A healthy cashflow is crucial for small companies to navigate the ups and downs of business. Improve cashflow to help you plan ahead, budget for future spending and handle the unexpected.
If you want to get your business to a better cashflow position, here are seven steps to success.
1. Start forecasting
Take time to look ahead, and you will better understand the cycles and trends within your business. It’s good to take a year-long view, so plan out the costs that your business will need to cover: salaries, stock, equipment, rent, tax etc. over the next 12 months. Then estimate your monthly income for the year.
Work out the difference between the two, and you’ll see how your profits look month by month. This information will help you plan in other spending when your business is in the strongest cash position.
2. Credit control
Keep on top of your invoicing, make sure each bill states your payment terms and follow up any late payments promptly. The best way to get a customer to pay up is to become a nuisance! Don’t be afraid to call and email to chase up a late payer – this is your money and should be sitting in your company account, not theirs.
3. Increase supplier payment terms
A great way to improve your cashflow is to negotiate longer payment terms with your suppliers. Not everyone will agree to this, but if you can extend a term from 30 to 45 or even 60 days, you will have more flexibility with your bills. That way you can pay once income has arrived from your customers.
4. Automate your systems
The power of accounting software can’t be understated. If you aren’t already using online tools to manage your invoicing, tax and banking, take a look. These systems are easy to use, highly efficient and will save you time and money.
5. Stock management
Having too much stock can mean pressure on storage and a cashflow deficit – but not enough stock can affect your supply chain and customer relationships. Taking charge of your inventory is an important step in cashflow management.
6. Reduce your costs
It’s important to take a regular look at where your money is going and whether there are savings to be made. Often fixed assets and monthly subscriptions can add up.
Checking whether you can get a better deal on telephone systems, IT and insurance can often save considerable amounts. Look too at company vehicles and other assets – are their options to lease them rather than own outright?
7. Prepare for the worst
… and hope for the best. It’s always worth having a backup plan in case things go wrong or something unexpected happens. Do you have a credit facility with your bank? How would you manage if you suddenly needed to outlay a substantial sum? Setting up an emergency plan could prove invaluable one day.
Need some help with business accounting and planning? Wootton & Co in the Lune Valley provide the full set of accountancy services including bookkeeping, corporate tax planning and VAT returns.
We support and advise our clients on many aspects of business finance and cashflow, so get in touch with us today.
New rules were introduced by the government last month which will impact contractors and self-employed people that do regular work for certain clients. Called IR35, this new legislation has been brought in to make sure that contractors pay the same amount of tax and National Insurance as they would if they were employed by their client.
It relates to an area called ‘off-payroll working,’ where contractors working through their own limited company – are acting as a permanent full-time or part-time employee of their client’s organisation.
What are the new rules?
As of 6th April 2021, the client who hires the contractor is responsible for determining whether their contractor is ‘inside IR35’ or operates ‘outside IR35’.
If a contractor provides services to a medium or large-sized private sector client, they will:
need employment status determination from the client, as well as the reasons why they made that determination
be able to dispute the determination given to them if they disagree
If you are ‘Inside IR35’
If the client feels you are operating ‘inside IR35’, you must pay the same tax as an employee. This could also mean that you are entitled to additional rights as an employee or worker (e.g. minimum wage, holiday pay, maternity pay, protection from discrimination). You may be offered an employment contract with your client.
If you’re found to be working inside IR35 but have not become an employee, you will usually have to pay at the end of the tax year any tax deductions or NIC that an employee would have paid.
Am I likely to be Inside or Outside IR35?
The Government has said this will not affect people who work as genuine freelancers. It is targeted largely at contractors who work for a single client for several months or years.
You’re more likely to be considered Outside IR35 if you:
• Work for multiple clients. • Are paid a variable amount month to month. • Are paid by the job rather than by the hour. • Can substitute your labour with another. • Market your services via a professional website. • Have your own business insurance and equipment.
You can check the specifics on the Government Website – there is also a Check Employment Status for Tax (CEST) tool to find out if you should be classed as employed or self-employed for tax purposes. Learning from the public sector
The same ruling was brought in purely for the public sector in 2017. Generally, it led to a reduction in the number of external consultants being taken on by public sector organisations.
I’m a contractor – how can I get around the IR35 legislation?
If you are concerned that IR35 will negatively affect your business, there are a couple of options:
1. Work with small businesses. There is no change to the rules for contractors providing services to small businesses in the private sector.
2. Work for an umbrella company If you are a self-employed contractor but operate under an umbrella company, you don’t need to worry about IR35. But being an employee of an umbrella company does not maximise your tax planning and there may be better alternatives.
3. Partner with other contractors One of the key checks is that you can substitute with other contractors and so an agreement with other contractors may eliminate this issue.
4. Negotiate new rates Some clients will be open to new ways of working to retain important contract resource. Note, however, that as an employee you may not be in a worse position. Contracts up to £10,000 can be more lucrative if performed as an employee. Not to mention the added protection and benefits employment brings.
Further help and support
For detailed tax advice and small business support, get in touch. David Wootton & Co are business tax accountants for small business owners like you – we can explore your specific situation and work out the most effective approach for your company.
David Wootton & Co – Lune Valley Accountants. Call us on 01524 236323 or email david@woottonandco.com
The 2021/22 tax year began on 6 April 2021, so we’ve pulled together a list of all the important tax information for businesses and individuals for the months ahead.
Personal Tax Allowance
Your Personal Allowance is the amount you can earn before you need to pay any Income Tax. The threshold has increased to £12,570 for this tax year, a small increase on last year’s allowance of £12,500. The rate of tax paid at this salary is 20%.
The threshold for Higher Rate income tax at 40% has increased by £270 to £50,270. These thresholds are now frozen until 2026.
