Is your business registered for VAT? Is your taxable turnover over £85,000? If you answered ‘yes’ to both of those questions then from 1st April 2019 your business needs to comply with the new Making Tax Digital VAT rules.
Filing your VAT return
Businesses must use a system which allows the VAT return information to be reported directly to HMRC. So any returns commencing 1st April 2019 cannot be submitted using your government gateway account.
Also software must be used which communicates with HMRC using an Application Programming Interface (API).
If your software is not compatible, you may be prevented from submitting your VAT return and could face penalties of up to 15% of VAT due.
Digital record keeping
VAT registered taxpayers covered by the Making VAT Digital rules will no longer be able to keep manual records.
For those who use a combination of software and spreadsheets, digital links must be in place by 1st April 2020 to transfer data between each function.
What software should I choose?
At Egan Roberts we are all Xero Certified meaning we are able to give you guidance and advice on how to use Xero to get the best results out of the software.
What accounting records should I keep?
With the changes coming into place putting a stop to manual record keeping, take a minute to read our blog on what accounting records you should be keeping.
If you would like any further information about Making Tax Digital or Xero software please contact us by filling in the form below, call us on 01254 583515 or visit our website www.egan.co.uk
There are various different ways to value a business. Each method will give a different figure from floor to ceiling values. This blog outlines a selection of valuation methods and in what circumstances they are most useful.
This is the value of the net assets of the business and is seen to be a ‘floor’ value. It is quick and easy to calculate however there are some drawbacks.
If your business uses historical costing as opposed to revaluation, historical depreciated costs do not necessarily reflect what the assets are really worth in their market. Also, this method doesn’t take into account the value of any intangible assets such as brands.
This basis is useful for valuing minority shareholdings. The value of one share is calculated as the present value of future dividends being generated by the existing management team.
A cost of equity and estimated growth rate are required for the calculation so it is not as simple as the asset basis. Growth can be estimated based on historical dividend patterns or by calculating profit retention divided by reinvestment.
Cash flow basis
The cash flow method is more useful for majority shareholdings and will give a ‘ceiling’ value. The value calculated is the discounted value of the future free cash flows. Two different methods can be applied; free cash flows or free cash flows to equity.
Free cash flows is the after-tax operating (pre-interest) cash flows less net investments in assets. Whereas free cash flows to equity is the free cash flows less net interest paid.
The discounted value is to calculate what the future cash is worth in today’s terms.
This method creates a market value using a price/earnings (P/E) ratio multiplied by the business’ earnings. Again, this method is useful for valuing majority shareholdings.
However, P/E ratios are only available for quoted companies. If you business is unquoted you would need to use a ‘proxy’ ratio i.e. an industry average or a ratio from a similar business to yours which is quoted. If you choose to do this, the ratio should be discounted as appropriate to reflect the fact that your business does not have the advantages of being on the stock market.
Are you concerned about your exposure to foreign currency risk? This blog discusses the different derivatives available to reduce the risk of adverse currency movements.
This is a bespoke contract to buy or sell foreign currency at a future date but at a fixed exchange rate. A forward contract will eliminate all downside risk and they are fairly easy to obtain.
These contracts are used to limit potential losses however this does also mean that no exchange gain would be made if the currency rates actually moved in your favour.
The other point to note is that everything about a forward contract is fixed being the date, the currency, the amount and the exchange rate. So if you find you no longer require it or want it for a different date, the original contract must still be adhered to.
Money Market Hedging
A money market hedge fixes the cost of a foreign payment by making a deposit in the spot market now; and fixes the revenue from a foreign receipt by borrowing in the spot market now. By depositing or borrowing prior to the payment or receipt, you are essentially fixing your own exchange rate.
This type of hedging may be useful if you are an importer with a cash surplus or an exporter with a cash shortage. However, money market hedges can be quite complicated and time-consuming to control so experience in this area would be advantageous.
Similar to the forward contract where the future date and exchange rate are fixed. However unlike the forward, futures contracts are standardised amounts so you may have to under or over hedge.
A futures contract would require an initial margin deposit and also maintenance margin deposits.
An option is the only derivative that gives you the right but not the obligation meaning if the markets move in your favour and you would have an exchange gain, you can decide not to exercise the option and take advantage of that gain.
This upside potential does come at a cost being a non-refundable premium, payable upfront whether or not you exercise the option.
A currency swap uses interest rates with cash flows in different currencies. So you would make a loan in one currency and receive a loan in another currency.
This type of hedge involves another party as you are ‘swapping’ interest rate payments over the life of the agreement. However you are still liable for the principle amount of debt you have borrowed and are therefore exposed to counterparty risk if the other party does not complete the interest swap payments.
We’ve just celebrated Father’s Day and yet we’re concerned the majority of fathers in the UK are not protecting themselves financially, according to research by Scottish Widows. It has been reported 58% of fathers have no life insurance.
What does this mean?
Fathers are putting their dependents at risk in the event they lose their main source of income.
This is an increase of 5 percentage points since the same survey was conducted in 2017, meaning more households could face financial instability.
Even fewer men (18%) with dependent children had taken out a critical illness policy, but 20% said their household wouldn’t survive financially if they lost their main source of income.
When asked how they would manage in this scenario, 45% said they would have to eat into their savings.
For 17%, these savings would not last any longer than 3 months, while 12% don’t have any savings at all.
“Many fathers don’t consider having insurance as a necessity. The value of protection is to provide long-term peace of mind about having financial security in place for your dependents. Recent changes to bereavement benefits mean it’s more important than ever for fathers to review their financial protection needs and seek advice to make sure their household is covered.” Gary Burchett, protection director at Scottish Widows
The aim of life insurance
Cover is to provide money for people who financially depend on you.
If there is no one who will be financially distressed by your death, life insurance is probably not essential, though there are other reasons why it would be useful.
One simple question:
“if you were in a fatal traffic accident tomorrow, would anyone else be left in the financial mire?”
If the answer is “yes”, then we should discuss your insurance needs, in order to ensure that you and your dependents needs are properly catered for.
We are committed to providing a first class service tailored to the individual needs of each client. To discuss this further, please contact us.
Whether you’ve had your practice for some time or you are just starting out, helping patients and taking on all the admin that comes with running a business by yourself is a big task; it might even feel impossible at times!
One of our specialisms here at Egan Roberts is acting for businesses in the medical profession so you have more time to focus on what you wanted to do in the first place. However, we do need a little bit of help from you!
Separate your finances
It’s really important that you keep your practice and personal finances separate by having a business bank account.
With Making Tax Digital coming into force soon, you should also consider investing in compliant software now. Read more on those here. We are all Xero Certified Advisors at Egan Roberts but have experience in various different software.
Use your software
Don’t just input invoices and receipts blindly. Use the reports available to have a good idea of how your business is performing; ideally on a monthly basis. We can guide you on the best reports to use and what they mean. If you outsource your bookkeeping, you should still be aware of this.
Why do you need our help?
- We keep up to date with the ever-changing tax laws to ensure you pay the correct amount. You’ll no longer need to worry whether you’ve filled out your tax return correctly!
- We are able to look at the big picture of your business and advise you where you can improve or make savings.
- We can advise you on future plans – whether that be business growth or retirement strategies!
Want to know more about how we can help you and your business? Call us on 01254 583515 or email firstname.lastname@example.org to arrange a free, no obligation meeting with us.
We are looking forward to your speaking with you and helping you with your accountancy and financial needs.