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Tax Tip – MTD

MTD (Making Tax Digital) for corporation tax has now been shelved as HMRC are turning their attention to e-invoicing which will have the same effect.

In the meantime MTD for sole traders and landlords is still going ahead

April 2026 for those with income (ie turnover, not profit) >£50kpa

April 2027 for those with income >£30kpa

April 2028 for those with income >£20kpa

In order to be compliant we recommend that you

  1. Sign up to Xero (they have a new Simple version starting at £7pm)

2. Connect you bank account

3. Keep your bookkeeping up to date each month

4. Consider joining our monthly bookkeeping sessions which provide both accountability and advice on how to do your bookkeeping (on any system) and some Xero tips.

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How can I find clients?

Many a business starts up with a great idea believing that, as in the Field of Dreams film, if they build it, he will come. Then the harsh reality comes that the founder is also responsible for sales and marketing (as well as finance!)

Here are my thoughts on sources of leads in order of the quality of clients the seem to generate

  1. Referrals – looks at your existing clients and have a process for requesting referrals. A referral usually means that you are pre-qualified with a personal recommendation. Obviously a startup doesn’t have any existing clients so this isn’t usually possible.
  2. Networking – building personal relationships with referrers, or ensuring that your existing networks (friends, family, school gates, gym, etc) all know what you do means that introductions will come with a personal approval even if they don’t quite understand your business. Networking takes 6-12 months to become fruitful but you might get lucky as I’ve been approached by a new client the first time I went to one group.
  3. Social media – this is getting harder since covid when everybody took to the airwaves but we used to generate 1/3 of our business this way. Don’t just post good quality content but turn up and interact with people. Treat it as online networking and take time to build relationships rather than advertise.
  4. Mailshots – With paper post becoming rarer it is easier to stand out this way. If you are selling to other businesses then you can obtain a list from Companies House. Make sure that you send something that makes you stand out.
  5. E-mailshots – generate your own lists rather than buying them in as there are some really poor quality lists for sale. It’s a crowded space and harder to stand out.
  6. Facebook and google ads – these are better for those selling to consumers rather than businesses but worth a try. They generate rather a lot of spam but it’s worth doing through a social media business that understands the systems.

How else have you had success generating business clients?

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Tax Tip

When we complete a corporation tax return we always suggest that our clients pay their tax bill sooner rather than later as HMRC will pay them a small amount of interest AND it means that they won’t forget to pay. Especially now that HMRC have stopped sending reminders. 

HMRC interest rates vary as they are linked to the Bank of England base rate.  

If you pay early you will receive interest at base rate minus 1%, so currently 3.25%. (There is a minimum floor of 0.5% if the base rate goes very low). The interest is calculated from the date that you pay until the date you are due to pay. 

Yes, you can get better returns on your savings elsewhere, especially as you know when you will need to withdraw it to settle your tax bill. 

But, if you forget and pay late, you will pay interest at base rate plus 4%, so currently 8.25%. The interest is calculated from the due date until the date that you actually pay. 

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Meeting contacts for contracts

Love it, or hate it, networking can be good for your business but it isn’t an instant sales opportunity. 

Networking is about spending time together to get to know each other, like each other, and eventually to trust each other enough to take the relationship further.  

Sound a bit like dating? 

You need to be prepared to take your time. Marriages are rarely based on love at first sight and neither are good quality clients. Waving a condom around as you greet your blind date is unlikely to get you the outcome that you want and business networking rarely generates instant sales. 

There are two main types of networking group.  

The closed groups where visitors are welcome but membership is selective. In these groups it is easier to build trust as you get to see the same people on a regular basis. Regular visitors ensure that the group doesn’t become stale as one member might invite a colleague who can benefit from an introduction to somebody else in the group. Done right the members of the group begin to share access to each other’s contacts as appropriate. We belong to the We Mean Biz network in the SouthWest. We also like to introduce our clients to each other for mutual benefit. 

There are also open groups where the attendee list can be much more varied but the visitors often come and go before anybody can get to know them. These are a bit more like speed dating. To get the best out of these groups it is important that you follow up any suitable leads with a one to one meeting over coffee (or tea!). This can be a bit like kissing a lot of frogs to find your prince or it can lead to some great business connections. 

I would usually recommend a mixture of both so perhaps join one closed group and then visit some other local groups each month. 

If you’d like more information about We Mean Biz then drop me a line or check out their website We Mean Biz – Business Networking Where You Come First – We Mean Biz 

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The importance of delegation 

Some people find it easier to delegate than others. I’m one of the former, perhaps because I find it easier to find people who are better than me? 😉 But it is also important to be able to stand back and let them get on with things while ignoring the temptation to micromanage.

I’ve written and spoken elsewhere about HOW to delegate so I’ll address WHY it is important for you to delegate.

  • Moving away from hands on work allows you to remove yourself from the business in order to focus on strategy and business improvements. You can’t see the view from the bridge if you’re busy shovelling coal in the engine room.
  • It empowers your employees and enables them to step up (using you’re your training, procedures, and checklists) and maybe even step beyond your current standards
  • It allows your team to develop more skills themselves and even to add new skills to the team
  • It improves team productivity and efficiency. Get the right pegs in the right holes instead of trying to do everything yourself, irrespective of whether it’s in your area of expertise or not
  • Spreading the workload allows you to reduce your personal stress and avoid burnout

So, sit back, relax, and delegate.

