For any business, knowing when it will start making a profit is crucial. The profit breakeven point is the moment where revenue covers all costs-meaning you’re no longer losing money, but you’re not making a profit yet either. Understanding this point helps business owners make informed decisions about pricing, sales targets, and cost management.

Why Is the Breakeven Point Important?

1. Risk Management – It helps business owners understand the minimum performance needed to avoid losses.
2. Pricing Strategy – Knowing your costs ensures you set prices high enough to cover expenses and eventually generate profit.
3. Financial Planning – It helps in budgeting, forecasting, and determining when additional funding may be required.

How to Calculate the Breakeven Point

The breakeven point (BEP) can be calculated using a simple formula:

Breakeven Point (units) equals: 

Fixed Costs divided by (Selling Price per Unit – Variable Cost per Unit)

 Where:

• Fixed Costs – Costs that don’t change with production (e.g., rent, salaries, insurance).
• Variable Costs – Costs that vary with sales volume (e.g., materials, commissions, packaging).
• Selling Price per Unit – The price at which you sell each product or service.

Example Calculation

Imagine a small business selling handmade furniture.

• Fixed Costs: £10,000 per month (rent, staff salaries, etc.)
• Variable Cost per Table: £50 (wood, paint, labour per unit)
• Selling Price per Table: £150

Using the formula:

£10,000 divided by (£150-£50) =100 tables

This means the business must sell 100 tables per month to cover costs. Any sales beyond this will generate a profit.

Using Breakeven Analysis for Growth

Once you know your breakeven point, you can:

• Adjust pricing to become profitable faster.
• Identify cost-cutting opportunities to lower the breakeven point.
• Set realistic sales targets based on market demand.

By regularly reviewing your breakeven analysis, you ensure that your business remains financially stable and on track for long-term success.

Businesses can reclaim VAT on pre-registration expenses if they relate to taxable supplies made after VAT registration. The rules differ for goods and services, with time limits of 4 years for goods and 6 months for services. Proper understanding ensures you don’t miss out.

VAT can only be reclaimed if the pre-registration costs relate to taxable goods or services that will be supplied by the business after it becomes VAT registered.

Different rules apply depending on whether the costs are for goods or services:

Goods: VAT can be reclaimed for goods still held by the business or for goods used to produce other goods still in possession of the business.

•  Time limit for reclaiming: 4 years from the date of registration.

  Services: VAT can be reclaimed for services related to the business.

•  Time limit for reclaiming: 6 months from the date of registration.

Pre-registration VAT should be reclaimed on the business’s first VAT return. In certain cases, it may be possible to backdate the VAT registration. This should be considered if there is additional Input Tax that can be recovered.

There are specific provisions for partially exempt businesses, businesses with non-business income, and the purchase of capital items under the Capital Goods Scheme (CGS). These rules may affect the recoverability of VAT and should be reviewed in detail based on the circumstances of the business.

Business Asset Rollover Relief allows you to defer Capital Gains Tax (CGT) when reinvesting proceeds from selling business assets. By rolling gains into the cost of new assets, tax is postponed until the new asset is sold. Learn how this relief can optimise your business investments.

Rolling over capital gains is a useful way to defer CGT when you sell or dispose of business assets.

Essentially, if you use the proceeds from selling an old asset to buy a new one, the gain is “rolled over” into the cost of the new asset. This means you do not have to pay CGT on the gain immediately; instead, the tax is deferred until you sell the new asset. This relief is known as Business Asset Rollover Relief. The amount of the gain is effectively rolled over into the cost of the new asset and any CGT liability is deferred until the new asset is sold.

If you do not use all the proceeds from the sale to buy a new asset, you can still make a partial rollover claim. Additionally, you can apply for provisional rollover relief if you plan to buy new assets but have not yet done so.

Rollover relief also applies if you use the sale proceeds to improve assets you already own.

The total amount of relief depends on how much you reinvest in new assets. There are a few conditions to keep in mind.

• the new asset must be purchased within 3 years of selling the old one (or up to a year before), though HMRC can sometimes extend this period;
• both the old and new assets must be used for your business, and your business needs to be trading when you sell the old asset and buy the new one; and
• claims for relief must be made within 4 years of the end of the tax year when the new asset was bought (or the old one was sold, if that happened later).

Selling online? Whether it’s a hobby or a business, you may need to pay tax if your earnings exceed £1,000. From services to content creation, it’s vital to understand self-assessment rules and new reporting obligations for online platforms starting in 2024.

