31 January 2020
UHY Hacker Young’s Corporate Tax director, Nikhil Oza, gives some final tips and tricks of the trade, in the last instalment of our Accounting for SMEs Q&A series.
Do you have any tips on managing cash flow for people with uneven income?
Good cash flow management and budgeting is key to small businesses which do not have a steady stream of income, e.g. where the main trading activity is seasonal.
Luckily, it is now easier than ever to keep abreast of your financial position with cloud-based accounting technology, which means you can view your financial data in real time. Your accountant can advise you on how best to set this up and can even manage it for you.
It is generally good practice to keep a rolling 12-month budget, and try to anticipate large upcoming expenses, such as VAT liabilities, Income Tax liabilities, etc. A close eye should also be kept on managing your trade creditors, i.e. those people or businesses you owe money to.
But most important of all is managing your debtors (the people who owe you money). Credit control often gets put aside by small business owners in favour of other activities that they deem more important. If you are guilty of this, you may want to consider hiring someone to look after the credit function for you. After all, if your customers do not pay you on time, you will soon run out of cash!
Are there any tax-related incentives/claims to saving your receipts as a general consumer (not self-employed or small business)?
Yes, I would recommend keeping evidence of personal expenditure which may help to reduce your Income Tax liability. Of course, not everything is tax deductible, but there are a few keys ones that tend to get missed out on tax returns.
A good example is charitable donations. If donating through Gift Aid, not only can the charity claim an additional amount from HMRC, but you receive Income Tax relief where you are a higher rate taxpayer (40%/45%).
You can also get tax relief on private pension contributions worth up to 100% of your annual earnings. If you are a higher rate taxpayer, you will need to claim relief on your tax return. There is an annual allowance of £40,000 above which you would need to pay tax on the contributions.
If you are employed, you can get obtain relief for professional fees you have paid relating to your job, as well as travel and subsistence costs where incurred in the course of your employment duties. The relief is appropriately reduced where your employer reimburses you for any of these costs.
Any parting advice for self-employed professionals or small business owners?
Don’t underestimate the value of an experienced and trustworthy accountant/tax adviser! I often have clients thanking me for taking the burden of dealing with accounting and tax issues off their shoulders. This leaves them free to concentrate on what they do best and ultimately expend their energy in building up their business.
Also, don’t just go for the cheapest accountant you can find. I mean, if I wanted to build an extension in my house, I would rather use a reputable builder that has been recommended to me as opposed to whoever gives me the cheapest quote. You often get what you pay for!
We hope you have found our Accounting for SMEs series useful. For more information on the issues mentioned above, or any other tax and accounting queries you may have, please contact Nikhil or your local UHY specialist.
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