Important Information on the National Minimum Wage

From 1st October 2011 the national minimum wage rates are:

• £6.08 per hour for workers aged 21 or more

• £4.98 per hour for workers aged 18-20

• £3.68 per hour for workers aged 16-17

• £2.60 – for apprentices who are under 19 or are 19 years or over and in the first year of their apprenticeship

Failure to pay the minimum rate is a criminal offence.

I was weighing up some options for a client over the weekend. They are worried about what might happen if a plan didn’t work.

It got me thinking. What was the worst thing that could happen? If the plan didn’t work, there was still a business, a reputation, and a lot of goodwill. Life might not be easy, but life would carry on.

When starting a business, it is essential to know what your bottom line is. If the idea doesn’t work, when is the right time to walk away, or change the plan?

To some, running a small business is almost a hobby – the impact of financial failure is minimal due to other streams of income (for example a partner’s salary). But if the consequences of failure are more material (no money to pay the rent, buy petrol, or eat), then knowing when enough is enough starts to seem sensible.

Motivation to succeed is often fuelled by an appreciation of the consequences of failure.

In the same way that success can be measured in terms other than pounds in the bank, so can failure. Working out what you want, or what you don’t want to lose, is harder than you think when you start to think beyond the bank balance.

I am not suggesting that businesses should always worry about the worst case scenario, but I would suggest that having the option to quit while still ahead is better than the alternative.

So, having identified the worst case scenario, now it’s time to focus on the positives, aim high, and succeed!

There has been much in the press and media about how much (or little) we give to charity. Putting the inevitable debate about the accuracy of statistics to one side, I feel the story has missed the point, particularly when comparing British giving to American.

If there is a defining difference between the British and American culture it is about the role of money. In America, everything has a price. In Britain, I believe that we place a greater emphasis on support, that has no price. Whether it’s volunteering on a regular basis, caring for others, or just being there to help out, the value of what we give is worth far more than the value of our financial donations.

I am not suggesting that we shouldn’t be giving more funds to good causes, but it is also worth stopping to think for a moment about the value of your time given to help others. As businesses know, time is money, and is equally valuable whatever you do with it.

There is a debate about whether charities should record the value of non financial contributions (particularly volunteers time) in their accounts to show the true value of their “receipts”. Needless to say this has been contentious. After all, is an hour of one person’s time worth the same as another? Do we value time on the basis of what it is worth to the giver or the recipient?

What we give is personal and should reflect our ability to give, which might mean its less about money, and more about our skills and experience. To me, the important thing is that we give what we can to the community that we are part of. Sometimes just giving time is the most valuable donation of all.

I was talking to a client recently about their business. They were explaining to me what information they wanted to see on a regular basis that they believed would help them monitor their business. The indicators he felt were key were Turnover (sales income), Profit, and Cash in the bank.

Without wanting to start an argument there and then, I realised that I have a lot of work to do to get the business owner to understand what he really needs to know, why he needs to know these things, and what he needs to do about things when they are not good.

I have often talked about the Balance Sheet being more important than the Profit and loss, and I still stand by this statement. The Balance Sheet tells you what you own, who owes you money, and who you owe money to. These three facts give you a far better snapshot of your businesses health than any other measurement.

Take cash in the bank as an example. It doesn’t include cheque payments to suppliers that have not cleared. It doesn’t tell you how much you are owed by customers, or how much you owe to your suppliers.

Profit is a nice measurement if you are the taxman, but it doesn’t tell you how profitable you are. Making more profit than last year might sound good, but what will you do if you are only making 10% net profit, when last year you made 15%?

Running a business requires focus on the future. A review of the past is helpful, but only if you do things differently as a result of the lessons you have learnt. If you are measuring your performance by the wrong indicators, do you even know what those lessons are?

Back in December 2010 I wrote about claiming expenses from your business relating to the business miles you drive (http://bit.ly/gh1s0t ).

Unless you drive in excess of 20,000 miles a year, you will be far better off claiming for each mile you drive, than to try and take a tax hit, or claim a percentage of your direct costs.

You may recall that, in the recent budget, the rate you can claim for the first 10,000 miles has increased from 40p to 45p. This gives you a potential extra £500 per year to claim.

If you use your own car for business purposes, you should be claiming expenses to offset the costs that you are incurring. As well as the fuel you use, you are allowed to claim for running costs such as repairs and maintenance, MOT, tax and insurance.

It doesn’t matter of you are self employed, or working for a company, as long as the miles you travel are for the business, and are not personal. The exception to this is your regular commute. You cannot claim for the miles driven to and from work, if you work at the same place most days. However, trips to the post office to buy stamps, to visit clients or suppliers, to visit business partners, or attend meetings are all allowable.

You may not know this, but you can also claim reimbursement if you use a bicycle to get around for business. A few years ago, the government introduced a mileage rate if you use your bicycle for business. A great way to stay fit, help the environment, and claim a tax deductible expense!

