Changes to Child Tax Credits
With recent changes to the tax credit thresholds and changes to the working requirements of claimants, I thought it may be useful to post a rough guide to the new tax credits changes and how they may affect you.
The child tax credit is paid to lower income families with children whether they are working or not. As a rough guide claimants with one child may not receive child tax credit if their income is more than around £26,000 and those with two children may not receive the credit if their income is more than around £32,200. This is a substantial reduction from the £41,300 income limit in 2011/12.
However, claimants with higher incomes and with larger families, disabled children or who spend a lot on formal childcare, could still be entitled to some payments. Child tax credit is paid directly to the main carer in the family either weekly or monthly and is usually paid directly to a designated bank or building society account.
The working tax credit assists taxpayers on low incomes by providing top-up payments. The rules for couples claiming the working tax credit changed from 6 April 2012 with an increase in the minimum amount of working hours from 16 to 24 per week. One member of the couple will have to work at least 16 hours a week. Single people who are responsible for children (for example single parents) are not affected by the new rules.
The rules for backdated claims are also changing, from April 2012 claimants are only able to backdate the increase in their entitlement by one month and not three months as before and there are also changes to the tax credits rules where a claimant’s income drops during the tax year as well as the withdrawal of part of the working tax credit known as the ‘50-plus element’ for taxpayers aged over 50.
The leaflet also reminds claimants to notify HMRC should their circumstances change such as stopping or starting work, changes in income and changes in family circumstances. HMRC have also published a revised copy of the factsheet entitled ‘Tax credits – coming to the United Kingdom’.
CBS February Newsletter Published
This months Newsletter features Clare and Anna in the “meet the team” section, and we have articles considering the processes you need to think about and follow when closing your business, including the submission of the C16 form.
Also included are tips on how to avoid costly PAYE fines by understanding deadlines and using the HMRC new faster payment facility.
HMRC are keen to track down instances of fraud and are offering business owners the opportunity to come forward and confess using their contractual disclosure facility (CDF). However there (as always) is small print and so if you think you may be affected or are thinking of making a disclosure; read the article and come and speak to us first, we may be able to help!
To access February Newsletter click here.
If you want to subscribe to the free monthly edition you can do so from here
Is cutting costs the answer?
John
Times are difficult and many businesses are cutting costs as an (apparently) easy way to maintain profits. Sometimes this can be counter productive. I was reminded this week of the work and philosophy of William Edwards Deming. I guess most of you won’t have heard of Deming but he has played a major role in 20th century business. Deming is credited with having been a major influence (possibly the major influence) on the revival of Japanese industry after the Second Worl War – and we’ve all seen how well the Japanese have done in that time.
The one part of Deming’s philosophy which I am highlighting is his theory on the relationship between Quality, Total Costs and Profit. To put it simply, Deming believed that if a business concentrates on Quality, Quality will increase and costs will ultimately fall and profits will increase. However, if a business concentrates primarily on Costs, Quality will suffer and Costs will actually rise and profits will fall.
This may seem counter intuitive but when put into practice, along with other Deming principles, it saw the rise of the Japanese car industry from virtually nothing to the producers of quality, reliable cars. One story which illustrates this concerns Ford Motor Company who were fitting (supposedly) identical gearboxes into one particular model. Some of the gearboxes were produced in a US factory and some were produced in a Japanese factory. It became apparent fairly quickly that the Japanese produced gearboxes were more reliable, less noisy and generally better so, not unnaturally, customers started specifying that they wanted a Japanese gearbox. The Japanese factory had concentrated on producing a quality product and worked to tighter tolerances than specified but, ultimately, their costs were the same or lower than the US factory.
I’m not saying that costs shouldn’t be a factor but be careful when trying to cut costs that the quality of your product or service doesn’t fall. Customers are fickle and they notice small differences. The decay in sales may not happen immediately so you may think you’ve got away with using a slightly inferior part or not quite finished off as you used to – but these differences are noted and reduce the loyalty your customers feel which ultimately results in fewer recommendations and a greater liklihood of your customer going to one of your competitors.
Sometimes just talking through your problems and queries with someone who is independent, unbiased and has a wide knowledge of business practice can be useful. We would be happy to do this for you.
