Impact Of Poor Bookkeeping On Business Performance

How incorrect Bookkeeping can diminish the Performance of a Business

Poor bookkeeping is likely to hurt your business in a number of ways regardless of whether the business is profitable or not. Besides the missed opportunities, your business can incur more running expenses or plunge you into a legal situation. Knowledge of bad accounting practices can help you make the right decision in a bid to avoid improper financial record keeping. There are a number of factors which can be impacted on due to ineffective bookkeeping.

Credit Issues

Poor bookkeeping can have negative effects on how one conducts their business. For instance, you may find yourself paying your debts late, leading to higher interest rates, fewer payment terms, loss of credit and interference with your credit score or reports. To avoid all these, your bookkeeper should track all your cash flow as a way of managing your transactions easier for you. Effective reporting and cash management are all part of effective bookkeeping. Speak to your bookkeeper or review your bookkeeping services to ascertain what value the process is adding to the growth of your business.

Lack of Sales and Profits

Poor management of your business can make you lose access to good suppliers and vendors. Consequently, you may start losing sales as well. On top of that, a slowdown to your business may turn away your clients and customers who might end up looking elsewhere to meet their requirements. Other than feedback, customer relationship and effective customer management your financial numbers are a huge indicator of your business performance. Increased churn rate, reduced payments, or an increase in high number of low value customers can tell you a lot about your business and its performance. Determine at the very beginning if all your business needs is a bookkeeper or a hybrid accountant who can help take care of your bookkeeping, accounting and advisory services, as all three are highly interdependent.

Legal Situations

Improper bookkeeping is a recipe for legal problems, especially where unpaid or late filing of your tax returns and inaccurate deductions are involved. Furthermore, lack of enough funds to pay your creditors can culminate into your business being pursued legally, with a legal claim against your company or debt collectors set loose on your business. Should you hire a bookkeeper without enough knowledge pertaining to tax policies, look for an expert in matters to do with tax to lend a hand in planning your yearly accounting procedures, make sure your bookkeeper communicated regularly with the tax accountant. This way, you will be able to have full control of your income, payroll taxes, and sales, as well as deducting expenses correctly.

Missed Opportunities

Chances are, you may end up declining opportunities that can help you expand your business, improve your marketing and reduce debt on the assumption that you don’t have enough money. Take this example; supposing you buy £2000 worth of goods in the month of January, you will not have to settle the payment in the same month if it’s put on your credit card. Should you pay the balance every month, it is obvious that your credit card company will earn £2000 from you in February. Recording £2000 under your expenses in January and £2000 card payment as of February’s expense, your record will indicate that you have a total of £4000 in expenses. In actual sense, you will be having only half the total cost. This shows how important it is to have an eye on your cashflow as well as your accounting to be able to make proper decisions.

Reduced Decision-Making Opportunities

Keeping accurate financial reports allows you to monitor your departments, distribution channels, products and overall performance of your business on a regular basis. Balance sheets, budgets, cash flow statements, ledgers, receivables, payables ageing reports and statements on profits/loss all play a very significant role when it comes to spotting opportunities as well as addressing problems in a timely manner. All these are attributed to accurate bookkeeping as a way of running your business efficiently.

Here are 12 Helpful Tips to Enhance Bookkeeping

  • Personal and Business Expenses

There are changes that the business owner needs to make in regard to sole proprietary business bookkeeping. These changes involve the use of credit cards for either personal or business needs. Such situations are common where personal expenses are recorded in the accounting software. However, this is a common mistake in bookkeeping software, resulting in problems when it comes to categorizing Personal and Business Expenses. To solve such a problem, you will have to open a new bank account and use it for your business expenses.

  • Bank Reconciliation

As modern business income and expenses become digital (using NEFT, PayPal and others), every business owner is required to carry out bank reconciliation of the income, expenses, and other related transaction regularly. This tip is quite helpful in bookkeeping for business owners.

  • Frequent Monitoring of Accounts Receivables from Customers/Clients

There are two categories of sales; the accrual and cash sales. In the case of accrual, business owners need to pay their attention at money receivables from their customers even if it means following them for debt recovery.

  • Shift to Cloud Accounting Software

Shifting to cloud accounting software for your bookkeeping can help you in keeping abreast with real-time updates on your accounts through your web browser or mobile apps.

  • Monitor All Slow-Moving Goods

There’s a need to monitor all the slow-moving goods. This is because the slow-moving inventories may bring some accounting issues, especially in bookkeeping due to expiry or damages. As such business owners have the obligation of accounting their inventories physically and then recording the results in their cloud accounting software.

