Articles

Who should read this article?

• businesses receiving a grant or subsidy, or considering applying for one
• funding information services
• business advisers
• accountants

Introduction

There are numerous grants and subsidies that businesses can apply for, some provided by UK local or central government and some by the European Union. (See CCH Business Focus for an overview of grant aid available.) So any business that receives a grant or subsidy must know how these receipts should be treated for tax purposes.

When deciding whether a grant or subsidy is taxable as a trading receipt, two questions need to be answered:

• did the receipt arise from the trade and
• was it a profit of the trade?

Did the receipt arise from the trade?

A grant or subsidy will not be taxable as income of the trade if it does not arise out of the trade.

It is not necessarily the case that a receipt is a trading receipt just because the recipient carries on a trade. The test is whether it is received by the recipient in the capacity of trader or in some other capacity - for example in a personal capacity.

If an organisation carries on non-trading activities, a grant made in respect of those non-trading activities does not arise out of a trade and so it is not a trading receipt. For example, business advisory services such as Businesslink, Business Connect, Local Authority Companies and Enterprise Agencies may provide a service that is not a trade. A grant or subsidy made for this activity would not be a taxable receipt.

Was it a profit of the trade?

Profit in this context is to be understood in its normal commercial sense. This means that, to be a profit of the trade, a grant or subsidy must be a revenue receipt not a capital receipt. Commercial practice:

• recognises the distinction between circulating assets and fixed capital assets, and
• includes as trading income only the proceeds of disposing of circulating assets.

A circulating asset is an asset that a trader expects to part with or consume in the course of earning the profits of the trade - such as stock and consumables. A receipt in respect of a circulating asset is treated as a revenue receipt.

A fixed capital asset is an asset that the trader expects to retain to use to earn the profits of the business - like factory premises, plant and motor vehicles. A receipt in respect of a fixed capital asset is treated as a capital receipt. It is not a profit of the trade, although it may be taken into account for the purposes of capital allowances or capital gains tax.

When considering whether a grant or subsidy is a capital or revenue receipt, and so whether it is taxable as a profit of the trade, the following considerations should be taken into account:

• how it is described is not conclusive as to its true nature;
• the way it was calculated does not determine its nature.

Description of the asset

The way that a grant or subsidy is described is not conclusive as to the nature of the receipt.

For example, a company receives what are described as advances from the government to help it to develop its production of sugar beet. The advances are repayable in certain circumstances although none, in fact, become repayable.

The description 'advances' is ambiguous - it could either refer to pre-payments of what will become due in future or be a polite euphemism for loans. However, it is not necessary to resolve the ambiguity because the label given to the receipt is not conclusive in deciding whether it is a revenue receipt, and so a profit of the trade. The important distinction is not how the advances are described but why they are made. In this case, they are made to help pay the company's general trading expenses.

Way payment calculated

The way that a grant or subsidy is calculated does not decide the nature of the receipt. For example, a government grant received by a company to assist with a capital project would be a capital receipt even though the amount might be calculated by reference to interest payments that the company has to make - a revenue expense.

Augmenting income or meeting expenses

If a grant or subsidy is received for a revenue purpose, it is a revenue receipt to be included in trading income. It will be received for a revenue purpose if its purpose is to enable the trade to meet its trading obligations by artificially supplementing its trading receipts so that it can maintain its trading solvency.

As seen above, it makes no difference that a grant for a revenue purpose may be repayable in certain circumstances, or how it is described. It is a trading receipt at the time it is received and the recipient is free to spend it.

When deciding whether a grant or subsidy is for a revenue or a capital purpose, all the facts of the case must be taken into account. For example, a grant made specifically to give relief for interest payments is a revenue receipt. This contrasts with the position where a grant is calculated by reference to interest payments that the company has to make but which is to help cover the cost of a capital project. In that case, it would be a capital receipt.

Unless it is a contribution towards capital expenditure, a government temporary employment subsidy is a revenue receipt arising from the trade. This is because it is either an undifferentiated receipt (see later) or a contribution towards the cost of wages, which is a trading expense.

Certain grants paid under the Industrial Development Acts and the Industry Act, which would not otherwise be treated as revenue receipts, are to be included in trading income under the provisions of the Income and Corporation Taxes Act 1988 (ICTA), s. 93.

Grants and subsidies received by farmers are treated in the same way as those received by others but it should be noted that:

• grants under the Farm Woodland Premium Scheme are treated as trading income;
• management agreement grants, even when paid as a lump sum, are trading income.

Any part of a Regional Development Grant, which is of a revenue nature and would otherwise be treated as a trading receipt, is excluded from the trading income of the recipient for tax purposes, under the provisions of ICTA 1988, s. 92.

A capital purpose

If a grant or subsidy is received for a capital purpose, it is a capital receipt. A capital purpose would be where the purpose is to bring into existence an asset or advantage for the lasting benefit of the trade, that is, an asset which the owner turns to profit by keeping it in their own possession rather than parting with it.

