Increases in Minimum Wage from October 2012

From 1 October 2012 the national minimum wage will increase as follows:-

  • Workers aged 21 and over – up by 11p to £6.19 per hour
  • 18-20 year olds – unchanged at £4.98 per hour
  • Under 18s – unchanged at £4.98 per hour
  • Apprentices – up 5p to £2.65 per hour

For more information please don’t hesitate to contact us or visit our main website at www.nsaccountancy.co.uk

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Making Quarterly Payments of PAYE

For any company that employs staff it is necessary to account for PAYE and NIC deductions and to make any payments periodically to HM Revenue & Customs. For many small businesses this represents a significant administration task, in addition to all the other obligations such as VAT, period end accounting, taxation and so on.

Although there is no avoiding the need to make regular payments of PAYE and National Insurance contributions, provided your average monthly bill comes to less than £1,500, you can opt to pay HMRC on a quarterly basis rather than once a month. This helps to cut down on administration as well as aiding cash flow.

If you are a new employer, you can automatically begin paying quarterly without the need to inform HMRC. If you currently pay monthly and would prefer to pay just quarterly, it may be worth contacting HMRC to request the change, to be sure you are not sent any reminders when they no longer receive your payments monthly.

The only possible down side to paying quarterly is that each payment will be much larger than if monthly payments were made, therefore it is important to ensure enough funds are retained in the bank for payment to be made no later than the 19th of the month.

Just like for monthly payments, come the end of the tax year it is necessary to file an annual return P35 online, together with P14s for each individual employee. This tells HMRC exactly who earned what during the financial year, and whether any payment (or refund) of tax is still due for the year.

Brought to you by N S Bookkeeping & Accountancy of Newcastle.

Making Quarterly Payments of PAYE

For any company that employs staff it is necessary to account for PAYE and NIC deductions and to make any payments periodically to HM Revenue &

Customs. For many small businesses this represents a significant administration task, in addition to all the other obligations such as VAT,

period end accounting, taxation and so on.

Although there is no avoiding the need to make regular payments of PAYE and National Insurance contributions, provided your average monthly bill

comes to less than £1,500, you can opt to pay HMRC on a quarterly basis rather than once a month. This helps to cut down on administration as

well as aiding cash flow.

If you are a new employer, you can automatically begin paying quarterly without the need to inform HMRC. If you currently pay monthly and would

prefer to pay just quarterly, it may be worth contacting HMRC to request the change, to be sure you are not sent any reminders when they no

longer receive your payments monthly.

The only possible down side to paying quarterly is that each payment will be much larger than if monthly payments were made, therefore it is

important to ensure enough funds are retained in the bank for payment to be made no later than the 19th of the month.

Just like for monthly payments, come the end of the tax year it is necessary to file an annual return P35 online, together with P14s for each

individual employee. This tells HMRC exactly who earned what during the financial year, and whether any payment (or refund) of tax is still due

for the year.

Brought to you by N S Bookkeeping & Accountancy of Newcastle.

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Payday loans – are they worth it?

One of the hottest topics in the financial world at the moment is that of short-term loans and their sky-high interest rates. This should come as no surprise, with money being tight for many people just now, and banks having become somewhat more careful about who they lend money to.

For people with easy access to credit cards, overdraft facilities, savings and so on, such short term loans are entirely unnecessary, and we would certainly never recommend such borrowing where cheaper alternatives are available. But for many people, particularly those under a certain age or with bad credit histories, credit cards and other such forms of borrowing are often not an option. It is perhaps understandable therefore, that many people turn to payday loans, or even loan sharks, to “get them through tomorrow”.

Many people have quite reasonably condemned these services due to their high fees and interest rates. APRs of many thousands of percent are common – not so bad if the loan is repaid quickly, but crippling if the loan is not paid off within a few weeks.

So do we recommend such borrowing? Generally no. If you have access to savings or cheaper forms of credit, use that instead. If you want to borrow money for the latest TV, laptop or games console, do yourself a favour and go without – it just isn’t worth it as you will pay hugely over the odds for something non-essential.

But what about if you have essential bills to pay, and not quite enough in the bank to cover them before your next pay day? Could borrowing money at 4000% APR ever be cheaper than just doing nothing at all? In some cases, quite possibly. The reason is that, whilst short term loan companies may well be rip-off merchants, the banks, credit companies and utility companies can be just as bad – and sometimes worse!

The following example may help to illustrate this. We will use wonga.com as an example, since they are perhaps the most widely known short term loan company at the moment.

