Supermarket Price Promise Swizz

Tesco Price Promise

Most of the big supermarkets work out at the till what your shop would’ve cost at their main competitors, and let you have the difference off your next shop.  You’ll likely have seen something like the image to the left.

Obviously I’m an awesome shopper so saved lots of money…or did I?

Problem is, unless you shop in a very quirky way, you won’t really win.  The receipt to the left definitely gives the impression that had I tried to buy equivalent things from competitors, I’d have spent £3.18 more.

Let’s simplify things massively and pretend there’s only 3 identical products that each supermarket sells.  Apples, oranges and bananas.  I’ll also pretend there’s only 3 supermarkets for this purpose (sorry Morrisons, but there aren’t many of you down South).  They each price these items differently.


In the above situation, it may be that supermarkets buy all 3 items for (say) 8p each.  They make a very slim profit on one item, but a much bigger mark up on the other two.  The precise details of this are fairly irrelevant, but you can bet they won’t be losing money on any products.

What you (unrealistically) could do

Based on the above, a really savvy shopper with all the information, infinite time, and zero travel costs, would buy their apples from Tesco, oranges from Asda, and bananas from Sainsbury’s.  Problem is, few of us have all the information, or infinite time, or zero travel costs…and the supermarkets know this.

Buying one product, you win whatever

If you just buy one apple from Tesco, they’ll tell you your shop was 10p cheaper than their competitors.  If you just buy one apple from Asda or Sainsbury’s, they’ll admit they’re 10p more expensive than Tesco, but give you a voucher for it, so you feel you’ve still got the lowest possible price.

…but virtually nobody buys just one product

Whichever of the three supermarkets you’re in, if you buy all three products, you’ll pay 50p.  Therefore the till receipt will proudly say you couldn’t have saved anything by buying from either of their competitors.  This is the issue.

You only win if you buy the products at the best price of the competition.  Bizarrely if you only buy the products at the worst price of the competition, you can do ok.  Eg if you just bought an orange and a banana from Tesco for 40p total, it’d tell you both Asda and Sainsbury’s would’ve saved you 10p each, so you’d get that 10p back.

As soon as you have any kind of mix (which inevitably the vast majority of shopping baskets will do), it all tends to get blurred together.

More often than not it says I saved money, why?

What will also happen in the real world is that Tesco will have bright red signs banging on about how cheap their apples are, whilst having fairly inconspicuous price signs next to their oranges and bananas.  So chances are when people shop at Tesco they’ll buy lots of apples and not very many oranges/bananas, and the till receipt will make them feel pleased about how much they saved.  It’s no coincidence that in Asda/Sainsbury’s, people would likely buy more oranges/bananas respectively, again due to highlighting of low price, so people shopping there would also feel they’d done very well.

Taking the very real example of my own purchase receipt above, inevitably I was drawn to some of Tesco’s special offers that day.  On those items I probably did pay a bit less than the other big supermarkets.  I’ll also have bought some products at a not particularly good price, simply because I needed them and couldn’t be bothered to go to multiple shops.  The leaning towards special offers means you’ll often think the supermarket you shop at gives the best prices overall.

The ultimate (but unrealistic) solution

So I guess the best solution if only want to visit one shop and have no pride(!) is to put through each individual item as a whole purchase in itself.  That way each separate item will get price checked, and you should then get the best price on each individual item all added together, rather than all the items added together then check the overall price.

In my simple world, at Tesco, you’d pay 10p for your apple (great, best price), pay 20p for your orange and get a 10p voucher back (great, 10p net cost), then similarly pay 20p for your banana and get a 10p voucher back (again, great, 10p net cost).  Net impact, you get all three items for just 30p.

…I wonder if anyone actually does this?!

A more realistic solution?

You know sometimes in the past you might’ve been buying some stuff for you, some stuff for someone else, so you put one of those dividers to break your shopping into two separate purchases?  It’s perhaps very slightly annoying for the checkout operator, but nowhere near as much as doing each item individually!  I was thinking it might make sense to do this, dividing your shop into two:

First batch with all the items not on special offer, where you don’t think you’re getting a good price and are probably cheaper elsewhere

Second batch with the items where you’re confident you’re getting a great deal price-wise.

Doing them in this order means the first batch (overpriced) will give you the discount voucher that you can then use immediately on the second batch (where it’ll probably say you’ve made huge savings)!

