Choosing accountants

Comparison of the different types of accountants

Choosing accountants

Comparison of the different types of accountants

Do you need to hire an accountant but you don’t understand all the different types of accountants and how they differ?  Your relationship with your accountant is very important.  A poor decision could have negative impacts on profitability or the amount of taxes you’ll pay.  You need to choose well.

Although I am a chartered accountant myself, I have worked in industry with all type of accountants – chartered accountants, certified accountants, cost and management accountants and certified public accountants.   I think that I have a good understanding of the value of each of the qualifications. I have also hired lots of accountants and I didn’t always hire the chartered accountants.

Different Types of Accountants

So what are the main types of accountants found in Ireland

Chartered Accountants (ACA/FCA)

Chartered Accountants are members of the Institute of Chartered Accountants in Ireland.   There are about 25,000 members of that institute but they are not all working in Ireland.

The main training route for chartered accountants is to enter a training contract with a an accounting firm in practice.  The contract allows for time off for study which is a big advantage.  While working in practice, the trainee usually gets very good exposure to preparing accounts and tax returns for many different types of businesses.

The chartered accounting exams have a broad syllabus so they will also get exposure to other aspects of accounting.  After qualification, they can go into any industry where they can get further experience in many different roles.

In recent years, a new training route has been added for people not working in practice.  However, to qualify to set up in practice themselves, successful students will have to gain experience in practice after passing their exams.

Certified Accountants (ACCA, FCCA)

Certified Accountants are member of a global organisation that has an Irish Branch.

Students can either work in industry or in practice.  The students usually have to do the study and exams in their own time.

You don’t have to be working as an accountant while you are studying and doing the exams.  However, once you  have passed the exams, you have to have relevant supervised work experience to be recognised as a full member.

The syllabus for the exams is broad and students get a good technical base.

If a successful student wishes to go into practice after qualification, they will have to show that they gained relevant experience working in a practicing firm.

Cost and Management Accountants (CIMA/FCMA)

Cost and Management accountants are members of the Chartered Institute of Cost Accountants.

Cost and Management Accountants specialise in providing accounting support for management.

Students typically work in industry and, like certified accounting trainees, do the study and the exams in their own time.

From my experience working with Cost and Management Accountants, their training tends to put less emphasis on the reporting and tax work than Chartered or Certified Accountants.  I feel that they would be stronger on costing and use of accounts for decision making.

Certified Public Accountants

This is a younger body but it’s similar to Certified Accountants in that students can study and do the exams independently of their work.

The CPA institutes sets their own exams.

Again, like Certified, to become a full member the applicant has to have relevant supervised experience.  Again, to go into practice the accountant must have relevant practice experience.

Importance of Accounting Qualifications.

Not many people realise this, but there is no restriction in Ireland on using the title accountant.  Anyone can call themselves an accountant and can set themselves up in practice as an accountant.

While I have come across some very good unqualified accountants and, while I have also come across some very poor qualified accountants, I think you have a much greater probability of having a good experience if you  work with a qualified accountant.

Qualified accountants will have to maintain the ongoing education (Continuing Professional Development – CPD) to keep up with changes in tax and legislation.  If they are in practice, their institute will insist on them having professional indemnity.

Type of Accounting Work needed to be done

When choosing an accountant, the key thing is to be clear on what type of work you want them to do for you.

Annual Accountants & Tax Work

If what you need is simply annual accounts and tax returns, then an accountant in practice is likely to be a good fit for you.  Most practices tend to focus on this type of work.

Providing accounting support for management

If you are looking for help with managing profitability, costings or projections, and decision making, then you want someone with experience in that area.  You should probably be looking for someone who has industry experience

Raising Funds from investors

If you are looking to bring in investors, then you want someone with that type of experience.  They will need to know the key players in your sectors.  They should have experience putting together the documentation that an investor will require to help evaluate your proposal.

Liquidation/Insolvency/Restructuring Work

If you have a business in financial difficulties that may need restructuring, you are likely to be looking for someone who has experience in that area.

Bottom Line

As I said already, I have worked with all the different types of accountant and I have hired all the different types of accountants.

While I value a qualification, in my experience, the person is more important than the actual qualification that they hold.

I believe that to find a good accountant you need to look for a number of characteristics.

Qualified

They should hold a recognised accounting qualification and they should be maintaining their education through a CPD programme.

Experienced

You want them to have relevant experience.  It doesn’t necessary have to be in your industry – sometimes new eyes bring new insights – but it would be better if they have have done similar work for someone else previously.

Interested in your work/business

You want someone who is interested in the type of work that you want done and interested in helping you to succeed.

If you want to understand and improve your profitability, then you don’t want someone who prefers working on annual accounts and tax.

Equally, if you are happy with the performance of your business and all you want done is the annual accounts and tax, then you may not want someone who is more interested in understanding why you are getting the results that you are getting

Attitude/Approach

This is the last quality but, in my opinion, it’s the most important.

You want an accountant who is on your side, who will be anxious to do a good job for you.

You want them to be organised so that they don’t miss deadlines.

Finally, you want them to be proactive so that they give you heads up about what is happening in the business and you don’t want to have to wait until it happens before you and, then, they react to it.

Summary

So while I think that using a qualified accountant is important, I am open as to which qualification.  I would put much more emphasis on the personal characteristics of the accountant.  You need to meet with them and understand their experience, their interests and their approach to the work.  To do that properly, you should also talk to other clients of theirs and understand what their experience of working with the accountant has been.

Your Turn

This article has been written from my own experiences.  I’d love to hear your thoughts on this topic too.

If you disagree or feel that I missed out on something, feel free to share your thoughts in the comments and feel free to ask if you have any questions.

What do Venture Capital Companies look for in a business plan?

What do Venture Capital Companies look for in a business plan?

Are you a start-up business, looking to bring in some Venture Capital Investment? You know you need to have a business plan but you are not sure what to include in this business plan.

I have been supporting SMEs for almost 20 years now and, in that time, I have helped many companies prepare business plans for presentation to likely investors, including VCs.  I am also on Enterprise Ireland’s Mentor Panel and have participated on their panels helping start-ups develop their pitches for VCs.

Over time, it’s clear that VCs look for a fixed number of things.  Different VCs might focus on different industry sectors but there is a commonality about what they look for in a business plan

What is a venture capital company?

The first thing you need to do is put yourself in the shoes of the VC.  VCS are organisations who provide financing to early stage companies where the VC sees potential for growth in the value of the company.   Their intention is to sell on their stake in the company when the business has grown to the point where it can be either launched on the stock market or acquired by a larger company.

