Director’s Loan Accounts.

In recent years many site operators have been struggling to show decent-looking profits when their bank or other lenders ask for copies of financial accounts, and some have realised that if they reduce their wage bills by cutting their own salaries – and then ‘borrowing’ the money from their company – that this can make the bottom line look a lot healthier.

In other cases, operators have decided that borrowing money from their company is easier than going through the whole credit-rating and application hassle involved in obtaining a personal loan from elsewhere; a few have also worked out that they can avoid paying monthly PAYE and NIC on a regular cash withdrawal out of their company by charging it to a “director’s loan” rather than putting it through the wages and salaries systems.

Incidentally, it’s not just ‘salary’ payments that can come out of a loan account – it basically covers any personal bills paid by the company on behalf of a director, such as domestic rates, private ‘phone bills, private credit card bills, mortgage payments, etc., so you may not even be aware that your book-keeper or accountant is posting some of your payments to a loan account every month.

Yes, this can be a way to window-dress the profit/(loss) report, although it shouldn’t really fool any experienced reader of business accounts; and potentially it can ease cash flow a little if the company isn’t paying PAYE/NIC every month on what the director takes out of the business. But like any loan it has to be repaid eventually, and there is a big difference between taking out money that you initially lent to the company, and taking out money that wasn’t there in the first place – which is how the loan account becomes ‘overdrawn’.
Certainly it’s not illegal to have an overdrawn loan account, however there can be some tax implications of which every director should be aware:

• If you repay the loan before the end of your company’s financial year – no problem; the loan doesn’t even need to be shown on your company tax return.
• If you repay the loan within 9 months of your financial year-end, then loan details have to be included on the company’s tax return, but there’ll be no tax charge to the company.
• If the loan is still not repaid after 9 months of the year-end, then your company will be charged corporation tax at 25% of the outstanding balance – yes, that’s twenty five percent. So on a £10,000 outstanding balance, the company will pay additional tax of £2,500 – a very expensive way of borrowing money. And there’ll be interest due to HMRC on any tax unpaid from the due date to the date that the tax is paid or loan is repaid.
• You should also be aware that there can be personal tax implications if your company loans you money interest-free or below normal rates of interest. The loan is treated as a benefit in kind, and must be declared on your P11D return, and you’ll be charged Class 1A National Insurance on the benefit.

So how do you repay an overdrawn loan account? The simple answer is that you put cash back into the company’s bank account; the more ‘involved’ answer is to convert the loan back into a salary payment at some point – which means that there’ll then be PAYE and NIC liability at that time. An even more ‘involved’ answer for a shareholding director is to declare a dividend to cover the loan account, although that assumes that the profits are there to do so, and of course you can’t make a dividend payment just to one shareholder alone if there are two or more shareholders.

On a completely unrelated note, just a couple of reminders for those who’ve so far avoided stepping into the 21st Century as far as VAT is concerned:

Paper VAT returns- final chapter

Although most VAT-registered business have had to file [and pay] their VAT returns online since last year, a few smaller ones [net turnover below £100,000 p.a.] have so far been allowed to continue making paper returns and old-fashioned cheque payments. This facility will end in April 2012, after which all returns and payments will have to be electronic. Obviously the vast majority of Forecourt Trader readers running their own sites will already be making their returns this way, but there are a number of small workshops and even a few of the smaller commission-operated sites that have so far managed to avoid having to conform to the online requirements, and it’s not unknown for some larger retailers to also run small independent businesses off-site. Anyone in that position really should acquire a business PC now and start using it as soon as they can.

Paying VAT electronically

Making a VAT return online is one thing, paying it electronically is another. The ‘normal’ method is for the retailer to set up a Direct Debit Instruction in favour of HMRC; this allows the maximum time for payments to be made – i.e. an additional three working days on top of the standard seven [calendar] days following the normal ‘due date’. Confused? OK: your VAT quarter ends on 31st August; the normal due date would be 30th September; the latest date for any other payment method would be 7th October, but if you have a DD set-up already, the actual date on which the money will leave your account will be Wednesday 12th October [because the 7th falls on a Friday this year].

One alternative method that some people have used is payment by credit card; unfortunately it loses the extra three working days’ extension, and is subject to a 1.4% transaction fee. That’s £140.00 extra on a ten-grand payment – not “£14” as one client had convinced himself it would be!

As with all tax matters, we’d strongly urge you take professional advice if in any doubt.

