Category: Proactive

Wouldn’t it be nice if you could have a Universal Problem Solving Technique which could help you solve any problem?

Yes, we think so too.

So at Proactive Towers in 2005, we set about building a Universal Problem Solving Technique (UPST). It’s a constantly evolving set of documents and we realise that our version of the UPST is not the same one that everybody needs. It’s simply the UPST that works best for us.

There are probably as many UPSTs as there are businesses on the planet. That shouldn’t stop you from building and using your own. It improves efficiency and it helps speed up your processes. That leads to increased profits.

Here are a few insights into ours to help you get started.

The Universal Problem Solving Technique starts with a set of approximately 10 flowcharts, and is backed up by a knowledge base which runs to over 500 articles. It didn’t all happen in one day!

Decades later, various bits of this massive edifice are tweaked on a regular basis. The world changes, life changes, and our UPST changes. Regular work does not require a check of the core UPST. The core is used when some delicate matter needs attention. It’s the lubricant which reduces friction when dealing with customers, suppliers, staff and assets.

• How do we respond to (our customer) Fred?
• How do we respond to (our supplier) Wilma?
• How do we handle (our employee) Barney?
• How do we handle the failure of (our equipment) Betty’s laptop?

Imagine that you own an old second hand car. At some point you’re going to dispose of it, because the repeated cost of maintenance and repairs outweighs the utility of keeping it. The UPST addresses that. It’s both an art and a science, and we’re trying to build a systematic and useful tool which minimises wasted time and money. Is that something that interests you?

A  sample of the flowcharts was presented at the DDD North conference in 2022. It starts with a “Pioneer” flowchart which determines the route to be taken through the UPST. That quickly leads to a further flowchart related directly to the problem at hand. The “business” flowchart is illustrated below. This particular flowchart is the one which applies when you are the proprietor of the business. There are different flowcharts when the business in question is not your own.

In business, having the right information to hand helps with decision making. Hence this flowchart starts by referring you to a 1988 advert by a company called Informix. In the days before the web (and back when scanners were low quality) we saw this in a newspaper and kept a copy. It shows a black and white street map of central London, with half of the road names missing, and boldly proclaims:

Incomplete information will get you precisely nowhere

In order to even start addressing your problem you may need to ask your counterpart to provide more information. We sometimes end up having to do a bit of forensic accounting, and we sometimes dismiss a client. It all depends on how much information we can gather.

It’s also important to discuss the perennial “why” question. The sort of thing that the average 3 year old will repeatedly ask. All the staff at Proactive Towers are familiar with this story.

The perennial “why” question The ultimate answer to a series of “why” questions is always: “sub-atomic particle physics” After a few authentic questions and responses, the answer eventually becomes “sub-atomic particle physics”. That same answer is then given repeatedly, until one of the participants gets bored or dies.

Assuming that you now have adequate information, do you still need to use the UPST? If you do, then it guides you to your solution. Here is the promised extract of the “business” flowchart. It’s been drafted to help with our internal business affairs, and also to help our coaching clients run their businesses. That explains why some bits have interesting questions, and why some bits are redacted. Note also that all clients are graded from A to D.

Occasionally, you may start with the “Pioneer”, follow a route through one or more additional flowcharts, consult the knowledge base, and learn that there is no ready made solution to help you. You end up at the opposite end of the UPST to the “Pioneer” flowchart and find yourself at the aptly named “Solutioneer” flowchart. Yes, you’ve guessed it! It’s a process that tells you how to build a new process and to either add it to the knowledge base, or modify the flowchart(s), or both.

That’s why the UPST is a constantly evolving set of documents!

Paul is also a business coach. Would your business like a helping hand?

A dividend voucher is a document given to shareholders of a business when the company declares a dividend to be paid out. They serve as evidence of payment and are also important for those completing self-assessment tax returns.

example dividend voucher – the appearance can vary

How does it work?

Officially a shareholders’ resolution is needed “to declare” a dividend, and a directors’ meeting is needed to establish when “to pay” a dividend. The shareholder and directors meetings can be one and the same meeting and the resolutions and decisions are recorded in the minutes of the meeting.

When a company declares a dividend, and it’s been formalised by the board, dividend vouchers can be prepared and sent to all those who will receive a payment.

The voucher normally includes the trading year it relates to, and is dated (at the top right) with the date it was paid. It states the share class it was declared on and, most importantly, the amount that was paid. The dividend may include a tax credit or a notional tax credit. Whether is does depends on tax law, and that can change from year to year.

