Tax Credit Bills

What does one do when you get an unexpectedly large bill as a result of higher earnings?

I am, of course, referring to bills for overpaid Tax Credits, which are issued this time of year.

First you need to check the calculation, Easier said than done. This would have been sent to you in August. But beyond checking the income figures, it is anyone's guess how this translates into tax credits that are payable to you.  Often there will be a withheld amount, in case Revenue & Customs end up over paying you.

You can write in and appeal against the calculation. If R&C have got something wrong, whether on the income or circumstances side, point this out to them.

If your income and circumstances will be similar for 2014/15, then you can ask for the bill to be offset against next year's tax credits claim.

And finally if all else fails, you can do what George Osborne did and agree to pay it in instalments (two is acceptable, more than that may not be).

With tax credit rates being frozen for 2015/16, expect another bill to arise next year as well.

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Tax Credits Renewal

Tesco's is in Trouble!

Who would have thought it?

When I attended a lecture given by their recently retired Chief Financial Officer Andrew Higginson  in 2004, Tesco's were known as having a highly aggressive growth strategy with phenomenal success. They were the market leaders in the UK and had just started looking overseas in USA and China. Everyone expected them to replicate their success in the UK in these overseas markets.

But since then, Tesco's has lost it's golden touch. It found the Chinese market harder to crack than expected, and lost millions trying to adopt to a different shopping culture. Then in April 2013 it pulled the plug on its US operations, costing them £1.2 billion in losses.

At the same time. Tesco's announced its first ever dip in profits. Sales had been stagnating since since 2012.   Then came the horse meat scandal,  when it was discovered their value Bolognaise contained 60% horse meat,

Tesco's has been losing out to other retailers in the UK. It's market share started to decline. Asda, owned by the world's largest supermarket chain Walmart,  generally has prices cheaper that Tescos, especially if one only buys in small quantities.  And it's facing tough competition from the likes of Aldi and Lidi, no frills stores that drive down prices. A new Aldi store is being built in Coulsdon, opposite Tesco's Express store and another bigger one is planned for South Croydon.

Yet only a month ago, Motley Fool advised its readers to buy Tesco's, saying the share price couldn't go any lower and the company had great potential for a turn around.

Now we have the accounting errors, overstated sales and understated costs. If it was one of these we may be inclined to think it was an accident. But the massaging of both figures suggest fraud. The 4 people in charge of the UK area have all been sacked. An independent inquiry by Deloittes  has been launched and the worst may yet to be revealed. Clearly Tesco's are in trouble and the UK team have tried to mask that trend.

Worse still, Tesco's are currently without a Chief Financial Officer and the Chief Executive has only been in the post for a matter of months, after Philip Clarke gave up trying to revive Tesc's fortunes.  Markets hate uncertainty and so it's no surprise that the share price has plummeted by over a third this year. It's also significant that the interim results were finalised just after the previous CFO left. Apparently an outside source spotted the error, no wonder then that key people on the UK board have now been sacked.

Tesco's will have to reinvent itself. It's done that before, but is it now too big to turn around? It's second only to Walmart as the world's largest supermarket chain.

Or are we seeing the beginning of a different way of shopping, where price is everything? Ironically Aldi & Lidi have adopted the very model that made Tesco's a success in the 1950's, pile it high and and sell it cheap. These small businesses have been growing rapidly in recent years. Costs have been cut to the bone, you can't even get a plastic bag from them without paying for it.

The new Chief Executive is going to have his work cut out to turn Tesco's around. It may take several years to find a new model that works. The new CFO is leaving Marks & Sparks early in order to get a grip on Tesco's finances. One thing that he needs to tackle is the aggressive culture within Tesco's that pushes people to take risks. I think it will take a number of years to turn Tesco's around.

For now, I wouldn't be investing in Tesco's, until we hear from Deloittes as to what's been happening.

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Contact Details for Coulsdon Accountants





 

HOW MUCH TAX DO I HAVE TO PAY?

Clients want to know how much tax they have to pay on 31 January.

Most accountants will ask them 'How much profit have you made?'

Of course the client can't answer that question, because it's teh accountant's job to tell him how much profit he's earned in the year.

The real question the client wants to know (but never asks) is 'How much should I put aside each month to pay my tax?'. And there is a simple answer that any client can apply to any business,

For more details, check my contact details below.

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TAX CREDITS RENEWAL

Now is the time of year when Tax Credits have to be renewed. The deadline is 31 July

This year HM Revenue & Customs will know some key information about employees from their RTI Online Filing Payroll system: -

EARNINGS

They know what figures are on your P60. Some forms may even have the amounts filled in, though I haven't seen any with that on yet

But that is nothing compared to the next important piece of information

HOURS WORKED

They will know on average how many hours you worked during the year, because your employer has to tell them this every time an employee starts work.

This is a really important piece of information, because your tax credits are affected if you work less than 30 hours a week.

Self Employed claimants are not affected by the above, but they will check your figures against your tax return that you filed online.

If you haven't worked out your profits yet, don't panic! You can enter provisional amounts and report the final amounts when you file your tax return

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RTI Payroll Providers

About this time of year one has to make a decision about what provider to use for one's payroll. Now that payrolls have to be Real Time Information compliant, finding one that is easy to use is important.

I started off with HMRC's Basic PAYE Tools software: It's easy to download, costs nothing and you can have as many employers on it as you like. I misunderstood a warning notice about Annual Earnings, I though this meant you would only have to run the payroll once a year, but I soon discovered that EPS's - Employer Payment Schedule - were required when no PAYE is due.

