More and more people are becoming self-employed during the current economic downturn. There can be a variety of factors for this ranging from unemployment to wanting an extra income to top up your salary.

If you are thinking about working for yourself here are 7 great reasons to become self-employed:

• Turn a skill/talent into a profit making business.
• Freedom to work where you want, when you want and wear what you want whilst working.
• Job satisfaction. The satisfaction you get from earning money doing something that you love is fantastic.
• Meet new people. How many new people do you meet each day in your current job? Working for yourself will bring you into contact with lots of new faces, some of which may even be able to help your business grow
• You keep all the profits (that’s an easy one!)
• Independence. This is closely related to freedom, but you are able to make the decision you want in your business without having to go through any office politics.
• Family. If you have a young family working from home will allow you to see them grow up during the early years of their life. For some people this is one of the most important aspects of becoming self-employed.

So there you have it, 7 reasons to become self-employed. Have you got any more?

After a lot of hard work you have finally won a big contract and are looking forward to reaping the rewards and receiving payment. Most companies will make a payment run once a week or once a month, if your invoice is missed off you will receive payment late. Cash is king and keeping cash flowing into your business is key to staying in business.

The majority of companies now pay via electronic transfer and will only realise that they do not have your bank details when the time comes to produce their payment run. They will probably give you one call that week for your details, if you miss the call then you’re going to be paid late.

How can you avoid this situation? Simple, make sure your bank details are included on all of your invoices. Your customer then has no excuse not to pay on time, assuming that your invoice is valid and no disputes have arisen. It will take you a few minutes to add the bank details to your invoice template but could save you lots of time chasing payments.

In the last couple of years I’ve visited more first time clients and new businesses than ever before, all of  which say ‘I’ve left it too late’. They are of course referring to their business’ accounts.

Whether you are a sole trader, ltd company or massive conglomerate you have to file your accounts and/or tax return by the due date or face the financial penalties for late filing, which could be up to £1,600.

From a sole trader’s standpoint it’s quite easy; the tax year ends on the 5th April and you have until the 31st January the following year to file the return and pay any tax due.

The easiest way to solve this problem is to get your tax return filed ASAP. It doesn’t matter if the return is filed on the 6th April, any tax due doesn’t need to be paid until the 31st January and if you are due a refund you’ll get it back a lot sooner than if you left it until January.

It’s not always as easy as this because small businesses, as the name suggests, are small; quite often being run by only 1 person. If you fall into this category and leave your accounts to the very last minute you could save yourself a lot of time, effort, stress and money by employing a professional to take care of your financial affairs for you.

Outsourcing your accounts/bookkeeping work brings lots of benefits for the business owner:

• 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.

One of the main drawbacks is that you will have to put your trust in someone else to complete the task and give them knowledge of how your business works, which is why it is essential that you make sure that you are comfortable working with the person/business. This post gives you some tips on how to make that selection

On Wednesday I had finished work for the evening and was about to log-off to watch the TV for the night when I saw a tweet from a small business I follow that they were about to join in with #yorkshirehour. I wondered what is was all about so loaded up Twitter and searched for the hashtag – surely anything had to be better than watching the soaps my wife had recorded!

#yorkshirehour turned out to be a fantastic hour where lots of businesses in the region were all chatting and networking with each other in the same place at the same time.  The hour (8pm-9pm) flew by and I saw a message later that there had been over 800 tweets that hour with the #yorkshirehour hashtag.

I came across many businesses and people who I had not known about before, and hopefully they thought they same when they saw me. In many ways it was surprising to see so many small businesses online at the same time, but it was great to meet so many new people and businesses.

If you run a business in Yorkshire, pop on over to the next #yorkshirehour on Wednesday 8pm-9pm

Most small businesses will be looking to gain a web presence to make themselves know and aim to attract new customers. The cost of having someone create a website for you can be quite expensive in the early stages of your business’ life. If you are able to create your own website it will save you money but will it do what you want it to? There are arguments for and against keeping work like this ‘in-house’ (see this blog post), if you do decide to create your own website this infographic showing what makes someone leave a website will give you some vital pointers to keep visitors on your site longer.

Source: KISSmetrics

I’ve not done one of these for a while, but here are last week’s most viewed blog posts:

• Company Vans: Avoiding a Benefit in Kind (Guest post by Nick Goddard)
• Hootsuite or Tweetdeck?
• Top Tips for Keeping Your Business Records Organised

Are there any business topics that you would like me to blog about? If so please add a comment and I’ll see what I can do

Source: Social Times

Click image to open interactive version (via Simply Business).

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.