This voucher is a shareholder’s evidence of a dividend payment, and they should retain it in their own records. This is particularly important for people who complete a self-assessment tax return, as they would need to declare dividend income on their return. Having a dividend voucher is an easy way of recalling the payment information. If there is an HMRC enquiry dividend vouchers are used to provide evidence of dividend income. Bank statements provide HMRC with evidence of the payment dates.

Companies are obliged to provided dividend vouchers to their shareholders if they are declared. If they do not do so, HMRC could deem payments out of the business accounts to be salary, and Tax/National Insurance would be due. It is the responsibility of the Company Secretary to produce these documents. If your company has no Company Secretary, and has not appointed a company secretarial bureau to do the work, then it is the responsibility of the Company Director(s) to prepare vouchers.

What should I do next?

Most companies declare dividends on a semi-regular basis (for example, once a month or once a quarter) or on an annual basis. You should decide which of these is best for your business, bearing in mind that dividends may only be declared from distributable profits.

Then, once the dividend has been declared and formalised, you should produce vouchers for each shareholder receiving a dividend payment and have this signed by a director and passed to the shareholders directly. It is recommended that companies also keep a copy of the dividend vouchers on file in case a shareholder needs a replacement copy.

If you have declared dividends in the past and have not produced vouchers, you may want to consider preparing some.

Footnote

A company’s Articles of Association typically set out the process for declaring dividends. The directors are responsible for ensuring that dividend payments are made at the right time. The text below shows Article 30 of the UK’s model articles of association for private companies limited by shares.

The Companies Act 2006 refers to “dividends” using the more expressive term “distributions”. We can treat those words as being  interchangeable. For a full guide please see s.829 – s.853 of The Companies Act 2006.

30. Procedure for declaring dividends 

(1) The company may by ordinary resolution declare dividends, and the directors may decide to pay interim dividends.

(2) A dividend must not be declared unless the directors have made a recommendation as to its amount. Such a dividend must not exceed the amount recommended by the directors.

(3) No dividend may be declared or paid unless it is in accordance with shareholders’ respective rights.

(4) Unless the shareholders’ resolution to declare or directors’ decision to pay a dividend, or the terms on which shares are issued, specify otherwise, it must be paid by reference to each shareholder’s holding of shares on the date of the resolution or decision to declare or pay it.

(5) If the company’s share capital is divided into different classes, no interim dividend may be paid on shares carrying deferred or non-preferred rights if, at the time of payment, any preferential dividend is in arrear.

(6) The directors may pay at intervals any dividend payable at a fixed rate if it appears to them that the profits available for distribution justify the payment.

(7) If the directors act in good faith, they do not incur any liability to the holders of shares conferring preferred rights for any loss they may suffer by the lawful payment of an interim dividend on shares with deferred or non-preferred rights.

In our experience, Monzo is simply the worst bank in the UK. They consistently mix up the IN column and the OUT column on the bank statement. They consistently fail to produce statements for pots.

Then when the account closes you risk losing critical data.

The mobile app, when asked in mid March for a list of all the December transactions will produce a December list with no running balance column. The balance is put at the top of the screen, but it is not the 31 December balance, it is the mid March balance, the one for the date you made the request. If we ask for December figures, we expect the December month end balance to be shown.

Mobile App

To crown it all, today 29 Jul 2022, we have received a second version of a 31 March 2022 bank statement for one single bank account. The month end balance on this second copy of the same statement differs by over £3,000. These two documents cannot both be correct.

PDF statement

Look at the two bank statements in that image. This client had no bank transactions on 29, 30 and 31 March. The statutory accounts are drawn up to 31 March every year. Which figure should be shown in the statutory accounts . . . £14,071.31 or £17,550.25?

In 36 years of accounting work, during which literally thousands of bank statements have passed through our hands, we have never before seen a UK bank provide two copies of the same statement, but with different figures!

Do not use Monzo, they are worse than useless. They may be giving you data which is demonstrably incorrect. These are not the standards expected of a reasonably competent bank.

What does “reasonably competent” mean? Please see the common law of Tort, and dozens of stated cases.

Footnote 1

We had a meeting with Monzo Bank a long time ago, on 17 Dec 2019, to discuss inconsistencies. Nothing changed.

Footnote 2

When you close a business account at Monzo they email you to say that they will provide copies of everything. They do not provide copies of everything!

If you use the business tools with your bank account to generate invoices to your customers, then (before the account closes) you need to manually log in and take a copy of each of those invoices. If you wait until after the account closes you will never get access to this data. When they say “everything” they do not mean “everything”. In any case, you should always (in real time) keep your own copy of every invoice your business ever issues. Do not rely on somebody else to keep it for you. The law requires you to maintain your records and to keep them for 6 years!

