Many community shops have had to make numerous adjustments to their modus operandi since the start of the Covid 19 pandemic. Plunkett Advisor Andrew Purdy looks at how the Plunkett Hopkins Community Scheme has been able to help a Norfolk community shop.
As the lockdown eases, I have been asked to help a shop committee to ensure that the measures they want to take for the future of the shop are correctly implemented. While the shop has been running for several years, 2020 has been a year like no other and it has prompted a review of the way that the shop is managed. The scenario is one that I guess many community shops will recognise. Hitherto the shop has been run entirely by volunteers, mostly older, retired people, many of who were shielding or otherwise isolating during the Covid-19 lockdown. So, younger volunteers stepped into the breach, but they have now gone back to work, leaving a void to be filled.
During the lockdown takings soared as many new customers discovered the shop. So, the shop now has a much healthier bank balance and the committee has asked for advice on the idea of employing a paid manager for the shop. In response, I gave the committee two questions to answer: about the employment status of the manager and about the affordability of employing someone.
The plan was to engage someone as a self-employed contractor in order to keep things simple and avoid the hassle of running a payroll. However, HMRC has firm rules on employment status. For questions like this the first place to look for answers is always the HMRC website. In this instance, the search term is “employment status”, which leads to guidance on being employed or self-employed for tax and NI.
If you answer yes to questions like: do you have to do the work yourself? Or are you told when and where to do the work or what to do? Do you have to work a set number of hours? Are you paid a regular wage or salary? Then you are employed. However, if you answer yes to questions like: can you hire someone to do the work or take on helps at your own expense? Can you decide where to provide the services of the job, when to work and what to do? Do you risk your own money? Do you have to correct unsatisfactory work in your own time and at your own expense? Then you are likely to be self-employed. Each business has to decide for itself whether a worker is employed or self-employed. However, if HMRC decides the wrong choice has been made, they can charge the business for NI and PAYE that should have been paid, even if it was not collected. I once had a client who refused to take workers onto the payroll despite my strong advice to do so. Eventually, HMRC caught up with the business and sent a bill for over £9K of unpaid Income Tax and NI Contributions. Remember that as well as collecting PAYE and NI contributions, the employer is now also required to set up an auto-enrolment pension scheme, and enrol any employees who qualify.
The subject of costs brings me onto the second question, can the business afford to take someone on? Or, put it another way, while the shop made a healthy surplus during the pandemic how long will this level of trade continue? For most small businesses a formal business plan is only produced when the business first starts and is largely designed to attract investors. However, it should really be a live, working document that is regularly updated. The most important section of the business plan is the cash flow forecast.
I tasked the committee to prepare a cash flow forecast showing the monthly income and expenditure for at least three years. The start point is the best guess of income and expenditure over the period. This determines whether the shop will still make a profit when the cost of the paid manager is included. Then you say “what if”: what if income is higher and costs are lower and what if the income is lower and the costs higher? This can be done simply by increasing one side by a factor, say 10%, and reducing the other by the same factor. This gives best case and worst-case figures. You can also just reduce the income until it just covers the costs in order to see what level of sales is required to break even. If the modelling shows that the shop will still make a profit in the worst-case scenario then go ahead with confidence and hire the manager.