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Small business – Make advertising work for you
John
Many of our clients are small businesses and struggle to make advertising work for them. We aren’t advertising or marketing experts but do spot some fairly basic errors which will reduce (or not improve) advertising responses. Here, for what it’s worth, are a few things which we see and could be easily rectified to increase the liklihood of a response:
1. Most potential customers will favour an advert with a landline number rather than just a mobile number. A landline implies a certain amount of stability whereas the perception of a mobile number is that you could be operating from a park bench somewhere. In fact it is relatively easy (and inexpensive) to rent a landline number and have it divert to a mobile. For a more professional image, you could use a telephone answering service which makes it appear that you have a bigger organisation than you actually have.
2. There is an added preference for adverts which show an address, reinforcing the image of stability. If at all possible include an address in your advert.
3. Don’t be misled by claims of large circulations. The only circulation which matters is the number of YOUR potential customers. If you can only realistically cover a geographical area of 5 miles from your base, there’s no point in advertising in a regional publication covering a 50 mile radius because most of the advertising will be wasted. Advertising in small local publications will often produce better results, and be cheaper, than advertising in larger regional or national publications.
4. Make sure that any publication you advertise in covers the type of customer you are aiming for and can realistically service. For example, if you run a garage and your expertise is in older, smaller cars, you are not going to get much business from publications targeted at owners of high performance cars – particularly if special equipment is needed to be able to work on those vehicles. Get to know your customer types and create your adverts to appeal to them.
5. Photographs make adverts more attractive to readers. If possible use a photograph.
6. Including testimonials in your advert will improve response rates.
7. If you decide to have a web site, don’t expect an immediate response. Just putting a few pages on the internet will do absolutely nothing. The vast majority of websites have very few visits and are a waste of money. If you want a website to produce business, you have to do a great deal more. If you don’t have the time (or expertise) to work on your website, you may be better not having one. Be wary about the proliferation of, so called, SEO (Search Engine Optimisation) experts. There are good ones – but a lot aren’t.
8. Be realistic in your expectations. You are not going to generate dozens of enquiries if you only spend a small amount. The best source of new business is recommendation. Doing a good job at a fair price and leaving some cards or leaflets to pass on will produce good results – but may take time.
9. Paper adverts can have a surprisingly long life. It’s amazing how long after an advert appears responses can pop up. I can remember having a telephone call from someone quoting an advert we’d run in a newspaper over two years previously.
10. Adverts don’t work in isolation. There is a cumulative effect and your credibility will be improved if there is a consistent message. I’ve seen examples where we receive an enquiry from our website and on talking to the person making the enquiry discovered that initially one of our existing clients had mentioned us, they had then seen our name in a local publication and gone onto our website – from where they had made contact.
Finally, it’s worth repeating the quote attributed to John Wanamaker, “Half the money I spend on advertising is wasted: the trouble is I don’t know which half.”
Good luck
Government announces new measures to assist employers with apprenticeships
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As part of the Government’s plan for growth, it has announced that it is taking action to make it easier for businesses to take on apprentices and to ensure that the quality of apprenticeships is continually improved. The following measures have been announced:
A new review into the standards and quality of apprenticeships will be undertaken by a leading employer. Reporting in Spring 2012, the review will help ensure Government works effectively with training providers and businesses to continually raise the standards of all apprenticeships, and that training keeps pace with the changing needs of industry. Back in July 2011, the Prime Minister announced details of a £25m fund to support up to 10,000 Advanced Level and Higher apprenticeships. This new fund will support the expansion of apprenticeships up to degree equivalent in companies, particularly SMEs, where there is unmet demand for the higher level skills. In addition, the Government has just announced a £250 million fund to enable employers to invest in vocational training and employers will be able to bid for a share of this in the New If you are thinking of taking on an apprentice or reviewing any part of your business then maybe we can help. Contact us for a free initial consultation to discuss your requirements. |
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Cashflow – the lifeblood of a business
Poor cashflow is probably the biggest single cause of business failure. It doesn’t matter how much you are owed – if you haven’t got the money to pay your suppliers, staff, bank or HMRC, you won’t survive. Getting cashflow right is the key to operating a successful business.
There are steps you can take to avoid getting in the position of being a profitable company on paper – but having no money in the bank. Most are pretty obvious but are often neglected.