The problem with tax schemes

Many small business owners will be aware of contentious tax “schemes”.  Perhaps someone will have tried to sell one to them, maybe they’ll have heard about celebrities using them, possibly even a mate (or more likely “friend of a friend”) uses one.

Are they legal?

Well, this is the million dollar question.  You might think there’s a simple yes/no answer.  Reality is tax law is sufficiently complicated and open to interpretation that one intelligent person can read the legislation and think a scheme is fine, whilst another wouldn’t.

But it’s got QC/tax counsel approval?

Whooptidoo.  As above, just because one intelligent person thinks it’s above board doesn’t mean it is unfortunately.  As the schemes typically lead to hardly any/no tax being paid, you can rest assured HMRC put their cleverest bods to try to prove it’s not ok.

Also bear in mind that the scheme provider will quite possibly have asked numerous tax bods for their opinion.  Many may well have said it’s rubbish, but the provider only needs one to agree with them and of course that’s the one they’ll quote.

Are they immoral?

Well, that’s for each person to decide.  Let’s assume for a second that the scheme in question is 100% legal.

Some will think if it’s legal, it’s perfectly acceptable.

Others will say these aggressive tax avoidance schemes are immoral…but they’d happily put money in an ISA, or perhaps invest company cash into a pension to reduce their tax liabilities.

Everyone has a different idea on what’s responsible tax planning vs aggressive immoral tax avoidance.

It interests me that politicians often try to play the moral line…not from a “but they milk their expenses” point of view, more just that it implies they know they can’t stop these things with the law.  Therefore they hope they can rely on peer pressure from the media to stamp it out.

My mate has used one for a while and he hasn’t been caught

Let’s have a think about the timescale of these things.  For the sake of the below, I’ll assume the scheme in question is completely flawed and therefore will not work at all (but this isn’t known at the beginning).

Day one – the scheme provider says you you can take out loads of money without worrying about tax.  You do so.

6 months have gone by – still nothing from HMRC.  You tell all your mates how great the scheme is and recommend they all join (probably pocketing a commission).

12 months have gone by – still nothing from HMRC.  No surprise there, nothing’s been submitted to HMRC yet, so they’re completely unaware of what you’re doing and haven’t even considered whether it’s ok or not.

21 months have gone by – you’ve just filed your first year’s statutory accounts and CT return.  It’s done via self assessment, so these are initially accepted by HMRC and Companies House without question.

33 months have gone by – this is the approximate likely deadline for HMRC to enquire into the first tax return.  You get a scary letter.

So it may well be almost 3 years before you get a whiff from the authorities that what you’re doing is wrong.  Up to that point you assumed all was great, and indeed told all your mates/colleagues so.

Therefore even if your mate has been “successfully” using a scheme for a couple of years, that in no way means HMRC know and are ok with it.

What happens when HMRC do enquire?

This will vary significantly from case to case and depending upon the scheme in question…but the basics will be you getting a scary letter from HMRC asking you to explain various suspicious transactions in the accounts/tax returns.

At this point you forward the letter to your scheme provider.  Quite possibly they’ve gone underground, in which case you’re on your own.  You’ve paid them however much for running the scheme for 2-3 years and paid no/negligible taxes.  If the scheme is flawed, you’ll now need to find a “vanilla” accountant to do bog standard accounts/CT returns as though you weren’t in the scheme.  So, unexpected accountancy fees for you, plus all the taxes you should have paid for the first couple of years, plus probably some penalties and interest.  Sad panda.

Alternatively the scheme provider may well respond, probably advising you not to worry, they’ll deal with it, and to continue as they originally advised.  You run the risk that all they’re doing is prolonging their fee earning potential from you, and delaying you getting things sorted and going back on the straight and narrow.

Don’t be tempted by the newest latest scheme, as often the people behind it will have also been behind the last few latest schemes over a decade or two.  Flog them for a few years, when HMRC sniff round your clients, do a runner.  Come back under a different legal entity, find some new punters, rinse and repeat indefinitely.

I’ve read the above, but I still want to use one of these schemes…

Ok, if you’re insistent, then find a provider who’s been around for ages as they’re less likely to disappear when the going gets tough.  Make sure you either put money aside in case it turns pear shaped, or be prepared to declare bankruptcy/similar if you spend it all and get caught.