Annual Business Survey

The first such document to land on our desks was from the Office for National Statistics [“ONS”], and is called the “Annual Business Survey”. Now in theory this is sent out to individual businesses on an almost random basis, and typically we rarely see or hear of more than a few clients receiving these at any given time; so perhaps it’s just a coincidence that this year there seem to be quite a few who received the theirs at the end of April. The form asks for various financial details covering either calendar 2010 or a financial year ending between 6th April 2010 and 5th April 2011. In other words, almost like a tax return. There’s plenty of ‘guidance’ on how to complete it – in fact 15 sides of A4 notes densely printed in a rather small font – so there shouldn’t be any problems, especially if you’re working from your accounts to obtain the figures.

Well actually there are, several of them. Starting with their definition of “Turnover”: for some bizarre reason this includes VAT. Given that in all normal sets of accounts ‘turnover’ specifically excludes VAT, to get this basic question right you either have to dig-up your corresponding VAT returns and add all the output VAT back to your accounts value, or you attempt a close approximation and try and gross-up the net sales shown in your accounts. The latter is OK as long as you have a breakdown of the relevant sales categories between standard, low, zero-rated and exempt sales. Thankfully, the later questions regarding expenses stick to normal accounting conventions in that purchases and costs are required net of any deductible VAT.

The second major gripe concerns the ‘request’ for a breakdown of retail sales; there are actually 41 different categories of ‘retail commodity’ into which ‘total turnover’ is supposed to be analysed, starting with “Petrol, diesel, lubricating oil and other petroleum products”, ending with “other goods not elsewhere classified”, and with almost every possible retail sales line in between. So if you’re running a large modern site including a convenience store/supermarket, you’ve an awful lot of different sales categories into which you’re supposed to split your sales. It’s Ok if you’ve got detailed management accounts [aside from the VAT issue -] but if you rely on standard ‘annual accounts’ then you simply won’t have the information you need to do this accurately. You might be able to use your POS printouts to obtain some figures, but in many cases POS reports provide only ‘raw’ uncorrected data that may not resemble the figures in the later accounts. Taken as a whole, the form certainly doesn’t encourage any realistic attempts at accuracy –so quite what picture the ONS hope to obtain from their returns is a question that only they can answer.

Request for Information – Non-domestic Rating

This one’s from the Valuation Office Agency [“VOA”]. A much smaller and simpler form, but currently more controversial, in that many forecourt operators are still reeling from the large hike in Business Rates they’ve seen in the last two or three years. Indeed, many are still appealing against their last valuation [the appeal process seemingly dragging on at a snail’s pace] and now they’ve received another form, which will presumably be the basis for the next increase.
The amount of detailed information requested isn’t that great: total fuel volume dispensed over the last three accounting years, bunkered fuel volume to be shown separately; however it then asks for a percentage of fuel sales on customer credit accounts, and the percentage sold on “Fuel Cards”. There’s the usual need to analyse turnover – thankfully net of VAT this time – again over the last three financial years, between Shop, Car Wash, Lottery, “Paypoint” / and ‘other’ revenue streams.

Most of the required information should be readily available from more detailed management accounts, although the fuel volumes [including bunkering] don’t form part of most non-specialist accounting reports. The percentages of volume sold on ‘local’ credit and “Fuel Cards” aren’t readily available from standard financial accounts either; in addition, for many years oil companies, fuel-card companies, retailers and POS set-up’s have tended to blur the distinction between ‘agency’ sales and other forms of plastic transaction, although again POS reports may be good place to start. Where the POS doesn’t provide the required breakdown, or records simply can’t be extracted back from the last three years, an alternative method would be to analyse the total banking over the period between cash, cheque, normal credit/debit cards and then fuel cards/agency collections, and then apply the relevant proportions to total volumes over the corresponding period.

The extraction of the “Bunkered” and “Fuel Card” sales volumes is quite important: the VOA recognise that these volumes are handled at lower margin rates than normal retail sales [i.e. cash, debit cards, MasterCard/Visa/Amex, etc.] and so sites with a high proportion of volume sold on Fuel Cards will effectively be making less income than those where the same volume is sold on a normal retail basis. In principle the lower the income, the lower the rental value of the site, and so the lower the rateable value. In principle! As a matter of interest, the VOA have a whole section of their website devoted to the valuation of forecourts [http://www.voa.gov.uk/instructions/chapters/rating_manual/vol5/sect770/frame.htm] and this includes a fascinating history of the UK petrol market from the mid 1980’s onwards, although [perhaps pertinently] it seems to stop at around the year 2000…

All of these forms may be a pain, but you can’t get away from them, and in some cases [such as the Business Rates] inadvertently providing the wrong information could cost you more than you bargain for. It’s just a shame that the designers of these questionnaires don’t always seem to appreciate the realities of a modern forecourt.

