If you have any questions about this episode or if you have any suggestions for future episodes please contact us
Hi everybody and welcome to the Christmas edition of Ascentis TV, where you can see no expense has been spared! I’m joined as usual by Mark Overend from tax, hello and Lee Kaznowski from financial mastery, morning. Today we’re going to be covering an update on the government support and we’re going to be touching on financial mastery and its importance as well. So, this leads us into the government support.
I’m going to do the charts – and in reverse order as is tradition number six the future fund, they have given out 900 million, at number five the large CBILS that’s a lot of large business CBILS 4.7 billion, number four the self-employed income scheme, 14.5 billion, number three CBILS 18.5 billion and it’s a non-mover at number two which is the BBILS that’s the 50 grand job, 42.2 billion, and stuck at number one still is the JRS 43 billion.
So, Mark straight into that what’s going on with JRS because it seems to be just getting more and more complicated? It is, yes it has been extended further since we last recorded, so now the JRS scheme runs until 31st of March 2021 and we are thankfully going to keep the same rules until then as far as we know. So, we are still on the rules that existed back in August where you can claim for 80 percent of your employees wages. It’s capped at two and a half thousand pounds per month per employee and you now must pay your employers national insurance and your employer’s pension contributions, you can’t claim for those.
The scheme extension means that there have been some changes in terms of who is eligible, so anybody who was on your payroll now prior to 31st of October can be furloughed from any point from the first of November, so that’s brought a lot of people, a lot of staff into the scheme that were previously excluded prior to that.
That was march wasn’t it? Yes, so you had to be originally on the payroll prior to 19th of March 2020 in order to qualify for all the previous ones, but from 1st November they brought that forward, so a lot of new employees can now qualify for furlough.
Is this for businesses that even started after March? You could have started a new business when the lockdowns eased around July time and you now qualify for the new scheme? That’s right, yes as long as you’ve made us an RTI submission prior to 31st of October 2020 then any staff included in that RTI submission can be furloughed from the first of November. Okay so that brings a question about reference pay then because previously it was the pay before 29th of march or whatever day it was, so what’s the new reference period and pay? Well yes you’re right, so obviously there’s a lot of staff that can now be furloughed who don’t have reference pay prior to the 19th of March which was the old rules, so there are now two sets of rules for reference pay, basically if you were an employee employed prior to 19th of March and you’ve previously been furloughed or even if you haven’t previously been furloughed the old rules still apply, so your reference pay is still what you were paid back in February 2020. Yeah, if you’ve come onto the payroll since that point, so you’re a new employee since 19th of March then your reference pay is what you were paid in October, if you were paid during October and you were salaried or if you’re on a variable pay zero hours contract, hourly paid staff, then it’s an average based on what you’ve earned since you started, up to the 31st of October. Right now that does create a bit of an anomaly for anyone who’s had a pay rise that is excluded. If you were employed prior to 19th March and also for the hourly paid staff, obviously we had a national minimum wage increase on the first of April.
Does that count? Not if you were included prior to 19th of March. So if you were on the old national minimum wage rate then you still are for furlough pay. What about if you joined after the national minimum wage went up? That’s where the anomaly arises, you qualify on the new national minimum wage rates. If they’ve been paid through furlough and they’ve both been fully furloughed for November then yes people who were employed prior to 19th of march compared to those after will have a difference. I know from seeing the scripts for this that the rules are horribly complicated and beyond what would be useful to be explained today. Where should people go if they want that more granular level of detail? Well HMRC have updated their online JRS calculator, it is very good and if you put the correct data in you’ll get the correct answer out more often than not. If you google JRS calculator the link for HMRC will come up, I recommend putting your
calculations through that, you can actually print and save it. The calculator has developed over the months that we’ve been using this scheme, the calculator will now, once you’ve got a result it will tell you how it’s arrived at that result. You can print and save that because if you get a HMRC inquiry in the future you can then use it as evidence that you can rely on, that evidence to say this is how I got to my reference pay and the calculated amount.
