gHawk VS Remote Working

We have been lucky enough to continue providing our services during lockdown and we want to share how the gHawk team has been working remotely.

We always knew at gHawk Accounting, that we have this great opportunity to work remotely. We use wide range of cloud based accounting and other business software, video Zoom meetings for our team get-togethers, trainings and catch up sessions with our Clients. We have bespoke CRM system which is the core of our business, we have hundreds of written procedures and we comply with all accounting standards. And finally, we are paperless business, so except a computer (and a cup of good coffee) we do not need anything else to do our job. We all knew that, but only recently we had a chance to check that in reality. After almost 3 months of lockdown I can certainly say – we “passed the test”

Behind this success there is one more, the most important element. A human element! An experienced and reliable team! At gHawk Accounting we are very lucky we have small, but dedicated team that works well together. We recently held our team bonding session via zoom which helped to increase team motivation and communication. A team that works well together is more efficiency and increases chances of success for the business. People are the most important asset in a business. A cohesive team that is well motivated gives your business an added measure of resilience and put you ahead of the competition.

Does your business have the right people on board? Do you use or you consider using remote employees/partners/freelancers? The selection of these members of the team does not vary from traditional enrolment of employees. All criteria are the same, but there is even more to consider when you choose your remote partners. You should pay special attention to their efficiency, experience and their flexibility to support your business. And last but, definitely not least make sure you consider security of your business.

Once you have hired the candidates, it is extremely important to fully engaged them in the business and in their role. That can be done only by your effective management. Provide role, but also cultural training, determine and share your company core values. Set the standards regarding clarity of communication, use the right technology and build the strong relationship.

 This is the way to make an impact, by bringing on the best talents, creating meaningful place to work and together with your new team, achieving new milestones. This is the way to be in 2020.

This article was written by Ela Grzybowska, Accounts Assistant and QuickBooks Expert.

Changes For VAT Registered Businesses Post Brexit

VAT Registered businesses post Brexit 

The UK left the European Union on 31 January 2020. From 1 February 2020, the UK enters a transition period that lasts until 31 December 2020.  

VAT registered businesses who trade with the European Union are required to register for an Economic Operator Registration and Identification (EORI) number. This application can be done online via this website www.gov.uk/eori 

There will also be a requirement to make customs declarations following the end of the transition period. Businesses are advised to start planning for this e.g. buy appointing someone to deal with customs on their behalf. 

More information about these changes can be found on HMRC website. Let us know if this affects your business and we can provide further assistance. 

25 Principles of excellent financial management – For business owners – Part 2

principles of financial management 2

25 Principles of excellent financial management – For business owners – Part 2

Following on from our post at the beginning of the month, we’re covering the next 10 steps to great financial management for your small business.

From tools of the trade, to tips and tricks we’ve studied – you need these practices in your business today!

11. Look after your credit score

It might seem like a no brainer, but your credit score is important. As a business owner, you may want to borrow money or lease equipment. Alongside your business plan and proof of earnings, a good credit score can help to support you when go looking for help. You can check on your credit score easily using tools like Experian.

12. Set ambitious but realistic goals

There’s nothing wrong with setting your sights on a six-figure business or million pound turnover. However, it’s best to keep your goals regular, consistent and realistic. You don’t want to be feeling disheartened when you see how far away you are from your target number.

13. Review expenses regularly

Do you know how much you’re spending? Signed up to subscriptions you no longer use? Paying for a service that isn’t bringing in a good ROI? Get to grips with your expenses and know exactly how much it’s costing you to run your business. If you fall on hard times, you’ll know where you can cut back.

14. Pay all bills on time

You want your figures to be as up to date as possible. Try to pay bills as soon as possible to ensure that the figure in your business bank account is accurate. Leaving bills unpaid could lead to interest or a huge list of expenses to settle at once.

