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  • The tax on interspouse share transfers and other factors to consider

    As a UK small business director shareholder, you may be considering transferring shares to your spouse.  This could be for succession planning, tax efficiency or asset protection. So what are the implications in terms of tax on interspouse share transfers and other factors that you need to know? These are the main areas to consider: Capital gains tax (CGT). Inheritance tax (IHT). Income tax. Company law considerations. Control and voting rights. Capital gains tax (CGT) There is no immediate CGT bill when you transfer shares to or from your spouse. However, you should be aware that any transfer is a taxable event and any latent gains may be assigned to the spouse handing over the shares. Should the new owner sell the shares in future, they may find themselves facing a CGT bill. Inheritance tax (IHT) Transferring shares to a spouse is exempt from inheritance tax. Therefore if the person handing over the shares passes away, the spouse receiving the shares will not have an IHT bill. However, a potential IHT bill could be triggered if your spouse transfers or sells those shares to someone else. Income tax Handing over shares to a spouse generally doesn't have immediate tax consequences and they won't be taxed on the value of shares received.  However, as a shareholder the spouse receiving the shares is likely to have taxation implications if they receive dividends, which will be taxable on the share owner. Company law considerations Before you transfer any shares, we recommend that you review your company Articles of Association (AAs), along with any shareholder's agreements that you have in place. The company AAs may contain rules specific to share transfers that must be complied with. The right paperwork is needed, to evidence any board or other shareholder approvals too. Control and voting rights: impact of Tax on interspouse share transfers is not the only consideration. By becoming a shareholder, or changing your spouse's shareholding in anoy other way; you also could influence their control and votoing rights within your business. Consider carefully any potential consequences on decision-making, management structure and overall company governance. Discussing and finding common ground on these matters will be helpful to ensure continued smooth business operation in future. Other factors to consider, aside from tax on interspouse share transfers There are other factors to consider when transferring shares to or from your spouse, not just the tax aspects: Stamp Duty: There may be a nominal Stamp Duty charge arising from the transfer. This depends on the value of shares being transferred, however the stamp duty liability is generally low or nil for interspouse share transfers. Professional Advice: Advice from a tax advisor or solicitor who has both tax and business expertise, is a good idea. It helps to ensure legal compliance in addition to tax efficiency. Financial Planning: Considering an interspouse share transfer should be a part of a wider financial planning strategy. You should bear in mind longer-term implications, including retirement planning, family wealth management and potential future business plans and changes. If you have any questions, come and talk to us!

  • Is a directors loan tax free?

    If you’re a director then taking out a director's loan against the cash in your limited company might seem like a sensible thing to do.  However, the reality is that overdrawn loans to directors can lead to unintended tax consequences if they’re not properly managed. There are three main impacts: The loan may result in a taxable benefit-in-kind, if it’s interest-free and greater than £10k – affecting your personal tax payable. The company may suffer a Section 455 charge if the loan isn’t cleared within 9 months and a day of the year-end. There’s an income tax (and potentially National Insurance) liability if the loan is written off. In addition to this, if a company goes into liquidation with a director’s loan due to the company, the liquidators can take action against the director to get the loan repaid. This can include taking bankruptcy proceedings against the director concerned. So, how do you ensure you’re on safe, tax-effective ground when taking out a director’s loan? The lowdown on director’s loans What do we mean by a director’s loan account (DLA)? In essence, this loan can be seen as any payment made to you as a director other than payments in respect of: Business expenses Salary Dividends Repayment of amounts owed by the company to the director. It also includes similar payments to close family members. If you owe the company more than £10,000 at any time during the year, even if it’s only for one day, then a taxable benefit potentially arises.  However, if you’ve paid interest on all amounts owed at any time, regardless of amount, and have done so at at least the HMRC minimum rate (currently 2.25% p.a.) then this taxable benefit won’t arise.  It’s normally better for the company to charge interest of at least that minimum rate to prevent the benefit-in-kind charge arising. The DLA ideally should not be overdrawn by any amount on the last day of the company’s accounting period.  If it is overdrawn, unless it’s cleared within 9 months and 1 day a Section 455 charge of 33.75% of the uncleared amount is payable.  If the amount is cleared at a later date, the Section 455 charge is repayable by HMRC 9 months and 1 day after the end of the accounting period in which it’s cleared. Paying back the loan As you can see, this all gets relatively complex to manage.  So, why not pay the loan back just before the period-end and then take out a fresh advance from the company just after? Two anti-avoidance rules kick in here to restrict the above: A. The £5,000 rule – if a repayment of £5k or more is made AND within 30 days of this further advances are taken, the repayment is then offset against the later advance, not the original loan. B. The £15,000 rule – where the amount outstanding is £15,000 or more, and at the time of repayment there was an intention to draw down further sums, the repayment is applied against the subsequent drawdown – this applies even if this takes place more than 30 days ahead. Exception to A and B: If the repayment is from a source that’s subject to tax (generally a dividend or bonus) then it can be offset against the older debt.  So, it’s common to declare a dividend within 9 months and a day after year-end to clear the opening DLA balance and avoid a Section 455 charge, even if other advances had been made. There are other considerations to think about too: If instead of being repaid, the loan is written off, the loan will be taxed in the recipient’s hands as dividend income.  It may also be subject to employee and employer National Insurance as if it were payrolled. Writing off the loan will only be sensible when there aren’t profits available to pay a dividend, or not all shareholders have loans being written off. In some limited circumstances National Insurance may not apply. Where a loan exceeds £10,000 it requires prior shareholder approval. Talk to us about managing your director’s loans Managing your director’s loans in the most tax effective way is a challenge.  As your adviser, we can advise you on the timing of dividend payments to help you eliminate or reduce Section 455 charges.  We’ll also help make sure that your record-keeping for advances to directors is comprehensive enough to withstand HMRC scrutiny – always good practice when entering into a loan of any kind. If you withdraw money from your company other than for salaries or declared dividends, talk to us!

