Electric Trainer

How HMRC chases tax

I'm often asked by worried freelance trainees if they're ever likely to be audited by the taxman (or woman). I haven't a clue, of course.  But this article in the Telegraph is quite interesting. The mega-computer certainly sounds scary.

Are you next on the taxman's list >> 

VAT help for digital services

Time to come clean: the way VAT works across borders is one of those things I can't quite get my head around.

I understand how VAT is irrelevant if you are working outside the EU, but how does VAT work when you sell to someone in another EU country? The single market is supposed to simplify things, but here it seems to make things more complicated.

Of course, as a trainer I should know everything. But whenever anyone asks about VAT across borders I look at the ceiling while pointing here.

But look! A glimmer of light for people who sell digital services (like apps and e-books) around Europe! HMRC have set up an online VAT Mini One Stop Shop.  The aim is to stop you having to register for VAT in every country where someone buys something from you.

Read a short outline at Gov.uk >>>

Feeling strong? Here's the full Monty at HMRC.gov.uk >>>

Freelancing through an agency - rule changes

We've met quite a few media freelances recently who operate through an agency to get work and receive payment.

As the rules about employment status and taxation for agency workers changed this April (2014) I thought it might be useful to link to HMRC's guidance, neatly encapsulated (!) in 6 pages of PDF.

It's difficult to reduce this sort of thing to a one-liner, but in short if your work is unsupervised or you can send someone else along in your place you might be able to be self-employed and still get work through an agency. Otherwise it's more likely that the agency will have to treat you as an employee, and take off tax and national insurance before they pay you.

 

Simplified accounting for sole traders (webinars)

I'm often asked by trainees on our self-employment workshops where to get more information about keeping records. The short answer is 'the horse's mouth'.

HMRC have been developing a series of webinars aimed at new small businesses. I've taken part in some of the live webinars and they are very friendly and helpful. I find Twitter is the easiest place to keep on top of what's on offer.

There are two new simplified accounting systems which may be of interest if you're self-employed and have a turnover less than the VAT threshold (£81,000 per year as of April 2014).

The first system is called 'Cash Basis' and allows you to calculate income tax based on what you've received rather than what you've invoiced for.

The second change is the introduction of a couple of flat rates to cover using your home as your business base (or your business base as your home - eg when you run a small hotel and live there too).

The flat rate mileage system for using your own vehicle is unchanged.

All these approaches are optional. You can calculate all expenses the long way round and in detail if you prefer, and you can still base your end of year accounts on invoice dates rather than cash received if you like.

You can watch a pre-recorded video on YouTube about all this. Yes - HMRC has a YouTube channel. Who knew!

 

 

Changes to self-employed national insurance

One of the enduring mysteries of life in the UK why we have a tax that's still called national insurance, and why it's still so complicated. There are four different types, and two sub-categories for goodness sake - all with different rules.

When we cover NI in our finance for freelances or sole trader workshops, there's always bemusement in the room, even among highly intelligent people who've been paying it for years.

The reason it's complicated is because it's had numerous bits bolted on over the years as Chancellors have realised they can get more money out of us while saying they're not putting up income tax, even though NI is a kind of tax and it's usually based on income.

So NI has come to resemble a kind of steam punk traction engine with go-faster stripes - an interesting feat of engineering but not exactly fit for purpose.

But there's a small change coming that should benefit you if you're self-employed. It's a simplification in the way the Class 2 NI contribution is taken. At the moment Class 2 is calculated as a weekly amount (£2.75 in 2014-15), which you arrange to pay monthly or six monthly, separately from any other taxes.

The plan is to move Class 2 into the self-assessment process, i.e. put it in the tax return. This will remove the need for a separate process and may even help some self-employed people to remember to pay it. The timing was outlined in the 2014 Budget:

"These changes will have effect from April 2016, however customers will start to see the benefits after April 2015." (Nope. I'm not sure what that means either.)

Meanwhile another go-faster stripe is being added shortly in the form of a new temporary  'Class 3a' voluntary national insurance contribution. This could help people who have been self-employed (and others) to buy slightly more state pension if they are about to reach pensionable age. You can read about it on www.gov.uk.