The VC invests in a number of companies and it is unlikely that they all will be successful.  This means that the successful companies have to be so successful that the gain on them can offset the losses on the unsuccessful companies.

When making decisions to invest they use the business plan to help them estimate the likelihood of success and to understand the risks involved in the candidate business.

There are 6 key areas that you need to address in the business plan  for Venture Capital Companies

  1. The Problem

Businesses create value by providing solutions to the problems of their customers.  In some cases, the customer may not be aware of the problem.  It doesn’t matter.  Your job is to identify the problem that your target market has and to show the VC that you have a very good understanding of this.  You need to be able to quantify the cost of the problem to the customers so that you can show that it’s something they will pay for.

  1. The Solution

You then need to explain how your product or service is a solution to the problem.  You will have to explain the technology and show how it is different or unique.  If you have IP protection on the solution, this is the place to highlight that.

  1. The Market

Once the problem and solution are identified, you need to discuss the market for the solution.  What is the size of the market.   How are you going to communicate about your product or service to the market.  Do you understand where they go for information etc.  How are you going to deliver the product or service to the market.

The VC will want to be confident that you understand the market. They will also want to see that the market potential is big enough to drive growth in the value of their investment.

  1. The Competition

Have you competition in the market for your product or service?  How does your solution compare to the market?  How does the competitor’s pricing compare to your pricing?  The VC will want to be confident that you understand the competition.

  1. Your Team

The VC are not just investing in a product or service.  They are also investing in your team’s ability to execute your plans.   This requires you need to provide a brief biography of your team members.

The key issue is to show the track record of the team.   What have they accomplished in past that would indicate that they can be successful with this project.  Also, what progress has been made to date on your project.

Ideally, your team will already have a mix of skills although sometimes funding is used to hire missing skills.

  1. The Money

Finally, they will want to know how much money you are looking for now and how you intend to invest that money in developing the product or service.

They will be looking at your plans for implementation and using their experience with other start-ups to decide if they can belief in your approach and plans.

Format of the business plan

Usually the business plan is a narrative document with appendices for the financial projections.   The projections are important in that they demonstrate your understanding of the business and they show how the funds raised will be applied.

The business plan should have sections addressing the key points above.

When structuring the business plan, remember that the Venture Capital Company will be reviewing lots of business plans, so anything you can do to make their job job easier will be welcome.

Try to have no more than 15 pages in total.  Have an executive summary to get them interested in reading the full document.  Where the plan contains a lot of detail, think about putting that detail into appendices so that the reader has the option of choosing whether or not to get into that detail right now.

Process of preparing a business plan.

Usually a company will start of by working up the financial projections and then craft a narrative around the projections.  This can be an iterative process in that the work you do on the projections will develop your thinking on the project and you may find that your assumptions change as your understanding evolves and in turn your plan will change.

The bottom line is that the business plan and pitch are tools to sell the company to prospective investors and you need to approach it from that perspective.  The most important step in that is to understand the VC – “your customer” in the process of selling the idea.

If you have any questions about this article or if you need support preparing a submission to a VC, you can contact me by email at jim (at) accountsplus (dot) ie.

 

 

 

 

What do you need to know about Value Added Tax (VAT)?


What do you need to know about Value Added Tax (VAT)?

Are you one of those people who doesn’t feel totally confident about VAT?

I have been qualified as an accountant for over 30 years now and my work experience includes working at Finance Director level in large multinational manufacturing plants as well as helping owner managed SME’s to manage their finances.  No matter what type of business, questions about VAT keep coming up.

In this article, I am going to give a brief overview of VAT in the Republic of Ireland – the key things that I think you need to know if you are running a business.

What is VAT?

Value Added Tax is a tax on sales.  When a business sells an item, it usually has to charge VAT on that sale.

So if you sell a widget for € 60, you will have to charge VAT at 23% (€13.80) on that sale. The invoice then will be for € 60 plus € 13.8 – a total of € 73.8

The government is using you as an agent of the government to charge and collect VAT and to pay what you have collected to government.  When you get the 73.8 only 60 is yours, the other 13.8 is held on behalf of the government.

If you bought the widget from an Irish supplier for € 40, they are likely to have charged you VAT of 23%.  The invoice to you will be for € 49.2 being €40 plus VAT of € 9.2 (23% again).

As you are a business, you can deduct the VAT you pay to your suppliers from the VAT you collect from your customers when calculating how much of the VAT collected that you have to pay to the government.  In this case you charged € 13.8 and paid € 9.2, therefore you owe the Taxman € 4.6.

Effectively what is happening what is happening is the government gets the VAT on the difference between your selling cost and your buying costs ie € 20. This is the Value Added and its why the tax is called Value Added Tax.  The amount you are paying is 23% of the Value Added – 23% of 20 is € 4.60.

It’s not always as simple as this but that the broad principle.

Consumers cannot register for VAT so they bear the full cost of any VAT on items that they purchase.  Generally speaking, they cannot reclaim the VAT that they incur.  There are some exemptions from this for medical related items.

Do you have to register for VAT?

If you are in business in Ireland, supplying goods or services, and your turnover exceeds certain limits then you will have to register for VAT.

VAT registration is obligatory when the VAT thresholds are exceeded or are likely to be exceeded in any 12 month period (except for sales to consumers in other EU States).

The principal thresholds are as follows:

  • €37,500 in the case of persons supplying services only.
  • €37,500 for persons supplying goods liable at the reduced or standard rates which they have manufactured or produced from zero rated materials.
  • €35,000 for persons making mail-order or distance sales into the State.
  • €41,000 for persons making acquisitions from other European Union Member States .
  • €75,000 for persons supplying goods.
  • €75,000 for persons supplying both goods and services where 90% or more of the turnover is derived from supplies of goods.
  • A foreign business, with no base in Ireland, supplying taxable goods or services in the State is obliged to register and account for VAT irrespective of the level of turnover.

If you are below the thresholds you may elect to register for VAT.  It may be beneficial to register if  you mainly supply goods or services to VAT registered businesses.  In that case VAT will not be a cost for them, as they can recover it, and you will be able to reclaim VAT on your business expenses.

If your customers are mainly not VAT registered (i.e. consumers or a VAT exempt business) then the VAT is not recoverable for them so its becomes a cost.  In that case, you will be better not to register for VAT until you reach the threshold.

What are the VAT rates?

There are currently 5 different VAT Rates.  These can change from time to time, so you need to be aware of any changes.  Any changes are usually announced in the Government’s annual budget.

