Month: October 2008

Categories
Starting Up

Private Limited Company Advantages

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When considering the advantages of a private limited company registration against retaining self employed status the decision taken by a sole trader is often entirely focused upon the tax advantages. There are other private limited company advantages and also disadvantages particularly in regard to limited company accounts and administration compared to producing a simple set of sole trader basic accounts.
A private limited company advantages include:
1. Limitation of Liability
There is no distinction between business money and personal money for anyone self employed as all business debts are the personal responsibility of the sole trader. The private limited company advantages are that the company is a separate corporate body and liability for payment of debts stops with the pvt ltd company, the owners, shareholders are not personally liable. The directors are only liable if they continue to trade and incur liabilities after it becomes apparent the ltd company is insolvent.
2. Lower Taxes
Lower corporation tax offered a private limited company advantages over self employment in recent years. The £10,000 tax free limit was cancelled several years ago. Corporation tax rates have increased from 20 per cent to 22 per cent for small ltd companies over the last three years compared with the basic rate tax for a sole trader which has reduced from 22 per cent to 20 per cent Incorporation does still offer tax saving advantages dependent upon the net profit before tax.
The private limited company advantages come from the flexibility of being able to determine the proportions of salary and dividends taken compared with a sole trader whose basic accounts are subject to tax at fixed tax rates and thresholds.
A sole trader receives a £6,035 personal allowance and pays basic rate tax of 20 per cent on the next £34,800 of earnings up to the higher threshold limit and 40 per cent tax thereafter. Class 4 national insurance is 8 per cent of earnings up to the upper primary threshold and 1 per cent thereafter.
Dividends are taxed at 10 per cent on total income up to the higher threshold and 32.5 per cent above. The dividend is a distribution of company profit after corporation tax has been deducted and so the shareholder also receives a dividend tax credit from the pvt ltd company of 10 per cent.
There are significant private limited company advantages regarding tax liability compared to a sole trader where net income is below the upper earnings threshold.
For example assuming the limited company net profit before salary is £35,000. A sole trader would pay income tax of £5,793 plus national insurance of £2,317.20, a total of £8,107.20.
If a salary of £6.035 is taken and the rest is taken in dividends a private limited company would pay £6,372.30 corporation tax, after deducting the salary from net taxable profit and the sole trader now the shareholder would pay no income tax.
The advantages increase where net taxable profit is above the self employment upper earnings limit as money can be left in the business and therefore only subject to the 22 per cent corporation tax rate thereby avoiding the sole trader 40 per cent tax rate. Another possibility is to distribute the shares among family members to reduce the risk of 40 per cent tax.
3. Limited Company accounts and Sole Trader basic accounts
Sole trader basic accounts can be quite simple as a formal accounting system is not required and can be reduced to simple lists of income and expenditure supported by documentary evidence of sales and purchase invoices, effectively single entry bookkeeping. Producing a balance sheet is optional. Due to the simplicity then an accountant may not be required saving a significant cost.
Ltd company accounts have to use double entry bookkeeping to produce the year end accounts including a balance sheet with statutory notes and statements. Unless accounting software is employed to produce the company accounts in this format then accounting knowledge is required and an accountants fee may well be in the region of £500 to £1,000. An accountant is not essential for a small pvt ltd company but is the normal approach and offsets some of the tax advantages.
4. Additional financial considerations
Because a director is also officially an employee of the pvt ltd company this gives rise to a number of considerations in determining the extent of a private limited company advantages.
Pension contributions of a sole trader are personal and while may be deducted from the personal income liability do not form part of the basic accounts. The pension costs including any company contribution to a pension scheme by a private limited company is a deductible business expense as an employee cost.
Using a car for business purposes may have an impact. The sole trader basic accounts would include the business proportion of the vehicle running costs or the mileage allowance. If that vehicle is used by a director then that director is receiving a taxable benefit potentially resulting in a higher tax burden depending upon the type of vehicle as taxable benefits vary. An alternative may be to leave the company vehicle privately owned and the director claim mileage allowances rather than vehicle running costs.
Potentially small issues but there differences in the accounting treatment of deductible expenses such as charitable donations, entertaining expenses and use of home as office. A private limited company advantages consist of being able to claim such expenses as valid business expenses which would not be claimable in the sole trader basic accounts as treated as personal not business.
If the director and main shareholder have other associated companies then the corporation basic tax rate could be affected.
5. Administration, management and business standing
A sole trader basically pleases themselves with regard to the administration and management of the business. A company director is responsible for adhering to company administration according to statutory regulations in regard to both the limited company accounts, statutory books and management as stated in the articles of association. The duties of a director are more formal than a sole trader.
Forming a private limited company is an indication that a business is both serious, has a long term objective and is correctly managed. This psychological perception can increase the business standing of a business. In addition funding requirements are more likely to be met as the lender to a sole trader has to consider the absence of a balance sheet statement in the basic accounts and the financial influences personally affecting the sole trader. A private limited company advantages concern the published financial statements, protection of the financial position from personal influences and the option of increasing security by virtue of asking directors to provide additional personal guarantees.
A private limited company advantages over self employment also extends to long term finance. Companies tend to retain more funds within the business to meet future financial commitments which aids year on year growth, a more sustainable business and medium term profits growth over a sole trader.