When someone just doesn't want to pay you

Regular readers of this blog will know there's a bit of a recurring theme around how to ensure people pay you on time when you are self-employed.

I heard some great stories today about the way two media freelances successfully extracted outstanding payment from tight-fisted clients. 

Freelance 1: One day the company rang up to book him, and he said he'd love to do the job but would have to turn it down because they hadn't paid him for the last few so he couldn't afford the petrol to get there or the hotel for the necessary overnight stay. They paid him straight away.

Freelance 2: Another was owed over £12k from a six week intensive foreign shoot, and after being told several times that the cheque was in the post, he turned up on an Outside Broadcast they'd booked him for, put his feet on the desk, and said he would start work when he'd been paid. As the Senior Supervisor on the job, they were stuffed without him, and biked the cheque over within an hour.

It's a good reminder of how valuable your skills are. When the skills were withheld, payment quickly followed. But how sad that people have to go to these lengths.

Got any other stories? Do share.

Self-employment and financial skills

There have been a couple of announcements this week which caught my eye and should be of interest to anyone who is going into self-employment, doubly so if you have school-age children.

Firstly, the Office for National Statistics revealed that there's been a sharp increase in people becoming self-employed. Full marks to the Daily Mail for living up to their reputation and finding a depressing angle to this: that people have been made redundant and can't find work any other way.

I'm sure some feel forced into self-employment but in my training I find most people up for it and positive about their future, if a little anxious sometimes.

The ONS announcement has led inexorably to the Sunday papers coming up with 'how to' guides for self-employment.

I spotted two articles worth a quick look - remarkably similar, so probably drawing on some of the same press releases:

• The Telegraph
• The Guardian

Neither article really underlines how different employment and self-employment are. And the differences are not just about the way you earn money, they're about how you run your life. Having said that, they both contain useful tips, as do some of the comments underneath them.

Catch 'em young

The other announcement that caught my eye caused a little whoop and a skip in the air. Financial skills are likely to become part of the school curriculum next year. You can read about it here:

• The FT
• The Guardian
• The Telegraph

At last teenagers will be shown that maths is relevant to everyday life, and that everyone needs financial skills to survive. Tellingly, this will come under 'citizenship studies' rather than the maths curriculum, underlining that these skills are essential for a properly functioning society.

The reason I'm so chuffed to hear this is because I meet people all the time in our self-employment workshops who have no clue at all about how finance works. I don't judge them for it. I was exactly the same until I had to learn the hard way - when I set up my own business 8 years ago. I just wish I'd been told some of this stuff when I was 16.

So here's to the next generation of financially savvy citizens and small businesses.

Why LinkedIn endorsements are driving me nuts

Anyone with a LinkedIn account will have noticed a new feature where you are encouraged to endorse the skills of your connections.

You can read all about endorsements on the LinkedIn blog here.

The prompt comes when you view someone's profile. A list of some of their skills appears right in your face at the top of the page. When you click on the skill it sends a note to the person saying 'David has endorsed you for the following skills and expertise:...'.

In theory this is great, as there is nothing stronger than an unsolicited pat on the back.

So why am I being driven nuts by this?

Because being a conscientious LinkedIn user I have made sure all my skills are listed on my profile. You are allowed up to 50 skills and I have listed 27. But LinkedIn is only asking people to endorse some of them, and they are not the most relevant.

Not only that. My profile now lists my skills in order of endorsements not relevance, which simply perpetuates the problem.

I know this sounds churlish, and I'm really grateful to those of you who have endorsed my broadcasting skills. The problem is that I now run a training business.

Here's a screengrab from my profile that illustrates the issue:

  

The fact that I have a media and broadcasting hinterland is very important to me, and I do some training in broadcasting skills. But my training business focusses mostly on networking, communications and basic business skills, which is not the same thing.

Bizarrely, people who only know me from my training work are being prompted to endorse me in broadcasting skills. I'm delighted if they've enjoyed one of our workshops, but for all they know I might be a rubbish broadcaster.

This rather devalues the whole process.

So here's a plea to the clever people at LinkedIn. Please let me prioritise the skills that are most current. Then if anyone wants to endorse me, they will be prompted with those first.