The five rates are

  • standard rate – 23% – this is the is the standard rate of VAT and all goods and services that do not fall into the reduced rate categories are charged at this rate.
    They include alcohol, audio-visual equipment, car parts and accessories, CDs, computers, consultancy services, cosmetics, detergents, diesel, fridges, furniture and furnishings, hardware, jewellery, lawnmowers, machinery, medicines (non-oral), office equipment, pet food, petrol, paper, tobacco, toys, tools, washing machines, bottled water.
    This rate applies to most items except medical and educational
  • reduced rate – 13.5% – this rate is for items including fuel (coal, heating oil, gas), electricity, veterinary fees, building and building services, agricultural contracting services, short-term car hire, cleaning and maintenance services.
  • special reduced rate – 9% – is for tourism-related activities including restaurants, hotels, cinemas, hairdressing and newspapers.
    This rate was introduced temporarily following the Global Recession and is expected to be eliminated at some point in the future
  • livestock rate – 4.8% – is a reduced rate of VAT specifically for agriculture. It applies to livestock (excluding chickens), greyhounds and the hire of horses.
  • zero rate – includes all exports, tea, coffee, milk, bread, books, children’s clothes and shoes, oral medicine for humans and animals, vegetable seeds and fruit trees, fertilisers, large animal feed, disability aids such as wheelchairs, crutches and hearing aids.
  • Exempt – You do not have to pay any VAT on financial, medical or educational services. You may also not pay VAT for live theatrical and musical performances (except those where food or drink is served during all or part of the performance).

Revenue have a good search facility for VAT rates on their website – here . You simply enter the name of the product or service and the correct VAT rate will be presented to you.

Difference between Exempt and Zero Rate VAT

If a business person supplies taxable goods or services, including zero-rated ones, they can claim VAT back from the government on their taxable business purchases.  However, if someone only supplies exempt goods or services, they cannot reclaim VAT.

Can I claim VAT back on my expenses?

If you are VAT registered, then you can claim back VAT incurred on most of your business expenses.  If you are VAT exempt, you cannot reclaim VAT.

You cannot claim VAT on the following, even when the goods and services in question are acquired or used for the purposes of a taxable business:

  • expenditure incurred by you on food or drink, or other personal services for yourself, your agents or employees, except to the extent, if any, that such expenditure is incurred in relation to a supply of services in respect of which you are accountable for tax.
    For example, if you are putting on a Christmas Party for staff, you cannot reclaim the VAT on that as its for personal consumption. However, if you are a caterer, provided catering services to a Customers Staff Christmas Party, you can reclaim the VAT that you incur.  You will have to charge VAT on the service and the customer will not be able to reclaim that VAT.
  • expenditure incurred on accommodation other than qualifying accommodation (typically conferences) in connection with attendance at a qualifying conference as defined in the legislation
  • expenditure incurred by you on food or drink, or accommodation or other entertainment services, where such expenditure forms all or part of the cost of providing an advertising service in respect of which tax is due and payable by you
  • entertainment expenses incurred by you person, your agents or employees
  • the purchase, hiring, intra-Community acquisition or importation of passenger motor vehicles other than certain qualifying motor vehicles (details from Revenue Website) and other than motor vehicles held as stock-in-trade, or for the purposes of the sale of those motor vehicles by a financial institution in the context of a hire-purchase agreement, or for the purpose of a business of the hiring of motor vehicles, or for use in a driving school business.
  • the purchase, intra-Community acquisition or importation of petrol otherwise than as stock-in-trade
  • contract work involving the handing over of goods when such goods are themselves not deductible

You can only claim back VAT where the supplier supplies a proper VAT invoice which includes their VAT number and details of the VAT rates and amount.  The full requirements for invoicing are provided on the Revenue Website

VAT on Petrol and Diesel

  • VAT registered traders are not entitled to recover VAT incurred on the purchase of petrol.
  • VAT is fully recoverable on diesel by VAT registered traders if the vehicle is used 100% for business. The 100% condition is important.

What reports do I have to file?

VAT3

You have to periodically file a VAT return, called a VAT 3, showing how much VAT was charged or collected in the VAT period and you have to pay that money to the government.  Most small businesses file the VAT return every 4 months – Jan-Apr, May-Aug, Sep-Oct.  Bigger business file every two months. Some businesses file every 6 months.

When you register for VAT, the revenue decide whether you should be filing on a two/four/six month basis and let you know.

RTD Form

There is another annual form that has to be filed.  This is the Return of Trading Details and it summarises,  by each of the different VAT rates, the sales and purchases of the business.
The VAT 3 just shows the VAT amounts.  The RTD shows the sales and purchases amount and the related VAT rates. It is used to reconcile sales and purchases in the annual accounts with the VAT returns made during the year.
In recent years, Revenue have been enforcing the filing of RTDs more strictly.  If you are due a tax refund, they will withhold payment of the refund if an RTD has not been filed.

Cash v Invoice Basis

When reporting for VAT, small businesses have two options available to them:

  • invoice basis for accounting
  • cash (or money received) basis of accounting.

Under the invoice basis for accounting, a trader accounts for VAT when they issue the invoice to the customer. This is irrelevant of whether they receive payment from the customer at this time or not.

The cash basis is also known as the receipts basis or money received basis of accounting. Under this option, a trader accounts for VAT when payment is actually received from the customer.

This option gives small business some relief for a situation where they could incur cash flow problems if they had to pay over VAT before they have collected it themselves.

What I have international sales or purchases?

If you are exporting outside of the EU, then the zero rate for exports applies.

If you are selling into the EU, then you charge VAT if your customer is not VAT registered in their own country. If they are VAT Registered, you can charge zero VAT only if they give you their VAT number and you can verify that VAT number using an online EU portal for VAT verification.  You must keep a record of the Verification step – the system will supply you with a reference number.

When you are submitting your VAT 3, you have to report purchases from within the EU by using what is called the reverse charge method.  This shows a notional VAT on sales of the amount that would have been on the purchase if VAT had been charged.  You will also show a deduction of the same VAT amount as if VAT had been charged.  The net position is nil – the notional vat on sale is offset by the notional VAT on purchases.  The transaction is being recorded for statistical purposes only.

If you have distance or internet/mail order sales, then you need to pay particular attention to the VAT situation.

Conclusion

This article aims to give you an overview.  Without knowing your specific circumstances, it cannot be comprehensive.

I would advise you to discuss your business – the type of products or services provided, the type and location of customers, your level of turnover etc – with your accountant to ensure that you are applying VAT properly.  This should be done firstly when the business is starting but you should also review it regularly as your business may change or the VAT rules may change.

