In a previous post I briefly mentioned that the Flat Rate Scheme (FRS) could simplify your VAT accounting and also save you some money along the way. With this short post I’ll aim to give you a better understanding of the scheme.

The simplest way to describe the FRS is: You pay a set percentage of your VAT inclusive turnover to HMRC, but you cannot claim VAT back on purchases. The percentage will differ from business to business.

There are some qualifying criteria that your business must meet:

• Your estimated VAT taxable turnover – excluding VAT – in the next year will be £150,000 or less.
• Once you join the scheme you can stay in it until your total business income is more than £230,000.

You cannot join the FRS if:

• You were in the scheme and left during the previous 12 months
• You are, or have been within the previous 24 months
  • Eligible to join an existing VAT group
  • Registered for VAT as a division of a larger business
• You use one of the margin schemes for second-hand goods, art, antiques and collectibles, the Tour Operators’ Margin Scheme, or the Capital Goods Scheme
• You have been convicted of a VAT offence or charged a penalty for VAT evasion in the last year
• Your business is closely associated with another business

If your business provides a service and your purchases are minimal the FRS could be beneficial to you as you may possibly pay a lower amount of VAT than if you were registered under the standard scheme.

For example, if your business is a computer repair company the rate of VAT you would pay under the FRS would be 10.5% (9.5% in the first year as you are given a deduction). If your sales for the quarter were £20,000, the amount of VAT you would pay is £1,900 (£20,000 x 9.5%). Under the normal scheme you would have paid £4,000 less any VAT on purchases.

In this example if your purchases for the quarter are below £10,500 net (VAT – £10,500 x 20% = £2,100) you would be saving money by being part of the FRS .

The two major advantages of the FRS are:

• Peace of mind. With less chance of mistakes, you have fewer worries about getting your VAT right.
• Certainty. You always know what percentage of your takings you will have to pay to HMRC.

As always with important decision like this take time to investigate if it would represent a significant saving to your business. If you are unsure always seek advice from someone!

 

Flat Rate Scheme for VAT

As with everything there are pros & cons about registering for VAT. If your annual turnover for the previous 12 months is above the compulsory threshold then you have to register for VAT, which is easy and can be done via the HMRC website.

If you are registered for VAT you are, in effect, an unpaid tax collector for HMRC as you have to charge the appropriate rate of VAT (currently 20%) on all of your sales. Every 3 months you will need to complete a VAT return and submit it to HMRC and pay the required VAT

But wait!

If you are VAT registered you can claim back the VAT on any purchases which you make during that same 3 month period. For example, if the VAT on your sales is £1,000 and the VAT on your purchases is £500 the end total which is payable to HMRC of £500.

If your turnover is under the compulsory threshold the only main reason that you would want to register is to improve your business’ image. By not charging VAT you are saying to your customers ‘My turnover is below £73,000′. This could make it difficult to portray yourself as a big & well established company.

If you are thinking of voluntarily registering for VAT you will need to weigh up if to increase your selling price (current price + vat) or absorb the cost of the VAT and keep the selling price the same. If you are selling to well established companies who are also VAT registered, the VAT increase won’t be a big issue for them as they can re-claim this VAT. But if your customers are the general public they may not be too happy if you suddenly increase your prices by 20%.

Registering for VAT could increase your net profit

If you buy goods for £10 gross you are able to reclaim £1.67 of that (£8.33+20%), which makes your cost price £8.33 per item. You then sell this item for £20, which then becomes £24 (£20.00+20%). The amount payable to HMRC is £2.33 per item (£4.00-1.67) leaving you with a net profit of £11.67 (£24 selling price, less £10 purchase price, less £2.33 VAT).

Let’s look at this if you weren’t VAT registered…

You would still buy the goods in at £10, but not be able to reclaim any VAT. The price you sell the goods on to your end customer will be £20, which only leaves you with £10 net profit. In this very simple example being registered for VAT has increased your profit per item by £1.67. Please bear in mind that we’ve not factored in your overheads for this example, but either way your net profit has increased.

 

There are also other schemes for VAT which can help with you cash flow (Cash Accounting Scheme) and make accounting for VAT easier and potentially save you a lot of money if you do not make many purchases (Flat Rate Scheme) i.e if you predominantly provide a service. If you are unsure always seek advice from someone who can help you make the best choice for your business.

 

Source: Simply Business

If you operate your business predominantly online or remotely you are free to take your services to the world. But with that comes the problem of time zones. I have several friends who are based in the USA, Australia and India and it’s very difficult to get us all in the same place at the same time due to the time difference.

But this needn’t hold your business back!

Learn to maximise the time zone differences to increase your business’ productivity and efficiency. If you have a client in a time-zone 7 or 8 hours ahead of yourself, you can work on that project whilst they are asleep and make sure that it hits their desk first thing the next morning when they come into work. As you are working when your client is not, you will be able to give your full attention to the work and not be disturbed by their calls/emails. If you are aware of what time-zones your clients are working in it will make organising and prioritising your work-load a lot easier.

You don’t have to go to the expense of buying a world clock for your office, most smart-phone come with apps that allow you to add several time zones to keep you fully aware of what time it is anywhere in the world. Make use of these and see how much better you can organise your day.

Whether you are new to Twitter or an old hand at it, I hope that you will follow these 5 people who I have found to be very interesting and knowledgable about their field of work

1. Mark Shaw – a Twitter guru, by following him you’ll learn the ropes in no time at all
2. BBC Breaking News – Breaking news alerts and updates from the BBC
3. Emma Jones – Founder of small business support company, Enterprise Nation and co-founder of Start-Up Britain.
4. Josh Massey – Sales leads, Business referrals, New business and Lead generation. He sends out free business leads and referrals every day using the #msrfr hashtag
5. Purple Dog – Twitter Marketing Specialists who can provide you with the tools, tips and strategies to unlock Twitter’s huge potential.