  • Paying dividends: Are you paying them illegally?

    Do you know the rules around dividends? If not, you could be making illegal dividend payments. Talk to us and we’ll help you meet your obligations and get in control of your company finances. #dividends #accounting We all know that dividend payments are a key way to pay yourself and your fellow company shareholders when your business makes a profit. But are you following the right rules when taking out dividends from your company? Dividends can only be declared out of your company’s available undistributed profits, and the correct administrative procedures need to be followed if your dividend payments are going to be legal. If you unknowingly make illegal dividend payments, there can be significant tax and other consequences – even if you were unaware that they were not valid at the time. So, what rules do you need to stick to? And how do you keep your dividends legal? Key things to consider when planning a dividend First, let’s look at the basic underlying principles behind these payments, and also the key considerations to keep an eye on when planning to initiate a dividend payout. If you stick to the right procedures, and keep the right records, there shouldn’t be any issues. Here are some key considerations when planning a dividend payment: Dividends can only be declared out of after-tax profits that are available for distribution to shareholders. Payments made from any other source don’t meet the regulations. It’s possible for some profits to arise in the accounts but these not to be available for dividends. Usually, this is because they are ‘paper’ profits, such as those arising on a revaluation upwards of assets. Until the gain is realised, i.e. the asset is sold, the profit can’t be used to support dividends. Another complication arises because ‘cash’ and ‘reserves’ are measuring different things. It’s quite possible to have more cash in the bank than there are distributable profits – and to therefore pay out a dividend that doesn’t meet the rules. Often, an exact after-tax profit figure will only be calculated at the end of the financial year, but that’s insufficient for declaring dividends during the year. Even if there were reserves at the end of the last year, it doesn’t follow that they haven’t been reduced by subsequent losses in the current year. Ideally, management accounts should be drawn up on a regular (monthly or quarterly) basis during the year. Provided that they’re properly prepared, and allow for relevant accounting adjustments and tax charges, they can form the basis for ensuring that the dividends you’ve declared comply with the letter of the law. To declare dividends legally and properly, you should: Have up-to-date management reports that show your financial position Hold a board meeting to declare the interim dividends that are required Ensure that both the board minutes and dividend certificates are prepared in a timely manner. If dividends are declared illegally (which includes both due to insufficient profits and not following procedures) they can be reversed. This could result in an unexpected overdrawn loan account, with hefty tax and potentially cash flow consequences for the company. If the company goes into liquidation, any illegal dividends paid will be required to be refunded to the company. Talk to us about dividends and setting up regular management reporting Keeping on top of your accounting and management reporting is one important way to ensure that your dividends are legal and being made correctly. We can help prepare management accounts on a regular basis for you, throughout the year. This helps you to meet your obligations when making dividend payments, but also gives you an enhanced financial overview to give you more insight when managing your company and helps you to make more informed decisions, especially when the numbers are brought to life and given context by Director Gayle Parnham, who has more than 20 years experience of various businesses and working out in industry. Get in touch to discuss your dividend plans.