- Ask for payment in advance. If you’ve got the money before you do the work or supply the goods, your cashflow is going to be pretty positive. Just a word of advice on this – make sure you don’t assume it’s all profit and spend it. Put the right amount aside to pay your suppliers, VAT, staff, taxes etc.
- If you have to supply on credit, make sure your terms are clear on when payment is due and that you will start charging interest or penalties if payment isn’t received.
- Look at offering early settlement discounts. If you want £100 for a job/product, do your invoice at £105 with a £5 discount if paid within 7/14 days. If you don’t get the money quickly you should, at least, get the higher amount. Just make sure you deal with VAT correctly. If you’re not sure ask us.
- If the money doesn’t arrive on time, don’t be afraid to ring and ask. Be polite and just ask for confirmation of when payment was sent and, if it hasn’t been sent, ask for a reason and when it will be sent.
- Sometimes a business owner feels that asking for payment can upset a relationship with a customer. If this is how you feel, consider outsourcing your credit control function. This is something we can help with – so give us a call.
- We do have contacts with specialists who can pursue debts on your behalf, through the courts if necessary. Hopefully you won’t get to the position of having to do this – but, if you do, we can help.
- If you are not being paid on time and are struggling to pay your own debts, don’t just bury your head in the sand. You need to talk to your suppliers and your bank to tell them what is happening. Most businesses will be supportive if they feel you are keeping them informed – but they get really annoyed if you just keep quiet or, even worse, give them promises you won’t be able to keep. If this is the position you are in we may be able to help by negotiating with your creditors to get you time.
- Consider factoring as a means of improving your cashflow. With factoring you know that you will receive a high proportion of your money as soon as you issue your invoice. Factoring is an important part of many companies’ successful growth. We have specialists available who can talk you through the various factoring services and help you find the right one for you. They aren’t all the same. One word of caution here, we haven’t found that the factoring services offered by the major clearing banks are necessarily the best. Just because your bank offers you the facility, don’t be afraid to say “No” and look at alternatives.
- If you have equipment or other assets it may be possible to refinance these to help with cashflow. Again, ask us about this.
- Having a 50% share of £10 is better than having a 100% share of £1. Selling part of your business might give you the cash to eliminate cashflow problems – and to help your business gow. The best source of finance is often people you know but there are services which put investors in touch with businesses wanting finance. If this is a route you want to look at, we will help.
Cash is the lifeblood of a business. without it, a business fails. You need to ensure that your business has adequate cash flowing through it. If you want to discuss cashflow issues, don’t hesitate to call us on 01509 816150 or contact us via our website.
Pricing for Profit – Stuck with the hourly rate?
We don’t think that an hourly rate is a good, fair or efficient way of quoting for work. Unfortunately, in some industries hourly rate, or variations on it, is traditional and may be the only acceptable method – so you may be stuck with it.
We will repeat our advice to avoid it as far as possible but if you have to use it you need to know what your hourly costs are so that you know what to quote to make a profit. Of course, if you don’t want to make a profit, just carry on as you are.
What we find amazing is that many businesses, particularly small contractors, garages, consultants, even solicitors etc, don’t have a clue about the actual cost of an hour’s work.
What does it actually cost to employ someone?
Obviously there is a basic figure. Let us say, as an example, that you are paying someone £12 per hour.
The first thing to remember is that, as an employer, you have to pay Employer National Insurance contributions. These are now 13.8% of wages. (There is a band where no NI is payable and it only applies above that level but, to keep things simple, we will ignore that for the moment).
By adding this 13.8% to £12, we arrive at £13.66 – but you’re not finished yet.
Every employee is entitled to paid holidays. Statutory holiday adds about a further 12% to the hourly cost (and it’s subject to NI) – increasing the cost to £15.30.
Now we come to a more subjective figure. What percentage of an employee’s time doesn’t get charged out? This can be surprisingly high. We recently did a calculation for one client and discovered that, for some of their workers, nearly 40% of time wasn’t charged out. That’s pretty high (but we’ve seen worse). Let us assume 20% non chargeable time for our example. This means that for every five hours worked, four gets charged out. Believe it or not, this makes the cost per chargeable hour in our example increase to £19.12.
Sickness, maternity/paternity leave have a cost which can only be guessed at. If your worker is sick, do you have to send someone else to do the work and, possibly, pay overtime or even hire in an agency worker or subcontractor?
