HMRC are changing their penalty regime for late submissions of VAT returns.

HMRC are changing their penalty regime for late submissions of VAT returns from VAT periods starting on or after 1 January 2023. There will now be penalties for late submission, even if no VAT is due to HMRC.

The new regime works on a points-based system. For each VAT return you submit late, you will receive one late submission penalty point. The penalty points build up, and once you reach a threshold, you’ll get a £200 penalty, and a further £200 penalty for each subsequent late submission.

For Quarterly VAT returns – its 4 points within 12 months
For Annual VAT returns – its 2 points within 24 months
For Monthly VAT returns – its 5 points within 6 months

You can ‘reset’ your points back to zero if you submit your VAT returns on time (the next 12 months for quarterly, 24 months for annual, and 6 months for monthly).

If you pay your VAT late, there will be penalties depending on how late you are at paying the VAT, as well as interest:

  • Up to 15 days – no penalty
  • 16-30 days – 2%
  • 31 or more days – Another 2%

If you are struggling to pay your VAT, it is highly recommended to set up a payment plan with HMRC, to reduce the penalty period.

HMRC won’t be charging a first late payment penalty for the first year from 1 January 2023 until 31 December 2023 if you pay in full within 30 days of your payment due date.

From 1 January 2023, HMRC will charge late payment interest from the day your payment is overdue to the day your payment is made in full. This is at the Bank of England base rate plus 2.5%.

To find out more, go to https://www.gov.uk/guidance/prepare-for-upcoming-changes-to-vat-penalties-and-vat-interest-charges

If you would like help with your VAT returns, please get in contact with our Business Services department.  business.services @wtca.co.uk. Alternatively, please call 01932 868444.

Should your business offer alternative payment methods?

Whether you run a physical store or an ecommerce business, the checkout process is one of the most vital steps in a customer’s journey. It is the last thing that the buyer thinks about before they make a purchase, and it can be also be an unfortunate opportunity for your sale to fall at the final hurdle.

In ecommerce, customers abandoning their cart at the checkout stage is a frustratingly common experience. Logic dictates that the way to remedy this is to simplify the page and provide all the necessary information – but this could be overlooking a fact that many customers abandon their cart simply because they don’t see an opportunity to pay the way that they want to.

Indeed, a range of new payment methods have arisen in recent years, driven primarily by a boom in fintech products. This can be attributed as a part of the move towards a cashless economy – many young people are now eschewing physical forms of payment such as cash and cheques in favour of technology-based solutions.

But is it a good idea for your business to adopt these payment methods and offer them to customers? Here we take a look at the range of new alternative payment methods available and examine the pros and cons of using them.

Popular alternative payment methods

Arguably the most well-known alternative payment method is PayPal – it is the one that you are most likely to already accept other than card payments through your website. However, in recent years a number of new alternative payment methods have gained prominence.

Two popular examples are Google Pay and Apple Pay – both of which function as digital wallets. Users add cards or other funds to their digital wallets, and this money can then be used to pay for any services that offer this payment method.

Another brand gaining traction is Klarna. Klarna functions as an alternative to a credit card. Users pay for products and services with Klarna and then owe Klarna the money. Unlike a credit card, however, Klarna’s debt is interest-free (at least in the short-term) and credit checks are not required to use it.

What are the benefits?

A major benefit of alternative payment methods is trust. When new customers visit your website there can be a lack of trust. Customers need to feel safe and secure when they are making a transaction, and it still the case that many hesitate at the idea of entering card details into an unfamiliar website. However, if they see that you offer a payment method that they trust, they can feel happy to complete the purchase.

Increasing choice also gives customers the control over their finances and choices, allowing them to make the right decision when they are buying something.

Are there any downsides?

One downside with using alternative payment methods is the complexity of the system, especially when it comes to tracking all your payments. It can be sensible to work with experienced business accountants who have a firm understanding of alternative payment methods and how to track financial information.

There are other issues – integration can be a challenge, especially if you are not used to working with these sorts of technology. Alternative payment methods need to be integrated seamlessly into the checkout page of your website, and as many of these methods are still adaptive and changing technology there is the potential for confusion for customers.

There is also the risk that poorly integrated payment methods don’t work correctly and leave you with a headache to sort them out.

How does Xero integrate with Stripe?

The beauty of these types of payment methods is that they can often be combined for even greater convenience. Xero integrates with Stripe for seamless Apple Pay and Google Pay payments, enabling invoices to be paid easily.

