Tuesday 30 June 2009

Employees accrue holiday pay while on sick leave


The House of Lords has ruled in the case of Stringer v HMRC that workers who are refused holiday pay while on sick leave can make a claim to an employment tribunal for an unauthorised deduction from wages (under the Employment Rights Act 1996).

This decision follows the ruling in January, by the European Court of Justice (ECJ), that employees do accrue paid holiday for their entire sick leave, and must be allowed to take it on their return to work or be paid in lieu of their entitlement if their employment ends. The ECJ ruling did not comply with the UK’s existing Working Time Regulations, which require employees to use their four weeks statutory leave in the holiday year or lose it. The House of Lords has now ruled that the ECJ decision does indeed apply in the UK.

Thursday 25 June 2009

5 tips on employment law

If you’re an employer, it’s essential to stay on the right side of the law, but employment law is notoriously complex. Here, I give you five simple tips for being a good employer – and staying out of court or the tribunal.

1. The National Minimum Wage

The National Minimum Wage applies to all adult workers in the UK, although not in the Channel Islands or the Isle of Man. It covers all kinds of workers, including part-time, agency and casual. The only exceptions are the genuinely self-employed and voluntary workers. You can find out the current rates at the Department for Business Enterprise & Regulatory Reform (BERR) web site.

To work out if you are paying enough, you need to take the total gross pay, subtract payments and deductions that don’t count as gross pay, and divide this amount by the total number of hours worked in the "pay reference period" - a week, fortnight or four weeks.

Not all of an employees pay count as National Minimum Wage pay. For example, loans, pension payments, overtime and extra payments for unpopular shifts don’t count as “wages” in this context. Neither do benefits in kind, such as meals, fuel, or a car.
If your employees are paid according to their output – i.e. “piece workers” – they are entitled either to the minimum wage for the hours they work, or to a fair piece rate which means that workers who are slightly slower than average will still receive the minimum wage. There’s a guide to how to work this out at the BERR web site.

2. Who’s eligible for maternity, paternity and adoption pay

Empoyees who become parents, even through adoption, are entitled to various statutory payments.

To qualify, employees must have been employed by you for at least 26 weeks up to and including the 15th week before the expected birth of the child, or by the week they are notified that they have been matched with a child for adoption. They must also have average weekly earnings at least equal to the lower earnings limit for National Insurance contributions.

You can find out the latest full entitlements in these circumstances at the BERR web site.

3. Statutory Sick Pay

If an employee is off work through illness, you must pay them Statutory Sick Pay (SSP). This is applicable to all employees, unless:

They are off sick for less than three days.
They are paid by you, but are not employees – ie freelancers, contractors.
They earn less than the lower earnings level for National Insurance Contributions (currently £90 per week).
The have recently claimed incapacity benefit of severe disablement allowance, and are entitled to reclaim those benefits.
The maximum time that an employee can claim SSP is 28 weeks. The current rate of pay is £75.40 per week, but you can find full details of current rates at the HMRC web site.

4. Dealing with contractors

In 2000, the government brought in a special set of rules over contractors and tax, known as IR35. This was designed to stop companies from effectively employing people as contractors and thus avoiding paying full National Insurance contributions for them.

The key test for whether IR35 applies is defined as this by HMRC:

“’If the partnership or limited company did not exist in this arrangement, would your work for the client business appear to be one of direct employment?’ If the answer to this question is yes, then IR35 rules may apply.”

This makes it quite likely that any long-term contractor who performs a job which could otherwise be performed by an employee will fall under IR35. If you suspect it does, you should seek the expert opinion of an accountant of independent tax advisor. You can also contact HMRC directly through the IR35 unit, online. They will also be able to help you work out what you need to do next.

5. Be aware of health and safety

Health and Safety law in the UK consists of a comprehensive set of rules for employers. If you have any employees or have company premises which are accessible to the public, you must register with the Health and Safety Executive (HSE). You may also need to register with your local authority’s environmental health department. HSE has an online flow chart which can help you work out who you need to register with, as well as comprehensive information on your responsibilities.

How to value a business

When it comes to selling a business, the most important question you need to ask is - how much is it worth?

Unsurprisingly, there are no precise ways to value a private business. The seller will want to drive the price up, and potential buyers will want the opposite.