15. Assess different payment types

Depending on how your customers pay you, it might be worth shopping around when it comes to payment providers. For overseas clients, portals such as Stripe and PayPal may be a safer option. However, most third party payment portals charge a fee or offer poor exchange rates. Be sure to investigate the most cost-effective option for you.

16. Check in with your business plan

Are you on track? It’s hard to know how you’re doing if you’re not touching base with your business plan every now and then. Make time, at least quarterly, to sit down with your business plan and see how you’re doing.

17. Think about your pension

Another thing to speak to your accountant about is how to manage your pension. If you are self-employed or running a small business, this is your responsibility. There are many different ways, means and schemes for collecting a pension – but ask a financial expert for customised advice.

18. Know your day to day costs

Managing your finances comes down to the nitty-gritty. Ever heard the saying ‘look after the pennies and the pounds will look after themselves’? – that applies in business too. Fans of The Lean Start Up recognise the importance of keeping your day to day costs down, knowing the benefits will accumulate later.

19. Get the right funding

Depending on the type of business you’re in, and how long you’ve been operating, there are various options when it comes to getting funding. For innovative new products, there’s Kickstarter and other crowd-funding options. For businesses who want to scale, there’s AngelList. For many, it starts with borrowing from friends and family. Ensure that you’re aware of the interest rate and pay-back terms with any investment. If you’re concerned, run it by your accountant first.

20. Find a great accountant with a track record

By far the most useful tool when it comes to financial management, is a trustworthy accountant. Getting to know you on a personal level allows your accountant to recommend the best possible products and avenues, based on your individual needs. When choosing an accountant, see if you can find out what other businesses they look after. Do they have a long, positive track record? Do they have good client testimonials and a professional looking online presence? Be selective and don’t be afraid to ask lots of questions.

Thank you for checking out our top 20 tips for great financial management. Didn’t see the first 10? Check out that post, here.

Got any questions? Find us on Facebook, Twitter and LinkedIn. We’d love to hear from you!

20 Principles of excellent financial management – For business owners – Part 1

principles of financial management

20 Principles of excellent financial management – For business owners – Part 1

As a small business owner, there can be a lot to remember when it comes to finances. For some, this is second nature. For others, learning good financial management practises is a totally new ball-game.

Whether you are being supported by an accountant or not, it is very important to have at least a basic understanding of managing your money. Split into two parts, here are our first top ten tips for keeping your finances in tip-top condition.

1. Keep your business and personal transactions separate

Known by accountants as ‘economic entity assumption’, this process makes your accounting far simpler. By having separate bank accounts for yourself and your business, it’s easier to calculate expenses, earnings and just about everything else, without spending hours trawling through your bank statements. Treat your business as a separate ‘entity’, not an extension of your personal finances.

2. Date everything & run reports with similar timeframes

Every piece of financial collateral should be dated. Whether it’s statements, invoices, reports or receipts – put the full date on everything. If money was to ever go awry, or your accounts weren’t tallying up, a full timeline of your income and outgoings will help to alleviate concerns quickly.

3. Don’t confuse cost and value

Known to accountants as ‘cost principle’, this term refers to how items are recorded in financial reporting. Say your business bought a building and the value of the property sky-rocketed, your financial reports would only take into account the price you paid for the property. Value is reflected in the gain or loss when selling an asset.

4. Full disclosure with your accountant

Otherwise known as the ‘full disclosure principle’, this refers to the relationship between yourself and your accountant. You should disclose all financial information to ensure that your reporting and account management is always correct, up to date and meticulously accurate.

5. Always prepare for tax

No one wants to think about tax before it’s due, but it’s a great habit to get into. To protect your cashflow, many accountants will recommend that you syphon off a percentage of your revenue into a separate account. When your tax bill comes around, the money will be ready and waiting – preventing any surprise costs.

