If you operate a business, you have undoubtedly been waiting for HMRC to announce the 2021/22 income tax, mandatory payments, and national insurance contribution levels (NIC). These are just several of the things that were thrown off during an unusual 2020, and it has caused some confusion because the Chancellor would normally announce the NIC criteria and rates in conjunction with the Autumn Statement or the Autumn Budget. 

The 2020 Autumn Statement was canceled due to the COVID-19 pandemic. Although we won’t know for sure how rates will be impacted until the Budget in March 2021, the finance secretary to the Treasury, Jesse Norman, did make a ministerial statement about increases in the NIC levels back in December last year: 

“In agreement with previous reports outlined in the Spending Review document on November 25 (CP 330), the Government will use the September Consumer Price Index (CPI) estimate (0.5 percent) as the basis for determining all National Insurance limits and thresholds, as well as the rates of Class 2 and Class 3 National Insurance contributions, for the fiscal year 2021-22. The National Insurance rates and criteria for 2021-22 will be published in the House Libraries.”  

2021–2022, Class 1: 

Class 1 National Insurance Contributions (£ per week): Employees and Employers: 

	2021-21	2021-22
Limit on weekly earnings	£120	£120
Weekly main criterion	£183	£184
Weekly secondary criterion	£169	£170
An upper limit on earnings	£962	£967

For those under the age of 21, the upper secondary 

threshold is                                                                           £962                £967 

For those under the age of 25, the upper secondary threshold is 

For apprentices.                                                                      £962                £967 

  

2021–2022 Class 2: 

Class 2 National Insurance Contribution: Self-employed (£ per week) 

	2021-21	2021-22
The profit barrier is low (£ each year)	£6,475	£6,515
Contribution rates in Class 2  Profits per year (pounds sterling)	2020-21  £ per week	2021-22  £ per week
Below a certain level of profit	£   3.05  Voluntary	£3.05  Voluntary
Above small profits threshold	£3.05	£3.05

During the years 2021/22, the following rules apply to self-employed people: 

• The £6,475 small profit threshold has been raised to £6,515 

• The weekly fee remains unchanged at £3.05 per week. 

  

2021–2022, Class 3: 

This is the type of NIC that may be used to fill in any gaps in an individual’s NIC record. You can look for gaps in your tax account, and you may need to make voluntary payments to close them. The weekly fee will improve from £15.30 to £15.40 in 2021/22. 

Voluntary Contributions (£ per week) for Class 3 NIC; 

  

	2020-21	2020-22
Voluntary contributions	£15.30	£15.40

  

2021–2022, Class 4: 

When self-employed profits exceed the lower profits limit (LPL), class 4 NIC is due. The statistics for 2021/22 are as follows: 

• The LPL has risen to £9,568 from £9,500. 

• The maximum profit threshold has been raised from £50,000 to £50,270. 

Self-employed (£ per week) NIC (Class 4); 

  

	2020-21	2020-22
Lower profits limit	£9,500	£9,568
Upper profits limit	£50,000	£50,270

Table of Contents 

Implications for income taxes: 

The basic rate and personal allowance: 

Implications for pensions: 

Pensions and benefits provided by the state: 

(SSP) Statutory Sick Pay: 

Pay for Parents: 

Get assistance with taxes and bookkeeping from CMB Accounting: 

Implications for income taxes: 

The upper-end limit for class 1 has been increased by £270, from £50,000 to £50,270. Since 2007, the upper-end limit has been linked with the income tax higher rate threshold, resulting in a higher rate threshold of £50,270 for English, Northern Irish, and Welsh taxpayers. 

The basic rate and personal allowance: 

The 2020 Economic Survey called for an increase in the personal income tax limit and a higher rate threshold for the years 2022 and 2023, which corresponds to the September consumer price index number of 0.5 percent. As a result, the personal allowance will rise from £12,500 to £12,570 in 2021/22, and the basic rate threshold will be £37,700. 

Implications for pensions: 

The lower-end limit for class 1 remains constant, therefore £120 per week will apply. That works nicely for the statutory payout level of average weekly wages. It is also safe to anticipate that the lower qualifying earnings band for employer pensions will remain unchanged. 

Pensions and benefits provided by the state: 

In November, the Secretary of State for Work and Pensions released a statement with the following key consequences for state pensions and benefits: 

• Starting on April 12th, basic and new state pensions will increase by 2.5 percent. 

• Other government benefits will rise in line with the consumer price index, which is now at 0.5 percent. 

(SSP) Statutory Sick Pay:

The statutory sick pay rate will increase from £95.85 to £96.35 per week for average weekly earnings equal to or over the lower end limit. From April 6, the new statutory sick pay rate must be paid. 

Unrounded daily rates	No. QDs in week	Number of days due
		1	2	3	4	5	6	7
£		£	£	£	£	£	£	£
13.7643	7	13.77	27.53	41.30	55.06	68.83	82.59	96.35
16.0583	6	16.06	32.12	48.18	64.23	80.30	96.35
19.2700	5	19.27	38.54	57.81	77.08	96.35
24.0875	4	24.09	48.18	72.27	96.35
32.1167	3	32.12	64.24	96.35
48.1750	2	48.18	96.35
96.3500	1	96.35

  

Pay for Parents:

Even while statutory ill pay must be paid from the beginning of the new tax year, other statutory payments begin on the first Sunday in April — which in 2021 occurs on the fourth. The weekly amount for parental benefits has increased from £151.20 to £151.97. 

Get assistance with taxes and bookkeeping from CMB Accounting:

Taxes can intricate, and making a mistake on your tax return may result in a penalty. CMB Accounting can assist small and medium business owners, as well as self-employed individuals, in achieving their goals. We can also assist you with your VAT returns. Self-assessment, corporation tax, and business expenditures 

Please contact us for more information, or use our fast accounting quotation option and we will contact you shortly. 

COVID-19 has had a wide range of impacts across the world. In terms of business and commerce, the pandemic has hastened several developments that were thought to be the future of labor until recently. Many of the developments that appeared imminent a few months ago but were still a ways off have finally arrived. 

Remote employment, eCommerce, and virtual medical appointments are all part of the change. The impacts of COVID-19 daily have been rapid, broad, and significant. The most immediately important aspect of those effects is that many of them make sense to maintain once the infection has passed. 

Coronavirus has touched almost every profession on the planet. It has been a frenetic race to keep up with a tidal rush of illnesses and disease-prevention measures. 

• It was not just governments that were taken off guard; the industry had to scramble as well, which is unsurprising. 

• Despite how quickly technology has advanced over the previous several decades, digital transformation usually occurs at a steady pace. 

• Companies and professions need time to adjust and accept, we gradually come to grips with change, and we all reap the advantages in the end. 

• The difference in 2020 is that COVID-19 did not occur at the same gradual pace that we want when adopting new technology, thus we could not afford to wait. 

Table of Contents 

Are there going to be more difficult times? Go for the clouds: 

What can businesses do to counteract COVID-19? 

The most important benefits of cloud accounting, and how to obtain them right now: 

How can you assist your accountant in navigating COVID-19? 

