Why the Cloud for Accounting?
A strategic advantage for SMEs
At Price & Accountants, we have heavily invested in the Cloud because we can see how Cloud-
based accounting systems add value to our clients. In today’s market, businesses need to be
scalable in order to succeed and cloud accounting platforms provide enterprises with variety of
services which traditional and non- cloud accounting systems just couldn’t offer. Statistics
published in 2013 reveal that exclusively adopting the cloud for your accounting will be a
fundamental game changer for your enterprise.
The adoption of cloud accounting systems by businesses in the UK is growing rapidly.
Historically, accountancy firms in the UK have been too risk-averse to buy into a fully integrated
Cloud. With a document delivery service boosting a revolutionary combination for facilitating
cross-departmental and departmental teamwork the cloud gives enterprises a cost effective,
secure and flexible foundation for organic growth.
In the start of 2013 something changed, A survey by Fasthosts recorded that there was an
estimated 4.9 million business (in 2019 there was 5.9 million) in the UK which employed 24.3
million, and had a combined turnover of 3.300 billion. In fact, SME’s accounted for 99.9 per cent
of private sector turnover. With 841,000 private sector business, London had more firms than
any other region in the UK. The south east had the second largest number of business with
719,000. The business landscape was changing and many new players were beginning to take
advantage of how the digital revolution could change the way of doing business and create
measurable value in a fundamentally new way. Almost a year later, in 2014 more than two thirds
(70%) of small businesses and medium-sized enterprises (SMEs) in the UK have stated that an
early adoption of the cloud will be an important factor to contribute to the growth of their
business in the next 12 months.
We understand that for many SMEs, shifting into the cloud is giant leap but for this particular
group this leap has been proved to be extremely beneficial. The scalability of the Cloud allows
your business to upscale and downscale your business requirements to accommodate your
needs or changes. This in turn allows you to support your business growth organically without
the highly expensive changes with other more traditional accounting systems.
Today’s cloud offers business more than just Mobility, scalability, real-time info, visualisation
and cost effectiveness, It is revolutionising the way in which we do business. Leaping into the
cloud isn’t merely a technology shift it’s a cultural shift. Cloud computing brings forth a wave of
closer collaboration by bringing the business together in one central, accessible location. One of
the many key benefits of the cloud is the scope of information it provides on where a business is
exhaling, thus enabling owners to make the right decision on how to make significant
improvements for more efficient systems and closer collaboration.
Using a best-of-breed cloud accounting system, like Xero has enabled us to provide our clients
with real-time accounts and cash flow information, and an enterprise mobility strategy which is
changing the way they do business dramatically. Management can harness the power of real
time bank data thus saving time and enhancing their ability to make fast and informed business
decisions. Data visualisation for finance is changing the way SMEs work by making complex
finance data simple and accessible. Armed with the right insights business Xero allows owners
can explore and understand the relationship between a global market, investors and their
current clients.
Traditionally, it was only large corporates that had vast databases on their customers, with
Xero’s engineering SMEs have cloud databases with a secure and safe API which can connect
in real time to systems and other databases around the world. Xero gives business owners a
platform to refine their internal date and make informed strategic decisions to boost
performance.
We have noticed that a lack of education with regards to the cloud is having massive impact on
the amount of small and medium sized enterprises that are considering making the leap. At
Price & Accountants, we are committed to providing our clients with a quality service in an
efficient manner. We have helped and continue to educate our clients through our top-notch
educational consulting services and free online resource materials.
So in conclusion, moving your infrastructure into the cloud will enable you exploit saving
opportunities and make better business decisions based on credible data. So if you want to
minimise risk and maximise your ROI with an accurate, actionable and transparent business
intelligence then migrating into the cloud with our cloud accountancy tool is most probably your
best bet.
Want to know more?