Although there are relatively easy ways to value certain parts of the business - such as stock, fixed assets (land, machinery, equipment, etc.), there may well be a sizeable intangible element to the value of a business.

Intangible elements would include "Goodwill" - this could include trademarks, and the reputation of the company. Such things are notoriously difficult to value, and in many cases will come down to how keen a potential buyer is to acquire the business in question.
When looking at the overall value of a business, there are a number of different valuation methods which are commonly used - from using earnings multiples, to calculating how much it would cost to create a similar business.

In this article, we look at some of the most commonly used valuation techniques, and how other factors may influence the value of a business at any given time.

Common Business Valuation Methods

EARNINGS MULTIPLES

Quite often, multiple of earnings are used as a business valuation method. This method would be suitable for companies with an established financial history. The Price/Earnings (P/E) Ratio represents the value of the business divided by its post tax profits. It may not be easy deciding what P/E ratio to use (some industries, such as high tech / IT ones will have a much higher P/E ratio than, say, an estate agency). The P/E Ratios used in the financial press should be reduced significantly when valuing a small business, as the barriers to acquiring a small company are much higher than buying quoted shares on the stock market. Quite often, business advisers will suggest a valuation of between 5 and 10 times the annual post-tax profit.

ENTRY COST

Quite simply, this is the predicted cost to set up a similar business to that being sold. This would include the cost of developing a customer base and reputation, recruiting and training staff, purchasing assets and developing products and services.

ASSET VALUATION

This method is more appropriate for established companies with a large amount of tangible assets (such as property companies). The valuation is made by calculating the net realisable value of all assets.

DISCOUNTED CASHFLOW

This method uses an estimate of the company's cashflow over a certain period of time. The "terminal value" of the company is also calculated after this period has expired. The value of the predicted cashflow, plus terminal value, is then discounted, to provide a current business valuation. It may be hard to establish this terminal value, as it relies so heavily on the cashflow estimates. This valuation method may be used when a company may have a lot of potential, but few assets and little financial history to speak of - for example, a web business.

INDUSTRY VALUATIONS

In certain industries, when businesses change hand on a regular basis, industry-wide rules of thumb are sometimes used to value a company. Examples of such industries include recruitment agencies, accountancy firms, etc.

Other Considerations

When calculating the value of a business, one or more of these valuation methods may be used. There are also a large number of other factors which may be taken into account - several of which are intangible.

ECONOMIC CLIMATE

Clearly, a buyer may be more cautious when buying a business during an economic downturn.

FIXED ASSETS

Quite often, such assets can be valued by using the original purchase price and using a depreciation calculation on each item. Things aren't quite as simple however, as property prices may have risen or fallen since the original purchase, and even after a deduction to allow for depreciation, many business assets (such as vehicles, and equipment) may be worth a lot less if you tried to sell them right away.

INTANGIBLE ASSETS

Some of the most valuable parts of a business may not appear on any balance sheet - these may include trademarks, reputation, branding, key people, the size and quality of the customer base. Valuing the potential value of a business is notoriously hard to do, but clearly a rapidly growing business will be very attractive to buyers.

REASON FOR SALE

If a sale is forced, any valuation methods are bound to be discounted to encourage a quick sale.

REALITY

It may be a cliché, but a business is only worth what someone is willing to pay for it. Many small business owners grow attached to their businesses, and often value their companies at higher levels than industry conventions would dictate. So, it is worth being realistic about the true value of your company before offering it up for sale.

GOOD ADVICE

You should always consult an accountant, or financial adviser, before selling your business.

Wednesday 24 June 2009

Government urged to lift dividend and interest caps on CICs

Charity Law Association says restrictions are deterring social enterprises from adopting the legal model.

The Government should ease restrictive rules on how much community interest companies can pay investors, according to an association of charity legal specialists.
The Charity Law Association said the CIC structure, which was intended to act as a legal model for social enterprise, was not being taken up by potential social entrepreneurs because of worries over caps on interest and dividend payments.
In response to a consultation carried out by the CIC regulator, which closed last week, the association said the cap limiting how much CICs can pay in performance-related interest should be abolished.

It said the rules imposed on CICs in this area were stricter than those imposed on charities.

It was not necessary to have a cap both on the total amount of dividends a CIC could pay and on the maximum dividend it could pay per share, the association said.
It would like to see CICs able to distribute up to 49 per cent of their profits and have no maximum return on investment per share, it said.