  • 5 ways to overcome economic uncertainty

    We live in uncertain financial times, where running a successful business can be a challenge. We’ve highlighted five strategies that could be adopted to help navigate economic uncertainty. #businessadvice #SmallBusiness #financialmanagement Economic uncertainty is an ongoing worry for any business owner. You can control your own financial management, but you don’t have any direct control over the wider macro-economy. In addition to that, in the first few years of the 2020s, there have certainly been plenty of tricky ups and downs for your business to navigate. Current economic uncertainty stems from a number of factors, including: Fluctuating markets Geopolitical tensions Pandemic recovery The impact of climate change This unpredictability poses significant challenges for sustained growth and stability. So what action can you take? We have compiled a list of some simple steps that you might wish to consider, to react to these challenges. Simple strategies for overcoming the challenges of economic uncertainty It seems obvious, but good financial management is the key to riding any period of economic uncertainty. Why? Well when sales, revenues, supplier prices and operational costs are highly dynamic, it’s good to know that your business has a healthy cash buffer in the bank and a solid financial strategy to stick to. Highly geared, low margin businesses tend to find it more difficult to have cash available to cover the volatility and potential short-term cash fluctuations; so this is especially important for them to plan ahead and prepare where they can. The types of questions we often get asked, include: how do I get tighter control over my business finances? what are the main areas to focus on, track and manage as a business owner or financial director (FD)? Here are five straightforward ways to tackle economic uncertainty: Manage your cashflow effectively – cashflow management is the process of tracking your cash inflows and outflows, identifying potential problems and being proactive about taking action. It’s helped by running regular cashflow forecasts and sticking to budgets. Carry out spend management – spend management involves tracking your expenses and identifying areas where you can cut costs. You do this by switching to more cost effective suppliers, cutting back unnecessary expenses and having tighter approval processes. Negotiate better terms and prices with suppliers – negotiation can help you save money on your raw materials, labour and other important costs. You can also negotiate better payment and credit terms by building trusted relationships with your suppliers. Embrace AI automation to cut costs – artificial intelligence (AI) tools are a great way to automate tasks, such as customer service, billing and inventory management. This frees up time for strategic activities and saves you money on labour costs. Diversify into new products or markets – diversification helps you reduce your dependence on a single product or market, making your business more resilient to economic downturns. It’s important to choose products or markets that are complementary to your existing business, and that have good growth potential. Talk to us about strengthening your financial management With the world in such an unstable state, it’s always difficult to know exactly what lies around the corner for your business. However, it is safe to say that with a robust and agile financial strategy, you’re in a better position to flex your revenue streams and overcome any cashflow pitfalls. As your adviser, we’ll help you get tighter control over your cashflow, budgeting and financial forecasting – giving you the numbers you need to navigate uncertain times.

  • Spring Budget 2023 – was it any good?

