Channel Lincolnshire

If you have ever had to make a payment to an employee after they have left and you have issued their P45 you will probably have experienced uncertainty about how to deal with PAYE.

It’s happened to us a few times over the last 20 years usually when holiday or commission payments are adjusted after someone has moved to a new position.

Before 5 April 2011 employers were instructed to tax payment using a code of BR.  But HMCE didn’t like this because higher rate tax payers didn’t pay the extra slice of tax until the self assessment deadline giving the tax payer an interest free loan for 21 months.

Since 6 April 2011 employers have been required to tax such payment using code 0T eliminating the previous advantage.

There are still problems where the post employment payment relates to shares due to the employee under a share option or similar scheme.  If you need more information on this get in touch.

The matter of National Insurance on such payments also raises its head.  Where the payment is small and the employer can justify spreading the payment it is possible to reduce the employers NI payment.

Given that H M Revenue and Customs has increased the number of teams carrying out investigation work and the sometimes spurious jumps in logic that individual Inspectors make it is good to know that should you wish to have the Tribunal look at your case then you can ask the Tribunal to demand that HMRC cover your costs.

A tax investigation isn’t a great place to find yourself but this may help some tax payers facing unreasonable investigations, to focus the Inspector’s mind by suggesting that the matter be placed before the Tribunal, if the Inspector is just fishing or making speculative demands then the last thing he will want is to be hauled over the coals by a superior for incurring Tribunal costs.

Businesses at risk of investigation will be the old favourites, those taking payment in cash such as taxi firms, pubs and fast food outlets.  HMRC are smarter now and probably meaner than they’ve ever been with Inspectors looking to make their names at your expense.

Got a specific question send it through and I’ll try and answer it.

A small business can make decisions quickly, even instantly if necessary, large businesses are more cumbersome and governments by comparison are practically glacial.

The result is that small businesses are more adaptable and work with market flows to gain short term advantages and occasionally enabling some businesses to develop into bigger fish of interest to the whales in the market.

I’m sure that you don’t need me to give you examples of the dinosaurs, but it is worth noting that Richard Branson’s Virgin may be described as a school of minnows swimming inside a shark.  Not a company that I hold in great regard having been stuffed by one their subsidiaries in 1990, but nevertheless worthy of note because each business is ring fenced and unable to pass on its problem to the whole brand.  If a new business works all well and good, if not then sell it on or dump it.

The subject of this article is small business funding so what am I trying to say?

Central Government commissioned a report on business funding, it arrived at a number of conclusions (click here for FSB press release and Taskforce summary).

One simple conclusion that most small business owners are aware of is that High Street banks don’t work for the vast majority of small business finance.  According to figure in the press release from the FSB the potential gap in funding requirement is between £84 billion and £191 billion which demonstrates that this is not an exact science!

Nature and business hate a vacuum, so there will be funding but will it work for small businesses?  Given the risks inherent in this sector probably not which takes me back to the beginning of this article.

Small businesses are adaptable and frankly during the back end of the last century bank lending was too easy at times leading to bad lending. 

We hear a senior figure in the Bank of England saying that traditional lending will not be the way to funding in 50 years. 

So what else is out there now and what might happen? It’s not too hard to find funds for a new car but where can this sector look in particular for working capital funding (stock, debtors, production costs)?

In the Wild West there was a bank in most towns, because local money was used to finance local businesses.  What’s to stop this now?  Yes I know there are plenty of robbing cowboys around but that’s not my problem!

Historically business angels have provided equity funding for small businesses with growth potential and either an exit strategy or a good dividend stream, and there is no reason why this should not be a growth industry.

There is also something called peer to peer lending, which basically means putting lenders and funders together, but in such a way that borrowers spread their risk.  Hearing about Zopa who have been doing this for quite a few years they have an extremely low bad debt figure possibly because they work only with individuals with exemplary credit ratings.

But put the two together and this may help fill some of the funding gap.  Instead of trying to divert pension fund cash into roads, which should be the province of government, perhaps someone can introduce funds into local funding initiatives for businesses.

Well I can dream.