"There is no reason why investors in a CIC that does well should not receive a good, even a great, return," the association said.

"Arguably, it is for the market to decide what return investors should receive rather than the regulator, provided the fundamental principle that most of the profit is reinvested for the benefit of the community is adhered to."

It added that the risk to reward ratio imposed on investors by the existing regulations was likely to discourage investment.

The CLA response concluded that the regulator should survey both philanthropic and commercial investors to find out what levels of return they thought were reasonable.
It said the Bank of England base rate should be used to calculate caps.

Life Insurance: top 5 tips for consumers

Here are the top 5 tips that consumers should bear in mind when buying Life Insurance.

SHOP AROUND

GET THE RIGHT TYPE OF POLICY

BUY ENOUGH COVER

CONSIDER SINGLE LIFE INSTEAD OF JOINT LIFE POLICIES

USE A TRUST

The Life Insurance market can be very complicated to even the most experienced customer. Here are my 5 top tips on how to pick through all the options and choose the best policy to ensure your family is financially protected if the worst happens during the current economic turmoil.

1. SHOP AROUND

Always shop around and be careful not to trust your bank or any other tied source to provide the best price or advice. High Street mortgage lenders and supermarkets are usually tied to just one provider and can be very expensive. Make sure you speak to a company that is not tied to just one insurer and can advise you on the best policy for your own unique circumstances. Remember that no one insurance company can ever be competitive or suitable for everyone.

2. GET THE RIGHT TYPE OF POLICY

This might sound obvious; however, there are dozens of different types of life cover plans available. Known as 'Term Assurance' the most common form of life cover pays out should you pass away during a specific time period. However the amount of payout you receive can be level, increasing or even decreasing over time to protect a mortgage. Cover can also be paid as an income (known as Family Income Benefit) or a lump sum, and a range of other options are available including critical illness, waiver of premium, conversion, renewal and so forth. There are also policies that run until you pass away, regardless of when this may be, so either do your research or speak to someone who can guide you through these options.

3. BUY ENOUGH COVER

£100,000 might sound like a lot today, but in ten years time this is unlikely to produce more than a few thousand a year in income, which wont last very long at all. We don't believe that any set formula works for every individual; however, insuring any debts, such as the mortgage with an extra £150,000 per young child would be a good start.

4. CONSIDER SINGLE LIFE INSTEAD OF JOINT LIFE POLICIES

Traditionally joint life cover was far cheaper than a couple taking one policy each. However, in recent years this has changed. Buying two single policies potentially provides double the cover, doesn't leave a surviving partner without cover later in life and often only costs a few percent more. Couples should compare the price between the two options before buying.

5. USE A TRUST

Every £100,000 of life insurance is a potential £40,000 tax bill under current Inheritance Tax legislation. A trust is a free and simple way to ensure that the monies go to the right person quickly and, as any asset under trust is not considered part of your estate, upon death the pay out is not taxable. Delays in estate planning can often occur as it can take months, if not years, for probate to be granted. Assets in trust bypass such delays meaning that the monies are paid promptly.

Monday 22 June 2009

Companies Act 2006 – October 2009 Implementations

Change of Company Name:

Under the new provisions coming into effect of 1 October 2009, a company can change its name by 4 methods:

resolution,
conditional resolution,
resolution from directors,
means provided in the company’s articles.

Companies must notify the Registrar by completing a notice available for each method. This notice must be accompanied by the fee.

Change of name is a part file process. The change of name is only effective when the Registrar has processed all the documentation required. Names cannot be reserved so we strongly recommend you send the documents together.

Since October 2008 a name can also be changed by the Company Names Tribunal as a result of a successful complaint for opportunistic registration.

Similar and Same Names

The rules on ‘same as’ will be stricter. For example, Companies House will disregard a number of matters if they appear at the end of the name and they are preceded by a full stop including “GB”, “services”, and “com”.

You may register a name that is the “same as” another in the registrar’s index if the company belongs or is to belong to the same group as the company already on the register and a written consent from the latter is filed at Companies House.

For company directors, if a middle name is missing Companies House has already started to automatically enter the middle name on official records to show their complete name, by matching dates of birth. This is not true for company secretaries, whose date of birth is not submitted officially.