It’s ideally suited to website transactions for customers to pay using their digital wallets, but businesses can also benefit when sending invoices to clients via Xero with payment links for a quick and effective way to get paid.

When you connect Stripe to your Xero account, you’ll have a ‘Pay Now’ button appear on your invoices so customers can pay with credit or debit card, Apple Pay, or Google Pay on their mobile device. Connecting these two accounts takes the work out of chasing outstanding payments – with Auto Pay, businesses can set up and receive recurring payments for repeat customers, for prompt payments that means customers don’t need to keep track of invoices.

What’s more, every Stripe transaction is accounted for and reconciled with a single click, and visible within Xero using the Stripe feed. Payments are automatically matched to the right invoice and account, which makes for clearer visibility and reduces credit control since fewer customers will need to be contacted regarding late payments.

If you are interested in learning more about any aspect of business finance and payments, get in contact with the experienced team at Wellden Turnbull today.

How inaccurate P60s can cause tax issues

For most people, submitting a tax return is not a favourite task. But it’s in everyone’s best interests to avoid errors and remove the risk of being dealt a penalty for submitting an inaccurate claim. Many don’t realise that an inaccurate P60 could lead to tax issues further down the line and even costly penalties. Here’s why accuracy is essential when you’re submitting a tax return and the role a P60 plays in that.

What is a P60?

A P60 is a form detailing how much you’ve earned over the course of the tax year. It also shows how much you’ve paid in National Insurance contributions and Pay As You Earn (PAYE) income tax. The information included in your P60 is taken from your total employment earnings, or total pension, for the current tax year.

Note: The P60 will only show the pension provider if the P60 is from a pension payroll scheme. It will not show how often you pay into your pension.

Your P60 serves as evidence that you’ve paid tax for the year, and how much, but it also provides evidence of your earnings. For this reason, you’ll often be asked to provide a copy of this form when you apply for a mortgage, sign on to a property rental or use another type of financial service.

The importance of checking the figures

As an employee, it’s likely that you’ll assume your P60, P45 and any other forms provided to you by your employer will be accurate. But don’t be fooled. There could be situations where employers issue their staff with inaccurate documents, which could then render the employee’s tax returns incorrect if they have to file a self-assessment return and their taxes are investigated.

If an individual reports the wrong information to HMRC, whether that’s undeclared benefits, earnings or tax deductions, it could result in penalties being issued as a result of carelessness. It might seem unfair that an employee can be penalised for the errors of a business, but in the eyes of HMRC, it’s the taxpayer’s responsibility to check that the figures they’re submitting are accurate.

Why accuracy is important

The accuracy of your tax returns is determined not just by the processes your employer adopts, but also by your own processes. Any business, large or small, whether it’s a team of hundreds or a solo individual, can be subject to an audit, and the more discrepancies there are with your report, the higher the risk of an audit.

By keeping your records as accurate as possible, and supplying any documentation required by HMRC, you can avoid the risk and save yourself the time of having to deal with an investigation which can be stressful. Inaccuracies can mean that businesses miss out on deductions and could end up overpaying, which affects their profits. But there’s also the fact that in submitting your return with accurate figures, you’ll have a better overview of how your business is performing and where it stands financially. This will help you make better, more informed decisions as your company grows.

How to check your P60

It’s always worth double-checking the numbers to ensure they match up with your payslips for the tax year. The tax year runs from 6th April to 5th April, and you’ll be issued a new P60 for each of your jobs/pensions every tax year. Your final payslip for the tax year should include the year-to-date figures which you can check align with your P60. If there are issues or the numbers don’t match, raise it with your employer so it can be amended.

Key takeaways

You shouldn’t assume that the figures included in your P60 are correct, just because they’ve been supplied by your employer. It’s always better to double-check your tax return or have it submitted by a professional who will ensure everything is correct and you’ve filed for the correct deductions and expenses. Submitting your tax return can be a nerve-wracking task, especially if you’re not knowledgeable about what’s required. That’s why it can be worthwhile speaking to a tax professional who will ensure all the figures are correct and minimise the risk of any issues arising.

To find out more or to book the services of our tax professionals, get in touch with Wellden Turnbull today.

Recovery isn’t as simple as it sounds

The Covid-19 pandemic has been a problem for businesses of all sizes – this is a truly unprecedented situation across every industry. But as we come towards the period where companies will come out of the worst of the pandemic, it is important to start considering how your business is going to recover – and this might not be as simple as it sounds.

