The Fizz! Blog

If you have a limited company, avoid using the word “claim”!

Often, people trading through a limited company will say “I am a limited company”. They are not a limited company, they are a human who owns a limited company. Their accountant should keep picking them up on it and correcting them, not to be pedantic, but because cementing the difference in your mind is important.

Company owners early in their “journey” (sorry) will often ask “can I claim cost X?”. A better perspective is to think “is this a cost which should properly be paid by my company?”. The rent on the Fizz offices isn’t somehow “claimed” against tax. Fizz just pays it, obviously! Fizz doesn’t “claim” the salaries of our staff. It pays them. Equally, when the directors are out and about travelling for meetings and the like, we just pay for our train tickets with a company debit card to begin with, straight out of the company bank account. Job done. There’s no reason, in the limited company world, for the word “claim” to be used, other than in the specific context of employees making formal expense claims for things that they’ve necessarily paid themselves and need to be reimbursed for.

Companies don’t claim things, they pay for them. If you can separate the company and yourself in your head, then life becomes a lot easier.

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Is it time to actually withdraw your Director’s Loan Account?

At any point in time, most directors of small limited companies either a) are owed money by their company or b) owe money to their company.  The former is obviously a nicer place to be in general.

Money owed by a company to a director can accumulate for lots of reasons, including funds actually lent to the company to get it started, expenses or mileage not yet reimbursed, allowances for working from home and so on.  Historically, many directors have been happy to let this Director’s Loan Account build up.  If you don’t need the money in your own life right away, you might well be happy to leave it where it is rather than risk frittering it away!

That was all very well when interest rates were next to nothing.  It didn’t matter too much whether you had the £30,000 or the company had the £30,000.  Nobody was going to earn interest on it, so if its purpose was to be a rainy day fund, it was fine left in the company.  Now, however, interest is a real thing!  If the director gets her loan repaid to her and puts it in a savings account, she’ll probably earn interest of £100 a month.  And some of that’s going to be tax-free, even if it’s not in an ISA.

The company could itself put the money in an interest-paying account of course (and, if the director is going to leave the money where it is, it probably should).  But the company will pay corporation tax on all of the interest, and then when the director one day takes that extra money out of the company, she’ll pay tax too!

So, think of making savings work for you, and if you’ve money in your company that you can draw out tax-free, now may well be the time to do it.

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Why you should set up a direct debit for your VAT payments

If you’re a normal VAT-registered business, you have eight opportunities a year to screw up and fall foul of HMRC’s VAT penalty regime.  You’ve four returns to submit, and four payments to make.  Being late with any of those eight tasks risks a penalty, or accumulating points that eventually lead to a penalty.

If you sign up to make payments by direct debit, you only have four opportunities to screw up, because you then only have to submit the returns - the VAT is automatically collected by HMRC.  The system has always been rock solid.  It’s also better in other ways too - the VAT is automatically taken at the very last minute and you don’t have to worry about getting the right account number and reference from the multiple options that you’ve probably got available in your online banking.

It’s a really easy win and only takes a couple of minutes to set up.  Do it now!

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It's not your *January* tax return!

The last tax year finished a couple of months ago, which means that those of us who have to do a Self Assessment Tax Return can do it any time from now on.  The ultimate deadline is 31 January, but that doesn't mean you have to do it in January!  We've ploughed through a good number of client tax returns already.  There are loads of benefits to doing your tax return as early as you can:

• You don't have to have it in the back of your mind, hanging over you.
• You don't have to go around searching for year-end documents nine and a half months after you received them.
• You don't have to desperately try and remember what happened the best part of two years ago.
• If you've got, tax, NI or student loan repayments to make, you know how much they'll be well in advance.
• If you're due a refund you get it sooner.
• If you're applying for a mortgage, you can get evidence of income quickly if you need it.
• Your accountant will love you and shower you with praise!

So don't think of it as a January return that you might do early.  It's an April return that you're going to get on to RIGHT NOW!

www.fizzhq.com

The last tax year finished a couple of months ago, which means that those of us who have to do a Self Assessment Tax Return can do it any time from now on.  The ultimate deadline is 31 January, but that doesn't mean you have to do it in January!  We've ploughed through a good number of client tax returns already.  There are loads of benefits to doing your tax return as early as you can:

• You don't have to have it in the back of your mind, hanging over you.
• You don't have to go around searching for year-end documents nine and a half months after you received them.
• You don't have to desperately try and remember what happened the best part of two years ago.
• If you've got, tax, NI or student loan repayments to make, you know how much they'll be well in advance.
• If you're due a refund you get it sooner.
• If you're applying for a mortgage, you can get evidence of income quickly if you need it.
• Your accountant will love you and shower you with praise!

So don't think of it as a January return that you might do early.  It's an April return that you're going to get on to RIGHT NOW!

www.fizzhq.com

If you’re considering whether to work as a sole trader or form a limited company, accountancy fees are a red herring

A frequent question when you’ve recommended to someone that a limited company is the route you’d advocate for them is “can I just check how much those fees would be if I worked as a sole trader instead?”.

That’s a totally understandable question, but actually should not rationally be part of the decision-making process. A conscientious adviser will already have taken that into account when giving the advice! They wouldn’t simply ignore a significant cost.

A literal answer to that question might be something like “If you were a sole trader, those fees would be £1,000 a year lower”. But that’s totally unhelpful as an answer, because the tax liabilities of a typical sole trader are going to be greater than those of a company and its owner, by at least as much, so someone with annual revenue of, say, £50,000 is going to end up in pretty much the same position either way when you take taxes AND fees into account.