In the event, The Chancellor chose to announce several measures of direct relevance to forecourt operators:

Fuel -

• An immediate cut of fuel duty by 1ppl from six o’clock on Budget Day.
• The next duty increase that had been due on 1 April 2011 was deferred, to 1st January 2012 when the main fuel duty rate will increase by 3.02 ppl.
• The suspension of the ‘Fuel Duty Escalator’ [which was the formula used to create these regular duty increases] until 2015; the revenue from this to be replaced by a ‘fair fuel stabiliser’ tax on North Sea oil production, the exact details of which haven’t been formalised at this point, but which would appear to use a market price of around $75.00/barrel as a tax threshold.
• No change in the rate of VAT applied to fuels – with a sigh of relief from every retailer and accountant working in fuel retailing!

Tobacco –

• An increase in Tobacco Duty of 2% over the rate of inflation [as measured by RPI] applied from 6.00 pm on 23rd March. The Duty element of a pack of 20 cigarettes increased from £2.38 to £3.10 [that’s 72p a pack] accompanied by a reduction in the ad valorem tax element from 24% to 16.5% of retail price, which was intended to reduce pricing differentials between ‘cheap’ and ‘expensive’ brands. The effect of these two changes resulted in an increase of around 30 pence in the retail price of a typical pack of twenty cigarettes.
• An additional increase in Duty of 10% on hand rolling tobacco.

Alcohol –

• No additional changes to duty rates beyond those already due from the previous Budget; in other words, the increases of 4p a pint for beer, 15 pence a bottle on wine and 54 pence a bottle on spirits were left in place, and came into effect on 28th March.
• A further increase in Duty on higher-alcohol beers [those >7.5% ABV] is due on 1st October 2011.

Of more general interest to businesses and individual taxpayers, there were measures affecting personal tax allowances and corporation tax rates:

Personal Tax allowances – rising to £7,475 from 6th April 2011 [as previously announced], with a further increase to £8,105 from April 2012. The part that isn’t often highlighted is that the earnings figure at which higher rates of tax start to apply is cut at each of these dates!

Corporation Tax rates – a surprise cut of 1% from April 2011, taking the mainstream rate down to 26%, and further cuts planned down to 23% by April 2014. There was less joy as far as small businesses are concerned: the rate for profits below £300,000 drops to 21% for 2011/12, but no information has been provided by the Treasury as to any planned rate after 2012.

Income Tax / NIC merger – there was some late speculation before the Budget that the government was thinking of a really radical move to effectively abolish National Insurance as a separate, almost hidden, tax and simply extend Income Tax to cover the cost. That proved to be a proposal too far, at least for this Budget, but the Chancellor has announced a long-term study to look at the feasibility of doing this. Don’t expect to hear the results before the end of this Parliament though.

Tax Avoidance – As usual, some of the more ‘interesting’ measures in any Budget tend to receive only a passing mention during the Chancellor’s Budget speech, with the details buried in the fine print of documents released by HM Treasury in the weeks and months that follow. One such item this year is a promised “crack down on tax avoidance….by closing down schemes which disguise remuneration, avoid corporation tax, VAT and Stamp Duty Land Tax”. Just that single bland sentence opens a great many possibilities for HMRC to look deeper into the day-to-day financial records and transactions of all businesses; and only the naïve would expect them to start with the very largest companies. At the time of going to press there was no further information from the Treasury or HMRC as to exactly what this crack down will actually involve, or where/when it will start; rest assured we’ll continue to dig around and bring you more news as soon as we find it.

Two final points to remember about the March 2011 Budget:

Firstly that while a lot of the headline announcements referred to ‘no changes’, they really meant ‘no changes other than those previously announced’ – it’s become increasingly common over the last decade or so for the government to announce planned changes to tax rates and allowances several months, and often years, in advance – look at alcohol for example. The increases come into effect by stealth.

Secondly, as far as many of those increases which do make the headlines are concerned, the bit that gets overlooked is that they are ‘x’ amount above inflation. Inflation as measured by RPI was 5.5% per year in February, or 4.4% as measured by the CPI method; the rates are expected to stay at around the same level throughout the rest of this year.

