At McDonald’s…

Wouldn’t it be great if your small business…

• Worked without you. Only if your business can work without you will it have any great capital or sale value.

• Delivered its product or service consistently time and time again to the customer.

• The employees did it the same way every time, the best way.

If we’re going to learn from the small businesses that successfully do this, let’s take a look at the most successful small business in the world, McDonalds. Even if you don’t like what McDonald’s sell, there is no denying it is a hugely successful business.

At McDonald’s…

• The owners don’t work in the business flipping burgers.

• You know when you go you’re going to get the same consistent burger every time, with the same customer experience every single time, which is why people go there. They give the customer exactly what they are expecting every single time, there is no disappointment and so the customers return.

Similarly, if you went to a printer and got a great print job done the first time but the next time there were a few mistakes, you’d be far less inclined to return again. How comes it was perfect one time and not another? That doesn’t happen at McDonalds. What’s more, they manage to do it at thousands of their restaurants all over the planet.

• The burgers are the best tasting burgers made the same way every single time. They’ve found their best formula and they use it consistently, only changing it when they find an even better formula. And that is true for every part of the McDonalds experience from the food, to the greeting, to the cleanliness, to the kids packs, etc. Everything works and is done the same way until they find a better way to do it.

It doesn’t matter who does a task, they always follow a system, so that it’s then done the same way every single time and the customer gets the same experience every time they go back.

When one-person leaves and another joins, how comes it still gets done exactly the same way.

Although McDonald’s is a seemingly low quality product, it is an extremely high quality business which customers value and have great loyalty to.

McDonald’s has the entrepreneurs with the vision to move the business forward, the managers who manage the units and the technicians who work in the units and they all work together in harmony.

Of course, it’s because they have an organisational strategy, a management strategy and a system for everything they do. It is the ultimate systematized business that runs just like clockwork.

Just because your business isn’t McDonalds doesn’t mean you can’t learn from them. It is what is known as a Business Format Franchise.  This is the type of franchise operated throughout the world by many other businesses and it’s no surprise that franchises are far more likely to succeed than any other start up business.

When a McDonalds franchise is taken, the franchisee gets far more than a brand name. They get a whole way of doing things that work and not until they have learnt the way things are done, do they get the keys to the door.

Just because you are not going to franchise your business doesn’t mean you can’t learn from how they make everything inside the business consistently happen. If that happened just inside your one business unit, without you working in it, wouldn’t your business be a great place to go to work, or not work if you so chose.

When Ray Croc took the McDonald brothers burger business in 1954 and set about figuring out how he could make it work, he set about working on the business and not in the business. The business became the product to him, not the burgers and it was the business he worked on.

The key is to work ON, not IN the business. If you are a one-man business, not wanting to grow, this perhaps isn’t true to the same extent, although certain things can still be learnt from it about ensuring you deliver consistency to your customers. A one-man operation may not really have a business; they have a job, possibly a well paid one, with customers as their boss. This doesn’t mean there is anything wrong with the one-man operation. The world is reliant on many one-man operations, it’s just that some of these principles apply less to them.

For every other small business that wants to develop, you’ll only do so if you get to work on your business and stop working in it. As an extreme, you can imagine that you are going to make another 1000 just like it. What would you have to do to achieve this? You would have to completely systematize your business.

An analogy that can help with the understanding of working on, rather than in your business, is a game of monopoly. If you are the hat in the game, you are simply a piece in the game and you don’t make the decisions, you can’t influence the game at all. However, by being a player in the game and being able to see the whole board, you can start to put strategies into place that will have far more of an influence. You are now working on the game rather than being in it. It’s exactly the same for your business, you can have far more effect by working on it.

Before we get carried away, a word of warning. Some small businesses have tried to systematize their business and got so carried away with it that they spent all their time doing just that and failed almost before they got going. Some people believe the E-Myth book sets a standard that most people cannot hope to meet. Common sense is the operative word and the E-Myth is a must read book for every entrepreneur.