TerryCartwrightPhoto.JPGTerry Cartwright qualified as a Chartered Management Accountant and Chartered Company Secretary in 1971. A successful business career followed as Head of Finance for major companies in the UK and several consultancy appointments. In 2006 he created DIY Accounting producing Accounting Software for self employed and small companies that use simple accounts spreadsheets to automate tax returns.

Categories
Finance & Capital

Introduction To Vat Registration And Accounting For Value Added Tax

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Value added tax is the tax amount added to the value of goods and services by a vat registered business when sold or transferred. Vat is not charged by businesses that are not registered for vat. This guide covers the vat threshold, accounting for value added tax, registration and submitting the quarterly vat tax return online
When the sales turnover of a business reaches the vat threshold, currently 64,000 pounds per annum until reviewed in April 2008, then registration for vat is compulsory. If financially beneficial, businesses can register for vat prior to sales turnover reaching the vat threshold.
When a business registers for vat it becomes responsible for charging vat at the correct percentage on every sales invoice and transfer of goods and services and also maintaining accurate financial accounting records of the vat charged hat are subject to vat inspections. If the sales turnover has breached the vat threshold that business is liable for the vat on sales even if it has not charged the customer.
The vat charged to customers is called output tax and the vat on purchases is called input tax. When a business has registered for vat in addition to maintaining records of sales and input tax it must also keep accurate financial records of purchases and input tax in order to calculate the vat payment to be made. The amount of vat to be paid each quarter is the difference between the sales output tax and the purchases input tax and is paid quarterly to HMRC.
Specific types of business transactions are exempt from vat such as insurance and loans. If the business only supplies exempt items then the business cannot register for vat to reclaim the input tax paid on purchases.
Registering voluntarily for vat when the sales turnover is below the vat threshold is a financial planning decision that each small business should consider. There are both advantages and disadvantages to a voluntary registration and the timing of the registration may also be a feature to be taken into account.
The advantages include being able to reclaim the vat input on purchases which is otherwise lost as a financial cost to the business. However as a consequence of a voluntary vat registration that business would also have to charge vat on all its sales invoices.
If the business has mainly vat registered clients then charging vat would probably not affect sales volume and has the advantage of enhanced credibility within the business community in which it operates. Charging vat to non vat registered clients such as members of the public would increase the amount being charged and make the small business less competitive.
When a business moves from being non vat registered to being vat registered changes may have to be made to the bookkeeping records being maintained. Not normally a problem if accounting or bookkeeping software is being used provided the financial system employed can fulfil the enhanced requirements being vat registered.
The accounting requirements of being vat registered require the business to issue vat invoices which show the name and address of the business, the vat registration number, sales invoice date and the vat being charged. An accounting record must be kept of all sales invoices issued in a format that permits a subsequent audit check when the customs and excise visit to conduct an audit check of the vat records.
In relation to purchase invoices and reclaiming the vat input tax vat may only be reclaimed on those invoices for which the business has a vat purchase invoice. A valid vat purchase invoice contains the vat number of the supplier who issued the invoice. An accounting record must be kept of all purchase invoices showing the vat output tax being reclaimed.
Vat returns are normally required to be prepared on a quarterly basis and submitting to customs and excise before the end of the following month. If registered for the online service vat returns can be filed online. There are benefits to filing the tax return online in that many businesses may receive up to 7 days longer than normal to file the vat return if the vat payment is being made electronically.
There are penalties for failing to submit the vat tax return on time and interest may be charged on the outstanding amount. When a vat return is not submitted on time an assessment may be raised which has to be paid as a legal debt until such time as the return is submitted and the amount due corrected.
It is important to submit the vat return on time even if there is a problem paying the full amount. Failing to submit on time brings the business to the attention of the tax authority that is more likely to inspect and investigate persistent offenders. A business can be expected to receive an inspection every three years however in the worst case scenario of a delinquent vat registered business the customs and excise could inspect every quarter.