    You may be aware that the Chancellor, Jeremy Hunt, delivered his first Spring Budget on 15 March 2023. Compared to the disastrous September 2022 ‘mini budget’, this budget won’t create many ripples in the ponds of business and finance. In fact, by comparison it was a relatively dull affair, with few headline announcements for the average business owner to be concerned about. However, there were some incentives including: capital allowances on equipment investment in research and development (R&D) pensions lifetime and annual allowance increases It is hoped that these measures will help push the economy forwards by increasing the appetite for corporate investment in assets, boosting research and development and hopefully encouraging more senior and experienced members of the UK workforce to stay in their roles and to contribute their valuable skills and expertise. Summary of the main Budget announcements Whereas the primary aim of the Autumn Statement in November 2022 was to address the financial instability caused by the mini budget, this budget was labelled as a ‘budget for growth’. Growth forecast In 2023, it is now predicted that the UK will avoid a technical recession (i.e. two consecutive quarters of declining GDP). Instead, the economy is predicted to virtually flatline, with output shrinking by just 0.2%, compared with the 1.4% shrinkage forecast in November. In future years, growth is now expected to be: 2024 – 1.8% (previously 1.3%) 2025 – 2.5% (2.6%) 2026 – 2.1% (2.7%) 2027 – 1.9% (2.2%) So according to expectations, the outlook is now better short term (i.e. for this year and the next), then falls below the previous forecast for the subsequent two years. Inflation (10.7% at the end of 2022) is predicted to be down to 2.9% by the end of 2023. This doesn’t mean prices are coming down of course, as it’s 2.9% on top of the current 10.7%. Main tax measures Getting back to a more-normal cycle, most tax measures are announced in the Autumn Statement, so there wasn't much tax-specific news from the Chancellor. The key tax news takeaways were: Fuel - duty Fuel duty will be frozen at current rates for a further 12 months, until April 2024. Pension contributions - The maximum annual contribution an individual can make into a pension scheme with tax relief will increase from £40,000 to £60,000 from 2023 (an opportunity for OMBs with surplus profits looking for ways to mitigate the new 25% corporation tax rate from 1 April 2023). Pension Lifetime Allowance - Currently there are tax charges where the value of an individual’s pension pot exceeds £1,073,100. That has now been scrapped, allowing individuals to accumulate unlimited pension funds. Capital Allowances - For the next three years, the Government is introducing ‘full expensing’ where expenditure on most new plant and equipment will be deductible in full in the year of acquisition. 50% will also be deductible on ‘Special Rate’ assets such as cars with emissions above 50g/km. The intention is to make this change permanent to boost inward investment by UK companies. Alcohol duty - The duty charged on draught beer and cider will be cut from August 2023 in what was optimistically called a ‘Brexit Pubs Guarantee’. Research & Development - The proposed change restricting the inclusion in claims of some activities carried out outside of the UK has been deferred for a year. Enhanced payable tax credits will be available to SMEs where 40% or more of their expenses are for R&D. Other measures New announcements were thin on the ground in the Spring Budget, but there were some measures that will be of note for consumers and business owners. Energy price guarantee - The existing annual cap of £2,500 for energy costs for a ‘typical household’ will remain at that level until July 2023. It was expected to rise to £3,000 from April. The additional charges currently levied on people who use prepayment meters will be abolished. Childcare - There have been several changes to childcare support. Currently, working parents with children three to four years old can claim free childcare of 15-30 hours per week during term time. From April 2024, that will be extended to include 15 hours per week for 2-year olds, from September 2024 that will be extended to children as young as nine months, and from September 2025 the hours for all children will be raised to 30 hours per week. Funding will also be made available to allow all schools to offer pre- and post- school hours care by September 2026. Investment zones - 12 new investment zones will be created across the UK where funding will be available in designated areas where schemes are developed to foster innovative businesses in cooperation with local authorities and academic institutions. Concerns have been raised from environmental and human rights groups regarding the deregulation of these zones. Defence spending - Spending on defence will be increased by £11 billion over the next five years, reaching 2.25% of GDP, with an aspiration to increase to 2.5% of GDP at an appropriate point in time. Leisure centres - Funding will be made available to help local authorities cope with the additional energy costs of heating public swimming pools. Levelling up - The Government intends to disband Local Enterprise Partnerships and hand their funding and responsibilities to local authorities. Levelling up partnerships will provide £400 million for various levelling up partnerships across the country, an additional £200 million will be made available to fix potholes, and £360 million will be allocated towards regeneration projects across the country. Energy Security - A new body, 'Great British Nuclear', has been launched to identify sites and develop supply chains for nuclear plants. The intention is for nuclear sources to provide 25% of the UK’s energy needs by 2050. Suitable players are being invited to submit proposals for Small Modular Reactors, the development of which, if found to be viable, will be co-funded by the government. This announcement is likely to come under fire from environmental groups who want the Government to invest in renewable energies. Encouraging investment - To encourage investment in the development of medicines and medical devices, a new regulator will be established to give swift approval to items developed. Meanwhile, more-rapid (almost automatic) approval will be allowed of medicines for use in the UK which have already been approved in certain other trusted regulators such as the US and Europe. Funding will also be made available for development of artificial intelligence capabilities and quantum computers. Rules regarding pension funds will be relaxed to allow them to invest in these and other more risky areas than they currently support. Talk to us about your concerns following the Spring Budget In comparison to the fallout from Kwarteng’s economy-crashing mini budget, the Spring Budget has been a sedate affair. There are policies here aimed at growth of UK industry and pushing the economy in a direction that keeps the country out of recession. However, there’s no escaping the current state of the UK economy and the challenges faced by small businesses. As a business owner, you may well be facing the hurdles of high prices and utility bills, poor supply chains and a prolonged talent shortage. If you have any worries or concerns following the Spring Budget, please do contact us to arrange a chat. We’ll be happy to talk you through the main business measures.