You have to operate and generate enough income to put food on the table, pay the mortgage, etc. This has to be the first priority. After that, look to work on the systems for your business that will …

• Give consistency to everyone – your customers, suppliers, and employees.

• Be operated by people with the lowest possible skill level. This enables you to find staff when you need them at the lowest possible price. You don’t want systems that can be operated by only high quality people, because when that person leaves, you will have trouble getting a replacement.

Sure, you say McDonalds is not like your business. So let’s take a far more complicated business such as a firm of solicitors. If a firm of solicitors was to employ only the brightest legal brains it would be extremely difficult to consistently offer their level of legal knowledge, as it becomes very difficult to find a replacement should they leave, be ill, etc.  However, if they were to develop services that could be provided by anyone with an average legal brain, they would be able to grow and leverage the business far more.

• Enable you to eventually not work in the business at all.

Even if you just focus on the most critical things you do in your business and systematize these, your business will be far better for it.

So what you need is a systems dependant rather than a people dependant business. The systems run the business and the people run the systems. You can’t do without people, but the more you systematize, the less dependant you become on people.

Organisational Strategy

If you are going to develop a business that is not people dependant, you need to have an organisational chart that starts not with peoples names on it but with the positions that need filling.

It helps to draw an organisation chart based on what you want your business to look like rather than how it is at present.

The positions on the chart should relate to employee functions (managing director, sales director, accounts, etc) rather than named people. This ensures it’s the system that you’re concentrating on.

Once you’ve decided the functions you need in each box, then you can allocate people to fit those functions.

Let’s say there are three owners of the business but there is only one position for managing director. Instead of having 3 people all trying to be the managing director that creates conflict, duplication of resources and nobody knowing what their responsibilities are, you agree who is likely to be best suited to that position and put them into it. The other two, take other positions. They still all own the business equally but now they are starting to organise the business far more effectively.

To start with, you may be the only one in the business. That doesn’t matter – just put your name in each box. As the business grows you move out of some boxes and get other people to move into the box. However, in the box will be a system for them to follow so that they do it the same as you. Now you’re starting to build a business that works.

Look at each position in the chart and outline what is expected of each position. In the most profitable businesses, people know what is expected of them.

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Your strategic plan for the business should aim to set a target for what your business will look like in 5 years time or when it is complete. This can cover profits, type of business, business size, value, products, market position, unique selling points, etc. It is your vision of what it will look like.

You do firstly have to decide if the business you are in or are looking at is capable of delivering what you are pursuing. If it’s not an opportunity worth pursuing, it doesn’t matter how much you plan it, it won’t deliver what you want.

Your business strategy should be based on your standards and values if it is to tie in with your life plan.

Without this plan of where you are aiming to get to, it makes it far harder to get there. By having goals, it makes it easier to determine if what you are doing is moving you towards that goal or not and you can plan to put everything in place to get there.

It enables you to identify the key challenges that need to be overcome if you are to reach your goal. Once you know the challenges, the cause and the real effect of not meeting them, you can identify the most fundamental challenges and then establish how to overcome them.

Here are the kind of things to consider in the strategic objective for your business of what your business will look like in 5 years time and when it is complete…

• What type of business will you have?
• What products and services do you offer?
• How large is the business with reference to turnover, gross profit, costs and net profit?
• What will the growth be over the period with regards to sales, new products, new markets, and number of employees?
• What will be your market position?
• What reporting systems will you use?
• How will your employees be trained?
• What geographic markets will you supply?
• What will be unique about the business and what will be your unique selling points with regards to distinctive products, marketing, operations and customer service.
• How much is your business worth now and on completion?

Research on goal setting has proven the following helps people achieve their goals…

• It’s better to set your goals high rather than low.
• Write down your goals. People who write down their goals are far more likely to reach them. There is a saying, “if you don’t write something down, it doesn’t exist”.
• You can keep refining you goals and reviewing them as you go along. Things do change.