CBM Accounting can help you get started with real-time accounting: 

Are there going to be more difficult times? Go for the clouds: 

Commerce and Accounting are intimately intertwined. Accountants are a vital resource in the best of circumstances, but no firm can afford to be without one when things are not going well financially. During times like these, it is even more important to have excellent financial forecasts and real-time revenue data in place. Let us face it, money became scarce during the epidemic, and that effect will linger for some time. 

Only the healthiest firms will survive the next several years, if not the next few months. Having the appropriate procedures in place for maximizing resources is an important part of being a resilient organization. The epidemic made it even more important for individuals to work together more efficiently while working from home. 

When it comes to financial agility, it also entails interacting smoothly with financial specialists and having access to essential financial data from any location. 

The long-awaited digital revolution has finally come — with a snag. That revolution, in reality, has spread to bookkeeping, accounting, and financial forecasting. We’ve had cloud accounting capabilities for a long time. The uptake was modest and steady up to 2020. Some businesses had taken action before this year, while others had not. 

That is usually how technological adoption works, but 2020 turned out to be anything but typical, and now we are all here. 

What can businesses do to counteract COVID-19? 

COVID-19 brought one item to light in particular. When it happened, some organizations were more prepared than others were. Things were difficult for firms that were hesitant to implement cloud-based accounting with everyone out of the office. 

When everyone works from home, traditional accounting, methods make it difficult to obtain access to numbers and information. During lockdowns, companies that could still view their financial data had a significant edge. If remote working is to continue after the epidemic, now is the best moment to make the move. 

The most important benefits of cloud accounting, and how to obtain them right now: 

Aside from the epidemic, cloud accounting is just more efficient than conventional techniques. Because many formerly time-consuming operations can now be automated, there is considerably less data entering. By giving your accountant quick access to the whole picture, you may integrate your bank accounts, invoicing, and other systems and eliminate the need to create reports for them. 

• Every time you log into the system, you may enable precise cash flow forecasting based on a real-time picture of where your firm is. Even a modest cash flow problem may be deadly for a small business, and issues frequently emerge because no one saw them coming. Financial experts may use cloud-based accounting to assist with financial forecasts by spotting patterns, predicting potential bottlenecks, and preventing them before they happen. 

• Provide multi-user access and personalize it so that those who want specific information may receive it. Allow your accountant to swiftly and simply handle payroll and even finance applications. 

• Facilitate effective tax management to avoid unpleasant shocks. Allow your accountant to handle your tax returns, VAT, and filing, and then give your comments on where you may save money or improve. 

• To make your business function more efficiently and expedite revenue collection, use online invoicing. Organizations that utilize online invoicing are also more likely to be paid sooner. 

How can you assist your accountant in navigating COVID-19? 

When the economy takes a hit like the one we are seeing now, quickness and agility are critical. Survival requires accurate, real-time reporting. It is critical to take advantage of technology that allows for the secure storage of financial data. Having quick and ongoing access to information and sharing it with your accountant might be the difference between going bankrupt and finding new commercial possibilities. Borrowing will become more difficult following the epidemic. For a while, cash flow will be tighter, allowing for additional pressure points and issues. 

• There is not a single small, medium, and, large company that would not profit from real-time reporting via Xero or, another platform. 

• Whether an employee is working from home, on the bus, or in the office, cloud-based accounting data may be accessible from any device. 

• You may also create access restrictions for various users based on the job they hold. 

• For example, you can provide payroll-related data access to those who process payroll. 

• Because cloud-based accounting solutions continually and immediately update financial data, reporting is done in real-time. 

• There are no delays, and your accountant is always aware of your financial situation. 

CBM Accounting can help you get started with real-time accounting: 

You may be a sole trader or one of the growing number of freelancers or gig workers that sprung up because of the epidemic. Updating your accounts can make your operation more nimble and less susceptible, even if you merely want to put your firm up for better success in the aftermath of COVID-19. 

Perpetual, real-time accounting allows your accountant to perform more for you by automating many of the chores you used to undertake while focusing on your business. Get in touch with CBM Accounting now to learn more about how cloud-based accounting is assisting businesses of all sizes throughout the epidemic. Here you may receive a free and fast accounting quote. 

  

Table of Contents 

New lockdown restrictions have been implemented, and the furlough period has been prolonged, among other things: 

(So far!) The new regulations: 

You should not leave the house except: 

Businesses who have to close include: 

Businesses who can continue to operate: 

Furlough scheme extended: 

Grants for businesses: 

There are currently no updates on the third self-employment income assistance plan (SEISS): 

The Mortgage Holiday Has Been Extended: 

Check out our services and transition for further information: 

New lockdown restrictions have been implemented, and the furlough period has been prolonged, among other things: 

For all the wrong reasons, this was one of the scariest Halloweens in recent memory. Boris has announced a second lockdown as well as changes to the business support offered. 

CJRS scheme extended to 31 March 2020, as announced by the chancellor on 5 November 2020. 

More information on the extension will be released in a policy document. 

With only hours until the start of the Job Support Scheme (JSS) on November 1st, the Prime Minister announced a one-month extension to the Coronavirus Job Retention Scheme (CJRS) – the furlough scheme – to ensure furloughed employees continue to receive 80% of their wages for hours not worked, and businesses only have to pay National Insurance and employer pension contributions. 

Only a few days later, the Chancellor announced that the plan would be extended until March 31, 2021, while also canceling the previously promised Job Retention Bonus. 

Employers will benefit from the extended furlough plan more than they did in October. An employer can also rehire an employee who has been laid off or ceased working. 

With the number of Covid infections growing, England was placed under additional lockdown from Thursday, November 5 to the end of Wednesday, December 2; however, if the Covid R rate does not decrease below one, the lockdown may be extended in some form. 

(So far!) The new regulations: 

• From Thursday, November 5, 2020, until Tuesday, December 2, 2020, there will be a lockdown. 

• If the R (infection) rate does not fall below 1, this might be continued. 

You should not leave the house except: 

• For education. 

• If you are unable to work from home, for employment. 

• Outdoors, with your family, in a support bubble, or alone with one person from another home for exercise and enjoyment. 

• To avoid injury or harm, for all medical reasons, appointments, and to avoid injury or harm. 

• To get groceries and other necessities. 

• Also, as a volunteer or to offer care for vulnerable individuals. 

Businesses who have to close include: 

• Pubs, restaurants, and bars can still provide takeout and delivery services. 

• Gyms and recreational amenities are available. 

• Facilities for personal care (beauty salons etc.). 

• Non-essential retail (electronics, clothing, etc.) can provide delivery and click-and-collect services. 

Businesses who can continue to operate: 

• Only guests traveling for work are allowed in hotels and accommodation 

• Childcare, nurseries, schools, and universities are all places where children can be cared for. 

• Manufacturing and construction 

Furlough scheme extended: 

• Furloughs have been prolonged and the new Job Support Scheme has been postponed. 

• Employees who were on a payroll submitted with HMRC by 23:59 on October 30, 2020, maybe furloughed. 

• Up to £2,500, the government will continue to cover 80% of employees’ salaries. 

• Employers will be responsible for paying their employees’ national insurance and pension contributions. 

• Furlough can still be used on a flexible basis. 

Grants for businesses: 

• Available to firms who have been forced to shut. 

• Grants are computed depending on your ratable value for each two-week period that has ended: 

• The award is £667 every two weeks up to £15,000. 

