PRIME business club

www.entitledto.co.uk is a free web-based calculator that can help you work out which - if any, benefits you are entitled to receive, and give an indication of how much. It can also give a quick figure for any tax credits you should get, so you can decide whether to claim.

Many people setting up a new business make little or no profit at the start, so Working Tax Credit may well be payable. Once your net profit rises enough you will of course have to give HMRC its cut, so while your income is low it is only right to claim.

Check your entitlement now. Don’t let the banks snaffle up all the money!

With spending on London’s 2012 Olympic bid now projected to top £9 billion, what chance have small businesses of getting their hands on any of the loot?

Well, at least some. You may not be able to grab 10-digit sums, but you can at least bid for some of the smaller contracts on the www.competefor.com site.

The web site is run by the London Development Agency, but you don’t have to come from the London area to participate. Among the opportunities listed are many smaller ones, such as those listed below. Note the broad range, from construction to catering and web services, and the scale, which includes some small projects posted by larger subcontractors.

Ecological Consultancy Service
Description: An ecological survey and assessment is required at the Eton College Rowing Lake at Dorney Lake, due to host the Rowing, Flatwater Canoe/Kayak and Paralympic Rowing events at the London 2012 Olympic Games.

Website Development and Ongoing MaintenanceDescription: Ongoing maintenance management and content & functionality development of LDA Climate Change microsites with an emphasis on improving their web presence and their brand. A key element is to provide up to date, useful information relating to all aspects of climate change & energy efficiency that is suitable to be posted on the websites.

Catering Team - required for Aquatics Centre
Description: Catering team required for busy kitchen servicing staff and operatives. Will need to cater for up to 400 people at peak period and deliver wholesome cold and cooked food, to be served during meal breaks. It will be necessary to cater for a diverse workforce including different faith requirements, vegetarians and those seeking healthy diet options.

Office Cleaning - Aquatics Centre site office
Description: Daily cleaning of the Aquatics Centre site offices. This includes a three storey modular block with approximately 150 desks and a 3 storey welfare unit.

Installation of fencing/hoarding
Description: The installation of fencing/hoarding for a bridge within the Olympic Park, approximately 30 metres long and comprising of 18mm ply board on a frame with typical posts 900mm deep in a 1200mm x 600mm diameter concrete foundation.

Miscellaneous Electrical and/or Plumbing Works
Description: Miscellaneous electrical and/or plumbing works as and when required to site offices.

Scaffolding Works
Description: Various scaffolding work as required.

Anti Graffiti Paint
Description: Supply and application of Anti Graffiti coating to concrete structures. This work is to be carried out over a period of two years on multiple visits.

If you have a low income it is possible you have lost out by the abolition of the 10p starter rate of income tax. So the current row about recent changes may affect you. But how?

According to the respected and non-partisan think tank the Institute for Fiscal Studies (IFS)

The impact of Mr Brown’s income tax changes on an individual taxpayer goes as follows: last year people under 65 paid no income tax on the first £5,225 they earned, 10% on the next £2,230, and 22% on the next £32,370; this year they will pay nothing on the first £5,435 and 20% on the next £36,000.

Taken in isolation, this means that people on incomes between £5,435 and £19,355 this year would be worse off, because they lose more from the abolition of the starting rate than they gain from the cut in the basic rate. The loss is greatest at £232 a year for someone earning £7,755.

Most people on incomes between £19,355 and around £40,000 would gain noticeably from the reform, with the biggest gain of £337 a year at £36,140.

However, that is not the end of the matter. Gordan Brown simultaneously made changes to tax allowances, Child Tax Credit and Working Tax Credit that go a long way to compensate people on lower incomes who have lost out - or they would if people claim everything they are entitled to.

So taking the whole budget package into account, and assuming everyone goes through the rigmarole and claims means-tested tax credits, how does the picture change?

The IFS again:

Roughly one family in five loses; two in five gain and the rest are unaffected.

Most of the losers are of two sorts. First, childless single people who do not qualify for the working tax credit because they [...] work less than 30 hours a week, or earn too much.

Second, childless couples who lose twice from the income tax changes, but gain at most once from the working tax credit because it is a family payment rather than an individual one.

Another vocal category of loser is early retirees, who do not receive tax credits, but who are too young to benefit from the increase in the tax allowance for those aged 65 and over.

The IFS goes on to make various recommendations about how the policy can be changed at this late hour. Some concessions are likely with local elections coming up and a revolt of Labour MPs in the offing. But the moment it is too early to say exactly what the final outcome will be.

