For all business journeys undertaken on or after 1^st June 2012, the new fuel rates are as follows:

For More Information see : www.hmrc.gov.uk/cars/advisory_fuel_current.htm

The rates are now to be reviewed four times a year. Any changes will take effect at the beginning of each calendar quarter – on 1 March, 1 June, 1 September and 1 December and will be published on the HM Revenue & Customs (HMRC) website shortly before the date of change.

‘Strangers are just friends you haven’t met yet’: the phrase whiffs of romanticism, but as society grows increasingly disgruntled with our political and financial institutions, it would seem to be gaining more impact.

For large companies and SMEs the availability of borrowing from banks has become scarce and expensive, with small businesses being lucky to borrow for less than 10%. The euro zone crisis rages on and an increasing number of larger companies (not to mention whole countries!) are defaulting on their loans, causing banks to become ever-more cautious with their balance sheets,

On top of this, we have seen a cut back on expenditure by government, businesses and households, in an attempt to manage increasingly risky debt. How then do we go about getting hold of the investment we need, without becoming mired in unwanted long term financial obligations? A potential answer has revealed itself in the form of peer-peer lending sites.

Peer to Peer Lending

Although most peer-to-peer lenders focus on the consumer market, companies such as ‘Funding Circle’ and ‘Thin Cats’ are lending to small businesses. The basic principle in both areas is the same – individuals or businesses offer to lend specific sums of money to named companies at an interest rate the lender themselves choose.

The lenders offering the lowest interest rates (sometimes under 9%) are aggregated into the final loan offered to the borrower. All borrowers are credit checked and categorised for risk and although none of these sites can guarantee that lenders will be recompensed, the borrower is expected to sign up to monthly direct debit payments.

The lenders putting up the money are often smaller investors with relatively modest amounts of money wishing to make modest returns. Neither is there an expectation to a large annual bonus, so it keeps the offer affordable and nicely straightforward.

As with any borrowing application, the better your business plan, trading forecast and cash-flows, the more likely you are to be successful.

Bank of Mum & Dad

An alternative to commercial borrowing could be in the form of a family loan. Lending to or borrowing from a family member can offer a welcome cash injection, especially for start-ups when there is no historic trading data. However, there are many emotional considerations that must be taken should things go wrong. If your business went under and you lost everything you could take solace in the fact that family will always be there to support you, but a mismanaged family loan could be a double edged sword

Putting formal documentation in place, should people choose to go down the inter-family loan route, will hopefully keep everyone on the same page and act as a cushion for damage limitation.

Food for thought

Simon Collins, global head of transactions and restructuring at KPMG points out: ‘companies of all sizes are avoiding debt, both to reduce risk and because debt is expensive.

They are refinancing where they must, but not borrowing to drive investment.’

People turning to the alternatives above is indicative of a defensive behaviour in reaction to the pessimism surrounding the economy. We have adopted a fiscally prudent attitude when it is liquidity that will act as the fuel for recovery.

It will be interesting to see to what extent these peer to peer lending sites replace banks as avenues for loans in the future, what do you think?

Any self respecting entrepreneur will be all too aware of the challenges facing business owners today. So if we put aside the implications of precarious employment legislation, or tight fisted banks, and recognise these issues as merely a reflection of a momentary attitude towards the economy, we can then focus on deeper, underlying issues.

One key factor dominating the thoughts of all business owners, particularly those involved with much larger organisations, is how they are doing in comparison to their competitors and their overall share of the market in which they operate.

First and foremost, acquiring a worthy share of any given market is impossible without a clear and discernible vision and purpose for your business. The pie chart documenting the overall till roll of supermarkets in August 2002 (right) could be used as an accurate indication of the food retail market share between these industry giants. Each and every one of these chains is trying to distinguish themselves from each other as leaders on price, convenience, service, quality, or to simply to capture the public image as ‘somer-thing different.’

The omission of Waitrose from the chart above is somewhat inconvenient as their market share strategy is very distinct. A clear emphasis on high quality products and consistently friendly service means they can claim ownership of a customer base with a relatively higher disposable income which would negate the sheer volume of shoppers that a chain like Tesco, with a focus on low cost and convenience, would attract.