If you are selling anything through an online marketplace, it is important to know that you might be liable to pay tax, whether it is your main source of income or just something a part-time hobby. This applies to a range of activities, so it is worth understanding when you need to register for self-assessment and pay tax.

You may need to report your earnings and pay tax if you are doing any of the following:

• Buying goods to resell, or making things to sell (even if it’s just a hobby that you sell items from);
• Offering services online, such as dog walking, gardening, repairs, tutoring, food delivery, babysitting, or hiring out equipment;
• Creating online content, whether that’s videos, podcasts, or even social media influencing; or
• Earning income by renting out property or land, like letting a holiday home, running a bed and breakfast, or renting out a parking space on your driveway.

There is a Trading Allowance you can claim that allows you to earn up to £1,000 a year from self-employment without having to pay tax or register as self-employed. But if you go over that £1,000 threshold, you will need to register with HMRC as self-employed and submit a self-assessment tax return.

If you are just selling personal items, such as second-hand clothes or unwanted electrical goods, you typically do not need to worry about registering for tax. This is not considered a business activity, so it does not count as trading in the eyes of HMRC.

For those using online platforms to sell goods or services, there are new reporting obligations. Any relevant information about your sales may be reported to HMRC by the platform you use. There is a new requirement for online platforms to report pertinent information collected about online sellers between 1 January 2024 to 31 December 2024 to HMRC by 31 January 2025. This will only happen if you have sold 30 or more items or earned £1,700 (or EURO2,000) in the calendar year. The platform will also provide you with a copy of the information they send to HMRC, which can be helpful when you need to submit your own tax return.

1 February 2025 – Due date for Corporation Tax payable for the year ended 30 April 2024.

19 February 2025 – PAYE and NIC deductions due for month ended 5 February 2025. (If you pay your tax electronically the due date is 22 February 2025)

19 February 2025 – Filing deadline for the CIS300 monthly return for the month ended 5 February 2025.

19 February 2025 – CIS tax deducted for the month ended 5 February 2025 is payable by today.

1 March 2025 – Due date for Corporation Tax due for the year ended 31 May 2024.

2 March 2025 – Self-Assessment tax for 2023-24 paid after this date will incur a 5% surcharge unless liabilities are cleared by 1 April 2025, or an agreement has been reached with HMRC under their time to pay facility by the same date.

19 March 2025 – PAYE and NIC deductions due for month ended 5 March 2025 (If you pay your tax electronically the due date is 22 March 2025).

19 March 2025 – Filing deadline for the CIS300 monthly return for the month ended 5 March 2025.

19 March 2025 – CIS tax deducted for the month ended 5 March 2025 is payable by today.

Big changes are here for the self-employed! From 2024-25, profits must align with the tax year, replacing the old “current year basis.” Overlap relief is ending, and transition profits will be spread over five years. Here’s how the new system affects your tax bill.

The reform to the self-employed tax basis period has introduced significant changes in how trading income is allocated to tax years. Previously, the tax basis period operated on a “current year basis,” but the reform has now shifted to a “tax year basis.” As a result, all sole traders and partnership businesses are required to report their profits based on the tax year, commencing with the self-assessment return that was due by 31 January 2025. This return covered the tax year 2023-24.

Under the previous system, overlapping basis periods could occur, which resulted in certain profits being taxed twice. To counter this, businesses could claim ‘overlap relief,’ typically at the time of business cessation. The introduction of the “tax year basis” eliminates the possibility of overlapping basis periods, thereby preventing the generation of further overlap relief.

It is important to note that businesses which already prepare annual accounts to a date between 31 March and 5 April are not affected by these changes. These businesses continue to file their tax returns as they did under the old system, without any alteration.

The full implementation of the new rules takes effect in the current 2024-25 tax year, which ends on 5 April 2025. The 2023-24 tax year is considered a “transition year.” During this transitional period, the basis periods for all businesses will be aligned with the tax year, and any outstanding overlap relief can be utilised against profits for that period.

In cases where profits exceed the period covered by the overlap relief-specifically profits that span more than 12 months-these are referred to as “transition profit.” This transition profit will, by default, be spread across five tax years, from 2023-24 to 2027-28, to help ensure a smooth adjustment to the new rules.

Are you a landlord? Maximise your rental income by knowing which expenses you can claim to reduce your tax bill. From maintenance costs to Replacement of Domestic Item Relief, understanding allowable deductions is key to smart property management.

If you are a landlord, it is important to be aware of the expenses that can and cannot be claimed from rental income. As a general rule, allowable expenses must be wholly and exclusively for the purpose of renting out the property. In some cases, a proportion of expenses can be claimed if part of the expense relates to the property business.

