Articles from Centre Stage Accountants

Buy or lease to equip your business?

Should you buy or lease the major items of equipment and vehicles yourequire for your business? There are pros & cons to both. This year’s reform of capital allowances, which give tax relief for equipment purchases, may alter your decision.

From April 2008, you can claim immediate tax relief on up to £50,000 a year that your business spends on buying any type of plant and machinery, including many fixtures in buildings and vans, though not motor cars.

The £50,000 annual investment allowance (AIA) is proportionately reduced if your accounting period started before April 2008. For example, a company with an accounting year starting on 1 January can claim the AIA on up to £37,500 in 2008 (9/12 x £50,000). Purchases in the two years before April 2008 qualify for the old first-year allowances of 50% for a small business and 40% if your business is medium-sized.

The AIA favours the purchase of equipment. However, if you do spend more than the AIA, the excess will only qualify for writing down allowances at 20%, instead of 25% before April 2008. A hybrid rate of writing down allowance will be applied for accounting periods straddling 1 April 2008. 20% is also the current rate for most cars. Tax relief for purchases will therefore take longer.

If you lease, you cannot normally claim capital allowances unless the agreement is effectively a hire purchase contract. But the lease rentals are an allowable expense, though relief is restricted on leasing payments for a car costing more than £12,000.

Of course, tax is not the only consideration. If you buy outright, you will usually pay less overall than on a leasing agreement, but youmay need to borrow the money to make the purchase, which could be costly in itself. Leasing could tie you into long-term agreements that might be difficult to terminate, but buying could leave you with equipment that you might not need in the future.

If you are planning to buy or lease major equipment, please talk to us, and let us help you understand the costs

Unfair Dismissal - Don't Get It Wrong

You may have had to cope with a whole host of personnel-related issues over the years, and almost certainly played it by the book. However, even experienced employers can get it wrong. Here is a case in point.

Pushing the boundaries

An employee's performance and attitude were deteriorating and so she was spoken to by her manager. Six months prior she had suffered a miscarriage and although distressed had returned to work and appeared her usual self. Another 'pull your socks up' chat ensued three days prior to her announcing she was pregnant again.

Now, not only was her work rate particularly slow, but her punctuality was wanting.
She worked part time on Friday, Saturday & Sunday but booked all her ante-natal appointments for Fridays. This was apparently the only time her midwife was available. She would arrive at work at 9am, and then leave at 10am for her appointment and not return until lunch. At the time there were eight people working at various times, so her absence at such short notice caused significant issues. Furthermore, when she had time off due to sickness, she failed to produce a sick note, maintaining that her doctor refused to until she had recovered!

She was written to by her employer on numerous occasions but never responded and even when disciplined failed to react.

After yet another bout of sickness, she was asked to attend a 'return-to-work' meeting. This was not a disciplinary hearing and was never described as such. When questioned by her boss regarding her behaviour, she simply sat smirking and produced a letter for her manager to read. Although reluctant her boss finally agreed and left the office to read this letter. On returning she told her employee that she did not appreciate her accusatory tone and then sacked her!

In the letter the employee made several allegations professing that she had been discriminated against because of her sex and pregnancy. Her boss had been pushed to the limit and on returning to the meeting was unable to think rationally. But by dismissing her without following a procedure, the damage had already been done.

The employee as expected claimed unfair dismissal and discrimination. With regard to the unfair dismissal the employer was guilty as charged and acknowledged this. However they strongly denied any discrimination or victimisation. Sadly, they were confronted with a real issue here as they had stated that they never intended to dismiss her at the meeting and it was the allegations towards them that pushed the boss to do so. The tribunal considered the letter to be the reason for her dismissal and she won.

TIP: This above case proves how vital it is to not allow emotions to impede decision making. Always stick to the correct procedures, even if it pains you to do so!

Beating recession and the credit crunch

We seem to be coming to a break point in a long, sustained period of growth in the UK. It's as if someone had pushed a button and notched up the incline on the running machine - all of a sudden more effort is required to sustain forward momentum. We need to get financially fitter!

Part of this fitness regime needs to be a fresh look at the tax and VAT strategies that are available to slow down payments to the taxman.

It's beyond the scope of this article to give detailed advice, as each business will have different needs. What we have done is outline in general terms some of the strategies that are available - if we have not reviewed your tax affairs recently do call and make an appointment.

VAT

The legislation that sets out the way in which you calculate the VAT to pay each quarter offers a number of opportunities to ease cash flow.

. Cash Accounting - if your VATable turnover is under £1.35m and you are not using cash accounting, now would be a good time to switch. A few companies will not benefit, especially if you are paid for the goods or services you sell at point of sale, a retailer for instance. If you sell goods on credit and you are usually owed more than you owe (to suppliers etc) cash accounting would probably reduce at least the first payment you make when you join the scheme. Essentially you only pay VAT when it is collected from customers. Outputs and inputs are based on monies received and paid, rather than amounts invoiced.

. Flat rate scheme - another of the special schemes offered to small businesses is the flat rate scheme. If your turnover is under £150,000 and you have small amounts of input tax to reclaim each month, this scheme may increase your retained profits. Each business sector suffers a different rate of VAT so the only way to see if this scheme would be beneficial is to crunch the numbers.
Even if you don't qualify for a special scheme, don't forget to claim bad debt relief. Any debt that is over 6 months old qualifies as a bad debt and you can reclaim the output tax you will have paid. (Note: the flip side also applies. If you have invoices unpaid from your suppliers more than 6 months old, you should repay any input tax you have claimed!)

It is also worth filing your VAT return online. You are given an extra 7 days to file the return and if you pay your VAT by direct debit the payment will not appear on your bank account for a further three days.

Making losses, or less profit.

One of the more obvious effects of recession is a downward trend in profit creation, and if your business is badly affected, making losses. The notes that follow set out a few ideas for capitalising on the tax planning opportunities this affords.

. Self assessment payments on account - if your current years profit is likely to be lower than the previous year, you may be able to elect to reduce the payments on account for the current year. The claim should be based on realistic trading results.

. Losses - if your business is currently making losses it may be possible to carry these losses back to previous years, when you may have paid significant tax. Any tax overpaid as a result can be reclaimed.

. Change of accounting date - in some circumstances it may be beneficial to either extend or reduce a company's accounting period end to make use of a fall off in profitability. There are limitations to this type of planning so careful consideration of the facts is required.

Need more time to pay

Generally speaking if you are late paying your tax or VAT, interest and in some cases penalties will be applied. If you can justify the reasons for your inability to pay it is usually advisable to contact HMRC and agree a payment timetable that your cash flow can afford. Burying your head in the sand is not a useful strategy!

If your business is starting to feel the pinch, pressure on profits and cash flow, do keep in touch. As mentioned at the beginning of this article each business is unique and there are a number of strategies we have not had the space to showcase in this article. Please call if you need help.