’, everyone will have to move to this system. For those without business income and property income then the government’s ambition is that information will be obtained from various providers so avoiding the need for an annual tax return.
Probably, yes. There are very few concessions. Taxpayers with business or property income below at least £10,000 will not be required to make quarterly returns, nor will the ‘digitally excluded’. HMRC want to apply the current VAT online filing exemption definition to MTD. This provides exemption on grounds of religion, disability, age, remoteness of location or inability to do so for any other reason.
When does this start?
The idea is that quarterly reporting will start from April 2018, but will be phased in. HMRC’s preferred way is that updates will begin on the first day after the end of the accounting period following 5 April 2018. Unincorporated businesses with income between £10,000 and a yet to be defined upper limit will be able to delay the commencement for one year.
What is the cash basis? Should I be using it?
Accountants do not find the cash basis very useful. It doesn’t match expenses against the income to which it relates and taxes money received rather than when it is due. It doesn’t give a true picture of how a business is doing. That said, smaller businesses or property businesses may not need this visibility and tax payments will match cashflow. Property businesses will be able to use the cash basis and this will be extended for unincorporated trading businesses where their turnover does not exceed twice the VAT limit (currently £166,000). HMRC are also looking at changing the basis on which accruals accounts are prepared (for unincorporated businesses), by simplifying the adjustments made
What if I miss an update? Initially there will be a ‘soft landing’ period of 12 months while taxpayers get used to quarterly updating. After this, a points based penalty system will be in place where missed deadlines accrue points which once they reach a certain level trigger a fixed penalty.
Do I still need to do annual accounts? Currently for companies the answer will be yes. However, for unincorporated entities the answer is no, you won’t. You will need to keep accounts, but these need not be annual. They can be quarterly to tie in with reporting to HMRC or they can cover another period that suits the particular business.
Do I need to change my accounting software?
Every business will need to be using a package which will ‘talk’ to HMRC’s system and developers are working on solutions to make current software integrate with HMRC’s MTD platform. Records will need to be kept digitally. It seems unlikely that Excel spreadsheets will suffice.
Am I going to need to pay my tax earlier?
At the moment, no. However, a move to real time reporting can only be a precursor to eventually moving forward tax payment dates to match the earning of the profits they are paid on. HMRC will be introducing a new option to pay tax earlier on a voluntary basis, known as pay as you go (PAYG).
I have other sources of income. How will this work?
Your personal digital tax account will be populated with other information that HMRC hold such as PAYE details, bank and building society interest, state benefits, etc. There may well be remaining sources of income such as foreign income which will require some further notification to HMRC.
What about partnerships and jointly held property?
At the moment each partner and property owner must make a return of their partnership or property income. In future only a single nominated partner or landlord will have to provide the information. The quarterly information will feed directly into individual partner’s or landlord’s digital tax accounts.
What about companies?
None of the consultation documents released yet cover companies.
Can you sort this out for me?
Yes. Although there will be a change felt by taxpayers, arguably more changes will be felt by accountants. Agents will have full access to digital accounts and will be able to guide taxpayer’s through the changes.
Andrew's leaving do Well the time has come to bid farewell to Mr Bailey. He has served the business well o
A man who has to wade through treacle on a daily basis to find silver linings and missing commas.