Common types of deductible revenue expenditure include:

• General maintenance and repairs to the property (but not improvements)
• Water rates, council tax, gas, and electricity
• Insurance costs
• Letting agent and management fees
• Qualifying legal and accountancy fees
• Direct costs such as phone calls, stationery, and advertising for new tenants
• Vehicle running costs (only the proportion used for the rental business), including mileage rate deductions for business-related motoring costs

Additionally, the Replacement of Domestic Item Relief allows landlords to claim tax relief when replacing furniture, furnishings, appliances, and kitchenware in a rented property, provided certain conditions are met.

Landlords should also keep a record of any capital expenditure incurred on investment properties. These expenses cannot be claimed as revenue expenditure against rental income but can usually be offset against Capital Gains Tax when selling a property.

The UK government is shaking things up with some significant pension reforms aimed at boosting economic growth and enhancing pension pots for working folks. Let’s dive into what’s happening.

Unlocking Pension Surpluses

Traditionally, occupational defined benefit (DB) pension schemes have been somewhat restricted in how they can use surplus funds. These surpluses often sit idle, benefiting neither the businesses that contribute to them nor the broader economy. The latest reforms aim to change this by allowing well-funded DB schemes to more flexibility invest their surplus funds into the wider economy. This move is expected to unlock billions of pounds, providing businesses with additional capital to invest in growth initiatives, which, in turn, could lead to higher wages and improved pension benefits for employees. 

Reducing the Pension Protection Fund Levy

In tandem with these changes, the government is considering proposals to grant the Pension Protection Fund (PPF) greater flexibility in reducing the levy it collects from pension schemes. Given the PPF’s strong financial position, relaxing these restrictions could free up millions of pounds for pension schemes. Employers could then redirect these funds into their businesses, fostering further economic growth. 

Creating Pension Megafunds

Another bold step involves consolidating various pension schemes into larger “megafunds.” By merging assets from multiple Local Government Pension Scheme authorities and defined contribution schemes, these megafunds can leverage economies of scale to invest in high-growth areas like infrastructure and innovative businesses. This approach draws inspiration from successful models in countries like Canada and Australia, where larger pension funds have achieved higher returns through diversified investments. 

Balancing Growth with Member Protection

While these reforms are geared towards stimulating economic growth, the government emphasizes that the security of pension scheme members remains a top priority. Any changes will be implemented with safeguards to ensure that members’ benefits are protected. The goal is to create a more dynamic pension system that not only secures retirement incomes but also contributes actively to the nation’s economic prosperity.

Looking Ahead

These reforms represent a significant shift in the UK’s approach to pensions, aiming to transform dormant funds into active investments that benefit both individuals and the broader economy. As these changes roll out, it will be crucial to monitor their impact on economic growth and the financial well-being of pension scheme members.

Building Brand Awareness
Social media platforms provide an unparalleled opportunity to reach a broad audience and increase brand visibility. With billions of users across platforms like Facebook, Instagram, LinkedIn, and TikTok, businesses can showcase their products or services to potential customers who may not have encountered them otherwise. Consistently sharing engaging and relevant content helps to build a recognisable brand presence, fostering trust and familiarity.

Cost-Effective Marketing
Traditional advertising methods often come with significant expenses, making them inaccessible to smaller businesses. In contrast, social media offers cost-effective alternatives. Setting up profiles and posting organic content is free, and even paid advertising campaigns are highly customisable, allowing businesses to control their budgets and target specific demographics. This affordability levels the playing field for businesses of all sizes.

Engaging with Customers
Social media bridges the gap between businesses and their customers. Platforms provide opportunities for direct interaction, allowing businesses to respond to queries, address concerns, and receive feedback in real time. This open dialogue not only enhances customer satisfaction but also humanises the brand, fostering deeper connections and loyalty.

Driving Website Traffic and Sales
Strategically sharing links to your website or e-commerce store can drive significant traffic from social media. Platforms like Instagram and Pinterest, with their visual focus, are particularly effective for showcasing products and guiding users to purchase pages. Moreover, features like shoppable posts make it easier than ever for customers to complete transactions directly from social media.

Accessing Detailed Analytics
One of the most powerful aspects of social media is the access it provides to data. Platforms offer in-depth analytics that allow businesses to monitor engagement, track campaign performance, and understand their audience better. This data-driven insight enables companies to refine their strategies, ensuring their marketing efforts are as effective as possible.