Whichever way a business owner chooses to define themselves within a given market, it is key to establish of a common thread in the business that resonates with everyone involved, in order to capture the interest of potential customers. Failure to do so will lead to potential customers rejecting you in favour of the familiar or safer option which in turn may induce the sort of behaviour illustrated in the cartoons (left)

Strategic decisions within a business, marketing or otherwise, will often be in response to what a competitor has done in order to (re)acquire a competitive advantage for the firm. Exploitation of this advantage will increase the likelihood of a good R.O.I. However, the competitive advantage must be sustainable, as these same strategy decisions can provoke similar responses from rival firms and negate excess profit. For instance, an all-out price cutting war with an industry rival could not only harm short term profits and drive down quality and service standards, but allow other competitors to steal your original identity and isolate you from your original customer base.

Market share is also the primary indicator of a firm’s experience, with marketing strategies likely to become more and more profitable as a firm becomes more familiar with its operations. Experience can increase output and reduce production costs due to economies of scale as a firm reaches full capacity and there is a genuine learning effect as people within the business become more efficient with set tasks, not to mention the reduced waste cost and the technological improvements that will be applied as the business develops.

Now that we have some idea as to the importance of being able to stand out amongst the competition, it would seem appropriate to discuss some of the basic strategies used to achieve this aim. The Basic strategies include:

1. Cost leadership – Obviously only one player in any given market can be the cost leader, and for reasons stated above, trying to do so can be a risky business indeed. This strategy is internally focused and depends on high and efficient volumes of production, as well as minimising your overheads and waste in order to be carried out successfully. Good relations with your suppliers will also help to reduce cost.

It would seem then, that cost leadership should be pursued as an approach suited to a business becoming more and more experienced in its activities for the reasons mentioned earlier, and can be illustrated more simply in through the experience curve (above). A sound understanding of the ‘experience curve’ can allow a business to effectively predict future costs and plan accordingly, whether it be moving towards cost leadership, or even some form of…

2. Product Differentiation – As stated earlier, there can be only one competitor who can offer the best price, so a successful business will be able to capture a share of the market by offering a product of better quality. It may even be as simple as creating the perception that the product is better than the cheaper alternative, whether it be through a superior service experience, or imaginative and skilfully executed marketing strategies. Starbucks, for example, has arguably reached its lofty heights through presenting itself as an organisation that genuinely acts in the interest, not only of its customers, but for the entire marketplace. Thus Starbucks coffee may only need to taste marginally better than its competitors for people to pay a premium for it.

Those seeking to take this path towards acquiring a competitive market share must therefore have a great depth of knowledge of their rivals and of the industry in which they operate. They must also look beyond the product itself and really connect with their customers in order to get them to pay more. We can also apply these strategies to specific segments of any given market which leads us nicely on to…

3. Niche – Finding a niche in the market can be difficult, but can also be of great value as a business can isolate itself from its competition, through offering a product or service that cannot be replicated by anyone else. Tyrell’s brand potato crisps are grown locally on the producer’s own farm, creating an undeniably strong image of authenticity, further enhanced by their distribution to high end grocery stores where they are sold at a premium. This creates a perception of quality that would attract the crisp equivalent of Waitrose shoppers.

Of course these strategies are both broad and generalist; they do not count for expansion into new industries or how to deal with the introduction of new products. We must also acknowledge that the purchase of tangible goods, such as crisps, does not require a service as such and we need to be aware of things like price sensitivity, price perception and convenience of access. In order to successfully execute the aforementioned strategies, a level of personal understanding of the business’s customers is required but, as discussed in last month’s article, ‘How to purify your Customers,’ this connection can be adapted to suit the needs of the business owner, provided the correct marketing techniques are employed.

With all this in mind you can begin to consume your share of that tasty pie!

In order to test for the purity of water we must have the tools and a system in place that will allow us to attain accurate results. We would do this in order to acquire and extract the benefits from the best water possible.

The same principle can be applied to a business with its customers; the tools being effective salesmanship and the system being a specific marketing strategy. This is important because, as we have all experienced, these ‘impure’ customers do exist. They will haggle you for a cheaper price, find any excuse to complain, and to delay payment. Needless to say, if there are too many customers of this kind, they can be a real threat to any business at a time when the popularity of social networking sites provides them with a voice that can do considerable damage to your reputation.

We must therefore become more selective when targeting with whom to do business. This might sound counter intuitive in such a fragile economic climate, but there are ways to adopt this mentality in a manner that is not only realistic, but also very profitable for your business.