  • New UK corporation tax rates from April 2023

    Did you know that the UK corporation tax rates are changed from April 2023? From 1 April 2023, the rate of corporation tax changes from 19% to a variable rate between 19% to 25%, depending on the profits made by your business.This could mean a change to what you will owe in tax for the 2023/24 tax year, compared to what you might be expecting to pay. What are the main changes to corporation tax? Prior to the change, corporation tax (CT) is charged at 19% for most companies. The only exceptions are companies in specific sectors like banking, oil, gas and life insurance. From 1st April 2023 the rate of tax changes: The rate remains at 19% for companies with profits below a lower threshold The rate increases to 25% for companies with profits above an upper threshold A tapered rate for profits in between is introduced The thresholds will work as follows: The lower threshold is £50,000 divided by the number of companies that are deemed to be associated with each other The upper threshold is £250,000 divided by the number of associates Below the lower, £50,000 threshold, the tax rate is simply calculated at 19%. Above that, it’s calculated at 25% But if the upper threshold is not breached, then marginal relief is applied, which has the effect of increasing the average rate from 19% up to 25%, as your profits increase The bands are also reduced on a pro rata basis if the accounting period is less than 12 months How will this actually work in practice? So, what does this mean for your CT bill? If you have no associated companies*, then where your profits are below £50,000, your tax will continue to be paid at 19%. If your profits exceed £250,000, your tax rate will be 25% – meaning a significant jump in what you lose to tax. In between these two points, tax will be calculated at 25%, then marginal relief will be calculated by using the formula (U-A) x N/A x F where: U is the applicable upper tax threshold A is augmented profits N is total taxable profits, and F is a standard fraction of 3/200 Presuming A = N = £100,000 (i.e. the company hasn't received any exempt dividends), then the initial tax calculation at 25% gives a maximum tax charge of £25,000. However, the marginal relief is (250,000 – 100,000) x 1 x 3/200 = £2,250, and therefore the tax actually payable is £25,000 - £2,250 = £22,750. Remember this assumes a full 12 months accounting period and that there are no associated companies. If there was an associated company (therefore two in total) then U would be £125,000 (because the upper threshold is effectively halved) and the marginal relief would only be £375, leaving tax due at £24,625. * In broad terms, a company is an associate of another company if one of the companies has control over the other. Alternatively if both are under the control of the same person or persons, then the two companies will be associated with each other. This includes non-UK resident companies but excludes dormant and some ‘passive’ entities. ** Augmented Profits are Taxable Total Profits plus exempt dividends received from non-group companies. Talk to us about planning for these CT changes Any change to your CT liabilities can have a significant effect on your financial position. It’s sensible to talk to your advisers as soon as possible to work through your planning options. Where we can help: We can help you establish the number of associated companies to be taken into consideration We are also able to factor the tax changes into your corporation tax provision, so you are more prepared for the impact on your profits after tax In due course, we’ll calculate the tax due after any marginal relief as part of your corporation tax calculation and also complete your corporation tax return with the relevant figures Finally, if you have associated companies with very different profit profiles, it is worth considering merging some of them to reduce the overall tax charge. There are a number of steps involved, as a merger will have implications for accounting, a valuation may be required, there are usually tax issues to consider and other issues (e.g. TUPE if the companies involved in the merger have staff) and so it is very important to ensure that you plan ahead, before embarking on a merger. Get in touch to talk to us if you would have any questions or if you are considering the impact of the new corporation tax rates and thresholds on your business.