• £1,000 per two weeks between £15,001 and £50,999 

• Every two weeks, anybody earning more than £51,000 should receive a £1,500 stipend. 

• You will need your company postcode to find your rate able value. 

There are currently no updates on the third self-employment income assistance plan (SEISS): 

• For the three months beginning November 1, 2020, this is now 40% of your average profits. 

• From February 1, 2021, a fourth grant should be due for the next three months. 

• We do not know whether this support will be reviewed now that a new lockdown has been implemented. 

The Mortgage Holiday Has Been Extended: 

• It was supposed to terminate on October 31, 2020. 

• You can request a 6-month mortgage repayment holiday. 

Check out our services and transition for further information: 

Keep in touch with CBM Accounting for further information on how to deal with the pandemic. If you are having trouble, please contact us; we can assist with cash flow planning, grant applications, and even just a general discussion of the many types of government assistance available. 

For many UK firms, this is fantastic news. Chancellor Rishi Sunak offered an extension for firms who postponed their VAT because of the COVID-19 epidemic in a long-awaited update. When the virus originally caused lockdowns and the furlough plan, the government devised ways to alleviate some of the financial stress, including allowing firms to postpone VAT until March 2021. 

The Chancellor has now created an extension that will allow impacted organizations and people to extend the payback of that VAT between March 2021 and 2022, in a move that reflects the problems still affecting thousands of businesses and sole traders in the UK. 

Table of Contents 

The VAT deferral scheme in the UK was the first of its kind: 

How will the new VAT deferral extension operate? 

How to Enroll in the Extended VAT Deferral Scheme? 

Have you missed the deadline for canceling HMRC direct debits? 

Creating the most of your VAT deferral period: 

We are here to support you: 

The VAT deferral scheme in the UK was the first of its kind: 

implemented, all VAT-registered firms were given the option of postponing payments, resulting in more than half a million enterprises deferring over £30 billion in VAT payments. 

The scheme applied to VAT payable between March 20 and June 30, 2020, with firms having until March 31, 2021, to pay. Under the scheme, HMRC also waived interest and penalties for any delayed VAT payments. The initial responses were always in response to the start of the pandemic’s impacts. 

However, it has long been assumed that further assistance will be necessary to help many firms cope with the financial consequences of COVID-19. 

Thousands of firms were able to survive temporarily thanks to the initial VAT deferral plan, but getting out of COVID-19 was never going to be simple or quick. For many businesses, keeping cash flowing and personnel on the books has been a significant challenge. The deadline for paying delayed VAT in March 2021 loomed ever closer, and this recent announcement will provide a sigh of relief to company owners across the country. 

How will the new VAT deferral extension operate? 

It is in everyone’s best interests to keep as many jobs as possible during the epidemic, and this is the latest in a series of reforms aimed at assisting businesses in staying afloat. Delaying repayments now is also intended to help firms get through the crisis in better condition. 

Rather than having to pay all delayed VAT by March 2021, the Chancellor has decided to enable impacted firms to refund the sum over twelve months. Essentially, you will divide the amount into monthly installments to spread the impact. That means if you have a VAT debt of £55,000 by March of next year, you will have to pay $5,000 over eleven months. 

How to Enroll in the Extended VAT Deferral Scheme? 

If your company is having trouble paying delayed VAT for March and June this year by March 2021, consulting with an expert accountant about enrolling in the plan may be able to assist you to handle the problem. Businesses that want to register must opt-in, according to the government, although the method for doing so has yet to be released. Regardless of whether the registration procedure is delayed, it is a smart idea to start arranging for those repayments immediately. 

If you choose and can make delayed payments by March 2021, you will need to make sure direct debits are restored promptly, but otherwise, you will not have to do anything. When payments are due, they will be deducted automatically. 

Have you missed the deadline for canceling HMRC direct debits? 

If you did, the good news is that you are not alone, and the government is giving a path back to harmed companies. HMRC gave VAT-registered businesses the option of deferring VAT payments until March 2021 at the end of March this year. Even though many companies took advantage of the lifeline, many more did not terminate their direct debit contracts promptly. 

Because HMRC lacks a way to terminate its collection procedure, numerous payments were collected from firms that wanted to participate in the deferral plan. If you are affected, you have two options for getting a refund and then deferring the payment as intended while taking advantage of the new safeguards. 

• Make a direct claim to HMRC for a VAT refund. If you did not stop your direct debit in time, you can request a refund through the Coronavirus hotline. Before you apply, make sure your bank information is up to current with HMRC, and keep in mind that the procedure might take up to three weeks. 

• Make a claim with your bank for Direct Debit indemnification. This technique will most likely be faster if your cash flow position is less than perfect, but you should first call your bank to examine their unique policy needs. Direct Debit payers who wish to obtain reimbursement under the Direct Debit Guarantee can use indemnity claims. When a Direct Debit is taken in mistake, the bank must act quickly to rectify the issue. 

Creating the most of your VAT deferral period: 

While there is no silver bullet for the economic harm caused by COVID-19 – and some firms will fail – the expansion of the VAT deferral scheme is a good move. 

Planning is the key to enhancing your chances of survival during a pandemic. The VAT deferral plan, when used in conjunction with proper forecasting and cash flow management, may help firms weather the virus’s storm and emerge in reasonable form. 

The extension is not intended to allow businesses to delay extra VAT, but it may give you some time – and business owners who make good use of that time will enjoy the benefits. 

We are here to support you: 

With forecasting, we help businesses make the most of their cash flow at CBM Accounting. We can also help you with VAT and make sure you are not overpaying. If you would like to learn more about how CBM Accounting is assisting companies during the COVID-19 epidemic, please contact CBM Accounting. 

If you are self-employed in the UK, you will have to file a self-assessment tax return with HMRC each year, detailing your earnings for the year and the income tax you will owe. 

Calculating your costs, some of which you can deduct from your tax bill but others on which you must pay tax is a part of completing your self-assessment. 

It might be difficult to complete your Tax Return, especially when it comes to the finer points, such as allowed spending. Therefore, to make things easier for you, our team of Tax experts has broken down the self-employed allowed costs. 

Table of Contents 

What expenses are acceptable for self-employed? 

Expenses associated with running a business or working from home: 

Expenses for the office: 

Expenses for Travel: 

Costs of legal and financial support: 

Materials and stock: 

Insurance for businesses: 

Marketing: 

The cost of staff: 

Charity donations: 

Clothing: 

Subscriptions: 

For your tax return, you must calculate your business expenses: 

Get more information about self-employed allowable expenses by CBM Accounting: 

What expenses are acceptable for self-employed? 

These are some of the charges that often qualify as acceptable, business expenses when filing your Tax Return. 

Expenses associated with running a business or working from home: 

Rent, maintenance and repair, energy bills, property insurance, and security are all expenditures that might be claimed. Expenses for purchasing or constructing a company location are not deductible. 

You can deduct a portion of your home utility expenses if you conduct your business from home. Your claim on your electricity account, for example, is based on the use of electricity for business equipment and lighting your workplace. However, you must determine the percentage of your house that is utilized for business and the percentage of the month that it is used for business. 

For example, if you only use one room out of five, you may claim 20% of your electricity costs, mortgage interest, rent, and Council tax payment. 