The Revenue website has a lot of information about VAT.  The Local Enterprise Offices also will be able to provide information.  It’s usually better to have a thorough discussion with your accountant at the start.

I hope this article was of benefit to you.  If you have further questions, feel free to contact me at jim (at) accountsplus (dot) ie.

How difficult is changing accountants?

Are you worried about changing accountant?

Maybe you are dissatisfied with your existing accountant but worried about changing, fearful that it would be a lot more hassle than it’s worth?

From time to time, I get asked by prospective clients how difficult is it to change accountant.  Some accountants like their clients to think it’s very difficult so that they don’t’ lose clients.  In reality, it’s not difficult at all to change.

However, many clients still have fears about what can go wrong. In this article, I will discuss the issues involved in changing accountant.

Why would you change accountant?

There are a number of reasons why people change accountant.

It may be that they are simply not happy with the service from the existing accountant.  It may be that there was a change in personnel in the office of the existing accountant and they are not happy with the new personnel assigned to them.  The existing accountant may have merged or been acquired by another firm and the client is not happy to stay with the new firm. The client may have been introduced to an accountant who seems a better fit with their particular needs.   There can be many reasons for changing.

Informing existing accountant of the change

Assuming you  got on reasonably ok with the existing accountant, then its probably best for you to be the first to let him/her know that you are changing accountant.

In any event, you must give your accountant specific approval to share information with a new accountant so they need to be told or the new accountant will not get the information that they need.

If the relationship is ok, then you could call them to let them know.  They may well ask why, so you should have your explanations ready and be prepared for them to try to change your mind.

If the relationship is not ok and you prefer not to contact them in person, then we can draft a letter from you to them to let them know of the upcoming change.

Exchanging Handover Information

As a Chartered Accountant, my professional rules requires that I contact the existing accountant, letting them know that I have been asked to act for you and also asking if there is any reason why I should not take on this assignment.

Typical reasons why I would not be able to take on a new client is if there was an unresolved dispute with the existing accountant about the accounting or tax treatment of something.

Once I am satisfied that there is no reason why I cannot take on the new client, I then ask the existing accountant for copies of what we call the handover information.  This handover information will include the last set of accounts, tax and CRO returns and the essential background information that I will need going forward.

In my experience, I have never had a problem getting this information within a reasonable time period.

Anti-Money Laundering

Before taking on new clients, I have to comply with the anti-money laundering regulation by verifying the client’s identity.

Issues around changing accountant

When changing accountant, there are a few issues to watch for.

Timing of changing accountant

If the existing accountant is working on accounts or a specific project it’s probably best to let them finish that.  Otherwise, you may end up paying twice for the same work.  However, if you are not happy with the work they are doing, you will not want to stay with them.

If you are on a monthly payment scheme with your existing accountant, just check what you have already paid for and if there any element of a prepayment which will be refunded if you change accountant.  You may need to check the original agreement that you signed.

If there are any outstanding bills you may have to pay those in full before the existing accountant will release your information.

Most common myths of changing accountant

One myth that I have come across is that if you do change accountant, you are more likely to be audited by the Revenue.  I don’t believe that this is true.  Revenue have software which they use to select candidates for audit and this software is understood to use an analytical approach to highlight issues such as suspicious margins or unusual expenditures rather than the identity of the new accountant.  If the new accountant has a poor track record with Revenue, that may be a factor but for most accountants, Revenue will not be interested in accountant changes.

If you are not happy with your existing accountant, then you really should change.  It will be inconvenient in the short term but, in the longer term, you should be better off.  You need to have confidence with whoever is supporting you on such a critical part of your business.

If you have any questions about this article or indeed about any accounting related items, please contact me on 086 2323525 or jim (at) accountsplus (dot) .ie.

Best approach to implementing improvements

Best approach to implementing improvements

What’s the best way of improving something in your business?  This is one of the most common questions that we come across when working with clients.

With over thirty years of experience working on improvement projects, I have seen a lot of different approaches but there are a few common elements in all successful improvement projects.

In this blog post, I will highlight those elements.

Identify an opportunity

Firstly, there should be a process to identify candidate improvement projects and rank those.  This can be part of your regular management meeting.  Suggestions can come from reviewing your KPIs and identifying ones that need improvement.  They can also come from customer feedback or suggestions can come from employees working on the process.

You may have a number of opportunities and you may be need to decide which is the most important.  The most common way of ranking is to quantify the impact of the problem and then quantify the perceived difficulty of developing the improvement.

Sometimes, the impact is so great, that its clear this problem just has to be fixed.   Other times, it’s clear that while the problem is of medium impact the solution is relatively easy and it becomes a no-brainer to select it as a suitable project.

Don’t have too many improvement projects on the go at the one time.

Define the Problem

When we get to the other side, when we have the project completed, we will need a way of determining if it was successful.  The best way to do that is to start by clearly defining the problem.

Let’s say, we own a pub and that customers have been complaining that it takes too long to get served.  We could easily say that the problem is “time to be served” and that the measurement is the time taken to get served.

But that is vague.  We need to be clear on what we are measuring.  When do we start measuring time and when do we stop measuring time.  We could say that we start once the order is called and we finish when the customer leaves the bar to take the order back to his/her table.

However, the customer could have been standing at the bar for 5 minutes trying to get his/her order in.  If I was a customer out in a pub with friends having fun, I would not want to be away from my group of friends, missing the fun, for too long.  I feel the time should start when I leave the table and end when I return to the table with drinks.

So you can see, that simply saying measure the time is not enough.  You need to be clear on what you are measuring.  And when deciding that, try to include the view of the customer as it’s the most important viewpoint.

Who to involve in the improvement project

When working on an improvement project, there are a few categories of people who should be involved.

You need to bring insights from the customer to the project.  Most times, you will not be able to involve the customer directly but there should be someone involved who has access to customer insights.  This could be a customer facing employee who regularly gets direct feedback from the customer.

Secondly, we need to have someone on the team who is working in the process and has a good understanding of what is going on in the process.  They will usually have the best idea of what is really happening in the process.

Finally, you need someone with a good understanding of improvement approaches who can keep the project from getting pulled into detail or onto red herrings.

Depending on the business you are in and the project you are working on, you may need to have someone from quality or finance or you may need to have someone who works with suppliers.  When picking the team consider the wider picture.

Understand what is really happening in the process.

The next step is to get clear on what is really happening.  To do this, we usually draw up a process map and take measurements at various points in the process.   We need to be clear on the start and end of the process, the various steps in the process, the inputs and the outputs of the process.  From that information, we can identify key measures to give insight on what is happening.