For instance, consider the ‘Pareto’ principle, the widely acknowledged and credited belief that a business will draw 80% of its profit from just 20% of its customers. What is it about these customers that enable them to so easily intertwine themselves with your sales process and with the concept of value? After all, a successful company will always create value for an end user, above the cost of creating that value. There is an easy way to identify and understand how and why this is the case.

Make a list of the best customers you have and compare them to a list of those you consider to be the best potential customers for the service you provide. What do your customers have in common with your prospects? You can then rank your customers by most profitable, best revenue and easiest to do business with and evaluate the characteristics of these companies to determine why they and your best prospects are at the top of each list.

The same can also be done in reverse for your worst customers and least palatable prospects. Either way, after you add current revenue and profitability data along with other information you deem to be important, you will begin to see that those at the top of your lists will become accurate reflections of an Ideal Customer Profile (ICP).

There may be times where an opportunity has strategic appeal beyond your ICP, but then it becomes a measure of how far the opportunity diverges from ideal.

From this we are able to clearly define our target market and embark upon a lead generation programme and develop a database full of genuine opportunities to do profitable business. We achieve a perfect fit between the customer’s needs and our capabilities. Remember that a successful approach includes taking the time to segment the target market in accordance with the priorities of the ICP.
As for those poorly performing customers you already have, see if you can get them to cross the line to profitability. Put prices up, or scale back costly services. The customers who stay compensate for their high overheads and the ones that leave will save you a lot of time and hassle.

Quality over quantity matters.

This year saw a new team from HMRC taking up the fight against rogue employers who refuse to pay their workers the National Minimum Wage. The Team is working on the most high profile and complicated National Minimum Wage cases faced by HMRC, particularly in areas where employers are using migrant labour to undercut competitors by paying below the minimum wage.

Over the last month a number of our clients have received a letter from HMRC requesting a review of their records.

What is the National Minimum Wage ?

The national minimum wage sets minimum hourly rates that employers must pay their workers. From October 2011, the rates have increased to:

• for adults aged over 21 years: £6.08 per hour
• for workers aged 18 to 20 inclusive: £4.98 per hour
• for workers aged under 18 (but above compulsory school age): £3.68 per hour
• for apprentices aged under 19: £2.60 per hour

HMRC are strictly enforcing the above rules and any underpayment will be backdated and penalties will be applied.

What will HMRC need to see ?

You must keep records that show you pay at least the national minimum wage to anyone who works for you and is entitled to it. HMRC compliance officers are entitled to ask you to produce appropriate records for inspection. You are required to keep records for at least three years.

What do I do if I realise I have underpaid an employee ?

If you haven’t paid a worker at least the national minimum wage requirement, then you must work out what’s owed and pay any arrears.

What if HMRC visit and realise I have underpaid and employee ?

IF HMRC finds you have underpaid the national minimum wage it will issue a notice of underpayment, showing the arrears due and a penalty:-
.
• The penalty can be 50 per cent of the total underpayment.
• There is a minimum penalty of £100 and a maximum of £5,000.
• If you receive a notice of underpayment you have a right of appeal

Don’t Delay review your PAYE records today !!

Whichever party gets elected tomorrow, no new government can avoid the reality that three of their major revenue streams are going to be basic rate income tax, national insurance and VAT.

All main three parties have announced there will be spending cuts, but these will only go some way towards reducing the UK’s massive deficit, so it’s a no-brainer that further tax rises are likely. Already last month, the new 50% top rate of tax has come into effect for incomes over £150,000, with personal allowances for anyone earning over £100,000 already scrapped.

So what might each of the three have in store for us?

LABOUR
PAYE/Tax : Income tax is to remain at current levels. Personal allowances are to be frozen though, meaning tax bills will rise as incomes increase
NI: National Insurance will be increased by 1% from April 2011 to 12%. The threshold at which NICs become payable will be raised so that anyone earning under £20,000 p.a. will not be affected
Capital Gains Tax (CGT) – no announcements on changes to the rate CGT, currently at 18%
VAT: – No proposed change to VAT rates