HMRC has published a Business Income Manual, which contains a chapter on the allowances available to those who work from home. 

You can apply HMRC’s simplified expenses,’ which is a fixed monthly amount determined by the government, provided you work from home for at least 25 hours each month. 

Monthly hours worked at home                                                    Monthly flat rate 

25 to 50                                                                                                 £10 

51 to 100                                                                                               £18 

101 and more                                                                                        £26 

That fixed charge, however, does not cover phone or internet costs. By calculating the real expenses, you can claim the business part of these expenditures. 

Before selecting simplified expenditures, use this government calculator to compare the flat rate to your real permitted charges. 

Expenses for the office: 

Business stationery, printing costs (including printer ink), and delivery can all be factored in. You can also include company equipment such as desk phones and mobile phones, office desks and chairs, computers and printers, and computer software, but if you do not practice cash basis accounting, you may have to declare them as capital allowances. 

Software licenses, as well as a part of your home telephone and broadband costs paid on behalf of your business, are all permissible expenses. 

Expenses for Travel: 

Vehicle insurance, gasoline, hiring charges, maintenance, service, and breakdown coverage are all expenditures that may be included in a business car or van budget. Because this might be difficult to compute, you can utilize the government’s simplified vehicle expenditures, which is a fixed rate. 

Vehicle                                                    Simple expenditures and a flat rate per mile 

The first 10,000 km of a car or a truck                                       45p 

After 10,000 km, automobiles, and trucks                                 25p 

Motorcycles                                                                               24p 

Compare your real permitted car expenditures to the flat rate once again. 

During overnight business travels, you can also include business travel by train, bus, aircraft, or cab, as well as hotel rooms and meals. 

Keep in mind that travel for meetings, site visits, and other business purposes is covered, but you can’t claim for the expense of getting from home to work, so commuting or getting to your office doesn’t qualify. 

It is also worth noting that if you are traveling for both personal and professional purposes, you will need to be able to segregate the business costs to account for them. 

Costs of legal and financial support: 

Bonuses, pension payments, incentives, agency fees, employer National Insurance contributions, and employee training expenditures are all considered acceptable expenses. 

You can also deduct the costs of hiring contractors or freelancers. 

Charity donations: 

You can deduct gifts to registered charities as an acceptable cost if you make them directly or through Gift Aid, for example. 

Clothing: 

You can include the cost of work-related uniforms, protective clothes, or costumes for performers or entertainers, but not the expense of ordinary clothing worn to work. 

Subscriptions: 

If they are relevant to your firm, you can add the cost of participation in trade bodies or professional membership organizations, as well as the cost of subscriptions to trade or professional periodicals. 

For your tax return, you must calculate your business expenses: 

• When filling out your Tax return, you may be given the choice of giving a single figure or a full breakdown of your allowed costs. 

• If you opt to input a single figure, you must still correctly calculate all of your costs and keep a record of your calculations in case of HMRC questions your numbers. 

• Receipts or other proof of purchase should also be kept. 

• These are not required to be included with your tax return, but they may be required if you’re the subject of a tax inquiry. 

• Although paper receipts have long been the standard, you can now save receipts in digital form by scanning or photographing them with your smartphone and filing them for later retrieval. 

Get more information about self-employed allowable expenses by CBM Accounting: 

Taxes are difficult, and making a mistake on your Tax Return can result in a penalty. Our small company accountants have a lot of expertise assisting self-employed people with the self-assessment procedure. For further information, call CBM Accounting now, or use our fast quotation feature and one of their representatives will contact you shortly. 

If you are self-employed or have rental income, you are among the 12 million individuals who must pay self-assessment income tax, and you should be conscious that midnight on January 31, 2021, is a crucial day for you. 

That is when you must have submitted your yearly tax return to HMRC and paid all of your major payments for the year. Because of the epidemic, there are certain modifications this year, but the main principles still apply. 

People who have been self-employed for a while are likely to be familiar with the processes, but if you are new to self-employment, it is critical to understand your filing and payment requirements to avoid HMRC penalties.  

Table of Contents 

Determining your status as a self-employed person: 

Self-Assessment Registration: 

Estimating Your Tax Liability: 

Filing a tax return: 

Estimating your payments: 

Making payments: 

Arrangements for payment during the pandemic: 

CMB Accounting can assist you with your tax return: 

Determining your status as a self-employed person: 

Confirming your status is one of the first things you should do. If you work for only one company and are provided a regular wage, you are considered an employee, and your employer is required to extract income tax and National Insurance obligations at source under the PAYE scheme. 

You may potentially continue working for the same business on a self-employed basis and get payment without deduction of tax if you have quit full-time employment and work for yourself (on your account). HMRC, on the other hand, would query if you were truly self-employed and would conduct tests to prove your position. 

• The HMRC website has an Employment Status Indicator that you may use to determine if you are truly self-employed. 

• The tool will ask you a range of questions about your client contract, your job and duties, your pay, and any benefits you get. 

• HMRC will determine your tax position based on the answers you submit. 

• Working for several clients makes the situation easier. In general, if you manage your small firm and are responsible for its success or failure, you will be considered self-employed. 

• You must provide your equipment for the job, you must bid for work and submit invoices, and you are free to work for many clients.
   

Self-Assessment Registration: 

You must register with HMRC as soon as possible if you are truly self-employed. However, keep in mind the registration deadlines. 

The fiscal year spans from April 6 to April 5. If you started working for yourself before April 5, 2020, you must register by October 5, 2020. You may be subject to a penalty if you have not yet registered. 

When you became self-employed later April 5, 2020, you must register by October 5, 2021, except you, can do so at any time before that date. 

HMRC will create your account once you have answered all of the questions, and you will get a letter with your Unique Taxpayer Reference (UTR) number. After that, you will get another mail containing an account activation code. You may file your tax return at any moment before the deadline once you have enrolled in your account.  

Estimating Your Tax Liability: 

You should define your accounting period when you first start your self-employed firm. This usually lasts a year from the time you start trading. As a result, if you begin your business on January 1, your accounting period will finish on December 31. 

During the accounting period, you or your accountant records all of your revenue, as well as all of the business, ‘s allowed expenses. HMRC now allows you to keep track of this data in two ways: cash and accumulation. 

If you own a business, your accountant will take care of all of your bookkeeping as well as statutory and management accounts, online accounting, and cash flow and financial forecasts. As a result, when the fiscal year ends, you will have all of your data on hand. 

• This is known as the cash basis, and it allows you to report real receipts and expenditures throughout the accounting period. 

• In the January-December example, if you invoiced a client £100 on December 10th and got payment on January 10th, you would not have to include that £100 in your income until the following year’s filing. 

• The accruals basis, which is the standard technique, requires you to record money owing to you during your accounting period. 

• Therefore, even if you had not received the money, that £100 invoice from December would be included in your income tax return. 

• You can determine your profit from the firm once you have all of the information on income and spending. 

• Other factors to consider are capital expenditure allowances, losses from previous years, and stock adjustments, but the basis of your tax liability is your business profit – the difference between revenue and expenditure.
   

Filing a tax return: 

You will need to file an annual self-assessment tax return once your self-employed firm is up and operating. You have the option of filing a paper return or filing online. 

