Leonherman Blog

The importance of Financial Forecasting

The lack of planning and control of cash resources is the reason often given for the failure of many businesses. By undertaking good financial forecasting businesses can help reduce this business risk.

Much like a map helps you plan a long road journey, a financial forecast helps you achieve your goals and get your business to where you want it to be.

A financial forecast is simply a financial plan or budget for your business. It is an estimate of two essential future financial outcomes for a business – your projected income and expenses.

Predicting the financial future of your business is not easy, especially if you are starting a business and do not have a trading history. This is where Leonherman can help. We are experienced in preparing financial forecasts that are both achievable yet still challenging.

Advantages of an effective financial forecast:

  • Demonstrates the financial viability of a new business venture. Allowing you to construct a model of how your business might perform financially if certain strategies, events and plans are carried out
  • Allows you to measure the actual financial operation of the business against the forecast financial plan and make adjustments where necessary
  • Allows you to guide your business in the right direction and take control of your cash flow
  • Provides a benchmark against which to measure future performance
  • Identifies potential risks and cash shortfalls to keep the business out of financial trouble
  • Provides an estimate of future cash needs and whether additional private equity or borrowing is necessary
  • Assists you to secure a bank loan or other funding, lenders and investors require financial forecasts to show your capacity to repay the loan

Leonherman offer business planning and financial forecasting services to businesses that are looking towards the future and want to plan how they can grow and develop.

GET IN TOUCH if this could benefit you – partners@leonherman.co.uk

Posted in Ask the Expert, News

When is a van not a van?

HMRC are being urged to provide clarity and consistency on the tax treatment of commercial vehicles such as VW Kombi Vans marketed as goods vehicles. The need for clarity follows the ruling in an important tax tribunal case involving “vans” provided to employees of Coca Cola.

The court has upheld the HMRC view that certain vehicles are not goods vehicles but motor cars for benefit in kind purposes. Consequently, the income tax and national insurance payable by employee and employer is significantly higher than if the vehicles had been classified as goods vehicles.

CERTAIN VANS ARE EXEMPT FROM INCOME TAX

There is no assessable benefit in kind where the van is only used for business journeys or the private use of the vehicle is insignificant. Examples would include making a slight detour to pick up a newspaper on the way to work or taking an old mattress or other rubbish to the tip once or twice a year. 

INCOME TAX DEFINITION OF “GOODS VEHICLE”

The income tax legislation defines a “goods vehicle” as “a vehicle of a construction primarily suited for the conveyance of goods or burden of any description…”

Although the VW Kombi vans failed this test the Tribunal held that Vauxhall Vivaro vans provided by Coca Cola did fall within the definition of goods vehicles!

It is understood that this case is due to be heard at the Court of Appeal which will provide legal precedent over the tax treatment. Until then it gives employers a dilemma as to how to report such vehicles on employees’ form P11d and also whether the position in earlier years should be rectified.  The tribunal had to seek evidence from automotive industry experts so how are employers expected to interpret the rules!

What is also particularly confusing, and thus difficult for businesses to deal with, is that the benefit in kind rules are not the same as the rules for capital allowances and VAT.

CAPITAL ALLOWANCES DEFINITION OF “MOTOR CAR”

The definition of a “motor car” for plant and machinery allowances purposes is a mechanically propelled vehicle except a vehicle:

  1. constructed in such a way that it is primarily suited for transporting goods of any sort, or
  2. of a type which is not commonly used as a private vehicle and is not suitable for use as a private vehicle. 

VAT DEFINITION OF “MOTOR CAR”

For VAT purposes the definition of a motor car has been amended several times over the years. The current definition states: “Motor car” means any motor vehicle of a kind normally used on public roads which has three or more wheels and either:

  1. is constructed or adapted solely or mainly for the carriage of passengers; or
  2. has to the rear of the driver’s seat roofed accommodation which is fitted with side windows or which is constructed or adapted for the fitting of side windows;

There are a number of exceptions to this rule notably vehicles constructed to carry a payload of one tonne or more. A common example would be a “double cab” pick-up such as a Mitsubishi L200 or Toyota Hilux.

If you are unsure how this may affect you or want to look at purchasing some vans for your business get in touch on 0161 249 5040

Posted in Ask the Expert, News

Who is responsible for your own personal development?

As a business owner, you are focused on developing the people around you. But who is responsible for your own development?

Most business owners wear many different hats, some they feel comfortable and experience to wear and others not so much so. But if you want to help your employees to grow and develop, you need to invest time in developing yourself as well.

If you don’t, your team and your business could outgrow you and your own career could stagnate. You need to ensure that you allocate time to focus on your own personal development, just as you would for your employees.

Lead by example

Most businesses want to see their team take time to invest in their own personal development, you need to lead by example. If you make time to learn and develop new skills, your team are more likely to follow suit. You may even be able to make suggestions to your team members, based on your own learning and development experiences.

