Category: Business Support

It’s the directors’ responsibility to file their company’s accounts, and make sure they’re filed on time. It’s important to understand your role and how late filing could affect your company.

Missing your filing deadline could affect your credit score or access to finance. It can affect how others view your company and whether they want to do business with you. There are also financial penalties and legal consequences – you could get a criminal record, a fine or disqualification.

If you employ an accountant to file your company’s accounts, it’s still your responsibility, as director, to make sure they’re filed on time.

Over 65% of companies use software filing as their preferred method.

There are a variety of software providers who offer a range of accounting packages to prepare and file accounts. Most types of accounts can be filed using software, depending on the functionality of the software package you’re using.

If you file using the Companies House online services, you will be sent an email to confirm safe receipt. You will also be sent a further email when your accounts are registered at Companies House.

Company accounts need to be filed nine months after the accounting year end.

Which means before the end of December 2023 you will need to file accounts with a year end of 31 March 2023.

And on or before the 1 January 2024, you will need to pay any Corporation Tax due for the same year, to 31 March 2023.

Most dictionaries define “bottom line” as “the most important thing to consider”.

In financial circles it’s taken to mean a focus on profitability (the last line on a P&L accounts) or net worth (the bottom line of your Balance Sheet) rather than an obsession with sales (the top line on a profit statement).

Sales/turnover is obviously a key element of your business activity and meeting sales targets is usually uppermost in the minds of most small business owners.

However, profits – particularly profits retained in a business – are the cheapest way to maintain and increase net worth and cash flow.

Without retained profits, you will need to increase borrowings or capital introduced to maintain your balance sheet bottom line.

If you succeed in retaining profits this will have an immediate, positive impact on net worth, and eventually, will help you reduce debt (borrowings) and increase cash flow.

A focus on sales should always be accompanied by a keen interest in the bottom line indicators. Most accounts software will make these numbers available at the click of a mouse. If you need help to discover how your account’s software could produce indicators that will help you better manage your business during the present difficult times, please call, we can help.

The Enterprise Investment Scheme (EIS) is designed to help smaller higher-risk trading companies to raise finance by offering a range of tax reliefs to investors who purchase new shares in those companies. 

To claim investor EIS tax reliefs, the company which issues the shares has to meet a number of rules regarding the kind of company it is, the amount of money it can raise, how and when that money must be employed for the purposes of the trade, and the nature of its trading activities.

The main qualifying criteria for EIS investee businesses are as follows: 

• The maximum amount of funds that a company can raise through investments qualifying for the EIS is £5M in any 12 months with a maximum of £12m over the company’s lifetime. There are higher limits for ‘knowledge-intensive’ companies. 
• There is a maximum limit on the number of employees that the investee company can have when shares are issued. The company must have less than 250 full-time employees or their part-time equivalents. For groups of companies, the limit applies across the group. There are higher limits for ‘knowledge-intensive’ companies. 
• The company’s gross assets (or the group assets if the company is a parent company) must not exceed £15 million before any shares are issued and not be more than £16 million immediately afterwards. 
• There are also time limits as to when investments can be raised by the company and how and when the money must be spent.  

It is important that businesses looking to raise finance using the EIS scheme ensure that they qualify. Otherwise, their investors will be unable to claim the promised tax reliefs. HMRC offer an ‘advance assurance’ service that can help ensure everything is in order before raising finance.

In some respects, the Chancellor’s predicament is deserving of a sympathetic ear; its as if he has a long journey ahead but has one foot firmly nailed to the floor.

Stagnant growth in the UK and global economy has driven up taxation in order to meet the goals set to reduce borrowing as a percentage of GDP.

Inflation is reducing but is still above the Bank England’s target to have inflation back to 2%. In which case we will likely have high interest rates for some time.

It is difficult to see how tax rates could fall in the short or even medium term without an increase in economic activity. If tax rates were reduced, the fall in revenue would have to be met by more austerity, which in turn, would exaggerate the current cost of living crisis.