If you are filing a paper return, you must send it to HMRC by October 31. The deadline for submitting online is January 31. 

You must complete your online return by December 30 if your position is more complicated and you have some earnings from work where tax is deducted under PAYE and some from self-employment. 

Regardless of how you file, you must correctly answer all essential questions about your business, your income and expenditures related to the business, and any income from other sources, such as interest, benefits, or capital gains. 

The online form will calculate your earnings from the business and tell you how much tax and National Insurance payments you must pay based on the information you supply on income and expenditure. 

The income and spending numbers you supply are for the tax year that concluded on April 5, and they pertain to your self-employed earnings. As a result, you must provide data relating to your self-employed earnings for the period ending 5 April 2020 by 31 January 2021. 

If you began your business after April 6, 2020, you must file a tax return by January 31, 2022, which will include self-employed profits between April 6, 2020, and April 5, 2021. 

Estimating your payments: 

The payments you make are calculated based on your profitability, not your self-employment income. Suppose you earned a profit of £26,000 on a £35,000 income in this exaggerated scenario. 

Like any other taxpayer, you have a personal allowance – the amount you are permitted to earn before you pay any income tax. For the 2020-21 tax year, the personal allowance is £12,500. As a result, you would just have to pay tax on the remaining £13,500 of your earnings. 

For taxable income between £12,501 and £50,000, a figure of £13,500 would be taxed at the current rate of 20% (the basic rate). If you earn more than £50,001, you will have to pay tax at a higher rate of 40% on the amount over £50,000. 

• You may be required to pay two types of National Insurance contributions, Class 2 and Class 4, in addition to income tax. 

• If your profits exceed £6,475 in the 2020/21 tax year, you must pay Class 2 payments. 

• You will be charged £3.05 per week or £158.60 per year. 

• If your profits for the 2020/21 tax year exceed £9,500, you must make extra Class 4 payments. 

• Profits between £9,500 and £50,000 will be taxed at 9%, and profits over £50,000 will be taxed at 2%. 

Making payments: 

The deadlines for self-assessment tax payments are 31 January and 31 July. 

You must pay any tax payable on the earnings calculated in your return by 31 January. 

In this case, you would have to pay tax on your £13,500 profit, as well as any National Insurance contributions. 

You also make your first account payment for the tax bill due the following January – January 31, 2022. HMRC usually calculates this based on your current responsibility, so you would pay half of the tax and NI payments due on £13,500 and the other half by July 31. 

Those two payments on account are then subtracted from the tax payable on your profits when you file your tax return in January 2022. Therefore, if your earnings grew by £2500, you would only have to pay tax on that amount plus the first payment on account – which would be based on profits of £16,000 – on January 31. 

You may be capable of paying in installments rather than making a single lump-sum payment, depending on your specific circumstances. It is critical to pay by the deadlines or install dates in any case. If you do not, you will be charged interest on any late payments. 

Arrangements for payment during the pandemic: 

During the epidemic, the government and HMRC recognized the difficulties experienced by many self-employed persons and implemented a variety of steps to assist them. 

Grants to compensate for lost income and Time to pay extensions are available to anybody unable to satisfy their payment obligations by the usual dates. 

Grants were available under the Self-Employment Income Support Scheme to compensate for lost earnings. This gift, however, qualifies as income for the period and must be reported in your tax return due by January 31, 2022. 

The amount of tax payable will be determined normally, so you will include any trade revenue, any allowed company expenses, and any grants you have received. 

The first payment extension permitted consumers to postpone their account payments due from July 31, 2020, until January 31, 2021. A second extension, announced in September 2020, enabled anyone unable to meet his or her 31 January obligations due to pandemic-related issues to set up a 12-month payment plan. 

The postponed July 2020 payment on account, the tax payable on earnings on 31st January 2021, and the two payments on account due on 31st January and 31st July 2021 would all be covered by this second extension. Self-employed persons with tax liabilities of up to £30,000 are eligible for the payment plan. 

You would still be required to complete your yearly Tax return by January 31, 2021, and you would be responsible for paying interest on any liabilities covered by the payment plan. HMRC, on the other hand, will not levy late payment penalties on any unpaid sums. 

CBM Accounting can assist you with your tax return: 

Self-assessment tax is difficult to understand, especially if you are new to self-employment or have had issues during the epidemic. We can assist you if you require expert guidance or support in filing your tax return. We can assist self-employed individuals as well as corporations with their Tax returns. 

However, any Covid or non-Covid related our helpful small company accountants and employees could handle tax concerns. Check out our most recent Tax advice, and contact CBM Accounting for a free accounting quotation right away! 

Invoice financing is a type of short-term credit provided by a bank or lender to its clients in exchange for outstanding bills. Invoice finance is frequently used to address a company’s short-term financial needs. 

Invoice finance is a type of financing given by an invoice finance lender to enable business owners to leverage their outstanding invoices and get immediate cash flow. The invoice finance provider will release up to 90% of a company’s invoices immediately. 

The lender will release the total amount minus any charges once their clients have paid the invoice. Depending on the scenario and the amount of control, they want in collecting outstanding bills, businesses can choose from a variety of invoice financing solutions. 

The simplest way to answer the question “What is invoice finance?” is to state it’s on the rise. There are numerous major causes for this, and several significant events over the last two decades have altered the way small and medium-sized enterprises borrow. To begin with, the financial crisis of 2008 drastically altered the way big banks handled commercial loan applications, which in turn affected the way small firms functioned. Second, the uncertainty surrounding Brexit harmed confidence and resulted in a reduction in conventional borrowing in the United Kingdom. Third, the epidemic has wreaked havoc on both large and small businesses in 2020. 

• It is a never-ending event — the worst and most disruptive in living memory – with far-reaching consequences for firms in every industry. 

• For a long time, traditional funding has been more difficult to get for younger and smaller firms. 

• Customers are paying more slowly during the epidemic, but this has done little to alleviate the severe strain on SMEs to continue paying workers and suppliers. 

• Commercial borrowers require an easy-to-use, cost-effective method of maintaining their cash flow. 

• The cost of borrowing is determined by risk, and freeing up the cash in outstanding bills is a very low-risk venture. 

Table of Contents 

What exactly is invoice financing, and how does it operate? 

Invoice factoring” versus “invoice discounting: 

What is the process of invoice factoring? 

Implications of Factoring Invoices: 

The difficulties of invoice factoring: 

What is the procedure for discounting invoices? 

The Benefits of Invoice Discounting: 

The disadvantages of invoice discounting: 

 

Brexit, the 2008 financial crisis, Fintech, and the COVID-19 disruption all contributed to the rise of invoice finance: 

What are the costs involved with invoice financing? 

In the UK, who supervises invoice financing? 

What specifically is the concept of invoice financing? 

Is invoice finance a viable option for my business? 

Connect us to get more assistance: 

What exactly is invoice financing, and how does it operate? 

Invoice financing is a convenient way to borrow money that is secured by the value of your outstanding invoices. A lender advances a percentage of the billed amount to your firm (typically about 90%) whenever an invoice is raised, and some suppliers promise payment within 24 hours. 

Depending on the sort of invoice financing, you ask for, either you or the lender will do credit checks, and when your client pays the invoice, you will get the balance of the invoice’s value less the finance charge. 