A capital purpose would include a grant or subsidy for:

• acquiring a capital asset, for example building a factory;
• closing down the whole or part of a business (including farmers who grub up apple orchards or give up uncommercial holdings);
• disposing of a capital asset;
• restoring a capital asset seriously damaged in an extraordinary disaster, for example restoring pasture land to productivity after it had been flooded;
• making good the loss of a capital asset.

A capital purpose would not include:

• a change of production methods that did not affect the profit-making structure of the business, for example, premiums paid to farmers under the EU scheme for conversion of dairy cow herds to beef production;
• making changes to an asset under compulsion where there was no capital loss as a result and the only expense incurred was revenue expenditure, for example where farmers are paid a ploughing grant to encourage them to plough up pasture land.

It should not be overlooked that it may be possible to apportion the grant or subsidy between a capital and a revenue purpose.

The following should also be taken into account for capital grants and subsidies:

• a capital grant or subsidy towards the cost of an asset that qualifies for capital allowances reduces the qualifying capital expenditure in respect of which the capital allowances can be claimed;
• for capital gains tax purposes, no allowance can be given for expenditure which would otherwise be allowable to the extent that it is met directly or indirectly by the Crown or any government, public or local authority (in the United Kingdom or elsewhere).

Undifferentiated receipts

If the purpose of the grant is not specified, it is to be treated as a revenue receipt, taxable as income of the trade.

It does not matter whether the payment is expressly earmarked for a revenue purpose or whether it is to be paid to the company for use in its business as an undifferentiated receipt. In either case, it should be treated as a revenue receipt.

Highlands & Islands Enterprise makes special grants which are not specifically earmarked for a particular purpose, either capital or revenue. However, an agreement was made between HMRC and the predecessor organisation, the Highlands and Islands Development Board to treat these grants as non-revenue receipts. The agreement has been carried over to the successor body so that, exceptionally, these special, undifferentiated grants continue to be excluded from trading income as non-revenue receipts.

Who should read this article?

• employers providing, or thinking of providing childcare
• accountants who advise employers
• payroll bureaux

Introduction

To encourage parents with child caring responsibilities to return to work, a system of tax relief for the provision of childcare facilities by employers started on 6 April 2005. Until that time, where an employer provided or paid for childcare facilities for employees, the cost of those facilities was usually treated as additional taxable income of the employees under the benefits provisions. From 6 April 2005, certain childcare provided or paid for by employers was made free of tax and NICs for the employees.

The tax and NIC reliefs are only available for the cost of looking after children, they do not cover educational costs. For the reliefs to apply, the employer must make the facilities available to all employees or to all employees at a particular location and cannot restrict them to certain employees.

Employer supported childcare does not have to be on a regular basis for it to qualify for tax relief. It can be provided just for after school or in the holidays. 

There are three situations where employer supported childcare can be provided to employees without their having to pay tax and NICs on the full amount of the benefit:  

• where the employer contracts directly to arrange for the provision of qualifying childcare for the benefit of their employees, the first £55 of the cost is exempt
• where the employer arranges for the provision of childcare vouchers to their employees to provide them with qualifying childcare, the first £55 of the cost of the vouchers is exempt
• where the employer provides a workplace nursery which satisfies the statutory conditions, the benefit is completely exempt, regardless of the cost of its provision

The government has announced changes to the tax and NICs treatment of employer supported childcare schemes. These changes will affect only childcare schemes where:

• the employer contracts direct to arrange for its provision, or
• the employer arranges for the provision of childcare vouchers

The changes do not affect the provision of workplace nurseries. The benefit of the provision of a workplace nursery continues to be exempt from tax and NICs whatever the cost to the employer and whatever the employee's level of earnings.

Direct contract or voucher schemes

To fall within the terms of the exemption for directly contracted childcare or childcare provided by way of childcare vouchers, the employer must contract direct with the child care provider or the voucher company. If the employee contracts for the childcare and the employer pays the employee's nursery bills, those payments will be taxable in full.

Nor is there any exemption for payments made to employees to cover their childcare costs. Any cash payments the employer makes direct to employees to pay for childcare are taxable in full and subject to NICs.

For an employee to be exempt from a benefits charge on employer-supported childcare contracted for direct by the employer or provided by way of a voucher scheme, there are various statutory conditions that must be met relating to:

• the requirements for a child to be a qualifying child
• the relationship of the child to the employee - or the responsibility the employee has for the child if it is not their own
• the qualifications of the child care provider

Provided all the conditions are met, the employee can at present receive an exempt benefit of up to £55 per week, regardless of whether they are basic rate or higher rate taxpayers.

The exempt amount is per employee, not per child. So if the employer pays childcare costs of £40 a week per child, an employee with two participating children will still be taxable on £25.

However, if both parents work for the same employer, they are both entitled to the £55 exemption. So if both parents worked for the same employer, had three eligible children and the cost of childcare was £40 per week, only £10 would be taxable

Although the relief for third party provided childcare covers either direct payment by the employer to the childcare provider or the provision of vouchers, there is a single £55 limit in total.  Relief cannot be claimed for £55 worth of both third party provided childcare and £55 worth of vouchers.