TerryCartwrightPhoto.JPGTerry Cartwright qualified as a Chartered Management Accountant and Chartered Company Secretary in 1971. A successful business career followed as Head of Finance for major companies in the UK and several consultancy appointments. In 2006 he created DIY Accounting producing Accounting Software for self employed and small companies that use simple accounts spreadsheets to automate tax returns.

Categories
Sales & Marketing

The Ultimate Guide To Discovering What Your Target Market Wants

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As a solo service professional you are probably already clear on who your niche is, i.e. you know who those people are who want and need your services, but are you providing the solution to their problems in the way that they want?

If your products, programs, and/or services are not selling as well as you thought they would it could be there’s a mismatch between what your market wants and what you’re providing them with. In other words, are you providing the solutions based on what YOU think the problems are rather than what your target market wants? And how do you find out?

The answer is simple… market research!

When you think ‘market research’ it conjures up all sorts of images of telephone surveys, sending out questionnaires, and standing in the street accosting people to ask them questions (yes – I used to do this type of market research many years ago when I worked for a management consultancy practice J ), and as a solo business owner it is crucial that you do your own ‘market research’ to find out what makes your target market tick, what keeps them awake at night, and what they’re really struggling with.

This process needs to be done on a continual basis – never stop asking your target market what they want – so that you can constantly provide the solutions to their problems.

Today, I’d like to share with you three simple strategies for conducting your own market research (that doesn’t involve standing around in the street!), and how you can put these strategies onto autopilot so that you’re constantly gathering information from your market. All of these have worked very well for me over the past few years.

1. Ask via your sign-up page. When someone signs up to your list, don’t just get their name and email address, ask them what their biggest challenge is too. This is something I’ve done for many years, and in fact you would have seen this yourself when you signed up for this newsletter. I have a specific question that asks: What is YOUR biggest office headache? Feel free to adapt this question for your own needs, i.e. what is your biggest [fill in the blank] when it comes to [fill in the blank].

2. Follow-up with an autoresponder. Once someone has signed up to your list, create an autoresponder that goes out a few days later and asks the same question again. Very often people may not have answered the question when they signed up to your list, and sending them an email a few days later will elicit a reply from them.

3. Create an annual or semi annual survey. At least once a year it’s a good idea to survey your readers and ask them several more in-depth questions. You’ll want to find out what their biggest problems are, what it is they want to learn more about, plus how they want to learn, or how they want their problem solved. For example, you might find your readers prefer home study courses to teleclasses, or would like more interactive programs from you. Putting together a survey is really simple, especially if you use a service such as Survey Monkey. They do the analysis for you, so you get really valuable data.

However, for the data you get through steps 1 and 2 above, analysis isn’t as automatic. Simply gather together all of your data and go through it periodically (at least twice a year) to see what your reader’s problems are. You don’t even need to be a statistician to figure it all out. Just print off all the responses and read through them, noting any common themes as you go along.

By combining all of this data, and implementing your market research strategy so that it runs on autopilot, you can then use this information to put your products and services together so that you’re providing solutions to your target market’s problems in the way that they want and need.

Remember, you are providing your market with what they want and need, not what you think they want and need.