Directors’ Service Addresses

From 1st October 2009 every director must provide Companies House with both their usual residential address, and for each directorship they hold, a service address. The service address will be on the public record and will be public information but the residential address will be protected information. A director can choose any address as the service address including the registered office address of the company. The address must be where documents can be delivered and an acknowledgement or receipt can be provided if required. The address can not be a PO Box or a DX number. If the director chooses to use his residential address as the service address the fact that the two addresses are the same would not be apparent from the public record.

The residential address will only be available to prescribed regulatory authorities such as the police and HMRC, and it may also be made available to Credit Reference Agencies.

10 Common Book-keeping mistakes

Bookkeeping is one aspect of business that everyone I come across seems to dislike with a vengeance. Personally, I cannot understand that because I love bookkeeping! However, over the years, I have continually bumped up against people who have the following “points of pain” with bookkeeping:-

1. Keeping up to date!

What a bore it is. There is never enough time to do everything my growing business needs without worrying about the books! All I need to know is who owes me money! I am only forced to keep records because I am an unpaid tax collector for the government! My accountant deals with the books at the end of the year - I just cannot be bothered! I am sure the VAT comes around more than every 3 months! I just guess at the figures each VAT quarter - I have been in business 10 years and never had an inspection so why bother doing it properly?

Can you relate to any of these comments?

2. Meeting deadline!

I am never sure which deadlines are relevant to me? I cannot believe I had just been fined by the VAT - they said my last return was late but I posted it on the last day of the month! I am so confused by all the deadlines I have to meet I have no idea which ones are legally binding and which ones are not. I thought I paid the wages deductions at the end of the tax year when the forms are sent to the Tax Office - is that not right? The chap at the pub last week said I could ignore a reminder from the Tax Office about the wages deductions - they do not really bother with small amounts - but now I am being taken to court!

Are you confused by deadlines?

3. Current information!

I keep all the relevant stuff in my head - I don’t need to write it all down! I am not VAT registered so I don’t need a full set of books! The only person interested in my business figures is the Tax Office - why should I tell them everything? I only get things up to date when the bank manager insists on reviewing my overdraft - I can never understand why he thinks things are so bad all the time! Only big public companies need detailed books - right? I wish my books were up to date - I might be able to see why I never have any money - but how do I get them done?

Do you know how your business is doing every month cash flow and profits wise?

4. Visits and Inspections!

I have just had a letter from the VAT office - they are coming next week to do a full inspection - what do I do? Can the Tax Office really demand all my records, bank statements - everything - what can they get from just the bits and pieces I keep? Why would the Tax Office want to see my wages records - I only have half a dozen casual workers and they all get paid cash so I do not bother keeping track of everything? I have just been through a VAT visit and I can’t believe the amount of VAT they say I owe them - where am I going to get that kind of money? All my dealings are in cash so I do not have to produce anything to the Tax Office if they ask because they cannot prove anything if it isn’t written down!! What is a capital statement? The Tax Office said as I have no records they will build up my income from what I spend - how much do I put down?

Not had an inspection yet - you will - sooner or later!

5. Defence against H M Revenue & Customs Assessments!

I have just been through a Tax enquiry and they reckon I owe a massive amount of tax - my accountant had been niggling at me for years to get my books in order but I just thought he wanted more money out of me - now I face bankruptcy because I have no records to fight the additions the Tax Office have estimated! My business is all cash and I never use a till because tills leave traces - why do the Tax Office insist my takings are under-declared - why do they not just accept what I say and go away?

Tax enquiries are the way the government polices the Self Assessment regime

6. Free time!!

I do not bother with proper books because it interferes with my family and social life - no-one looks at them anyway - my accountant just deals with what I give him! I used to be good with my books but as the business grew I just could not keep all the plates spinning!! I just have to be in the Pub by 5pm otherwise I miss the in crowd - books do not really matter anyway! My holidays are much more important than boring bookkeeping! I simply will not miss any of the matches - I paid good money for my season ticket!

I value my free time too - but bookkeeping cannot be ignored

7. Complications!!

When the business was small the books were easy - but as it grew things became more complicated and I just could not cope any more so I leave it to the accountant at the end of the year! I get in a mess every time I try and use this bookkeeping package my accountant recommended - it cost an arm and a leg but I just don’t know how to make it work and their training courses are so expensive as well! I used to use a computer package but they kept sending me updates and one of these totally messed my books up - so now I do not bother any more - if the Tax Office insist on looking at my stuff perhaps they can make more sense of it then I ever could!