The world has not seen economic conditions like this in living memory. So, what businesses think they know about dealing with difficult times has to be questioned. Here we take a look at why recovering from the pandemic and the recession might not be quite as simple as it seems.

Businesses at risk after a recession

Take the issue of the recession that has been a natural challenge for British businesses. It is well known – and perhaps not surprising – that the UK dipped into a recession period during the pandemic. If we were to follow standard economic models, it is generally accepted that going into recession isn’t the most dangerous time for a business, it is coming out the other side that can cause issues.

This is because during a standard recession cash balances and balance sheet reserves are liable to shrink and then grow again. The growth requires fuel, and that typically has to be helped along with good availability of cash – and that can result in businesses running out of money to spend as they try to grow again.

But as with all aspects of the Covid-19 pandemic, we cannot necessarily apply traditional models and conventional thinking to this crisis.

The Covid-19 recession is different

Of course, the pandemic has created challenges for businesses and there can be no doubt that many have suffered hugely. However, we need to think about this concept differently. Unlike many recessions in the past, the government has put in place a huge range of measures to attempt to minimise the damage to businesses.

Schemes including the deferral of VAT and self-assessment liabilities, Bounce Back Loans, and Furlough have meant that some of the major costs to companies have been drastically reduced. This means that it is much more likely that, coming out of the recession, businesses will have the kind of cash available to fuel their regrowth.

This means that it will hopefully be easier for businesses to trade flexibly. In any case, however, it is important to understand where your business makes profit, as well as your cash flow, if you are to make the best of the rise out of recession. So, let’s take a look at some of the things that you need to do to make your recovery as smooth as possible:

Make projections

It is important that you think carefully about projections not just for your profitability, but also for cash flow. When you have a solid projection, you can adjust the numbers to help you understand whether you will have an issue when you go through unexpectedly high levels of growth.

If access to cash to manage growth is tight, then you will need to manage the issue carefully. Rather than thinking about how you can quickly return to the levels of trading you saw before the pandemic, it is a better idea to think more closely about the bottom line.

Analyse cash flow

Cash flow might not be something that you have ever had to worry about before – but when navigating your way out of a recession it is absolutely essential. You need to have funds available when you have major bills or invoices to pay; failing to have the kind of cash available, can seriously cause problems in the long term.

Re-think your strategy

You should recognise that the pandemic has changed things significantly – and this might have to affect your business strategy moving forward. It may be the case that the kinds of products and services you offer may need to be re-thought and updated. This can be a painful process, but it is important to ensure that the company is sustainable.

Recovery isn’t as simple as going back to how things used to be, so it is vital to get sound business advice from experienced professionals. At Wellden Turnbull, we have expertise in all areas of business planning, and would be happy to help you as your company emerges from the recession and the Covid-19 pandemic. We can also help with model cash flow forecasting. Don’t hesitate to get in contact with the team today.

Tax saving ideas for landlords

Being a property landlord can be a stable source of income for many people across the UK, as they provide a service to renters. But earning money from being a landlord is a business like any other, and they are liable to pay tax on any form of income they generate. If you are a UK citizen and you own and rent a property somewhere across the UK, you will have to pay a category of landlord tax; this is unavoidable.

It can be easy to be confused by the rules around the taxation of landlords, and it may well be the case that, as a landlord, you are paying too much. Tax advice and management is a really important aspect of being a great landlord, as small changes can be the difference between a healthy profit and just scraping by.

Here we take a look at some important ideas for saving on tax and better tax management for landlords in the UK.

Create a limited company

The first thing to say is that if you want to manage your tax as easily as possible, one option is to form a limited company that you use as a landlord. This can really help by first being able to separate your personal life and finances from those of your landlord finances. But it also has some important tax considerations.

Being a company allows you to offset your expenses against your profit, and it also gives you the option to have someone else manage elements of the property management. It’s a solution that might not be right for everyone, so it is worth discussing it with an accountant experienced in working with landlords.

Understand and make use of tax bands

It is the case that Capital Gains Tax is not usually paid when assets are transferred between spouses. This means that you may well be able to reduce your tax liability by moving some of your assets into the name of your spouse – this could allow you to make use of a lower tax band.

If your spouse’s tax bracket is lower than yours, you may also be able to pay less tax on your rental income as well. And, as long as the property doesn’t have a mortgage and you aren’t taking financial gain from it, you won’t need to pay stamp duty.