Sometimes, it’s clear that the process is very poorly defined and there is a lack of consistency in how different people approach their jobs.  That alone may be the problem

Identify Root Causes of the Problem

Once you understand that process and what is happening, the team can start to brainstorm possible causes of the problems. When you have a thorough list of those causes, it should be possible to evaluate each possible cause and from that come up with a theory on what the root cause(s) is/are.

When doing this, you need to be rigorous and make decisions based on facts and not just suspicion.  For example, if in a fish processing factory, someone proposes that the size of purchased fish is inconsistent, then we need to gather data to check if that is actually the case.  We might take a reasonable number of samples from batches of fish bought and measure these to see if they are of a suitably consistent size.

At the end of this step, we would expect to have identified one or more key root causes to work on.

Identify the Improvement Solutions

Once we have a root cause, we want to determine solutions to address the root cause.  The solution may be obvious or it may require some creative thinking.

For example, in a payroll process, where there were problems calculating overtime, the complexity of the rules was identified as the root problem.

The solution was to simplify the rules and make it easier for the payroll processor to determine the rate to be applied.  Because few people understood the rules, it was fairly easy to get agreement on simplifying that.  Employees liked the idea, supervisors liked the idea the payroll processor liked the idea.

Test the Improvement Solution

What we don’t want to happen is to replace one problem with another, so before we roll out a solution, we need to be sure that it works and that it doesn’t cause problems somewhere else.

The best way to do this is to run tests, firstly, and then, if we can, to implement the solution on a pilot basis.  In the payroll problem, we could run it for a single department or maybe for a single shift.   We needed to get permission from the people affected but that was forthcoming because everyone wanted to see it fixed.

Once we run the Pilot and evaluate the results, we can then decide if we want to implement the solution on a wider basis or if, instead, we have to go back to the drawing board.

Implementing the solution

When implementing the solution, we need to make sure the implementation goes well.

Firstly, we should document the changes and communicate the changes to everyone.  The level and detail of this communication will depend on the scale and complexity of the change.

We then need to be sure that everyone impacted is aware of the change that is about to be implemented.

Finally, we need to put measures in place that will give us feedback on whether, or not, the change is having the desired effect.  In our payroll example, we could have measured either the number of overtime queries or alternatively the number of overtime amendments.  Because the issue had been the level of confusion, we opted to go with the level of queries.

Monitor the process post change implementation

It’s good practice to monitor the process for a reasonable period after implementing a change.   This is just to make sure that the change worked as expected and, also, to make sure that bad habits don’t slip back into the process.

Normally, the KPIs for the process get added to the overall KPIs that are measured and these new KPIs are kept there for as long as management deem necessary.

Next Improvement Project

Good companies adopt an attitude of continuous improvement.  This means that they are constantly striving to get better and better.

Once a problem has been fixed, the continuously improving company will not rest on its laurels but will look for another improvement opportunity.

To do that, you go back to your original list of candidate projects and check if there is something else that should be worked on.  The next project may be something from that list or it may be a completely new opportunity that has just cropped up.

In any event, the improvement cycle will start again and you will work through the same steps – identify the opportunity, define the process, understand the process, identify root causes, develop possible solutions, test solutions, implement and monitor.

How much detail is necessary

You may be thinking that this all seems very complicated.  Some companies, when they see something wrong, just fix immediately and don’t go through what they feel is an unnecessarily complex process.

Sometimes that will work but more often it just makes things worse.

With simple problems, you can work through the steps very quickly.  With more complex issues, you need to take time to make sure that the solution is not going to create problems for someone else.   It’s always a good idea to work through this type of an approach.

Do you have problems in your business that are impacting on growth or profits?  I hope you found this guide to a methodical approach helpful and I wish you every success in applying it.  If you have any questions or comments, feel free to contact me at 086 2323525 or by email at jim (at) accountsplus (dot) .ie.

 

 

 

How to choose accounting software

How to choose accounting software

Are you looking for new accounting software?  Do you need help in making that decision?

You could be a start-up or you could be a mature business who realises that your existing accounting software isn’t doing what you need it to do.

Many businesses get recommendations from their accountant.  In some cases, the accountant recommends something that suits the accountant but may not suit the client or else may be a solution that works well for another client but may not be right for a different business.

It would be better to identify what you need and then compare the options before deciding what to buy.  You are likely to have this software for a long time so you don’t want to have regrets.

Over the course of my career in industry, consulting and in accounting practice, I have done a lot of work helping both small and large companies, select and implement accounting and operations software.

If you are a startup or smaller business, you may think that you don’t have a lot of choice – you will just have to buy a cheap solution.  That’s not the case.  Even in the most basic, entry level software, there are differences that could make life easier or more difficult and it’s better to understand what you need and what the various packages offer.

In this article, I will guide you through the approach that I use in helping clients identify the accounting software that is best for them.   I focus on a few key areas.

Integrated or Standalone Accounting Software

The first question relates to any other software that you already have in your business.  If you have software to manage your operations – whether that be manufacturing, distribution, retail or something else – then you should investigate if there is already an accounting package that will easily work with your operations software. For this situation, that will usually be the best solution.

Accounting software is now a mature product and core functionality is common to many packages.  I feel strongly that accounting software should support the business.  For this reason, a key philosophy to adopt is to let the needs of the business determine the type of accounting software needed.

I am going to assume that most readers of this post will be looking for a standalone package.  Finding accounting to suit different operations software will be much pretty much specific to each business

Accounting software functionality

The key area to spend time on is functionality – what I mean by that is getting clear on what you want the software to do.  Every business is different and different owner managers can differ slightly in how they run the business so you need functionality to support what is needed.

Sales

How do you make sales?  Do you have specific items that you sell repeatedly or do you have large one-off unique items?  Do you buy and sell in one currency or do you buy and sell in many currencies and need to manage foreign exchange?  Do you have repeat or recurring invoices where it would be good to automate the repeating elements.

Creating Sales Quotes

Do you create quotes for customers which you hope will be converted to sales invoices later on?  If you need that and the system can support it, just how easy is it to do.

Purchases Invoices

The requirements here can be similar but opposite to sales invoices.  Can you have recurring invoices?  Do you manage specific parts and will you be buying by part number?  Will you have to use your suppliers part numbers or you own in-house part numbers.

Purchase Orders

Do you want to create purchases orders and match these to supplier invoices as they are received?

Completing Bank Reconciliations

Most systems support bank reconciliations now.  How well is that done?  Can you import the bank statements into the accounting software to automate the reconciliation?  What sort of reports are available?