Make use of technology

There is an ever-expanding range of learning opportunities available online. The beauty of this is that you can take courses and attend webinars at a time that works for you. Learning and development doesn’t have to involve taking several days out to attend a conference or training session. 

What interests you?

You are more likely to develop a skill if you are interested in it. You want to feel motivated and keen to develop new skills. Find a development opportunity that you are passionate about or an area you want to feel more confident in whether that is finance, marketing or presenting skills. There is no point forcing yourself to develop your skills in an area that you have no interest in, otherwise it will feel like a chore and you will be less likely to do it. 

Take a step back

Focusing on your own personal development gives you an opportunity to step back from your day job. There is a reason why the best ideas come to you when you are walking, at the gym or driving as it allows your mind to wonder. Taking time away from the day-to-day can help to provide new perspectives on things and re-evaluate your priorities. When you get back to your desk, you may have new ideas and you should feel re-energised.

At Leonherman we pride ourselves on being able to give advice to our clients on all aspects of their business. Get in touch if you would like to discuss your business plans on 0161 249 5040

 

Posted in Ask the Expert, News

Inheritance tax to be made simple!

About time to we hear you say, the Office of Tax Simplification (OTS) have undertaken a detailed review of Inheritance Tax (IHT), which I think we can all agree is a complicated tax. Their report is likely to lead to future changes to the rules. We will keep you posted as the changes may require you to amend your Will or to review your financial planning.

We have experienced many misconceptions about how the tax operates, particularly in connection with gifts. One of the proposed changes is to shorten the period for lifetime gifts to be exempt from 7 to 5 years. The OTS also recommended replacing the current £3,000 annual allowance, marriage allowances and the exemption for regular gifts out of income with a £25,000 personal allowance each year, so far so good….

No tax free CGT uplift on death

Although the Office of Tax Simplification were only tasked with simplifying inheritance tax, they also considered the interaction with Capital Gains Tax. Many asset transfers can have both CGT and IHT implications. Currently there is no CGT on assets transferred on death and the recipient inherits the asset at its market value.

The suggestion is that capital gains tax uplift on death distorts decision making relating to assets that benefit from an exemption from Inheritance Tax. Currently when an individual holds such an asset that has risen in value, and is considering transferring it during their life, they are often advised to retain it until death rather than giving it away during their lifetime, because of the tax benefits.

For example when a business is retained until death, any potential capital gains are wiped out and there is no Inheritance Tax to pay. This could then lead to an asset being retained and transferred to the next generation at a time that is right for the business.

We will monitor the progress of this proposed change as it is likely to have significant implications on family businesses and your succession planning.

If you are concerned about how these proposed changes may affect you, please get in touch or call 0161 249 5040

Posted in Uncategorized

Email issues – please call us

Due to an IT upgrade that has overrun, we are not receiving external emails.

We hope to be up and running by the end of the day.

Please call on 0161 249 5040.

Thank you for your patience.

Posted in Office News

Off-payroll working rules to go ahead

The “off-payroll” working rules to the private sector will be in operation from 6 April 2020. This will mean workers providing their services through personal service companies and also the end user organisations that engage such workers, will be required to determine whether the worker would have been an employee if directly engaged and hence the new rules apply to the services provided by the worker via his or her personal service company.

The draft Finance Bill issued for consultation on 11 July includes the current CEST

(Check Employment Status for Tax) online tool would be improved before the proposed start date.

However “small businesses” will be outside of the new obligations, with services supplied to such organisations being able to continue to be dealt with under the current IR35 rules, with the worker and his or her personal service company effectively self-assessing whether the rules apply to that particular engagement.

The definition of “small business” is linked to the Companies Act 2006 definition, with the business satisfies two or more of the following conditions:

  • Annual turnover of £10.2 million or less
  • Balance Sheet total of £5.1 million or less
  • 50 employees or less

The liability for tax and national insurance will be the responsibility of the entity, paying the personal service company. However, if HMRC are unable to collect the tax from that entity, the liability will pass up the labour supply chain, thus encouraging those entities further up the supply chain to carry out due diligence.

Please get in touch on 0161 249 5040 if you would like to discuss how the proposed changes are likely to impact you and your business.

Posted in Ask the Expert, News

Everything you need to know about MTD…..

Are you ready for MTD (Making Tax Digital)?

MTD is now live and this means all VAT registered businesses (with a turnover of £85k and above) will be required to submit all future VAT returns using compatible software.

This comes into effect for the first full VAT return following the 1 April 2019, but please be warned that you will need to register for MTD and this can take at least 7 working days to be activated if you pay by direct debit or up to 72 hours if you don’t pay by direct debit.

Once you have set up your MTD account you can no longer use your present online VAT account, so any VAT returns outstanding before MTD compliance is required should be completed and submitted before setting up your MTD account.