However when I did file year end returns, I discovered BPT  not to be very user friendly. I particulary disliked its focus on individual entries. There are no payslips, no Monthly Summary and you have to print off year end P60's individually.

12 Pay is another free payroll software that I used for my larger clients. I discovered that 'free' meant for the first 4 months. After that, no payslips. Which was OK for me, as I still use a spreadsheet that I've refined over the years to produce payslips. It's a bit of a drag having to enter data twice, but I've not seen any other payslip that's as good as mine. I even show Accrued Holidays on it!

Overall 12 Pay is very good. You enter hours and basic salary for each employee on a Month tab, click on the Payslips report and if the payslips look right, file the FPS to HMRC. The Year End proeedure was fairly straight forward, except I couldn't find any P60's to print. The Help Manual said this was on the Employer's form. I had no idea what this meant.  On one of my client's payroll's, a reminder had popped up to print P60's, but nothing appeared on my other clients.

I then discovered you must update the software before going through the year end procedure. This applies to all payroll software. In HMRC's BPT I had a 'P60 form not yet available' message, which popped up at the end of March. It disappeared when I updated the software, though that task wasn't easy. It looked like the software had been updated, but I then discovered there was another way of updating which worked better.  I did this with 12 Pay, but no pop up message appeared until AFTER I'd printed off all the P60's, which in 12 Pay can be done in one operation.

Finally I figured out that 'employer form' meant the employer tab.  And there was a link to the P60's. My one criticism of 12 Pay is that when Help Manuals are written by experts, they forget what it's like for the first time user and don't explain things as clearly as they could.  

I'm now trying out Payroo, another free payroll provider. They make their money by placing adverts on their pages, so it should stay free, unlike 12 Pay. And from what I've seen, it looks like it can cope with fairly demanding payrolls. I also like that it's done via one's Internet Browser, which should let me enlarge any text I find hard to read.

I was a bit put off by their tutorial video though, which sounded like a robot.  Also the terms said I must read all their training manuals and keep myself updated  - or else!. Is Payroo run by Nazis?

I would be very happy to take on any extra payroll clients should anyone require it.

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Managing Drawings


 

How to Manage Drawings

You have a successful business, but you're constantly short of cash in the bank. What's gone wrong? Well the answer may be that you've failed to manage your drawings.

Many business owners have no idea how much they draw from their business. They use their business account to pay their household bills and credit cards. And they draw cash whenever it's needed, which is usually every week. They never find out how much it all comes to until they see their annual accounts, which don't look very nice. How can one take control of one's drawings?

Well the answer is very simple.

First, you have to set up a separate account for your oersonal expenses. This may involve paying bank charges on your business account, but it's worth it.

Next, set up a standing order from your business account to your private account. The amount is not what you spend privately on average, but what you can afford out of your business.

Now you have a fixed sum to spend each month. Don't draw extra amounts when you are short of cash. Instead, you have to learn to budget.

How much spending is essential? What limit should you place on your shopping? How much is my holiday going to cost me? All of these questions arise the moment you limit your monthly drawings.

In short, a fixed monthly sum for drawings focuses the mind. It's as if you were an employee. The key is to make the budget tangible by transferring money into another account.

A  golden rule in accounts is that Drawings must never exceed Net Profit. Banks take a dim view of one's credit worthiness if they do.

So get your accounts in shape by managing your drawings.  

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When will the Great Recession End?

Francois Hollonde, French PM, said '|We're over the worst' this time last year.

Looking back at the Great Depression of the 1930's, one would expect the worst to be over by 2014.  Whilst mistakes were made in tackling the Depression, and there were earlier attempts to jump start the US economy, it wasn't until 1934, 5 years from the Wall Street Crash, that GDP began a sustained climb upwards.

However, economic commentators identify the abolition of the Gold Standard, which prevented governments from inflating the money supply by printing money, as the key event that allowed governments to start vast capital projects.

Just as in the 1930's, everyone started off with trying to balance their budgets (governments rarely succeed in doing this!). But as grow stalls, more are convinced that something needs to be done to stimulate growth, and this requires abandoning austerity policies.

The answer is to print more money. This not only provides money for capital projects, it lower the price of the nations currency, which is just what you need to discourage imports and encourage exports.  Inflation is a problem, but in a depression, orices are usually falling, so a dose of inflation doesn't have too much of a long term effect.  And of course inflation gradually erodes all those huge debts that piled up during the crash.

World leaders won't tell you this of course. Mysteriously, they manage to have massive funds for capital spending, whilst targeting a reduction in the budget deficit. I say targeting, because no government has met it's targets  for 2012, projections are always too optimistic.

So will it be onwards and upwards after 2014? Well, there was a temporary dip in 1937, but as WW2 loomed, governments went all out on preparing for war. This lead to a boom in the GDP and the return of full employment.

Today, the situation in Syria has the potential to start a World War. No wonder Obama is so reluctant to commit himself to helping the Syrian Rebels. It's as if a game of chess is being played out in the Middle East,  rebel pawns attacking Syrian bishops, backed up by Hezbollah rooks and Iranian knights. All capable of taking out the Israeli knight, with the Russian queen threatening to intervene in the distance. Trying to avoid the conflict are the Turkish pawn, French bishops  and the US queen.

So expect a period of recovery as economic policies change, but be ready for the bumps in the road!

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