Director/shareholders of UK limited companies tend to reward themselves will a small salary and a dividend. The recommended system for 2021/22 is set out here.

However, in order to get the calculations absolutely right you need to know how much profit the company has, and you probably won’t know that until after the year end accounts have been done. So, part way through a trading year we don’t call these figures “dividends” and we suggest that you take “drawings” in the expectation that a dividend can be declared.

As a rule of thumb you can calculate your drawings using this method. It ignores some fine detail of accounting, but it will get you through to the year end.

Set up a separate company bank account for your company to hold its tax reserve. That’s for corporation tax and (if you’re VAT registered it’s also) for VAT. One savings account is enough.

When a client pays you, put aside 20% of that fee as a provision for corporation tax. Also put aside all of the VAT you charged on that invoice. OK, that ignores allowable expenses and things, and it will be a little too much, but it’s better to have too much tax reserve than too little.

What are you left with, net of corporation tax and net of VAT? Maybe knock off something for expenses as well. Then you have some idea of what the company can afford from its “distributable” profits.

Use that notional figure, and that’s the maximum drawings you can take.

At the end of each quarter, when the bookkeeping reports (and the VAT reports) are done, have a look at your balance sheet. It shows you a forecast of the corporation tax (and the VAT), along with the bank balances on that quarter end date.

In the example above, the tax reserve (in bank account number 2) is £9,000 and that’s £505 more than the total tax forecast of £8,495. This is a good thing.

To the extent that your savings account balance (on the quarter end date) exceeds your creditors balance (on the quarter end date), then you have over provided for tax. If you want to, you can take that excess and move it back to the current account to employ the funds usefully in the business. Or if it’s the other way around, please take steps to restore your tax reserve to its rightful level.

Over time, you might want to adjust that 20% rule down to 19% or 18%. It will take several quarters before you get a feel for what is the right percentage in the case of your own company, and it will depend on having like for like activity each quarter. You’ll know when you hit the right percentage when, every quarter, the excess/deficit on the savings account is consistently small enough to make little difference.

As long as your name does not already appear under “creditors”, then the balance sheet may also show you what the maximum available amount of “distributable” profit is. Assuming that a director’s name does not feature on the balance sheet, then the example above shows that £1,554 is available. That’s just above the bottom line “total funds” figure, and it’s what the company is worth once you ignore the “share capital” line.

If your name is in the “creditors” block then a bit more arithmetic is needed. Firstly, don’t be in that territory on the quarter end date, and secondly, ask your accountant to tell you where you actually stand.

Please do not draw out more than the company can afford. If you do, then HMRC will seek retribution, and they will seek seriously penal levels of tax. We will tell you every quarter when you’re in the danger zone.

The article about Covey and Duncan is here.

This is a fantastic question and we hear it from time to time:

“I have too much profit, what can I do about it?”

It is however a coded version of something else, and it can mean either:

• I don’t have enough profit. I know that, because I have drawn all the money out of my business and I have nothing left to pay my tax bill (and so you must magically engineer a smaller profit for me and a smaller tax bill)!

• I have ridiculously large sums of money floating around, even after paying all my tax bills, I have the home of my dreams, the car of my dreams and I fly everywhere first class, and now I’m in danger of taking up a ridiculously expensive hobby like round-the-world yacht racing!

Depending on which of those statements is the closer to the truth, then the solution is either:

• Make more profit and manage your tax reserve on a weekly or monthly basis. In the short term, borrow some money so that you can pay your tax bill. See Zopa for more details of how you can borrow modest amounts of cash at reasonable rates. We are not in the business of engineering false sets of accounts.

• Become a business angel and invest! There are entry level ways of doing this, even if the pool of cash is as low as £1,000. See Zopa for more details of how you can become an ultra cautious business angel.

If you would like to make more profit, then you need good business advice. Call us and ask about business coaching – we will start by asking you for a copy of your business plan.

Or you can start by looking at Don’t Read My Blog.

Proactive is not authorised to provide financial advice, pension advice, mortgage advice, nor to make recommendations about products or companies. We can advise on the tax implications of your intention to act on any advice which you may have received.

The financial advisors you meet are in the business of running a business. They may be trying to find you a good deal, but more importantly they will be trying to find themselves a good deal. The accounting forums are littered with horror stories of advisors putting people into the wrong products, purely because that product gives the advisor a better commission. Additionally, some IFAs tend not to understand the Inheritance Tax implications of products and strategies they advocate.

They’re not doing this for your benefit, they’re doing it for their benefit.

