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For years, I asked myself this question. Management Accounts were always something that accountancy firms I worked at offered, but they were rarely taken up by clients and prospective clients. They just didn’t see any value in them.

But why?

I never really questioned it until I started working more closely with small business owners and began to understand the challenges they face on a regular basis.

So, to explain why management accounts are so useful, I’ll use a gaming analogy. I like to play video games and these actually provide a great analogy for the importance of management accounts… as strange as that may be!

Bear with me…

When you start playing a new game, you need to know what the objective is. Why are you playing the game? This is where goal setting is so useful. Set your goals! Understand the point of the game! Is there an income target you want to achieve, a new product or service you want to develop?

When you understand the objective, you begin working away to achieve that objective. However, it’s not a quick win and eventually you get side tracked along the way with side quests – doing the smaller tasks that can sometimes be fun, sometimes be boring, but ultimately don’t help you progress towards the main objective.

I think we’ve all been there in business!

Suddenly, you’re so bogged down in hundreds of side quests that you can’t remember what the main mission was.

So, after a few wasted hours, you pause the game, visit your list of objectives and remind yourself of the most important thing you need to do in order to get closer to the end goal.

You identify the destination you need to get to and begin to make your way there. However, you need to keep checking your in-game map to make sure you haven’t run off course, until you finally arrive.

Management accounts provide the same functionality.

If you haven’t set business goals, I suggest you do that first, so you know the point of the game. What will your sales be after year 1, 2, 5, etc? How much profit will that generate? How much will you pay yourself?

Once you have your goals set, you can go off on your merry way to achieve them! Just make sure you review your goals against your performance on a regular basis so you can make sure you’re still on the right track and haven’t been side tracked too much. If you realise you have been side tracked, a review of your performance against goals will help focus your mind and pull you back on the right path to achieving your goals.

But more than just a quick progress check:

Management accounts done correctly, can provide so much more for a business owner.

Here are a few questions and comments I hear that can be answered by preparing regular management accounts:

• I’ve had a really good month, what will that do to my tax bill?

• I offer lots of products / services, but don’t know which ones make me the most profit. What should I focus on?

• I’ve just landed a great deal and I think Ill need to take on more staff. What can I afford to pay them and how much profit will be left?

• I’m a new business and don’t know if I should be VAT Registered or not. How will I know? And what will I need to do?

Profit and Loss

Now, I’m not talking about having someone run a Profit and Loss report on your accounting software with a ‘Here you go. See you next month!’. The likelihood is that this won’t mean much to you, and you may not even look at it. The above questions don’t get answered this way. The questions get answered by having someone dig deeper into the numbers. Splitting out different income streams in your accounts so that they can be monitored; comparing month by month variances; tax calculations and forecasting; monitoring actual results against budgets.

Having someone really delve into your numbers and then explain everything to you in a way that you understand is so important to obtaining financial freedom.

Now that you understand how important management accounts are to running a successful business, why don’t you get in touch to discuss further.

Just call on 01604 662670 or email [email protected]

Ok, you’re hoping your business is elegible for this one. So let’s dive right in:

The LSRG is the Local Restrictions Support Grant. It goes to businesses that were open as usual before the local restrictions happened, then had to close because of the tier system.

Eligible businesses are entitled to a cash grant from their local council for each 14 day period they were closed. The deadline to claim is the 31st March!

Eligibility

You can apply for a grant if your business is either:

• in an area of local Tier 2 or Tier 3 restrictions and has been required to close because of local restrictions that resulted in a first full day of closure on or after 9 September
• in an area of local Tier 4 restrictions and has been required to close because of local restrictions that resulted in a first full day of closure on or after 19 December

This is as long as your business is based in England, has a physical location where it pays business rates and had to close for at least 14 days.

Businesses excluded from the fund

Sorry, but it doesn’t work if:

• you don’t depend on face to face services like….. accountants for example!
• you have chosen to close, but have not been “required” to close
• your businesses has been subject to national closures since 23 March 2020, such as nightclubs (there’s other grants for these)
• your business is in administration, insolvent, subject to a striking-off notice or has been struck off the Companies House register
• you have exceeded the permitted subsidy limit

What Next?

As always, you’ll need to check out full details for this.

Northants council page is here: https://www.northampton.gov.uk/grantsandadvice

Talk to us at Kilby Fox here: Contact Kilby Fox – Local Accountants Northamptonshire

On 8 July, Chancellor Rishi Sunak announced a three-point plan to support jobs in the wake of the COVID-19 pandemic when he delivered a Summer Economic Update to Parliament.