Invoice factoring” versus “invoice discounting: 

The sole difference between the two main kinds of invoice financing, invoice discounting and invoice factoring is who is in charge of collecting payments. When picking one of the two options for a business, there are two major considerations to consider, do we want our customers to know we are utilizing the service? Do we want credit control to be outsourced? 

The easiest of the two financial models is invoice discounting. You take out a loan against the invoice’s value, but you keep control of the payment collection process. However, with invoice factoring, the financing firm handles credit management, so your clients will know you have delegated the process. 

• Discounting and factoring both operate by advancing a portion of an overdue payment – often about 90% of the invoice amount – and then settling the remainder when your client pays the invoice in full. 

• Many lenders in this sector will demand that B2B sales, not B2C sales, are your primary source of revenue. 

• Invoice finance is available to almost all SMEs, including existing businesses as well as startups and new enterprises. 

• Lenders will frequently require that an owner or director have ownership of a property in the case of brand-new enterprises. 

What is the process of invoice factoring? 

• Efforts are made to enhance and anticipate cash flow. 

• Credit control can be outsourced so that businesses can focus on production. The financing firm is in charge of collecting payments. 

Implications of Factoring Invoices: 

Credit control can be handled by a finance company for smaller businesses, freeing up time to generate new leads or income sources. 

The hurdle to accessing this invoice financing option is lower since the finance firm reduces its risk by maintaining your sales ledger. The majority of businesses establish a turnover restriction. 

The difficulties of invoice factoring: 

The service is not private. Some consumers may be offended that you are outsourcing credit control, particularly if you are a small firm with a tight-knit customer base. 

Because invoice factoring includes credit management, borrowing costs are greater than with invoice discounting. 

What is the procedure for discounting invoices? 

Permits businesses to better forecast cash flow and frees up the majority of the money held in outstanding bills right away. 

You control your credit – the technique is completely private, and your consumers will have no idea you are implementing invoice finance. 

The Benefits of Invoice Discounting: 

• While invoice discounting delivers the same financial benefits as factoring, it is secret, so you will not anger your consumers. 

• You handle credit management on your terms, which is ideal if you have separate processes for long-term or loyal and trusted customers. 

• Unlike invoice factoring, the cost of finance does not include a credit control component. 

• With invoice discounting, you are not locked into a contract, so you may finance a single invoice whenever it is convenient. 

The disadvantages of invoice discounting: 

• Discounting has a higher entrance barrier, with some lenders requiring a minimum turnover of hundreds of thousands of pounds. 

• Before approving a loan, invoice-discounting lenders may wish to examine your creditworthiness and credit control methods. 

Brexit, the 2008 financial crisis, Fintech, and the COVID-19 disruption all contributed to the rise of invoice finance: 

It has been a turbulent twelve years or more for commerce. The financial crisis wreaked havoc on the economy. There was also a lot of, and it lasted a long time, uncertainty around the Brexit talks. Even when both of these reasons are taken into consideration, as well as the continued impacts of the COVID-19 epidemic, the increase of invoice finance is not the full explanation. 

When evaluating how invoice and asset financing have acquired so much traction so rapidly, you must also examine the rise of intech. Fintech’s impact on the conventional lender environment has been described as “disruptive” – and it has only become worse during COVID-19 because cash flow is critical to many firms’ survival. 

Many large banks are now collaborating with fintech companies, delivering new products and services that only their nimble counterparts can give, because of fintech’s ongoing effect on lending and the way the industry’s future is considered to be heading. 

Many fintech businesses were quick to react during the epidemic, creating and delivering specialized funding solutions to market faster than traditional lenders could. 

As we previously talked about, SMEs have adopted that creative approach to financing in 2020, like Brexit, COVID-19, and the impacts of the GFC combined to create very tough trade and borrowing circumstances. 

• The financial crisis of 2008 had a severe and long-lasting impact on business financing. Since 2009, the invoice finance industry has experienced tremendous, continuous expansion — internationally. 

• With a no-deal Brexit approaching, lender confidence was already weak before COVID-19. 

• Small and medium-sized enterprises (SMEs) account for 99.9% of all firms in the UK, and the epidemic has wreaked havoc on them. 

• 38 percent of SMEs are still waiting for payment for work performed before the lockdowns began in March 2020, with an average bill of £58,000. 

• The amount of debt owing to UK SMEs was estimated to reach £67.4 billion in September 2020. 

What are the costs involved with invoice financing? 

That varies on whether you select factoring or discounting, and, as previously said; invoice-factoring charges are often greater because the lender handles credit management. 

Invoice financing costs typically range from 0.5 percent to 5% of the invoice’s value; but as with any loan, your credit score and other circumstances may affect the rate you are provided. The charge is also affected by the size of the invoice you want to finance. Lower-value bills tend to attract lower rates, and higher-value invoices tend to draw higher costs. 

In the UK, who supervises invoice financing? 

Although the FCA (Financial Conduct Authority) does not currently oversee invoice financing, UK Finance does have a code of practice for service providers. Before you commit to anything in finance, it is a good idea to obtain counsel from your financial officer or accountant – especially if there is a long-term contract concerned. 

What specifically is the concept of invoice financing? 

One of the most appealing aspects of invoice financing is the structure’s simplicity. Your company sends out bills as normal, but you also notify the lender. They will transmit a percentage of the value after they get all the data. Depending on the invoice finance provider, this might take anywhere from 24 hours to a week. 

You will then carry out the terms of the agreement – if it is a factoring deal, the lender will do credit checks following their policies. If you have agreed to a discounted arrangement, you will proceed with payment as usual. When the invoice is paid, the financier will provide you the remaining funds after deducting their charge. Repeat applications are simple and quick to conduct once you have chosen and been confirmed by an invoice finance provider. 

Is invoice finance a viable option for my business? 

Because invoice financing is a very straightforward approach to maintain a steady cash flow in certain conditions, it has risen in popularity. However, it is a good idea to incorporate it into your overall cash flow forecasts and planning. It is not a good idea to be financially reliant on anything. 

Connect us to get more assistance: 

Get in touch with CBM Accounting if you would like to learn more about how our accountant can assist you with your cash flow issues and help your business grow during these trying times. You may also receive a free accounting estimate right now. 

The Chancellor has stated that the Coronavirus Job Retention (furlough) Scheme would be extended until the end of April, providing continuing support for the UK workers. 

The initiative, which was supposed to run for three months starting in March, has been extended many times, with the government continuing to pay 80% of people’s salary for hours not worked, up to a monthly limit of £2,500. 

Businesses who are struggling due to the ongoing economic downturn will be helped by an extension of the government-backed COVID-19 business lending schemes. The Bounce Back Loan Scheme, Coronavirus Business Interruption Loan Scheme, and Coronavirus Large Business Interruption Loan Scheme are currently open until the end of March. 

These adjustments come ahead of the Budget, which will be held on March 3, 2021, as the Chancellor has stated. The extension of the business loan and furlough schemes, according to the government, will allow firms to plan and receive help in the first few months of 2021, ahead of a further update on COVID-19 economic support. 

Through a successor loan plan, the government has already stated that further assistance will be available beyond March. More details will be available as soon as feasible. 

