Author Archive

Profit Vs Cashflow – What’s the difference?

Thursday, October 14th, 2021

Cashflow and profit are very different. Business owners can often be confused into believing they are highly profitable because they have a large amount of cash and vice versa.

It is important to understand the difference between the two concepts.

 

What is cashflow?

The money that comes into, through and out of your business. It doesn’t include money owed to you from customers or credit from suppliers.

Insufficient cashflow means a business can’t meet its financial obligations such as paying suppliers or employees.

 

What is profit?

Profit is how much is left of your revenue once all costs have been deducted. It includes all income and costs that are due but not yet received or paid.

A business cannot survive in the long term if it is not profitable.

 

What is the difference?

The key difference between profit and cashflow is time.

Profit takes account of transactions as they are generated whereas cashflow takes account of transactions as they are paid or received.

 

As an example:

In the above example, at 31 March, the company has a positive profit but a negative cashflow.

The cashflow does not become positive until 30 April when the money is received from the customer.

 

Understanding this key difference can be crucial in keeping your business going.

A business can be highly profitable but if customers are on a 90 day payment term but suppliers are a 30 day payment term then you may not have the cashflow to keep the company going.

 

If you would like any assistance in understanding your profit and cashflow or would like a cashflow forecast preparing, please get in touch with us.

 

 

 

 

Corporate Expenses Guide – What business costs are tax allowable for Limited Companies

Wednesday, September 15th, 2021

In general, tax-deductible expenses in a Limited Company must be wholly and exclusively for the use of the business.

If an expense has a dual purpose for both personal and business, you can only claim for the business element.

A summary of the rules for typical costs incurred by a company include:

 

 

If you are unsure if a cost is tax allowable or would like further advice on any of the above, then please get in touch with us.

 

 

 

 

 

 

September 2021 Dates for your Diary

Monday, September 13th, 2021

An Employer’s Guide to Payrolling Statutory Payments

Thursday, August 5th, 2021

 

As an employer there are various statutory payments that you must pay your employees when they become eligible for them. Thinking about if your employee is eligible and what they need to be paid can seem like a daunting subject! This guide contains everything you need to know about making statutory payments.

 

Statutory Sick Pay (SSP)

For the 2021-22 tax year, Statutory Sick Pay should be paid at £96.35 per week and can be paid by an employer for up to 28 weeks of illness. After the 28 weeks, it is then at the discretion of the employer whether they continue to pay sick pay. Some companies offer a ‘Company sick scheme’, which may mean that the employee will be paid more than the SSP entitlement. If offered, this should be explained in the employment contract.

Is my employee eligible for SSP?

Linked periods of sickness

If you are ill for more than 4 days on multiple occasions that are less that 8 weeks apart, the sickness may be classed as being ‘linked’. This means that you do not have the 3 days unpaid ‘waiting period’ for every spell of sickness. If this is continuous for more than 3 years, you will no longer receive SSP.

As an employer, you cannot claim Statutory Sick Pay back from HMRC unless the sickness is Covid-19 related.

There are different rules regarding sick pay due to Coronavirus. If you would like further information on this, please call us on 01785 254550.

 

Statutory Maternity Pay (SMP)

Statutory Maternity Pay is paid to an employee for up to 39 weeks.

What should I pay my employee?

SMP starts when an employee begins their maternity leave, it also automatically begins if the employee is unable to work due to a pregnancy related illness within the 4 weeks before the baby is due.

Is my employee eligible for SMP?

Can I claim back SMP from HRMC?

Employers can claim the SMP payments back from HMRC by reducing their monthly PAYE payments by the SMP amount.

 

Statutory Paternity Pay (SPP)

For the 2021-22 tax year, SPP is paid at the lower of £151.97 per week or 90% of the employee’s average gross weekly earnings.

Employees have a choice of taking SPP for 1 or 2 consecutive weeks leave and the start date must be either the day the baby is born or an agreed number of days following the birth.

Is my employee eligible for SPP?

 

 

Shared Parental Pay (ShPP)

Shared Parental Leave/Pay allows parents to split leave and pay following the birth of a baby.

Is my employee eligible for ShPP?

What should I pay my employee?

ShPP is paid at the lower of £151.97 per week or 90% of your average weekly earnings.

 

Statutory Adoption Pay

Statutory Adoption Leave is made up of 52 weeks split into 26 weeks Ordinary Adoption Leave and 26 weeks Additional Adoption Leave. Only one person in the couple can take adoption leave, however if this is the mother, then the father may also be entitled to Paternity Leave.

Adoption leave can start up to 14 days before the child starts living with you.

Is my employee eligible for SAP?

 

What should I pay my employee?

 

All the above payments must be recorded, processed and submitted to HMRC through a payroll scheme.

If you require any further information regarding any of the above statutory payments, please feel free to give us a call on 01785 254550.

 

 

 

 

 

 

Dates for your diary August 2021

Monday, August 2nd, 2021

Should I put my car through my Limited Company?

Tuesday, July 13th, 2021

Believe it or not, this is not as straightforward a question as it may seem. There are many factors to consider when deciding whether to put your car through your Limited Company.

Here is a summary of some of the key factors:

  1. If you use the vehicle privately, you will pay tax on the company car
    • A company vehicle is classed as a benefit in kind and taxed both on the company and personally.
    • The value of the benefit is a percentage of the list price of the vehicle. The percentage is based on the CO2 emissions. The higher the emissions, the higher the benefit.
    • Your company will pay 13.8% National insurance on the benefit.
    • The value of the benefit will be treated as additional income on you personally. You will be taxed on this based on the tax bracket that your income falls into.