  • Back to Tax Basics: How capital allowances reduce your tax bill

    Generally speaking, the business expenses you incur are allowable against your profits. But, when it comes to fixed asset purchases (things like machinery, equipment or vehicles that typically last a few years), these purchases are treated slightly differently. To reduce your tax bill when purchasing fixed assets, it is important to know what capital allowances are available and how you can use them effectively to enhance your tax planning. This is especially important, as some reliefs are only available on a temporary basis, such as the Super Deduction Scheme (SDS). What are capital allowances? Fixed assets are classed as items of equipment that will be used in the business for more than a year. Some common examples of fixed assets used within a business include – office furniture, machinery (e.g. a bottling machine in a milk processing plant, or a printer used by a printing business) and company vehicles such as company cars and vans. For accounting purposes, the cost of these fixed assets is spread over the expected life by calculating something called a depreciation charge each year. In other words, the value the item will lose over this time. However, from a tax perspective, the value lost by a fixed asset during the course of a year is ignored and something called a capital allowance can be claimed instead. In practice this means: For tax purposes, the depreciation is added back (or disallowed) and ‘writing down allowances’ are claimed instead There is a more generous Annual Investment Allowance (AIA), temporarily increased from £200,000 to £1,000,000 for qualifying expenditure on plant and machinery incurred during the period from 1 January 2022 to 31 March 2023. The cost of most asset purchases up to that total can be claimed in full, in the year of purchase. The main exceptions are cars and items you owned for another reason before putting them into the business. For some assets, 100% First Year Allowances (FYA) are available. These include: New vehicles with Nil CO2 emissions Specified energy-saving equipment Specified water-saving equipment For everything else you might purchase as a fixed asset, the costs are allocated into various pools depending on the type of asset, and Writing Down Allowances (WDA) calculated on the pool value on a reducing balance basis. These include: Special Rate Pool 6% rate – Cars (new or used) with CO2 emissions > 50 g/km, Integral fittings incorporated into commercial buildings (lifts, electrical and water reticulation, air conditioning, heating equipment), long-life (>25 years when new) items over £100K annual spend. Long-life excludes structures and buildings. Main Rate Pool 18% rate – everything else. Note as specifics this includes cars with CO2 emissions >0 and <50 g/km. Structures and Buildings Allowance (SBA) – the SBA offers a 3% flat rate for 33.33 years on non-residential buildings only, but not on land. What is the super-deduction capital allowance? The Super Deduction Scheme (SDS) was announced in Spring Budget 2021, with the aim of encouraging UK companies to invest in fixed assets, growth and the recovery of the business economy. The SDS is the single biggest tax incentive any UK government has ever given for business investment into qualifying assets and equipment. If you are looking to purchase plant machinery, vehicles, office equipment, solar panels or other assets or equipment that qualify for the SDS, then this is definitely a scheme worth taking advantage of. The SDS offers a substantial capital allowance to incorporated businesses on any qualifying assets, reducing the companies corporation tax bill, which in turn frees up cash to re-invest back into the business to support future growth. NOTE: The SDS only applies to UK limited companies, not to unincorporated businesses such as self-employed businesses or sole traders. From April 2021 to March 2022 the allowances have been increased as follows: Most items which would have qualified for AIA or for inclusion in the main rate pool will attract a FYA of 130%. Items that are included in the Special Rate Pool will be eligible for a FYA of 50%. Both FYA 130% and 50% exclude cars, equipment purchased to lease out, second hand items, purchases contracted for before 03 March 2021. *ALERT* The SDS will no longer be available for expenditure on or after 1 April 2023. Transitional rules will apply in respect of expenditure for businesses with accounting year ends that do not fall on 31 March. Talk to us about making use of capital allowances If you’re thinking of purchasing capital equipment, it is worth being aware that in some cases, the tax benefit can be spread over a number of years. With the temporarily enhanced deductibility, this will have a positive short-term impact on both your tax charges and your cashflow. We can advise you on the tax treatment of different types of assets and, if external funding is required, can help you prepare business plans and finance applications. Get in touch talk through your capital equipment plans.