The April 2011 changes
                     
It should be noted that the changes to the directly contracted childcare and childcare voucher schemes apply only to employees who join such schemes on or after 6 April 2011, and only if they are higher rate taxpayers. Employees already within a scheme will continue to be exempt from a benefits charge on the first £55 until they leave the scheme or are no longer able to benefit form it, for example because they have no children who are receiving qualifying childcare.

The aim of the changes is to reduce the income tax and NICs relief of higher rate taxpayers who are in directly contracted childcare or childcare voucher schemes to the same amount as the relief received by basic rate taxpayers. This is achieved by reducing the amount the employer can pay without giving rise to a benefits charge.

At present, basic rate taxpayers can receive tax relief of up to £11 (£55 at 20%). From 6 April 2011, to restrict the amount of tax relief that employees taxable at higher rates receive so that it is the same as that received by basic rate taxpayers, the amount that is exempt from the benefits charge will be restricted to:

• £28 for employees whose 'basic employment earnings' exceed the sum of their annual personal allowance and the basic rate limit for the year but fall below the threshold for the new 50% rate
• £22 for employees 'whose basic employment earnings' exceed the sum of their annual personal allowance and the threshold for the new 50% rate

The changes do not affect employees who are already in a scheme at 6 April 2011. These employees will continue to enjoy exemption for the full £55 per week, effectively giving them tax and NICs relief at their highest rate of tax.

Basic employment earnings

The new provisions require the employer to estimate the basic employment earnings that the employee is likely to receive for the tax year. Basic employment earnings are the wages or salary to which the employee is contractually entitled, including benefits in kind but excluding earnings from overtime and bonuses.

If the childcare scheme is offered on a salary sacrifice basis, it is the employee's salary or wage after the salary sacrifice that is used to calculate basic earnings.

Estimating basic employment earnings

The employer is required to estimate the employee's basic employment earnings at the start of the tax year, or when the employee first joins the scheme. Once the amount has been estimated, the amount that is exempt from the benefits charge is fixed for the whole of that tax year.

If the employee's rate of pay changes during the tax year, the amount that is exempt from the benefits charge is not revised for that year but remains the same. This is the case whether the employee's pay goes up or down.

When the employee's pay changes, the new rate of pay will be taken into account when estimating the employment earnings at the start of the next tax year and this may mean that the exempt amount will be reduced for that tax year.

It may happen that the employer makes a mistake when estimating the employee's basic employment earnings, so that they receive more relief than they were entitled to. In that case, the employer must notify HMRC of the additional benefit using the normal P11D procedures.

Change of employment

When an employer takes on a new employee who has been receiving employer-supported childcare from their previous employer, they should disregard the position in the previous employment. The employee should be treated as a new joiner to the new employer's childcare scheme. Their entitlement will depend on their basic employment earnings in their new job.

Employee's exemption

As at present, the exempt amount is per employee. If both parents are working, whether for the same employer or for different ones, each is entitled to their own exemption. The amount of the exemption to which they will be entitled will depend on their own basic employment earnings. No account is taken of the earnings of the other.

Membership of a scheme

The changes do not affect employees who are already members of a childcare scheme at 6 April 2011. However it is not possible to join a scheme in advance of a child's birth to bring yourself within the pre April 2011 rules. An employee must be a parent or have parental responsibility to be able to join a scheme.

Who should read this article?

• any office-based business keen to put in place good environmental practices - and to save money too

Although most economic commentators consider that the UK economy will see signs of recovery during 2010, the CBI's New Year message made it clear that businesses should expect "exceptional challenges" during the year.  Now more than ever it is vital for businesses to do everything they can to boost sales, reduce costs and try to ensure survival into the future.

Making a firm commitment to putting in place good environmental practices can help to achieve these goals.  It has become increasingly important for a business to demonstrate its green credentials if it is to retain existing customers and attract new ones.  And putting in place a green office policy can help to reduce a whole range of costs, from energy to transport, boosting performance and profits.

Green accreditation

There is no particular reason why a business should not review its operating practices on an informal basis and decide how to reduce their environmental impact.  But it can make sense to follow formal guidelines (an Environmental Management System) and aim to achieve green accreditation.  This demonstrates to clients, suppliers and members of the public that the business is committed to putting in place green practices.  Working towards this sort of official recognition can also boost relationships between members of staff and lead to improved team working.  There are a number of accreditation schemes available, depending on how committed the business is to putting in place comprehensive measures.  Schemes such as Green Mark certification or the Eco-Management and Audit Scheme (EMAS) can act as stepping stones towards the internationally recognised ISO 1400 standard, an environmental management system that covers every aspect of how a business operates.

Involve all members of staff

Whether or not a business decides to go down the formal green accreditation route, it is vital to involve members of staff in putting in place any environmentally friendly measures.  Many employees will already be committed to reducing the harmful effects of climate change in their personal lives and will welcome the opportunity to participate in schemes to reduce the carbon footprint of the business they work for.  To encourage and motivate staff it's essential that they participate fully in putting in place green measures and that they are kept informed of the results of their efforts.  It can also be helpful to make sure that staff understand that enhancing the business's reputation in this way, and reducing costs, can help to safeguard the business's survival - and therefore their jobs - during the tough post-recession period.

