Hi everybody and welcome to Episode Four of Ascentis TV. I’m John Oddy and I’m joined by Lee Kaznowski in financial mastery, and Mark Overend from our tax department.
So we’re not going to go into massive detail about what’s changed with the government support on CBILS and BBILS and CJRS because it’s information overload at the moment, you can Google it. And there’s 1000s of articles on it. Let’s just focus on some of the oddities that that are. We’re being asked by businesses. Mark, start with you anything on CJRS your side?
Yeah, I suppose couple of the most common questions have been around workers who have either tested positive for the virus or been in contact with someone and therefore been requested to self isolate questions being raised, can they be furloughed? The answer, according to the guidance is a firm No, they can’t be furloughed, unfortunately, in those circumstances, their only entitlement is to statutory sick pay, which the employer is still allowed to reclaim under this temporary relaxation of the rules on reclaiming statutory sick pay. The other oddity in the change that happened in the budget, we’ve been asked, you know, what staff can now be furloughed. The budget was on the third of March, they’ve said that any staff who were on the payroll to the second of March can now be furloughed, but not until the first of May. So you’ve got this gap, you’ve actually got to wait to be able to claim furlough for any new staff, if you needed to furlough them in March or April. You can’t unfortunately, unless they started with you before the 31st of October.
Okay, I have one question around the bit that I kind of look after, which is on government loans, for CBILS and BBILS. And that was about a couple of inquiries about businesses that say have got a 250 grand CBILS, they’re just about to start paying the capital repayments, the interest is kicking in. And they’re asking if they can take out another, CBILS to pay off the old one and get another 12 months. As you can imagine, when I spoke to a couple of the lenders, not the high street bank ones, but the two main providers. They said no, and that that would smell a bit that’s not in the spirit of the support. And I guess what you could do is you could repay your CBILS in full, and then go and apply for another one. But there’s no saying that you’re going to get one and the question could be raised as well as to why you still got your 250 grand in my example, in the bank, if the business really needs the money. So yeah, a couple of times that’s been asked just if you’ve got your money, and you don’t need it, pay it back and avoid the capital repayments the interest that are just about to start, particularly on CBILS, because a lot of them that’s not at the the BBILS rate, the bounce back rate, which is only two and a half percent. Some of you know there tend to be normal bank borrowing rates and upwards, up to 6, 7, 8 percent. I’ve seen higher, if you don’t need it, pay it back. If you’ve got it, then make good use out of it. Lee, anything changed, we’re just focusing on change here. Anything changed on the deferment side of things.
Nothing changed fundamentally in terms of the rules. But what has developed now is that HMRC have actually opened up this portal from the VAT deferment from March and June last year. So we do have the facility to log on to that and actually start to put in place a payment plan for that VAT liability.
And what around around in financial mastery department how, how well do you think that businesses are in control of the commitments that are going out in q2 and q3 of this year?
Yeah, it’s a strange one. There’s there’s still a little bit of a concern that To be honest, we are still finding that businesses, in some cases like stockpiling the cash still, but there’s not really had any process or thought as to how that cash is going to be spent, what liabilities they’ve got coming up in the future. And really, it’s a concern that they don’t have an idea of what their breakeven point is in terms of their profit and loss account, and also their cash flow. As well as the VAT deferment, we’re going to start to see in the next six months, eight to 12 months, the CBILS, liabilities are going to fall due you have bounce back loans, they’re all going to fall due. So we’ve been in this period of building up the cash and I think we’re going to see quite a decrease in cash reserves going forward for businesses is having a plan as to how we’re going to manage that really,
yeah, and if there’s no substantial change in the business, all they’re going to do is actually use the CBILS money that they’ve got to actually repay the loan, it doesn’t make anysense. And not all businesses are in that luxurious position of still having the cash Some actually have got none left, but they haven’t got an appreciation of what that breakeven point is – the amount of money they’ve got to get in just to pay their overheads off and survive. And that really reflects on how business owners know their businesses inside out when it comes down to their customers and their product and their team and that kind of thing. But they’ve got a bit of a blind spot on the understanding of how their business works financially, and the reporting in particular on profitability, liquidity, gearing and growth. So thanks for that segway Lee. Because that leads us straight into the new feature that we’ve got running, for the foreseeable actually until we’ve really conveyed to our clients, all of the fundamental reports that they should be looking at and how to understand them. And we’re going to start with the profit and loss account. It is starting right at the very beginning spoiler alert, but it will build up to more sophisticated reporting and understanding of a set of financial statements. So this is the first one and it’s on the profit and loss account.