You can only sensibly compare that total bundle of “all taxes plus professional fees’ down each route, not just a single component. Otherwise it’d be like deciding to work as a sole trader to avoid having to pay corporation tax, without considering that you’ll have to pay income tax and National Insurance! All of the costs and benefits need to be considered - and as tax rates stand at the moment, the relative professional fees for those two routes aren’t relevant to the decision for anyone who understands how the pieces fit together.

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Look after yourself as you'd look after an employee

If you’re a business owner, imagine an employee comes to you asking for a change to their pay arrangements.

“I was wondering if you could pay me less than I’m due most months, but then occasionally pay me a much bigger lump, once I’m really struggling.  And could you also pay for some of my personal costs, then wait until I’ve forgotten about them before making me pay the money back?”

You’d probably refuse, telling your employee that’s a chaotic way to run their finances, and that you care too much about them to enable self-destructive behaviour like that.  Regular, predictable pay is definitely better for everyone in the long run.

“How about if I only make my expense claims every three years, so that you don’t really have a full idea of your overheads, and I never have a clear idea of how much money I have in the long run?”

You’d probably turn that request down too, and encourage them to do their expenses monthly, so that everyone knows where they stand (and so that it’s not a massive task down the line to figure out what they were doing years ago).

It’s exactly how lots of business owners treat themselves though.  Look after yourself in the same way you’d look after that employee.

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Think about your 2015-16 ISA now!

March is sometimes referred to as "ISA season" by financial advisers, as people rush to use their ISA allowance for the year at the last minute.  However, it's a perverse way of saving and investing.  As we've noted, before, it would be absurd if we tried to scrape together the money for a whole year's mortgage payments at the last minute, so why do we do the same with something equally important, saving for our futures?  There's no "mortgage season", and an "ISA season" is scarcely more logical.

If your income is moderately steady, and you're aspiring to save into an ISA, why not think about setting up a fixed monthly standing order to it (or your pension, or savings account, or all of them) for the new tax year?  If you're aiming to max out an ISA this year, the annual allowance is £15,240, which equates to a monthly payment of £1,270.  If £1,270 seems like a daunting amount to find each month, it's going to be no easier to find the whole lump in one go next March!  Of course, most people aren't going to be able to save the maximum amount - but that doesn't mean you can't save something.  And saving something at the outset of each month makes it harder to spend the money by mistake.  "Save, then spend what's left", as opposed to "spend, then save what's left".

If your income isn't moderately steady, then you might want to think about ways in which you could make it steadier.  But that's something to talk about on another occasion!

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"Accounts are important to me"

Potential clients often tell us that accounts and tax are important things to them.  However, "Accounts are important to me", or similar, can mean one of two things:

1. "Accounts/tax/business and personal financial planning/etc are important to me"
2. "I know accounts/tax/business and personal financial planning/etc are supposed to be important to me, and my husband/wife/business coach/HR person/bank manager/author of the latest business book I'm reading has been nagging me about it, so here I am, but to be honest, either consciously or - more likely - subconsciously my heart's not really in it and accounts, tax and financial services generally aren't really things that I value deep down"

To be clear, both of those are completely reasonable positions to have - you can't force yourself to value something.  The problem for us is that we fit really well with the first type of client but not the second.  There are plenty of accountants who fit well with the second type but not the first, and they're really happy to meet type twos.  But the screening process - finding out if you're meeting with a type 1 or type 2 - can be really tricky, since they both present themselves in pretty much the same way.

We think we're quite good at identifying the signs, but sometimes we get it wrong.  Early in the year we probably spent a half day meeting with someone, who we liked and thought we could be really valuable to, and coming up with a pretty detailed set of recommendations and a fee proposal.  Then we were just completely blanked by him.  If you want to know how someone really feels about something, then it's what they do that's important, not what they say.  In this case we'd say that, though that person might have really been trying his best to engage with the financial side of the business, and convince himself it was important, deep down he just felt that what we do (and by extension our time) is of minimal value.  So we didn't do a good job of screening him, and not only did he waste our time, but we wasted his too.

It's something that's in no way limited to our profession - whatever business you're in, it's better to identify people who value what you do and work with them, rather than try and talk people round who underneath it all really don't care.  Filtering the second type out is something that most of us in business could probably be a bit better at.

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ISA allowance to increase - plan ahead

From 6 April 2011, the ISA allowance increases to £10,680 a year, from £10,200 at present.  Of that, half - £5,340 - can be saved in a cash ISA.

Where clients want to save in an ISA, we often advocate setting up a regular monthly payment system.  It's a lot easier to find one twelfth of your target each month than it is to find the lot in one go at the end of March.  We practice what we preach - I have monthly standing orders set up of £425 to a cash ISA and another £425 to a stocks and shares ISA.  Come the end of the tax year, I'll have used my allowances exactly, without missing the money - well, without missing it too much, anyway!  I've just made a diary note to increase those amounts from next April, and if you use a similar system you might want to make a note too.

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Why can't the ISA season be 12 months long?

March is often described as the "ISA season" by Financial Advisers, as people get round to using their annual tax-free ISA allowance.

But why do we all leave it until the last minute? Saving for the future is important, and it's not the best policy to cross your fingers and hope you'll have enough money left at the end of the year to put something away. Imagine if March was "mortgage season", and we paid nothing off our mortgages all year and then frantically tried to scratch together enough money to make 12 months' repayments in one go. It'd be absurd.

If, for example, you're planning to max out a cash ISA this year (£5,100 in all), why not consider setting up a standing order for £425 a month? That way, the ISA will be fully funded by the year-end, and you won't have to leave things to chance at the last minute.

If you're not sure how (or whether) you should be using your ISA allowance then you should speak to a Financial Adviser - we can put you in touch with one we trust if you don't have a relationship with one at present. But do think about having a strategy for funding your savings - don't just cross your fingers and hope for the best.

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