Getting started

The first step on the road to formulating a green policy for the office is to look critically at every aspect of the business.  Draw up a simple checklist so that nothing is overlooked.  The biggest culprit in most offices is wasteful energy use, from failing to switch off lights to badly insulated premises.  Look at typical operating practices at different times of the day to check where energy might be wasted - for example leaving computers and photocopiers on overnight.  It can be helpful to benchmark a business's energy usage against other concerns of the same size and type to see what improvements might realistically be made.  There is an online benchmarking tool on the Carbon Trust website that can be used to compare an individual office's energy consumption with similar buildings.  The address is: http://217.10.129.104/Energy_Benchmarking/Offices/default.asp

Think about the products the business uses - are there any greener alternatives?  What about waste disposal - are materials like paper, glass and plastic being recycled? Why not sell empty printer ink cartridges so that they can be recycled too?

Draw up the office environmental policy

Once the office itself and the business operating practices have been reviewed, the next step is to draw up an environmental policy.  Ideally this is short and punchy, setting out realistic and achievable targets.  There's no hard and fast rule as to what the policy should cover, but most office environmental policies are likely to include:

• staff training and involvement
• green purchasing/resourcing
• full compliance with environmental legislation
• energy usage, including review of electrical equipment
• recycling (paper, plastics etc) and waste disposal
• cleaning
• catering
• transport and vehicle usage
• water usage
• building structure and maintenance

Having such a policy demonstrates to all that the business has considered the environmental impact of its operating practices and has put in place measures to reduce the harmful effects.

Implement the policy with an action plan

Ideally all members of staff will be involved in putting together an action plan to put into practice the matters covered by the environmental policy.  Depending on the size of the organisation, different people might be responsible for different aspects of the plan, such as recycling or sourcing greener office products.  Everyone should be fully aware of the green measures to be put in place and encouraged to do their bit to help.

It can be a good idea to start simply, by making sure that lights are switched off, computers and photocopiers not left on standby and energy efficient light bulbs fitted where possible.  Measures such as these can bring immediate improvements in energy usage.  Other measures might include:

• replacing old or inefficient heating systems
• making sure boilers are regularly maintained so they meet emissions standards
• improving insulation and double glazing
• checking thermostats and reducing settings
• installing solar panels
• replacing electrical appliances with newer, more energy-efficient models
• moving over to solar powered calculators
• encouraging staff to print fewer documents
• participating in recycling schemes
• implementing a green purchasing policy
• reducing business travel and vehicle usage

The cost of installing new energy efficient equipment can be reduced by claiming tax relief for eligible items under the Enhanced Capital Allowances (ECA) Energy Scheme.  Eligible equipment is included in the Energy Technology Product List (ETPL), managed by the Carbon Trust on behalf of the Department of Energy & Climate Change.  The list is included on the ECA website at http://www.eca.gov.uk/etl

Review purchasing policies

Most office-based businesses buy a range of goods and services on a regular basis and an important part of a green office policy consists of sourcing more environmentally friendly alternatives where possible.  Some examples include:

• buying recycled/recyclable stationery products and other paper goods
• checking that any business printing is done by printing firms that have achieved Forest Stewardship Council accreditation or similar
• requesting that office cleaners use eco-friendly cleaning products
• buying local, seasonal food if a canteen is operated - ideally from organic sources
• providing chilled tap water instead of bottled water

As part of the green purchasing policy it is also important to check out the green credentials of the suppliers the business uses to make sure that any green or energy-saving claims made for products are genuine.

Review business travel and vehicle usage

Reducing the business travel undertaken by an office-based business can make a significant impact on the size of its carbon footprint.  A critical review of the business's communications needs might show that much greater use could be made of alternatives like video conferencing, tele-conferencing or simple emails, reducing the use of business vehicles to visit clients and suppliers.

Many office employees use a car to commute to work every day and one aspect of the environmental policy might be to aim to reduce this mileage, for example by:

• encouraging employees to share vehicles
• promoting alternatives such as cycling or walking to work
• allowing more employees to work from home
• subsidising employees' public transport costs

More information

There is a great deal of information available for office-based businesses that decide to make 2010 the year they go green.  Useful websites include:

• the Carbon Trust - offers free carbon surveys to significant energy users as well as comprehensive advice for businesses of all sizes on how to improve their carbon emissions: http://www.carbontrust.co.uk
• Netregs - provides comprehensive environmental guidance for office-based businesses: http://www.netregs.gov.uk/netregs/businesses/offices/default.aspx
• Waste & Resources Action Programme (WRAP) - works to prevent waste and boost recycling: http://www.wrap.org.uk
• A Greener Office - an online resource providing comprehensive information to help businesses to implement greener working practices: http://www.agreeneroffice.co.uk
• Department for Transport - provides details of the Cycle to Work Scheme: http://www.dft.gov.uk/pgr/sustainable/cycling/cycletoworkguidance/

Visiting these sources of information on a regular basis will help businesses to keep up to date with environmental legislation and good practice.