 

  1. Is the cost of the vehicle tax deductible?
    • This is dependent on whether you will be leasing the car or buying it.
      1. If you are leasing the car, then the monthly lease costs are an allowable tax expense, and so you will get tax relief on these costs. However, this will be limited to 85% of the cost if the car has CO2 emissions above 50g/km.
      2. If you are purchasing the car, then you get tax relief by claiming capital allowances. The rates of capital allowances on cars are as follows:
        1. Electric cars or CO2 emissions of 0g/km – 100% relief in the year of purchase
        2. CO2 emissions of 1-50 g/km – 18% relief per year
        3. CO2 emissions above 50g/km – 6% per year

 

  1. Can you claim the VAT?
    • Again, this is dependent on whether you are leasing or purchasing the car.
      1. If you are leasing, then you can claim all of the VAT back if the car is used 100% for business. If you use the car privately, then you can claim 50% of the VAT back on your monthly lease payments.
      2. If you purchase a car and use it 100% for business, you can claim the VAT back. However, if you use the car privately, you cannot claim any VAT back on the car’s purchase price.
    • In both instances, to be classed as 100% business use, the vehicle must not be made available for private use, and you must be able to show that this is the case (i.e. in an employment contract). Travelling from home to your place of work would class as personal use.

 

  1. What about the running costs?
    • Insurance, car tax and general repair costs are all tax allowable costs if your car goes through your Limited Company
    • Fuel is also an allowable cost but is a taxable benefit in kind and will be taxed in a similar way to the cost of the car (as mentioned in point 1) unless only fuel for business use is claimed.

 

  1. What can you claim if you don’t put your car through the company?
    • You can claim business mileage for any business miles you do in your personal vehicle.
    • The rates for business miles are 45p per mile for the first 10,000 miles and 25p per mile after that.
    • Insurance, tax, repairs and fuel are all covered by the mileage rate, so you cannot claim these costs on top of the mileage.

 

  1. What about vans?
    • If you buy a commercial vehicle, such as a van, then different rules apply.
    • You can claim the full cost of the van (or monthly leasing payments) in the year of purchase by claiming AIA.
    • You can claim the VAT back
    • If you use the van personally, you will be charged a benefit in kind, but this is a set amount each year and is not based on the vehicle’s list price. For 2021/22 this amount is £3,500.

 

As you can see, there are many things to consider when deciding whether to put your vehicle through your Limited Company.

As a general guide, then it is not usually beneficial to put a vehicle through the company unless it is a commercial vehicle or has very low CO2 emissions, but each case is different.

Please get in touch with your client manager if you are considering purchasing a new vehicle, and they can advise you on whether you should purchase through your Limited Company or not.

 

 

 

 

 

 

July 2021 Dates for your Diary

Thursday, June 24th, 2021

Payrolling Benefits; An employer’s guide to payrolling employee benefits

Tuesday, June 22nd, 2021

Payrolling Benefits; An employer’s guide to payrolling employee benefits

In 2016 HMRC introduced the option for employers to payroll employee benefits in kind. This allows employers to process employee’s benefits through payroll and pay tax on the deduction throughout the year rather than submitting and paying it via a P11D at the end of the tax year.

A benefit is an additional payment given to an employee by their employer that is not part of their usual salary. This may include things such as payments for a company car or medical benefits.

Employers may wish to offer these benefits as a reward to employees for years of service or simply to make a role more attractive to prospective employees.

Advantages of Payrolling Benefits

 

Disadvantages of Payrolling Benefits

Which benefits are taxable?

There are many employee benefits that can be payrolled; some of these will be subject to tax and national insurance deductions.

Here are some examples of taxable benefits:

Here are some examples of non-taxable benefits:

Non-taxable benefits still need to be declared to HMRC via a P11D.

Here is a link to the HMRC website that lists all benefits and will give you further information as to whether they are taxable. https://www.gov.uk/expenses-and-benefits-a-to-z

The 50% rule

Benefits cannot be paid to an employee if the tax on this benefit constitutes to more than 50% of their salary. For example, if an employee were paid maternity pay and this meant their salary was less than usual, payrolling of the benefit would need to stop during that time and instead, reported on a P11D at the year-end. This would then allow HMRC to incorporate the tax due in the employee’s following year tax code.

DEADLINES

If you would like to start payrolling benefits, you must register with HMRC before 5th April of the year in which the benefit will relate to. You can do this by filling in an online form through your HMRC government gateway account.

Employees must be notified of the benefits and what it means for them before the benefit is processed via the payroll.

Class 1A NIC must be calculated and reported via a P11D(b) form to HMRC by 6th July of the following year that in which the benefits relate to.

The Class 1A NIC due per the P11D(b) form must be paid to HMRC by 19th July (22nd July if paying electronically) following the tax year in which the benefits relate to.

For example, any benefits that were payrolled in the 2020/2021 tax year must be submitted via a P11D(b) by 6th July 2021 and paid by 19th July 2021.

 

If you need any advice or further information regarding employee benefits, please give us a call on 01785 254550.

 

A Guide to P11D’s

Friday, June 11th, 2021

A guide to employee benefits that must be reported on a P11D:

The P11D is used to tell HMRC about the cash value of any expenses and benefits that don’t go through payroll.

Anything the company pays for or buys for the direct benefit of an employee should be included.

 

The most common benefits that are reportable on a P11D include:

 

 

You don’t have to report certain business expenses and benefits like business travel & entertaining, phone bills, uniform & tools for work as long as you are re-imbursing in one of the following ways:

 

The deadline to submit a P11D for 2020/21 is 6th July 2021.

 

If you need any advice on employee benefits or think you may have to submit a P11d, please get in touch.

Dates for your Diary June 2021

Wednesday, May 26th, 2021