Table of Contents 

The Job Support Scheme 

Schemes for Business Loans: 

Future government support plans: 

CMB Accounting can assist you! 

The Job Support Scheme

In January, the Job Support Scheme was set to be evaluated to see if economic conditions had improved enough for businesses to contribute more to the program. However, in light of the current challenging circumstances, the government has chosen to keep the plan running in its current form. 

The following are the major features of the new Job Support Scheme, which was unveiled on October 22 as part of the government’s Winter Economic Plan: 

• The scheme supplements wages in companies that are unable to rehire full-time personnel. 

• The plan began on November 1 and encompasses all of the United Kingdom’s countries. 

• The employee is paid up to two-thirds of their regular wage for each hour not worked. 

• For hours not worked, the government pays up to 61.67 percent of earnings, amounting to £1541.75 each month. Under the prior regulations, the highest payout was £697.92, which was more than quadrupled. 

• The employer’s share of unworked hours has been cut to just 5%. 

• Employees who work just one day a week are eligible since the minimum hour’s requirement has been decreased from 33% to 20%. 

Schemes for Business Loans: 

Coronavirus Business Interruption Lending Scheme, Bounce Back Loan Scheme, and Coronavirus Large Business Interruption Loan Scheme are the three emergency loan plans accessible to enterprises. 

All three schemes have been extended until the end of April, with the Coronavirus Business Interruption Loan Scheme (CBILS) accepting applications until March 31, 2021. 

The CBILS scheme provides loans of up to £5 million to small and medium enterprises in three ways: term loans, invoice financing, and credit facilities. The original scheme period was set at six years; however, it was later increased to ten years. 

The funds may be developed for a variety of things, including mergers and acquisitions, repaying existing debt, and investing in future development. The government guarantees 80% of the loans, and the lender based on the kind of financing sets the interest rate. There is no need for a personal guarantee. 

The Bounce Back Loan Scheme (BBLS) is aimed at smaller enterprises and offers loans of up to £50,000 based on 25% of yearly revenue. The government guarantees the loans 100 percent, and the interest rate is set at 2.5 percent for the duration of the loan. 

The loan duration was originally set at six years, but it has since been modified to six or 10 years, with payment holidays possible. 

Future government support plans: 

Even though no official announcements have been made, analysts predict that future support schemes would focus more on recovery, development, and job creation until 2021. 

One rumor going around is that there would be an effort to finance award schemes accessible through Local Enterprise Partnerships to help create new employment. 

The government’s exact intentions will very certainly be revealed in the April Budget. 

Commentators have also suggested that a 45-day redundancy notice period might be announced, which would coincide with a Budget 45 days before the present support schemes expire. 

CBM Accounting can assist you! 

As the new form of coronavirus continues to spread, the Chancellor has prolonged important schemes to help firms and employees until spring, when the government believes that the twin vaccinations will start to curb the epidemic. 

Furlough and coronavirus funding are complicated topics that demand careful study before making any final judgments. Our small business professionals, tax accountants, and attorneys can assist you in determining the sort of assistance that is most appropriate for your company and getting you back on track. Keep in touch with CBM Accounting if you would like to talk with a small business advisor. 

If you work in the construction business as a contractor or subcontractor, you should be aware of your responsibilities under the government’s Construction Industry Scheme (CIS). 

In essence, this is a scheme similar to PAYE that compels contractors to subtract 20 or 30% of every payment owed to a subcontractor and pay the difference to HMRC. 

The plan has two goals: to prevent fraud and tax evasion in the construction sector, as well as to assist subcontractors in spreading their tax responsibilities over the year. 

Table of Contents 

In 2021, there will be updates to the Construction Industry Scheme (CIS): 

The bill will address the following four issues: 

Reverse Charge on VAT: 

How the CIS performs: 

Covered work by CIS: 

Contractors’ requirements: 

Subcontractor’s requirements: 

In 2021, there will be updates to the Construction Industry Scheme (CIS): 

We will go through the basics of CIS later in this post, but first, you should be informed of the scheme’s recent and planned modifications. 

To tackle abuse, a proposed finance bill is being prepared: 

The government issued a draught finance bill in November 2020 that contained proposed reforms to the CIS to combat misuse and ensure HMRC can act promptly when the laws are breached. 

The bill will address the following four issues: 

• Different interpretations of the present regulation will be eliminated if the cost of materials clause is clarified. 

• Changes to the CIS set-off amendment power, which now allows HMRC to remedy mistakes or omissions on sub-contractor deductions. 

• Amendments to the definition of a “deemed contractor” are intended to discourage businesses from abusing the present regulations to avoid running the CIS. 

• Amendments to the CIS registration penalty to broaden the extent of the punishment for providing false information while applying for GPS or payment under deduction in the CIS. 

The changes will take effect on April 6, 2021, following consultation. As the date approaches, we will give you further details. 

Reverse Charge on VAT: 

HMRC’s new VAT rules for the construction sector, known as the “VAT reverse charge on construction and building services,” go into effect on March 1st. 

If you are a VAT-registered subcontractor delivering qualified services to other construction industry contractors, you will have to indicate the proper rate of VAT on your invoices to contractors starting March 1, 2021, but you will not have to charge it. Instead, the contractor is responsible for reporting the VAT to HMRC. 

The new system applies to all operations that are subject to CIS payment regulations. It applies to both normal and reduced-rate VAT supplies to VAT-registered contractors who then sell the services to ‘end-users,’ such as landlords, property developers, renters, or owners. 

How the CIS performs: 

CIS allows registered contractors to take money from subcontractor payments and send it to HMRC. The reductions of either 20% or 30% are considered advance payments for the subcontractor’s tax and NI contributions. 

Contractors must sign up for the scheme. Subcontractors are not required to register, but if you are not registered, your payments will be deducted at a higher rate of 30%. 

The CIS online tool allows registered contractors to file monthly returns and determine if a subcontractor is registered. 

Covered work by CIS: 

CIS includes the following sorts of work: 

• Alterations. 

• Building work. 

• Decorating. 

• Demolition or disassembly is a term used to describe the process of destroying or dismantling 

• Heating, lights, power, water, and ventilation are all installed. 

• Repairs. 

• Preparation of the site 

Contractors’ requirements: 

If you are a contractor, you must register with the CIS: 

• Construction work is done by subcontractors, who are paid by you 

• Your company does not undertake construction work, yet you spend more than £1 million on it every year. 

Before you hire your first subcontractor, you must first register with CIS. 

You must determine whether or not the subcontractor should be treated as an employee. The HMRC has status guidelines. 

Check with HMRC to see if subcontractors are registered with CIS before making any payments to them. The proportion of the money you deduct changes when you register. 

Deduct 20% (for registered subcontractors) or 30% (for non-registered subcontractors) from their remuneration and pay the difference to HMRC. 

To prevent fines, include all exclusions on a monthly return to HMRC and preserve complete and accurate records of all CIS payments and deductions. 

Subcontractor’s requirements: 

If you work for a contractor and are one of the following, you must register as a subcontractor with CIS: 

• Self-employed. 

• The proprietor of a limited liability corporation. 

• In a partnership or trust, a partner. 

Contractors must withhold 20% from your payments and send the deduction to HMRC each time they pay you. Contractors must withhold 30% of your compensation if you do not register for CIS. 