Also, you might want to get a neck brace and sleeping pills for all that looking over your shoulder/struggling to sleep at night you’ll likely suffer…!

FreeAgent user – how much dividend can/should I take?

It’s a question we get asked a lot. There’s two important and completely separate considerations you should have when considering paying a dividend.

1) Can my company afford it?

2) Is it a good idea from a personal tax perspective?

Company retained profit

Let’s take the company side first. Dividends can only be paid out of retained profit. This means what’s left after you’ve set aside enough to pay all the company’s liabilities, including tax bills even if the due date is some time off.

Fortunately, FreeAgent does all the hard work for you, summarising it all into one number. Bizarrely they choose to hide this number in the very bottom right of the overview page, but it’s there as “Carried forward/distributable“.

Carried forward profitSee the example above for a business in a fairly healthy position. What this figure represents is what you’d hypothetically have left if you ceased trading today, collected in all debts owed to the company, and paid off any debts owed by the company. This is why it’s the absolute maximum dividend you can take, as otherwise you’d be leaving the company in a position where it can’t afford to pay its debts (ie you’d be defrauding the creditors).

If this number is negative, you can’t take a dividend at all. Your company is already insolvent, meaning it owes more to others than the value of its assets (ie negative equity).  Taking a dividend anyway in this situation is technically illegal.

Inevitably as with anything, the data FreeAgent throws out is only as accurate as the data put into it…so make sure FreeAgent is up to date and that things like the bank balance in the software agrees to what’s _actually_ in the bank before making any significant decisions.

Also (stating the obvious) always clearing this figure down to £nil isn’t a great idea. Good to leave a nice buffer there in case things take a turn for the worse.

Your personal tax situation

Completely separate to the above, the question comes in over whether it’s tax efficient to take a further dividend at this point.

What other earnings have you had in the tax year to date? Dividends suffer 7.5% (barring first £2k for 6 Apr 2018 onwards) whilst a basic rate taxpayer. As a higher rate taxpayer they’ll suffer 32.5% personal tax. If you get above £100k total income, then the effective rate is higher still.

The key time for this is 5th/6th April. It makes no difference whatsoever what your company year end is. The personal tax you pay on dividends revolves around the personal tax year, 5th April.

Therefore especially this time of year (mid March at time of writing), if you’re thinking about taking a big dividend, it’s worth giving it a bit of thought. Does it make sense to take that dividend quickly now, or is it beneficial to hold fire until 6th April if you can?

Delaying until post 6th April will always delay the personal tax…but if it only delays it, is it worth it? Also, if you’ve only earned (say) £20k this tax year, and expect to earn (say) £60k next tax year, it definitely makes sense to rush through that dividend now. Nearly always better to pay a small amount of tax soon rather than a much larger amount later.

If you’ve been using FreeAgent for a while, you can easily see your relevant figures for the current tax year from the “My money” tab.

Top tip – you can also go to the “Taxes” –> “Self assessment” tab, click the current tax year and have a look at what the liability currently shows as. Then click “Edit details” in the top right, stick in a figure you’re thinking about taking in the “Dividends” box then “Save changes”. See what your liability is now. This gives you an easy way to get a good idea of what extra personal tax you’ll have to pay if you take that extra dividend. NB ensure you then delete this hypothetical dividend figure!

Dividends experimentAgain, the data FreeAgent chucks out is only as good as data that’s been entered…so check it’s correct before making significant decisions. Also be aware as things stand FreeAgent won’t account for student loan repayments, so that may be a hefty additional amount to pay over and above the figure FreeAgent quotes. It also doesn’t currently account for payments on account (EDIT – I gather this has just been changed, March 2014). However, I anticipate both these things will change in the fairly near future.

For Maslins clients we tend to have a look at their personal tax position in February/March to advise. It’s generally a quiet time for us (after January tax return rush) and it’s the time you most want to be thinking about this…as simply waiting a day can potentially have a massive impact.

The boring legals

You should produce the board minutes and dividend voucher for each dividend.  Once you’ve paid the dividend, uploaded the bank transaction to FreeAgent, and explained it, you can then easily get templates for these from “My money” –> “Dividends”.  Strictly speaking you should print these out, sign and date, then file away somewhere safe.

Small office spaces available Tunbridge Wells

Some of you will have heard about “The Old Bakery”, either because you’re a Maslins/MVL Online client or you’ve read tweets/similar about it.  It’s a two storey building, we occupy the first floor, but the ground floor is up for grabs.