  • Making Tax Digital for Income Tax Self Assessment - pushed to 2026

    Running a self-employed business? Receiving property income as a landlord? This one may have slipped by unnoticed - you not have a bit more time to get up to speed with the Making Tax Digital for Income Tax Self Assessment rules! Whilst this is just a delay, it does give a bit more time to prepare and get your digital solution in place in good time. You might be aware of Making Tax Digital (MTD) already. It’s the UK Government’s initiative for digitising and streamlining the tax return process. VAT-registered businesses are already submitting quarterly VAT returns digitally to HM Revenue & Customs (HMRC). The good news is that HMRC has pushed back the start date of the next stage of MTD – the introduction of Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) MTD for ITSA won’t now become mandatory until 2026 – but the switch to digital records is still needed and is likely to be a BIG change to your record-keeping and your tax return process. So, what do you need to know about MTD for ITSA and digital record-keeping? What were the key changes made to MTD for ITSA in December 2022? MTD for ITSA was due to become mandatory for certain self-assessment taxpayers in April 2024. However, on 19 December 2022, HMRC announced some key changes to the next stage of the MTD initiative, including a postponement of the start date. From 2026, if you’re a self-employed business or a landlord with combined annual business and/or property income above £50,000, you’ll need to follow the rules for MTD for ITSA. These are the main changes that HMRC has made: The minimum relevant (self-employed and rental) income reporting level was increased from £10,000 to £50,000. This now means that self-employed businesses and landlords earning up to £30,000, will no longer need to comply with the rules. However, those with a combined annual business and/or property income of less than £50,000, but more than £30,000, are now mandated to join the MTD for ITSA scheme in 2027 The situation for landlords and sole traders earning less than £30,000 will be reviewed to see if MTD ITSA can be shaped to meet the needs of smaller businesses Partnerships will not be brought into MTD for ITSA, as previously planned, in 2025 The points-based penalty system will be extended to MTD for ITSA filers when they join What does MTD for ITSA mean for affected self-assessment taxpayers? Once MTD for ITSA begins, this will mean that you, or your nominated tax agent, will need to: Keep digital records of all business transactions – HMRC is making it mandatory for self-employed businesses and landlords to keep digital records of all income and expenditure. This means either pulling the data from your business bank account, or scanning and digitising the source documents for all your transactions. Submit quarterly updates to HMRC – you’ll need to categorise all your transactional data to fit HMRC’s basic category codes. This digital data must be collected together every three months and submitted as a quarterly update to HMRC’s digital portal. Submit an annual end-of-period statement – at the end of each tax year, all your transactional data from the year must be summarised in an end-of-period statement (EOPS). At this point, you (or us as your tax adviser) can then make any final adjustments to your income and expenditure, ready to submit your tax return. Finalise your tax return for the year – once all data is submitted and all adjustments have been made, a final tax return can be submitted to HMRC. Your tax liability for the tax year will then be calculated and HMRC will advise you what you owe. Pay any tax due to HMRC – once you know your tax liability for the tax year, you’ll then need to pay any tax due by 31st January of the following year – and make any payments on account at the same time, with a further payment by 31st July, depending on your ongoing tax liabilities. When does MTD for ITSA go live? At present, MTD for ITSA is now scheduled to come into effect from April 2026. That may sound like a long way off, but there’s a lot to prepare, plan for and organise before the 2026 deadline hits. And failing to meet the new rules could end with you facing an HMRC penalty. Getting your systems and processes ready for this big shift in taxation will take time. So, we advise starting the planning process soon, so you’re ahead of the curve and ready to go digital when the MTD for ITSA rules kick in for self-assessment taxpayers. NOTE : From 2026/27 onwards, your profits will always be taxed on a tax-year basis. Where your business year doesn’t end between 31 March 2026 and 5 April 2026, the 2025/26 tax year will be a transitional year, bringing into account all profits up to the end of that year. Talk to us about MTD for ITSA If you’re concerned about the impact of MTD for ITSA, please do get in touch with us. We’ll help you understand the true impact of the legislation and the steps you’ll need to take. Once you’re up and running with digital quarterly returns, there will be plenty of benefits to moving your record-keeping and accounting into the digital space. You’ll have: Better visibility of your income and expenditure Improved control over your business numbers A clearer idea of your tax liabilities for the year Get in touch to get set up for MTD for ITSA.

  • Making company charitable donations: the rules

    Are you donating money or equipment to a charitable cause through your company? Make sure you’re using the right tax treatment and keeping all the correct records. Helping to fund the causes that are close to your heart is one of the positive side effects of running a successful business. But you also need to keep track of what you’re donating, keep HM Revenue & Customs (HMRC) informed and make sure you’re ticking the compliance boxes. Here’s a quick summary of the rules for companies making charitable donations. Be aware that there are a few restrictions you need to be aware of regarding the tax-deductibility of donations to charities and community amateur sports clubs. For cash donations, there’s a limit on the value of anything you get in return – for example, tickets given to any person or company connected with a company, including close relatives For donations up to £1,000, the maximum value of benefit is the lower of 25% and £25 For donations above £1,000 the limit is 5% of the donation, capped at £2,500 With charity sponsorship, the costs are deductible as a normal business expense. For the sponsorship to qualify, the charity must: Publicly support the company's goods or services Allow the company to use their logo in the company’s printed material Permit the company to sell their goods or services at the charity's events or premises Have links from their website to the company's website If you second any of your employees to work for a charity, the costs are deducted as normal business expenses. Donations of equipment previously used in your business should be claimed as capital allowances The maximum amount that can be deducted is sufficient to reduce taxable profits to zero. If the costs are more than that, you can’t declare a trading loss or carry any part of the expenditure forward to claim against future periods If your company is VAT registered, you need to account for VAT on any equipment and other goods that you donate. However, the donation can be zero-rated if it takes the form of items that the charity can sell, hire out or export How can my accountant help me with this? Under normal circumstances, the cost of donations to charities and community amateur sports clubs can be deducted for corporation tax purposes The way in which the cost is reflected in the company’s tax return will differ, depending on the form of the donation being made. Be aware that the total claimed can be restricted if it results in a trading loss, or increases an existing trading loss. Care must also be taken to ensure the correct VAT treatment of items donated. Talk to us about making a charitable donation We can advise on the correct accounting and tax treatment for your charitable donations. We’ll make sure the tax treatment is right and everything is properly reflected in the company records. Call us to talk about any areas of charitable giving that you’re unclear on.

