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Darling attempts to get banks lending again

With the influx of banks that are individually seeking public money to keep them afloat alongside the Treasury’s investments into the economy, it was expected that banks would loosen their lending conditions when dealing with small businesses in an attempt to inject some life back into the economy, but it seems to have gone the opposite way.

Contradictory to the comments and published figures of the British Bankers’ Association; Chancellor of the Exchequer, Alistair Darling, said he was concerned that the cost of loans to small firms had risen in recent months, despite the UK's record low base interest rate of 0.5% and the above measures being taken, as a result he has been in talks with the banks over their apparent unwillingness to lend to small businesses.

Around 19,000 shops closed this year, 12,000 of which were independent and many businesses away from the High Street quietly disappeared, many entrepreneurs are listening carefully to Government’s plans and trying their hardest to trade as much as possible – but to invest and grow, they need finance from their banks.

These dark economic times need attention and it seems that Darling’s efforts are being ignored by lenders – can he turn this around to benefit the UK’s small businesses and start to pull the country’s finances back to a healthy state?

Mr Darling said: "We need to get to the bottom of what is happening with individual banks, to see if loans are being made available and to check that [banks] are not charging more than is justified."

It is expected that the Treasury will assess each bank on their lending arrangements and will be making strong recommendations to those who fail to meet expected standards, although Darling did not agree that the government should be telling banks how to lend, although we are sure that as major investors, they will start to use some of their influence.

Over the coming months, we hope to see more cash made available to those who are attempting to borrow and more positive steps being taken such as NatWest’s move to produce a guide that will prepare businesses properly before they approach banks.

Ultimately, small businesses are struggling to stay open and many need to borrow cash to keep going or to diversify; if banks don’t play along and support the government’s plans we could see even darker times ahead and not to mention a guaranteed loss for Labour at next year’s general election.

Online VAT returns become mandatory for many – will it affect you?

From 1st April 2010, HM Revenue & Customs are changing the rules surrounding VAT Returns for VAT registered businesses and if you are not already filing online; it could affect you.

As part of HMRC’s plans to scrap the paper return in exchange for an electronic system, they will be making it mandatory for all businesses with an annual VAT exclusive turnover of £100,000 and all newly VAT registered businesses (regardless of their turnover) to submit their returns online. For all other existing VAT registered businesses with a turnover below £100,000 electronic filing will remain optional.

There are numerous messages coming from HMRC about how this is a positive change and as long as your accounting practices are all in order; it’s difficult to see how it couldn’t be positive, especially as more and more accounting software packages will should start to include automatic VAT return filing features – saving you even more time and effort.

Even without your own automated software the maths should much simpler online as the system calculates totals for you, reducing human error; the payment should be simpler as all the affected companies will have to pay online; the submission should be more secure and the system should, apparently, be more reliable.

But what happens if it isn’t reliable? It will be interesting to see how HMRC staff cope in a crisis when they experience ‘technical issues’ although we must remember they have past experience of crisis management, when returns are lost in the post and taxpayers details on CDs are ‘misplaced’ – not to worry you at all.

Much more information about the changes and the features of the new system can be found at Even if you do not fall into the category of businesses that will have to file online, we suggest you still take a look and strongly consider attempting to file online – the benefits really do seem to outweigh the disadvantages, plus it may also become unavoidable at some point, as your turnover grows or when the rules change again.

Income shifting and paying family members

Following the introduction of Independent Taxation many years ago, much tax planning developed around ensuring that all family members' personal allowances and lower rates of tax are used to best effect.

The introduction of an otherwise non-working spouse, let's say, as a partner or shareholder would allow part of the business's profit to be allocated to that spouse. Not difficult to do and lots of money to be saved. With companies, when this ploy is combined with the fact that there is no national insurance payable on dividends, there is plenty of tax and national insurance that could be saved.

However, the government has said that it would address this 'income shifting' in April 2008 and then deferred their proposals until April 2009. Then, in the Pre-Budget Report, the Chancellor made the following announcement:

'The government firmly believes it is unfair to allow a minority of individuals to benefit financially from shifting part of their income to someone else who is subject to a lower rate of tax, known as income shifting. The government has consulted on this issue but, given the current economic challenges, the government is deferring action and will not bring forward legislation at Finance Bill 2009. The government will instead keep this issue under review.'

So for now there is technically no change in the regulations. Many commentators may suggest that it is illegal to pay a spouse an income or a dividend but until the government change the rules this is simply not true.

How to avoid tax inspections

Many books have been written about how to improve your chances of winning in the National Lottery or how to improve your chances of backing a certain winner in the 2.30 at Chepstow. This article is about how to avoid winning the HMRC lottery and therefore avoid the prize of having a Tax Inspector crawling all over your business.

HMRC investigations of any kind are costly in time and even more costly in the emotions they engender and the distraction they cause in the running of your business. So is it possible to avoid them?
The honest answer is that no one has absolute immunity from investigation. There is always a small random element in the choice of cases for enquiry but there are a number of basic things that you can do to help improve your position.