  • Use Online Banking

It is always a good idea to operate another bank account under your business name. This bank should have the functions for online banking to help you access vital information on transactions in real time.

  • Keep Records of the Petty Cash Expenses

Some business experience problems arising from keeping their petty cash records. This is due to the assumption that petty cash involves a small amount of money but without a proper record, there are risks of fraud. Hence, there’s a need to have accurate records of petty cash as one way of ensuring that your bookkeeping is on the right track.

  • Use Suitable Accrual or Cash Method

The first decision that a company should make is to choose a suitable accounting method. This can be an accrual or cash method. Whichever method you settle on, make sure it works well for you in relation to bookkeeping. Speak to an Accounting Firm or your Accountant, if you do not have one look for an accounting firm nearby or a suitable online accountant, either ways speak to a specialist to figure out the most suitable option for you and why?

  • Avoid Cash Expenses

This tip is helpful especially when it comes to the drawback resulting from cash expenses. These drawbacks include audit trail, lesser documentation for accounting, changes in the overlook of the expenses, and changes in the theft of liquid cash and so on. To overcome such problems, you can use checkbooks, debit or credit cards and any other useful method that can assist you in keeping track of expenses.

  • Grouping Ledgers in the Right Way

Ledger grouping is essential in recording fixed assets, loans, capital accounts, and advances. Once the ledgers are grouped accordingly, it will make bookkeeping easier and effective for your business.

  • Record Sales and Loans

Small companies can acquire funds from sales or from loans. That is why it is necessary to have a record of such funds raised from loans or sales. If you don’t do so, it is likely that someday you may be forced to pay needless income tax. Seek advice from a tax accountant to design the most tax effective methodology for your business.

  • Reminders of Deadlines

Business owners have the responsibility of keeping track of their payment deadlines. These payments can be payrolls, advance tax payment, labour expenses and much more. Therefore, it is important to have a record of reminders of deadlines to avoid the shortage of funds. You can achieve this goal by syncing HMRC’s deadlines with your own business calendar.

An effective bookkeeper working in collaboration with your Accountants and Tax Accountants, or a hybrid Accounting firm which can cover all of these needs without the need to go to separate individuals, can make a huge impact on the performance and growth of your business. A large number of businesses believe bookkeeping to be a data entry process and end up selecting unqualified people to do the work, regretting the decision in the long term. Make sure to setup a strong foundation from the beginning to avoid future growth and performance management problems.

Clear House Accountants are hybrid Accountants in London, our services cater to all your business, accounting, tax, bookkeeping and business advisory needs, in one place. We have in house experts who can cater to the regular compliance requirements for your business, or can design bespoke solutions using our IFIT framework, specific to your business problems. Speak to us to learn more.

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Yesterday
by Clear House Accountants
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2
Business and Finance

How UK Businesses Should Optimize Tax Incentives For Sustainable Growth

Most SME Businesses in the UK are apprehensive when it comes to the topic of taxation. There seems to be a general consensus that the tax rates are unreasonably high and the varying tax bands can make things complicated, but then a vast majority perceives taxes as a necessary evil that the economy cannot survive without.

What is really surprising, however, is the fact that only a few business people in the UK have been strategic and clever to understand the tax system in detail, mostly by utilizing expert tax accountants, at how they can leverage tax relief benefits in their pursuit for growth. Things started to get confusing once again when the uncertainty surrounding Brexit kicked in. Review our Brexit Checklist to prepare your business here.

The Post-Brexit Fever

In the process of strategizing on how they will cope in the post-Brexit economy, UK business owners have realized how important it is to understand the country’s tax system. More than ever before, everyone now wants to know what is in the system for them. Businesses want to know how tax relief works, which expenses are allowable, and every other relevant detail. The government, on the other hand, has moved with speed to counter the looming tax crisis by tweaking the tax system in favor of the SME and mid-market businesses. Surprisingly, though, many businesses are yet to capitalize fully on this inviting development. Why so? Well, because the tax system is too complex for non-experts to comprehend. That’s why our in-house expert tax accountants have taken it upon themselves to break down things for you.

The Aspects of Business Growth that Tax Incentives Can Impact

One of the Big Four Accounting firms in London recently conducted a study on the preparedness of the SME and mid-market businesses to grow in 2019, particularly with respect to tax and Brexit. The firms found out that about 75% of these businesses do not include tax benefits as a key driver in their future growth plans. And even the few who seem to understand how tax relief can aid business growth, they only relate with the job creation and investment aspects of it.