Welcome to back to basics from Ascentis. This is our first episode and it’s on the profit loss account. And this is the profit loss account that I describe to trainees when they start on on the first day so it really is super simple, it’s going to be way too basic for the vast majority of people watching this, but it will be useful for you because it’s going to form the basis of future documents that we look at the performance on so watch anyway. Okay, stick with me. Okay, so the first thing I say to new trainees, when they start is that actually they’ve been doing a profit loss account ever since they had their very first job right back to having a paper round. If you imagine driving home, in your car before you started your business last day at work, you’ve got your pay packet. And you do in a little mini profit and loss account in your head as to how well you’ve done that month, or how are you going to do in the following month. Because a profit loss account is simply a summary of the income less expenditure in a certain given period with that wage packet was a month and for businesses, we do monthly management accounts. And you will do the financial statements, it’s just that the descriptions are slightly different to a business in your personal life, your profit loss account. First of all, you had your take home pay that was your income. And then you had your overheads, all selfish stuff, buying clothes, beer, car running expenses, board and lodge, and the object of course, is that you have an excess of income over expenditure. So you got your head above water here, in a business, we just call that profit or loss. So to try and set that in a more businesslike way, we’ll make the figures a bit bigger. And we will get rid of the personal descriptions, in true Blue Peter style here’s one I made earlier there are the typical business descriptions got an extra line up here. cost of sales, I’ll explain that in a moment. But the description of the income, obviously sales, turnover quite often. And in your expenses, these are overheads and it’s the typical business related ones rent and rate heat and light repairs and yields and my particular favourite accountancy. And the reason that we divide the costs up between those that appear in what are called cost of sales and those that are down in overhead is because they behave differently. So cost of sales is deducted from sales to produce the gross profit. So you have two profits amount figures in a in a profit and loss account. One is the gross profit, so that’s direct sales, less direct variable costs equal the gross profit, and then you’ve got your overheads which tend to be fixed or semi variable. Let’s try and depict that here. So let’s say that we add 500,000 pounds worth of cost of sales, that would give us a gross profit of 1.5 million. And therefore, we would have a slight adjustment there a operating profit, we’ll come on to the different types of profit later with profit before tax profit after tax EBITDA, I’m going to take you through all of those in future episodes. So we’ll get down to our operating profits. And the best way to try and understand how the sales less cost of sales equals gross profit works, is actually just to apply a little simple example that I always give to trainees. And that’s to pretend, bit of a silly example, that this business sells cans of beans. So every can of beans, I’m going to do a unit one here to demonstrate this, okay. So I sell one kind of beans for say, two pounds, and the label, the tin and the beans cost me say 50p, I therefore make a gross profit
of one pound 50. Therefore, it doesn’t matter if I sell one tin of beans, or if I sell a million tins of beans, because every sale requires a label, a tin and the contents. If I sell one or a million, the relationship between the gross profit and the sales should be constant. And that’s what the gross profit percentage is. The two KPIs we’re going to do today, a gross profit percentage and breakeven because they’re related. And I’ll show you how in a moment. So we measure the relationship between the gross profit and the sales. And we call that the gross profit percentage. Easy peasy, you just divide gross profit by the sales, and it gives you a GP percentage. And again, I’m labouring the point but the relationship should be constant regardless of the volume of sales that you’ve got. That’s why dividding the costs of according to the way that they they behave is essential for measuring and controlling the financial performance of the business. By example, we know that the one figure that we do have a fairly good grasp of is the volume through our marketing department competitive analysis and what have you we we can generally predict what the volume of sales is going to be. Now if we can do that we therefore know what the gross profits going to be because the direct costs are linear. Now, what we can then do is we know what the gross profit percentage is and we know what our overheads are, we can then calculate the second KPI breakeven point, because what we need to be able to calculate is the volume of turnover required to pay off the overhead. So I need what level of sales will generate 500,000 pounds worth of gross profit, just to pay these off. Again, this is real simple maths. All you do is you take the overheads, and you divide them by your GP percentage, and that will gross up the overheads to the volume that you need. In my example, here, look 667,000 pounds is if you take 500 grand and gross up by 75%. Of course then applied at my gross profit percentage, I can ignore the cost and just times it by the GP percentage, that gives me 500,000 pounds worth of gross profit. My overheads are 500,000 pounds, and hey presto. We breakeven. Okay, so we’ve got our GP percentage KPI calculated, and we’ve got our breakeven points as a result.
Okay, so next feature, in Ascentis TV, we’re going to jump straight into tax tips with Mark Overend.