Tracking Stock items

Do you want to track stock items ie the system keeps track of stock and each sale will reduce stock while purchases will increase stock?  Will you want reports showing items on hand and the value for those items.

VAT Compliance

How well does the accounting system handle VAT?  Can it handle both allowable ways of handling VAT – the cash basis or the invoice basis?  What about invoices that come in late – ie June invoice that comes in after the June VAT return has been submitted? Are they treated properly?

Is there good reporting and a good trail to support a VAT audit if required?

Tracking margins on sales

Does your business have fixed cost prices for each item sold which would allow you to calculate margin either by invoice or by line item within invoice.

Supporting Budgeting

Do you want to set budgets and then compare actuals to budgets.

Importing and Exporting Data

Do you want to import data from other systems. For example, import your bank statements or import a listing of sales invoices for other software.  Maybe you have time tracking software for service personnel and you want to link that to your accounts.

Do you want to be able to export data – maybe for analysis in excel?

Locking Accounting Transactions

When you have finalised your accounts you don’t want late transactions to get added into closed accounting periods.  Will you be able to lock transactions once you have finalised the accounts for a specific accounting period.?

Accounting for Jobs or Departments

Do you want to gather income and/or costs by jobs or by departments?  For example, a building conractor might want to be able to see the revenue and costs for each individual job.   On the other hand, a larger business may want to report on costs by department – maybe sales, manufacturing, distribution, admin etc.

Creating/Restoring Backups

Things can, and do, go wrong so do you want to make makeups and be able to restore those backups.  How easy is that?  Where will be backups be stored?

Remote Access

Will you want to give anyone remote access – an employee at another site or maybe your external accountant?  How easy is to do this?

Financial Reporting

What sort of reports do you want?  The basic reporting includes Profit and Loss, Balance Sheet and Lists of customer balances and supplier balances.

Do you want to have flexibility on reporting periods?   Do you want to be able to compare actual with budget or actual with equivalent period last year?  Do you want to give department managers figures only for their own department?

Drill down in reports

A very useful feature that many, but not all, accounting software has is the ability to drill down when working with reports.

For example, if I am reviewing a Profit and Loss, I might think the travel amount looks high.  With drill down, I can click on the travel number and it will open up a new window which will show me the makeup of the number.  I may be able to drill down on a number in that window and eventually drill all the way down to the lowest level transactions that make up the total number

I find that a very useful feature and would be reluctant to work with software that doesn’t does it well.

Correcting Transaction Errors

If you do find something wrong, how easy is it to correct?

Some systems will not let you edit a transaction, instead forcing you to enter a reversing transaction and then a new transactions.  I find this very cumbersome and it clutters up the database.

How easy is it to distribute accounting reports from the system.

Can you email them?  Can you export them to excel or csv formats?  Can you push them out to pdf or MS word?

Audit Trails

If somebody does something wrong, can you easily find out what happened and can you identify the user responsible so that you can train in how to do it right?

Does the system provide an audit trail that can be queried by date, by user or by account type?

How does the system handle Accounting Periods

How does the system deal with the end of an accounting period?

Most modern systems are date driven but some older systems are period (month) driven.  The problem with the older systems is that you may be still finalising last year but cannot move on properly to the new year until last year is fully closed off.  It just makes reporting for the first few months more difficult until the last period is closed off.

 

There is a lot of features listed above.  They may not all be relevant to you.  What you need to do iis to look at your own business and understand what functionality your business needs and then you need to match that to what the software delivers.

User Experience

How easy will it be for users to work with the system?  If its awkward or cumbersome, users will find it harder to work with and this can lead to inefficiencies.

What do the screens look like?  How easy is it to navigate around the system?  The only way to know this is to play around with the system.   Talk to other people who are using the system, if you can.

Does it look like you would need to be an accountant to use it or is it easy to use, with little or no jargon.  Will you be able to run your favourite reports or will you always have to rely on accounts staff?

Quality and Form of Support available

What happens if you have a query or something goes wrong?  Is support readily available?  Is this support by telephone or by email? How much does it cost?  How responsive are they – will you be long waiting?

Cost of Ownership

When buying any software, you should always consider how long you will have it and what it will cost over that time-period.

Typically, you would want to have it for at least 5 years. What will the total cost of ownership be?

This will be made up of the upfront cost.  Then add in support cost over the full life of the software.   Will you have to invest in additional modifications or customisations?  Will you have to invest in additional hardware?  Will there be obligatory updates that you will have to buy?

Add up all of these costs to determine the total cost of ownership for the lifetime of the software.

Technology Platform

Do you want software that runs on desktop or on the cloud?

The cloud comes will a lot of advantages but may have disadvantages.  If you have slow broadband it may not suit.  Some book-keepers find data entry on a cloud much slower.  Against that, some cloud solutions have data import facilities that overcome the data entry issues.

Also, it’s good to pay attention to the underlying software used to write the product.  There are still software packages out there using older database technology.  They can be harder to work with and can hit size limits – sooner than you expect.

I came across a client a couple of years ago who had database size problem because they sold a lot of small value items.  It was the number of transactions that counted and not the value so they quickly ran into database size problems.

Single or Multi User Accounting Software?

Will you be a single user site or a multi-user site?  If there are multiusers, does that put any restrictions on other users.  For example, I am working with a client and regularly, the software will prevent a user doing something – running reports or procedures – because another user is going something else in the system.

Who should be involved in the software selection decision?

The people who will be working with the software on a day to day basis should be involved.  If you have some staff with more experience with other software you may give more weight to their opinion.  Your external accountant may be familiar with many different types of software and may be able to help.

The amount of effort you put into the software evaluation should match the amount of money you will be spending and the consequences of getting the decision wrong.

Evaluation Matrix for software selection

At the end of the day, you will have done your research and there may be a lot of factors to consider.  You may feel confused but you want to make a decision.

What I find helpful in these situations is to create an evaluation matrix and use that to guide the decision.  Have a read of another of my blog posts about creating a decision matrix.

What I find is that the evaluation matrix will help you to organise your thoughts and to identify your priorities.  It will not make the decision for you but it should trigger a discussion about just how important some elements are and it’s important to have that discussion.

At the end of the day, you are going to be living with the software you select for a number of years.  Unless your business is very straightforward, the chances are that some software will work much better for you than other software.  It’s well worth investing time up front to get it right.

I would love to help you identify the best solution for your business.  We hope you found this blog post helpful and wish you all the best in your journey to find the best accounting software for your business.  If you have any questions or comments, please feel free to contact me on 086 2323525 or by email at jim (at) accountsplus (dot) ie.