Staying Competitive
In today’s digital-first world, having a social media presence is often seen as a baseline requirement. Competitors are likely using these platforms to connect with their audience, and businesses that neglect social media risk falling behind. Staying active ensures your business remains visible and relevant in a crowded market.

Social media is no longer optional; it is a vital tool for modern businesses to thrive, connect, and grow.

Many businesses have a 31 March year end date, which means they are now in the last quarter of their current financial year and have an opportunity to review their business finances.

The last quarter of the year is a crucial time for businesses to review, evaluate, and prepare for both year-end and the year ahead. Here are some business finance-related tasks worth focusing on:

1. Year-End Financial Review

• Reconcile Accounts: Ensure all bank accounts, credit cards, and financial transactions are reconciled.
• Review Outstanding Invoices: Follow up on overdue payments to improve cash flow before the year’s end.
• Analyse Profit and Loss Statements: Identify trends, key expenses, and areas for improvement.

2. Tax Planning

• Utilise Allowances: Maximise annual allowances like the Annual Investment Allowance (AIA) or other reliefs before the tax year ends.
• Plan for Corporation Tax: Estimate your liability and consider deferring or accelerating expenses and income to optimise tax.
• VAT Review: Ensure VAT returns are up to date and assess eligibility for any VAT schemes.

3. Budget and Forecasting for the Next Year

• Set a New Budget: Base it on this year’s performance and anticipated changes.
• Forecast Cash Flow: Account for seasonal fluctuations and expected outlays.
• Scenario Planning: Prepare for various outcomes such as economic changes or market shifts.

4. Capital Expenditures

• Investment Opportunities: Evaluate if there are capital expenditures worth making to take advantage of or other tax benefits.
• Equipment Upgrades: Replace ageing equipment to improve efficiency or productivity.

5. Employee and Payroll Planning

• Bonuses and Incentives: Plan and allocate year-end bonuses if applicable.
• Review Payroll Systems: Ensure compliance with HMRC regulations and confirm all data is accurate.
• Pension Contributions: Consider making employer contributions to employee pension schemes, which may also reduce taxable profits.

6. Review Financing Options

• Debt Management: Refinance existing loans or pay down high-interest debt to improve financial health.
• Credit Facilities: Check if your business has access to adequate credit facilities for the next year’s needs.
• Grants and Incentives: Research government or local grants that align with your business activities.

7. Inventory Management

• Stocktaking: Conduct a thorough inventory review to manage obsolescence and reduce holding costs.
• Discount Slow-Moving Stock: Use end-of-year sales or promotions to free up cash tied in inventory.

8. Corporate Compliance and Governance

• Review Policies and Contracts: Update supplier agreements, insurance policies, and service contracts.
• File Annual Returns: Ensure your company’s filings with Companies House are current.
• Update Director Records: Review and confirm director and shareholder information.

9. Cost Management

• Assess Fixed and Variable Costs: Identify areas for cost reduction without compromising quality or service.
• Review Supplier Contracts: Renegotiate terms to secure better pricing for the coming year.
• Utility Costs: Shop around for better deals on utilities like energy and telecoms.

10. Plan for Growth

• Explore New Markets: Research potential new customer bases or territories.
• Marketing Budgets: Allocate funds for marketing initiatives that will drive growth in Q1 of the next year.
• Talent Acquisition: Plan for hiring to fill gaps in your workforce.

11. Insurance and Risk Management

• Renew Policies: Review coverage for liability, property, and other business risks.
• Mitigate Risks: Assess and implement measures to reduce financial and operational risks.

12. Stakeholder Communication

• Update Investors or Shareholders: Provide end-of-year reports to ensure transparency.
• Employee Meetings: Share year-end results and next year’s goals with your team to build morale.
• Customer Engagement: Strengthen relationships with customers through personalised offers or appreciation.

13. Technology Investments

• Software Upgrades: Consider investing in accounting or operational software to improve efficiency.
• Cybersecurity: Strengthen your business against cyber threats, particularly if you manage sensitive customer data.

14. Succession and Exit Planning

• Business Valuation: Assess your company’s value if you’re planning an exit or transition.
• Update Wills and Trusts: Ensure business interests are properly accounted for in personal estate planning.

15. Charitable Contributions

• Make Donations: Consider making tax-deductible contributions to charities or community programmes.
• Community Engagement: Use this as an opportunity to enhance your business’s reputation.

By considering these and other relevant tasks, you’ll not only optimise your financial position for year-end but also set a strong foundation for the next financial year.

Please note, the above check list may contain or exclude issues that are relevant or not relevant to your business. Before taking any action, please call so we can help you create a year end review that is impactful for your specific business circumstances.