• Goals should be SMART goals to achieve the best results.  This stands for:

1. Specific – how much, for whom, for what, etc
2. Measurable
3. Achievable
4. Relevant
5. Time framed – by when

For example, having a goal to get rich is not a smart goal. However a goal of “to have £100,000 in the bank in 5 years time” could be a smart goal. It’s far easier to put the specific steps in place to achieve this type of goal.

• Goals such as “to be the best at what you do” or “to love what you do” tend to lead to people being more successful than “to make lots of money” goals. The money does come but it is a result of having more meaningful goals in the first place

Now we know where we’re going, we have to get there…

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This is the law that suggests things like 80% of your sales come from 20% of your customers?

Or the 20% of customers who give you 80% of your grief.

Pareto’s Law can help to identify the 20% that most of your effort should be concentrated on. You may not even need the other 80% at all.

Perhaps the same is true of many of other things – 80% of your sales come from 20% of your sales force or perhaps 80% of your employee problems are caused by 20% of your employees.

Always look to see with everything if the extra 20% you get is worth the 80% of input. It can be a very useful law for identifying where you can make the biggest changes in your business.

Please view our Bookkeeping system video

Please visit our Home page. We are accountants in Mitcham, accountants in Wimbledon, accountants in Wandsworth, accountants in Southfields, accountants in Putney, accountants in Balham and accountants in Tooting.

With the average 40-year-old man having just 180,000 waking hours left to live, it’s important to make the best use of them. Here is a list of  top time management tips for you to apply…

• Prioritise your workload.

• Write a priority action list at the end of each day, ready for tomorrow.

• See the job through – don’t start, put it down and come back to it as it wastes time getting started again.

• Delegate wherever possible. Especially unimportant jobs.

• Hold efficient meetings. Consider if they are needed at all? Holding meetings standing up or on the phone will shorten them and avoid wasted chitchat.

• Say “NO” if you’re not the right person to ask.

• Put time aside when colleagues know you’re not to be interrupted each day.

• Don’t do everything to perfection. Being 100% perfect takes twice as long as 90% perfection, which is often good enough.

• Use call logging sheets, not scraps of paper, to record phone calls.

• Distinguish between urgent and non-urgent interruptions. Something that is important isn’t always urgent.

Please see our Home page. We are accountants in Mitcham, accountants in Wimbledon, accountants in Wandsworth, accountants in Southfields, accountants in Putney accountants in Balham and accountants in Tooting.

Lots of people dream of having their own small business. Why work for someone else when there is less job security and they are expecting more and more work from you?

However it is overlooked that to run a successful business, especially in the early years you need…

• Motivation
• Focus
• Capacity to work hard
• Self –reliance
• Support of your family
• A skill or a good product.

Starting your own business takes determination, perseverance and self-discipline. Beware if you are starting for negative reasons, perhaps just because you dislike your boss or you like drinking in pubs and so thought it would be great to run a pub. Running your own business is a big step. Take time to consider and plan.

It’s not playing golf when you want and taking holidays when you want. There can be a lot of admin and red tape to deal with. The customer becomes your boss and they pay your wages.

Of all the tens of thousands of people who still start a business of some sort…

• By the end of the first year, 40% will have failed.

• Within 3 years, 56% will have failed.

• Within 5 years, 76% will have failed.

Of those who go past 5 years, there’s no guarantee they will survive the next 5 years.

So what are the common problems suffered by small businesses…

• The owners work too hard and for too many hours.

• Personal objectives of the owners such as hobbies and spending time with their family end up low down on the list of priorities.

• The owners spend too much time doing the day-to-day technical work rather than planning and managing the business.

• The owners don’t know where their business is going.

• The owners don’t understand that in order for a business to have a good sale value it must work without them.