Invest in your properties

Landlords are sometimes criticised by tenants for failing to put enough investment into the upkeep of a property. In truth, investing in the properties can be extremely useful from a tax perspective –

not only in terms of renovating and refreshing the property, but also looking into the possibility of extending it.

Of course, it is important to take into account the maximum rental yield you are going to get from a property in the area. Overspending might result in a better tax situation, but you won’t be able to make up for it in terms of the cost of the project.

Consider the possibility of short-term lets

You might be used to managing long-term lets, and this can work for many landlords. But you may not have considered the potential benefits of short-term lets.

One of the major advantages of short-term lets is that it gives you the chance to regularly evaluate the value of the property. That means you can always get a rental yield that is sensible for the area. If you are locked into a long-term contract and the local area rises in popularity, this can mean that you are missing out on income.

Speak to an experienced accountant

Every landlord has different tax needs, and possibly the most valuable thing that you can do is speak to an accountant who has specific experience dealing with landlords and helping them to manage their taxes.

If you would like to learn more about the possibilities of reducing your tax as a landlord, get in contact with the team at Wellden Turnbull today. We would be happy to provide you with more information.

Mary Harris Smith: the world’s first female Chartered Accountant

You might not be aware that it wasn’t until 1920 that women were allowed to be recognised as Chartered Accountants. The very first woman to take that mantle was Mary Harris Smith; this is her story.

Destined to be a great accountant

Mary Harris Smith was born in 1844 in London, and it was apparent from very early in her life that she was a gifted mathematician. Her father, a clerk to a navy agent and a banker, recognised her abilities and encouraged her. At 16, she was studying with a Master of King’s College School, before taking bookkeeping classes.

In 1887, Mary set up her own accountancy firm trading as a M. Harris Smith, Public Accountant. She had huge success and made a good living. It was said that her reputation was such that she was regularly requested to audit the accounts of organisations.

Her first application

While she had success as an accountant and was living comfortably, she yearned for the status and prestige of being a Chartered Accountant. She first applied for membership in the Institute of Chartered Accounts in England and Wales (ICAEW) in 1891, believing herself to be fully qualified to do so.

She was turned away on the basis that women could not be recognised as Chartered Accountants. This decision unsurprisingly rankled her. In 1895, she was quoted saying “Require of me what you would require of a man and I will fulfil it.”

The successful application

She made multiple further attempts to become a member but was turned down each time. Despite her years of accountancy expertise and stellar reputation, it was against the rules. However, thankfully, change was on the horizon.

The Sex Disqualification (Removal) Act was passed in 1919 which made it illegal for ICAEW to refuse to admit accountants based on their sex. Mary applied to ICAEW again and this time she was recognised as the first female Chartered Accountant.

It clearly meant a lot to Mary to be recognised in this way. She was 75 when she was finally admitted as a Chartered Accountant, and she continued working into the late 1920s until her health started to deteriorate.

Blue plaque

It was in May 2020 that the City of London chose to honour Mary’s life – it was the 100th anniversary of her being accepted by the ICAEW as a Chartered Accountant. A blue plaque was commissioned to be placed in the City – one of just three plaques (out of 182) that celebrate the life of an individual woman.

The plaque will stand at the corner of Queen Victoria Street and Bucklersbury, which is close to where Mary’s office was situated when she was awarded her Chartered status.

A progressive campaigner

As well as being the first female Chartered Accountant, Mary was a vociferous campaigner for progressive women’s rights and feminism. She was a proud supporter of the famous campaign for women’s suffrage and was also involved in movements such as the Society for Promoting the Employment of Women, and the National Union of Women Workers.

Having lived almost her whole life in London, Mary enjoyed retirement in St Leonard’s on Sea in East Sussex and died there in 1934.

 

We hope you enjoyed learning about Mary Harris Smith, the world’s first female Chartered Accountant. If you are interested in working with a Chartered Accountant on any issue, please don’t hesitate to get in contact with our experienced team today.

10 accounting tips for freelancers

Many people prefer to work for themselves rather than as an employee. But being your own boss not only comes with more freedom to work as you choose, it also comes with added responsibility. Sorting out your own accounts is definitely one of them. As a freelancer, you are a business owner, and one of the key determinants of your commercial success is how you manage your finances and business accounts.

At Wellden Turnbull, we work with businesses of all shapes and sizes, with a comprehensive range of services that are targeted to each client’s business needs. Over the years, our team has helped to grow and develop many start-ups and sole traders with valuable advice on tax, accounting and financial planning. We thought it might be useful to share some of our experience, so we’ve put together some accounting tips for freelancers.