Mr Sunak confirmed the Coronavirus Job Retention Scheme (CJRS) will end as planned this October. The Chancellor said furloughing had been the right measure to protect jobs through the first phase of the crisis. The second phase will see a three-point plan to create jobs, support people to find jobs and to protect jobs.

The CJRS will be followed by a Job Retention Bonus, which will be introduced to help firms keep furloughed workers in employment. This will see UK employers will receive a one-off payment of £1,000 for each furloughed employee who is still employed as of 31 January 2021. To qualify for the payment, employees must earn above the Lower Earnings Limit (£520 per month) on average between the end of the Coronavirus Job Retention Scheme and the end of January 2021.

The Chancellor also launched a £2 billion Kickstart Scheme that will aim to create subsidised six-month work placements for young people aged 16-24 who are claiming Universal Credit. Funding available for each placement will cover 100% of the National Minimum Wage for 25 hours a week, plus the associated employer national insurance contributions (NICs) and employer minimum automatic enrolment contributions. Employers will be able to top this wage up.

In order to support the UK’s tourism and hospitality industry, the Chancellor announced a cut in the rate of VAT from 20% to 5% for the sector. This applies to supplies of food and non-alcoholic drinks from restaurants, pubs, bars, cafés and similar premises, as well as supplies of accommodation and admission to attractions, including theme parks and zoos, across the UK.

Additionally, the Eat Out to Help Out scheme will entitle every diner to a 50% discount of up to £10 per head on their meal at any participating, eligible food service establishment from Monday to Wednesday. Participating establishments will be fully reimbursed for the 50% discount.

Mr Sunak said:

‘Our plan has a clear goal: to protect, support and create jobs. It will give businesses the confidence to retain and hire. To create jobs in every part of our country. To give young people a better start. To give people everywhere the opportunity of a fresh start.’

Internet link: GOV.UK publications

Last night HMRC issued further guidance regarding the Coronavirus Job Scheme, please see below for updated details.

The Coronavirus Job Retention Scheme is a temporary scheme open to all UK employers for at least three months starting from 1 March 2020. We expect the scheme to be up and running by the end of April. It is designed to support employers whose operations have been severely affected by coronavirus (COVID-19).

Employers can use a portal to claim for 80% of furloughed employees’ (employees on a leave of absence) usual monthly wage costs, up to £2,500 a month, plus the associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on that wage. Employers can use this scheme anytime during this period.

The scheme is open to all UK employers that had created and started a PAYE payroll scheme on 28 February 2020.

Who can claim

Any UK organisation with employees can apply, including:

• businesses
• charities
• recruitment agencies (agency workers paid through PAYE)
• public authorities

You must have created and started a PAYE payroll scheme on or before 28 February 2020 and have a UK bank account.

Where a company is being taken under the management of an administrator, the administrator will be able to access the Job Retention Scheme.

Public sector organisations

The government expects that the scheme will not be used by many public sector organisations, as the majority of public sector employees are continuing to provide essential public services or contribute to the response to the coronavirus outbreak.

Where employers receive public funding for staff costs, and that funding is continuing, we expect employers to use that money to continue to pay staff in the usual fashion – and correspondingly not furlough them. This also applies to non-public sector employers who receive public funding for staff costs.

Organisations who are receiving public funding specifically to provide services necessary to respond to COVID-19 are not expected to furlough staff.

In a small number of cases, for example where organisations are not primarily funded by the government and whose staff cannot be redeployed to assist with the coronavirus response, the scheme may be appropriate for some staff.

Employees you can claim for

Furloughed employees must have been on your PAYE payroll on 28 February 2020, and can be on any type of contract, including:

• full-time employees
• part-time employees
• employees on agency contracts
• employees on flexible or zero-hour contracts

The scheme also covers employees who were made redundant since 28 February 2020, if they are rehired by their employer.

To be eligible for the subsidy, when on furlough, an employee can not undertake work for or on behalf of the organisation. This includes providing services or generating revenue. While on furlough, the employee’s wage will be subject to usual income tax and other deductions.

This scheme is only for employees on agency contracts who are not working.

If an employee is working, but on reduced hours, or for reduced pay, they will not be eligible for this scheme and you will have to continue paying the employee through your payroll and pay their salary subject to the terms of the employment contract you agreed.