If you would like more in-depth guidance regarding your current finance system, a business
accounting consultation, or tax advisory, please contact 02037 355 119, email
info@priceandaccountants.com or visit www.priceandaccountants.com
TAX ON DIRECTOR’S LOANS: Shorten the accounting period to avoid s.455 charge
What happens when a company director borrows money from their business to help with personal finance, but struggles to repay the loan? While this can be stressful, there are ways to postpone the repayment cutoff in order to avoid the s.455 tax charge. Here’s what you need to know:
The situation
As an example, let’s say Joe Bloggs of Alpha Services borrowed £75,000 from his personal company on 20th March 2019, to help pay for an upcoming home move. He did this as a taxable benefit in kind, and an alternative to taking out a bridging loan, thinking it would save him paying the interest.
Joe intended to repay the loan quickly once his previous property was sold, but after months of negotiation, the potential buyer pulled out in July 2019, and interest in the property has since dried up.
Joe is now concerned about having to pay the 32.5% corporation tax charge under s.455 Corporation Tax Act (CTA) 2010, which would amount to £24,375, and is payable to HMRC.
What is the nine-month rule?
Alpha Services may be able to avoid this payment if Joe can repay the loan to the company before 31st December 2019. This is because the charge only has to be paid to the extent that the loan has not been repaid within nine months of the relevant year end.
Typically this would mean voting a dividend which is credited against the loan balance, but this would be taxable income for Joe Bloggs who is a higher rate taxpayer, so in this instance it doesn’t offer much help.
Alternatively, Joe could borrow funds from a bank to repay the loan, then use the eventual proceeds to repay the bank loan. Though this would mean he will need to pay interest, it will still be lower than the tax payable on a large dividend. If, however, Joe struggles to raise finance quickly, he may run into further problems.
So what would we recommend here at Price & Accountants? A great way to make this work for you is to change the accounting date.
What does it mean to change the accounting date?
Joe Bloggs could alter the Alpha Services accounting date to just before the loan was issued, meaning the loan would essentially disappear from the records until the next accounting period, giving Joe more time to sell his property and repay the company without being required to pay the s.455 charge.
Doing this would mean that, if the loan was issued on 20th March 2019, and Joe changes his company’s accounting date to 28th February 2019, the loan will not show up in the accounts until the year ending 28th February 2020, giving him until 30th November 2020 to sell his house and pay back the loan.
What about changing this back?
Joe can shorten the company’s accounting period as many times as he likes, but can only lengthen it once every 5 years, with some exceptions. Provided that Alpha Services has not changed the date before, Joe can revert back to a 31st March year-end whenever he wishes, if at all.
If you want to find out more about tax on your director’s loan, get in touch with our team at Price & Accountants. We are committed to helping small businesses in London and around the UK with their accounting needs, using Xero online accounting software and our expert team of advisors, all dedicated to helping your business flourish.
SHARES OR LOANS? Why lending capital can be more tax efficient than buying shares?
Every startup needs working capital to grow, and there are several ways to get this… but which one is the best? As the founder or owner, you could provide capital by purchasing more shares or by simply lending your company the cash. This could offer a more speedy return on your investment, and make you more tax efficient at the same time.
- Is funding by buying shares not advisable?
Many people buy shares in order to provide more capital, and while there is nothing wrong with this, depending on your situation there may be other, more beneficial ways. One of the biggest disadvantages of buying shares is that you may need to wait a while for any Return on Investment (ROI). Your company can pay you dividends but only when it is making a profit and in the case a new startup business, it may take a while. There’s also no guarantee that you’ll see a return on your investment at all.
- What’s so great about funding by loaning capital?
If you’re looking for a faster ROI as many founders, then lending your company the money could be the way to go forward. Providing a loan means that you can be paid interest straight away, plus loans are generally more flexible than being paid dividends as you can receive some or all of your money back without being required to cancel share capital, which could significantly affect your tax. This leaves you with more control of your money, which as an investor, feels much safer.
- How can being married help?
If you happen to be married or in a civil partnership, then lending to your company could bring you even better tax advantages, so it’s worth exploring this avenue fully.
These tax advantages also work if you are unmarried with a “significant other”, however as a general rule, it’s much easier if you have combined finances through a lawful marriage or civil partnership.