Floor plan
Floor plan

It’s currently split into 4 main areas (all measurements approx):

– big lockable room 7.5m x 3.5m
– small lockable room 3.5m x 3.5m
– open area 10.5m x 4.75m
– kitchenette/bathroom area (toilet and shower)
Approximate floor layout to the right.

Location – it’s just off Camden Road, so fairly central (you can be in the RVP in a 2-3 minute walk).

As it’s set back a bit from the main road, it’s quiet, and reasonably well hidden.  This admittedly isn’t great if you’re hoping to pick up passing trade, but is great for those who want to be fairly central but remain reasonably anonymous.

Main space 

Parking – Sadly it doesn’t come with parking, but for drivers there are affordable pay and displays nearby.

Condition – it’s newly refurbished.  Good insulation, brand new central heating and electrics, LED lighting.  We’ve left the “character” floor, which admittedly can have a marmite effect on people.  There are high ceilings and a pretty good amount of natural light.  Shared cable broadband is included, though you can set up your own independent line if you require lots of bandwidth.  There are a handful of wired network points, but it’s anticipated most people will rely on wireless.  Similarly no phone line provided, as anticipated most will rely on mobile and/or VOIP (you might want a dedicated line for this).

Access – you will be able to access the building and your section 24/7…hopefully nobody was thinking this, but in case you were, do be aware it is in a residential area, so late night loud parties are not an option(!)

Prices – these are still tbc, but current plans for prices inclusive of most bills, but possibly not rates (don’t ask…well, do if you like) are:
– big lockable room £500/month
– small lockable room £300/month
– desk in shared space £150/month (anticipating perhaps 6 spots, in no way crammed in)
If comparing to more formal serviced offices, please do look at what they charge extra for.
If someone wishes to sublet the whole place on a fairly long contract, probably looking at £1,000/month.

Lease terms – negotiable.  We anticipate minimal commitment from either side, though if you wish to have a longer term lease, a small discount may be negotiated.  The place is in fairly good condition, and we’d expect you to leave it broadly as you found it.

Furniture – negotiable.  We can probably provide basic office desk/chair if required.  We appreciate those in the open area may also wish to have a lockable chest of drawers/similar for any valuables.

Timing – it’s pretty much ready to go, just the flooring needs a little bit more elbow grease from me.  Having tenants lined up will likely speed me up on this.

If the above’s of interest, please email with any queries.

Student loan repayments – voluntary/low balance

Many of us spring chickens (32 at time of writing) without rich parents, took out hefty student loans to spend on white cider and silly clothes.  Some of us have paid it back already, but many are still clearing it, bit by bit.

Should I make voluntary repayments?

Your student loan is likely to be one of the lowest interest rate loans you’ll ever have.  So if you have other borrowing, especially high interest things like long term credit card debt or payday loans, then clear those off first.

If you don’t have other debts and do have spare cash, it’s personal preference.  Some want to be free from the burden, others would prefer to spend their cash on fun stuff and worry about the debt later.  Given it’s fairly low interest, the latter isn’t necessarily irresponsible.

I’ve made voluntary repayments, so I don’t have to make the compulsory repayment, right?

WRONG!  If you’re employed, student loan should be deducted from your salary via PAYE when you earn enough.  How much will depend upon your salary, with no adjustment for any voluntary payments you may have made.

Similarly if you’re self employed/a Ltd Co owner, you’ll make repayments based upon the earnings reported on your personal tax return.  Again, this amount will not be reduced by any voluntary payments you may have made.

If I make a voluntary repayment, can I get it back?

Short answer to this is no.  Possibly there are some extreme situations where it may be allowed, but don’t count on it.

Therefore, do not make a voluntary repayment of your student loan unless you’re confident you know what other liabilities you’ve got coming up, and are sure you still have the cash to spare.

Will my repayment reduce when I’ve nearly repaid my student loan?

No.  On the personal tax return, the student loan box is a simple yes/no choice.  There’s no “yes, but I only owe a little bit” option.  Therefore if your earnings lead to a repayment of (say) £5k, but you know you only owe (say) £1k, tough.  You have to make the £5k payment with your normal personal tax bill.