1.    Think of yourself as a business

Many creatives such as designers, writers or artists shy away from engaging with the commercial side of their business, preferring to immerse themselves in their chosen passion. Then, when the tax deadline beckons, it’s panic stations. If this sounds like you, some mental attitude shifts may need to occur. You are as much a business owner as the shopkeeper down the road, and if you are planning to make a living from your creative output, effective accounting and financial management is part of your job.

2.    Keep business and personal finances separate

Your business revenue is not the same as your personal income. It makes life (and by that we mean your business accounts and tax returns) a lot easier if you don’t get the two muddled up. Have a separate business bank account so you can track your cash flow. Online banking is highly recommended, and many accounts are free to create, with no minimum balance requirements or bank charges, unlike some of the more traditional high street banks.

3.    Work with a monthly budget

Creating a budget will give you a clear financial framework in which to operate and grow month by month, year by year. It will help you plan your business income and expenses on a monthly basis, providing an overview of where your money is going, including any areas of overspending and underspending that need tweaking. Managing your budget is a simple yet smart way to stay on top of your finances and know how much you have available to invest in business growth. It also allows you to allocate regular sums to a savings ‘pot’.

4.    Track your income and expenses

For any freelancer, it is absolutely vital that you know how much money is coming in and going out. Decide on how much you are going to charge for your products or services, and record your income either as you receive it (cash basis) or record impending payments (accrual). Track your expenses too – many are tax deductible and in order to take full advantage, you need to have a record of your costs. Make sure you keep all receipts in a safe place so that when it comes to the annual tax paperwork, you’re fully prepared.

5.    Keep some money back for tax

Taxes are one of life’s necessities, and as a freelancer, there’s no way of ignoring them. Many small business owners feel supremely uncomfortable about this area, but it doesn’t have to be this way as long as you’re prepared. Set aside a percentage (at least 25%) of your profits for taxes in a separate account. If you do this on an ongoing basis every month, it’s there when you need to pay it at the end of the year – no drama.

6.    Plan for dry spells

Unlike employment where you know how much your monthly earnings are going to be, freelance work can be unpredictable. Your income will go up and down, even with a solid client base. Leaner periods are inevitable and they can last for weeks or even months. Getting into the habit of saving is one of the most important things you can do to protect yourself. Reaching out to former clients is another way to generate more business, and don’t underestimate the power of networking to engage with potential new clients.

7.    Keep your books in order

While it may be tempting to put off bookkeeping in favour of more interesting business activities, leaving it too long just makes more work at the end of the year. Get organised and stay organised, with an easy-to-use filing system for all your appropriate business documents. UK tax laws require business owners to keep transaction records for at least 5 years. Set aside at least an hour per week to check on incoming payments, outstanding invoices and expenses to calculate your income, so you always know exactly where you are. There are lots of user-friendly software now, such as Xero or FreeAgent that can help you stay on track.

8.    Audit your cash flow and budget

Get into the healthy habit of carrying out regular audits, comparing the budget you set to your actual cash flow. Notice if there is a rise and fall, or specific pattern, in your income and expenses through the year that needs to be taken into account. Is Christmas a busy time of year? Does everything go quiet in August? Did you have an extended period of illness? Be open to amending your budget to help your business operations, including in case of unforeseen circumstances.

9.    Manage your invoices

Getting paid on time is the lifeblood of all small businesses, which means having an effective invoicing process in place and dealing with it efficiently is a top priority. Make sure you agree to your payment terms with clients before you start work, and send out invoices immediately upon completion. Have a robust system in place that allows you to send initial invoices, follow up with reminders to clients who haven’t paid, and chase late payments, as this is the cornerstone of a healthy financial habit that will help your business to grow.

10.    Use accounting software

Accounting software has come a long way over the years, and it’s really nothing to be afraid of. Platforms such as Xero and FreeAgent are easy to use and not too expensive, with invoicing systems and tax projection features while keeping track of banking accounts. And with HMRC’s drive for Making Tax Digital, it’s easy for freelancers to get their tax right and keep on top of their affairs. We usually recommend Xero cloud accounting software, and can even train you how to use it if you wish.

Freelancers and sole trader businesses can be perfectly capable of managing their own accounts and tax affairs, but if you need professional advice and guidance, Wellden Turnbull is here to help. Why not get in touch for a friendly chat to discuss your requirements for accounting and bookkeeping, tax advice and business planning?