Employers should discuss with their staff and make any changes to the employment contract by agreement. When employers are making decisions in relation to the process, including deciding who to offer furlough to, equality and discrimination laws will apply in the usual way.

To be eligible for the subsidy employers should write to their employee confirming that they have been furloughed and keep a record of this communication.

Employees hired after 28 February 2020 cannot be furloughed or claimed for in accordance with this scheme.

You do not need to place all your employees on furlough. However, those employees who you do place on furlough cannot undertake work for you.

If your employee is on unpaid leave

Employees on unpaid leave cannot be furloughed, unless they were placed on unpaid leave after 28 February.

If your employee is on Statutory Sick Pay

Employees on sick leave or self-isolating should get Statutory Sick Pay, but can be furloughed after this.

Employees who are shielding in line with public health guidance can be placed on furlough.

If your employee has more than one job

If your employee has more than one employer they can be furloughed for each job. Each job is separate, and the cap applies to each employer individually.

If your employee does volunteer work or training

A furloughed employee can take part in volunteer work or training, as long as it does not provide services to or generate revenue for, or on behalf of your organisation.

However, if workers are required to for example, complete online training courses whilst they are furloughed, then they must be paid at least the NLW/NMW for the time spent training, even if this is more than the 80% of their wage that will be subsidised.

If your employee is on Maternity Leave, contractual adoption pay, paternity pay or shared parental pay

Individuals who are on or plan to take Maternity Leave must take at least 2 weeks off work (4 weeks if they work in a factory or workshop) immediately following the birth of their baby. This is a health and safety requirement. In practice, most women start their Maternity Leave before they give birth.

If your employee is eligible for Statutory Maternity Pay (SMP) or Maternity Allowance, the normal rules apply, and they are entitled to claim up to 39 weeks of statutory pay or allowance.

Employees who qualify for SMP, will still be eligible for 90% of their average weekly earnings in the first 6 weeks, followed by 33 weeks of pay paid at 90% of their average weekly earnings or the statutory flat rate (whichever is lower). The statutory flat rate is currently £148.68 a week, rising to £151.20 a week from April 2020.

If you offer enhanced (earnings related) contractual pay to women on Maternity Leave, this is included as wage costs that you can claim through the scheme.

The same principles apply where your employee qualifies for contractual adoption, paternity or shared parental pay.

Work out what you can claim

Employers need to make a claim for wage costs through this scheme.

You will receive a grant from HMRC to cover the lower of 80% of an employee’s regular wage or £2,500 per month, plus the associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on that subsidised wage. Fees, commission and bonuses should not be included.

At a minimum, employers must pay their employee the lower of 80% of their regular wage or £2,500 per month. An employer can also choose to top up an employee’s salary beyond this but is not obliged to under this scheme.

We will issue more guidance on how employers should calculate their claims for Employer National Insurance Contributions and minimum automatic enrolment employer pension contributions, before the scheme becomes live.

Full time and part time employees

For full time and part time salaried employees, the employee’s actual salary before tax, as of 28 February should be used to calculate the 80%. Fees, commission and bonuses should not be included.

Employees whose pay varies

If the employee has been employed (or engaged by an employment business) for a full twelve months prior to the claim, you can claim for the higher of either:

• the same month’s earning from the previous year
• average monthly earnings from the 2019-20 tax year

If the employee has been employed for less than a year, you can claim for an average of their monthly earnings since they started work.

If the employee only started in February 2020, use a pro-rata for their earnings so far to claim.

Once you’ve worked out how much of an employee’s salary you can claim for, you must then work out the amount of Employer National Insurance Contributions and minimum automatic enrolment employer pension contributions you are entitled to claim.

Employer National Insurance and Pension Contributions

All employers remain liable for associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on behalf of their furloughed employees.

You can claim a grant from HMRC to cover wages for a furloughed employee, equal to the lower of 80% of an employee’s regular salary or £2,500 per month, plus the associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on paying those wages.

You can choose to provide top-up salary in addition to the grant. Employer National Insurance Contributions and automatic enrolment contribution on any additional top-up salary will not be funded through this scheme. Nor will any voluntary automatic enrolment contributions above the minimum mandatory employer contribution of 3% of income above the lower limit of qualifying earnings (which is £512 per month until 5th April and will be £520 per month from 6th April 2020 onwards).

National Living Wage/National Minimum Wage

Individuals are only entitled to the National Living Wage (NLW)/National Minimum Wage (NMW) for the hours they are working.