One fact though is clear. The way the tax system is changing it is becoming increasingly important for people in work to claim things like Working Tax Credit and Child Tax Credit. Far from being welfare benefits separate to the tax system, the government is increasingly making them part of normal taxation. If you don’t claim you are in effect paying tax at the wrong rate, and losing money.

LATEST from BBC on 10p tax rate row

Full IFS article on abolition of the 10p starting rate

PRIME guide to how to claim Working Tax Credit

Neat tax calculator to check roughly what you pay

From October 2008, a new benefit called the Employment and Support Allowance (ESA) will start replacing Incapacity Benefit and Income Support for those unable to work due to a disability or long-term illness. The new system will apply to new claims from 27 October 2008. Those with existing claims accepted before that date will continue to be paid on the existing system for another two years.

At the moment you can apply for Incapacity Benefit or Income Support, or sometimes both under a confused system that will eventually be completely scrapped.

At the heart of the new system is a new medical test, the Work Capability Assessment, designed “to look at what people can do rather than what they cannot” according to the government press release.

ESA claimants will be split into two groups based on the results of the test: those judged able to take part in some form of work and those who can’t. The amount of money you receive and the sort of training, if any, offered depend on which group you fall into. Meanwhile Jobseekers Allowance will continue to be available for those without health problems who quailify.

These changes are all part of the 2007 Welfare Reform Act, which is only now becoming law as the relevant provisions are enacted. You can read the detailed regulations passed at the end of March here.

There is a good discussion on BBC Moneybox on how these might affect real claimants.

The new system has had little detailed coverage in the press, with most media outlets ignoring it or treating it as an opportunity to comment on benefit fraud. However, the whole welfare reform process has been dragging on for some time. Many of these changes were announced last year by then Work and Pensions secretary Peter Hain, prior to his resignation in a scandal over alleged failure to properly declare over £100,000 in political contributions.

Official DWP page

Get tough tests face the sick on benefit

Is Labour abolishing illness?

Are some of your customers stars, bringing in money, skills and enhancing the reputation to your business? And are others quite frankly duds, bringing you hassle and actually losing you money on each sale?

Simply asking these questions can lead you into making some useful changes to the way you do business - so you do more work for the customers who are better for you.

But sometimes it isn’t obvious who the heroes and villains are. So here’s a 10-step technique  that will help you identify them.

Calculating what a given client is worth to you

1. This works most simply in businesses where you have a few clients, but if you’ve got a lot divide them up into meaningful segments that you can find or estimate figures for - e.g. those who buy food and those who don’t, the Monday crowd versus the Saturday crowd or whatever. It’s also more accurate if you do it for a longer time period, so quarterly is better than monthly, but don’t worry if your records don’t go that far back.

2. Next you need to know your own hourly staff costs. In an established business this would be the salaries plus all the costs of making someone productive - office space, equipment and so on. However in a start-up where there’s just you and you are not paying yourself much yet it may be hard to come up with a plausible figure. For this exercise a rough approximation will do. So you could just say £10 or whatever you think is reasonable. We are going to apply the same figure to all clients so it still makes for a fair comparison.

3. Now for each client or segment you are interested in tot up the total hours you spent on them last quarter, and multiply it by your hourly staff time figure. Add in any other significant hard costs like travel or material spent on that client. That will give you the cost of that client.

4. Now check what they brought in last quarter. You can keep things fairly simple. If you invoice in bigger chunks divide it up to give you a quarterly figure. And for segments tot up the quarterly income for the group - gross, without deducting any costs.

5. Subtract the cost of the client you worked out at step 3 from what they brought in. The result is a fair approximation to their relative monetary value to you.

6. Next the important bit - the fiddle factors. We all know some clients are reliable and easy to deal with, while others are a pain. So think of a fair monetary value in pounds per quarter for the joy (add) or pain (subtract), and apply this hassle factor to the value score.

7. We also need to recognise that some clients are valuable for strategic reasons - perhaps referring business to us, allowing us to build up valuable expertise or taking us in the direction we want the business to go. So we need another fiddle factor to recognise this strategic value. Again add an appropriate positive amount in pounds to any client taking you in an exceptionally useful direction, subtract money from clients who lock you into dead-end work you’d rather avoid and leave average clients alone. This gives the overall “value” of the client to you.

8. Now repeat from step 3 to 7 for all the clients or segments you wish to compare.

9. You should end up with a set of numbers, with best clients scoring high and your worst low. Note that because of all the approximations and the inclusion of intangible fiddle factors the number doesn’t represent the actual profit from each client. For that you’d need more real data, which you should eventually accumulate.
Nonetheless, this exercise is legitimate and does tell you something important. The high scorers are bringing in the most value to your business in the broadest sense. The low scorers are more of a drain and repay your efforts less. So if you have uncovered any serious duds or brilliant stars you might want to drop the duds and work more with the stars should the opportunity arise.