Speaking of job creation and investment, the study revealed that about 94% of businesses are already positioning themselves to benefit in terms of SEIS, EIS, and additional tax relief for employee training. What they fail to understand is that the untapped potential of tax incentives is much more than that. If optimized, it can help in with the core aspects of business growth, including regional development, innovation, and productivity.

The main takeaway point from this survey is that the need for more understanding of tax reliefs and incentives on offer is bigger now than ever. It is clear now that businesses need help in identifying the growth opportunities that lie within the existing tax framework. And even as they struggle to find ways of linking tax incentives to specified business goals, it is evident that the existing knowledge gap is too big for them to bridge on their own. It is always therefore recommended to search for a competitive Accounting firm nearby or for expert Accountants in London, who can help maximize the utility of these tax incentives.

Complexity in the UK Tax Framework

For the study, 1000 SME and mid-market businesses with an annual turnover in excess of 10 million were sampled from different industries across the country. Of these, 87% appreciate that to an unspecified extent, tax incentives ought to be among the key considerations when making business decisions. Only about 27% of them confirmed that they were maximally benefitting from the incentives but still claimed that there is too much complexity in the tax system.

However, higher growth businesses appear to be more prepared to benefit from tax incentives than moderate growth businesses. As a matter of fact, the above figure would shoot from 27% to 75% if the higher growth businesses were to be analyzed independently.

About 820 of the businesses were drawn from the private sector, most of which are resource constrained. Even as they acknowledge that the right incentives are there, SME and mid-market enterprises are counting on the simplification of the tax system in order to make the most out of them. The businesses appreciate the government’s recent attempts to overcome the taxation bottlenecks, but 63% of them still feel that the government hasn’t done enough.

Fast and Moderate Growth Attitudes

The report by KPMG also addressed the growth expectations for different SME and mid-markets businesses, especially in regards to fast and moderate growth. The analysis showed a much-skewed result, with a whopping 78% of higher growth businesses supporting the claim that the current tax system supports growth, while a whopping 82% of their moderate growth counterparts disagreed. This is a serious attitude contradiction that remains to be analyzed further.

All said and done, the government and the business world need to engage more with each other and with the tax system in order to find a lasting solution to this complex problem. That is the surest way of driving growth from the tax system through to business in the UK.

Clear House Accountants are specialist Accountants in London, our in-house Tax Accountants have been working with the tax system for many years and are trained in helping businesses utilize maximum value from the tax system and the variety of tax incentives in place. Speak to us to see how we can add value to your business.

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June 18, 2019
by Clear House Accountants
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2

Attractive Remuneration Using An EMI Scheme

Designing an Enterprise Management Incentives (EMI) Share Option Scheme

Due to a growing number of creative startups across the globe, there has been a huge demand in requirements for skilled labor, employers want to hire and retain the best employees in the market. The market being full of millennials means that money is not the only thing that motivates or attracts exceptional talent these days, employers, therefore, have to think outside the box to design attractive pay packages that incentivize employees to stay longer and work harder. These include things like Gym Memberships, Free Breakfasts, Health Insurance, Training budgets, etc. Owning a part of something which you work to build is an amazing motivator, share and option scheme incentives are therefore used as part of pay packages to provide employees with an offer of more than just money. It is the offer to own a piece of what you are working to build. The EMI scheme is something that the government has designed for UK employers to help offer employees tax efficient incentives to grow and expand quicker.

  • EMI schemes are designed to motivate, retain or compensate employees in order to help new or growing companies grow faster.
  • The EMI (Enterprise Management Incentive Scheme) scheme is a scheme under which employers can grant share options to vital employees’ tax efficiently to reward them for their service period or their performance.
  • When employees are presented with EMI share options, they can be given the option to convert the options into shares as soon as possible, at a future date or upon the sale of the company.
  • These options are meant to provide an incentive for every employee given that the share price is already fixed for tax purposes at the time the options are granted. Any gain on the difference between the grant price and the exercise price of the options is free from income tax chargeable which acts as an added incentive for employees under a more favorable capital gain tax (CGT) regime.

HMRC does not review and approve option schemes that come under EMI although it can agree to approve company values. To achieve this goal, make sure that your scheme passes all the qualification requirements for EMI where the tax treatment follows the legislation for EMI. Setting up a scheme and getting a valuation on the share options can get complicated, speak to an Accountant who specializes in the process.

Setting up the EMI Share Option Scheme

Employee share option schemes or employee share schemes are extremely complicated, the employer and employee will therefore have some key things to consider regarding the tax laws, company laws, and employment laws when designing an EMI scheme. It is a common trend to discover that both the participant and employer are not fully conversant with the conditions and terms of the schemes, which can result in confusions, errors and employee disputes in the future. Consult an Accounting firm who have experience in helping businesses design effective EMI schemes.