• Many owners get frustrated and simply give up and go back to being an employee.

• The rewards don’t match the effort.

They often face common problems in managing their business…

• No consistency in delivery of their product.

• Can’t depend on their employees to get it right.

• They focus on people rather than systems, which creates problems when the people leave.

• Systems that are in place are not documented but in the head of the person who leaves.

• The owner ends up doing everything.

• Employees are not as diligent as the owners.

• The owner spends too much time filled up with other people’s problems and administration.

• The owner always has to supervise and guide employees.

• They have no idea how they compare with other similar businesses and competitors with respect to financial performance or non-financial areas such as human recourses, production, marketing, etc. They therefore don’t know where there are areas for improvement.

With regards to marketing these are common problems for small businesses…

• It’s done ad hoc rather than in a systematised way.

• They don’t know what works.

• They don’t fully understand why their customers buy.

• They don’t know who their most profitable customers are.

• They don’t measure their marketing results against costs.

• They take on customers they later regret dealing with.

• Bad debt problems.

Then there are the dreaded financial problems…

• Relying on short-term overdrafts to try to support long-term growth.

• Over relying on the bank due to over trading.

• No system for projecting income and expenditure.

• No system for measuring key financial indicators against their plan.

• Accounts are not useful to the business.

• Accounts are not produced quickly enough.

We are Accountants in Mitcham, Accountants in Wimbledon, Accountants in Putney, Accountants in Southfields, Accountants in Balham and Accountants in Wandsworth.

We are accountants in Balham.  To go straight to our Home page please click http://www.southsideaccountants.co.uk/index.html.

To see how we can help each other, just call us for an informal meeting on 020 8785 3314.  We never put any pressure on  clients to join us. The informal meeting would be over a drink discussing your business and looking at whether we would be a worthwhile investment for you- not much point otherwise.

Further even if you have signed on with us and we do not live up to your expectations, talk to us and even after this you feel dissatisfied – we will refund your fees without any quibbles.

We genuinely want to make sure you only take us on only if our fees will be a worthwhile investment. Otherwise we will part company with a handshake and a smile – no hard feelings.

The following links give key information about us.

• Home – Watch our short video http://www.southsideaccountants.co.uk/index.html

• About us – http://www.southsideaccountants.co.uk/about.html

• Testimonials –These clearly shows that our clients value our services  http://www.southsideaccountants.co.uk/testimonials.html

• Our Guarantee – This means there are no risks with us http://www.southsideaccountants.co.uk/guarantee.html

• Choosing an accountant – this is to help in your decision making http://www.southsideaccountants.co.uk/choose-accountant.html

Please call us and lets see if we can have a mutually beneficial business relationship.

I think these are great points to work towards making your small business a success

• Believe you can.

• Create the right environment at home and at work.

• Enjoy yourself.

• Expose yourself to what’s new and keep learning.

• Plan what you’re going to do.

• Stick at it.

• Be willing to take risks.

• Take responsibility for your actions.

• Take action – follow Nike’s “just do it” slogan.

Please contact us to support you to make your business a real success.

If your business doesn’t meet your personal objectives you’ve not really succeeded. Your business may be a success, made lots of money, have many stores, etc but if that doesn’t deliver what you personally want from life, what’s the point? You’ve now really made a loss rather than a profit from your life.

Start by imagining your own funeral and what you would like to say to all your friends, colleagues and acquaintances about your life, once it’s too late to now do anything about it.

• What would you like your life story to be?
• What would you like to have achieved?
• What would you like your life to have been like?
• What battles would you like to have won?
• What moral values would you like to have lived up to?

Only when you answer these types of questions can you move onto your business and develop that to fulfil your personal objectives.

It may be that you stop there. If a business isn’t going to be the thing that helped you fulfil your life’s ambitions. Better to sort this out up front, than waste precious time going down the wrong road.