Suppose you get paid on the 28th of the month. It is now the 24th, you only have £100 in the bank and two direct debits to pay – a phone bill for £105 on the 25th and a credit card bill for £110 on the 26th. It’s a credit builder card with an APR of 39.9% and you don’t have access to any other cards.

So you need £215 but you only have £100. One option you have is to speak to the bank, phone provider or credit company and try to negotiate, but at this late stage they may not be particularly helpful, so you visit wonga.com. We need £115, but to be on the safe side we will take £120, to be paid back in 7 days.

Looking at the website, we see that their borrowing fees are not so much steep as vertical – 4214% representative APR (or, um, 4213.5% above base rate). Using the sliding calculator, we see that borrowing £120 for seven days will cost £14.16 in interest and fees, so you’ll pay back £134.16 in a week. So, the total cost with wonga is £14.16.

Now let’s suppose we did nothing – just sit back and see what happens. On the 25th, the phone bill comes out, taking you £5 overdrawn. The bank honours the transaction and the phone company are happy. But as there is no authorised overdraft, the bank decide to charge you £8. It’s in their terms and conditions, you understand. They can do this. They can do anything, they’re a bank.

The next day, the credit company try and take their £110. This time the bank decide they are having none of it. You are overdrawn already, so the £110 direct debit bounces. For this, the bank help themselves to another £8 (T’s and C’s folks). Then the credit company write to you to inform you that your payment was rejected, for which they charge £12. Then of course, the payment, when it does arrive, is going to be late. Oh dear, that’ll be another £12 please. Then of course there is the interest at 39.9%, backdated to the time of purchase, so that’s another fiver. And to top it all off, it goes on your credit record, making it even harder to gain credit in the future. The overall cost? £37! All because of a £115 cash shortfall cash for a couple of days.

So here we see that Wonga would actually save you about £23 in this instance, and leave you with a healthier credit record.

So we are not entirely against short term loans if they are used properly. Nevertheless we don’t endorse them either – they are still an expensive way to borrow, and you will not always benefit from using them in the way that was illustrated above. In summary, this is what we advise:-

  • If you have access to savings, credit cards or loans, use them instead – they will be a lot cheaper
  • Try to plan ahead, and if you can see you will fall short, talk to your bank or your creditors and try to negotiate with them, ideally by delaying payment of bills until after payday
  • Use payday loans as a last resort to cover essential costs only, and be sure to pay them off asap
  • If you do use them, plan ahead and be sure you can pay them off quickly, otherwise avoid them and seek professional advice
  • If you find yourself running into trouble every month, seek professional advice from an agency or Citizens Advice
  • Never borrow from loan sharks or other unregulated lenders
  • Always try to keep on top of your finances. It is the ones that ignore the problem that usually end up the worst off. Banks and credit companies love to kick you when you are down, and can leave you even more out of pocket than the wongas of this world.

Hopefully this has provided some insight into the world of short term loans and their advantages and drawbacks. This was brought to you by N S Bookkeeping & Accountancy, who provide affordable bookkeeping and accountancy services in Newcastle and throughout the North East.

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Tax Deadline Looming

The deadline for online filing of 2010/11 self assessment tax returns is 31 January 2012. For anyone wishing to file their return on paper, the deadline was 31 October so online is now the way to go in order to avoid a penalty. Remember that payment of any outstanding tax is also due by 31 January.

As mentioned previously on this blog, penalties for late filing and payment of tax have become stricter from this year. A £100 late filing penalty will become due automatically, even if you have no tax to pay, and further daily penalties are added if the return is late by more than three months.

Brought to you by N S Bookkeeping & Accountancy, providing bookkeeping and accountancy services in the Newcastle area.

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HMRC Phishing Emails

HMRC have reported an increase in the number of ‘phishing’ emails in recent months. These are emails from scammers who disguise themselves as HMRC, often telling the recipient that they are due a tax refund. Typically the message will include a link to a site that looks like a genuine HMRC webpage, but in reality is a bogus site designed to trick you into providing personal details such as HMRC user IDs and passwords or bank details.

Phishing is nothing new, of course, and is widely used in an attempt to con victims into disclosing login details for bank, credit card or PayPal accounts. But scammers also like to disguise themselves as HMRC, the advantage being that they can try to trick the victim into believing they are entitled to a tax rebate, providing added incentive to act on the instructions given in the email.