10. One final step may make identification of heroes and villains easier. Divide the value figure for each client by the number of hours you worked for them, which you’ve already totted up at step 3. This removes the amount of business you are getting from them from the equation, and gives you more of a pure customer-quality score. The high scorers are the ones you probably want more business with.

Owners of small businesses selling all or part of their business will only pay capital gains tax at 10 per cent. Months of speculation about changes to Capital Gains Tax were finally clarified in the Chancellor’s 12th of March 2008 budget report.

The 10 per cent rate applies only to the first £1 million of assets sold during a person’s lifetime. This so-called “Entrepreneur’s Relief” is a response to criticism of the original proposals.

These would have treated people selling small businesses they had laboriously built up themselves in the same way as big private equity firms that just buy and sell assets - hitting both with the same high rate

Tax expert Penny Bates comments on the BBC site

More about tax and disposing of a business at the HMRC site

In other budget news, the Small Firms Loan Guarantee scheme will get extra funding to encourage the banks to lend small businesses they might otherwise consider too risky. And a new capital fund will be set up to encourage female entrepreneurs to grow their businesses.

Other measures are promised to make it easier for small firms to bid for public sector contracts.

Most small business owners would reject the offers made on TV’s Dragons’ Den, according to a poll by accounting software firm Kashflow. Almost two-thirds of the firms participating felt they could get a better deal elsewhere. The Dragons typically offer cash in return for taking a hefty equity stake.

The research revealed that business owners do not believe that the deals offered by the five Dragons represent good value for money. Instead they would turn to a bank in the expectation of getting a more reasonable rate on a loan, or private backers in the hope of retaining a larger percentage of their own business in an equity deal.

Of those who would take the offer, the most popular reason was to benefit from the experience of the Dragons, followed by the opportunity to grow fast and the PR benefits.

Full story

This is an update to an earlier post on the same topic. Our basic position hasn’t changed:

Remember: grants to small businesses are relatively rare in the UK, usually have strings attached and are unlikely to give you 100 per cent of the money. Customers are the real people who can grant prosperity to your business, and where you should put your main effort.

But we’ve added some new links if you decide nonetheless to spend a little time hunting for them.

Introduction to business grants

Grants to ordinary businesses are not the rule in the UK, and vary from place-to-place and time-to-time. There has to be a reason why a grant-giving body would want to support you - for example to regenerate a particular run-down neighbourhood, to encourage the survival of some craft skill or to ameliorate some economic disaster afflicting a particular industry.

Except in the last case, a grant can be thought of as a kind of bribe to change your business behaviour. Expect there to be strings attached.

Applying for a grant can be a very complicated process, and even if you get it the grant will often only cover part of your project costs. You will still have to find the rest from other sources.

Q: Where can I find a grant?

A: Local Business Links are a usually a good source of information about any publicly-funded grants currently on offer in your neighbourhood. For example, grants are sometimes available for doing up premises or improving shop displays, particularly in regeneration areas. The geographic area in which such grants are available is often very precisely defined.

If you are involved in the agricultural sector or certain types of rural business a complex system of financial incentives and schemes apply. This is the most heavily grant-aided part of the economy, but as usual strings are attached and finding your way to the money can be difficult, The best place to start is Defra itself.

Internet search sites can help find a wide range of public, private and charitable initiatives. Apart from Google, there are some specialised funding search sites you can try.

Grantnet is one of three similar services for finding UK grants online. They provide a basic service free, and often have contracts with local authorities or regional development agencies to provide an enhanced service in a particular area.

www.grantnet.com

www.grantsnet.co.uk - a rival service despite similar name

www.j4b.co.uk

For example, many Yorkshire councils offer a full Grantnet service. To find it, you just put the word “grantnet” and the area you are searching for, in this case “yorkshire”, into a search engine like Google. Click to see what this looks like.

This approach also works for Northern Ireland, the Black Country or anywhere else you want to search for.

Here’s a Wolverhampton example found this way.

Be cautious about web sites (or firms) that say there is a myriad of unclaimed government grants out there and that then offer to find you one for a fee. Don’t pay until they get you the money!

There is no government grant available to everyone who wants to start a business. This is an urban myth.

The reality is that outside the arts, education and agriculture sectors grants to businesses in the UK are rare by international standards. Business here does not have a grants culture, but something a lot closer to a genuine enterprise one focused on customers.

In this culture grants have to be politically defensible. If a government body gives public money to one business, other businesses it competes will feel justified in complaining. So in the UK grants are not available across the board but only for purposes a minister, councillor or civil servant can defend.

