Business and Finance: 2009

Monday 7 December 2009

Accountants

Responsibilities of an Accountant:

Prepare profit and loss statements and monthly closing and cost accounting reports.
Compile and analyze financial information to prepare entries to accounts, such as general ledger accounts, and document business transactions.
Establish, maintain, and coordinate the implementation of accounting and accounting control procedures.
Analyze and review budgets and expenditures for local, state, federal, and private funding, contracts, and grants.
Monitor and review accounting and related system reports for accuracy and completeness.
Prepare and review budget, revenue, expense, payroll entries, invoices, and other accounting documents.
Analyze revenue and expenditure trends and recommend appropriate budget levels, and ensure expenditure control.
Explain billing invoices and accounting policies to staff, vendors and clients.
Resolve accounting discrepancies.
Recommend, develop and maintain financial data bases, computer software systems and manual filing systems.
Supervise the input and handling of financial data and reports for the company's automated financial systems.
Interact with internal and external auditors in completing audits.
Other duties as assigned

Who needs an Accountant:

Simply put, If you own a Company, you would need an accountant to take care of your Company accountancy activities; invoices, payrolls, expenses, etc.

Well-known Accountancies for IT Contractors in London:

Accountancy	Notes
http://www.freestyleaccounting.com	ACCA and PCG Accredited Accountant
http://firstchoiceaccountancy.com/	PCG Affiliate
http://www.nixonwilliams.com/	PCG Affiliate
http://www.truedynamic.com/	PCG Affiliate
http://bkl.co.uk/	ACCA

http://www.contractoraccountants.com/top-10-contractor-accountants/

http://www.sjdaccountancy.com/information/benefits_advantages_contracting.html

Saturday 5 December 2009

First Time Contractors

http://www.contractoruk.com/first_timers/index.html

http://www.contractoruk.com/guides/wary_consultancy_contract.html

Terms you need to learn about:

Limited Company

Umbrella Company

Your Invoicing Company

http://www.contractorcalculator.co.uk/what_is_a_personal_service_company.aspx

Personal Service Company

HMRC

Accountant

http://www.contractoruk.com/first_timers/do_i_need_accountant.html

Your Timesheets:

http://www.contractoruk.com/first_timers/timesheets_invoices.html
Often done online

Your Expenses

Finance Director

As a Contractor you are your own Finance Director and you have responsibilitie

Contract

The contract is what you sign between yourself and the client or agency
With regard to IR35, your contract must reflect the specific terms of engagement
http://www.contractoruk.com/guides/wary_consultancy_contract.html

IR35

Is a law to caught Contractors whose work conditions make them to be considered as an Employee (Pays more tax) as far as law is concerned

Review Your Contract Before HMRC Do

Friday 4 December 2009

All About IR35

http://www.ir35calc.co.uk/financial_impact_ir35_contractor.aspx

Contractors who are inside IR35 pay much more tax than people who are outside, hmm?! not sure what this means and why?

Who is caught by IR35?

As a contractor you will be inspected by HMRC, on average, every 5-6 years. If you're asked to be inspected, you should take legal advice.

Your application is to be reviewed by HMRC which means all the previous contracts will be reviewed. HMRC's goal is to accuse you of a failure that might not be aware, so you must be fully prepared for the review and take legal advice.

If you are about to sign a new contract then you should immediately ask for a review to protect your own interests.

If you are caught by IR35 and receive an extra tax bill, then you may only have 3-6 months to repay 6 years of additional liabilities. This can often be very difficult and seriously affect cash flow.

Working Conditions of an Employee vs Working Conditions of a Self Employed Contractor

http://www.contractorcalculator.co.uk/contractor_ir35.aspx

The Revenue’s opinion is that if you have been working for the same Client or through an Agency for the last 2 years, then you should be treated as an employee.

http://www.contractorcalculator.co.uk/legal_advice_ir35.aspx

How to stay out of IR35?