CONSERVATIVE
PAYE/Tax: No plans to raise income tax rates. The new 50% rate may not be a permanent feature. Transfer of £750 of personal allowances within married couples and civil partnerships will be allowable.
NI:- Will protect middle earners from the 1% NIC rise by increasing contribution thresholds so that individuals earning less than £35,000 will pay no more in cash terms.
CGT: No plans to change CGT rates
VAT: No plans to change VAT rates

LIBERAL DEMOCRATS
PAYE/Tax: Personal allowances to be increased to £10,000 (from £6,475), but basic rate band reduces from £37,400 t o £33,875
NI: Nick agrees with Gordon here – and will support Labour’s proposed changes
CGT: Will tax CGT at income tax rates, also will reduce the annual exemption to £2,000 from £10,100
VAT: No change to VAT rate

Although none of the three are proposing to alter the current VAT rate of 17.5%, many experts predict a rise to at least 20%, which would also be more in line with European VAT rates and, whilst neither Labour nor Conservative say they are going to raise CGT rates, it is widely expected that the gap between the 18% flat rate and the 50% top rate of income tax, will be narrowed in the future.

Watch this space!

Alaister Darling recently admitted that the economic downturn will reduce the Government’s tax take, leaving an alleged £23 billion hole to be filled. HMRC is under instruction to improve its tax collection techniques, which it is already doing by launching more investigations.

So, what’s changed?

Under new guidelines, a rise in expenses of 10% year on year could prompt a tax investigation, compared to a previous threshold of a 20% variation. The Revenue’s recently updated computer systems are red-flagging anything out of the ordinary, or usual trading pattern, for example:-

• changes from prior year, i.e. rental income for years, then none, but no Capital Gains on disposal.
• consistent turnover at a VAT threshold
• provisional figures
• capital gains

What can YOU do to keep under the radar?

Do your own comparative analysis on…

• Income – turnover and gross profit
• Expenditure – employee costs, pension costs, repairs, entertaining
• Balance sheet – stock and WIP. Use accurate figures. If using estimates, make them look realistic and check assumptions.

Keep records of any private use. Be able to explain any where any extra deposits come from; they may be additional taxable income.

As usual, it is essential to keep all supporting paperwork. In addition, should you receive a query from the taxman, respond promptly. The Revenue is more likely to think you have nothing to hide if you do not delay.

Contact Julie or Aileen at accounts@fabaccounts.com for any additional advice, or leave us a message below. We can now offer tax investigation insurance, which will cover your professional fees in the event of an unwelcome visit from HMRC, and give yourself peace of mind. Phone us for a quote today on 01933 356286.

Any household whose total income is less than £58,175 may be entitled to receive tax credits from HMRC.

The level of award will depend of a number of factors, but the MAXIMUM possible for a regular couple with 2 children would be made up as follows:-

Child allowance ( 2 x £2,235) £4,470

Family allowance 545

Basic Allowance 1,890

Couples allowance 1,860

> 30 hours work pw 775

TOTAL ALLOWANCE: £9,540

Other contributory factors are if you have a disabled child, a new baby, or if you are paying for registered childcare.

The nearer your income is to the upper limit, the smaller the credit will be. For example, one of our clients whose combined income was just over £50,000 in the year to April 2009, is eligible for £529! Small beer maybe, or could be 100 small beers, depending on how you look at it.

The award for this year will be based on last year’s income. If you have previously been over the threshold and have not claimed in the past, you may now be eligible, due to any change in circumstances. But hurry! your claim for this year must be submitted before 6 July 2009.

If in doubt, check it out!! Give us a ring, or call the tax credits helpline directly on 0845 300 3900

It’s official! (well, according to the latest research carried out by legal consultant Employment Law Advisory Services)

Having at least one woman on a company’s board reduces the risk of a business failing by more than 20%. Also, more than 80% of companies with women on their boards are optimistic about surviving the recession in good shape.

Apparently, women executives are more frugal, responsive and flexible.

Firms with women in the boardroom achieve a 10% higher return on capital than those firms run entirely by men. Added to this, women accountants traditionally earn up to 50% less than men.

Value for money, I’d say!

The official rate of interest on Beneficial Loans changed on 1st March 2009 to 4.75% ( previously 6.25%)

The Average Rate for 2008-09 is 6.10%

When an employee receives a cheap or interest free loan from their employer, this is the rate of interest used to calculate the value of the benefit provided.

The loan interest is then detailed on the form P11D at the end of the tax year, along with any other benefits such as Car and Fuel.