Okay do we need any more detail or is that about the right level where people really should head off to the Inland Revenue website? Yes, or get in touch with us, any more detail and I think people are going to turn this episode off!
I guess there’s one other thing to raise about the JRS scheme, in the last episode we were talking about the JRS grant that’s still available so that’s not available now. The bonus? Yes, the thousand pounds that was a bonus, its been scrapped. They scrapped it the day after we recorded the last episode! I think they lost a lot of money on that. This was going to be if you still had your staff at the 31st of January then you’re going to get a thousand pounds per employee in February. That’s not happening anymore that’s been completely scrapped and it’s been done in a way that I don’t think it’s going to be resurrected. Lee, what’s happening on the deferment front Has there been any changes basically or is it pretty much as was? No real changes no, A little bit more information in terms of the VAT development, so they started to release some of the instructions, that’s going to happen, we’ve mentioned previously that it’s going to be an opt-in situation, to do that you’re going to need a government gateway. Your own government gateway so if we file people’s VAT returns then those clients are going to need to actually log on to HMRC VAT and register their own gateway. We can’t do it, I don’t think we can do it at the moment, no they’ve said that you’ll need a government gateway to do that. So you’ll be able to log on and opt-in for the VAT deferment. you need to make sure all your VAT returns are up to date, so not payments but the actual returns, so you need to know how much you’re deferring obviously. It looks likely they’re going to give you the option to defer it over two to eleven months? So you can pick between two or eleven months and two months or eleven months well between two or eleven so any two, three, four, five, six yeah, and it looks like you’re going to have to pay by direct debit, so one of the criteria is you’re going to set this up by direct debit. Yeah you’d expect that I guess. Quite often with time to pay arrangements. They have mentioned that you can have the VAT deferment and the time to pay in place still, so if you’ve got previous time to pay it’s not going to exclude you from this. Any other more updates on deferments? No I think that’s going to be enough for now. Well we’ll return to those if there are any changes.
So we’re also going to talk about the local government grants. In the last episode we covered the grants that were available in November, similar to the local government grants that were made available to us back in March/April time, and the rules around the November grants were based on the local restriction support grants scheme rules that were introduced for any businesses that were subject to tier 2 and tier 3 lockdowns. We are back into those rules now as of the 2nd of December when we came out of our lockdown. The rules are quite detailed and I’m just going to give you a basic overview. There are three types of grants that are available there’s the open scheme, the closed scheme and the ARG scheme, the additional restrictions grants. To qualify you must have a product or service that is required to be provided in person and on-premises, so that’s basically why all pubs and restaurants have to close and there are a number of specific exclusions first of all if you do not need to provide in-person and on-premise goods and services like accountants and solicitors, which they specifically mentioned, you are excluded, well you’re also excluded if you close by choice, if you’ve been closed since March i.e since the original lockdown, and you’ve not reopened, if you are in any kind of insolvency arrangement, if you breach the state aid rules, and also, this time if you are not closed consecutively for 14 days, you’ve got these rolling 14 day cycles that you need to be closed for. The grants are the same as before so if you’ve got rateable value up to fifteen thousand pounds then it’s £1,334 and then it goes right up to £3,000 per month. If you’ve got a ratable value of £51,000 pounds or more that’s the close scheme. The open scheme the eligibility of this is going to be assessed locally and so each one of your local councils will have their own application process, so it’s going to be much more of a narrative description as to why you’re affected and the grants are about two-thirds of the closed scheme grants, so they’re based in the same way, they’re based on the ratable value of fifteen thousand up to fifty-one thousand pounds as before. The third grant that’s available from local government is the additional restrictions grant the ARG grant, is aimed at businesses that are severely affected or even forced to close because of somebody in their supply chain, a good example would be to pick on the pubs again, this would be a brewery that’s forced to close, not directly forced to close but can’t operate because of people further down the supply chain that are forced to close, it also covers people in the events sector and those with non-rateable value, so people for example in serviced offices, if you haven’t already claimed for the November grant then go to your local government website, I did one for my local rugby club in the middle of November, it took me about five minutes to do and it was really easy.