Where does this leave UK business owners?

We should probably consider elasticity of demand for products and services delivered. For example, if you sell products or services where demand is high or where there are few or no readily available substitutes for your products, you are likely to meet less resistance to raising your selling prices to pass on your increased costs. In this way you can maintain profitability and cash flow.

Compare this with businesses who sell goods or services where there are lower cost substitutes or where demand can be deferred, for example, a new kitchen. Businesses affected in this way will be less likely to recover increased costs by raising their prices. Profits will fall followed by loss of cash reserves and solvency.

We can help. Call now so that we can consider your options. What is clear, is that unlike our Chancellor, we can make choices and business planning during these uncertain times is a must-do activity.

To be a director, you must be over 16 and not currently disqualified. 

As a director your responsibilities include:

• filing your company’s annual accounts and reports or appoint an accountant to do it for you
• reporting changes in you or your company’s situation including changes of address
• sending a confirmation statement every year to Company’s House
• pay Corporation Tax, VAT, PAYE and National Insurance contributions due on time

Other key duties include:

Company’s constitution
You must follow the written constitution of your company. This is created when you set up your company.

Promote the success of the company
This means considering the impact your company has on others, the environment, any employees and colleagues. It also requires you to act in the interest of creditors if you are insolvent.

Independent judgement
Take advice, but always make decisions for yourself.

Exercise reasonable care, skill and diligence
Use the skills you have in the best way possible.

Avoid conflicts of interest
Do not take advantage of your position as a director to gain unfair advantages or create conflicts in business or other relationships.

Third-party benefits
Generally, you shouldn’t accept benefits from third parties that may cause conflicts of interest.

Interests in a transaction
You must tell other directors if you personally benefit from a company transaction.

Please call if you are uncertain what other duties directors have or any other matters that will help you decide if a corporate structure is the best option for your new business.

The government has announced £4.5 billion in funding for British manufacturing to increase investment in eight sectors across the UK. The funding will be available from 2025 for five years, providing industry with longer term certainty about their investments.

Over £2 billion has been earmarked for the automotive industry and £975 million for aerospace, supporting the manufacturing, supply chain and development of zero emission vehicles, and investment in energy efficient and zero-carbon aircraft equipment. 

Alongside this, the government has committed to £960 million for a Green Industries Growth Accelerator to support clean energy manufacturing, and £520 million for life sciences manufacturing to build resilience for future health emergencies and capitalise on the UK’s world-leading research and development.

With the entire manufacturing sector making up over 43% of all UK exports and employing around 2.6 million people, this funding is targeted at the UK’s strongest, world leading sectors; including where the industry is undergoing fundamental changes to remain at the forefront of the global transition to net zero, like the move to zero emission vehicles in the automotive industry.

The Green Industries Growth Accelerator investment will support the expansion of strong, home-grown, clean energy supply chains across the UK, including carbon capture, utilisation and storage, electricity networks, hydrogen, nuclear and offshore wind. This will enable the UK to seize growth opportunities through the transition to net zero, building on our world-leading decarbonisation record and strong deployment offer.

If you focus your energy on sales, there is a chance that your efforts will produce losses. Which is why we always encourage our business clients to keep their accounting records using software that automatically produces monthly management accounts that reveal profitability as well as turnover and costs.

But there is another useful indicator that you can compute once you have these monthly trading results. It is the level of turnover you need to achieve – based on current costs – in order to breakeven, make no profit, but importantly, no loss.

If you provide services, rather than process goods for resale, the amount of turnover you need to create each month to breakeven will be your total monthly costs plus any remuneration you take from the business.

For example, if your costs are £35,000 and your monthly remuneration not included in those costs (dividends perhaps or drawings if self-employed) a further £5,000, then your current breakeven turnover is £40,000 a month.