Once a scheme has been setup successfully there are certain conditions which have to be met if an employee wants to exit the scheme, the conditions are as follows:

  • Your option will automatically vest once the company is sold;
  • Your options will vest over an agreed vesting period, the employer an employee will agree as per the share option agreement the vesting period which will span a certain period of time (months or years).

Articles and Rules

When designing an EMI Scheme, the employer will have to review the effects of the share scheme on the rights of pre-existing shareholders, updating of amending any changes required to the shareholders agreements. Once the EMI scheme is setup option agreements will also have to be setup which will cover things like vesting schedules, the rules of the scheme and what rights the options bring with them.

Under an exit-based EMI scheme you will not have to worry about your employees holding any shares, the shares vest once the company is sold, at this point the options vest into shares and are immediately transferred over to the buyers at market value, giving a gain to your employees while providing comfort to the buyer that they retain all shares being purchased.

In case you decide to offer your employees with EMI options which vest over a specific period of time, you will be obligated to make some amendments to your Articles in order to include the following:

  • Provisions to handle the leaving employee shareholders
  • Pre-emption rights for employee shareholders
  • Rights of transfer
  • Beneficial ownership
  • Disputes between shareholders

After working out and including all the amendments mentioned above, you will have to look into the tax position for the sake of modifying your plans in accordance to the following key factors:

  • The tax legislation of Part 7 ITEPA, 2003
  • The company Act of 2006
  • Formulating your scheme rules
  • Vesting conditions to determine when shares can go up
  • Those who qualify for shares and those who cannot
  • Dealing with disputes among shareholders
  • Leavers
  • Valuation
  • Takeovers

Tax

The employer will have to make sure that the EMI scheme is compliant for the purpose of all tax legislations. The employer has to take into consideration what other taxes the scheme interacts with, ensure that all extra NICs charges are covered and understand what qualifies for the Corporation tax relief. Speaking to a specialist Tax Accountant or an Accountant in London can add value to the process by making sure that you are extracting maximum benefit from the scheme setup.

Valuation

The market values of your existing shares at the time an EMI option is granted should be agreed upon with HMRC. But this can be agreed upon even before any option is granted. Most employers prefer this method because it gives some certainty regarding future charges on tax. However, it gets extremely difficult to find the exact values of employee shares because every company differs from the rest and rules for the schemes including company Articles operate differently. When you overvalue your shares, it is likely that your employees may lose everything. On the other hand, undervaluing your shares may compel HMRC to reject your valuation. Try and get the valuation done by either a corporate finance specialist or a recognized Chartered Accountant, they will follow all required processes and get the required pre-approvals from HMRC on the valuation to avoid any future disputes.

Timings

Creating a share option scheme takes some time but it is prudent for the employers to engage specialist help such as a Tax Accountant and a Lawyer in a bid to find out exactly what is required and how it needs to be setup correctly. When it comes to creating the scheme rules, passing necessary resolutions and amending articles, a lot of time is needed. It can be two to three hours or it can take even longer where bespoke articles and shareholders are involved to tackle a number of issues. A valuation may take five hours to several days depending on the company’s size, available information and the accounts.

Design Problems

An employer may choose to offer employees shares but then choose on offering EMI options, acquiring shares under this option scheme will not only be hard but the shares will also carry so many restrictions that they will have no capital value. When employees realize that their share options have such low values, it may have a negative impact on their relationship with their employers. It is therefore important that these options have clear vesting conditions that are easy to understand, implement and calculate, try and keep the scheme as transparent as possible. Speak to your HR department to design proper communication around these schemes in order to avoid future confrontations.

Health Warning

A lot of care is needed when approaching share option schemes. If not, the outcome may turn out to be something that doesn’t make sense. In fact, it may make life to be somehow complicated and difficult for the shareholders and companies in case disputes arise over shareholders or options agreements.

Clear House Accountants are specialist Accountants in London, our in-house Tax Accountants are trained to help you design the most tax effective solutions for your business and your employees. We can help you with tax matters relating to your company and your employees. We can also assist with Payroll compliance and helping build remuneration packages for your employees with the most tax effective mix. Speak to us to see how we can help.

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June 12, 2019
by Clear House Accountants
0
7

The Art Of Buying & Selling A Business

Everyone starts a business with the intention of making a gain, this could be a gain in the form of profits or a gain achieved by selling your business. An astute entrepreneur always plans an exit strategy for his business, this makes investors confident about the business and assures that if required the business has an exit plan in place. To read more about exit strategies click here.