This arrangement can help you save on tax if your partner pays a lower rate of tax than you do, as they can lend you money and charge you interest. You then lend the money to your company and charge the company a similar interest rate.
- How does this work?
Doing things this way requires that a) the interest is taxable, and b) any interest paid on qualifying loans that are used for company funds, the purchasing of equipment, or for working capital for a trading company are tax deductible.
Here’s an example that breaks this process down:
Joe is a director, shareholder and higher rate taxpayer of the Joe Bloggs Ltd., and the business requires some new equipment. Joe’s wife Jane is a basic tax payer, and so she makes an interest-free loan of £100,000 to Joe, who then lends this to his company Joe Bloggs Ltd., charging interest at 7% per annum.
Joe is liable for tax of £2,800 (£7,000 x 40%) on the interest he receives from Joe Bloggs Ltd. Joe doesn’t pay Jane any interest which means there is no tax relief for him to claim (though the loan to Joe Bloggs Ltd. does qualify).
Alternatively, if Jane decides to charge Joe the same rate that he charges Joe Bloggs Ltd. (7%) instead of an interest-free loan, then the interest Joe pays Jane will be tax deductible. This means the taxable interest (£7,000) he is paid by Joe Bloggs Ltd. equals the tax deductible interest he must pay to Jane. One cancels out the other, and instead of paying £2,800 in tax, Joe pays nothing.
Jane’s loan to Joe isn’t a qualifying loan, so she will have to pay tax on the interest she receives from him. Luckily, as Jane is a basic rate taxpayer, her bill is £1,400, meaning a tax saving of up to £1,400, and possibly much less depending on Jane’s other sources of income. As mentioned earlier, the advantage of doing things this way means that even if Joe Bloggs Ltd. is not making a profit at the moment, it can still pay Joe a return on his loan. This is often the best and most tax efficient way for company founders to provide capital to their business.
Want to find out more about how this could help make you more tax efficient? Get in touch with our team at Price & Accountants to discuss how we can help. We are committed to helping small businesses in London and around the UK with their accounting needs, using Xero online accounting software and our expert team of advisors, all dedicated to helping your business flourish.
How to reduce tax rates on property gains?
If you have recently sold a residential property, you will likely have made a healthy capital gain and discovered that special higher tax rates apply to this. There may be a way to defer paying this tax and reduce it overall. Here’s how:
- EIS tax reliefs
Investing in a company which qualifies for EIS (Enterprise Investment Scheme) tends to offer a few tax advantages, such as up-front income tax relief, capital gains tax (CGT) free growth on the investment and capital gains tax deferral relief.
CGT deferral relief means you can defer the taxation of any capital gain you made in the previous year or the three years following your EIS investment. When this happens, the gain becomes taxable only when you sell or transfer your EIS investment.
Let’s look at an example to demonstrate this process:
Joe makes capital gains of £100,000 in 2018/19, and makes a qualifying investment of the same amount in an EIS company. He claims CGT deferral relief, meaning he is not required to pay the capital gains tax that would be due on 31st January 2020. Joe then sells his EIS shares in 2025/26, triggering a tax charge on an amount that is equal in value to the deferred gain taxable for that year.
- How does this work for residential property gains?
If you have recently sold a residential property, then you will know that the rules explaining how the deferred gain will be taxed are worded in a very specific way, and you can make the most of this by doing research and using the rules to your advantage.
As of April 2016, rates of tax on capital gains are 10%, as long as your income combined with the gains comes to no more than the income tax basic rate band. If they exceed this, they are then taxed at 20%. However, when the gain concerns residential property (such as houses, flats, apartments, land intent for building, and so on) the rates are 18% and 28% respectively.
- How does EIS deferral relief help you be more tax efficient?
By using EIS deferral relief, you can change the nature of a residential property gain to a non-residential one, and therefore benefit from the lower, normal CGT rates of 10% and 20%. You’re probably wondering why more people don’t do this? Though this tax-saving arrangement is entirely legitimate, HMRC discourages it by making the rules hard to get around (but not impossible).