Particularly with businesses owned by more than one person, it’s important that each individual owners’ personal objectives can be met by the same business. For example, do you know when your partner wants to exit the business and does this work for your business strategy. If individual goals can’t be met by the same business, it’s time to think again.

You need an open and honest discussion of each other’s personal goals to identify any problem areas at this stage and to then identify a business strategy to deliver those goals for all.

It’s important the business serves the owner, so personal goals must come first.

Here are some questions to answer personally to get you going…

• Are you happy with what you do in the business?
• If not, how would you like to change what you do?
• Do you have a planned retirement date and exit routes and what are they?

• Do you spend enough time away from the business?

• Is there anything you would particularly like to do, success trappings you would like or experiences to have over the next 5 years?

• What don’t you want in your life?

• What do you want out of life?

• What are the most important things for you and what gets in the way?

• What income do you want in each of the next 5 years?

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We are pleased to announce that on 23 Auguust 2010, Southside Accountants is opening a branch in Mitcham .  The address for the Mitcham branch is as follows:

The Generator Business Centre

95 Miles Road

Mitcham
Surrey
CR4 3FH

The telephone number is 020 8408 1574

Please come over to say hello and enjoy our tea/coffee. If you bring a smile with you we will even through in some biscuits!

Don’t Worry About Mistakes

Everybody makes mistakes. Don’t listen to those who say you’ll learn from them. May be you will, may be you won’t. After all, Henry Ford went bankrupt twice before becoming a success.

Don’t worry about making mistakes if you want to succeed in business. You need to decide for yourself if you can live with failure knowing you tried your best. Is that not better than not to have tried at all? Many successful entrepreneurs believe it’s better to have tried and failed than never have had the courage to try.

You need to take action and get started. Sure, you don’t know everything but don’t wait forever planning or you’ll do nothing.

If you don’t know about taxes, so what? There’s no tax to worry about until you start making some money anyway.

And don’t beat a dead horse. Recognise when something is not going to work, cut your losses and move on. There’s no rule about you can only start one business in your lifetime. You have 365 new chances every year to accomplish your goals.

Read And Learn From Others.

The most successful people have an insatiable need to know more, rather than defending what they already know. Read books, magazines, learn from others and continue to move forward. Try to learn something new everyday.

You can learn a lot from what other businesses are doing, especially those that are not in your industry. What ideas can you take from totally different types of businesses and apply them to yours. In sales, manufacturers tend to have used a field sales force, retailers use adverts and professional services use referrals but think how much more successful they could all be if they added methods from other businesses. Use the principle of duality by looking at other businesses. That’s what we’re doing in this report.

Fed Ex copied the banks method of clearing cheques overnight to develop an overnight package delivery service.

There was a double-glazing firm who offered free window installation if you signed up to have your windows fitted before the World Cup started and England happened to win. A firm of accountants copied the concept but applied it to accountancy services, adding the bonus that if Scotland won, it was free accountancy services for life – a totally risk free offer! In reality they placed a bet at the bookies to cover themselves and this was their marketing cost. This beat their conventional marketing offers many times over.

So look and learn from others. Adapt and adopt what you read here as makes sense to you.

Give It Away And Live For 7 Years

No inheritance tax is payable on most gifts in your lifetime so long as you live 7 years after the gift. These gifts are known as a Potentially Exempt Transfers (PET)

If a gift is made but there is some reservation on it, such as gifting your house with the understanding you can still live there until you die, this will not count as a PET and will still form part of your estate that is subject to IHT on at death. However, the gift will be effective for capital gains tax, which can create a double tax charge for the person a that inherits the house.

If you give away cash that is used to purchase your house, you can be liable to income tax on the benefit of living in the house. This is called the pre-owned asset charge.

There is a sliding for scale for the amount of IHT payable for death within the 7 years.

Of course if your estate is worth less than £325,000, no IHT is ever payable.