The number one priority is to have an impeccable record of submitting all tax returns on time. This applies not just to the personal self assessment or the corporation tax return but also covers your employer returns such as the P35, the P11Ds and any regular VAT returns that you have to make. Regular delays in submission signal to HMRC that there may be control issues and put the accuracy of basic business records under scrutiny.
Number two is to always ensure that your returns are accurate and complete. HMRC have a wide range of information gathering powers and receive large amounts of information from third parties about amounts that might be paid to you. The omission of interest credited to bank accounts from returns is common and is a regular reason for HMRC to start an enquiry. Information is also obtained about commission payments and a wide range of other matters.

Number three would be to look at your business accounts when they have been prepared and try to explain any significant changes from the previous year. HMRC will look at trends in accounts and also compare them to results from other traders in your line of business. Marked differences will cause alarm bells to ring. Consider providing explanations when the return is submitted that might prevent questions being asked. Look for the reasons for significant changes in turnover and gross profit rates - they are real favourites of HMRC. There may be a very good reason why things have changed - make sure the Inspector knows. Only a few years ago your Tax Inspector would have been in an office probably no more than 20 miles away from you. Today it is more likely that your Tax Inspector will be many hundreds of miles away from you and he will have absolutely no knowledge of the trading conditions you are facing - so tell him!

Cash businesses are always high on HMRC's suspect list and extra vigilance is needed here but HMRC know that people being paid by direct bank transfer can arrange for money to disappear as well.
Dramatic changes in turnover / gross profit rates will really ring alarm bells when drawings taken from the business or remuneration paid seem to be insufficient to meet perceived living expenses. Remember that the Inspector has only the return on which to make a judgement and some background information may help make the difference.

If you are a sole trader or in a partnership, perceived inadequate adjustment for private matters such as motor expenses, or goods taken for own use, may prompt an enquiry.

Major changes in any other significant expenses may also need to be explained and you should always ensure that your stock or work-in-progress at the year end has been given some careful thought.

HMRC have new powers from April 2009 which will alter the way in which they carry out investigations. They also have a new penalty regime that will inevitably mean that the level of penalties charged where tax has been lost due to negligence or deliberate action on the part of the taxpayer will increase. You don’t want to be involved in helping an Inspector get practical experience of how the new powers work! Various tax returns will be prepared over the coming months so give some careful thought to what goes in them.

Increase in company formations

Following the increase of a 50% top rate of tax it is expected that some high earners will move to form a limited company.

The current threshold for a company with less than £300,000 profit per year is 21%. This may provide an opportunity for individuals earning over £150,000 per annum to ‘sit on’ the money until they want to withdraw the funds from the company.

It is already common practice for some contractors and freelance workers to operate through their own service company. Whilst some people will manage their finances through an ‘umbrella company’ it is becoming widely understood that you can manage your own company with a little assistance from an accountant and save thousands of pounds each year. This also avoids paying umbrella companies for their services.

One of the countries leading formation agents Simple Formations has reported that they have seen significant increases in private service companies. They also suggest that ‘contractors and consultants do not need umbrella companies. With a little knowledge of filing accounts and tax returns people can simply run their own limited companies.’

If you do not need to withdraw all of your earned income each year or you do not currently run your on service company then this may be an option for you. An accountant should be able to review you personal circumstances relating to service companies.

Will the 50% tax drive entrepreneurs overseas?

Following the April 2009 budget there has been growing concern amongst many business owners that the new tax rate will drive entrepreneurs outside of the UK.

The global economy an online business now means that many businesses can be operated from anywhere in the world. Whilst a new business starter may be dreaming of earning £150k per annum the reality is that many business owners have successfully built up their small businesses to thriving companies. They now reap the rewards of many years effort by paying themselves a salary above £150K. Now it seems that the government would like to thank the small business owners by taxing them for their hard work.

Congratulations on helping to drive the economy forward, now pay more tax please to dig us out of this current mess.

Many of theses entrepreneurs are now considering taking their businesses overseas where they will pay less tax. We can only hope that many of these individuals are willing to pay the tax and stick around for the long run. Hopefully their financial advisers will help them to reduce their tax bill.

April 2009 Budget - Taxation of business travel

Changes are being made to the capital allowance treatment of cars. The changes will have effect from 1 April 2009 for corporation tax purposes and 6 April 2009 for income tax. The special rules that restrict the amount of capital allowances for cars costing more than £12,000 will be abolished.

- Expenditure on cars with CO2 emissions of 160g/km or below will be allocated to the plant and machinery main pool (ie will obtain 20% WDA).
- Expenditure on cars with CO2 emissions above 160g/km will be allocated to the ‘special rate pool’ (ie will obtain 10% WDA).
- Cars that have an element of non-business use will continue to be dealt with in a single asset pool to enable the private use adjustment to be made but for expenditure incurred from April 2009 onwards the rate of WDA will be determined by the car’s CO2 emissions.