The next question which needs to be asked is about direct costs associated with the worker. Do you, for example, provide tea or a mobile phone? Is the worker allowed to use the phone at work? Are small items (screws, nails, print cartridges, paper, calculators, files etc) regularly used but not charged separately against a job? Are there any transport costs associated with the work? Businesses often quote an hourly rate but include small consumables within that rate.
Quantifying that is impossible for this example but you should make your own estimate.
Next to be considered is the amount of supervisory/management time required to organise the work, check that it is done correctly. Again this varies considerably depending on the type of work and the experience and expertise of the worker. We have looked at several examples where the owner of a business spent nearly all of his/her time managing two employees – and still thought the business was profitable – until the cash ran out.
Now look at the overheads. Somewhere you are paying for payroll services (internal or external), record keeping and submission of returns. These are costs which are often overlooked.
It isn’t unusual to find that the actual cost of a worker can be double the actual hourly rate paid. You are living in a fool’s paradise if you think you can employ someone at £12 per hour, charge them out at £20 and make a profit.
Before you start quoting an hourly rate, or a “cost plus” rate, you need to have a reasonable degree of certainty about the actual cost of employment. Once you know that, you will have a much better chance of quoting profitably – or walking away from work which is clearly going to be unprofitable.
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Pricing for Profit – Ditch the hourly rate
You need some work doing; let’s say you have a few trees which need chopping down. Two contractors quote for the work. One says, “I charge £30 per hour”. The other says, “I charge £20 per hour”.
The choice is obvious isn’t it? Well no, because you haven’t asked the next question, “How long will the job take?” The guy who charges £20 per hour holds up his axe and saw and says, “About 10 hours”. The other guy points to his turbo charged 80HP petrol powered chain saw and says, “About 4 hours”.
Hourly rate is a misleading way to make purchasing decisions because different people work at different speeds and may use different tools and equipment. What incentive is there for someone to complete work in a timely fashion if, by stringing it out, they will earn more. Hourly rate also means that customers can end up paying for mistakes.
By quoting an hourly rate you are automatically creating mistrust between you and your customer. They are likely to watch you to make sure you don’t slack. If they make you a cup of coffee they are probably calculating how much time you are taking to drink it – and what that is costing. And don’t take too many toilet breaks!
Customers are happier with a Fixed Price. They will usually pay more for the certainty a Fixed Price brings them. If you went into an electrical retailer and asked the price of a TV to be told, “Well, we’re not quite certain. It depends on who builds it and whether or not they make any mistakes and the time it takes to get it from the factory”, would you agree – or would you buy the one in the shop next door with a price clearly displayed?
If you can quote a Fixed Price, and particularly if you back it up with guarantees, you will almost certainly find that your conversion rate improves – and you will make more profit. Even if, as sometimes happens, you cannot be 100% definite about the price, get as close to the price and give a range with an explanation as to why the cost might vary – and make sure you immediately discuss anything unexpected which occurs and might affect the final price.
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Pricing for profit
Pricing is something we are frequently asked about. Trouble is there’s no magic wand – no simple answer. One authority lists 20 different pricing models. The trouble is finding one which suits your business. Sometimes the particular industry you are involved in dictates the pricing model you need to follow. If you are selling a commodity product then you generally have to sell at the market price but most businesses have pricing options.
It is a truism that more businesses fail because they charge too little than because they charge too much. We also find far too frequently that businesses don’t even understand their cost base and provide goods or services at prices where they cannot possibly be profitable. Many business owners equate being busy with being profitable. That isn’t the case. It is often better to concentrate on the really profitable stuff and don’t take on work or orders “just to keep busy”.
The worst person to determine a pricing structure is usually the person actually doing the work. If it’s you, you often undervalue what you are worth. Often, just asking an independent person to value work or a product can open eyes as to the true worth of the service or item.
The best advice we can give is to look closely at your pricing model because this is probably the most critical decision you can make. Do not try to please everyone because you will most likely end up pleasing no one.
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August 2009 Newsletter Available
Our August 2009 Newsletter is available to view now. There are articles on “Flipping”, HMRC’s budget scheme for tax, when a Pick Up is a van plus information on email tax scams which try to extract information by pretending to be from HMRC.
You can read the Newsletter online – or better still subscribe to receive future editions.
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