So for example Nesta uses lottery money to encourage innovative and creative businesses. However, its grants are awarded on a competitive basis, and where large amounts are involved it usualy wants an equity stake - in other words partial ownership of the business.

In the UK the key source of revenue for businesses is overwhelmingly customers, during the start-up period as well as later. This after all is what distinguishes a business from a charity or public sector body.Businesses requiring more money to get going than early customers, friends, familly and the entrepreneurs’ own resources can provide have two other options.

They can seek a business loan from a bank or quasi-bank institution, or find an invester willing to put money into the business, usually in return for an equity stake.

Chasing for unlikely grants can be a distraction from putting together a strong offering that will prompt customers to voluntarily hand over money to you in return for your product or service.

Note also that your early customers will bring not just money when you most need it, but quite possibly also valuable information you can use to help guide your business. This feedback from real paying customers is something officials at a government agency or grant-giving charitable trust will be hard-pressed to match.

Controversial new rules on Capital Gains Tax that will affect anyone planning to sell a small business have finally been clarified.  Tax will be levied on asset sales up a value of £1 million at the rate of 10 per cent, rather than the 18 per cent originally mooted. The higher rate will apply to sales above the £1 million mark.

The new regime comes into effect from the 6th of April this year.

What is Capital Gains Tax?

If you sell an asset for more than you paid for it, capital gains tax (CGT) may possibly apply. An asset is a resource such property, shares, a piece of equipment or your entire business. It is not the raw material or stock used in the normal day-to-day transactions of most businesses, which are not subject to this tax.

CGT is really aimed at gains made by investing, so if this is central to your business you will need to look into the subject thoroughly.

For most small businesses CGT is most likely to become an issue at the exit stage if you decide to sell your business as a going concern or close down and sell off (or give away) major assets.

The Chancellor’s original proposals made three months ago were highly controversial, and were greeted by frantic lobbying by business groups.

Among the various counter proposals were schemes to reduce the rate or exempt altogether those selling a business to retire.  But the government has decided against those, instead opting for a two-tier system where the lower rate is available to anyone selling assets up to the £1 million threshold.

Business owners will have a £1 million lifetime capital gains allowance that will be taxed at 10 per cent - this means you can claim relief for gains made on multiple occasions up to a cumulative total of £1 million.

The government may have decided against confining the lower rate only to those retiring because it wants to encourage people to sell or hand their businesses on to family members as going concerns. Having to wait until retirement to get the tax concession might have discouraged this.

Report in the Independent

The Chancellor’s statement to the House of Commons

Reaction from Federation of Small Businesses

The London Development Agency is backing a scheme for new and existing small businesses seeking to raise money in the capital.

Though the scheme is heavily subsidised, applicants do have to pay for some required consultancy - typically five days tailored for you particular business.

More details from www.creativelaunchpad.co.uk or ring 0845 303 7375, or send an email.

Tribal Group, the company running the scheme for the LDA, does have some other projects in parts of the Midlands. These are mostly aimed at new businesses starting up in the creative sector, but this is interpreted fairly broadly. More details on their web pages for Derby, Nottingham and the West Midlands.

If you are planning to use the sale of your business to fund your retirement, there’s some good news on the way. Changes to capital gains tax expected to be announced by the Chancellor should see you retain all of the money you make up to an expected threshold of £100,000.

The details have not yet been fully worked out, but The Daily Telegraph is reporting that the decision has been made to make the change. Under the government’s previous plans the owners of small UK businesses wishing to retire were faced with stiff tax bills brought in recently to stop abuses by big private equity companies.

The relaxation in the rules - which may well only apply to business owners over the age of 50, follows a campaign against the unfair way capital gains tax would hitting ordinary small business owners with no connection to the private equity sector.

Details of the new scheme are still sketchy, but the Daily Telegraph is reporting that the first £100,000 made on a business sale are likely to be exempt, and thereafter the gain will be taxed at 18 per cent.

To prevent this concession being abused by big City firms, it is likely to be available only a one-off basis to individuals setting up a ‘retirement relief fund’ - details to be announced.

Background to the campaign

The Treasury has announced the figures that will be used to calculate Working Tax Credit and Child Tax Credit next financial year, which starts in April 2008. The figures should be of interest to many self-employed people, because those running new businesses often have incomes low enough to qualify for tax credits.

The tax credit system provides a safety net so your income won’t fall to zero even if your net profit does - which in the early stages of a business is quite possible. You can find a PRIME’s own independent booklet explaining the tax credit system here.