Cost of Part-time or Virtual Financial Controller

Cost of a Part-time or Virtual Financial Controller

Are you running your own business and struggling with the finances?  You would love to have your own financial controller but you can’t afford a full time one.

You have heard someone mention part-time financial controllers and that sounds interesting.  But you are still wondering how much a part time or virtual financial controller service would cost.

As with many of these questions, there is no simple answer.  It all depends on what you want from the service.

I have been working as a financial control for many years now.  I was a full time financial controller when I worked with the multinationals.  Since I went freelance, I have worked as a part-time financial controller for a large number of clients in a variety of businesses.

Providing financial controller services is a professional service and these are usually  priced based on the time input.  However, there are a number of different factors that influence the amount of time input.

When I meet with a potential client I will be trying to understand and evaluate their circumstances so that I can give them a proposal which is tailored to their situation.

The factors that I will be looking at will include the following

Existing Accounting Capability

How is your accounting function staffed and what level of skills are available to you?   Will we be recruiting new staff, developing existing staff or supervising existing staff?  How much can be delegated to in-house staff and how much will be left to the part time controller.

Accounting Systems

What sort of systems do you have?  Are these well implemented or do they need to be enhanced.  Are there standard routines or do we have to develop and install those routines?

Reporting/Analysis Requirements

What sort of reporting or analysis in required?  Is the infrastructure in place to provide this or does it have to be developed?  Has the potential client got a good handle on their revenues and costs?  Are they confident in their product or service costs?  Do they understand the reported profits or do they express surprise that the profits are not as expected?

Type of Stakeholders

What sort of stakeholder are in the business?  What requirements have they specified for reporting and analysis both in terms of frequency and detail?

Stage of the Business

At what point in the development cycle is the business. Is it a startup with external funding or plans to bring in external funding?  Is it a mature business with fairly steady sales and costs?

Challenges facing the business

What are the challenges facing the business?  Are profitability levels acceptable?   Are they undertaking any significant projects – new markets, new products, new processes, new facilities?

Once I have a good understanding to the current situation for the company, I will then start to work on defining what the desired situation should be.  As part of that we will set some goals – a mix of development goals and some maintenance goals.

Agreed Workplan for Outsourced FC Services

From that analysis, I will create a workplan which will determine the cost of the service.  This workplan will be presented to the potential client and discussed to come up with an agree workplan.

The level of work needed varies from company to company.  I have one company where I did a lot of work early on developing the staff and the systems and I now attend them about one half- day per quarter with additional time as they require for specific, clearly identified issues.

I have other clients where I am with them for two days per month.  These clients with a higher time requirement tend to be either dealing with some major issues or are still in the development stages of the business.

With good broadband, I can also work remotely.  This can be be very helpful if something crops up and it will only take a short time to resolve.  So a skype-type call will avoid travel time and can give the client the answer much more quickly.

Service Cost per month

In terms of cost, it can range from € 400-500 per quarter to maybe € 1500 per month but if the client requires greater inputs the cost will be greater.

From the client’s point of view, what they want to get from the service is the elimination of surprises, much improved understanding of their profitability, greater confidence when pricing for their customers and improved profitability.

To get a better understanding of how we work, feel free to browse through our blog articles.   I suggest this article,  “Understanding the nuts and bolts of accounting”, as a good starting place.

As always, if you have any comment or questions on this article, feel free to contact me by phone(086 2323525)  or by email at jim(at)accountsplus (dot) ie.

Not confident about Product Costing or Pricing?

Every business needs to have a good understanding of its product costs.  If it doesn’t it could end up quoting or pricing incorrectly.   You could have a situation where losses on one product are wiping out profits on another product.

So how do you improve your understanding of product costs?

The first thing to understand is that there are two components to product costs.  The first component we call direct costs.  These are costs where its easy to see a direct link between the elements making up the product and the product itself.

The second element we call indirect costs. These usually relate to the general costs of running the business but it’s hard to quantify the link between the cost and the finished product.

Let’s take a simple example.  Sean has a sandwich making business supplying local retailers with sandwiches.

Sean’s direct costs include bread, butter, fillings, packaging and the labour of the staff who make the sandwiches.

Sean’s indirect costs include marketing costs, premises costs, rent of this production unit, labour cost of staff who do provide admin support, office costs, delivery costs, accounting and legal costs, financing costs etc.

While it’s easy to see how many slices of bread go into a sandwich, it’s harder to quantify how much of the marketing costs should be charged to a single sandwich.

So the first thing Sean has to do is to do put together a recipe, sometimes called a bill of materials, for each product. This will set out how much of each raw material is used to make one unit of a product.

When doing this, remember that you may well have to buy more raw material than will end in the product.  We are likely to have some waste in the process – we may have raw materials getting damaged or going out of date. We may have to take product samples for testing or possibly to be given as samples.

When we are looking to develop a unit cost, we are better to think in terms of a batch – lets say that we want to make 100 sandwiches.  How much bread, spread, fillings and packaging will we use to make those 100 sandwiches. Then we cost those materials and divide by 100 to get the costs of a single finished sandwich.  This has the benefit of averaging out any overs or unders on an individual sandwich.

There are a few things to remember when doing these calculations.  Not every employee will use the exact amount of raw materials.  While we should standardise as much as possible, we need to allow for this variation also and working with batches does that.

Additionally, we may not sell every item that we make, so we need to allow for the fact that we will have some overproduction.  What we have to do is identify all the costs of making our batch and then allocating those costs as best we can to the units that are sold.

Next we need to think about indirect costs or overhead.

The first step here is to estimate your indirect costs for a specific period – could be a year or could be a quarter.

We need to make our best estimate of each of the marketing costs, premises costs, rent of this production unit, labour cost of staff who do provide admin support and deliver, office costs, delivery costs, accounting and legal costs, financing costs etc.  This exercises is effectively preparing a budget for the period under review.

That will give us our total overhead costs.

Then we need to link the overhead costs to the costs of each individual item.  There are a number of different ways of doing this.

One way is to express our total overhead costs as a percentage of our direct costs and then add that percentage onto the direct cost of each product.  So in Sean’s example, if the direct costs for the year are 50K and the indirect costs are also 50K, then Sean will determine his direct costs for each product and double that to get a total product cost

He will do that for each product.

You can get a lot more sophisticated about that process but for now let’s just work with that as a simple way of doing it.

There are a few things to watch out for.

The initial estimate of how many products to be made and sold in a year is important.  Direct costs vary with production quantities but indirect costs tend to be flat or else not vary to the same extent.

Let’s say you planned on having production quantities that used 100K of direct costs and you also had 80K of indirect costs then you would be expecting to have total costs in the year of 180K.