HMRC will pay it over to the SLC.  A little while later the SLC will do their calculations, realise it’s cleared, and refund the excess to HMRC.  HMRC will then repay the excess back out to you.  This will take a while (remember they’re both public sector departments!).

We’ve seen people who have attempted to deliberately underpay the earnings based repayment on the grounds they knew the liability was lower.  They tried explaining to HMRC why they were doing that, but the response was “tough, if you do that, we’ll pursue the rest like any other liability”.

What can I do to stop the above?

Keep an eye on your balance.  Whilst it’s big relative to your earnings, just make the compulsory repayments, with extra voluntary repayments only if you really want to.

When it gets fairly close to being repaid in full, especially if the balance left is lower than your likely repayment based on personal tax return, give the SLC a call.  Tell them you want to clear the balance, give them your debit card details, and pay it all off.

That way, on your next personal tax return you can ignore the student loan box.

For those interested, I managed to do this last year, so after a decade was finally free from my student loan, hurrah!

What are SA302s and how do I get them?

Typically the first time someone hears about an SA302 is when a potential mortgage lender asks to see them.

Why lenders like SA302s
Why lenders like SA302s

What is an SA302?

An SA302 is a summary of all your personal income for any given tax year, as produced by HMRC.  HMRC will only be able to send you one for a period where you’ve submitted a personal tax return, as it’s effectively them giving back information you/your accountant have already provided to them.

Why do lenders like SA302s?

Whether or not you get a loan is typically based at least in part on whether the lender feels you can meet the monthly repayments.  Your income is a good way of assessing that.  When people want to borrow lots of money (eg to buy their dream home), they have an incentive to inflate their income.

When submitting tax returns, typically there’s the opposite incentive.  Tax bills are based on earnings, so where there’s flexibility, people will try to make their income look as low as possible.  The lender seeing this figure should therefore give them a prudent view.

Lenders will probably want to see SA302s for the last 2-3 tax years.  Obviously whether this is feasible or not depends upon how long you’ve been doing personal tax returns, and how up to date you are with them.

How do I get an SA302?

If you submit your personal tax return for a year using HMRC’s online tools, you should be able to download that year’s SA302 from your portal login.

Most personal tax returns will be submitted via third party commercial software.  Unfortunately this means you can’t currently access the SA302 online.  The only way to get them (at time of writing) is to give HMRC a call on 0300 200 3310, answer the inevitable security questions, and ask them to be posted out to you.  This typically take a couple of weeks, so makes sense to ask for these before/in the early stages of house hunting.

Can’t my accountant provide a reference?

Yes…but different lenders ask for different things.  Some will insist upon SA302s whilst others will have their own bespoke forms for your accountant to complete (which often have ridiculous questions…but that’s another story).

Depending upon the software your accountant uses they can probably provide you with an unofficial SA302 for any year they’ve done a tax return, though the lender will likely want to see one directly from HMRC (on HMRC letterhead etc).  Reason being it’d be easy enough to use software to draft a return with very high earnings, print the SA302, then revise the earnings down to more realistic figures and submit.


From my perspective as an accountant, it makes sense for lenders to have a common set of info requested to decide whether or not they want to lend.  SA302s are as good as any, and if HMRC would enable them to be downloaded online for tax returns submitted via third party software, it could become a fairly painless exercise.

Five most common FreeAgent user mistakes

We’ve been working with FreeAgent for about 4 years at time of writing, with currently 250+ clients actively using the software…in that time we’ve inevitably had to fix a lot of mistakes.  Many can be made even by very intelligent users following a logical (but slightly flawed) set of steps.

In no particular order these are:
Duplicating sales by wrongly explaining bank receipts,
Duplicating costs by using bills and wrongly explaining bank payments,
Duplicating bank transfers,
Incorrect VAT treatment on international sales,
Taking out more cash than you’re entitled to.

1) Duplicating sales by wrongly explaining bank receipts

Cause – Raising an invoice, then when it’s paid, marking the bank receipt as “sales” instead of “invoice receipt”.
Problem – By doing this, you’ve got the turnover (and potentially VAT) from the sale in the accounts twice, and despite the customer having paid, your invoice will still show as unpaid because the receipt isn’t correctly allocated to the invoice.
Potential further problem when client tries to fix(!) – What normally happens is a little further down the line the client sees the invoice showing as unpaid, so clicks “mark as paid”.  This doesn’t solve the problem.  Yes it means the invoice is now showing as paid, but it means FreeAgent adds a manual entry to the bank, duplicating the receipt.  So your bank no longer tallies up with reality.
Rectify – Go back to uploaded bank receipt and change from “sales” to “invoice receipt” and allocate to the appropriate invoice.  If you’ve already done the “mark as paid” thing, then you’ll need to manually delete the bank entry that created.  If you’ve filed VAT returns, locking the transactions, then you’d probably best speak to your accountant rather than DIY a fix as you’ve likely got a few knock on issues.