However ‘generous’ the Chancellor may appear to have been in respect of fuel prices, rest assured we’ll all be paying the price somewhere else, sometime soon.

Well, given the endless succession of economic bad news [inflation, employment, business lending, etc.,] in the headlines every day, the government may just decide to do something popular and defer the next rise – presumably until later in the year. The idea of introducing a ‘fair fuel stabiliser’ however, appears to be wishful thinking on the part of all concerned: not only is the Treasury addicted to the ever-increasing revenue it collects from motorists, but there would have to be quite a sophisticated administrative process and probably fresh legislation to make such an idea work – and apart from running against the very grain of what the present government seems to be doing [as far as quango’s and administration are concerned], it would take a great deal of time to consult with all interested parties and then build the appropriate mechanism. In other words, another one of those good intentions that can be kicked into the long grass and left there for a year or two while the government hopes the problem will simply go away – or that it can be left to the next lot to deal with.

So assuming that the typical pump price increase is 4ppl – a quick look at the arithmetic suggests that a typical forecourt retailer will face another round of the usual transaction and banking cost increases: Assume a site selling 4.5m litres per year, split 1/3rd each way between ‘cash’, ‘credit cards’ and debit cards; this latest fuel price rise would add some £180,000 to the total annual value of takings [inc VAT] which would translate into additional merchant fees of some £900 per year and cash handling charges of around £300 per year. Retailers stand to lose an extra £1,200 out of existing sales volume with no increase in their gross margin, and invariably take the brunt of customers’ rage.

Doing these calculations with a client a few days ago, the conversation drifted to the subject of customer anger and protests as typical diesel prices are already hitting or even exceeding 130 ppl around many parts of the country. Our retailer vaguely remembered that there’d been some ‘big trouble’ over fuel prices ‘a few years ago’ and wondered whether we might see something similar happen in coming months. Well, the “Fuel Crisis” that our client was referring to actually happened more than ten years ago – September 2000 to be precise – and he was personally too young to have been in the petrol industry back in those days! Just for the benefit of any other readers who may be lucky enough to be in the same youthful state, it was interesting to go back and look at the circumstances of the 2000 protest – remembering just how dramatic the events seemed at the time.

In September 2000 the headline price of crude oil was about to hit $35 a barrel; the pump price of petrol was around 80p a litre, and was expected to rise by 2p. There’d been a series of protests by farmers and truck drivers in France at the start of the month which almost brought the road network there to a close – although being France, nobody on this side of the Channel really paid much attention since the French had a habit of doing that sort of thing, and it would never catch on here. Until that is, the 7th of September, when from apparently nowhere a group of farmers and truck drivers in the UK decided to block the gates of Shell’s Stanlow refinery to publicise their anger at increasing costs. The following day, another group decided to blockade Texaco’s refinery in South Wales; many tanker drivers refused to cross the picket lines, and then the general public panicked – forecourts started to run dry over the weekend. Within days, almost every fuel terminal in the country was being blockaded; truck drivers, farmers and taxi drivers were mounting rolling roadblocks and ‘go-slows’ on motorways and major trunk roads, eventually including central London. By the 12th, the then Prime Minister Tony Blair started to issue stern warnings about keeping Britain moving – and by the 13th more than 90% of forecourts had no fuel left; supermarkets were running out of fresh food, and started rationing what was available. The NHS was put on ‘Red Alert’ since the absence of medical supplies meant that they were ready to cancel all but the most urgent operations; bus companies were starting to reduce services as they too ran out of fuel. And then on the 14th it all ended. The protesters said they’d made their point, and although the government proclaimed that it had not given in to their demands, it had been severely shaken by the speed and effectiveness of the protests.

In truth, the events of 2000 didn’t immediately affect the price of fuel or the government’s policy on Fuel Duty; however, within a year or so the government quietly began to make occasional concessions on the timing of fuel duty rises, if not the fact of the increases themselves. After 2000 the Labour government held lengthy planning meetings with the UK oil industry under the guise of ‘Strategic Planning’ and ‘National Security’ in order to prevent being brought to it’s knees if the same events happened again.