So how can these emails be detected? There are a number of ways in which HMRC scam emails can be identified:-

First and foremost, HMRC never send such emails anyway. If they need to contact you about your personal tax affairs, they will usually write to you. Email is occasionally used, for example to remind you to complete a VAT return, but never to inform you about tax liabilities or refunds.

Phishing emails often use poor grammar and English, for example “our Systems indicate that yuo are intitled to a Tax refund in the Order of GBP3,265,58. to claim your refund Please click our Link at…”

Your software might flag the email as spam, or when you click the link, your browser may attempt to block the site or warn you of potential danger.

If an attachment is provided in .zip or .exe format, don’t open it as this could contain malware which may harm your computer.

If you are given a link to a website, look carefully at the URL, in particular the domain, which is the part immediately before the first forward slash ‘/’. This is true of any email containing links. Look at the following link:

www.hmrc.gov.uk.oiwjef.com/sa/account.html

At first glance this looks like a genuine HMRC URL as it begins with ‘www.hmrc.gov.uk’, but look at the section immediately prior to the first forward slash, and in fact the domain is ‘oiwjef.com’, clearly not connected with HMRC!

Some people are even less subtle than this, using web addresses that bear no resemblance to anything genuine. Look out for emails that land you at snfsllslakna.com or hiweiw.ru, and hit the delete button immediately!

Brought to you by N S Bookkeeping & Accountancy

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Tax return 2010/11 filing deadline

The deadline for filing of self-assessment tax return forms on paper is 31 October, so at the time of writing there is about three weeks left for 2010/11 paper forms to be completed and sent out.

We spoke in an earlier article about HMRC’s horrible new late filing penalties that come into effect this year, and it is therefore more important than ever to ensure that tax return forms are received by HMRC on time.

The good news is that if you are submitting your return online, the deadline is 31 January, so you get an extra three months (and you save the cost of a postage stamp). Regardless of how the return is submitted, payment is not due until 31 January, although you can of course pay sooner.

If you need any further help or advise get in touch and we can calculate your tax and file your return online on your behalf.

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Minimum Wage from 1st October 2011

From 1st October 2011 the national minimum wage will increase as follows:-

Workers over 21 – £6.08 per hour (was £5.93)

Workers aged 18-20 – £4.98 (was £4.92)

Workers aged 16-17 – £3.68 (was £3.64)

Apprentices – £2.60 (was £2.50)

All employees are entitled by law to receive at least the above hourly rates. Crucially the rate exceeds the £6 per hour mark for over 21s for the first time – many workers are paid a straight £6 at present and all such workers should now get a small increase in pay.

Brought to you by N S Bookkeeping & Accountancy

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Ten signs you are skint!

In the midst of all the financial woes the world is facing today, here is a light-hearted run down of ten signs you might be feeling the pinch…

1. Loan sharks start refusing you credit
2. You’re paying your milkman on HP
3. Your child’s piggy bank is overdrawn
4. You pay your credit card bill by credit card
5. You run over your cat for the insurance money
6. For Christmas your kids get a sock and a message saying “IOU one tangerine”
7. You qualify for free petrol
8. You owe yourself money
9. You rob Peter, and then rob Paul
10. Your mortgage company repossess your soul

Brought to you by N S Bookkeeping & Accountancy (who hope none of the above apply to you, #7 aside perhaps!)

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Self-assessment tax – late filing penalties from 2011

There are two important deadlines for filing of your self-assessment tax return. If you are completing a paper return, it must be received by HMRC no later than 31 October. If you are filing online, you have until 31 January. So for the year ended 5 April 2011, the deadline for paper returns is 31 October 2011, and for filing online it is 31 January 2012.

Until now there was a penalty of £100 for returns that were filed late, and further penalties and surcharges once the return was more than 3 months late. However if no tax was due, the penalty was waived, so somebody without a tax liability could file their return late without consequence.

From April 2011, a new penalty structure is being introduced. The £100 late filing penalty will now apply even if there is no tax liability. But much worse is the additional penalties for returns that are more than three months late. A charge of £10 PER DAY will be applied on top of the initial £100 penalty, up to a maximum of 90 days, or £900. That means that a return that is filed six months late will attract a penalty of £1,000!

It gets worse for returns that are more than six months late – in addition to the £1,000 of penalties already racked up, HMRC will apply a further £300 charge, or 5% of the tax liability, whichever is greater. If the return still isn’t received after 12 months, this charge of £300 or 5% of the tax liability is applied again.