Categories
Finance & Capital

Accounting Software Can Be Sophisticated Or Simple Bookkeeping Software

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Accounting software records the financial transactions of a business and provides financial control to achieve the profit and loss performance required. The correct choice is dependent upon the size of the business and degree of sophistication and financial control required.
Accounting software is a system of recording financial transactions on a computer across a full range of accounting options almost invariably dependent upon the size of business being catered for. Accounting software can vary from multi million pound solutions for major public companies to simple managed lists of income and expenses.
The requirements from accounting software are diverse with the most complex and comprehensive financial accounting packages incorporating financial reporting information and managed by teams of qualified accountants supported by accounts clerks, bookkeepers and substantial input from automated data sources. At the other end of the scale a self employed sole trader might use accounting software themselves and produce a set of financial accounts for the year in an afternoon.
Different accounting standards are required from accounting software dependent upon the fitness for purpose and client needs. Double entry bookkeeping automated through a database system and probably arranged in financial modules would normally be the choice of the majority of public companies. Single entry bookkeeping would not be an acceptable accounting solution for a limited company due to audit requirements and statutory obligations.
Single entry bookkeeping does however have its place in the market place for the smaller less complex businesses who maintain financial control through a close intimate knowledge of every financial transaction. The main objective of a sole trader is more likely to be the production of the tax accounts and complete the periodic and annual tax return forms.
The most sophisticated level of accounting software in the largest companies mirrors the accounting functions in those organisations with various financial modules for accounts receivable, accounts payable, stock control, general ledger and fixed assets. These accounting modules may also be integrated with non accounting functions such as production and dispatch functions and also divided into separate modules within the accounting function.
In larger companies the sales daybook and data entry of sales turnover would often be the responsibility of one department while the accounts receivable function might be split with a specialist credit control function within that accounting module. A further division may also include sales administration and customer records. Similarly the accounts payable function might be split between the purchasing department, accounts purchase invoice department and a legal function for overdue payments.
Accounting software for smaller companies and organisations is commonly a system of data entry of prime transactions which include sales income, purchase expenses and cash and bank transactions. The prime entry of these documents being to a database which automates the double entry accounting principles and produces both accounts receivable, accounts payable and general ledger databases.
Some accounting knowledge is usually required tom operate a database accounting software system and that financial knowledge is usually available within the company as most companies that use database accounting software also employ a bookkeeper or accounts clerks to input data and in slightly larger small companies also qualified accountants to manage the accounting function.
The need for accounting knowledge in a database system is partially to understand the data entry principles and the relevancy of the rules that need to be followed but essentially understanding of accounting principles is required to understand what is happening ton the information after input. And most important, a qualified accountant has the financial knowledge, training and experience to know what the system should be producing and how to query the database to retrieve that information.
In addition to inputting the prime income and expenditure details the most benefit of a database accounting system is the level of financial control the information it contains can provide the company management and financial directorship. The accounting function also has the security of producing trial balances, periodic profit and loss accounts, balance sheets and other financial and statements for tax and control purposes.
Accounting software packages requiring little or no accounting knowledge are available.
Small limited companies must obtain accounting software based upon double entry accounting principles as in addition to producing a profit and loss account and a trial balance to demonstrate accuracy and integrity of the financial records plus a balance sheet is required for reporting purposes. Accounting standards require the limited company to have a system of financial control and accounting software is an essential tool in achieving this.
Some accounting knowledge either from the management or outsourcing the bookkeeping services is usually required with even the simplest database accounting solutions eve3n if this requires the understanding of what accounts receivable ledgers, accounts payable ledger and control accounts mean.
There are other possibilities and those businesses with a minimum of accounting knowledge can consider spreadsheet based accounting software. Accounting software compiled from spreadsheets is less flexible and often does not have the range of options a database system has due to the lack of database queries available. These disadvantages of flexibility being compensated by the fact that all entries are visible, transparent and changes can be made more easily.
Financially at the sole trader and self employed end of the business spectrum then the requirements from accounting software may be completely different. Gone are the sophistications of control accounts, trial balances and many aspects of financial control. The most important aspect of self employed accounting software is often to produce a set of accounts for tax purposes.
Self employed small business that do not require a balance sheet can use accounting software based upon single entry bookkeeping rather than double entry and with the reduced requirement for financial control then less financial queries to the system are required. In these respects the simpler an accounting solution the better and in this market an accounting solution written on spreadsheets that can produce the net taxable profit would meet the requirements.

TerryCartwrightPhoto.JPGTerry Cartwright qualified as a Chartered Management Accountant and Chartered Company Secretary in 1971. A successful business career followed as Head of Finance for major companies in the UK and several consultancy appointments. In 2006 he created DIY Accounting producing Accounting Software for self employed and small companies that use simple accounts spreadsheets to automate tax returns.