- How do you overcome HMRC guidelines?
It’s difficult to find information that helps you navigate HMRC guidelines, especially since there are a lot of varying answers online. Some sites will indicate that the previously deferred gain is only liable for CGT at 10% or 20%, and others (more in line with HMRC guidelines) will tell you that the deferred gain retains its original status as a residential property gain. Understanding the legislation is the key to making this distinction, and this is something that Price & Accountants can assist you with.
- HMRC guidelines in layman’s terms
In the Schedule 5B Taxation of Chargeable Gains Act 1992, you will find the EIS deferral relief rules explained in full. This states that the revived gain is “equal to so much of the deferred gain” in proportion to the amount of EIS investment sold.
Here’s a simple example of this to break it down further:
Joe sold 50% of his EIS investment in 2025/26, so the capital gain taxable is an amount “equal to” the same proportion, i.e. 50% of the original gain. As is often the case, minor, seemingly insignificant wording details in tax legislation can completely alter a tax bill. In the case of the EIS deferral relief rules, an EIS investment could potentially reduce your tax rate by almost half, which is an amazing saving.
- When must this be paid?
By making an investment in an EIS company, you make it possible to defer when tax is payable on the gain, and you will only pay this when you sell or transfer the investment. Although HMRC rules disagree, most tax experts will advise you that the gain changes its nature because of the deferral and so special higher rates of tax no longer apply, helping you be significantly more tax efficient.
If you want to find out more about how your residential property sale could be more tax efficient than you think, get in touch with our team at Price & Accountants. We are committed to helping small businesses in London and around the UK with their accounting needs, using Xero online accounting software and our expert team of advisors, all dedicated to helping your business flourish.
How to significantly reduce your tax bill by selling shares to your partner
Looking to become more tax efficient this year? Gifting shares of your business to your spouse is often recommended by small business accountants and tax advisors, in order to make use of both you and your partner’s tax-free allowances, and ultimately minimise the tax on dividends the company pays. This is a great move to make, however if you’re looking for ways to save even more and you also happen to have a mortgage, your accounting firm may not have told you to consider selling shares instead of gifting them. Here’s what you need to know:
- Firstly, why is joint ownership best?
Instead of owning your business alone, it is widely considered good practice to own it jointly with your spouse whenever one of you is paying a higher rate of tax than the other. When you both own shares in the company, you are both entitled to use your tax-free allowances, dividend nil rate band, and other rate bands, in order to reduce the tax paid on your company dividends. Owning with your partner is a great way to become more tax efficient.
- Should I have made my spouse a shareholder when I formed the company?
If you’re thinking it’s too late to make your spouse a shareholder in your company, it’s definitely not. Even if your spouse was not made a shareholder in the beginning, HMRC will still allow you to transfer ordinary shares to them as a gift in order to reduce your tax bill. No matter how long ago you formed your business, you can start the process of making your spouse a shareholder at any time.
- How does this help reduce my tax bill?
Here’s an example of this tax-saving plan in action:
Joe started his company (Joe Bloggs Ltd.) over ten years ago. It has grown considerably since then, and is now being valued at around £600,000. Joe Bloggs Ltd. pays Joe £100,000 per year in dividends, of which almost £50,000 is taxed at the higher rate, and naturally, Joe would like to save on tax wherever possible.
Joe’s wife, Jane, brings in less income, and so Joe’s accountant suggests that he gift half of the shares of Joe Bloggs Ltd. to Jane, in order to make the most of her tax-free allowances and basic rate band.
- Tax savings comparison
If you believe you could qualify for tax relief by implementing the plan above, you can discover the savings you could make in your business by getting in touch by emailing us to info@priceandaccountants.com or call us 020 3735 5119 at Price & Accountants to discuss how we can help you save on your tax this year.
We are committed to helping small businesses in London and around the UK with their accounting needs, using Xero online accounting software and our expert team of advisors, all dedicated to helping your business flourish.