At the time of writing crude oil is bouncing around the $100/barrel mark; diesel prices on many forecourts are 130p or more per litre. The present government is nowhere near as secure as Labour was in 2000, and in those days there was no “Twitter” or “Facebook”! We’ve just seen in Egypt what can happen apparently spontaneously when the public decide that enough is enough. So all that we can be certain of is that if another price rise sparks another mass protest, forecourt traders will be the among the very first to know about it.

HMRC to clamp down on poor financial records.

According to the independent Forum of Private Business, HMRC are planning to clamp down on businesses where they believe that ‘significant record keeping failures’ are contributing to late and/or underpaid tax; this renewed attention to paperwork is believed to be coming in the next few months, and those businesses where the basic records are considered insufficient could face fines of up to £3,000 even before any additional tax is calculated.

That doesn’t just mean ‘accounts’.

As we hinted above, some business operators take the view that once they’ve passed their cardboard box full of odd bits of paper to their accountant, and received back a much-tidier box with a set of accounts some time later, that’s all there is to it. Unfortunately that’s not quite the end of the story: the accounts you receive back are only as reliable as the paperwork you provided. If you receive a visit from anyone at HMRC they will want to look at those underlying documents to ‘prove’ the accounts – in other words they’ll try to follow what’s called an ‘audit trail’ back from the finished accounts all the way to your original purchase invoices and cheque payments, for example. If you’ve managed to lose any of the paperwork, the trail is incomplete and you’ll be responsible for proving that your accounts are accurate. And it’s extremely unlikely that your accountant will have made copies of anything other than major contracts, lease agreements or items relating to the very largest/most unusual transactions – it’s just not practical for them to do so.

So what do you need to keep?

The basic answer is ‘everything’: Purchase Invoices; petty cash vouchers; sales records [we’d actually go as far as recommending that you keep your POS sales print-out’s, the “monthly Z” should be enough]; bank statements and cheque book stubs; and of course your payroll records. Add to that any new contracts, lease agreements and any correspondence with HMRC relevant to that particular accounting period.

And keep all this for how long?

The really safe answer is ‘for as long as you’re in business and then add about ten years after you finish’! Now that may not be the answer you really want to hear, and there is a second-best answer that should still keep you safe: all sales, purchase and payroll paperwork should be kept safe for six years from the end of the financial ‘year’ to which they relate. Bank statements and chequebook stubs are better kept for ten years. So if you had accounts produced to say, 31st December 2005, you should still be able to locate the underlying paperwork for them at least up to the end of this year.

The paperless office.

Not entirely paperless, but certainly some business operators are quite happy to point out that while they keep purchase and expense invoices on file, all the sales records are kept electronically, either on the POS or Back-Office System; likewise they don’t have paper bank statements any more, since they bank on line. Stop there. Have you changed either POS or BOS in the last six years? Are you likely to change either in the next six? Have you suffered any equipment ‘crash’ in recent years, and if so, had you made a back up beforehand so that all historic data could be recovered? Leaving back-up’s and system integrity aside for a minute, consider the pace of technological change in the IT world: today most data is backed-up onto optical media such as CD-Rom or DVD-Rom; not so many years ago it would have been floppy discs of one format or another. Look forwards six years and will your IT equipment in 2017 be able to read anything that you’ve saved now? The only safe option is to periodically printout your data and keep it with the other paperwork. Incidentally, using ‘memory sticks’ or other ‘flash memory’ cards for permanent storage isn’t considered very safe practice – they’re easy enough to lose anyway, add to that the very real possibility of magnetic or electrostatic interference corrupting or completely wiping the data.

Online bank statements.

While there isn’t a definitive requirement to keep bank statements for longer than six years, most prudent advice is to keep these for at least ten years. Today many businesses use on-line banking and often this means that they’ve stopped receiving regular paper statements – particularly where the bank have suggested that this may save on charges for business accounts. And yet we keep coming back to the fact that if your business is subject to any kind of accounting or tax ‘review’ by the authorities, one of the first and most important documents they’ll ask to see are your bank statements. Rather like the ‘technology’ issues above, consider: have you changed banks in the last few years, or are you likely to change in the future? If so, how will you access historic bank statements if you’re no longer a customer? How much will your ex-bank charge for producing statements from four or five years earlier, and how long will it take? There’s nothing to stop you printing-off your own statements on a weekly or monthly basis, but just be aware that some financial institutions don’t accept self-printed bank statements; that could be an issue if you’re applying for finance from a source other than your existing bank.

Keeping paperwork may be the least exiting subject in business, but a few common sense day-to-day routines implemented now may save you [and your accountant] a big headache tomorrow.

