Monthly Archives: April 2015

How to improve working capital


Working capital is an indicator of the financial health of a company and its efficiency. The amount available is calculated by subtracting the current liabilities of a business from its current assets. The figure should be sufficient to cover debts in the short term, although a higher figure may indicate that the company isn’t operating efficiently.

Working capital management is necessary for a company to be able to finance the day-to-day running of an enterprise, paying the wages and paying for supplies. Healthy working capital is also required for unexpected expenses and opportunities for investment and growth. By creating a strategy for management of working capital, a business can release more cash to be used elsewhere in the company.

Manage your business

Knowing what the requirements are for working capital in your business will make it much easier to manage working capital. Once you know how much is needed, you can decide how the cash will be released. There will be many solutions, but suitability of each option may change from day to day. Working capital management outsourcing is one of the options faced by companies, which allows them to discuss solutions with a professional.

Reducing outgoings can help to improve working capital. Fewer outgoings or lower expenditure will all result in more available cash for the business. Managing stock is another way to increase available funds. Stock management will make sure that you don’t have excessive amounts of slow moving stock on hand, while having sufficient stock to meet current demand. Also, reduce overheads where possible to release cash into the company.

Manage suppliers

If clients are slow to pay you but you pay suppliers as soon as possible, you will end up with negative cash flow. To maximise working capital, accept the most favourable payment terms from a supplier, with the maximum credit period offered to you. Consider alternative ways of financing supplies if your suppliers don’t extend favourable terms.

Manage customers

Collect payments from customers as soon as possible to improve working capital. Don’t offer too much credit to customers and contact them if payment of invoices is late. Encourage early or prompt payment by offering an incentive, such as an early payment discount. A strict credit control procedure will make sure that invoices are paid within an acceptable period and outstanding debts are kept to a minimum.

Give us a call if you would like to know more about working capital.

Reasons why a profitable business may fail


According to statistics, up to two-thirds of new companies will fail during the first 12 months of trading. This statistic may be even worse in some areas of the UK. Running an enterprise is always challenging, especially in the initial year, and even a profitable company can face problems that may lead to Read more

The basics of VAT


Value Added Tax (VAT) is charged on most goods and services, which also includes the sale of business assets, commission and items sold to employees. Some items have VAT added at a reduced rate, while others are zero rated for VAT purposes. Business owners pay the VAT charged on most services and goods bought, while they also have to charge VAT at the appropriate rate on the merchandise and services they sell. Comprehensive VAT records must be kept and all VAT collected must be paid to HMRC, which is why accounting services for small business often incorporate management of VAT.

When do I need to register for VAT?

When the turnover of a business reaches a specified amount, the owner has to register for VAT. This amount usually differs each year, but it’s advisable to check the current threshold, which for this year is £82,000. Different thresholds apply for goods sold to and from other countries in the EU. Once turnover exceeds this amount or is expected to within the next 30 days, you must register. You can volunteer to register for VAT, which may provide some financial benefits. However, you must also complete VAT returns and pay the VAT over to HMRC, or risk being charged a penalty for failure to maintain deadlines.

Once I have registered, what do I need to do?

When you have registered for VAT, you will have to charge VAT on goods and services at the appropriate rates, which are either zero, 5% or 20%. Any VAT paid by you can be reclaimed from HMRC, while the VAT you have charged customers can also be reclaimed by them if they are registered for VAT. To simplify matters, you can deduct the amount of VAT you have paid on supplies purchased for business use and pay the balance to HMRC.

VAT records

Once registered you must keep detailed records of VAT, providing details of the amount you have charged clients and how much VAT you have paid on business supplies. There are a number of schemes available for VAT and your accountant will help you decide which one to implement.

Rates of VAT

Most goods will have VAT charged at the rate of 20%. Some items are entitled to be charged VAT at the reduced rate of 5%, like a child’s car seat. Children’s clothing and most food is charged no VAT.

For more details about VAT and how it affects your business, why not call us today?

How to avoid self-assessment penalties


There are various types of penalty charged by HMRC, and they can soon add up to a considerable amount of money. The simplest way to avoid them is to ensure you comply with all deadlines, report new information in a timely manner and remain compliant with HMRC.

However, there are some easy methods of avoiding those charged for self-assessment.

Notify HMRC of all changes in circumstances

If you fail to inform HMRC of a change that has an impact on your liability to tax, you may be charged a penalty for ‘Failure to Notify’. Such changes must be reported to the organisation at the right time to avoid a penalty. Instances where you may be charged a penalty for failure to notify include not telling HMRC when your new business makes a profit and you become liable to pay tax. You must also let HMRC know when you start a company that must be registered with the organisation – for instance, when excise duty will be charged.

The penalty will be calculated based on Potential Lost Revenue (PLR), which is the amount of tax that would have been payable if HMRC had been aware. If you come forward to report the failure to notify to HMRC, the penalty may be reduced.

Check your tax returns and documents for errors

Before submission of any documents, including your self-assessment tax returns, check them for errors as you may be charged for mistakes that lead to the incorrect amount of tax being calculated. There are some scenarios where HMRC will charge a penalty, which includes not taking ‘reasonable care’ and deliberately providing incorrect information. Keeping accurate and timely business records is an indication of taking reasonable care, and HMRC may reduce the penalty if this can be proven.

The penalty is based on the PLR and the reasons for the mistake being made. Depending on the nature of the error, the penalty will be charged based on a percentage of the tax that will become due when the error is corrected. Reductions can be made when you come forward to admit the error.

File all tax returns and documents in a timely manner

If you fail to complete and submit your tax return by the relevant deadline, you will be charged an instant £100 penalty. If you still haven’t submitted the tax return after three months, further penalties will be charged.

If you outsource accountancy, your advisor may be able to help you avoid penalty charges, although the legal responsibility for filing remains with you, the client. Call us today if you want more information on this complex subject.