Now that I've got that off my chest, I'm off to do some proper (training) work.

Proposed changes to late payment legislation

I've banged on quite a bit over the years about how useful the UK's late payment legislation can be to small businesses and freelances. Getting paid on time increases income and general happiness!

There are some interesting developments as the EU prepares to introduce minimum standards across all member states next year.

For late payment anoraks like me I'd recommend all the links relating to this at payontime.co.uk. They have a discussion forum on the site too.

It's great that the EU is addressing the problem of payments, and nice to see them catching up with the UK on this.

I've just submitted two areas of concern as part of the consultation process which the Department for Business Innovation and Skills is holding. (Deadline alert: 19 October 2012)

Here's my submission in full:

As a trainer who works with freelances and small business owners on organisational skills, I have championed the UK’s late payment legislation for more than 7 years now.

While I welcome the adoption of legislation across Europe, there are some worrying details in the proposed changes.

Although it’s true that the late payment legislation is not a solution to the problem, for very small businesses (sole traders, partnerships, micro companies) it does more than just “create an environment for driving payment on time” (as stated in the BIS consultation document).

For these small businesses it provides a benchmark and allows them to point to an example of a minimum standard of professionalism they expect from their clients.

There are two areas which need addressing in the proposals:

1/ The replacement of the tiered statutory admin fee from £40, £70 or £100 to a flat €40 (approx £31)

This may seem a small change, but for very small businesses every penny counts. The message this sends is that the disruption and inconvenience has no real value. It looks like a token gesture.

In reality it’s more than just a token for very small businesses.

It is not good enough that suppliers may be able to argue for more realistic compensation under the proposals (“reasonable additional costs incurred”). Many small suppliers are at the end of their tether by the time they invoke the legislation. They will not all have the time or resources (or courage) to try to extract more from a bad payer.

We propose that if a single flat fee has to be introduced it is set at a minimum of €100 (not €40), with allowance made for other “reasonable additional costs” as proposed.

 

2/ The maximum 60 day payment terms for business to business contracts

The legislation attempts to make allowances for different types of contract (business to business, public sector). However the effect is to reduce the clarity of the message to tardy payers.

The default payment term (where not otherwise agreed) is to remain as 30 days. This is right and proper.

The proposals allow for payment terms of up to 60 days, unless agreed otherwise by both parties. So why state 60 days as the default in this section and not 30 days?

For small businesses an extra month without payment can be very painful, and sometimes terminal. The spirit of the legislation should be that there is no excuse for not paying suppliers once they have delivered, and that 30 days is considered the normal maximum in all cases. 

We therefore propose that the default payment terms are set clearly at 30 days for business to business contracts, with the option of negotiating longer (or shorter) terms in advance of the supplier undertaking the work.

David Thomas Media 
11 Oct 2012

 

Free support for new businesses

When I started my business (8 years ago) I benefitted hugely from free face-to-face advice provided by Business Link, the government agency designed to help small businesses set up and grow.

Business Link still exists, but now it's a website (albeit a good one) and much of the training and free individual business guidance has disappeared.

I had presumed this sort of thing had disappeared from the whole country, but I see that's not the case.

The parts of the UK that are not England have their own business support agencies and they are still providing training courses and business advisors to a greater or lesser degree.

• Wales has Business Wales
• Scotland has Business Gateway
• Northern Ireland has InvestNI and nibusinessinfo.co.uk

I just heard from Catriona Forrest, a former trainee of mine who I met when she was leaving the BBC to set up on her own. One year on and she writes to say:

I can't quite believe how much has happened in this last year, but it was far less daunting for having been on your course and for all the support I've had from the Business Gateway and the Glasgow Regeneration Agency, along with an amazing amount of backup from my business peers in Scotland. 

Not living in Glasgow, I'd not come across the Regeneration Agency. Catriona goes on to say one of the most beneficial things she received was access to a business mentor (take a bow David Hughes) who helped her apply for a small start-up grant.

She also found the Scottish Business Gateway courses very useful. They formed a kind of transition from being employed to setting up her own limited company. They were good for networking too.

The lesson here is: ask for help if you're starting out, and don't assume help will be expensive. It might even be free - especially if you live in Glasgow!