So what are the major changes just announced? The basic structure of Working Tax Credit remains the same, but from April there will be a big rise in the “first income threshold”, which goes up by £1,200 to £6,420. This means that from April 2008 you will keep the full amount of whatever WTC payments you are entitled to until you reach the new £6,420 threshold.

The government has paid for this change by increasing the withdrawal rate (or “taper”") that takes effect above the threshold from 37 per cent to 39 per cent. So once your income (or net profit) rises above £6,420 you will lose payments quicker than now.

Overall this change benefits those on very low incomes up to about £7,000, and reduces the amounts paid to those making more.

Another interesting figure in the Treasury’s announcement is the “income disregard”, which remains at the very high value of £25,000 for another year. The income disregard is a kind of get-out-of-jail-free card that can be introduced into disputes about overpayment entirely at HMRC’s discretion. It allows the HMRC to ignore overpayments paid to you up to this amount if it feels like it.

HMRC’s generosity is most likely to arise in cases where it itself has itself made a mistake, and fears press or political pressure should it persist in attempts to claw an overpayment back. So the income disregard is not a right you yourself can claim, but a fudge factor that provides wriggle room for the tax authorities in cases of dispute.

The fact the figure is remaining so high indicates that there are still a lot of disputes going on - though most of these to be fair also involve Child Tax Credit, where the rules are hard to interpret.
Among other figures announced for the 2008 to 2009 tax year is the value of basic state pension paid to those over state pension age. This edges up in line with inflation by £3.40 a week for a single person, to £90.70 a week from next April.

The minimum income guaranteed to poorer pensioners (those entitled to claim Pension Credit) goes up to just over £124 a week for a single person.

This isn’t much to live on - which underlines the need to put other arrangements in place to boost your income in retirement while you can.

Forty entrepreneurs are being sought for Transform, a new cross-border scheme aimed at encouraging high-growth businesses with global export potential in Northern Ireland and the six border counties of the Republic of Ireland.

Jointly run by Invest Northern Ireland and Enterprise Ireland, successful applicants will get a year’s free office space, mentoring and a grant of up to half their present salary to allow them to concentrate on launching a new business.

The programme starts in September 2007, with applications being judged in batches depending on when they are received. The deadline for the first batch is the 1st of June, and for subsequent batches the 29th June and the 27th July.

Transform is squarely aimed at startups with the potential to grow rapidly into export leaders. IT, biotech, pharmaceuticals, financial services and food seem to be the sectors the Transform team is expecting to provide such companies, but any venture with high growth potential is probably worth pitching.

More details at the Transform web site or email startup@transformprogramme.com or telephone 028 9069 8158. There’s also an application form online which will help you gauge what they are looking for.

If you use part of your home for business you can claim part of the cost as a tax deduction. But how much should you claim - and if you claim too much will you end up having to pay business rates?

You can find out from the horse’s mouth in the Business Income Manual on HM Revenue & Customs’ site. Here you can read the notes used by HMRC’s own staff to help them judge what to accept as “reasonable”.

The basic policy on home offices / workshops is set out at section BIM47815 of the manual. The good news is that the rules have recently been relaxed. Since the 6th April those working from home on a limited basis no longer need to provide records of every business expense to make a tax claim.

Instead you can make on estimate of how much of your home costs can be apportioned to your business based on the following principles.

Area: what proportion in terms of area of the home is used for business purposes?
Usage: how much electricity, gas or water etc. is being consumed by the business?
Time: how long is the space being used for business purposes, as compared to other things?

Section BIM47825 is most helpful, as it provides examples. Such as:

Bill runs a small business. He uses one small room at home as an office, exclusively for the purposes of his trade. The room represents 5% of the floor area of the house.

His Council Tax, insurance and mortgage interest bills total £4500. He claims 5%, £225.

His electricity bill for heating & lighting is £300. He claims £15, which is 5% of the total.

His total claim is £240 (plus the business proportion of his phone bill).

Although Bill has apportioned his electricity bill by floor area rather than usage, the amount claimed is small and there is nothing to suggest that his business use is significantly greater or lesser than his private use. It can be accepted as a reasonable estimate.

If any of the examples sound like you it might also be worth reading tax consultant Nichola Ross Martin’s comments on them.

What about business rates? Section BIM46840 says “A home in which a trader sets aside a room as an office is likely to attract only a council tax charge”. And a proportion of this may be tax deductible if you are using it for business purposes.

The Business Income Manual is one of many made public in the aftermath of the Freedom of Information Act. Before the manuals became available the most accessible guidance from the HMRC were the notes that came with the self-employment pages of the tax form. The latest notes contain worked examples and are also quite helpful.