VAT [Again]

It appears from numerous reports in the business media that many small business operators are labouring under the impression that this month’s VAT increase will result in an adverse effect on their cash flow. Now there may be lots of reasons for worrying about the effects of the increase – particularly on sales – but cash flow itself shouldn’t be one of them. In fact, if your sales and purchase volumes stay reasonably steady, then your cash flow should improve, at least temporarily. The reason is simple: VAT is a tax that you collect on behalf of HMRC, and keep in your business bank account to the end of your VAT Quarter. You then have another month before you have to pay it over to Revenue & Customs; so the ‘extra’ tax is actually sitting in your bank account for quite some time before it goes to the government. Admittedly there are some scenarios in which the VAT increase might cause a cash-flow problem: if you’re in a situation where you have to buy a lot more new stock than you sell over the same period, you’ll be paying your suppliers invoices with VAT at the higher rate before you are able to recover it from your customers or HMRC. Similarly, if you’ve just started a major capital investment – say a shop rebuild – then unfortunately again you’ll be paying the higher rate of VAT to your contractor straight away, and if any refund is due from HMRC you’ll have to wait until the end of the VAT quarter to receive it. However for most traders the only impact that they should be concerned about is the effect on sales volumes, and that is almost certainly going to be rather short-term – after all, there’s a limit to how long customers can delay buying fuel after any increase.

Credit Cards, Bank Charges, and pump prices.

As far as fuel retailing is concerned, one very unwelcome effect of the VAT increase [~ 2.5 ppl before any duty increases] is that yet again we see pump prices rising without any extra income for the retailer; as usual this will push-up cash handling, banking and credit card charges while the retailer’s gross margin per litre stays the same. For a site pumping [say-] 5 million litres a year, of which 40% is on credit /fuel cards, and with a typical merchant fee rate of 1.75%, the additional cost of the VAT increase alone will be around £900 per year, before any further ‘turnover-related’ bank charges. Of course, many forecourt retailers will not be paying the extra cost directly – the oil company may pick up that bill in the first instance – but rest assured that the additional cost will eventually come home, whether through reduced dealer-margins, operator-commissions or support payments. Given that petrol [as opposed to DERV] prices were reported as hitting record highs during the early part of December, which was before any VAT or Duty increase, the real cost of turnover-related cash handling charges and credit card merchant fees looks like taking an even more steep hike upwards during the early part of 2011. After decades of experiencing these automatic cost increases with every enforced hike in fuel prices, it’s still amazing that the petrol retail industry has never taken a united stand and passed the true cost of credit cards onto the users. But perhaps this problem may have a ‘natural end’ on the horizon..

Debit Cards Win, Cash and Credit Cards lose.

Without anyone really making a big noise about it, a particular milestone in UK retailing was confirmed towards the end of 2010: spending on Debit Cards finally overtook cash transactions as the most common method of payment in the UK. The historic milestone was actually passed during last August’s Bank Holiday, when cumulative spending by Debit Card during the year reached £272 Billion against £ 269 Billion for cash. Perhaps the most optimistic news though, is that UK consumers appear to be finally beating our collective addiction to Credit Cards: in the third quarter of 2010 debit cards were apparently used three times more often than credit cards, with spending on debit cards growing at 10% above the value from a year earlier, while spending on Credit Cards increased by only around 2%, which is significantly below the rate of inflation. The trend should be particularly encouraged on the forecourt, although no doubt the banks will notice in due course and start raising debit card transaction fees; at least these fees aren’t related to the actual value of each transaction and so remain unaffected by externally-imposed fuel price rises.

Business Advice – from the ‘other half’!

According to a recent survey of small business owners by T-Mobile [- why?], 51% of small/medium business owners would turn to their spouse/life-partner for ‘frank’ and ‘straightforward’ business advice when they were worried, as against 22% who’d ask their accountant, 3% who’d ask other local business operators or trade associations, and 2% who’d turn to their bank manager. Perhaps even more worryingly, those were the national averages: in the North of England the results were more extreme [58% asking the ‘other half’ as opposed to only 16% asking their accountant and 1% their bank manager]. Now as accountants we obviously have to declare an interest here, but if these figures are truly representative of small businesses in general then it explains a great many case histories to which any finance-professional will relate, especially after a few ‘refreshments’. Granted, some of these ‘significant others’ may indeed be experienced in financial matters, but in many instances the professionals are called in for help and advice far too late: often the important financial decisions and commitments have already been made by the business owners and all the accountants can do is to explain the consequences and try to minimise the fall-out. So, by all means discuss business problems with the ‘other half’ – they usually have a very big stake in the business after all – but please, don’t be afraid to talk to your accountant before you make any long-term decisions!