Throughout the summer, in the video content that we did and in the last couple of episodes of Ascentis TV, we have really labored the importance of budgeting for your cash flow, taking consideration of all of the government supports available from the local government grants that we just talked about, to the CBILS and BBILS loans, deferments and so on, a really important part of overall financial mastery. We keep mentioning this term financial mastery so it’s a really good opportunity to try and define that for our clients and for our audience. It’s also one of our main departments here so that helps us convey to anybody that’s listening what financial mastery here means.
Financial mastery basically is absolute control over the financial performance of your business and most importantly, it’s the language of financial mastery so it’s being able to speak to people articulately and confidently and knowledgeably about the performance of your business and you’re speaking to the stakeholders in your business, the stakeholders are people that are potentially going to buy from you, sell to you, work for you and lend to you, and that’s a really important point because a lot of people don’t realise the impact of their financial performance on the external stakeholders, they tend to refer to themselves as just the shareholders, and they’re the only people that have an interest in that business, now it’s more important than ever especially the transparency around credit checking agencies, and how quickly somebody can understand the performance of your business. If they’re making judgments about the performance of your business, you need to be able to speak the same language as them and the excuse of “I don’t understand my financial statements” is not going to wash with these kind of stakeholders and it is a language that you’ve got to speak. Quite often you have people saying when you show them financial statements it’s all greek to me, you must be able to speak the same language as these stakeholders, and the stakeholders themselves are focusing on risk, they’ve got no upside in the business, they’re not shareholders. What can they lose, they’re not going to gain anything, it’s what will they lose if they invest in this company, am I going to get my money back?
One of the most important aspects of financial mastery for any business owner now is monitoring the performance of the business monthly in terms of profitability, liquidity gearing and growth and it’s those middle two, gearing and liquidity, which are the risky ones, that these stakeholders are interested in, and they have to have a really thorough understanding of what they are. In future episodes we’re actually going to take a deep delve into these different area’s profitability, liquidity, gearing and growth, but for now we’re going to focus on the regularity that people get their financial information and what the consequences of not having accurate financial information are. Lee, you look after the Financial Mastery Department how often should people be looking at their finance management accounts? Well at its most fundamental level people should have this information on an annual basis, but that’s just not enough at the moment, so really what they have to do is have all those metrics that we’ve talked about, the annual accounts, they have to have that available to them on a monthly basis. Dipping into the financials, every week, every day in some instances, you can do that now with cloud accounting, the information is dynamic. Every time a transaction happens in the software it automatically goes straight into your management accounts. One of the advantages of having all these automated systems in place is that you know, you put a sales invoice onto your accounting software and it can appear on your insights information straight away. How do we ensure that the data is accurate, we’ve just talked about machines they’re doing quite a bit of the work, they’re not perfect what should businesses have in place to make sure that the data is accurate. What we do for our VFO clients through the virtual finance office the clients we do the bookkeeping for, we have a checklist, it’s straightforward. We call it a BKC a bookkeeping checklist, and it’s just applying these systems and processes that you need in business, you know throughout the whole business. Give me some examples of what’s going to be on that checklist? Really fundamental but relatively straightforward things really – are all the sales invoices on the system, are all the costs allocated to the correct category in the accounting software, and then you know almost just taking a step back and having a look at that balance sheet and making sure everything balances correctly, are there any anomalies, accounts such as net wages, very rarely would they have a debit balance in them you don’t tend to overpay your staff, and just having that peace of mind that, that balance sheet it’s been checked to in some cases third-party verification like bank statements or something straightforward like that. Your monthly management accounts now should be as accurate as the annual accounts really shouldn’t they? Yes.