2) Duplicating costs by wrongly explaining bank payments

Cause – Exactly the same as above, but with bills.  People raise a “bill”, then when they pay it, explain the money out of the bank as “payment” instead of “bill payment”.
Problem – Again, this means the cost is in there twice, and whilst the cash has come out of the bank, the bill still shows as unpaid.
– Change the money out of the bank from “payment” to “bill payment” and allocate to the appropriate bill.
Recommendation – We personally recommend simply not using bills.  For most small businesses where realistically costs are small and virtually always payable immediately, there’s no need.

3) Duplicating bank transfers

Cause – Explaining both sides of the same transaction independently so FreeAgent sees them as two separate, unrelated transactions.  So, you’ve got a savings account attached to your current account and you’re doing just what your mommy/accountant told you to do and putting some cash aside for your taxes/a rainy day.  Great.
However, what often happens is you first upload the current account statements, and explain the payment out of the current account correctly as a transfer to the savings account.  You then upload the savings account statement, and the receipt you mark as a transfer from the current account.  Right?  Well, sadly not.
Problem – When you explain the current account side as a transfer to the savings account, FreeAgent automatically puts a balancing transfer in to the savings.  Then if you explain the uploaded transfer in to the savings as a transfer in, it automatically puts a balancing transfer out in the current account.  So you end up with it in both accounts twice, throwing out the balances on both bank accounts.
Rectify – What you need to instead do is look for the “use existing manual entry” option when explaining the savings side (or  whichever side you explain second).  This tells FreeAgent that the uploaded transaction isn’t new, it’s simply the uploaded version of what FreeAgent already knows about from you explaining the other side.  So choose one of the uploaded transfer transactions, and amend the explanation, opting for usage of the existing manual entry.
Alternative – If a savings account only has transfers to/from the current account and the occasional bit of interest, you can potentially never bother to upload statements to the savings account.  The transfers should appear automatically from you correctly explaining the current account side, so you should simply need to manually enter the bank interest every now and again.

4) Incorrect VAT treatment of overseas sales

Cause – Manually marking sales to international clients as 0% VAT instead of telling FreeAgent the client is international (difference between “zero rated” and “outside the scope” of VAT).
Problem – If you’re on the “normal” VAT scheme, whilst doing the above is wrong, it won’t cause _too_ much of a problem.  Your VAT liability will be correct, just the net sales figure will be wrong.
However, if you’re on the flat rate scheme (FRS) as many freelancers/contractors are, then you lose out massively with this mistake.  Reason being international sales should be outside the scope of VAT, which means they are NOT included in FRS calculations.  Zero rated sales (how it’s treated if you simply manually alter the VAT rate to 0% on an invoice) ARE included in FRS calculations.  Making this mistake can therefore mean you pay over your FRS % on all your international sales when you shouldn’t be, which could be expensive.
Rectify – When you get an international client, ensure you use the “contact” section of FreeAgent properly.  Set the country drop down correctly (as this impacts VAT, it’s not just for show on the invoice), and ensure where no VAT is to be charged that the “Charge VAT” drop down is set set to either “Only if contact is also based in UK” (what it defaults to) or “Never”.
Exception – Perhaps worth mentioning here that if your international client is an end consumer (rather than VAT registered business) and is in the EU, then normally you would still charge them 20% UK VAT, so the above setting should be changed to “Always”.

5) Taking out more than you’re entitled to.