7 Key Mistakes SMEs Should Avoid To Improve Business Performance
At Price & Accountants, we have worked to overhaul and streamline the financial direction of many SMEs, and over many years of experience we have identified key mistakes that affect businesses more than they realise. This could have a negative impact further down the line on their businesses. Here are the key things that could be preventing your performance:
1. Lack of planning and analysis
Without a strategy in place and a method of analysing what you have done in the past, you are essentially planning to fail. Having a plan for your financial operations and goals is crucial in order to achieve them, and to avoid later complications.
2. Relying solely on year-end accounts
Many businesses use their year-end accounts only to analyse the historic data, however this can also be one of the most beneficial insights into your business, not only telling you what has occurred, but what you need to do next.
3. Oblivious to the metrics in the business
Most businesses we have come across do not know or understand key metrics within their organisation, such as KPIs and ratios. Understanding how to use these information could be vital to your future success.
4. Lack of a cash flow model
Not having or utilising a cash flow model is one of the biggest mistakes we see SMEs make. If you are experiencing cash flow problems (or think that you could be, but are not sure) then we urge you not only to make this a priority, but to reach out to us for a free consultation.
5. Avoiding cloud-based accounting
This is by far the most efficient way to manage your finances, and without it you are undoubtedly wasting time and money, and will often be left searching for answers.
6. Lack of customer analysis
Knowing your target customer and the key financials surrounding their interactions with your business, is not only advised, but could be the difference between your success or failure further down the line.
7. Poor financial productivity
Productivity and performance improvement applies not only to the everyday running of your business, but is also highly relevant to your financial goals. Many businesses waste money on poor productivity and low performance, and this is an area we have helped many clients refine and streamline.
If you feel that your business is suffering from any of the above, feel free to reach out to Price & Accountants for a free coffee and consultation on how we can help:
Email info@priceandaccountants.com
Call 020 3735 5119
you can download this as a PDF format Click here to Download the file
SELL, DON’T GIFT: HOW TO SIGNIFICANTLY REDUCE YOUR TAX BILL BY SELLING SHARES TO YOUR PARTNER
Looking to become more tax efficient this year? Gifting shares of your business to your
spouse is often recommended by small business accountants and tax advisors. This is to
make use of both yours and your partner’s tax-free allowances, and ultimately minimise the tax
on dividends the company pays. This is a great move to be tax efficient, however if you’re looking for
ways to save even more and you also happen to have a mortgage, your accounting firm may
not have told you to consider selling shares instead of gifting them. Here’s what you need to
know:
- Firstly, why is joint ownership best?
Instead of owning your business alone, it is widely considered good practice to own it jointly
with your spouse whenever one of you is paying a higher rate of tax than the other. When
you both own shares in the company, you are both entitled to use your tax-free allowances,
dividend nil rate band, and other rate bands, in order to reduce the tax paid on your
company dividends. Owning with your partner is a great way to become more tax efficient.
- Should I have made my spouse a shareholder when I formed the company?
If you’re thinking it’s too late to make your spouse a shareholder in your company, it’s
definitely not. Even if your spouse was not made a shareholder in the beginning, HMRC will
still allow you to transfer ordinary shares to them as a gift in order to reduce your tax bill. No
matter how long ago you have incorporated your company, you can still make your spouse
a shareholder at any time.
- How does this help reduce my tax bill?
Here’s an example of this tax-saving plan in action:
Joe started his company (Joe Bloggs Ltd.) over ten years ago. It has grown considerably
since then, and is now being valued at around £600,000. Joe Bloggs Ltd. pays Joe £100,000
per year in dividends, of which almost £50,000 is taxed at the higher rate, and naturally, Joe
would like to save on tax wherever possible.
Joe’s wife, Jane, brings in less income, and so Joe’s accountant suggests that he gift half of
the shares of Joe Bloggs Ltd. to Jane, in order to utilise the most of her tax-free allowances
and basic rate band.
- So why is it better to sell and not gift the shares?