6. Pay yourself weekly/monthly

When you first start in business, this may not be feasible. Later down the line, the amount you pay yourself may still fluctuate. However, if you pay yourself on the same day of the week or month, it’s much easier to track your earnings and calculate your living costs. The amount may vary, dependant on turnover, but the date can remain the same.

7. Have a billing strategy and payment terms

In your billing strategy, you should invoice on a particular day of the week, offer inflexible payment terms (14 days, 30 days etc.) and impose financial sanctions for late payments. For example, you could explain that you charge a 10% surcharge on all invoices over a week late. It might seem harsh, but poor cashflow management is the number one reason that small businesses fail.

8. Check in on your books

In order to operate good financial management practises, you need to know what’s going on in your bank account. Using an online accounting system (such as Xero or Quickbooks) allows you to touch base your finances, whenever you want! Make it a habit to get friendly with your accounting once or twice a week.

9. Understanding your cash flow

In any business, there will be peaks and troughs throughout the year. If you are paying attention to your finances and keeping track of your income, you’ll know exactly when your peaks and troughs are. If you are quieter over the winter, you could start putting money aside in the busy summer months. Understanding your cashflow, when it’s flowing and where it’s flowing from, is incredibly important.

10. Understand your reporting

Speak to your accountant about the difference between your balance sheet, income statement, cash flow statement and revenue forecast. Once you’ve got a grip on how all these reports work together, you’ll find it easier to get the information you’re looking for.

Stay tuned at the end of this month for ten more expert tips from the GHawk team. Got any questions? Find us on Facebook, Twitter and LinkedIn. We’d love to hear from you!

Benefits of Investing in property using a limited company

Investing in Property

According to brokers, up to 80% of new mortgage applications are now for limited companies. As of April 2020, mortgage interest will no longer be an allowable expense for property investors as individuals. However, as a limited company, it will remain allowable. Essentially, this means that your tax bill could be higher if you own property in your own name, rather than a company name.

There are many other interesting benefits and intricacies to owning a property through a limited company, these include:

Tax on profits:

If you own a company in your own name and you rent it out, you’ll pay income tax on the earnings as if it were a salaried job. However, as a limited company, those earnings are subject to Corporation Tax – which is around half the rate of income tax (if your income tax is at the higher rate). If taking the dividends from the company, additional tax is payable. To avoid the tax on dividends that you’d pay when you withdraw money from your company account, you can simply allow the profits to build up and later use them to purchase another property through the company.

Expenses:

As mentioned earlier, once the new rules come into effect in April 2020, you’ll be able to claim the entirety of your mortgage interest as expenses – if you bought the property through your limited company. Naturally, you cannot do this if you bought the property as an individual.

Portfolios:

If you’re building up a Buy To Let portfolio, being a limited company could be advantageous. You are not required to pay income tax when reinvesting profits into further properties. You will still have to pay Corporation Tax on trading profits (reducing to 18% by 2020) however, this is vastly lower than the higher income tax rate of 40% or additional rate of tax of 45% .

Despite the benefits, there are some things to note if you’re considering investing in property through a limited company…

Dividends:

If you choose to withdraw dividends from your company, you’ll be charged tax on withdrawals over £2000. Therefore, if you need to access the profits made by your property investment, you need to be aware that you’ll have to pay tax. As mentioned before, you can leave the money in the company account and continue to purchase property instead.

Company costs:

Running a limited company has got higher costs e.g. Preparing statutory accounts, Company tax returns, filing with Companies House and many other expenses mean that establishing a company for the sole purposes of buying property may not be immediately profitable.

Mortgage rates:

It’s also worth remembering that many lenders will charge higher interest rates to limited companies. You can claim these as expenses, but be aware that you may get lower rates as an individual. You may also have to be selective when choosing your mortgage provider as not all lenders will lend to limited companies.

Transferring:

The final thing to bear in mind is that transferring a property from an individual to a limited company is almost the same as selling a house. View it as buying the property from yourself and paying all of the tax costs associated with selling or buying a house.