Selling a business can be a complicated process. The process can get confusing, from finding a buyer to valuing your business.

You could be looking to sell your business

  • If you are planning to retire
  • If it’s your exit strategy
  • You are looking to make a gain
  • Its time for a change

How does the sales process work?

Quick steps to sell your Business

Where should I start?

When it comes to selling a business, the whole process may seem a little bit daunting. Here is a comprehensive guide that is prepared specifically for potential sellers. And it applies to companies as well as their shareholders.

A company or its business including assets can be sold, the way you sell it can vary. Some of the ways in which you can sell your business are:

Share sale: this is a situation where the company is either sold outright or in part. As such, the shareholders go-ahead to dispose of the shares to the new company owner, resulting in the shareholders experiencing a capital gain or loss depending on the transaction. To learn more details about capital gains tax click here.

Asset sale: in this situation, the company sells all the assets, trade or business. As a result, the company remains with the seller, however, due to the sale of the assets the company itself incurs a capital gain or loss after the transaction. The company is obligated to pay corporation tax that is imposed on the proceeds. The corporation tax charge is applicable unless the company can offset the corporation tax using capital losses for the prevailing year trading losses, the trading losses are carried forward only if they were created sometime after April 2017. Once the company has been taxed on the gains, the shareholders face the prospect that comes with double taxation on drawing out the company’s proceeds. This is where the winding up of the company takes place to extract all the remaining capital gains and profits.

Taxation can get complicated once a business is sold, our in-house personal tax accountants or business accountants should be able to provide smart and effective solutions to your accounting and tax problems.

Decisions on what to be sold

Before arriving at the final decision to sell the company or its assets there are a few questions to be answered.

These are:

  • Is the company being sold still intact?
  • Do the assets (land and buildings) involved in the transaction have redevelopment potential?
  • Are the assets supposed to be disposed of to the highest bidder on a breakup basis?
  • Are any additional assets being disposed of in tandem with the company?
  • Will the additional assets become part of the whole transaction or will they be transacted separately? Is there any requirement for pre-sale reorganization?
  • What will happen to the surplus cash balances?
  • How will the intercompany director’s loan balances get cleared?
  • Are there any tax consequences attached to writing off loans?
  • Are the sellers willing to help the buyer settle down after the sale?

What is the nature of the business being carried on?

  • Consider the type or scale of all activities being undertaken
  • Do all these activities qualify for inheritance tax purposes or trade for capital gains?
  • Is this just a property or some sort of investment business?
  • Does the business have surplus cash on deposit?
  • Put into consideration the effects arising from the surplus cash on the trading status (this is likely to affect CGT Entrepreneurs relief as well as IHT Business property relief).

About the existing business

Has the business experienced any capital or trade losses brought forward?

As a Business, you need to be aware of the following facts:

  • That the share sale is likely to preserve the carried forward trading losses.
  • Any company having capital losses will prefer selling its assets in order to mop up all capital losses.

Does the business/company have employees?

  • The current employment contracts or agreements are protected under what is known as the Transfer Undertakings Protection of Employment Regulations (TUPE). But this protection applies where the business or company is sold (as a going concern). Speak to your accountant, they should be able to refer you to a good employment lawyer.
  • TUPE doesn’t apply where share sales are involved provided that the employing company doesn’t change anything. This means the new business owner will not be able to change the existing contracts without consulting the employees of the company.

Valuation: Perform or obtain a valuation

  • The first step when preparing a valuation is to come up with what is being sold and then draft up sales particulars.
  • Some businesses can be sold along with their surplus assets such as land and property. Their capital value (for development purposes) may turn out to be somehow different compared to their carrying values in the accounts. Therefore, it is a good idea to consider their values, because they are actually different from the share price.
  • Some businesses have special earnings that may affect their value. For instance, hotels are valued according to the number of letting rooms, professional practices are valued based on their multiple numbers of the fee earnings or restaurants are valued on the total number of covers they have.
  • It is always difficult to value goodwill given that it could be intrinsic to the company, adhering to the surplus assets may turn out to be inseparable from its owner. It is always wise to consider the nature of goodwill as a way of finding out if it is valued appropriately. This is due to the fact that business valuation models like the capitalized maintainable earnings use a method that value businesses in their entirety, making it not necessary to establish the values of assets such as goodwill separately. Anyway, it all depends on the nature of the business.

Share sale/asset sale?