Who should read this article?

• Anyone running a business

It always makes good business sense to check regularly that the products or services you offer are what your customers want - and also that your business isn't missing opportunities to offer something new that would go down well. This is particularly important now, when the economic downturn is forcing both businesses and members of the public to look at their expenditure critically and to cut back wherever possible.

The purpose of customer surveys

The main purpose of carrying out regular customer surveys is to make sure that your customers are happy with what your business offers them, to know what improvements you could make and to find out about anything else they would like you to provide. You can use surveys ahead of an event or a product launch, to check that what you propose will fit the bill. You can carry out further surveys after an event to evaluate how successful it was or to check the response to your new product. Surveys can be used to research everything to do with your business, from the quality of your customer service to the range of products or services you could introduce in the future. The most important thing about surveys is to take the feedback into account when planning future strategy.

How surveys are carried out

Traditionally, customer surveys have been carried out by several different methods, like telephone or postal surveys, door-to-door surveys, street surveys and focus groups. All of these methods have certain drawbacks - for example, the widespread use of voicemail means that researchers often have difficulty in getting through to their chosen respondent. And even if they do get through, it may not be a convenient time for the survey to be done. Many postal surveys end up in the bin unopened - having cost a significant amount of money to produce and mail out. Many people are too busy to answer a survey in the street or if someone knocks at their door.

Whichever method was used, the failure rate may have been relatively high, and because the survey was likely to have been handled by a specialist market research company, it was also likely to have been expensive. This meant that regularly seeking their customers' feedback was effectively beyond the reach of many small businesses.

However, with the increasingly widespread use of the internet, all this has changed - now you can invite your customers to complete your surveys online.

Benefits of online customer surveys

Online surveys offer a number of benefits to both the business doing the research and the customers who respond.

From the researcher's point of view, online surveys do not necessarily have to be expensive or complicated. If you are concerned primarily with getting some of your customers to let you know what they think about your products or services, then an informal online survey is ideal. You may even be able to produce and host it yourself although if you need a large, statistically valid survey you are probably better off using a specialist firm. Because an online survey is impersonal you may get more honest responses than using a survey that involves personal contact.

From the customer's perspective an online survey is ideal because it can be done at any convenient time, it is anonymous and it doesn't involve face-to-face contact. Generally online surveys are easy to use and some even offer rewards or inducements for participation. And of course it offers customers a good opportunity to tell a business about what they like or don't like about a product or service - or to provide suggestions as to what might be offered in the future.

Putting together the online survey - first steps

The starting point for putting together your survey is to be absolutely clear what you want the survey to achieve and what you are hoping your customers will tell you. This will shape the series of questions that your survey contains. If your business has kept details of any feedback received from customers in the past on an ad hoc basis, this can help to tailor the survey.

For example, in the past you might have received feedback from a particular age group, so the purpose of your current survey is to establish specifically which age group your products or services appeal to most. Alternatively, you might have identified some features offered by a competing product or service and want to check whether your customers would welcome this too.

When you are drawing up a list of the topics you want covered, bear in mind that the survey should be quick to complete - no more than five minutes - otherwise people will get bored and stop partway through. This necessarily limits the number of questions you can ask respondents to answer - probably between 15 and 20 at the most. So it is important to make sure that each question elicits a response that will be useful to your business.

Deciding on the format of the questions

There are a number of ways in which a respondent can answer a question - for example by checking a box or selecting an answer from a drop down menu. Some questionnaires allow respondents to write their own answer in the box provided (referred to as open ended). Although this can provide valuable information it can also be quite slow, so respondents need more time and you may need to cut back on the total number of questions in the survey. Many online questionnaires use a mixture of formats, to make sure that not too many questions appear on each page and also to vary the look of each screen.

Composing the questions

Give some thought to how the survey questions are worded - they should be clear, unambiguous and short. You may consider that a more informal use of language is appropriate, particularly if your target audience is young. It is also important to arrange the order of the questions logically and to make sure that respondents do not waste time on sections that aren't relevant to them. Ideally your questionnaire software incorporates 'skip logic' so that a respondent is automatically directed to the next relevant question, depending on the response they have made to the previous one. You might also want to make some questions mandatory - so the respondent has to answer them before moving on to the next.

It is a good idea to include a brief introduction to the survey before the list of questions appears letting people know how long it will take to complete, and also a 'thank you' at the end. This can also tell the respondent how the information will be used and, if appropriate, where they could see the final published report. You might want to offer people a reward or incentive for completing the survey, like a discount voucher to be used towards the purchase of one of your products, or entry into a prize draw.

Test the draft questionnaire

Once you have drawn up the survey it is essential to ask a number of people to test it. Ideally they will complete the questionnaire online and then feedback any comments related to the technical aspects of completing the survey. Be prepared to change the format or the order of the questions if necessary.

Look critically at the responses they make to each question. Are they what you expected? If not, maybe the questions are not clear or they are phrased in such a way that they lead the respondent to answer in a certain way. Make sure that the response to each question will be helpful to your business.

