Accounting and tax tips for motor repair businesses

Quoting and estimating 

Initially, customers will most likely first approach vehicle mechanics looking for a quote to find out how much the work will cost. When it comes to quotes, you need to calculate the cost of a job and apply your profit margin. This ensures your business is running at a profit. 

Total job cost = material cost + labour cost + overhead cost 

Businesses have to pay overhead costs as part of their operations. They include utility and other administrations costs. 

Calculating overhead costs per labour hour is calculated as total overhead costs per year divided by number of employee hours per year. 

Setting reminders to follow up with customers on quotes is important. You are more likely to book in a vehicle if you contact potential customers. Using digital accounting software to prepare quotes will allow you to review the quotes that have not turned into sales. 

Embracing digital accounting 

Making Tax Digital for VAT (MTD for VAT) requires VAT registered businesses to maintain digital records and submit returns using approved software. 

MTD for Income Tax Self-Assessment (MTD for ITSA) will be introduced in stages from April 2026. Preparing for these changes involves adopting digital record-keeping practices and ensuring software compatibility to facilitate seamless transitions. 

MTD for Corporation Tax and Business Partnerships is likely to be introduced in the future but no plans have been announced. 

Digital accounting software can incorporate various add-ins to add extra value to your business so explore your options and discuss these with your accountant. 

Cashflow management and invoicing 

Monitoring cashflow 

All businesses must monitor whether at the end of the month you have enough cash to pay your bills and salary costs. Being able to meet these costs means your business can continue to run. Without the cash it is likely your business will struggle. Managing your cashflow protects your business and helps you navigate time of uncertainty. 

Credit Control 

Effective credit control is crucial for maintaining healthy cash flow. While some find chasing for money difficult, reminding customers of overdue invoices is important. 

Automated reminders help ensure that the payment is received sooner. Digital accounting software can send out regular email reminders without you needing to do a thing. 

Developing strong relationships with important customers will make it easier to talk to them about late payments. You can find more tips on managing late payments here. 

Invoicing 

Businesses should establish clear credit terms and show these on invoices, so customers are aware of the terms. Our article gives you more information on what an invoice should include here. Digital accounting software has invoice templates included and are editable to include your logo and adjust other fields. 

Understanding VAT (Value Added Tax) 

VAT registration and compliance 

Businesses must register for VAT if their taxable turnover exceeds £90,000. Registration is essential to comply with regulations and avoid penalties. Registered businesses must keep accurate records and file VAT returns as required, usually each quarter. 

VAT rates 

The standard VAT rate in the UK is 20%, this means that if you are VAT registered you will need to add 20% onto your costs. Motor vehicle repairers must apply VAT correctly to repairs, servicing and MOTs. In particular, the rules for MOTs are slightly complicated. 

• If you are an approved test garage, the recharge of MOTs to customers that do not exceed the statutory minimum, are outside the scope for VAT. This is not the same as the exempt or zero-rated VAT rates. 
• If you are not an approved test garage and send customers vehicles to an approved garage, the VAT treatment will depend on the individual circumstances. You may need to seek professional guidance. 

Effective stock management 

Managing your stock effectively means you are not holding on to items for long periods without using them. As deliveries of items from wholesalers are quick and efficient, it makes sense not to hold too much stock on site. This also manages your risk of theft. 

Valuation of Stock 

Accurate valuation of stock is essential for financial reporting and tax. Regular stocktakes help maintain accurate records and prevent fraud. These checks involve physical verification of inventory and checking this against records. An independent professional or a member of the team can carry out stocktakes. 

Managing your employees 

Payroll 

Accurate payroll management is critical for compliance with PAYE (Pay As You Earn), NICs and pensions. Businesses must ensure timely and correct deductions and payments to HMRC and pension providers. Using payroll software or outsourcing your payroll can help streamline this process. 

Apprenticeships 

Taking on an apprentice means that you are employing someone who is learning while working. This allows you to invest in someone’s future. Apprenticeships must include on the job and off the job training for a period of 12 months of more. Training can be at a college or training provider. 

Protecting you, your customers and your business 

Health and Safety Regulations 

Adhering to health and safety regulations is a legal business requirement. It is also crucial for ensuring the safety and protection of your employees and customers. Proper management ensures a safe working environment and can reduce liability risks. 

Insurance 

Businesses in the motor repair industry should consider the following types of insurance: 

• Public liability insurance (to protect your customers) 
• Employers’ Liability insurance (if you have staff) 
• Motor Trade insurance (for client’s vehicles) 
• Contents insurance (to cover your equipment and tools) 
• Business buildings insurance (if you own your premises) 

How TaxAssist Accountant can help 

Navigating the complex landscape of accounting and tax is vital for the success. Understanding and implementing best practices ensures optimised financial performance. Using an experienced accountant can make a significant difference. Call us today on 0116 303 3794 or use our online contact form. 

Date published 31 May 2024

This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.

---