I went out for a run yesterday morning. My last hard training run before the Belfast marathon on Sunday week. The plan was a 1 mile warm up and a 1 mile cool down but 10 fast miles between the easy ones. The 10 fast weren't as fast as I wanted them to be. During the 10 there were a couple of walks and a few stops to take water on. All the bad habits you would plan not to do on a marathon run. I was flying the previous Thursday morning but yesterday was a struggle. One of those runs to get through and forget about and move on. It got me thinking that we all engage in bad habits. We know that we make mistakes, and we have a choice in how we react to those habits. Do we continue to do the same thing, or do we try and change things around? If we develop more good habits and cut some of the bad ones, then our running times improve. We all don't want to improve, some are happy getting on the road and doing a few miles to stay healthy. Others are more competitive and set training goals and targets for themselves.
Business is a bit like this. Some are happy earning a living. Others want to improve and grow. They enjoy the competitive nature of business. They are often not competing with another business but with themselves. They set goals and targets at the start of the year and may have a long-term goal. We worked with an Accountant coach in the UK for over 5 years before Covid. He called the long-term goal a "BHAG" which stood for Big Hairy Audacious Goal. This involved a sales number, number of staff, profit, days holidays you take. It was like a business utopia. To get there was a journey of continuous improvement. To eliminate as many bad habits as possible and to put in place better ones. Not only that but to keep judging the better ones and improving those. There are many "gurus" out there giving us tips about how to work, when to work and what to do. I thought of the movie "Things to do in Denver when you're dead" and twisted the title around a bit. This is to give you an idea of some of the bad habits that business people do. These are things to avoid. They will help you burn money and drain energy and confidence. Would you take a €50 note out of your pocket and flush it down the toilet?
Pay your employee's net
Employees with the right attitude and who are hardworking are hard to find and difficult to keep. Billy is a great lad and has impressed you with the quality of his work and the way he deals with customers. He tells you he needs €600 a week take-home pay or net pay. Billy is married to Mary, and she works full-time for the HSE. Given that good workers are hard to find you agree to pay him €600 net per week. Billy and Mary share their tax credits and lower rate band as follows
|Max lower rate band for a married couple||€70,600|
|Lower rate Billy||€35,300|
|Lower rate Mary||€35,300|
|Married Tax credit||€3,300|
|Total Tax credits||€6,600|
Billy and Mary each have €3,300
Based on the above number the gross weekly salary for Billy is €752. Employer's PRSI at 11.05% is €83.10 so the total weekly cost to the employer is €835.
During the year Mary gets a promotion, so they decide to change their tax credits and lower rate band. This is to maximise Mary's net take home as Billy knows his net weekly wage will not change. Of the max lower rate band Mary moves to €44,300. This leaves Billy with €26,300 at the lower rate. Mary also takes all the married tax credit of €3,300. Billy only has the PAYE credit of €1,650. With this change Billy has given himself a pay increase of €129 per week. When you add employer's PRSI the total extra weekly cost is €143 per week or €7436 per annum. Billy and Mary can organise their tax credits and division of tax bands as they wish. You as the employer pick up the tab. Never pay your employees net. If you do, it will cost you.
In our tax and accountancy world we work to deadlines. Yesterday was the company tax return deadline. This is for companies where their accounts year ends on the 31st of December 2020. Upcoming deadlines are fast approaching for Income Tax for 2020. And the annual return filing date with the Companies Registration Office [CRO]. You must meet these deadlines. There will be a financial cost and, in some cases, a mental cost too.
Outdoor Heaters Ltd made a profit of €500,000 in the year ended 31 December 2020. It has a corporation tax liability of €62,500. It is due to file the company tax return and pay the tax on or before the 23rd of September 2021. The return goes in late so Revenue apply a surcharge of 5%. This comes to €3,125. If the return is filed after the 21st of November, it will be over 2 months late. In this case the surcharge increases to 10% or €6,250.
