Author Archives: Keith Grover

Why HB supports Ambition 2019

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Taking place at The Spotlight in Hoddesdon, Hertfordshire this November, the Ambition Conference, is designed to inspire local businesses to grow and excel. HB Accountants has been involved with this initiative from the outset and HB’s Keith Grover will be the Chair of the organising committee for the second consecutive year. We asked Keith why he thinks it’s worth the time, sponsorship and effort that he and the team at HB Accountants put in. Here’s what he said:

“This one-day event is important because it specifically benefits local businesses, local people and local charities. It’s designed to boost the performance of your team, company or group. That’s good for jobs, business performance and the local economy.

Ambition Conference Hoddesdon 2019

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Do you avoid these five common mistakes when you’re computing your business profits?

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Avoiding common errors when computing business profits

HMRC produce a range of Toolkits for agents, which highlight errors commonly made in returns so that agents can take steps to avoid them. The business profits toolkit provides guidance on errors that are found in relation to business profits for small and medium-sized businesses. They are helpful to anyone computing taxable business profits.

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How to review your accountancy support

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You compare your suppliers to ensure you’re getting a competitive price and service, but have you thought about reviewing your accountancy support? It may be that you’ve used the same accountant for a long while and they’re most likely giving you the support you need. But it’s always worthwhile conducting a review to make sure they’re reaching your expectations and meeting your current business needs.

But what should you look for? These are the questions we believe you need to ask yourself in order to make an informed assessment.

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We already have Annual Accounts, why do we need Management Accounts?

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Annual Accounts are very familiar to business people. Every year statutory reports which comply to specific accounting standards must be filed with HMRC and Companies House. But what about Management Accounts? There is no legal obligation to generate them. Why then, do so many organisations depend on Management Accounts in running their operations and could you be benefitting from them too?

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How to make better decisions with Management Accounts

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Better business decisions lead to stronger businesses, with higher turnover, lower costs and greater productivity. Business leaders and owners, including those in medium sized, and small fast-growing businesses, use Management Accounts as a tool to provide them with financial performance information. For charities Management Accounts are often vital to provide Trustees with the information they require to provide good governance for the organisation. Could your organisation benefit from regular Management Accounts?

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Top tips to prepare for company year end

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At company year end, it’s time for limited companies to file corporate tax returns with HM Revenue & Customs (HMRC) and provide annual accounts to Companies House. Whilst small and micro companies don’t have to provide full accounts reports to Companies House, they are still required to provide simplified accounts reports as a statutory requirement. Since corporation tax is calculated by HMRC based upon the financial position of your company at year end it’s vital to have everything in order. There are steps you can take to make this process as smooth as possible. At HB Accountants, we can provide as much or as little support as you need at year end. Here are our top tips to prepare for company year end.

HB Accountants Top Tips for year end accounts

 

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Does my organisation need an audit?

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Businesses and charities must audit their accounts when they have grown above a certain size. The smallest organisations are exempt from this legal requirement. There are also circumstances when you may need or want an audit regardless of the scale of your operations. If you are in any doubt as to whether you need to conduct an audit or not, just contact HB Accountants and we can talk you through the regulations.

 

Exactly what is an audit?

An audit is the systematic examination of an organisation’s accounting records, as well as the physical inspection of its assets. When performed by a qualified accountant, such as HB Accountants, it enables us to verify whether the financial statements have been prepared in line with relevant legislation and accounting standards, and importantly whether they provide a true and fair view of the organisation’s financial position.

When to book an audit – size threshold

When a private limited company hits two of these thresholds, in two out of three years, it’s time to book an audit.

  • annual turnover £10.2m
  • assets worth £5.1m
  • number of employees 50 on average

 

When a charity hits either one of these thresholds it’s time to book an audit.

  • gross annual income above £1m or
  • gross assets of above £3.26m and a gross annual income above £250,000.

 

Where a charity’s income is from £25,000 to £1m, external scrutiny in the form of an independent examination is still required by the Charities Commission. In addition, many charities require regular audits regardless of the size of the organisation, as set out in their constitution or legal instructions from donors or trustees.

Other reasons to book an audit

There are further reasons why organisations must or should complete an audit.

Regulated finance or legal industry sector firm

If you operate a regulated business, then there’s often a legal requirement that you undertake audits. For example, if your run a financial services business, friendly society or legal practice. These organisations operate in a position of trust with customers, and a regular financial audit provides much-needed assurance as well as compliance with the regulations.

 

Subsidiary of a company

If your parent company is legally required to audit its financial statements, then this extends to any subsidiary companies, even if they are individually below the legal threshold size unless the subsidiary exemption criteria has been met.

 

Shareholder makes a section 476 request

Under the Companies Act 2006, section 476, a shareholder can give notice that an audit is required. To be able to do this the shareholder must have at least a 10% stake in a class of the company’s shares or if there are no shares they must represent 10% of the members of the company.

 

Bank or lender audit requirement

In certain circumstances your bank or another lender may need the added assurance of an audit to assess your current financial position, and make decisions about the services it offers, such as a business loan.

 

Preparing for sale of business

It may be advantageous to audit your financial statements when you plan to sell your business to maximise the pay-out shareholders receive and to get the best possible terms.

 

Preference and good practice

Even when an organisation is not compelled to have an auditing regime due to legal regulations, many choose to have regular audits to provide stakeholders with complete confidence in their financial reports.

 

Audit exemptions

Some organisations are exempt from having full audits.