Other Gifts That Are Always Free Of Inheritance Tax

The following will always be free on IHT, whenever they are made…

• Small gifts to the same person of not more than £250 in a year.

• Gifts in consideration of marriage of £5,000 from parents, £2,500 from grandparents and £1,000 from anyone else.

• Normal expenditure out of income where the amounts given are part of your normal expenditure taking one year with another.

• Amounts up to £3,000, with any unused amount being allowed to be carried forward to the following tax year.

• Any gifts between spouses/civil partners, where the person who receives the gift is domiciled in the UK.

• Any gifts to charities or political parties.

Please contact us for your Inheritance Tax planning needs.

Southside Accountants is very pleased to be working with Cathy Grimmer. Cathy is Chartered Tax Adviser. She has been in the tax business for 30 years. We are pleased to have access to such an experienced professional on taxation matters . All our clients want to pay less tax within the law. Cathy’s experience will enable us to help our clients with more complex and grey areas of tax.

It is very important to get any legal tax saving schemes right from the start. Otherwise it may mean paying thousands of pounds to the taxman.

This is another step Southside Accountants has taken to exceed client expectations. To see what our clients think about us, please click here.

Please feel free to contact us to help you with your tax savings.

What is the flat rate scheme?

The VAT flat rate scheme is designed to make it simpler and quicker for small businesses to complete their VAT return.

This is because VAT payable to HMRC is calculated as a particular percentage of the gross turnover of the business and not as the difference between VAT on individual sales and purchases. In particular there is no need to record the VAT incurred on most purchases and determine whether it is reclaimable or not, so there is less chance of error. The amount of VAT charged to customers remains the same whether using the flat rate scheme or not.

How will it help you?

The aim of the scheme is to simplify the way small businesses account for VAT so that you will spend less time and money keeping VAT records and calculating the VAT payable to HMRC. 

Might you pay more VAT by using the flat rate scheme?

Some businesses will pay more and some will pay less VAT by using the scheme. This is because the flat rates are averages. You can estimate the effect on your business by using our calculator. Please click here for the calculator.

Who can join the scheme?

The scheme is open to small businesses whose annual taxable turnover (not including VAT) does not exceed £150,000.

Who cannot join the scheme?

There are some exclusions. You cannot use the scheme if you:

• already use any of the schemes for second-hand goods, tour operators or capital goods;

• have been guilty of a VAT offence or dishonesty in the last 12 months;

• have been ‘associated’ with another business or have registered as part of a VAT group or in VAT divisions in the last 24 months.

How does the scheme differ from normal VAT rules?

Under the normal VAT rules you have to identify the VAT on each sale you make, record the value and VAT separately and pay the VAT to us as output tax. Similarly you have to identify the VAT included in the things your business buys, record the value and the VAT separately and claim the VAT back from HMRC as input tax.

Under the flat rate scheme you do not have to identify, or separately record, the VAT on your sales and purchases to calculate the VAT you owe. You simply record all the sales your business makes, including exempt sales, and apply the appropriate flat rate percentage for your trade sector to the total in each period. The result is the VAT you owe to HMRC.

How are the flat rates calculated?

The flat rate percentages are calculated from the net tax paid by all the businesses that are currently registered for VAT and eligible for the scheme. The net tax paid varies with different trade sectors and so there are a variety of flat rate percentages. You can find the flat rate perentage for your business here. The net tax calculated using the flat rate percentage allows for the fact that businesses can usually recover the tax paid on their purchases. Under the flat rate scheme you normally cannot claim input tax with some exceptions.

How do you calculate my flat rate turnover?

To calculate your turnover, you record the sales you make either at the time you invoice your customers or at the time you receive payment.

How do you calculate the VAT due?

At the end of each VAT period, take the VAT inclusive turnover of your business and multiply this by the flat rate percentage for your trade sector. For example, if your business is the repair of motor vehicles and your VAT inclusive turnover for the VAT period is £20,000 the calculation is: £20,000 x 6.5% = £1,350. So your tax due is £1,350.