So on with the figures. Twelve months ago, with the then national average at £5.90/hour, our historic data trend analysis predicted a national rate for this year of £6.13 per hour. Well, we weren’t far off; the actual figure for September 2010 was:

• UK National Average Rate September 2010 = £6.04 per hour.
• Increase on 2009 = 2.4%

While that national average across the UK didn’t really come as a big surprise, there was a lot of movement between different regions of the country – and some of that movement was quite unpredictable:

↑ Midlands £6.31/hr– up from £5.90 last year with an extremely surprising increase of 6.9% to become the top-paying region for the first time since we started compiling these reports. The one constant with last year’s result in this region was that it again had the highest individual site-rate in the country at £7.74/hr.

↑ North of England* £6.11/hr – a region that saw another above-average increase of pay [by 3.0% from £5.93] to move up to second place in the pay-league this year.

↓ South West England £6.08/hr – this had been the top-paying region for the last couple of years, although it only recorded a tiny increase of 0.8% this year [from £6.03 a year ago] and has now been overtaken in the league.

↑ South East England £6.05/hr – Historically a region that has featured in the top three more often than not over the years, but fell to sixth place last year. Our recorded wage rate here went up by 2.4% from £5.91/hour last year.

↑ Greater London £6.04/hr – Over the last thirteen years this region had rarely been out of the top three, and often top, until the shock result in 2009 which had recorded a fall of 1.5% that year and put it close to the bottom of the league. Since then we’ve seen a 3.2% increase to bring it back to mid-table, and pay rates here are now bang in line with the national average.

↑ North West England £6.01/hr – a 2.9% increase on last year’s rate [£5.84] sees this region climb into mid-table.

↑ Scotland £5.97/hr – had been bottom of the league in 2009, but a 2.6% increase [from £5.82] has pushed it higher this year.

↓ Eastern England £5.94/hr – once a regular amongst the top three paying areas, falls in successive years make those days seem long-gone. There was a slight increase recorded here [up 0.3% on £5.92] but in relative terms this region has now slipped into the bottom three.

↓ Wales £5.87/hr – one of the two regions this year to record an actual fall in rates, the (1.3%) fall [from 2009’s £5.95/hr] has put pay here back to near the bottom of the league, which is in line with our historic results. Last-year’s joint-second-top finish now looks like it was a bit of a fluke result!

↔ Northern Ireland £5.84/hr – as in Wales, so here we saw a fall of (1.8%) which again makes last-year’s joint-second place seem like a one-off.

*Incidentally, we have had to merge the former “North” and “North East” regions of England this year for technical reasons.

These detailed results were indeed less expected than the national headline figures: what we seem to be seeing is an overall flattening-out of pay rates; the gap between top and bottom regions is less than 50p /hour, which is again amongst the narrowest ranges we’ve recorded. Even the spread between the highest- and lowest-paying individual sites [within each region] is now much tighter than before.

It’s tempting to speculate as to why this may be happening, but one possible factor is that multi-site operators now run so many forecourts; most such operators will tend to set a ‘standard’ pay rate across all of the sites in their network rather than have different pay rates in each location – especially important when they often wish to move staff between sites to cover for holidays and sickness absence. Also, in a market with relatively few individual operators, many of them working within oil company owned networks, is there a tendency to see ‘the competition’ for staff coming not from the next similar forecourt a mile or two away, but from the nearest hypermarket maybe four or five miles away?

National Minimum Wage Rate from 1st October 2010

Just a reminder that the NMWR increased slightly on 1st October 2010 [i.e. just a few weeks after these figures were compiled] to:
£5.93 per hour for employees 21 years of age and over [up from £5.80]
£4.92 per hour for employees between 18 and 21 years of age [up from £4.83]
£3.64 per hour for employees 16 and 17 years of age [up fro£3.57]

Here’s our one annual attempt at predicting the future: the mathematical trend from our last thirteen years’ published data suggests a rate of £6.30/hr by this time next year –although since the ‘trend’ is rather weighted by the higher increases recorded during the earlier years of the series, the prediction already looks to be too high for the current economic climate!

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