Follow them all now, what have you got to lose? Just click on their name to go directly to their Twitter page. If you’ve been paying attention, I’ve given you more than the 5 accounts to follow that I promised. If you’re looking for small business advice and bookkeeping, don’t forget to follow me either

Feel free to add your own lists of who we should follow on Twitter. If the list gets to about 25 accounts I’ll list them all in a future post

Outsourcing is defined as: the process of contracting a business function to someone else, and it can take on many different forms. But the main question is, should you outsource any of your business’ work or keep it all in house?

Pros

• Allows you more time to focus on your business.
• Peace of mind that a professional is performing the task.
• Long term it could save you money.
• You can outsource the work as and when needed.
• It can lead to more efficient processes within your business.

Cons

• Loss of control – you have to put your trust in someone else.
• There will be a cost implication – if you are a new start-up this will be the major drawback.
• You will be allowing an external person/company knowledge of how your company works/wants to work.
• Until it is complete you will not know if the work meets your standards.

Outsourcing doesn’t necessarily have to be between you company and another; it could be a director asking one of the staff to perform a task that they normally would do themselves. The final choice must be that of the business owner after taking several variables into consideration.

My own view on outsourcing is that you should stick to what you’re good at. I am not a graphic designer so would not attempt to design a new logo for myself; it would take far too long and be a total disaster. I would be far happier to contract someone in to do the job for me; it would save time and be a far more professional logo than my own design!

Have you ever outsourced any aspect of your business, and if so, was it a success?

Another week has flown past, and whilst I’ve not published as many blogs as previous weeks, the old posts are still proving to be popular. Below are the 3 most viewed blog posts over the last 7 days:

• How Much Money Do I Need To Start My Own Business? – This one is always top-of-the-shop
• Take Time to Relax – You’ll feel much better for it
• 5 Great Blogs to Follow – I hope that you take my advice and follow them

As ever, if there are any small business related issues you would like me to blog about please let me know

There is no doubt about it, if you work for yourself your relationships will suffer to some extent. Quite often to reach your goals, in the early stages, you will work twice as many hours for half as much pay as you would in a ‘normal’ job. A lot of your time will be devoted to getting your business up and running and making a healthy profit. This may upset your nearest and dearest as you are not paying them as much attention as they would like you to. Here are some tips to help keep your family relations under control:

• Explain why you are working so many hours and how the family will benefit from it.
• Try to involve your family in the business (if possible). Is there something that needs doing that someone else could easily do e.g going to the post box to send out invoices etc… You don’t have to do it all yourself.
• Arrange times when you will devote the full day to the family and not go near the office.
• If you win a new contract/client or make a big sale, celebrate and take the family out for a meal. They will feel like part of your success.
• If you are mega busy explain that the work you are doing is going to earn you a lot of money which could be used to go away for a family holiday/break. If you run a Ltd company make sure you withdraw the money in the correct way.
• Ask if your family are able to offer any ideas about how you can work smarter. Quite often someone from the outside will notice something that can be improved very quickly.

The early stages of any business are always tough, but with the help and support from those around you it can become a lot less stressful.

Have you started a new business venture lately? If so how do you manage to keep the peace in your house?

If you are in full-time employment and are thinking about becoming self-employed to earn an extra income one of the main niggles at the back of your mind will be ‘How will my employer take it?’ You might be surprised to know that the vast majority of employers do not mind as long as there isn’t a conflict of interest. Here are some tips about how to tackle the issue.

• Be open and honest with your boss from the start about what you are doing.
• Explain why you are thinking about becoming self-employed (don’t say that you aren’t paid enough!).
• List the benefits that your self-employment will bring to your employer – better organisation, better interpersonal skills, better use of IT etc… and that it is a win/win situation for you both.
• Make it clear that your self-employment will not interfere with your main job.
• Go through your vision for the business and how you intend to develop it – your boss may even be able to give some good advice.
• If your boss doesn’t have a problem with you being self-employed, arrange quarterly meetings with them to give an update about how things are progressing.

If the worst happens and your employer is not happy about you becoming self-employed, stay calm and ask for another meeting in a week when you can bring documentation and evidence that what you intend to do will increase your worth to your employer.

Having a great idea is worth nothing unless you put it into practice.

Most, if not all, small businesses will be facing one problem more than any other right now – ever increasing expenditure. In a world where very little is coming down in price are there any ways to cut your expenses?

The easiest thing to do is make a list of all your recurring expenses for each month and have a look at which ones you may be able to cut back on. A few items that should be relatively easy to save money on are:

1. Mobile phone bill – do you really need all those minutes? I recently managed to get my bill reduced from £35 a month to £10.50, just by asking (and kept the same amount of minutes).
2. Computer expenses – save money on paper by emailing documents as pdf files to clients and then saving them to a USB stick. There’s no need to print them out any more, but if you insist…
3. Printing expenses – instead of buying manufacturer replacement cartridges try to buy compatible or re-inked cartridges. Some companies sell replacement compatible cartridges up to 75% cheaper than a manufacturer’s cartridge. Most refill companies now guarantee their products to work flawlessly with the printers they are designed for
4. Travel expenses – if you need to make a trip to the town centre would it be cheaper to use the train/bus? It might take a bit longer but it will save you money. Plus you can also work on your laptop and prepare for the meeting en-route
5. Outsourcing – if there is a job within your business than can be outsourced to a company/person who does it full-time it may work out cheaper and more effective than doing it yourself. It will also give you time to focus on running your business.