If you are making 100K units then each unit would cost 1.8 each.

However, if you only did 80K units, you would expect your direct costs to be 80K but your indirect costs would still be 80K as they don’t vary in line with production quantities.  So your total costs to produce 80K units would be 160K giving you a unit cost of 2 each.

So the initial assumption on production volumes is quite important.

Another angle on this comes into play if you are starting up and you only have sales of say 50% of your full capacity.  You may have competitors who are long established and are producing to their full capacity.

Let’s say you can produce 100K units per annum but you only have sales for 50K.  Your direct costs are 50K and your indirect costs are 80K so total costs are 130K.  If you divide your 130K costs by 50k units you get a cost of 2.60 each.

However, your competitor has a similar sized operation which can produce 100K unit and he is producing selling all of those 100K units.

Lets assume for simplicity that his direct costs are likely to be similar to yours, so 100K and his indirect costs are also similar to yours, say 80K.  Now his total costs are 180K and when we divide by his production, 100K, we get a unit cost of 1.8 each.

What is happening here is that you are asking your customers to pay for your unused capacity.  If you do that they are likely to just buy from the cheaper producer rather than from you.

You need to think about setting your prices as if you were using your full capacity – in that way you will have a better chance of selling.   This area needs a bit of thought from you to be sure you understand the consequences of your decision.

When pricing there are three broad approaches.  One is to use a cost plus approach.  A second is to match the current market rates.  The final approach is to price the product based on the value of the product to the customer.

For any of these approaches you need a good understanding of what is happening in the market place and you need a good understanding of your own product costs.

If you have any questions about this article, feel free to contact me on 086  2323525 or by email at jim@accountsplus.ie.

 

What do I have to do to get a business loan?

One of the questions that comes up often is from someone who is having trouble getting a business loan.  They are frustrated and want to know what they need to do to get that loan loan.
To answer this to have to first put yourself in the shoes of the bank manager.

Understand how the lender views the application

Banks make money by lending money and earning interest on the loans.
For example, if you borrow 10K at 6% the bank will earn interest of 600 per annum. However, if that loan goes bad, the bank will be down 10K. To recover that 10K the bank manager will have to lend enough money to earn 10K in interest. It will take additional borrowings of 166,667 at 6% to make back 10K.  So is it any wonder the lender looks for something to increase his/her confidence in the application?

What do banks look for

When a banker is reviewing a loan application, they are looking for three things.
(i) Will the borrower be able to make the repayments?
(ii) If the loan goes bad, is there enough security available to recover the amount lent?
(iii) Can the bank trust the borrower?

The third item – trust – is the most important. If the bank cannot trust the borrower – if they have been let down in the past – then they will not put much value on answers to (i) repayment ability and (ii) security.

So when looking for a loan to the bank, you have to bring at least three things.
(i) A good track record. You need to have honoured any commitments you made in the past and can show them that they can rely on you.
(ii) You need to be able to communicate that you have a proposal which will generate sufficient funds to repay the loan requested.
(iii) Finally, you need to show that there is sufficient security that if the loan fails, then the bank can get their money back.

Business Plan

For the second item, you need to have the bones of a business plan. The level of detail needed will depend on amount of money being borrowed.
For the business plan, you need to show that there is a need for your product or service. You need to show that you understand the market for the product or service and the competition that exists for that product or service.
You also need to show that you can deliver the product or service on a profitable basis. Finally, you need to show that you, and your team if appropriate, have the capability to execute your business plans.

Ability to deliver on plans

One of the things that may come into play is how well you are currently managing your business. Do you have good financial controls and timely and reliable management information?
Have you been able to provide acceptable explanations for your historic financial performance?
Have you a track record of realising your plans and meeting targets?
You should always manage your bank account with a view to applying for a loan in the future, knowing that your track record will count when the application is being reviewed.

Purpose of the Loan

Finally, the business plan will need to show how the funds borrowed will be used.

The role of security

As regards security, it is important to realise that in asking for security, the bank is primarily asking how much commitment you are personally making to the project.
The banks don’t like calling in security. Its costly and they rarely get the full value for the security. But if you are not willing to show that you have “skin in the game”, then it will be harder to convince a bank to lend.

The Amount and Type of Documention

This varies with a number of things.

(i) The amount being borrowed
(ii) Previous experience with the bank – if they have had a good experience with you in the past that help.
(iii) The bank’s way of working – different banks have different approaches.

Summary

To summarise then, the best way to persuade a bank to lend is to put yourself in the shoes of the banker and be clear on what is required. Then assemble all the information and prepare a package to support the application.
Bearing in mind that the bank wants to lend with as much certainty as possible that the loan will be repaid repaid, your job is to present the information in such a way that the decision becomes a no-brainer for the bank.

If you have any questions on this post or you want to discuss an upcoming loan application, feel free to contact me by email at jim@accountsplus.ie or by phone on 086 2323525.

Allowable Motor Expense Rates (2017)


Allowable Motor Expense Rates (2017)

Revenue amended the rates for claiming motoring expenses with effect from April 1, 2017.

Given that most businesses use these rates as the basis for Revenue-approved motor expense claims for businesses, you should be aware of the changes.

The key changes are:

  • They have increased the number of distance bands from two to four
  • They have changed the rates
    • The starting rate is now lower than the old starting rate
    • The second rate is higher than the old bottom rate
    • The third rate is higher than the old top rate
    • The fourth rate, the new top rate is lower than the old top rate.

New Motor Expenses Rates and Bands

Band  Engine Size Up to 1200cc

Rate € per Km

1201cc to 1500cc

Rate € per Km

1501cc and over

Rate € per Km

Band 1 0 – 1,500Km 0.3795 0.3986 0.4479
Band 2 1,501-5,500 Km 0.7000 0.7321 0.8353
Band 3 5,501-25,000 Km 0.2755 0.2903 0.3221
Band 4 5,501-25,000 Km 0.2136 0.2223 0.2585

Implementation of Motor Expense Rate Changes

Motor Expenses for travel between Jan 1 and Mar 31, 2017 should be calculated using the old rates.  After April 1, you then calculate rates based on the cumulative distance travelled from Jan 1 but using the new bands and rates.

The previous Motor Expense Rates (up to Mar 31, 2017)

Engine Size Up to 1200cc 1201cc to 1500 cc 1501cc and higher
Rate – € per Km Rate – € per Km Rate – € Per Km
Up to 6437km 0.3912 0.4625 .5907
6438 km and above 0.2122 0.2362 0.2646

 

For further information, go to the revenue website here