Finance: Understand how to check your charges

Although it is more than 200 years since the American statesman Benjamin Franklin declared there were just two certainties in life, death and taxes, the sentiment holds true today.

However, there is a significant uncertainty about taxes these days - particularly relating to whether you are paying the correct amount, given the recent news that some 4.3 million people have overpaid by £1.8 billion, and an assessment by a leading firm of chartered surveyors finding that 3 per cent of all rates bills are incorrect.

No one ever wants to pay a penny more tax than their due, but the complexities of the tax system can leave people confused about what they should pay and when.

ZERO RATED FOR VAT

A nursery is liable for three main charges - business rates, corporation tax on profits and VAT. Help is at hand to assist nursery owners work out whether what they are being charged is fair and correct. Apart from consulting specialist tax accountants, there are business organisations and support services such as the Federation of Small Businesses and Business Link, as well as membership bodies such as the National Day Nurseries Association and sector specific training courses.

The NDNA is calling for the whole of the nursery sector to be zero-rated for VAT purposes. It believes the increase at the beginning of this year to 20 per cent has impacted on the sector's ability to invest, as, for example, it will make large capital expenditure such as expansion more expensive. Research undertaken with NDNA members this spring found this was seen as a major challenge by the sector.

'Applying a zero-rated status would not be a complicated or difficult change to implement,' says Claire Schofield, NDNA director of Membership, Policy and Communications. 'It could be made without major funding commitments and will ultimately help keep fees more affordable for parents. At the moment, what happens is that the nursery has to absorb all the VAT and can't offset it. But if the nursery could off-set the VAT, it would bring down their costs and therefore bring down the fees.'

She adds, 'Given the state of the economy, with rising inflation and the pressure that is putting on families, zero-rating would be a really positive step.'

TAX DIFFERENCES

However, Calvin Hanks, quality director of Acorn Childcare Training, argues that zero-rating nurseries for VAT would have limited impact on their costs.

'By far the largest proportion of a childcare setting's cost is staff and thus salaries, which do not attract VAT. Food (except luxury items such as ice cream) does not incur VAT, which leaves training, materials and other services and direct costs as the only ones on which VAT may be incurred.

'While I don't doubt that being able to reclaim any VAT paid on these costs will help settings, it will only be a limited saving, and the Government will also need to weigh up the cost of implementation of such a scheme against any potential savings.'

Mr Hanks' company offers sector specific courses on all aspects of finance, especially tax. He says, 'Learners on our range of business skills courses, including many with responsibility for setting finances, are often confused, hence the demand for our courses on running a limited company, understanding finances for the non-financial manager and budgeting.

'People sometimes do not seem to understand the difference between their income tax and the tax on the profits of their company and the fact that if you spend money during the year on training and development, that can be offset against your profits.'

Mr Hanks stresses that even if you are a sole proprietor, you and your business are separate entities for accounting purposes. It gets more complicated if you set up as a limited company, and while there is no reason why a nursery owner or manager should not handle their own tax affairs, it is important to get the right advice from an accountant who understands VAT and compliance, and corporation tax returns.

BUSINESS RATE RELIEF

In some parts of the country, nurseries have faced significant increases in business rates. Even nurseries in 'areas of disadvantage' have experienced quite steep rises.

Ms Schofield says, 'At a time when many nurseries are struggling to keep childcare affordable for parents and meet the demand for higher salaries, these increases could seriously impact on the viability of the sector.'

She argues that nurseries should not be categorised as private businesses on a par with shops and offices, as they deliver vital services for children, their families and the community. Government funding streams, such as the free nursery education entitlement and childcare tax credit, restrict the amount nurseries can charge parents, while their ability to trade is constrained by stringent staffing ratios and space requirements. Giving children an increased amount of space can mean nurseries pay more in business rates.

There is a system of business rates relief in Wales for small childcare businesses. Meanwhile, following the recent round of rating revaluations, some settings have taken action and with the help of specialist companies such as Chartered Surveyors Storeys:SSP, they have successfully appealed (see box opposite).

'We currently act on behalf of over a hundred day nurseries,' says Ken Williams from Storeys' Rating Services team. 'From my own personal experience of nurseries in north Wales in the summer, I achieved reductions on 80 per cent of the properties appealed, with average yearly savings being £2,262 per property.

'Rating bills are generally correctly calculated, but there are occasional mistakes made which can be identified by the trained practitioner. We always check our clients' bills if they request that we do so and this has resulted in some quite large savings, which can make all the difference to a nursery's prosperity.'

THE VALUE OF ADVICE

Beverley Sykes, proprietor of Wonderland Nursery in Barnsley, has two settings - a 48-place nursery in a converted mid-Victorian villa and a 46-place nursery in a 1980s building.

'When you own a nursery, you get many cold calls about one thing or another,' she says. 'We used to get a great lot from people saying they could get us a reduction in our business rates, but there was not much to go on.

'NDNA put me in touch with Storeys: SSP. A surveyor came and measured up and looked at my two nurseries. The calculations take into account the space you have. They managed to get me a reduction of £2,148 on my larger nursery and £482 on the other setting.

'I am pleased with the outcome. They charged me a fee of £462, but it was well worth it. I got some money back as a rebate and the rest is coming back by way of reduced charges. It is a great saving to achieve. While we have been doing fine and have kept our occupancy levels up, every bit helps.'

Ken Williams of Storeys says, 'A rating valuation may appear complex, but in reality it is simply a calculation based on the estimated rental value of the premises at 1 April 2008, taking into account the physical circumstances of the property from 1 April 2010.

'For many types of properties such as shops, offices or industrial units, it is a straightforward process, as most of these types are subject to open market rents that can be analysed and reduced to a pounds-per-square-metre basis.

'With properties such as day nurseries, where a large percentage of the properties are owner-occupied, it is a more difficult process. The basis will be established by the limited rental evidence available and other factors such as the number of registered child places, quality and location of building. This lack of rental evidence does sometimes allow more opportunity to negotiate and reduce assessments.'

Training courses www.childcaretraining.co.uk

Business Link www.businesslink.gov.uk

Federation of Small Businesses www.fsb.org.uk

Storeys: SSP www.storeys-ssp.co.uk