Once you have made any amendments and finalised the survey, the next step is to decide who will receive it and how they will know about it.

Contacting potential respondents

Ideally you will get as many of your customers to complete your survey as possible. Many firms hold customers' details on file so the simplest way to let them know about your survey is to send them an email, including details of the URL where they can complete the questionnaire. Other ways of inviting customers to complete the survey include putting details of it:

• on your website
• in your promotional literature or on packaging
• in delivery notes when you send out goods
• on your invoices

Some specialist firms offer bulk email distribution as part of the online survey creation service they offer.

Analysing the results

Give some thought to how you will want the results of your survey analysed and presented - do you want a report or would graphs and charts have greater impact? Do you want to export results into a spreadsheet or word document?

And finally - don't forget to act on what your customers are telling you!

Who should read this article?

• business people thinking about a career change
• professional advisers 

At times when the economy is contracting and employers are shedding jobs, vocations which provide an accessible second career in self-employment increase in popularity. Driving instructing is one such career option, popular because it offers flexible working hours, relatively low start-up costs and few barriers to entry.

One of the most significant start-up costs for the would-be driving instructor is the cost of training. Only fully qualified Approved Driving Instructors (ADIs) can work independently to give professional tuition in category B vehicles - cars and vans. Becoming an ADI involves passing a three part test, the cost of which typically runs to at least £2,500 in training fees, books, materials and test charges. It is not uncommon to spend £4,500 or more on these.

Having spent the money - often a redundancy payment - on starting up their business, many new driving instructors look to set their training costs against their first year's profits from driving instructing to reduce their tax bill.

Although the training costs are necessarily incurred before the business starts trading, the provisions of the Taxes Acts allow tax relief for pre-trading expenditure provided it satisfies the normal conditions for relief that all trading expenditure must satisfy. This means that to be allowed, the expenditure has to pass two tests. It has to be expenditure that is:

• wholly and exclusively for the purposes of carrying on and earning the profits of the trade, and;
• revenue, not capital, expenditure.

'Wholly and exclusively' test

To be allowable expenditure, any training course undertaken by the proprietor of a business must be "wholly and exclusively for the purposes of the trade". It is unarguably the case that an individual who trains for the ADI qualification does so wholly and exclusively for the purpose of working as a driving instructor. But the clincher when it comes to allowability is whether or not the training is regarded by HMRC as revenue or capital expenditure.

The capital/revenue divide  

HMRC accepts that if the proprietor of a business spends money on business-specific training which updates their existing skills and expertise then it is normally allowable as revenue expenditure. However, if the training results in the individual gaining a completely new specialisation or qualification then, even if it is wholly and exclusively for the purposes of the trade, HMRC takes the view that it "brings into existence an intangible asset that is of enduring benefit to the business". This makes it capital expenditure, meaning that the individual cannot set it against their business profits.

ADI training provides the individual with new expertise, knowledge and a recognised qualification, making it non-allowable capital expenditure. The fact that driving instructors have to renew their ADI licence periodically does not in HMRC's view prevent it from being of "enduring benefit" to their business.

Can forward planning help?

Some individuals who face redundancy and intend to re-train for a new career may be able to reduce their tax liability. Anyone receiving a redundancy package on which tax will be due might consider negotiating the terms so that their employer gives them less in cash but pays for their re-training. Termination payments that are taxable include aggregate amounts over £30,000 paid in respect of:

• redundancy payments, whether statutory or at the employer's discretion
• compensation for loss of office
• damages for breach of contract
• compensation for an employer’s failure to consult employees about redundancies
• compensation for unfair dismissal
• compensation for wrongful dismissal

The employer can get relief on the whole cost of the redundancy package, including the training. The former employee, meanwhile, gets their re-training paid for without having to pay tax on the benefit because it is exempt. Moreover, they reduce the amount of their redundancy payment on which tax is payable.

Incorporating the business

Individuals who intend to spend their own money on training for a new skill or qualification in order to start a business might consider incorporating at the outset. The company could then pay to train them as an employee. It may be able to claim a deduction for the cost of the training as long as it is wholly and exclusively for the purposes of the business.

HMRC will not accept that employee training is wholly and exclusively for business purposes if it provides the employee with a clear personal benefit. The fact that in this case the employee is also the owner of the company may seem to suggest they do receive a personal benefit, but it is arguable that the benefit is no more personal than would be the benefit arising from the payment of directors' salaries.

Although incorporation may seem to hold the possibility of setting ADI training costs against business profits, it is probably a sledgehammer to crack a nut for most would-be driving instructors. Aside from the costs incurred in setting up a company, the additional expense, paperwork and red tape that running a company necessitates can be burdensome and costly. Furthermore, the company would have to pay employer's NICs, increasing costs and reducing the amount of money available for remuneration.

Continuing professional development

Once an individual is working as a qualified ADI they will probably need to update their knowledge and expertise from time to time. In fact, continuing professional development (CPD) will soon be compulsory for ADIs. This type of training, and other refresher training like check-test preparation, is normally treated by HMRC as allowable revenue expenditure.