Share sale Seller’s planning points:

  • Some shareholders have a tendency of favoring a share sale simply because it avoids double taxation. In addition, they stand a chance to qualify for CGT relief.
  • Capital gains from the sale of shares can be deferred through proper planning but gains may also be mitigated if at all an individual decides to leave the United Kingdom and become a non-resident for tax reasons.
  • The seller needs to take care of the terms laid down for a share sale especially where the considerations involve the inclusion of shares in the newly-acquired company. Also, the seller can take such measures when there’s an earn-out due to both employment-related securities and anti-avoidance provisions.
  • In case the sales considerations are Deferred or subject to earn out, then the seller will try and secure loan notes to act as security (all these are subject to negotiation).
  • The gain can also be deferred where notes are considered to be Qualifying Corporate Bonds or non-Qualifying Corporate Bonds unless an election is held to determine if Entrepreneurs’ Relief can be claimed on the basis of the disposal if necessary, conditions are met.
  • If the company comes out as the seller and then the sale qualifies, it will be able to claim relief, especially for the disposal as directed by Substantial shareholding exemption (SSE).

Buyer’s planning points

  • The buyer may only prefer a share sale on condition that it preserves the existing trade losses for the company.
  • The trade may be incorporated into the existing company but it may become restrictive on the number of losses that are available to push forward.
  • The share purchase becomes more complicated because the due diligence will have to be performed in order to cover for the company while considering its trade and business. As a result, the buyer might become responsible for the company’s tax history and liabilities. This means warranties, indemnities, and covenants will have to be negotiated, drafted and agreed upon to cover the company.

Asset sale

  • Buyers will favor the purchase of assets as this way, they will be able to claim for capital allowances and acquire immediate tax relief post the sale, on write-downs of the stock and other assets.
  • Since July 2015 buyers could no longer get tax relief for the amortizing capitalized goodwill. But there is the availability of a 6.5 per cent fixed rate on writing down allowances for the goodwill including other intangibles assets created or obtained by the company after 1 April 2019 (where they are obtained alongside the qualifying intellectual property assets).
  • Due diligence is somehow straightforward when it comes to the asset sale because the buyer doesn’t need to take on the older business liabilities. But every asset will have to be placed under consideration separately.

Whatever process you follow to buy or sell a business, you need to think carefully about the tax and legal consequences. It is advisable to hire a tax accountant or a specialist business accountant who are fluent in the process of financial valuations. Our in-house accounting team are trained in the process of helping owners sell their businesses or buyers acquire businesses for their portfolios in a tax-efficient way. Speak to us to learn more.

Clear House Accountants are specialist Accountants in London. We have been working with buyers and sellers helping them perform valuations, due diligence, and tax planning for buying and selling businesses across the United Kingdom.

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June 11, 2019
by Clear House Accountants
0
2

How Do You Become an RMC Director?

What you should know about becoming an RMC Director

It doesn’t matter whether you have been asked to become a director or nominated yourself for the position, provided that you know exactly what it takes to become a director of a Residents Management Company (commonly known as RMC). Whatever the reason, it is important for you to be fully aware of what it entails to become an RMC director and what responsibilities come with it.

What is an RMC?

A Resident Management Company is a type of company set up to protect interests of leaseholders of a leasehold building which can include things like the management of communal areas of a leasehold building, communal areas can be things such as roofs, gardens, hallways and more. This means if you become a director for an RMC, you will have to oversee such duties as part of your responsibilities.

In most cases, the Directors of a Residents Management Company are normally selected from the existing leaseholders of the development for which the RMC has been set up or from the shareholders of the RMC. In as much as there are some technicalities regarding the right person to become an RMC Director, the truth of the matter is that the individual owners of the flats are picked or chosen to take up the directorship task. In this case, your RMC will eventually be set up to become a standard limited company. This means the company will have some obligations to fulfil every year, these obligations will include filling of all company accounts, arranging the Annual General Meeting and completing the company’s secretarial duties. It is a good idea to be aware of the existing differences between a shareholder and leaseholder of your Residential Management Company. You can always appoint a competitive managing agent and a reputable service charge accounting firm to carry out these duties on your behalf.

Below is a comprehensive guide to relationships among different parties including where the Residents Management Company Board of Directors fits:

Why should I become a Director?

The position and role of a director, in this case, is purely a voluntary one. This is because you are nominated by other shareholders to serve in that position. Therefore, becoming an RMC Director means that you have been given responsibility as well as the authority to lead the RMC effectively for the proper maintenance of your leasehold development.

How is this role helpful to you?

