Electric Train(er)

Mr Darling, self-employment, flat rates and other VAT musings

Survivors of my redundancy or 'sole trader' courses will know we have a bundle of fun with VAT.  Remember all that info I gave you?  Well it's all changing!

Following the Pre-Budget Report on 24 Nov 08 I've been updating and improving all the downloads and handouts which trainees can access through our secure website. The spreadsheets now cope with VAT much better, and I'm just redoing the relevant tip sheets. They'll be ready to roll by Monday.

The main change (for the moment) is the reduction in VAT,  so that's only really going to affect people who are VAT registered. The change in the standard rate from 17.5% to 15% from Monday 1 Dec 08 will have been noticed by anyone who's not been living under a rock.

What you may not have noticed is the reduction in the flat rates for anyone who uses the Flat Rate Scheme for Small Businesses.

There is a note hidden away on the HMRC website at this link (PDF file, 384 KB - Look at Annex E for the new rates).

You'll see that Film, TV and Media production is down from 10.5% to 9.5% from 1 Dec 08 until VAT goes back up again, probably in Jan 2010.

Incidentally I have a theory about why Mr Darling reduced VAT rather than, say, reducing income tax. There's been a lot of moaning in the papers about a 2.5% reduction being tiny in the scheme of things. And if you consider the saving to you and me when we buy a flat screen TV it is indeed just a couple of quid.

However, reducing VAT allows retail businesses to either pass on the reduction to customers in full or keep price tickets nearer their old level, and increase their own cashflow. Cash is king in a recession, so this may be a better way to stop the wheels falling off some struggling businesses.

In other words, reducing VAT allows retail businesses to make business choices. The fact that it sounds like a benefit to customers is politically expedient because it makes the headlines, but it's not quite so relevant to the economy as a whole.

How to survive a recession

There's an elephant in the room during my business skills workshops these days.  Countries around the world are starting to fall into recession, but the people I meet don't seem to be thinking very hard about how this might affect them.

The media have been focusing almost exclusively on the big picture (central banks bailing out retail banks) or defaulting to dinner party economics - the fall in house prices and rise in food prices.

So if you're just starting out as self-employed what should you do? Well it's not rocket science...

Here are my top tips for weathering a recession:

1. Hang on to ready cash - don't assume you can borrow
2. If you have an overdraft imagine what you would do if the bank withdrew it overnight - something they're perfectly within their rights to do.
   
3. Make sure you know the minimum figure you can survive on - and your breakeven point
4. Try to lower your breakeven point
5. Make sure you know what your value proposition is.  Why should your clients come to you, as opposed to anyone else?
6. If others work for you, make sure they understand your value proposition too. You'll need them as your ambassadors.
7. Don't kid yourself. Be realistic.

Actually this is good business practice in any circumstances. Doubly so when times get tough.

If you have any other tips on beating a recession I'd love to hear them.

How to get paid

The thing that gets me hotter under the collar than anything else is people not being paid for work they've already done.

It's a common problem, especially for freelancers and consultants.

That's why there's legislation designed to protect small businesses. Read all about it on the Pay On Time legislation website.

You'll see that the law states you must be paid within 30 days unless you have actively agreed that it will be longer.  (And only an idiot would agree to that.)

My advice to anyone is chase a payment on the 31st day after you slung in the invoice. Use your politest voice and gently ask the accounts payable people to check your payment is going through the system. After all, they may never have received your invoice.

Give them another week - presuming they say the payment is on its way. Then call again - restraining your urge to shout down the phone. As soon as you're aggressive you'll just be put at the bottom of the pile.

I usually let them know I'll call them every day to check it's 'going through the system'. That usually unglues the payment straight away.

I'm always amazed how few accounts people know what the law is. So I usually put the following paragraph at the bottom of my invoices. You'll find it on the pay on time site:

Please note: David Thomas Media Ltd understands and will exercise its statutory right to claim interest and compensation for debt recovery costs under the late payment legislation if we are not paid according to agreed credit terms. For more information on late payment legislation please see:
www.payontime.co.uk

Good luck and don't let them get away with it.

Paying less tax

One of the parts of my business skills workshops that people enjoy the most is a simple exercise called 'match the expense to the tax return'.

OK - so it's not exactly a catchy title for a game, but it's more fun than it sounds.

This financial year the tax people (HMRC) have changed a few of the guidelines for small businesses, and even some quite hardened freelances are apparently unaware of the changes.

The good news is that there is a £50K allowance for small businesses to cover capital equipment this year. That's different from previous years, where you've only been able to put 50% of the cost of a capital item down against tax.

That makes this rather a good year to buy kit, presuming you have any cash at all what with the credit crisis.

In fact that's such good news I hereby predict that the rules will change again within a year or so. Let's see.

HMRC have also clarified some of the allowances if you use your home for part of your business. Everyone knows about heating and lighting (percentage of), but there are some extras.

Read the updated guidance here - and make sure you bring it up with your accountant!

Business advice for thesps and other freelances

I'm always on the look out for places that support one-person businesses and freelances. Working for yourself is hard enough so all tips and tricks are very welcome.

I was asked to supply some blurb for The Stage the other day, and their Dear John section is a wonderful font of wisdom.

Check it out.