How does anyone choose a bookkeeping method that is right for them?

8. Helpful spouses!

My business grew very quickly so I got my wife to do the books - I thought she was handling it - but when the bank manager came on the phone about the account being so overdrawn - I found out she had not bothered - now what do I do? I have not got time to sort it all out! My partner would rather be at the shops than doing the books - I thought the books were ok! My husband is an accountant so I do not bother with books for my hair salon! My wife knows a bookkeeper and told me she would pass everything over to them - but now I cannot contact them and they have all our stuff! My husband put last years records on the bonfire - he thought they were just old bits of rubbish, what do I do?

Your books are the most valuable part of your business - protect them!

9. Bookkeepers…

I really want some help with my books - but where do I find a bookkeeper? How will I know they are any good? Will a bookkeeper end up costing me money because they do not know the business like I do? I do not really want anyone to know all my business secrets! How will I know if they make a mess of the job - I don’t understand what they are doing! I cannot afford a bookkeeper!

A good bookkeeper is an invaluable asset to any business!

10. Misconceptions:

Having a bookkeeper is like having a leach sucking money out of the business for no benefit! I am sure my bookkeeper works for the government - the VAT seems to grow every quarter! My bookkeeper keeps hassling me for receipts - why does she need them - I never did!! My tax bills will rocket if I use a bookkeeper and all the sales are declared! Where do I find a “bent” bookkeeper that will keep profits and tax low? Isn’t having the accountant knock some stuff together at the year end good enough? I just do not feel right declaring it all

Do you know any others?

It is true that most accountants never want you to question your bookkeeping because they would like to keep making excellent money from you whilst they sort out the mess each year. If they also recommended a computer bookkeeping package to you as well, they probably made money on that too, both on the sale of it to you and also when you ring up asking simple questions about how to do this and that with it.

The trouble is, most business people just do not realize how valuable an excellent set of records is to them. Or how their books are the cornerstone of their defence when subjected to an in-depth Tax or VAT investigation.

Let me explain those two important points in a little more detail.

Your business records are, if kept well, are the most valuable asset your business has. For example:-

1. They hold the key to how profitable your current activities are

2. How important each of your customers are with their order size and frequency of buying

3. How much money you have tied up with your customers who have not paid yet

4. How much money you are committed to paying your suppliers

5. All contact details of everyone you deal with are in there

6. The indications of how each of your employees are performing are in there.

7. The exact amount due in respect of VAT can be seen building day by day - so no nasty shocks at the end of the quarter!

8. Instant reports of profits/stock levels/cash flow/debtors/creditors etc., available at the touch of a button

9. Impress the Bank Manager when he calls for this detail or that report and you can produce it instantly

There are many more factors but these give you a taste of why records are so valuable - and never more so than when you want to sell the business and get the maximum money for it because everything the buyer needs is so clear and accessible.

An excellent set of records is your best defence against an in-depth Tax or VAT investigation because they are so complete, up-to-date and straightforward. The less opportunity you leave for gaps or omissions to occur in your records, the harder these civil servants will find it to claim your records are understated and incomplete.

Sunday 21 June 2009

Professions defined

Accountant - Someone who knows the cost of everything and the value of nothing.

Auditor - Someone who arrives after the battle and bayonets all the wounded.

Banker - The fellow who lends you his umbrella when the sun is shining and wants it back the minute it begins to rain. (Mark Twain)

Economist - An expert who will know tomorrow why the things he predicted yesterday didn’t happen today.

Statistician - Someone who is good with numbers but lacks the personality to be an accountant.

Actuary - Someone who brings a fake bomb on a plane, because that decreases the chances that there will be another bomb on the plane.

Programmer - Someone who solves a problem you didn’t know you had in a way you don’t understand.

Mathematician - A blind man in a dark room looking for a black cat which isn’t there.

Lawyer - A person who writes a 10,000 word document and calls it a “brief.”

Psychologist - A man who watches everyone else when a beautiful girl enters the room.

Schoolteacher - Is some one who likes children. A royal baby sitter.

Consultant - Someone who takes the watch off your wrist and tells you the time.

Diplomat - Someone who can tell you to go some where you don’t like in such a way that you will look forward to the trip.