The internal and external areas are actually the first places contractors, visitors, residents, and others will see first when they pay your building a visit. As such, your role in keeping those areas in good condition makes your position as a director to be a very important one.

What are my responsibilities?

The first place you need to look at during the clarification of your duties and responsibilities is the Memorandum and Articles of Association (Mem and Arts). For any given Limited Company, the Memorandum and Articles of Association define the rules governing the company itself. All these will give you a green light to exercise the overall powers bestowed upon you as the company’s director. Besides your powers, the Mem and Arts will play a crucial role by directing the Management Company in decision making such as arranging for meetings, nominations of new company directors and much more.

The other place you need to look at critically is The Companies Act 2006. This is indeed a statutory law that states the roles of all company directors. The act provides general guidance on duties that need to be performed by the director and should be fully noted in conjunction with the company’s Mem and Arts.

How do I become the Director of my RMC?

Becoming an RMC Director is as simple as taking a walk in the park. For instance, if there is an existing Board of Directors, you may make a casual request to join the Board. In case you are endorsed by the Board, you will become a director immediately but on a casual basis until the following Annual General Meeting in which you will receive the application to join formally as a director. In case you don’t receive an application, you may forward your request in writing to your RMC Board asking to be a Director where your request will be voted during the Annual General Meeting.

Once the voting has been completed and it happens that you have been elected to be the Director, the next thing to do is to fill out the AP01 form. This form will have to be completed and submitted to the Company’s House to ensure that you are formally registered. The whole registration process will be completed for you by your Managing Agents, your accountants or whoever is appointed as your Company Secretary. For efficiency, the form can be completed online.

Are there any additional points to be considered before you become a Director?

Here are the key points to consider:

Understand your lease: Apparently, your lease defines the role of your Managing Agent and Residents Management Company. Therefore, it is prudent that you familiarize yourself with this document before taking further actions. Clear House Accountants are specialist Service Charge Accountants who have built connections with a vast number of expert Managing Agents in the Industry. We are a Service Charge Accounting firm who can guide you accordingly through the process by answering any challenging elements you may come across.

Directors and Office Insurance: This is the type of insurance that covers both past and present Company Directors who might mistakenly breach their duties and responsibilities to the RMC. Just like any other insurance, it will be wise to review all your needs prior to missing out on them, resulting in them becoming an issue.

Legality: It is suggested that you become familiar with different laws that impact every aspect of managing your building such as Safety and Health Laws, Tenant and Landlord acts among other things. For information regarding the legality of becoming a Director, consult with your Managing Agent, company secretary or accounting firm for more clarification.

Teamwork: Most of the successful Board of Directors that we have worked with have displayed a number of skills, they try and allocate responsibilities in a bid to work as a productive team. To learn more about teamwork, you may reach out to your Managing Agent or try speaking to your service charge accountant. Allocating management elements is likely to reduce any feeling of being burdened and should make your RMC more successful.

How can we help you

As a Director, one of your roles will be to appoint Managing Agents and Service Charge Accountants. We as Service charge accounting specialists are in a strong position to help you find managing agents who can assume full management of your entire building for you, as competitive accountants in London we can also become your company’s company secretary taking care of all your company needs while providing service charge accounting services.

As your company secretary, we will still require you to perform certain responsibilities, this means you will have to agree on some issues such as the signing of the annual accounts, annual budget levels, service charges to be billed, and general issues like decisions on a certain type of work to be undertaken.

To make sure that your directorship is not a tedious obligation, Clear House Accountants will use their in-house experts in providing unrivalled levels of service. However, you need to be aware of the responsibilities and liabilities pertaining to your role. For any inquiries regarding the need to become a Director, kindly contact us.

Clear House Accountants are a specialist Service Charge Accounting firm in London, we work with Managing Agents, Landlords, Developers, RTM’s, RMC’s and Property owners. Speak to us to see how we can help you with your service charge accounting needs.

You might also want to Read:
Understanding Corporation Tax For Businesses
The Number One Key Resource For Building A Strong Business Foundation
The Right To Manage: A Comprehensive Guide For Landlords & Leasehold Tenants

June 7, 2019
by Clear House Accountants
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Understanding Corporation Tax For Businesses

Corporation tax for Businesses

When you start your own business, there are several factors to consider and one very important one is how to manage your taxes effectively and legally?

A corporation is an entity with a separate legal identity from the business owners who control it through the shares they have in the company.

Definition of Corporation Tax

Corporation tax is the direct tax being levied on the income or capital of corporations. In the UK, corporate tax is imposed on the resident companies and also on companies who are registered outside the UK but have permanent premises in the UK. At the moment, the corporate tax rate in the UK is at 19%.

