Overtrading occurs when a business expands its operations at a pace that exceeds its available working capital and financial resources. This can happen when a company takes on more business than it can sustain without sufficient cash flow to support day-to-day operations.

Here are key points about overtrading:

1. Cash Flow Strain: Overtrading often leads to a cash flow shortage, as the business needs more funds to pay suppliers, cover increased inventory, and finance its operations. The gap between receiving payments from customers and paying suppliers can stretch too far.
2. Inventory Buildup: To meet increased demand, companies may overstock, tying up capital and cash flow to purchase goods that have not been sold.
3. Borrowing Pressure: To support rapid expansion, businesses may rely heavily on borrowing, leading to high-interest costs or increased debt, which further strains the company's finances.
4. Declining Service Quality: Overtrading can cause operational inefficiencies, leading to delays in fulfilling orders or a decline in the quality of products or services as the company struggles to manage increased demand.
5. Risk of Insolvency: If the business cannot manage the financial stress, it risks insolvency. For example, where it becomes unable to meet its short-term obligations, such as paying creditors or employees.

A common situation occurs in retail when a business takes on a large number of orders without sufficient stock or cash reserves to fulfil those orders, leading to delays, missed payments to suppliers, and financial instability.

Effective management of cash flow, maintaining adequate working capital, and carefully planning growth are crucial strategies to avoid overtrading.

Asking your accountant for advice offers a range of benefits, particularly in guiding both business and personal financial decisions. Here are some key advantages:

Expert Financial Guidance

Accountants are trained professionals with deep knowledge of tax laws, financial regulations, and best accounting practices. They can provide tailored advice on managing cash flow, budgeting, and financial planning to ensure your business remains financially healthy.

Tax Efficiency

One of the more significant advantages is receiving advice on how to reduce your tax liability legally. Accountants can help identify deductions, allowances, and tax reliefs you may be eligible for, ensuring you are not paying more tax than necessary.

Compliance with Laws and Regulations

Tax laws and regulations are constantly changing, and it can be challenging to stay updated. Accountants can ensure that your business complies with all relevant legislation, helping you avoid penalties, fines, and potential legal issues.

Business Growth Support

If you are looking to expand your business, accountants can offer strategic advice. They can help you analyse your financial data to make informed decisions, plan for future investments, and ensure that your business grows sustainably.

Risk Management

Accountants can assess financial risks associated with various business decisions and suggest ways to mitigate them. Their expertise helps in identifying potential financial pitfalls and ensuring you are prepared for unexpected expenses or downturns.

Improved Cash Flow

Proper cash flow management is crucial for any business. Accountants can advise on how to maintain healthy cash flow, ensuring you have enough liquidity to cover operational expenses and make investments when needed.

Financial Forecasting

Accountants can help you create financial forecasts and projections, which are vital for decision-making and securing financing. Their insights into future income, expenses, and profitability are invaluable for long-term planning.

Access to Professional Networks

Accountants often have a broad network of contacts in the financial, legal, and business communities. They can connect you with other professionals, such as solicitors or financial advisors, to further support your business.

If you feel you may benefit from support in any of these areas, please call, we can help.

1 October 2024 – Due date for Corporation Tax due for the year ended 31 December 2023.

19 October 2024 – PAYE and NIC deductions due for month ended 5 October 2024. (If you pay your tax electronically the due date is 22 October 2024.)

19 October 2024 – Filing deadline for the CIS300 monthly return for the month ended 5 October 2024. 

19 October 2024 – CIS tax deducted for the month ended 5 October 2024 is payable by today.

31 October 2024 – Latest date you can file a paper version of your 2023-24 self-assessment tax return.

1 November 2024 – Due date for Corporation Tax due for the year ended 31 January 2024.

19 November 2024 – PAYE and NIC deductions due for month ended 5 November 2024. (If you pay your tax electronically the due date is 22 November 2024.)

19 November 2024 – Filing deadline for the CIS300 monthly return for the month ended 5 November 2024. 

19 November 2024 – CIS tax deducted for the month ended 5 November 2024 is payable by today.

The deadline for submitting paper self-assessment tax returns for the 2023-24 tax year is 31 October 2024. If the return is submitted late, a £100 penalty will be imposed, regardless of whether there is a tax liability or if any owed tax is fully paid by 31 January 2025.

We recommend that taxpayers still using paper returns consider switching to electronic submission, which offers an additional three months (until 31 January 2025) to file their self-assessment tax return.

Taxpayers with certain underpayments in the 2023-24 tax year can elect to have this amount collected via their tax code (in 2025-26), provided they are in employment or in receipt of a UK-based pension. The coding applies to certain debts and the amount of debt that can be coded out ranges from £3,000 to £17,000 based on a graduated scale. The maximum coding out allowance applies to taxpayers with earnings exceeding £90,000.

Daily penalties of £10 per day will also take effect if the tax return is still outstanding three months after the filing date up to a maximum of £900. If the return still remains outstanding further higher penalties will be charged from six months and twelve months late.

You must inform HMRC by 5 October 2024 if you need to complete a tax return for the 2023-24 tax year and have not done so before.

When a new employee is added to the payroll it is the employers' responsibility to ensure they meet the employees’ rights and deduct the correct amount of tax from their salary. This includes any employees who are family members.

It is possible to employ young people if they are 13 or over but there are special rules regarding how long they can work and what jobs they can undertake. Children younger than 13 can work in certain areas such as television, theatre and modelling but their employer will need to apply for a child performance licence. There is no National Insurance liability for children under 16 and they would only need to be included on an employer’s payroll if their total income is over their Personal Allowance.

Young workers (aged 16 to 17) are subject to different National Minimum Wage rates. The current minimum hourly rate for this age group is £6.40. Any payments to young workers need to be handled through the payroll. If the workers earn more than £123 a week, then the employer will also need to do undertake regular PAYE tasks like making deductions.

There are different rules if you take on volunteers or voluntary staff, but the employer is still responsible for health and safety and must give inductions and training in the tasks they are going to do.