Cause – seeing lots of cash in the company bank account, forgetting/ignoring the fact you’ve got VAT/corporation tax bills on the horizon, and taking more cash than you should out for yourself.  Ok, so this problem isn’t remotely restricted to FreeAgent misuse, but thought it worth mentioning anyway, as it is something new small Ltd Co owners often struggle with.
Problem – Firstly, it’s illegal to take a dividend that puts the company into an insolvent position.  Reason being you’re defrauding the creditors, taking funds from the company that you’re not entitled to, as they should be set aside to clear company debts.
Secondly, it then means at some point not too far down the line the debt becomes payable, and your company quite probably doesn’t have enough cash to pay it.  At this point you moan to your accountant about how taxes are really high and life’s unfair, and are amazed that they have little sympathy.  At this point, you then either don’t pay the tax (leading to potential penalties and/or interest), or you scrabble around personally to try to find some cash to put back into the company to clear them.  Either way, not good.
Rectify – Ok so this isn’t much help if you’ve already done it…but my only advice is don’t allow yourself to get into that position in the first place.  FreeAgent makes this as easy as it can for you.  The very bottom right figure of your FreeAgent overview page should be marked “Carried forward/distributable”.  Provided your FreeAgent account is up to date and accurate, that’s the absolute maximum you can take as dividends whilst still leaving enough assets in the company to pay debts building up.  I wouldn’t recommend clearing it down to £nil every time, doing that means you’d literally just have enough to clear debts…with possible problems if a client doesn’t pay you, or unexpected costs arise.  Always a good idea to keep a healthy buffer in there, and also consider your personal tax position before declaring dividends.

Accountants/experienced users, any common ones you feel we’ve missed off?  Add them in the comments below!

Santa’s sleigh dilemma

I know what you’re all thinking…does Santa own his sleigh personally and claim mileage, or have it as a company sleigh?

Unfortunately he didn’t respond to my freedom of information request sent last week, apparently I asked at a busy time of year…so I’ve done a few calculations of my own.

How many miles?

One thing we know for a fact is that he covers a lot of miles.  Thankfully clever boffins before me have already done the calculation and decided Santa does approximately 200,000,000 miles a year (all on Christmas eve).

Mileage claim

If he were to claim mileage, and assuming the sleigh is treated as a car, he’d get 45p/mile for the first 10,000, 25p/mile for the rest.  Total expense claim = (10,000 x 45p) + (199,990,000 x 25p) = £4,500 + £49,997,500 = £50,002,000.

I’d guess the above figure would trigger a red flag at HMRC, it’s a little larger than the travel claim for most one man businesses.  However, he should be able to produce a diary showing he made the substantial journey on Christmas eve.  HMRC should be able to verify some of the distance covered using Google Maps/AA Route Planner, and possibly even get some confirmations from individuals around the world that Santa did deliver (and pinch any nibbles left out for him).

Company sleigh

If on the other hand it’s treated as a company vehicle the expense claim would be very different.  The company would get tax relief for all the costs of running the sleigh:

  • Servicing – this should be cheap as there aren’t many mechanical parts, and the elves are able to do most tinkering required at mates rates.
  • Insurance – should also be cheap, Santa’s old enough to have a hefty no claims discount.
  • Fuel – generous parents of good kids provide much of the reindeer food required.
  • Depreciation – Santa’s had the same reindeer for ages, so they appear to have a very long useful economic life meaning low depreciation.
  • Road tax – Santa’s sleigh is declared SORN for 364 days of the year, and doesn’t even use the road network on the remaining day.

So, doesn’t look like Santa’s company would have any significant costs to offset against corporation tax, and there would be very little VAT to reclaim.

Benefit in kind

We also have to consider Santa’s taxable benefit in kind.  It’s notoriously difficult for a company vehicle to qualify as a “pool car”, especially when it doesn’t appear anyone else is allowed to use it.

  • CO2 emissions – 8 large reindeer running very fast (about 6,500,000 miles per hour by some estimates) and an overweight man exhaling heavily as he “ho ho ho”s do lead to hefty emissions.  This is before we factor in the impact of elves producing all the toys, and the coal for the naughty kids, as these don’t relate directly to the sleigh.
  • List price when new – 8 magical reindeer would attract a very high price at auction.  Similarly a sleigh with sufficient capacity to carry presents for all the kids in the world will need to cope with a payload of an estimated 2,000,000 tonnes.  Parkers Guide unfortunately doesn’t provide a valuation of Santa’s sleigh, but it’s likely to be very high.

Given the above, it’s safe to assume that the taxable benefit in kind on Santa would be huge.


Santa will almost certainly use the mileage method.  Doing so will lead to a massive expense claim, whilst the actual cost suffered by Santa is relatively low.  Indeed, based on the above, all accountants should be recommending their clients buy sleighs personally to use in the business.