Who needs to file corporation tax returns?

All business owners must file their corporation tax returns with the government. It is best to shortlist a list of a few accountants as they are better equipped to deal with the complexities involved when preparing company accounts and ct600 tax returns. Some people, however, prefer to make the calculations and submissions by themselves.

Dates for Corporation tax

The accounting period for a corporation tax return cannot exceed 12 months. This means that any company that wants to prepare statutory accounts that are longer than 12 months have to prepare more than one return.

After the end of an accounting period, larger companies whose profits are above 1.5m, have 9 months to file their accounts and 12 months to file their corporate tax returns. They, however, have to pay their tax electronically in quarterly installments.

Small businesses have only nine months after their accounting period ends to submit their accounts and pay their corporation tax. They can, however, submit their tax returns 12 months after the year-end. Filling wrong returns or failing to file the corporation tax returns on time usually attracts penalties from the government.

The Unique Taxpayers Reference Number

This is a 10-digit number given to someone once they register for self-assessment or when their company is established and registered for corporation tax. Every taxpayer in the UK has their own unique UTR number. You can get this number online, by phone or by post.

The UTR number is used by HMRC to identify which companies owe them money and how much. It is very important to make sure that you do not lose this number since you will need it to pay tax.

Effective-Tax-Plaining

Key things you should know about Corporate tax

1.Who Pays Corporation tax

As long as you are running a business, and it is making a profit, you are expected to pay corporation tax.

You must pay tax if you are in business as;

A company with a permanent residence in the UK but registered abroad or if you are a limited company registered in the UK

Or

If you are an unincorporated association such as a cooperative, a community, a sports club or, within any other category.

2.Registering for Corporation tax

Once you have established your business and have started operating, you have three months to report it to the relevant authorities in order to be levied the correct tax on your profits. Her Majesty’s Revenue and Customs (HMRC) will send you a unique 10-digit taxpayer reference number that you will be using to pay your taxes.

3.The Unique taxpayer’s reference number

You cannot file your corporate tax returns without the UTR number. Every citizen and company has its own number, which the HMRC uses to identify who owes taxes and how much. You acquire this number when you register a limited company or when you register for self-assessment.

  • Filing Corporation Tax Returns

It is very important for every company to make sure that they file their tax returns with the government. There are stipulated dates for every business to be aware of when they are required to turn in their filed returns. You can hire an accountant or do it by yourself. Late payments or wrong payments are subject to penalties by the law.

  • Reducing your Corporate tax

Tax avoidance or evasion in the UK is not acceptable. There is tough legislation that will demand all the disputed tax upfront. This will either leave you completely bankrupt or with a myriad of lawsuits that won’t leave you in a better position either. It is possible to reduce the amount of corporate tax that you pay to the government without having to break any laws. Make sure you find out what they are and gather exhaustive information on them.

How to file Corporate tax Returns

Whether you make a loss or have no corporate tax to pay, you must always make sure that you file in your returns. There are a few competitive accountants in London who can help you file your returns as it can be a complex process.

You can file your corporate tax returns online through the help of online tax accountants or by yourself through setting up an online account with HMRC. All small businesses in the UK have a personal tax account. Most companies prefer hiring accounting firms to manage this process for them.

Is an accountant necessary when filing corporate tax returns?

It is not a requirement, but it is a good idea to use a chartered accountant or chartered tax adviser when you are filing your returns. The reason behind the recommendation is as they have more experience in this area and they can ensure that you are doing everything correctly. Remember that wrong returns are subject to penalties. The accountant goes through all of your documents and calculates everything for you.

Legitimately reducing corporate tax

Reducing your tax bill doesn’t have to be illegal. You can do one of the following:

Make sure that you closely monitor how you spend your money and what you spend it on. Use your investment allowance to buy any business-related equipment that you require. You could involve yourself in the production of a British film and earn the creative industry tax relief. Taking part in projects aiming for technological advancement can earn you reliefs in Research and development. You can also pay your taxes early so that HMRC can pay you interest.

In conclusion, paying taxes responsibly can be done without using incorrect or illegal means.

Clear House Accountants are specialist Accountants in London, our in-house tax accountants will make sure that you are always compliant while helping you reduce tax and improve cash flow. Our tax planning solutions can help you keep more of your money while submitting taxes correctly. Speak to us to learn more.

You might also want to Read:

Tax Efficient Investments For Companies

Tax Relief For Group Companies 2018

Understanding VAT For Your Business

June 4, 2019
by Clear House Accountants
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