What is the 1% reduction for new VAT registrations?

Newly VAT registered businesses use the flat rate for their sector minus 1%. So, if the rate for your sector is 9%, you apply a flat rate of 8% in your first year of VAT registration.

How do you recover VAT?

If you use the scheme you do not make a separate claim for input tax (VAT on your purchases) or for VAT on imports or acquisitions. The flat rate percentage includes an allowance for these items. Two exceptions follow.

What if you buy an expensive capital asset?

If you buy a single capital asset with an invoice value, including VAT, of £2,000 or more you can claim the the VAT on your VAT return in the normal way.

If you do recover VAT on an expensive capital asset, any subsequent disposal of that asset has to be accounted for using the normal VAT accounting rules. Add the VAT calculated to your flat rate calculation of VAT due.

Should you  issue VAT invoices?

If your customers are registered for VAT, follow the normal rules and issue a VAT invoice. The flat rate scheme affects the way you calculate the VAT you owe to us but does not change the VAT rate applicable to your sales. This means that when you issue a VAT invoice, you show VAT on it at the normal rate for that type of supply (not the flat rate percentage)

Who can join the scheme?

You can apply to use the scheme if there are reasonable grounds for believing that the following turnover test is met:

• Your taxable turnover (not including VAT) in the next year will be £150,000 or less.

How do I calculate my taxable turnover for the first turnover test to join the scheme?

The flat rate scheme is for small businesses. The first turnover test is the value of your taxable supplies  (ie your sales) excluding VAT. For the first test, exclude any anticipated sales of capital assets but always include all of the following:

• the VAT exclusive value of standard rate, zero rate and reduced rate supplies (ie Sales);

• the VAT exclusive turnover from the sale of second hand goods sold outside the margin scheme; and

• any sales of investment gold that are covered by the VAT Act

How do I calculate my total income for the second turnover test to join the scheme?

The second turnover test is the value (excluding VAT) of all your business supplies (ie sales) except anticipated sales of capital assets. This includes, in addition to your taxable supplies (sales), both of the  following:

• the value of any exempt supplies, such as rent or lottery commission; and

• any other income received or receivable by your business. This includes any non-business income such as that from charitable or educational activities.

Note: non-business income is included in the joining test because the scheme is for small businesses. When you use the scheme, non-business income is not included in the VAT inclusive turnover to which the flat rate applies.

How do I know what my future turnover is going to be?

You may forecast your future turnover in any reasonable way. If you have been registered for VAT for 12 months or more, the turnover declared on your returns may be a reasonable guide but take into account any proposed or expected changes. If you are not VAT registered when you apply for the scheme, you may forecast your turnover by looking at:

• any period of trading before you join the scheme or registered for VAT;

• the turnover of the previous business owner; or

• information on business plans or loan applications.

What if my future turnover rises over my forecast?

However you estimate your future turnover, HMRC will not penalise you provided there were reasonable grounds for what you forecast. It is sensible, therefore, to keep a record of what figures you used to calculate your future turnover. If your forecast of turnover had no reasonable basis, you may be excluded from the scheme immediately or even from the date your ineligible use began..

What if my turnover rises once I have joined the scheme?

You may stay in the scheme provided your total VAT inclusive turnover for the year just gone does not exceed £225,000. Make this check on each anniversary of your business joining the flat rate scheme. Additionally, you must leave the scheme if your income increases so that there are grounds for believing it will exceed £225,000 in the next 30 days alone.

How can I apply?

Call the National Advice Service on 0845 010 9000. They can take your application over the phone.

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Broadly speaking, in calculating rental  profits a taxpayer can deduct business expenses so long as they are:

• incurred wholly and exclusively for business  (rental) purposes; and

• are not of a capital nature.