Who should read this article?

• VAT registered businesses

If you’re a VAT registered person you have to charge VAT on all your taxable supplies. As well as including your day-to-day sales of goods or services, your taxable supplies might also include other transactions that you enter into without receiving payment for them. For example, there may be VAT implications when you give free samples, exchange items, enter into barter transactions or make contras or set-offs.

Free samples

Normally, if you give away your products you’re making a taxable supply and you’ll have to charge VAT at the appropriate rate on the full value or cost of the gift. An exception to the general rule is where you provide free samples of the goods you supply in your business. You won’t have to account for VAT on free samples provided you meet certain conditions.

The conditions are that:

• you must not charge for the sample - it must be completely free and you must not receive anything for it;
• the sample must be a sample of one of your products that you are giving away for a genuine business reason. Advertising your products to the public would be a genuine business reason, but giving a sample as a present for personal reasons would not;
• you must give only one identical (or virtually identical) sample of each product to the same person. If you give more than one, you will normally have to account for VAT on all of them except the first.

Any sample is exempt from VAT if it meets all three conditions. If you are giving away samples for testing, or giving them to the public via a third party, there is a relaxation of the condition relating to the number of samples you can give to the same person.

Testing

You can give more than one sample to a person and still be within the exemption if you are giving them for quality assurance testing, either for someone to test them for you or for a potential customer to test them for themselves. You must still satisfy the conditions that the samples are given away without any charge and that they were given for genuine business reasons.

Given to the public via a third party

It is quite common to give away free samples to advertise a product and this is often done through a third party. You might, for example, employ a business promotions company to distribute them. Or you might give them to one of your customers to give one to each of their customers. A sweet manufacturer, for example, might give retailers samples of a new chocolate bar to give to customers so they can try it.

Samples distributed to the general public by a third party are covered by the exemption if you meet the following conditions:

• neither you nor the third party charges for them;
• they are a typical example of your products and you are supplying them for genuine business reasons;
• the final recipient receives only one sample of each product;
• the samples remain your property until they have been given to the final recipient; and
• any samples that are not distributed are returned to you or destroyed.

Exchanges

The VAT treatment when you exchange goods depends on whether you:

• exchange a reconditioned item for one that is unserviceable;
• take an item in exchange, or part-exchange for goods you supply.

Reconditioned units

If your business is to supply reconditioned units in exchange for unserviceable ones, you must charge VAT on what you charge for the reconditioned unit. The sort of business that this applies to would be those providing reconditioned units for items like cars, domestic appliances or other machinery.

If your customer is VAT registered and you reduce the price of the reconditioned item by giving them a refund when they hand in the unserviceable unit, you can either:

• agree with the customer to leave the original VAT charge as it is;
• issue a credit note to the customer. Alternatively, if you both agree, your customer can issue you with a debit note.

Part-exchange

You might on an ad hoc basis accept goods in exchange, or part-exchange, for the goods you sell. For example, a jeweller might accept an item of jewellery in exchange for another item, or a sports shop might sell a £300 surfboard for £200 plus the customer’s old board. In these cases you have to charge VAT on the tax value of the supply. How you work out the tax value of a supply depends on what you receive for it - the consideration.

If the consideration you receive is money, it includes VAT. You apply the VAT fraction to work out the VAT and what is left is the tax value.

If you supply goods or services and receive consideration that is not money (or not just money) the tax value of the supply is the amount, net of VAT, which you would have received if you had received money. This means you must account for VAT on the amount the customer would have paid if there had been no exchange.

Example

You sell a camera for £230 cash. The tax value is £200 and you must account for £30 VAT.

Instead of selling the camera for cash you exchange it for £140 plus the customer’s old camera. The tax value of the camera is still £200 and you must account for £30 VAT.

Barter transactions

If you supply goods or services and receive other goods or services in payment, there are two separate supplies:

• the supply from you to your customer;
• the supply from your customer to you.

The VAT treatment is the same as for part-exchanges. You must account for VAT on what you would have received for the goods or services if the consideration was money.

Contras or set-offs

If you and another person owe each other money you might agree to set one amount off against the other. If you both owe each other exactly the same amount, neither of you will have to pay anything to the other. If one owes more than the other, they will only pay the balance. This is known as a ‘set-off’ or ‘contra’ transaction.
           
Instead of settling up after each transaction, two businesses that trade with each other will often settle up from time to time, just paying the balance after setting off what one owes the other. Or one might agree to accept goods instead of payment - for example, a car repairer might agree to repair a butcher’s van in return for the amount owing for the meat bill.
           
If both businesses are VAT registered, they must both account for VAT on each separate supply they make to each other. They should keep sales and purchase orders, shipping information and enter the separate transactions in their accounting records.

VAT has to be accounted for on the full value of each supply at the tax point - that is, the time of supply. The date of the tax point depends on whether an invoice is issued or the set-off is simply recorded in the accounting records:

• if an invoice is issued, the tax point is the date of the invoice;
• if the set off is made by an entry in the accounting records, the tax point is the date of the entry.