Topsy turvy tax rates

There’s loads of different taxes out there to sting you whatever you choose to do…but for the purpose of this blog I’m just looking at personal taxes.

In my opinion, these are completely at odds with what they should be.  This is regardless of whether you look at it from a perspective of fairness, or what we as a country should want to encourage.

Below is a table of how much tax you’d pay if you only had one type of income, being taxed by the method selected.  For this purpose I’m including NICs and assuming that the CGT qualifies for entrepreneurs relief, using 2012/13 tax rates/thresholds).


,£30k earnings,effective %,£150k earnings,effective %


Rental/bank interest,£4.112,13.7%,£53.598,35.7%


Capital gains,£1.910,6.4%,£13.910,9.3%



So as you can see, getting that much money as a salary means you pay the most tax.  A bit less if it’s from property rental/bank interest (mainly due to lack of NICs).  Less still for dividends (some will rightly argue corporation tax will have already been paid on these), then capital gains, then finally inheritance (again the dead individual would likely have paid tax when they generated the wealth).

It strikes me that there’s not far off an inverse correlation between how much hard graft you have to put in to get the cash taxed in that manner, with the effective tax rate paid.  Ok so bank interest is fairly high up the list tax-wise and involves no/negligible effort…but nobody’s getting rich from bank interest these days!

So, why is it this way?

Cynics would say that those in power tend to come from wealthy families (and/or are heavily lobbied by wealthy families), so they’re keen on keeping inheritance and investment income taxed at a lower rate.

I think the main argument for it being this way is due to ease of collection/difficulty to avoid.  PAYE does a great job of taking cash off employees before they get it…plus employees can’t offset many costs against their income, nor do they find it easy to move overseas to avoid UK tax.  Also the majority of the population work for a living…relatively speaking very few get significant amounts of the other forms of income.

However, ease of collection is a questionable reason from a moral standpoint.  “Like taking candy from a baby” doesn’t mean you should take as much candy as you can from babies.

I’m aware I can’t get on my high horse about this, where we can we try to help clients move most their earnings away from salary and into lower taxed forms.  I guess my response to that would be “blame the game, not the playa”…and perhaps also “papa’s gotta eat”.

Why you should go niche in your business

Very few of us will become the next Tesco or Amazon and take over the world.  Given that, becoming the “go to firm” in a small niche can be the key to financial success.

Being a big fish in a small pond gives you multiple benefits:

  1. Expertise – If a plumber approaches you and some general web design competitors, chances are they’ll be impressed by your industry knowledge so more likely to go with you.
  2. Search engines – for a new small business, ranking well for “web designer” is nigh on impossible.  Ranking well for “web designers for plumbers” won’t be.
  3. Less price sensitive – if you’re the expert in your niche, people looking to purchase within your niche will be prepared to pay a bit more for your skills.
  4. Streamlining – you’ll be able to do the work quicker as there’ll be less to learn for each job.  To some extent you can automate or copy/paste certain things.  Obviously take care with this, but again using the example of plumbers, they’ll likely only have a local geographical reach, whilst you can easily have a national reach.  Therefore a plumber in Cornwall shouldn’t be too concerned if another plumber in London/Edinburgh has a similar website.

Bad points? – The main argument against “niching” tends to be that you’re greatly limiting the size of your potential market…but as long as that smaller market is big enough for you to thrive, who cares?!  I have no idea of the stats, but I’m sure for a one person web designer they could make a very healthy living even if they limited themselves to just plumbers.

Expand that niche – Of course if they wanted to expand, they could easily go for electricians or other tradesmen.  I’m sure if marketed to this (larger) niche well, it could generate enough work for a small team to be kept busy.

Maslins has heavily skewed towards FreeAgent using contractors/freelancers.
MVL Online only offers solvent liquidations to cash shell companies (means we can heavily streamline).

“Success”? – In my first paragraph I deliberately said “financial success” rather than “success”.  I know lots of people who have started their own business doing something they absolutely love to do.  They have no dreams of huge growth, but enjoy the variety that each varied new client brings.  They would consider themselves successful, and I’m not arguing with that.

Inevitably the more you niche, the less variety you get in, which for many may mean boredom.  So whether to niche may in part depend on whether you want to enjoy doing a variety of work in your chosen field, or whether you want to build a scalable business with systems and/or staff.