Categories
How-To Guides

How to Find Your Next Executive Level Position in 90 Days

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Article Contributed by Karen Armon
Doug Compton, a laid off 43-year-old operations executive, was frustrated. His efforts to find a new six-figure executive role had resulted in only two interviews in six months. And, although he’s growing his list of contacts, Doug’s networking hasn’t resulted in any real job leads, either.
Doug always landed a job quickly but that was over 10 years ago. Based upon his results this time around, he knew he had to change his job search strategies. “But to what?” he asked himself.
Top executives, like Doug who were upper-level managers, Presidents, Vice Presidents, Directors and CEOs, and who are looking for their next position often experience these same results. Many like to blame the economy, their age, or their networking efforts. However, none of these factors are the main cause behind their lack of results.
Now, $100k+ executives must shift how they approach their executive-level job search campaign.
Landing a top role in a company is tricky. It entails presenting your potential, not your past. It includes defining yourself within your network as a top talent. There is a mix of elements in an executive presentation – both in print and in person– that “gets the ear” of the top CEO or President.
The New 7 Elements of an Executive-Level $100K+ Job Search Campaign
– Being Tops in the Industry: A CEO wants to hire only the best. When CEOs are looking to fill their top ranks of decision-makers, they want to know that the executive they hire is at the top of his or her game.
– Had Name Recognition: Top decision makers looking for thought leaders first look within their network. Rarely is a $100K+ executive level position filled through traditional job banks. Even if a company hires an executive search firm, the recruiter still looks to find the candidate that has name recognition in the industry,
– Easily Found, But “Not Looking”: 100K+ executives who can be wooed away from their current positions are the most desirable. Leaders who distribute their resumes or profiles on every available job board give the impression that they are “damaged goods.” The trick, then, is to be easily found through their network or on the Internet but give the appearance that they are NOT looking for a position.
– Considered a “Thought-Leader”: Presidents or Boards of Directors who offer positions to high-level $100K+executives want leaders who have a persona with a point-of-view. This does not mean that an executive must go out and try to be a celebrity. But, as I state in my book, Market Your Potential, Not Your Past, having a point-of-view means that one is known for having an opinion about how to move forward in a crowded industry. They have unique opinions on how to find new markets to offer products and services, and/or gather new potential customers to a brand.
– Distinctively Different than Others: Do you know the number one reason why high-level executives fail in their positions? It’s because their leadership style can’t or won’t fit the culture of the company. Offers given to top executives include those who not only do their job well but also those fit the cultural style of the company.
– Message-Ready and Visible: Today everyone checks everything out on the Internet. To “Google” is now a verb as well as a noun. Yet getting visible on the Internet requires a strategy and a thematic message. You must also execute that strategy consistently. It is well known that top ranking executive search firms first search the Internet thoroughly before presenting a candidate to a company. Therefore, if you are invisible your chances of finding that next $100K+ executive level position will be significantly reduced.
– Extensive, Engaged, and Active Network: Finding a top executive-level position quickly depends on how large one’s network is and how active it is in helping you find that next 100K+ career. If your network is small, then you are asking each member to do a lot on your behalf. But if your network is large, then a small amount of effort from each individual can yield lots of leads.
These seven elements should be part of every executive’s game plan when trying to find a new $100K executive-level position. For most, however, building these elements into an executive career campaign takes time.
What can your do if you need a job right away?
Landing a $100K+ Executive Level Career Position
The answer is to begin where you are. It’s what I call, “building the wall and fighting the battle at the same time.” There are no short-cuts. But you can improve your odds by just beginning to incorporate these elements. Even a little movement in this direction begins to set you apart as a “must-have” executive.
And that’s the point, isn’t it?
About the Author
$100K+ Executive-Level Career Coach Karen Armon prepares leaders around the world for their next move. Her popular book, Market Your Potential, Not Your Past, is a hit among executives who desire a clear-cut, systematic game plan that drives their careers forward. Now get her new FREE eBook, “Ten Micro-Trends that Impact Executive Careers Today,” and take a critical look at today’s marketplace at: http://www.marketyourpotential.com/ebook.asp