Juan Veron is a director of Outdoor Heaters Ltd and owns 50% of the company. An owner director of a company that owns 15% or more must file an Income Tax return form 11 every year. Juan has until the 17th of November 2021 to file his 2020 Income Tax return. His salary for 2020 was €250,000 and he paid PAYE on that of €100,000. He has no other income, so he knows he won't have a tax bill. He decides to look after his own tax return for 2020 as Mike, the accountant wants to charge him €500 for doing it. Juan thinks that's a waste of money as "there's nothing in it." Juan takes a well-earned break in mid-November and heads off to Thailand for two weeks. He will sort out his tax return when he gets back. He submits his return in early December and can't understand why he has a €5,000 liability. The late filing surcharge for company directors is different as it is more penal. The surcharge is applied before you get a credit for PAYE.
|Tax liability Juan||[before PAYE deducted]||€100,000|
|Less PAYE paid||€100,000|
Outdoor Heaters Ltd was incorporated on the 1st of February 2020. It must file its first annual return with the CRO made up to the date of 6 months post incorporation. So, its first annual return is up to the 1st of August 2020. The next annual return is made up to a year after the first return so that is the 1st of August 2021. The company has up to 56 days to file the return from its annual return date. See here. The following is from the CRO website. Failure to file an annual return on time can have several consequences
- imposition of the late filing fee
- prosecution of the company and/or its directors
- the loss of the audit exemption or the
- possible involuntary strike-off and dissolution of the company
This can be very stressful, and expensive too. Losing the audit exemption is an absolute pain as it will be difficult to get an audit. Your own accountants may not be auditors and you will have to get your accounts audited for the next two years. This will be costly to the business, will take up your valuable time and it can be difficult to get someone to do it.
Leave a relative or friend look after your Bookkeeping
Imagine that your child, we will call her Jane, is not well and needs brain surgery. You call into the hospital for an appointment. The consultant introduces you to the surgeon Leonardo. He's like a movie star and you are in awe of this amazing man. Then you ask him a few questions. You find out that this is his first brain operation and he used to work as a mechanic before. He has watched a few operations on Youtube and they are straightforward enough. "Sure, what could go wrong, I'll give it a go" he says. Do you trust your baby girl with handsome Leonardo or not?
Your business is your baby too. It's what gives you the money to feed, clothe and put a roof over the head of baby Jane. You must mind it well. Minding the numbers is the most crucial of all. The numbers are your money. Does your friend, spouse or other relative have any bookkeeping qualifications or experience? If not, then don't ever think or suggest that they look after your numbers. Ask yourself these questions?
- Can they do payroll with a payroll package like Sage, Parolla or Brightpay?
- Have they worked as a bookkeeper before, or have any experience?
- Do they know how to use bookkeeping software like Dext, Autoentry, Sage, Surf, or Xero?
- Can they issue invoices on this software and send out statements, credit notes, etc?
- Do they know anything about Vat rates and completing Vat returns?
- Are they aware of Vat and PAYE deadlines and can process payments and returns on ROS?
Don't put someone in a position that they feel they have to help you out and can't do the above. They could be a nurse, teacher or guard and are brilliant at their job. They are not bookkeepers though. They haven't a bookkeeping qualification, nor do they do this work day in day out. This is one of the most ridiculous and stupid mistakes any business person makes. It's tear your hair out stuff and it's very frustrating for you and can be for your accountant too. You'll know the ad on tv where Mary falls out with Daniel O'Donnell as Daniel is not a registered gas installer!
Good bookkeeping is an investment in your business and will help you so much. It will pay for itself and more. It will give you the confidence of knowing your numbers and help you grow your business.
The above touches on some of the things we see going wrong. Everyone is busy and that frantic pace of life has come back now that we are moving on from Covid. We see the pressure business people are under. We are under it ourselves too with deadlines and staff being very busy. As the owner of a business, it pays to do things right. Have contracts in place for employees and never pay anyone net. If Billy's gross pay is €752 per week and there are changes to credits and rate bands his gross pay stays the same. He suffers the loss, not you. Missed deadlines are a no no. They will cost you extra tax and possible interest too. Don't do your own tax return. There is more in it than you think and often your accountant will save you more than the cost of doing it. As for bookkeeping think of Jane.
Interested in talking to us? Call Deirdre on 051396703 or contact us. Tell us a bit about you and your business and we will see if we can help.