Here’s where it gets interesting. Typically, tax experts will advise you to gift the shares to
your spouse to save, which is acceptable. However, if you are currently paying off a
mortgage on your home, it may be more tax efficient for you to sell the shares to them at a
reduced rate instead. Selling the shares allows you to structure the transaction in such a way
that you receive tax relief on the interest you pay.
- How does this work?
Let’s say Joe and Jane have a mortgage of £200,000 on their home, and the interest they
pay on this loan is around £11,000 each year. Tax relief does not apply to loans used to buy
your home, but it often does when you are buying shares in a company (note: conditions
often apply).
If Joe sells shares to Jane for a discounted rate (we’ll use £100,000 as an example) instead
of gifting them to her, the loan that Jane takes out to make this purchase will then qualify for
tax relief. They can then use this money to pay back £100,000 of their mortgage.
In doing so, Joe and Jane have effectively switched the £100,000 payment to pay towards
their home mortgage instead of the sale of shares in the company. The interest from the
money that goes towards the sale of shares qualifies for tax relief, meaning the interest paid
is around £5,500 per year, and around £1,100 of this gets knocked off their tax bill.
If you believe you could qualify for tax relief by implementing the plan above, you can discover the savings you could make in your business by getting in touch by emailing us to info@priceandaccountants.com or call us 020 3735 5119 at Price & Accountants to discuss how we can help you save on your tax this year.
We are committed to helping small businesses in London and around the UK with their accounting needs, using Xero online accounting software and our expert team of advisors, all dedicated to helping your business flourish.
Autumn Budget 2017
What is the big picture?
- Economic Forecast
- Brexit
- Technology
- Productivity
Brexit, most challenging time for small businesses in UK right now, uncertainty is not good for our economy which can also affect small businesses in short and long term. However it will also bring opportunities for smaller businesses therefore get ready.
Government is ready to invest into the Technology, there is £2.5 billion Investment Fund for innovative SMEs. There is also an Investment incentive available for artificial intelligence.
The big headline: Stamp Duty Limits
Up to £125,000: Current Standard rate 0% Rate for first-time buyers 0%
Over £125,000 and up to £250,000 Current Standard rate 2% Rate for first-time buyers 0%
Over £250,000 and up to £300,000 Current Standard rate 5% Rate for first-time buyers 0%
Over £300,000 and up to £500,000 Current Standard rate 5% Rate for first-time buyers 5%
- You will not pay Stamp duty on the first £300,000 on property purchase (first time buyer)
- Between £300,001 and £500,000 the standard 5% will apply
- If your property is over £500,000 this exemption will not apply and will pay standard rates
Personal Tax and National Insurance overview
Personal allowance £11,500 (Now) £11,850 (Next Year)
Basic rate threshold £33,500 (Now) £34,500 (Next Year)
Tax free dividend £5,000 (Now) £2,000 (Next Year)
Dividend Tax! basic rate will be increased to £34,500 which will be taxed at 7.50% savings of £189 (including savings from personal allowances) in the next financial year compared to current year. There would be an additional tax on reduced tax free dividend which will result to an increase in dividend tax of £225. Overall there are no satisfactory tax saving for small business owners in 2018/2019.
Corporation Tax overview
- Main rate of corporation tax remains at 19%, falling to 17% from 1 April 2020
- Freezing of corporate indexation allowance from 1 January 2018
- R&D tax credit increased from 11% to 12%
UK will be very competitive jurisdiction when corporation tax is reduced to 17% (from 2020). Good news for R&D.
Finance for long-term innovation
New £2.5 billion Investment Fund for innovative scale-up SMEs
Double annual allowance for EIS investments in knowledge-intensive companies
Transport Taxes
- £220 million new Clean Air Fund for local authorities in England
- Vehicle Excise Duty (VED) supplement for new diesel cars from 1st April 2018
- Rise in Company Car Tax diesel supplement from 3% to 4%
- No benefit-in-kind charge for electric vehicles for employees
- Freeze on fuel duty