Okay, so now I’m going to talk about the changes announced in the recent budget. First of all, we should talk about what didn’t change in the budget, there was plenty of rumour leading up to the Chancellor’s announcements. And those centred around capital gains tax, there was a lot of talk about capital gains tax rates being aligned with income tax rates. That hasn’t happened and there’s been no changes to capital gains tax rates at all. There was the usual rumours circulating about restrictions to the amounts that people can put into the pensions and the pensions allowance. No changes materialised on that front. And there were some rumours circulating about changes being made to inheritance. tax. But again, nothing changed on that front. So moving on to what did change, the first change that was announced related to corporation tax. At the moment, every business pays 19% corporation tax regardless of its size. But from the first of April 2023, corporation tax rates will be increased to 25%. For any business making profits in excess of 250,000 pounds. small companies will be defined as those making profits of less than 50,000 pounds, and they will continue to pay corporation tax at 19%. And for any business whose profits fall within the two bands between 50 and 250,000 pounds, they will pay corporation tax at 25%. But that will then be reduced down by what’s called marginal relief, which will create effectively a hybrid corporation tax rate dependent on where your profits fall between 50 and 250,000 pounds. Now, one of the big questions that we’ve been asked, coming out of that change is by small business owners, should I continue to pay myself a small salary and dividends, or should I look to pay myself a full salary through the payroll at the moment, the structure of paying yourself 732 pounds a month through the payroll and then paying the rest of your remuneratiom as dividends is very tax efficient compared to paying yourself a salary. And that will actually continue to be the case and even once, the full rate of corporation tax applies 25%. The benefit to a small business owner of paying themselves that way will be reduced compared to how it is now. But it will still be the most tax efficient way of extracting profits from a company. Now, the next thing that changed is that a new super capital allowances regime was introduced. Again, this applies from the first of April 2021 and runs through until 31st Of March 2023. For those not familiar with the terminology, capital allowances allow companies and businesses to get a tax deduction on items of expenditure that go to the balance sheet rather than to the profit and loss account. Typically, that will be items of plant machinery, vans and vehicles, cars, and computer equipment and perhaps additions to property such as you know, leasehold improvements that you might make to your premises. Now, at the moment, you can often as a company claim 100% relief on the cost of buying these assets in the year that you buy them. There’s various different complex rules that I won’t go into now. But from the first of April 2021, rather than getting 100% of the costs, you’ll actually be able to get 130% of the cost against your profits for corporation tax. Now, as you’d expect, there are some restrictions and limitations as to who qualifies and what qualifies for this super allowance. First thing to note is that it is only available to limited companies. It’s not available to unincorporated businesses, partnerships or sole traders. There’s a specific exclusion for landlords. So landlords deciding to do any work to any of their properties won’t be able to, claim under this regime. And in terms of items that you buying, they must be brand new. So they can’t be secondhand, they can’t be purchased from somewhere else, they must be brand new to your business. And they must fall within what’s called the general pool capital allowances. Now, the general pool is where the vast majority of things that you would buy go. And so that includes machinery if you’re a manufacturing business, any other items that you might use within your business to produce whatever it is that you sell. It includes computer equipment if you’re furnishing out your offices, and includes vans, but it doesn’t include cars, and so cars specifically are excluded from this allowance.
The next thing to talk about is an extension to the loss carry back rules. Now, with everything that’s been going on over the last 12 months, it’s understandable that a lot of companies are likely to have made losses in this current year, perhaps in the last accounting year. And perhaps will continue to make losses in future years as we come out of the restrictions and lock down measures. The current tax rules allow a company to carry back a loss from an accounting period to the previous 12 months. But new rules that will apply from first of April 2020 to 31st Of March 2022 mean that losses that arise in those accounting periods that end within those date ranges can actually be carried back for three years, which should allow companies to access periods where perhaps they were profitable before the COVID restrictions kicked in. There’s a little caveat as well, that there’s an order in which the losses must be offset. And that is that the losses must be set off against profits of the most recent year first, when you’re carrying them back. So you don’t get to pick and choose which accounting year you assign your losses to, they must be done in a specific order. Those are the main announcements from the Chancellor’s recent budget.
So Mark 25% tax rate starting in two years time, and the delay is Rishi Sunak’s way of conveying I’m not going to hinder business now I’m going to help them especially along with the capital allowances, two years time, I mean, on the positive side, it gives businesses a break, but a cynic might say that it gives him two years to reverse the decision and claim the glory for cutting tax again, which would coincidentally be just before the next election. Let’s wait and see.
So moving away from Coronavirus advice and continuing with this proactive approach to technology and how that can help your business. One of our other regular features is going to be Tech Talk. And in this episode, John’s done a piece on capturing employee mileage.