What does this mean for Company Directors?
Based on these new thresholds, we recommend a salary of £8,840, with dividends of up to £41,430. This way, you will pay tax at 20% on take-home pay of £47,592.50 – your personal tax bill would be £2,677.50.
The Tax-Free Dividend Allowance for the tax year remains at £2,000. Dividend tax rates have not changed, but the thresholds increased as per the income tax thresholds above.
Basic-rate taxpayers pay 7.5% on dividends
Higher-rate taxpayers pay 32.5% on dividends
Additional-rate taxpayers pay 38.1% on dividends.
For tailored tax advice regarding your small business, just get in touch.
Personal tax relief and allowances
Personal Savings
The 0% starting tax rate remains at its current level of £5,000.
The adult ISA annual subscription limit remains the same at £20,000.
The annual subscription limit for Junior ISAs and Child Trust Funds is the same at £9,000.
Higher-income Child Benefit threshold
Since January 2013, people claiming Child Benefit must pay a charge if either member of a couple earns more than £50,000. This threshold is unchanged.
Personal pensions
The tax-free amount you can pay into a personal pension remains at £40,000. The lifetime allowance for pension savings remains at £1,073,100 and is frozen until 2026.
Capital Gains Tax
The Capital Gains Tax annual exempt amount remains at £12,300 and is frozen at this level until 2025/26.
Inheritance Tax
There is no change to the Inheritance Tax (IHT) nil rate band. The threshold remains at £325,000 and will stay the same until 2026.
Stamp Duty Land Tax
The stamp duty holiday for the first £500,000 Nil Rate Band of the purchase price will continue until the end of June 2021. From 1st July 2021, the Nil Rate Band will reduce to £250,000 until 30 September 2021 before returning to £125,000 on 1 October 2021.
Company Vehicles and Fuel Benefit
Company cars
Cars first registered after 5th April 2020 will see their Benefit in Kind charge increase by 1%. The percentage applied to the list price of the car will increase based on CO2 emissions published by the Vehicle Certification Agency. This HMRC has published a useful online company car tax calculator.
Fully electric cars have no tax charge this tax year, but next year will be charged at 1% of their list price, increasing to 2% in 2022/23.
Company vans
If you use company-bought fuel in a personal capacity, it is a Benefit in Kind. The tax on fuel benefit has increased as follows:
The BiK on company vans increases to £3,500 (from £3,490)
The BiK on fuel for a van for personal use increases to £669 (from £666).
This can be reduced under some circumstances – e.g. if the van isn’t driven for 30 days in a row or if you pay for private use of the van.
Fuel benefit for company cars
An employee who has a company car and free fuel from the employer is taxed on the cash equivalent value of the benefit each tax year. This has increased from £24,500 to £24,600.
Corporation Tax
Corporation tax remains at 19% of company profits but will rise to 25% from April 2023. At this point there will be a new ‘small profits rate’ of 19% for companies with profits of less than £50,000. The rate rises in line with profits above this level.
Businesses with profits over £250,000 will pay the full rate of 25% from April 2023.
Entrepreneurs’ Relief
Entrepreneurs’ Relief is now Business Asset Disposal Relief. It reduces Capital Gains Tax when you sell a business asset. The lifetime allowance limit remains capped at £1 million.
Information for Employers
National Minimum Wage and National Living Wage
The National Minimum Wage and National Living Wage amounts have increased to £8.91 per hour. It now applies to any adult aged 23 years and above.
Student Loans
The earnings thresholds above which you must start to repay a student loan have increased:
Plan 1 loans now £19,895 (was £19,390) Plan 2 loans now £27,295 (from £26,575)
A new Postgraduate Master’s Loan has been introduced by the government. It is repaid in the same way as any other Student Loan. Interest is charged from the day of the first payment. Repayment will be at 6% for students in England and Wales on income above £21,000.
Workplace pensions (auto-enrolment)
There are no changes to the minimum contribution for employees’ auto-enrolment workplace pension. The total of employer and employee contributions remains a minimum of 8% of the employee’s qualifying earnings.
Apprenticeships
The apprentice hiring incentive in England has been extended to September 2021. The payment has increased to £3,000. A new flexi-apprenticeship scheme will allow apprentices to work with multiple employers in a sector.
Eligible retail, hospitality and leisure properties in England will continue to receive 100% business rates relief from 1 April 2021 to 30 June 2021.
This will be followed by 66% business rates relief from 1 July 2021 to 31 March 2022, capped at £2 million per business for properties that were required to be closed on 5 January 2021, or £105,000 per business for other eligible properties.
Recovery Loan Scheme
The Recovery Loan Scheme will provide lenders with a guarantee of 80% on eligible loans between £25,000 and £10 million. The scheme will be open to all businesses, including those that have already received support under the existing COVID-19 guaranteed loan schemes.
The previous Coronavirus Business Interruption Loan Scheme (CBILS) and the Bounce Back Loan Scheme have now closed.
Restart Grants
New ‘Restart Grants’ to help businesses in England reopen from April 2021 include:
Up to £6,000 per premises for non-essential retail.
Up to £18,000 for hospitality and leisure venues that cannot open until later in the year.
Statutory Sick Pay
Small and medium-sized employers in the UK will continue to be able to reclaim up to two weeks of eligible Statutory Sick Pay (SSP) costs per employee.
Universal Credit and Working Tax Credit
The temporary additional £20 Universal Credit uplift will be extended by a further six months and also announced a £500 one-off payment for eligible Working Tax Credit claimants.
Need some support?
For a discussion about what these rules mean for your business, get in touch. Here at Wootton & Co we take time to explore all the options for our clients. Our accountancy services include personal tax planning, business accounting and payroll. Contact the team to find out why we’re a trusted Lune Valley Accountant for companies large and small.
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