If you are VAT registered, you will need to collect VAT receipts for your fuel (not necessarily for the actual fuel you use), ensuring that the receipts are dated within your claim period.

I have created a very simple spreadsheet to help you calculate how much you can reclaim as expenses if you use your own car (or bicycle!). If you would like a free copy, please call or email me, and I’ll let you have a free copy.

Ok, so fuel goes down by a penny at 6pm. It’s still expensive. On the plus side, as an employee I will be able to claim 45p per mile from my employer fro the first 10,000 miles I drive. If I own the business, I might not feel so great about parting with up to £500 per employee…

Then again, as a business, I have some good news, the VAT threshold is now at £73k, and corporation tax is reducing (unless you are already an SME, and already only paying 20%, in which case there is no change).

Tax avoidance measures are being ramped up – the government is looking to pull in an extra £1billion more per year in “lost” revenue. If you are avoiding paying tax, make sure its legitimate!

My personal tax allowance is going up by £630 per year, but not until April 2012.

The bigger picture is a mixed bag. Growth is still growth, but only just. To help kick start regions that are really struggling, Enterprise Zones have been established. At first glance they may have some attractive strengths: potentially 100% rate relief if you move into the region, and the promise of super-fast broadband.

As expected, the squeeze on public spending continues, with council taxes frozen, or reduced.

To my mind, and as a small business myself, all the above suggests one thing, opportunity. As a chair of governors of a local school, I have already received the first of what I expect to be many approaches from a private company, this time selling expertise that was previously provided free of charge by the Local Authority.

The world hasn’t stopped, its changing direction. Which way are you pointing?

Ahead of the budget, here is a prediction: in the next 6 months, either inflation will go up, or interest rates will go up, or they both will go up.

The challenge therefore is not to second guess what is going to happen, but what you are going to do about the inevitable increases.

At the start of the recession, interest rates tumbled to their lowest level in living memory. To remind yourself what it was like, work out what the additional cost of an increase of 1% on your borrowings would be. Now multiply that by 4 or 5. That is how much better off you are at the moment, and how much you will need to find again when interest rates go up.

In the mean time, inflation is creeping up. No change there. However, pay awards are being held flat or low. Certainly lower than inflation.

My real prediction is that life could be a lot worse.

In life and business there are three basic tensions, Cost, Time, and Quality. Is it possible to achieve high quality, at low cost, in a short period of time? Probably not, so if you see an opportunity that promises this, it is probably hiding something.

• To reduce cost usually requires a reduction in quality, or a longer timescale.
• To reduce the timescale usually requires an increase in cost, or a reduction in quality.
• To improve quality usually requires an increase in cost, or a longer timescale.

So what is the best way to balance these?

I would suggest that you start with identifying what you can’t change. For example, do you have a fixed budget, a timescale that can’t be changed, or an expected level of quality? And start there. Once you have a starting point, your options become clearer.

You can generally agree on two of the three factors, and have to accept the third. You want it high quality and now? You may have to pay for it… You want it now and cheap? You may need to accept low quality…

If you are challenged on why the cost is so high, the timescale too long, or the quality not up to standard, think about what you can do to one of the other two factors.

This seems like a simple question. However, particularly at this time of year as they submit their tax return, many people find out that what they thought was a business expenses, isn’t.

The answer to the question is not defined by you, but by the tax office.

Take your telephone bill as an example. The tax office is happy to accept a telephone bill, even a mobile phone bill, as a business expense if you are a limited company, but not if you are self employed. If you are self employed and have a mobile phone, the tax man will assume that the contract is mainly for personal use. To prove your business use you need an itemised phone bill and details of which calls were for business, and which were personal.

Another area that often causes confusion is food and drinks (entertaining). Meals and drinks bought by a limited company can usually be called a business expense, but only very rarely if you are self employed.

If you are unsure about what is or isn’t a business expense, ask a professional, and then make sure that you understand what they tell you. I heard a story recently about someone who thought they knew what was allowed, only to find that their accountant had disallowed some items on their tax return (and not told them).

The logic behind the tax office’s decision on what is (and isn’t) a business expense may be archaic or confusing, but when the tax man knocks on your door and asks to see your accounts, the argument becomes irrelevant, as all that matters is the law.

If you would like to know more, or have questions, please ask.

As you will have seen on the news, the rate of VAT in the UK is to change from 17.5% to 20%.

The new VAT conversion fraction is 1/6 (much easier to remember than the old one for 17.5%, which was 7/47).

If want to know the net cost of something, then divide by 6 and multiply by 5. For example, something sold for £100.00 has a net value of £83.33 (100/6*5).

If you want to know the gross cost of something, then divide the net value by 5 and multiply by 6. For example, a net value of £25.00 would cost £30.00 including VAT (25/5*6).

It may sound obvious, but changes to the rate of VAT affect the VAT amount, which in turn adjusts the gross value. £20.00 is not 20% of £120.00, it is 1/6 of £120.00.