For example, if a paper return, due 31 October 2011, is received by HMRC on 7 May 2012, for which £8,000 of tax is due, it would be just over six months late. The penalty would be as follows:

Initial late filing penalty – £100
Further penalty after three months at £10 per day, capped at 90 days – £900
Penalty for being over six months late – 5% of £8,000 = £400

Total £1,400

In addition to this there is interest and surcharges on tax paid late! This will be covered separately in a later article.

As you can see, whilst the penalty for filing less than three months late remains quite modest, leaving it any longer now has much more severe consequences, and it is more important than ever to ensure that your tax return is received on time.

For more info and assistance see our main site for N S Bookkeeping & Accountancy.

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Cash vs profit

Whenever a business faces financial difficulty, it is easy to assume that the company simply isn’t profitable. In many cases this is quite true of course, particularly in recent times. But this is not necessarily the case, and conversely many businesses can rack up significant losses for years and still survive. Every business ultimately needs to make profit to be viable, but a second vitally important factor is cash flow.

There is a big difference between the amount of profit a company makes and the increase in its bank balance, because money does not necessarily change hands at the point at which the expense was incurred. Supposing you provide a service to other businesses – although you might invoice them all at the end of the month, it might be weeks if not months before your customers pay up (if indeed they pay up at all!) It works the other way as well of course – if you run a shop, you will normally be paid upfront by your customers, but your suppliers might give you 30 days or more to pay up, which gives your cash flow a useful boost.

The biggest headache for many businesses is taxes such as VAT, PAYE, income tax and corporation tax. These expenses are often accrued over a period of weeks and months, and can take business owners by surprise when they finally become due. It is usual practice to advise new business owners to put 20% of their earnings aside for tax, but it can be very tempting to dip into any such savings, particularly during difficult periods, and this can leave businesses in trouble when the tax man comes knocking on the door.

Another habit of many business owners is to draw more money for themselves than their business can technically afford. If there is £10,000 in the bank, it can be tempting indeed to draw some or all of this as a salary or bonus, only to be hit with a large unexpected bill for stock, rent, professional fees or taxes, and find that the money isn’t there to cover such costs.

It can be very difficult to predict the cash flow of a business, even if it is doing well. Banks know this, of course, and they will think nothing of taking advantage of this by charging extortionate fees for bounced payments and unauthorised overdrafts. This only makes matters worse, and can be the start of a downward spiral.

Although it is impossible to predict your company’s cash flow situation exactly, there are steps that can be taken to minimise the risk of simply running out of money, which can put a great strain on the business or even force it to close.

1. Prepare budgets. There is software available that calculates estimated profit & loss and cash flow over a given period of time, or a spreadsheet can be used to show how the bank balance is likely to look over the next few months or years. Particular attention should be paid to months where cash flow is likely to be a problem, such as when a large tax bill becomes due, or during a period of low sales.

2. Keep enough cash in the bank. Not always easy or even possible, but aim to have enough cash reserves in the bank to cover all eventualities, and don’t be tempted to draw large sums of cash unless the business can really afford it.

3. Have other sources of funding available as a backup. This could be something as simple as an overdraft arranged with the bank. It is always worth trying to get such a facility even if you don’t intend to use it, otherwise you’ll be hit with excessive charges every time to go over by so much as a groat. Alternatively make use of any cheap credit facilities – pay for things on credit card but pay it on time and in full, or take advantage of credit terms offered by suppliers. Better still, keep money in savings that can be drawn in an emergency.

4. Plan ahead. If you know you have to pay a large VAT bill next month, it might be worth putting off payment of something else until the following month. Some expenses, such as staff wages, are unavoidable, but you might get away with paying a supplier a few days late once in a while.

5. Work with people during times of crisis. If it looks like you are entering a sticky period financially, consider contacting your bank, suppliers or tax office and see what they can do to help. Perhaps your bank could offer you a loan to clear your overdraft, or maybe a supplier will accept monthly payments of an agreed amount to ease the pressure. Better to negotiate than to face the prospect of large financial penalties, withdrawal of services or threats of legal action, which are all too common.

Careful cash flow planning is even more important for new businesses as it can be very easy to run out of money in the early days. Set-up costs can run into many thousands even for small businesses, and sales are often very modest in the early days while the business builds up its reputation. It is therefore vital to ensure enough funding is put in place at the start, not just to cover set-up costs, but also to keep the business afloat in the early months when it may well trade at a loss.

More information on business planning, sources of funding and cash flow management can be found on the Business Link website at www.businesslink.gov.uk, or visit the website of N S Accountancy, providing bookkeeping and accountancy services in the North East.

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