Get all your contracts reviewed before signing them to ensure they protect you to be outside IR35
Define your Terms and Conditions and make sure they make you to be Self Employed in the eyes of HMRV not Employee

http://www.contractorcalculator.co.uk/determine_contract_passes_ir35.aspx

http://www.contractorcalculator.co.uk/contract_reviews_ir35_status_guide_contractors.aspx

http://www.contractorcalculator.co.uk/contractor_salary_director.aspx

http://www.contractorcalculator.co.uk/Limited_Companies.aspx

http://www.contractorcalculator.co.uk/dividends_contracting_explained.aspx

Limited Company vs Umbrella Company vs Employee

1) As a Contractor using Limited Company

Gross: + 50,000

Rate: 250 per day

Contract length: 9 months

Expenses = - 7000 (salary) - 7000 (salary) - 2000 (Travel, etc) - 1000 (accountant) = - 17000

Company Profits: + 33000

Corporate Tax (22%): -7000

Company Net Profit (Dividend): + 26000

Dividends Tax (10%) = - 2600

Dividends Credit (10%): + 2600

Overall tax paid: -7000

Overall net: 26000 + 16000 + 1000= +43000

Take home over 85% of your gross!

Any legal issues?

2) As a Contractor using Umbrella

Gross: + 50,000

...

3) As an Employee

Gross: + 50,000

Length: 11 months in a year

Tax: - 14,500

Net Salary: + 34,500

Expenses: - 2000

Overall Net: + 32,500

Take home 64% of your gross!

Saturday 24 October 2009

Fixed-Income Investments

Fixed income refers to any type of investment that yields a regular (or fixed) return.

...

Sunday 11 October 2009

Passive Income and Financial Freedom

Passive Income:

Passive income is a rent received on a regular basis, with little effort required to maintain it. Don't work for money, make money work for you.

Passive Income and Financial Freedom:

Passive income is our key to financial freedom. The more passive income we generate, the less dependent we are on our job. At one point, when our passive income exceeds our expenses, we can stop working anytime we want and still live the lifestyle we desire. That is financial freedom.

Passive Income Examples:

Earnings from a business that does not require direct involvement from the owner or merchant;
Rental from property;
Royalties from publishing a book or from licensing a patent or other form of intellectual property;
Earnings from internet advertisements on websites;
Residual income, repeated regular income earned by a sales person, generated from the payment of a product or service, that must be renewed on a regular basis in order to continue receiving its benefits;
Dividend and interest income from owning securities, such as stocks and bonds, is usually referred to as portfolio income, which may or may not be considered a form of passive income.
Build a Web Business

References:
http://notbythehour.com/Websites/freelance/Files/Content/72607/notbythehour.pdf
http://www.sugarpinerealty.com/shared/fs/0070/007000011/Cycle_of_wealth.pdf
http://zenhabits.net/2007/06/automate-your-income-to-simplify-your-life/
http://www.lifeoptimizer.org/2008/01/07/two-simple-but-powerful-rules-to-achieve-financial-freedom/
http://www.thesimpledollar.com/2007/04/03/the-simple-dollar-on-passive-income/
http://geniustypes.com/five_ways_to_create_passive_income_with_little_or_no_money/
http://geniustypes.com/passive_income_strategies/
http://www.moolanomy.com/348/building-diversifying-and-shifting-your-income-streams/
http://www.stevepavlina.com/blog/2006/05/how-to-make-money-from-your-blog/
http://www.doshdosh.com/websites-you-can-create-for-profit/
http://www.stevepavlina.com/podcasts/Pavlina-009-Kick-Start-Your-Own-Business.mp3
http://entrepreneurs.about.com/od/gettingstarted/a/passiveincome.htm

Wednesday 16 September 2009

What is Bad Debt?

Accounts receivable that will likely remain uncollectable and will be written off.

Bad debts appear as an expense on the company's income statement, thus reducing net income.

In general, companies make an estimate of bad debt expenses that might be incurred in the current time period based on past records as part of the process of estimating earnings.

Most companies make a bad debt allowance since it is unlikely that all of their debtors will pay them in full.

http://www.investopedia.com/terms/b/baddebt.asp

http://moneyterms.co.uk/bad-debt/

Tuesday 8 September 2009

What is Gross Salary?

This is the gross salary you receive for the financial year (1st April - 31st March) before any tax is deducted. It also excludes any extra payments you may receive including:

Expense reimbursements
Bonus payments
Payment of working over normal hours

More:

http://en.wikipedia.org/wiki/Gross_income

Understanding How Your Net Salary is Calculated

How your Net Salary is calculated?