The accountancy profession does not hold IFAs in high esteem. The running joke is “What does IFA stand for? Idiot Financial Advisor”. At Proactive we’ve met a few over the years, but none that we could recommend! It would be nice to find a reliable, ethical one.

When you choose an advisor please establish early on whether they charge you a fee or take a percentage from the Finance House (the pension company, the lender, etc). Check what that figure is. You are more likely to get independent advice if you pay the advisor’s fee, rather than the Finance House.

To give you one example, if a commission based advisor places your business with a Pension House then the commission the advisor receives is roughly equivalent to the pension contributions you pay over the first 24 months of your policy.

If you engage an advisor, expect to start with a lengthy “financial health questionnaire”. In the days of paper, these used to run from 10 to 30 pages of A4. It’s worth your while completing this fully and accurately in order that there can be no misunderstanding about the information the advisor can rely on.

For example, over the last few years there has been a lot of pension mis-selling and this could give rise to a claim for compensation. Even if the financial advisor who sold the pension is no longer trading, then the Finance House can be pursued. That means that you will need a copy of the “financial health questionnaire” if you want to prove any case of negligence.

Any financial advisor who does not start with something like a “financial health questionnaire” is well worth avoiding.

In support of your request for advice, your advisor may ask you to provide copies of your personal tax calculation (a form SA302), copies of your personal tax overview (a summary from the HMRC website), and for people who run a freelance business, copies of the formal accounts. That’s all perfectly reasonable and any accountant should be able to provide that. At Proactive we routinely prepare these documents, generally we have them ready long before they are needed, and we can then let clients have them within seconds, not hours, not days, not weeks.

HMRC has been working with the lending industry on the issue of documentation and has reported that the number of requests for additional evidence has declined significantly. But, they add, that the message has not yet filtered down to all staff in all relevant “financial advice” organisations.

If your advisor questions the veracity of the documents you/we provide, then find a different advisor or work directly with a lender . HMRC has published this useful list of lenders who accept your own documents:

https://www.gov.uk/government/publications/ . . .

Note that the HMRC page says “The lenders on this list have agreed to accept tax calculations and tax year overviews that customers, or their agents or accountants, have printed themselves.”

In the light of this information, if your advisor still refuses to accept these documents and continues to question their content, then they are in effect accusing you, or accusing us, of fraud. A properly completed “financial health questionnaire” along with the form SA302, the tax overview, and the formal accounts is all that they need.

Not since 1988 has a personal tax return had a section for “chargeable assets acquired”. As a result, we do not routinely maintain an overarching asset register of clients’ properties and investments, and we cannot answer questions about those assets. The decision to stop maintaining an asset register was a time saving measure implemented by us donkeys years ago. Subsequently, the GDPR (see below) would have forced that decision upon us anyway!

Subject to de minimis limits, a personal tax return does have a section for “chargeable assets disposed of” and hence we do sometimes seek further information about “chargeable assets acquired” in order to calculate capital gains tax liabilities. Our record keeping strategy follows Einstein’s advice:

“Make everything as simple as possible, and no simpler than that.”

It’s simple. Banks need to lend, like birds need to fly.

Banks that do not lend will fail. Pension Houses that cannot sell pensions will fail. IFAs that cannot offer intelligent financial advice will fail. Some IFAs make the simple task of getting a loan from a lender far more complicated than it needs to be. That’s why we advocate dealing with the lender directly and cutting out the middle man.

All these financial institutions, IFAs and accountants included, need to follow the KYC rules (know your client rules) mandated by various bodies including the Financial Conduct Authority (FCA).

At the same time, we all have to comply with the GDPR. In particular, under Article 5, the amount of data that can be requested is restricted to the minimum needed to do the job.

General Data Protection Regulation 4.5.2016

If your IFA is too enthusiastic about gathering too much data, then please point them to this report on this Proactive website! If they say “it’s our policy” to ask more questions, then please respond with “may I have a copy of that policy document in order that I can fully understand the policy?” and then if the policy document does not exist, or is “for internal use only”, the IFA has something to hide.

“Article 5 – the amount of data that can be requested
is restricted to the minimum needed to do the job”

A properly completed “financial health questionnaire” along with the form SA302, the tax overview, and the formal accounts is all that is needed. If your IFA has not asked you for (or cannot interpret) a properly completed “financial health questionnaire” then you need a different IFA. Likewise, if your IFA cannot read and understand a set of statutory accounts, then you need a different IFA.

We will genuinely help in cases where it is within our power to do so. When we face questions which are outside the remit of the role of the accountant, then we genuinely cannot answer those questions.

“Make everything as simple as possible, and no simpler than that.”