 

Small businesses

Small businesses may be exempt, provided they aren’t required to audit accounts due to being a charity or other regulated business. To be exempt as a small business, at least two of these figures for this year and last year must be below this size threshold:

 

  • Turnover below £10.2 million
  • Total assets below 5.1 million
  • Number of employees below 50

 

Subsidiary exemption

A subsidiary of a larger group may be exempt if the group meets certain criteria and the parent company gives a guarantee of all outstanding liabilities at the end of the financial year.

 

Charity exemption

Charities with a gross income of less than £1m can choose to opt out of a full audit provided that gross assets do not exceed £3.26m and gross income does not exceed £250,000 and provided their constitution does not demand an annual audit. Although if turnover exceeds £25,000 they will still need some form of independent examination.

 

It’s easy to be more audit savvy

These are broad guidelines about which organisations must audit their accounting records. If it’s obvious that you need an audit, then get in touch and we can explain the benefits of our audit service. If it’s not obvious whether you need an audit, then do talk to us to discuss your organisation’s circumstances. We can help you to identify if an audit is a legal requirement, or if it simply makes good sense, or if an audit is not required at all. We are always ready to answer questions and provide advice. Just call 01992 444466 or email directors@hbaccountants.co.uk

Gross Profit Vs Net Profit

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If you are a business owner, then knowing what your gross and net profits are will be vital to your business. Whilst net profit shows how much money you made overall, knowing what your gross profits are in relations to them can help you form a better business strategy.

In a nutshell, gross profits are your turnover, minus the costs of the goods sold. This includes products, materials, shipping costs etc.

Your net profit is your gross profit minus all the other costs associated with running your business, such as salaries, rent, taxes, insurance, utilities etc.

Knowing what your net profit is at any given time will give you an indication of how much money your company has to reinvest in the business or distribute to shareholders… or alternatively how much you need to pull your socks up!

How to use net and gross to help your business succeed

The net profit alone doesn’t necessarily show the truth of how well your company is doing, and that’s where knowing what your gross profits are coming in handy. You may, for instance, have moved to larger premises or have had a recruitment drive for staff to handle an anticipated rise in work, in which case your net profits will have taken a hit. However, if your gross profits are good, you can attribute the downturn in net profits to the expenses incurred in the move and be confident that you’re still on the right track in business terms. Alternatively, high gross profits and low net profits will tell you that even though your core business is strong, you need to investigate where you’re spending the excess money enabling you to do something about it.  

We find that, as a general rule of thumb, if you are looking after your overheads properly, the net profit should take care of itself. There’s a great phrase, “turnover is vanity, profit is sanity but cash is reality”, which means you need to get your profit right before taking care of your working capital.

If you are looking for a Hertfordshire accountant, please contact us to find out more about the services we offer.

Some Relief for Furnished Holiday Lets

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For several years now the lack of availability of Business Property Relief (‘BPR’) for furnished holiday lets (‘FHLs’) has been well known and established through cases such as Pawson, Green and Ross. The courts in these cases ruled that the holiday lets were too much of a passive investment to qualify as a business, even though the owners were providing varying degrees of service it was often held to be no more than would be expected from self-catering (i.e. investment) properties. The boundary between a mere investment and an active business (not “trade”, the legislation says “business”!) is a hard one to cross with the level of other services provided to guests needing to be more akin to a hotel than a self-catering holiday let.

The loss of BPR can be a major blow to an estate. The 100% relief against inheritance tax afforded by BPR can be very valuable, hence why HMRC will be vigorous in their investigations into such a claim. For income tax and CGT purposes however there is usually no argument from HMRC. If the let is furnished, available for let for 210 days a year and let out for 105 days with no long term lets then as far as CGT is concerned the various trading reliefs are available. For income tax purposes too, if those criteria are met then the income is classed as trading thus allowing the owner to claim capital allowances. Such income is also qualifying income for pension purposes allowing for greater retirement planning opportunities. The loss of BPR for the estate after all those lifetime benefits can be most unfortunate.

However, an estate recently succeeded in obtaining the coveted BPR for a holiday let business. The executors of Mrs Grace Joyce Graham claimed the relief for holiday flats on the Isles of Scilly. Smelling blood HMRC contested the claim but the First-Tier tribunal dismissed HMRC’s challenge. In this instance the amount of work the deceased and her daughter put into the business (up to 200 hours per week between them at busy periods) and the level of extra services available to the guests were more akin to a hotel to anything else. New guests were given personal tours of the property and the level of personal attention was such that several TripAdvisor comments highlighted it was this personal input and hospitality which made their holiday special. In addition to the 4 flats on offer, there was: a swimming pool, a croquet lawn, a prize-winning garden (from which the guests could help themselves to herbs), a games room with a snooker table, table tennis, board games and videos; there was a sauna, the laundry room and a BBQ. Each flat was fully furnished and had its own kitchen and dining/living area. Basic foods were provided, flowers were delivered into the flats for new guests along with home-made marmalade (and wine or champagne for special occasions). Golf buggies and bicycles were available to borrow, the guest lounge contained books, an open fire and leaflets on local attractions.

The court pointed out that “it will only be the exceptional letting business which falls on the non-investment side of the line” – making clear that this finding did not alter the recent hard-line taken by the courts. But in this particular instance, Mrs Graham’s personal attentiveness in her lifetime pushed her estate’s BPR claim over that line:

“The pool, the sauna, the bikes, and in particular the personal care lavished upon guests distinguished it from other “normal” actively managed holiday letting businesses; and the services provided in the package more than balanced the mere provision of a place to stay. An intelligent businessman would in our view regard it as more like a family run hotel than a second home let out in the holidays”.