Okay guys so financial mastery, the language of business all business owners need to speak it, they need to understand the financial statements and those statements need to be accurate and that is based on some kind of checking system, we’ve got what we call a BKC a bookkeeping check checklist and latterly that is in the form of some automated software called Xavier and that should produce at the end, I mean to be fair, your management account should be accurate as a minimum on a weekly basis now. Mark, at the end of the year, well one month before the year end all clients should be getting from their accountants a pre-year-end tax planning meeting. What are the consequences for clients who lack that financial mastery over their business, what sort of problems do you run into and what are the consequences? Well the problems are not providing for corporation tax, or providing an insufficient amount for corporation tax, because whilst the corporation tax is due nine months after your year end it’s a liability that crystallizes in your accounts at your year end date and therefore is included in the accounts. If your financial systems don’t put up a provision in those accounts during the year you’ve been making decisions and drawing funds out based on inaccurate data. Corporation tax missed, it’s the most common one isn’t it, and the consequences they’ve spent the profits on dividends. Most business owners pay themselves in dividends which is a distribution of profits after tax, if you haven’t got the tax in there you might be basing your dividend decisions based on profits before tax, you could therefore have drawnout all your reserves that you need for your corporation tax and over distributed your profits, you can’t declare a dividend if there is insufficient reserves in the accounts to declare it so go to a director’s loan account overdrawn director’s loan account, and that’s got tax consequences and reporting consequences. The directors who’ve drawn that money out either have to pay it back or they need to generate extra profits in the future to declare dividends that then are non-cash dividends, they’re just paying back the loans that they’re taking out. So any other instances apart from dividends, what are the top three apart from dividends that cause you know, misleading management accounts? Things that I’ve seen, you know people putting credit card information into the system the wrong way around, overstating profits that’s just a data entry error, manually importing data and the expense going in as a receipt instead, missing bank accounts from the system, so you create a new reserve account, start putting funds into it or have income streams going into it and you don’t account for it. Modern-day businesses that could be in the form of a PayPal account as well as a normal you know HSBC or another bank account, and sometimes not putting your wages data in, all of our clients we run the wages through Xero, and it automatically posts the journals. If you’re using external software you’ve got to make sure you’re putting your monthly journals in, if you’re just accounting for the cash going out then you might have something on your balance sheet that looks like an enormous debit in your net wages account and that looks wrong and that’s because you’ve not posted your wages journal, and you’ve not got the costs in your profit and loss account, a simple bookkeeping checklist would pick that up. In terms of the review of the overheads to make sure they’re consistent if your wages are missing they’re sat on the balance sheet, you’ve got a problem. We’re going to do a deep delve into each of the aspects of profitability, liquidity, gearing and growth it really expands on financial mastery in future episodes
Okay, just some dates for your diaries this month in no particular order the JRS claims for your furlough grants, they must now be submitted by the 14th of the month, after the month in which you’re claiming for so 14th of December is the cut-off date for any November claims and 14th of January will be cut off for any December claims. For any companies with a March year-end, don’t forget your corporation tax bill is due for payment on the first of January, so probably best to get that scheduled in before Christmas. For any self-assessment clients who haven’t yet sent in their tax return information, we’d love to have that in before Christmas, January is a very busy time for us the. CBILS and BBILS loans the bounce back loans, their application deadlines are currently set to the 31st of January 2021 so applications obviously all the brokers are probably going to be on holiday over Christmas so get those in as soon as you can, if you’re looking to extend any of those loans.
Okay, that’s it for this episode of Ascentis TV, and that’s it for 2020, goodbye 2020. We’ll see you in 2021 if there’s any subjects that you’ve seen throughout any of the three episodes that we’ve done so far this year that you want to talk to any of us one to one all of our contact details are in the foot of this video, but all it remains for us to do is to wish you all a Merry Christmas!