Expenditure incurred before April 2009 will in general continue to be subject to the existing ‘expensive’ car rules for a transitional period of around five years. If any expenditure remains in a single asset pool at the end of the transitional period (unless there is any non-business use of the car) it will be transferred to the main capital allowances pool.

From April 2009 the special rules that restrict the amount of lease rental payments that can be deducted for tax purposes for a car with a retail price exceeding £12,000 will be reformed. The restriction will be changed to a flat rate disallowance of 15% of relevant payments and apply only in respect of cars with CO2 emissions above 160g/km.

The provisions also aim to ensure that only one lease restriction will apply where there is a chain of leases and that in limited circumstances there is no disallowance. One example of this is where a business rents such a car on short term hire not exceeding 45 days. Expenditure under leases that commenced prior to 1 or 6 April 2009 (that is where the car is made available before April 2009) will continue to be subject to the existing rules.

Motorcycles are to be excluded from the definition of cars and will not therefore be subject to these rules. Expenditure incurred on motorcycles on or after 1 or 6 April 2009 will qualify for the AIA or alternatively the temporary FYA.

April 2009 Budget - Business and Corporation Tax

The main rate of corporation tax which applies to companies with profits of more than £1.5 million remains at 28%.

The small companies corporation tax rate which applies to companies with up to £300,000 of profits remains at 21%.

The effective marginal corporation tax rate for profits between £300,000 and £1.5 million is 29.75%.

Trading loss carry back

Under current rules businesses already have a number of mechanisms to relieve trading losses against other income including past trading profits.

For example unincorporated businesses can offset unlimited trading losses against income in the preceding year. In the early years of operation an unincorporated business can carry trading losses back for three years.

The main relief for companies is a carry back of unlimited trading losses against profits made in the previous year.

A proposed revision will apply for two years and will extend the period that current trading losses from businesses can be carried back against previous profits to a period of three years with losses being carried back against later years first.

The amount of losses that can be carried back to the preceding year remains unlimited. After carry back to the preceding year, a maximum of £50,000 of the balance of unused losses is then available for carry back to the earlier two years.

The measure will have effect for company accounting periods ending in the period 24 November 2008 to 23 November 2010. For unincorporated businesses, the measure will have effect in relation to trading losses for tax years 2008/09 and 2009/10.

Do not forget your existing customers!

As a business we have developed strong relationships with many suppliers. We spend many thousands of pounds every year with some of our suppliers. We have suppliers that get paid tens of thousands of pounds yet we never hear from them. There is an assumption that everything is alright or worse still a belief that we will remain a loyal customer.

Times are changing though

We use an international courier for shipments outside the UK. Their main competitor recently targeted this firm to win our business. If I am honest I was at first sceptical that our existing supplier could be beaten by much. However, several emails and telephone calls later and we were offered better rates and an improved service. At this point we jumped ship and began using the new courier firm. In the weeks that have passed we have not heard a single thing from the previous service provider.

A more proactive approach to retaining customers was seen from our stationers. They called several weeks ago to check that everything was Ok. We explained that we purchased a few items from a different supplier due to price and convenience. Within a few minutes the stationer had reduced the price of nearly every item we order. I did not ask for a total price review but that is exactly what we got.

Our new courier now has the bulk of our international shipments bringing them many thousands of pounds in new revenue. Our stationer has secured our existing business and also managed to acquire more business through their customer contact.

What have you done lately for your best customers?

Top 10 tips for selling in a recession

Starting a business in a recession is not easy but the world has not stopped turning and people have not stopped spending money. There are still opportunities out there and plenty of business to be won

1. Be more proactive in targeting new business. Do not assume that your previous tactics that were securing business still work in the current economic climate.

2. Tell more people about your business. If you had to promote your business to 20 clients previously to secure one order, it is likely that you will need to tell even more now.

3. Be prepared to work every lead. If you are telling more people about your business then you will need to follow up more enquiries and chase more leads.

4. Could you switch your sales pitch? Is now the right time to promote how you could save other business money? What cost savings can your clients gain by using your business?

5. Is it time to use new methods of communicating with clients? Could an email campaign or mail shot work? Is local, national press right for your business? How do clients hear about you? It may be time you found out!

6. Do not forget your previous clients and regular customers. Have your regulars used your services recently? Do not forget to keep in contact with your existing customers or someone else just might steal that business.

7. Are your products and services visible online? Would a website help your business?

8. What other products and services could you be providing? Look at your competitors and see if they have developed new revenue streams. Speak to your customers and find out if there is anything that they actually need from you.

9. Could you add value to your existing product or service? Differentiate your business from your competitors by adding value.

10. Be positive at all times with your clients. They do not want to hear that things are tight, that your business is struggling. Create a stable, confident environment in which to sell your products and service.

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