If you are already a limited company or wish to build a property portfolio, it’s worth discussing the tax and expenses advantages with your accountant or financial advisor. In some cases, this could save you a lot of money. In other cases, it may not be the most efficient way to buy.

If in doubt, it’s always best to discuss your individual circumstances with an accountant.

How to pay your taxes: Income tax, VAT and Corporation tax

How to pay your taxes

Taxes don’t have to be difficult or confusing. If you’re a freelancer or sole trader, it can be much easier to keep on top of your tax contributions than you might think.

For many sole traders, software and spreadsheets allow them to manage their day-to-day finances. When it comes to a tax return, using an accountant can be helpful in terms of ensuring that you’re not making any mistakes on your return, you’re maximising on all available benefits and you’re certain that you’re paying the correct amount of tax.

How do I know how much tax to pay?

Throughout the year, it’s advisable to keep 10-20% of your earnings to one side, in preparation for your tax bill.

At the end of your tax year, or when HMRC ask for it, you need to submit a tax return. Once that has been submitted, HMRC will inform you of how much tax you owe. You can pay this calculation (known as an SA302 form) online or by cheque, within a designated deadline.

How do I submit my earnings to get a tax calculation?

To submit your income and expenses, you need to register for Self Assessment on Gov.UK. Here, you’ll be able to fill out all of your information when it comes to submitting a tax return. If you are confused or concerned about submitting your tax return, an accountant can do it for you.

What if I make a mistake on my tax return?

If you make a mistake on your tax return, you must tell HMRC as soon as possible. You can amend the return within 12 months of submitting it – the additional tax will be due. If you choose not to tell HMRC and you are found to have made mistakes on your tax return, the consequences can be quite financially severe. Read more about Self-Assessment penalties to watch out for.

What are payments on account?

You might be asked to make payments on account if your income has increased. Essentially, payment on account is the process of paying some of your tax bill in advance. You only make payments on account if your previous year’s tax and National Insurance bill was above £1,000 and only then if less than 80% of your tax liability was collected by being deducted at source.

What if I don’t have enough money to pay my tax bill?

Technically, HMRC prefer you to pay your tax bill all at once. However, if you are having financial issues, then you should contact HMRC to set up a ‘time to pay’ arrangement. Be aware that they will expect you to have tried other means to pay your tax bill before you contact them. For example, borrowing from friends and family or taking out a loan.

Does ‘Making Tax Digital’ affect me?

From 2020, sole traders will be expected to be compliant with the Making Tax Digital scheme. This scheme is already in place for VAT registered companies and means that tax returns must be submitted online every quarter. Speak to your accountant about becoming digital ready, or check out our post on what you need to do now!

Once you are used to the process of submitting a yearly tax return, it isn’t as complicated as it may seem. The easiest and most efficient ways to prepare for a tax return is to keep on top of your bookkeeping all year round, put regular chunks of income aside in preparation and always have an accountant that you can contact with queries or concerns.

Don’t go it alone – we’re here to help.

When do I have to show that my business has made a profit?

We have been asked this question many times and want to address the key issues it touches. The people asking this question would normally fall into two categories:

  1. People running a business on a self-employed basis, but the business is making a loss and they are concerned that the loss-making venture would be interpreted as not being a “serious business” or indeed raise a flag with the tax authorities.
  2. People involved in multiple activities, some running as businesses and some running as hobbies, but there is a blurring of the lines or a crossover of related activities so that it is not always clear which income or expenses relate to the business and which belong to the hobby.

In self- employment, the individual is the taxable legal entity and all their business activity must be reported on a self-assessment tax return. As a self-employed person, it can sometimes be challenging to distinguish between what is a business and what is a hobby. The indicator lies in the primary motive of the activity. The main difference is that a business is an activity carried out with a view to making a profit, while a hobby is carried out for pleasure.

Why is it important to know the difference?