This table below shows the sign up windows for the first quarters falling within MTD for those paying by direct debit.

First MTD for VAT return     Sign up period starts      Sign up period end 
Apr/May/Jun 2019 15 May 2019 29 July 2019
May/Jun/Jul 2019 17 June 2019 28 August 2019
Jun/Jul/Aug 2019 15 July 2019 26 September 2019

 

What do I need to do?
You are required to keep track of your tax affairs digitally using MTD compatible software, and to update HMRC at least quarterly via your digital tax account.

There are many software options available to you. Please get in touch to allow us to find the best solution for you and to help you with this transition by calling us on 0161 249 5040.

Posted in Ask the Expert, News

Growing your business 

How do you scale up your business and take it to the next level?

Businesses that are looking to grow in terms of market access, revenues, and number of employees, by adding value, identifying and realising new opportunities in a competitive environment are the life blood to a healthy UK economy.

Organic versus inorganic growth

Businesses can grow in one of two ways. You can focus on organic growth – growing gradually through increased sales and market share. Alternatively, you can grow through inorganic growth strategies such as through an acquisition or a merger with another business.

Commit to growth

Growing a business takes a huge amount of time and effort, so you need to ensure that your management team is committed to growing the business. You and your team will need to create realistic growth targets and develop plans and concrete actions of how growth will be achieved.

Upskill your team

Your management team will have a given level of expertise. However, delivering a growth strategy may require an expanded skillset. Take the time to identify the skills required to realise your growth strategy. Do you have people with good management experience, an understanding of the relevant technology, good financial skills and a background in change management? If not, you will need to upskill your current team or hire in experienced professionals to help drive growth.

Collaborate

In order to grow your business you will need to create partnerships with people and professionals outside of your business. Consider your routes to market and identify potential service providers, partners, suppliers and key clients who you can work with in order to form alliances, which will drive the growth of your business.

If you are focused on expanding into new markets, you will need to create collaborative business relationships with sales partners and suppliers in those markets and may need to create formal agreements with these new business partners.

Here at Leonherman we have many years of experience working with businesses across a range of sectors and a variety of sizes, with the single aim to work with them to achieve their goals, including working alongside them to grow their business.

Get in touch to understand how we can work with you on 0161 249 5040

Posted in Ask the Expert, News

MTD (Making Tax Digital) is offically live!!

This means all VAT registered businesses (with a turnover of £85k and above) will be required to submit all future VAT returns using compatible software.

This comes into effect for the first full VAT return following the 1 April 2019, but please be warned that you will need to register for MTD and this can take up to 7 working days to be activated if you pay by direct debit or up to 72 hours if you don’t pay by direct debit. Once you have set up your MTD account you can no longer use your present online VAT account, so any VAT returns outstanding before MTD compliance is required should be completed and submitted before setting up your MTD account.

What do I need to do?
You are required to keep track of your tax affairs digitally using MTD compatible software, and to update HMRC at least quarterly via your digital tax account.

There are many software options available to you. Please get in touch to allow us to find the best solution for you and to help you with this transition by calling us on 0161 249 5040.

Posted in News

Extracting profit from your business

The start of the new tax year means that shareholder/directors may want to review the salary and dividend mix for 2019/20. The £3,000 employment allowance continues to be available to set against the employers national insurance contribution (NIC) liability. Please note there is no entitlement for the allowance if only a solitary Director is liable to employers NIC.

Please note: Where the only employees are husband and wife there would generally be no PAYE or employers NIC on a salary up to the £12,500 personal allowance.

There would however still be employees NIC at 12% on the excess over £8,632 (£166 per week) which would be £464 on a £12,500 salary, leaving £12,036 net.

Taxation of Dividend Payments in 2019/20

Traditional advice would then be to extract any additional profits from the company in the form of dividends.

Total dividends up to the top of the basic rate band (now £37,500) attract tax of 7.5% after the £2,000 dividend allowance has been used. Where husband and wife are 50:50 shareholders they would each pay £2,663 tax on dividends of £37,500 assuming they have no income other than a £12,500 salary, leaving £34,837 net of tax. So a combination of £12,500 salary and £37,500 in dividends would result in net income of £46,873 (93.7%).

Ensure dividend payments are legal

The Companies Act requires that companies may only pay dividends out of distributable profits. This means that in the absence of brought forward reserves the company would need to have profits after corporation tax of £75,000, in the above example.

Overall the combination of salary and dividends suggested above would result in net of tax take home cash of £93,746 for the couple out of profits before salaries and corporation tax of £117,593 (20.3% overall tax). This still compares very favorably with the amount of tax and NIC payable if the couple were trading as a partnership.

 

We recommend that you seek the advice from a qualified accountant before making any tax planning decisions to ensure you have a tax plan that suits you get in touch or call 0161 249 5040

Posted in Ask the Expert, News