Net Pay = Gross Pay - NIC - Income Tax

Out of your gross salary, 2 payments will be deducted:

Income Tax
NIC (National Insurance Contribution): contributed by employee and employer

How Income Tax is calculated?

Based on the rates of 2009-2010:

Earning up to £6,475: No tax! (Personal Allowance)
Earning between £6,475 and £43,875: 20% tax
Earning £43, 875 and above: 40% tax

How NIC is calculated?

Based on the rates of 2009-2010:

Earning between £5,720 and £43,888: 11% (Employee Rate)
Earning above £43,888: 1% (Employee Rate)
Earning above £5,720): 12.8% (Employer Rate)

Example1:

So imagine your gross salary is £10,000, so your NIC would be:

Employee NIC: 11% * (£10,000 - £5,720) = £471

Employer NIC: 12.8% * (£10,000 - £5,720) = £548

Income Tax: 0 + 20% * (£43,875 - £6,475) + 40% * (£50,000 - £43,875) = £9,930

Net = £10,000 - NIC - Income Tax = £8,824

Example2:

So imagine your gross salary is £50,000, so your NIC would be:
Employee NIC: 11% * (£43,888 - £5,720) + 1% * ( £50,000 - £43,888) = £4,260
Employer NIC: 12.8% * (£50,000 - £5,720) = £5,668
Income Tax: 0 + 20% * (£43,875 - £6,475) + 40% * (£50,000 - £43,875) = £9,930

Net = £50,000 - NIC - Income Tax = £35, 810

More:

http://www.i-resign.com/uk/financialcentre/tax_calculator.asp

http://www.worksmart.org.uk/tools/tax_calc.php

Sunday 16 August 2009

White-Label Product or Service

A white label product or service is a product or service produced by one company (the producer) that other companies (the marketers) rebrand to make it appear as if they made it.

So if you just know what Companies produce what products or provide what services, you could start a business providing their products and services and just rebranded or with a different appearance. Of course you need a contract with the original producer as well.

The producer Company would often be happy to provide you this because obviously their sale and revenue will be increased.

Therefore, we now understand the concept of:

White Label Music
White Label Clothing
White Label Food
White Label Software
White Label Seed
...

Saturday 15 August 2009

Nominal APR and Effective APR (EAR)

These are about how much interest you have to pay when you get a loan or overdraft:

http://en.wikipedia.org/wiki/Annual_percentage_rate

AER is a compounded interest and that's the real interest that you finally pay.

Example:

For example, imagine you have a Current Plus account from NatWest and you are allowed to have an overdraft of up to £2000. You use £1000 of your overdraft on 1/1/2009. If you don't pay anything back monthly because the AER is %19.24, according to this site, after 1 year what you have to pay back is 1,192.4 (base + base * 19.24 / 100). This amount is your new base and any further payment is calculated based on that so

If you don't pay back anything after 2 years your debt is:

1,192.4 + 1,192.4 * 19.24 / 100 = 1,421.82

After 3 years your debt is:

1,421.82 + 1,421.82 * 19.24 / 100 = 1,695.38

After 4 years your debt is:

1,695.38 + 1,695.38 * 19.24 / 100 = 2021.57

As you can see after 4 years time, your debt has been doubled. Also you have exceeded your overdraft limit, so you will be charged for that too and the debt can easy reach to a higher amount.

So, be careful of your debts and know well how they are calculated.

Bank's Profit:

On the other hand, if you have saved £1000 in your NatWest bank account and haven't touched it for 1 year, the net interest bank pays you is %0.08, according to this site, which means after 1 year you will have £1000.80.

As you can see for a £1000, Bank sells it for £194.20 a year whereas it buys it for only 80 pence; So much profit!

If you see it for longer periods the profits will be much larger.

When Government lowers the interest rate, one immediate consequence of that is that they want to help the banks make more profits essentially.

The worth of your money

Another interesting point I want to make is that Your £1000 in 2009 isn't worth the same in 2010 simply because of the inflation rate. Assuming the inflation rate is %5 per year then your £1000 in 2009 is worth £950 in 2010.

What I mean is that if you have saved money in bank hoping to get some interest then you're making your bank richer and yourself poorer.

Think more to find a better alternative.