You will not have to make a single huge payment at the end of the year if you pay your taxes in advance this manner. If your records indicate a lesser profit after permitted costs, you may be awarded a refund. 

You can request for “gross payment status” when you register for CIS if you do not want contractors to make concessions before paying you. 

CBM Accounting is here to help: 

This is a quick rundown of the processes required to comply with CIS. If you have any questions about the scheme or the modifications, our team of experienced small company accountants would be happy to assist you. We can assist you with the best guide and decision-making for your business. 

Get in contact with CBM accounting to learn more! 

When it comes to evaluating a company’s financial health, reading a balance sheet is critical. One of the three major financial statements is the balance sheet, often known as the statement of financial status. A financial statement describes a company’s financial situation at a certain point in time. The balance sheet differs from the other main financial statements in that it depicts the flow of money via different accounts over time. 

The balance sheet is generally seen as the most essential of the three statements since it may be used to assess a company’s health and long-term viability. When performing credit analysis, a lender, for example, considers the balance sheet’s strength before evaluating if the cash flows are sufficient to cover the loan. As a result, keeping a solid and healthy balance sheet is a continual priority. 

Therefore, the balance sheet’s structure and how to understand different elements of the balance sheet are described in the following sections. They also go through how to interpret the notes and the essential links between the other statements and the balance sheet. 

The following are the major components of a balance sheet: 

• Fixed assets 

• Tangible assets 

• Current assets 

• Stocks 

• Debtors 

• Cash at the bank and in hand 

• Total current assets 

• Creditors: amounts falling due within one year 

• Net current assets/(liabilities) 

• Total assets less current liabilities 

• Creditors: sums due after a period of more than one year 

• Provision for liabilities 

• Net assets 

• Capital and reserves 

• Called up share capital 

• Profit and loss account 

• Shareholders’ funds 

Table of Contents 

Is it important to read or understand a balance sheet? 

Isn’t it true that the balance sheet is only relevant for year-end accounting? 

Debt: 

Is your business at risk of going into debt? 

Do I need an accountant to file my balance sheet as a small business owner? 

Take action instantly: 

You can get assistance from CBM Accounting: 

Is it important to read or understand a balance sheet? 

To read a balance sheet, you must first comprehend its further, components and what the reported statistics reveal about your company’s health. 

Without a question, understanding your company’s financial sheet is critical. Our mission is to guarantee that technical accounting concepts, facts, and numbers are explained to clients in clear English and practical terms. As a result, our clients receive vital information without becoming perplexed or bored! 

Isn’t it true that the balance sheet is only relevant for year-end accounting? 

Tangible assets, goodwill, shareholders’ money, and net asset value are frequently determined just once a year, and often many months after the year-end. You would want to see it at least quarterly, if not monthly if it was significant. 

However, a few figures are quite valuable when running a small business or analyzing the books of your rivals. 

The things most closely associated with cash (and even cash itself), such as working capital and debt, are the ones to keep an eye on. 

Debt: 

The World Economic Forum has a long-term debt of roughly $114 million on its books. The notes once again clarify the nature of the long-term debt. The business grew from a $250 million credit facility, according to the papers.

Furthermore, the loan interest rate is 5.45 percent, which is higher than the previous year’s rate of 4.56 percent. It indicates that the company’s credit risk has grown, as seen by the higher debt-to-capital ratio. 

Because there is no need to pay HMRC or suppliers before you need to, many healthy businesses may have a reasonably significant current creditor balance. Therefore, here are a few simple checks to determine if these debt components appear to be in good shape: 

• Creditors of taxation: Calculate the usual outstanding PAYE bill by adding 45 percent of the yearly employee costs divided by 12 and then adding the current company tax bill (from the P+L). You may also try to estimate the typical VAT bill by subtracting yearly income from total costs (excluding property and workers) multiplied by 20% divided by 4. If all of this adds up to around the same figure as the balance sheet, that is approximate, what you would anticipate for a typically running business. 

• Creditors in the trade: Divide the amount into the accounts by the total costs excluding property and workers, and then multiply by 365. This will give you an indication of how long the firm takes to pay invoices. If it is about 30 days, that is quite standard. 

• Loans from a bank: After you have totaled up your bank debt, both current and long-term, you will need to compare it to your EBITDA. Banks used to lend 5–6 times EBITDA, but in today’s environment, small business financing seldom exceeds 2.25 times EBITDA. Any longer and EBITDA may be lower than expected when the loan was taken out. 

Is your business at risk of going into debt? 

The balance sheet may be a valuable indicator of the stability of your financial situation since it provides insight into debt and its influence on your corporation. It accomplishes this by providing you with an estimate of your net debt situation. Subtract cash and cash equivalents from your total liabilities to arrive at this figure. 

A ‘net debt situation’ is when you have more debt than cash. However, if your balance sheet shows that, you have more cash than debt; your company is referred to have ‘net cash.’ 

Is it necessary to be concerned if you have a net debt position? Certainly not. 

It is possible that you are borrowing or investing funds to fund expansion, complete a critical project, or raise stock or other resources to capitalize on a significant market opportunity. 

Moreover, because of the recent epidemic, your debt may have arisen due to events beyond your control, rather than bad financial management. Excessive debt, on the other hand, may be harmful, especially if debt levels remain high for a long time or abruptly grow. 

Comparing your debt level to that of similar-sized firms in your sector is a good method to analyze your debt situation. Debt levels vary widely by industry, so do not draw easy comparisons with other small and medium enterprises. 

You may also incorporate a useful ratio to evaluate your debt situation. Divide your EBITDA (profits before interest, taxes, depreciation, and amortization) by the total debt on your balance sheet. The debt-to-earnings ratio shows how much debt your company has in comparison to its earnings. You may use that ratio is used to evaluate your position to that of other companies in your industry. 

Do I need an accountant to file my balance sheet as a small business owner? 

Balance sheets may be frightening, especially if you do not have any accounting experience. It is worthwhile to engage the assistance of an accountant, either to get you started or to save you time and effort. 

Accountants can assist you in determining what constitutes an asset, liability, or equity. They can also search for any mistakes, miscalculations, or missing data if you are having problems balancing your statement. Balance sheets are something that every small firm should get properly, because even a minor inaccuracy may quickly compound. 

Take action instantly: 

Understanding a balance sheet is a crucial part of operating a business, but it is just as important to act on what you learn. This is especially crucial if you find yourself in a bad debt situation. 

If your clients owe you a big sum of money, for example, this affects your financial position; therefore, you should try to enforce stricter payment conditions. Similarly, you should try to negotiate the best terms with your suppliers. 

That is a basic initial step, but an expert accountant can assist you in taking it a step further and using the balance sheet to gain even more insight into your financial situation. You can find opportunities to enhance your business and/or reduce risk by comprehending the numbers and using the knowledge to take action. 

You can get assistance from CBM Accounting: 

It can be difficult and time-consuming to decipher all of the data on a balance sheet. Our small company accountants have a lot of expertise in assisting businesses with balance sheet creation and analysis. You may also use our fast accounting quotation or contact us if you would like to set up a company valuation. Furthermore, get in touch with CBM Accounting to get more advice about balance sheet creation.