Okay, let’s take a quick look at Xero’s own offering for claiming business mileage. And this is an app that’s actually included within the expenses app, you just go into the expenses app and choose a different option in there to record mileage. Got the view here that you’ll see on your phone, and it’s got the standard things that you need to record, but it’s pretty manual. So you’ve got to type your mileage in here, there’s no GPS, you can choose the map as a start and stop destination, it will calculate the mileage for you, you’ve got to manually punch in the rate 45p or the extra 5p for passengers, of course put in there what the purpose of the trip was the date, and you can put it into a separate overhead category. If you want motor expenses or travel expenses if you choose. The good thing about the zero mileage app is that the user can actually do the analysis work on the app when they record the mileage, with trip capture, you’ve got to do that in the desktop later. So they can choose a tracking category they can put into a project and they can assign it to a label and a label is where the mileage will be matched along with other expenses that you’ve incurred on a trip perhaps car parking expenses, hotel expenses, etc. When you save the trip, it will be submitted as an expense and it will appear in your approvers desktop portal. They can drill down into that and get a pretty little map of where you’ve been. In my case that was Northcote Manor that won’t go down particularly well. And they can then view that in the bill and approve it. And the bill just like tripcapture will appear in aged payables. So it lacks the sophistication of tripcapture you haven’t got the ability to our passengers, you can’t do return journeys, you can’t save them as favourites, and there’s no VAT claiming element within it. But it’s fairly straightforward to use and an option for you. Okay, this is tripcapture a well established simple, reliable mileage capturing app. So jump into the app on your phone and you’re going to get two choices as how to record your mileage. First one is the GPS tracking simple start and stop and it’ll record the journey for you. Or you can punch the details in yourself. And here’s an example of a trip that I took up to Northcote Manor, lovely restaurant, if you get the chance, took three mates with me bit of a shindig don’t tell the wife about that one, and it’s a return journey. Once I save the journey, I can go into my desktop portal to review this trip along with all of the other ones in the period and I can edit the trips if I want. Once I publish that to Xero, it will appear in Xero as a draft bill ready for my line manager to approve. And once it’s approved, it’ll go into aged payables with all of the supplier bills. Four great example. advantages that Tripcapture house over Xero. First of all, you can add passengers as an extra five p per mile for each one of those. Secondly, I can record them as favourites and therefore I don’t have to punch the details in all over again. And we all know that we carry out pretty much the same business trips over and over again trip to the accountant, trip to the bank trip to Northcote if you get the chance. You can also put return journeys in there not possible in Xero And the great thing about this one as well is that if you put your vehicle engine size and whether it’s petrol or diesel, then trip capture will automatically calculate annd reclaim the VAT on the petrol element. So in future episodes, I’m going to be looking at other employee expenses and how to capture subsistence travel expenses and whether they’re paying for them personally or on their business card, I’m going to give you a couple of options there as well. It’s time now for admin min with Lee.
Hi, everyone lots to get through. So let’s jump straight in. For personal tax, the fifth of April obviously represents the end of the tax year for 2021. That gives rise to a whole host of tax planning opportunities, dividends, capital gains, tax, etc, etc. Make sure you contact one of the team if you’ve got anything to discuss with them. For VAT, we’ve got the usual deadline. So the VAT periods 28th of February, this time they’re due by the seventh of April. We’ve also got the situation now for any VAT that was deferred from 20th of March to 30th of June 2020. That payment is due by the end of this month 31st of March. Alternatively, you can opt into the new scheme, which allows you to make that deferred payment over a number of months, the deadline to opt into that scheme is the 21st of June. For Companies House, we’re now starting to get towards the Twilight of the extended filing deadlines. So you can see the March, April, May, and June year ends can all take advantage of that extension. But the 31st of July 2020 period ends are actually due on the 30th of April. So don’t get caught out by that small anomaly. For payroll, we’ve got the usual payment deadline, the 22nd of March for the fifth of March period ends all the February month ends and also we’re going to start the process for the payroll year end. And there’s a whole host of deadlines that you’re going to need to meet over the next few months for that. Sticking on payroll, we’ve also got the increases to the national minimum wage. These are highlighted on the slide below. Just be very careful of that one. So the wages have changed. It’s now workers for 23 Plus, and also the apprentice rate. So anyone that’s 19 can only be on the apprentice rate for their first year of employment or as the one year anniversary triggers. They will go into the appropriate banding for national minimum wage. Thank you and I’ll see you next time.
Okay, guys, I hope that was useful for you that’s the end of Episode Four almost, next time, hopefully we’ll be in bean counters cafe and in person and I hope we set the tone now for future episodes focusing much more on business advice and the future and really valuable stuff getting away from COVID but for this month, it’s goodbye from me and it’s goodbye from these guys.
See you later.
Bye bye