It is not possible to set out all the expenses that are allowable for tax purposes in all circumstances but some idea of the main types of expenses that are likely to arise in a rental business and also some idea of what can or cannot usually be claimed as a deduction in calculating rental business profits are covered in this post.

For an expense to qualify the business purpose must be the sole purpose. A non-business or private purpose prevents any deduction from business profits where there is no objective yardstick by which any business element can be distinguished from the non-business element.

Examples of deductible expenses include:

• Repairs and maintenance;

• Interest paid;

• Capital allowances;

• Wear and tear or renewals allowance;

• Travelling expenses;

• Legal and professional fees;

• Managing agent’s fees;

• Insurance;

• Rents and ground rents paid;

• Lighting, heating, cleaning, gardening, security, caretaking etc.;

• Advertising;

• Accountancy fees for preparing the accounts and agreeing taxation liabilities;

• Council tax, business rates and water rates – if paid by the landlord;

• Bad debts and the cost of pursuing debts;

• Staff costs, including statutory redundancy pay and training.

Repairs and maintenance

• Expenditure on repairs is deductible, including ordinary repairs and decorating before the building is first let;

• Expenditure is not deductible for the cost of alterations and improvements, or the cost of bringing a newly bought building into a fit state for letting. These are capital expenses;

• Expenditure reimbursed by insurance is not deductible.

Interest

Interest payable for the purpose of the property letting business can be deducted in the accounts. This includes interest on a loan to buy or improve the property or to fund repairs.

Travelling expenses

• Travelling expenses are allowed if they satisfy the ‘wholly and exclusively’ rule. For example, the costs of travelling, solely for the purpose of the business, are allowed between let properties, or to a let property from the place where the rental business is administered;

• Travelling expenses are not allowed if private purposes are included in the travel, such as personal shopping or family visits;

• Where the business is administered from the landlord’s home, the cost of travelling from there to the properties is unlikely to be allowed if the home is far away from the properties, as the need for the journey is considered to be dictated by the personal preference of the landlord to live in a particular place, rather than the needs of the property business.

Legal and professional fees

• Fees on the purchase of a property or for the first letting agreement are treated as capital expenses and are not tax-deductible, if they are for a period of more than a year;

• Fees for a letting agreement of less than a year, or for renewing a lease for less than 50 years, are deductible;

• Other professional fees, which are normally allowed, are those for insurance valuations, and for evicting an unsatisfactory tenant in order to re-let the property.

Income from property is affected by a large number of tax rules - the reasons for this are the variety of uses to which property can be put, and the different ways in which income and profits arising from property can be taxed. Substantial profits can be made on single transactions, making tax planning important. The large volume of tax legislation affecting property means that the precise way in which a transaction is structured can significantly affect the tax payable.

Please contact us to help you with your tax planning and for completing your tax returns.

As a taxpayer, you need to keep records to support any of the entries in your Personal Tax Return.

If you’re in business or receive income from property renting, you’ll have to keep the back-up records for five years and ten months (in other words, 70 months) after the end of the tax year when the income was received.

If you don’t have business or rental income, the period of record-retention is reduced to 22 months.

From April 1996:

• the law requires you to keep records of information received from your employer and other records so that you can complete a tax return fully and accurately if you are asked to do so;

• employers must provide their employees with certain information that they need to help them fill in their tax returns (if they get one).

You should keep the following information you receive from your employer:

• P45 which contains details about your pay and tax. If you leave your job during the tax year, your employer will give you form P45. You should keep part 1A of this form.

• P60 containing details about your pay and tax. Your employer should give you this by 31 May after the end of the tax year (if you were in your job at 5 April).

• Details of your taxable expenses and benefits in kind (sometimes known as ‘P11D details’). Your employer should give you these by 6 July after the end of the tax year (if you were in your job at 5 April).

• Your employer may also give you information about expenses and benefits in kind you received which were included in a ‘dispensation’ or ‘PAYE Settlement Agreement’. These do not need to be included on your tax return.

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