The calculation is slightly different if you process or buy and sell goods for resale as each £1 of sales will need to cover the direct costs – of buying and processing goods – as well as other fixed overheads that do not change with the level of turnover achieved. To calculate a breakeven figure, you will need to divide your fixed costs by the gross profit percentage and multiply by 100. So, if fixed costs are £40,000 a month and your gross profit percentage (sales less direct costs as a percentage of sales) is 25%, your breakeven turnover would need to be (£40,000/25 x 100) £160,000. At this level of trading, you would produce £160,000 times 25% – £40,000 of gross profit which would exactly cover your fixed costs.

Obviously, to make progress financially, you would need to achieve sales in excess of your breakeven turnover. Never-the-less, this is a useful indictor to have as when you achieve this target you will know that any additional sales will be creating profits for your business.

If you have the data, we can help you produce a realistic breakeven figure for your business. Please call to organise.

If you run a business and manage your planning by scribbling notes on the back of an envelope, you might be advised to read the contents of this article.

When the economy is vibrant, effectively when there are an abundance of buyers in your marketplace, cash flow and profitability tend to look after themselves; as long as you are selling your goods or services at a price that covers your overheads and drawings/dividends.

Unfortunately, since Brexit and COVID disruption and the current upward pressure on energy and raw material costs, buyers are more circumspect about purchasing and business profits and cash flow are under pressure.

In which case your business planning cannot, and should not, be restricted to a few notes scribbled on the back of an envelope.

Your current management accounts should show you what your current situation looks like:

• are you making profits;
• are you keeping within your overdraft limits; and
• are you still solvent.

To answer these questions the use of low-cost, cloud based accounts software is the minimum you should be utilising.

A belts and braces approach should include forward planning, what will be your likely profitability, cash flow position and solvency look like in a year’s time?

If you need help maximising the use of software to achieve these basic planning objectives, or if you would like advice on business planning issues, please call. We can help you be prepared to deal with and survive the UK’s present economic challenges.

In a recent article we explained how granting lengthy credit limits to customers was as good as letting them keep your money in their bank account.

In this post we describe the opposite situation, where you are granted longer terms to pay bills from your suppliers.

If you take delivery of goods and services and are granted – say 60 days before you are required to pay for those purchases – then you have the use of the purchases for almost two months before your bank account balances are reduced.

If you can process and resell goods purchased, within the 60 days, and be paid by your customers at point of sale, then your purchase will be fully-funded – from a cash flow point of view – before you are required to pay your supplier.

Obviously, many businesses are unable to sell on a COD basis (like retailers) but taking advantage of generous payment terms from your suppliers can have a positive impact for all concerns from a cash flow perspective.

Effectively, you suppliers are providing you with valuable working capital.

To make the most of this cash flow boost, reduce (when you can) the payment terms you offer your customers and take advantage of any extended payment terms on offer from suppliers.

But beware, if customers want discounts for shortening credit terms or if you lose supplier discounts for longer payment terms, then you will have to crunch the numbers to see how changing credit terms will affect your profitability as well as easing cash flow.

The Government has withdrawn draft regulations after consultation with companies raised concerns about imposing additional reporting requirements.

Instead, the Government will pursue options to reduce the burden of red tape to ensure the UK is one of the best places in the world to do business.

Draft regulations published in July would have added certain additional corporate and company reporting requirements to large UK listed and private companies, including an annual resilience statement, distributable profits figure, material fraud statement and triennial audit and assurance policy statement.

This would have incurred additional costs for companies by requiring them to include additional layers of corporate information in their annual reports.

Since July, the Government has completed a call for evidence on existing non-financial reporting requirements, which has identified a strong appetite from businesses and investors for reform, including to simplify and streamline existing reporting.

The Business Secretary has now decided to withdraw these regulations and will be setting out options to reform the wider framework shortly to reduce the burden of red tape on businesses.

The Government remains committed to wider audit and corporate governance reform, including establishing a new Audit, Reporting and Governance Authority to replace the existing Financial Reporting Council. The Government will bring forward legislation to deliver these reforms when Parliamentary time allows.