Therefore, furloughed workers, who are not working, must be paid the lower of 80% of their salary, or £2,500 even if, based on their usual working hours, this would be below NLW/NMW.

However, if workers are required to for example, complete online training courses whilst they are furloughed, then they must be paid at least the NLW/NMW for the time spent training, even if this is more than the 80% of their wage that will be subsidised.

What you’ll need to make a claim

Employers should discuss with their staff and make any changes to the employment contract by agreement. Employers may need to seek legal advice on the process. If sufficient numbers of staff are involved, it may be necessary to engage collective consultation processes to procure agreement to changes to terms of employment.

To claim, you will need:

• your ePAYE reference number
• the number of employees being furloughed
• the claim period (start and end date)
• amount claimed (per the minimum length of furloughing of 3 weeks)
• your bank account number and sort code
• your contact name
• your phone number

You will need to calculate the amount you are claiming. HMRC will retain the right to retrospectively audit all aspects of your claim.

Claim

You can only submit one claim at least every 3 weeks, which is the minimum length an employee can be furloughed for. Claims can be backdated until the 1 March if applicable.

What to do after you’ve claimed

Once HMRC have received your claim and you are eligible for the grant, they will pay it via BACS payment to a UK bank account.

You should make your claim in accordance with actual payroll amounts at the point at which you run your payroll or in advance of an imminent payroll.

You must pay the employee all the grant you receive for their gross pay, no fees can be charged from the money that is granted. You can choose to top up the employee’s salary, but you do not have to.

When the government ends the scheme

When the government ends the scheme, you must make a decision, depending on your circumstances, as to whether employees can return to their duties. If not, it may be necessary to consider termination of employment (redundancy).

Employees that have been furloughed

Employees that have been furloughed have the same rights as they did previously. That includes Statutory Sick Pay entitlement, maternity rights, other parental rights, rights against unfair dismissal and to redundancy payments.

Once the scheme has been closed by the government, HMRC will continue to process remaining claims before terminating the scheme.

Income tax and Employee National Insurance

Wages of furloughed employees will be subject to Income Tax and National Insurance as usual. Employees will also pay automatic enrolment contributions on qualifying earnings, unless they have chosen to opt-out or to cease saving into a workplace pension scheme.

Employers will be liable to pay Employer National Insurance contributions on wages paid, as well as automatic enrolment contributions on qualifying earnings unless an employee has opted out or has ceased saving into a workplace pension scheme.

Tax Treatment of the Coronavirus Job Retention Grant

Payments received by a business under the scheme are made to offset these deductible revenue costs. They must therefore be included as income in the business’s calculation of its taxable profits for Income Tax and Corporation Tax purposes, in accordance with normal principles.

Businesses can deduct employment costs as normal when calculating taxable profits for Income Tax and Corporation Tax purposes.

Kilby Fox is a Northampton-based accountancy practice and business consultancy which has been leading the way for over 100 years. As the longest established accountancy firm across Northampton, we have been recognised by the Handpicked Accountants team for our outstanding customer service and level of expertise. Following successful completion of the onboarding process, we have now been added to the Handpicked Accountants site.

We can assist SMEs, start-ups, larger companies and high net worth individuals, providing a bespoke service by tailoring the pricing accordingly to the needs of the business. We are an ICAEW and ACCA member accountancy firm so we can reassure you to our service is reliable and of the highest standard. Our chartered accountants are highly experienced and fully versed in using industry-standard accounting software, Xero and Sage.

Over the years, we have built our service model to exceed customer expectations and to constantly adapt to modern technology, a vision which has helped us stay in the lead for over a century. From submitting expense claims to managing cash flow, we can help simplify the process from start to finish.

David Tattersall, Head of Client Relations at Handpicked Accountants, said: “I am wholeheartedly delighted to welcome Kilby Fox to the Handpicked Accountants platform. We strive to connect businesses looking for accountants with only the best firms in their area and Kilby Fox is an ideal addition to our Northampton base.”

Handpicked Accountants is a matching platform for small business owners looking for an accountant in their local area. The team behind Handpicked Accountants travel across the country to handpick only the best-performing accountancy firms to join the network. The decision is based on trust factors, expertise levels and customer service standards, all of which should be outstanding to meet the joining criteria.

You can now view our profile on the Handpicked Accountants site, designed for contractors, freelancers and SMEs.