26
Mar, 2024

Time to rethink the credit you offer your customers

Most business owners are driven by sales targets and to meet these targets they may be tempted to offer extended payment terms.

For example, if your business grants a customer time to pay – say 60 days – after the services or goods supplied have been delivered, effectively, your money stays in their bank account for 60 days.

Further, if you have incurred costs regarding a sale, which have to be paid for before your customer settles their bill, you are out of pocket until your account is settled.

There is a well-worn cliché in business that cash is king. Business owners should keep a weather eye on the effectiveness of their efforts to turn a sale into cash in the bank. Amounts owed by customers may look like a useful buffer – cash to come in in future months – but you cannot spend or invest trade debtors.

Once you have made a sale, if you allow customers extended credit terms you are basically saying it is OK to leave your money in their bank accounts.

A further, major risk from offering over generous credit terms is over-trading. As mentioned above, if you have to pay for your goods and services on terms less generous than those you offer your customers, you will run out of spending power unless you have substantial cash reserves.

The next time you are tempted to extend credit in order to win a sale, take advice. We can help you consider the wider consequences of your sales strategy and its impact on cash flow.

Source:Other | 25-03-2024
26
Mar, 2024

We are unpaid tax collectors

Clients often refer to the VAT added to supplier invoices as if it were a cost to their business regardless of their VAT position.

This is true if you are not registered for VAT, you do not have to add VAT to your sales and you cannot recover any VAT you pay on purchases. Under these circumstances, VAT is a cost.

If you are registered for VAT, cash you collect from your customers will include VAT – if the sales are subject to VAT – and you will pay the VAT collected (less any VAT you pay on purchases) to HMRC. As you are collecting VAT from your customers, paying VAT on purchases to your suppliers and paying the difference to HMRC, there is no overall cost to your business.

Whilst there is no effect on our profitability if we are registered for VAT, if we have to pay over VAT added to our sales before our customers pay our bills then there can be a cashflow issue. Fortunately, HMRC allow traders affected in this way to use a special process called cash accounting for VAT. If you qualify for this method, you will only pay VAT added to your sales when your customers pay you, and conversely, you can only reclaim VAT on purchases when you have paid for them.

Consequently, those of us who are registered for VAT and are required to calculate and make returns to HMRC, are indeed unpaid tax collectors.

Source:Other | 25-03-2024
21
Mar, 2024

Invest and save tax

The Annual Investment Allowance (AIA) is a generous tax relief that allows for the total amount of qualifying expenditure on plant and machinery to be deducted from your profits before tax.

The AIA can be claimed by an individual, partnership or company carrying on a trade, profession or vocation, a UK non-residential property business or a furnished holiday let. Only partnerships or trusts with a mixture of individuals and companies in the business structure are unable to qualify for AIA. The AIA is currently available for qualifying expenditure of up to £1 million per year.

If you are thinking of incurring expenditure on large items of capital expenditure for your business before the end of the tax year, there is still time to invest in new equipment and reduce your tax bills for 2023-24. This could mean looking at accelerating plans, where possible, to incur expenditure before the end of the year and maximise relief.

The AIA is available for most assets purchased by a business, for example, machines and tools, vans, lorries, diggers, office equipment, building fixtures and computers. The AIA does not apply to cars.

A claim for AIA must be made in the period the item was bought. This date is defined as the date when a contract was signed – if payment is due within 4 months of the contract being signed – or the actual payment date if it’s due more than 4 months later.

Source:HM Revenue & Customs | 18-03-2024
21
Mar, 2024

Tax-free child care

HMRC is reminding parents that they may be eligible for Tax-Free Childcare (TFC) to help pay for school holiday childcare costs.

The TFC scheme can help parents of children aged up to 11 years old (17 for those with certain disabilities). The TFC scheme helps support working families with their childcare costs. There are many registered childcare providers including childminders, breakfast and after school clubs and approved play schemes signed up across the UK. Parents can pay into their account regularly and save up their TFC allowance to use during school holidays. 

The TFC scheme provides for a government top-up on parental contributions. For every £8 contributed by parents an additional £2 top up payment will be funded by Government up to a maximum total of £10,000 per child per year. This will give parents an annual savings of up to £2,000 per child (and up to £4,000 for disabled children until the age of 17) in childcare costs. 

The TFC scheme is open to all qualifying parents including the self-employed and those on a minimum wage. The scheme is also available to parents on paid sick leave as well as those on paid and unpaid statutory maternity, paternity and adoption leave. In order to be eligible to use the scheme parents will have to be in work at least 16 hours per week and earn at least the National Minimum Wage or Living Wage. If either parent earns more than £100,000, both parents are unable to use the scheme.

HMRC’s Director General for Customer Services, said:

‘Springtime is a good opportunity to take a fresh look at family finances. A quick check online and you can find out how Tax-Free Childcare can help cut the cost of your childcare bills. Every bit of financial support helps – I would urge families to ’hop to it’ and search ‘Tax-Free Childcare’ on GOV.UK to find out how you could be better off and open your account today.

Source:HM Revenue & Customs | 18-03-2024