There must be complete clarity as to what is a hobby and what is a business. This is because when running a business, you can off set the costs related to the business before arriving at the taxable profit, while costs for a hobby cannot be offset against business income.

The biggest challenge for some self-employed people, however, is in keeping proper records to clearly determine whether a cost relates to the hobby or the business, especially when the two are closely related.

Two tax cases, heard together, that highlight this issue were Earl of Jersey’s Executors v Bassom and Earl of Derby v Bassom (1926) 10 TC 357. In these cases, a taxpayer bred racehorses and raced them, but also hired out stallions for stud. In each case, the stud part of the business made a considerable profit, which was eaten up by the costs of other activities. The taxpayers argued that these activities constituted one loss-making business, therefore it was not trading.

The court ruled that there were three separate activities. The breeding and racing activities were not capable of making a profit and, therefore, were hobbies. However, the stud businesses were run with a view to profit and hence taxable.

How do you know if a venture is a hobby or a trading activity?

The chief indicators used to decide whether a transaction or series of transactions constitutes trading transactions are known as the ‘badges of trade’. HM Revenue & Customs (HMRC) lists nine badges of trade which are collectively used to give an indication as whether there was trading activity.

The Badges of trade:

  1. Profit-seeking motive – An intention to make a profit supports trading, but by itself is not conclusive.
  2. The number of transactions – Systematic and repeated transactions will support ‘trade’.
  3. The nature of the asset – Is the asset of such a type or amount that it can only be turned to advantage by a sale? Or did it yield an income or give ‘pride of possession’, for example, a picture for personal enjoyment?
  4. Existence of similar trading transactions or interests – Transactions that are similar to those of an existing trade may themselves be trading.
  5. Changes to the asset – Was the asset repaired, modified or improved to make it more easily saleable or saleable at a greater profit?
  6. The way the sale was carried out – Was the asset sold in a way that was typical of trading organisations? Alternatively, did it have to be sold to raise cash for an emergency?
  7. The source of finance – Was money borrowed to buy the asset? Could the funds only be repaid by selling the asset?
  8. Interval of time between purchase and sale – Assets that are the subject of trade will normally, but not always, be sold quickly. Therefore, an intention to resell an asset shortly after purchase will support trading. However, an asset, which is to be held indefinitely, is much less likely to be a subject of trade.
  9. Method of acquisition – An asset that is acquired by inheritance, or as a gift, is less likely to be the subject of trade.

Please note there is not a set criterion e.g. that a transaction must meet a specific number of “badges of trade” before it can be deemed to be trading activity. Where there is doubt as to the nature of a transaction, the courts will result to reviewing existing case law.

Implications of being in trade

If there is deemed to be trading activity, then the related profit must be reported in the Self-Assessment Tax Return and is subject to income tax and class 2 and 4 National Insurance contributions. Capital Gains tax will apply where the transactions are capital in nature.

Has my business made profit?

Profit is the surplus made after expenses have been deducted from income earned. Therefore, if income is more than expenses, then your business has made a profit. If however expenses are more than income, then the business has made a loss.

To determine whether your business has made a profit or a loss you need to have proper records for all income and expenses relating to the business.

HMRC guidance is that expenses must be “wholly and exclusively for business. The legislation disallows any expenditure not incurred wholly and exclusively for the purposes of the trade, profession or vocation. This means that the rule is only satisfied if the taxpayer’s sole purpose for incurring the expense is for the purposes of their trade, profession or vocation. If there is a non-trade purpose, then the expenditure is not allowable.

Conclusion

So, let’s go back to the original question: When do I have to show that my business has made a profit? The answer is: As soon as the business makes a profit.

You must keep proper records and prepare a profit and loss account and balance sheet for your business. Review all transactions to determine if they are genuinely ‘wholly and exclusively” for business and categorise them correctly. Non-trading related expenses cannot be offset against trading income.

If in doubt, please speak to your accountant for professional advice or get in touch with us.