A couple of extra bits that caught my eye:

New supercomputer in Bristol UK’s most powerful supercomputer Isambard-AI comes online – BBC News

ICAEW Q2 Business Confidence Monitor (regional updates will follow) UK Business Confidence Monitor: National | ICAEW

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Tax Tip – 10 point tax review with year end 

When we complete year end accounts for our clients we complete a 10 point tax review for each business as standard to ensure that they are making the most of their various allowances.  

1. Are the using the most appropriate trading vehicle eg sole trader or partnership vs limited company 

2. Should they register for VAT voluntarily or if they have exceeded the rolling 12 month limit (currently £90k including reverse charge income)? If already VAT registered are they on the most suitable scheme? 

3. Should their spouse be a partner, shareholder, or employee? 

4. Are they taking the most appropriate salary vs dividends? 

5. Are they approaching certain cliff edges such as 25% corporation tax, higher income child benefit charge, etc and are there legitimate ways to keep their income below these limits? 

6. Are they investing in pensions? 

7. Should they be paying/receiving interest on their DLA? 

8. Are they using part of their home for business and should they claim these costs? 

9. Are they eligible for Research and Development tax credits and is it worth claiming (as the fees can be quite high for legitimate experts)? 

10.Would they benefit from an EIS/SEIS scheme? 

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How to automate your business processes 

Start by identifying the most repetitive tasks, or the repetitive steps of larger tasks.  For us that is the accounts production, bookkeeping, onboarding new clients, and chasing client records. 

Choose the best tools for you. This may not be the same as for another business. For instance, we wouldn’t use the same tools as a large accountancy practice as we have fewer clients, a smaller team, and our clients’ needs are much simpler. 

We use (mainly) Xero for our client bookkeeping which means that we can use Hubdoc, Apron, or Dext for our clients to upload their invoices digitally. XeroTax fits smoothly onto our Xero clients or we use Xero Ledger for those clients not already on Xero. We have two different working papers for limited or unincorporated clients. The danger with small clients is that the checking can often take longer than the actual accounts production so we try to simplify this as much as possible. Onboarding, and the interminable task of chasing clients for records, is done through Bright Manager. 

Train your team to use the software. Xero provides free training and certification for accountants which enables us to get the most out of the software. We create our own training videos for clients. Bright Manager has some training but we rely more on our own internal videos. 

In line with our continuous improvement mindset we keep trying to get more out of our existing automation and to keep an eye out for other automation that can help us. 

Automation is great but never forget to have a human being available when necessary. 

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Tax Tip – Dividends

If you take dividends out of your business without sufficient profits after tax to cover this they can be classed as ILLEGAL dividends. To avoid this we often end up reclassifying payments as director’s loan account (DLA) but this can lead to additional taxes in the form of Section 455 penalty tax on an overdrawn DLA, class 1A employers national insurance on beneficial loans, and personal tax on beneficial loans. 

To avoid this please stop taking money out of the company and instead check:

  • Will there be sufficient profits left in the business to cover corporation tax? This will require you to have up to date bookkeeping or even management accounts.
  • Will there be sufficient cash left in the business to pay all bills as they fall due? This will require a cashflow forecast. It is particularly important to ensure that you have funds to settle all tax bills when they are due as HMRC take a particularly dim view of business owners helping themselves to cash that should have been used to pay taxes. 
  • Have I completed the correct paperwork? You will need a minute of the board meeting declaring the dividend and a tax voucher when it is paid out or transferred to your DLA?

If you do not have enough money in your business then you will have to find the cash for your personal expenses elsewhere or to alter your lifestyle to live within your means.

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Your business isn’t your family

Okay, some of us run a family business, but it should still be run along professional lines.

Employees may underperform and you will need to follow your disciplinary procedures to bring them back in line. You may even need to sack them if they are more of a liability than an asset so make sure that you do everything legally. Employees may leave you for better pay, conditions, or opportunities. Or you may need to make their positions redundant if you need to reorganise the business or make cutbacks if the business is underperforming.

While many clients will become friends yours is primarily a business relationship. Why would you offer ‘mates rates’ when your mates should be supporting you to set up your new business? Would they give up part of their salary as willingly as you drop your prices? You may need to be disciplined about only answering business queries during working hours and not in the middle of your sister’s wedding. Real friends wouldn’t want to spoil your free time.

Clients may leave if they feel the grass is greener on the other side in terms of price or services. Similarly we need to charge commercial prices to everybody and to increase those in line with inflation each year.

If you treat your business as a business and your friends as good employees or good clients then you will be able to offer a much better service overall. If you have to sell yourself cheap or accept poor standards to keep their friendship then are they really friends?

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Interest on directors’ loan account (DLA) 

If you have put money into your limited company that has not yet been repaid then you can pay yourself interest on this loan. This can be a tax efficient way to take money out of the company BUT you would need a CT61 form completed for HMRC each quarter. 

If, on the other hand, you have borrowed money from your company then you may face a higher tax charge and even a personal tax charge.  

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