Example

Company X and Company Y supply each other with goods costing £1,000 plus VAT. If they both issue invoices when they supply the goods, the invoices create the tax point. A later set-off will not affect the VAT position.

If they set off the amounts they owe each other in their accounting records before issuing an invoice, this creates the tax point. They must declare their output tax on their supply and reclaim the input tax on their purchase at the date they made the entry, even though neither pays anything to the other.

Who should read this article?

• anyone whose business brings staff into contact with clients and customers

It may come as a surprise to discover that one side-effect of the current economic crisis has been an increase in incidents of work-related violence. On reflection it is hardly surprising – with both customers and staff potentially under financial pressure fuses are likely to be short and issues more likely to lead to aggressive confrontation. Add to that the fact that retail crime generally rises during periods of recession as individuals find themselves short of cash – and that criminals are increasingly prone to assaulting staff if challenged. Many assaults are by drug users desperate for money to feed their habit. It is clear then that in the current climate employers should be aware that their staff may need to be given additional protection.

What is work-related violence?

Under health and safety legislation employers have a legal duty to protect the health, safety and welfare of their employees – and this covers all forms of work-related violence. The HSE defines this as “any incident in which a person is abused, threatened or assaulted in circumstances relating to their work.” This includes:

• all forms of physical violence, whether or not a weapon is used
• verbal abuse
• threats and intimidation

Physical abuse obviously has potentially the most significant adverse effect, possibly leading to disability or even death. But the stress and anxiety caused to employees by verbal abuse and threats should not be underestimated, particularly if it occurs regularly. It can result in poor staff morale, absenteeism, high staff turnover and real damage to the reputation of the business. This in turn can affect business profits if customers decide not to patronise an outlet that is frequented by disorderly and abusive individuals.

The approach to take

The HSE has produced numerous publications dealing with work-related violence, including Violence at Work: A Guide for Employers. This sets out a four step approach to managing violence in the workplace:

• Step 1: Establish if there is a problem
• Step 2: Decide what action to take
• Step 3: Take appropriate action
• Step 4: Check the effect of the action taken

Step 1: Establish if there is a problem

The first step is to carry out a risk assessment by consulting employees and recording any concerns they have and actual incidents of violence they have suffered – both verbal and physical. Different types of business will have different risks – for example a licensed retail premises may suffer from theft of stock and assaults on staff, while the employees of a business like a pub may need to intervene in fights or eject violent troublemakers.  Many types of business have customers who aggressively challenge their bill. Concerns run by ethnic minorities may be vulnerable to racial harassment and abuse.

Recording when the violent incidents occur may identify a pattern or help to forecast situations where violence may occur in the future.

Decide what action to take

Having established that there is, or is very likely to be a problem with violence against staff, the next stage is to continue with the assessment to identify who is most vulnerable, when, and what can be done to reduce the risk. For example, staff in a retail outlet might frequently suffer abuse and assault because high-value items such as alcohol are easily accessible to shoplifters who ‘turn nasty’ when challenged. A number of measures might be considered to reduce both the number of incidents and the impact on staff should they continue, such as:

• training staff not to react to abuse nor to resist robbery
• making security measures such as CCTV very visible
• rearranging displays to make shoplifters more visible
• keeping very high-value items behind the till or in a secure area
• never leaving staff on duty alone

Businesses whose employees work anti-social hours may need to consider their employees’ safety after work too, for example by providing transport home.

The outcome of the further investigation should be recorded – this becomes the blueprint for both the employer and the employee for how the problem is to be dealt with.

Step 3: Take appropriate action

The measures identified by the risk assessment should be incorporated into the business’s health and safety policy so that employees fully understand what will be done to support them, what they in their turn need to do and how any further incidents should be reported.

Consideration should be given to putting in place training in basic safety techniques.

Step 4: Check the effect of the action taken

It is very important that all further incidents of violence are recorded and thoroughly analysed to see whether this is a new aspect of the problem that needs to be addressed, or whether the measures that have been put in place are failing to be effective. Consultation with staff should take place on a regular basis to obtain their views and feedback on the situation. If the nature of the job changes, new risks may emerge which have not previously been assessed. For example, a retail outlet might begin to stay open much later at night or a service provider might start offering home visits.

If, despite putting in place measures to address the matter, violence continues, then a further risk assessment should be carried out to more accurately establish the cause of the problem.

Supporting staff

It is important that both the employer and the employees are aware of the measures in place to minimise the risk of violence occurring and also to support staff should an incident occur. Staff will react differently, depending on their personality and the nature of the incident, but employers could consider:

• giving the employee the opportunity to talk through the incident with a sympathetic listener or counsellor
• allowing them time off work to recover from the experience
• offering them appropriate training
• offering them an alternative job where they do not have face-to-face contact with clients and customers

Find out more

HSE publications dealing with work-related violence can be accessed at: http://www.hse.gov.uk/violence/

The Home Office publication Victims of Crime gives guidance if an employee suffers an injury, loss or damage from crime. It also covers applying for compensation. Visit the Home Office website for more information: http://www.homeoffice.gov.uk/crime-victims/