  • 7 Key Impacts of the Autumn Statement 2022 on Businesses

    The Chancellor of the Exchequer, Jeremy Hunt, delivered his Autumn Statement on 17 November 2022. The £30bn cost of his predecessor's catastrophic ‘mini budget’ hung heavily over this financial statement. Mr Hunt’s job was to reinstate confidence in the Government’s fiscal capabilities and to inject some optimism into the global perception of the UK economy. To do this, he needed to deliver a clear strategy for economic success. The elephant in the room, though, is the current challenging economic outlook for the UK. According to the Financial Times, the latest figures from the Office for Budget Responsibility (OBR) show that: Gross domestic product is set to contract by 1.4% in 2023 The UK economy is already in a recession that will last more than a year Output is set to recover to pre-pandemic levels only in the last quarter of 2024. The Autumn Statement focused on ‘stability, growth and public services’. On the whole, big business and the City have cautiously welcomed the key announcements. But, has the Chancellor done enough to support UK enterprise? Key Autumn Statement measures for business owners Here are the main announcements we think should be on your radar. Corporation tax – the planned increase in the corporation tax (CT) rate to 25% for companies with over £250,000 in profits will go ahead. This puts the UK rate well ahead of the 21.30% EU average for CT, but higher taxation will help to bring in much-needed funds for the revenue. The CT rise in April 2023 will only affect the more profitable companies because of the Small Profits Rate. Value Added Tax (VAT) – the rate of VAT remains at 20%, despite rumours that this could be an area where higher taxes might raise additional revenue. The VAT registration and deregistration thresholds of £85,000 and £83,000 respectively will remain at the current levels – staying in place for a period of 2 years from 1 April 2022. Business rates – a package of business rates relief was announced, to help businesses cope with the current recession. The business rates multiplier has been frozen for another year and businesses in the retail, hospitality and leisure sector will be entitled to relief of 75% of their rates bills. There will also be measures to limit the cost of increases arising from the 2023 revaluation and to ease the impact of Small Business Rates Relief and Rural Rates Relief where those reliefs are lost as a result of the revaluation. Research and development (R&D) – reform of R&D tax reliefs has already been announced in Autumn Budget 2021, with qualifying expenditure expanded to include data and cloud costs. There will also be a refocusing on innovation in the UK, alongside improvements to compliance to target abuse of the reliefs. In the Autumn Statement, it was also announced that: Research and Development Expenditure Credit (RDEC) rate will increase from 13% to 20% Research and Development Tax Relief for small and medium-sized enterprises (SME) additional deduction will decrease from 130% to 86% SME credit rate will decrease from 14.5% to 10%. Energy Profit Levy – the existing Energy Profit Levy (EPL) rate will rise by 10 percentage points to 35% from 1 January 2023. The investment allowance will be reduced to 29% for all investment expenditure (other than decarbonisation expenditure). The EPL is planned to end on 31 March 2028. Electricity Generator Levy – from January 2023, a new Electricity Generator Levy (EGL) is to be introduced, with a temporary 45% tax that will be levied on extraordinary returns from low-carbon UK electricity generation. Commentators have questioned the logic of taxing renewable energy producers at a time when the Government could be offering incentives to move away from fossil fuels. The tax will be limited to generators whose in-scope generation output exceeds 100GWh across a period and will only then apply to extraordinary returns exceeding £10 million. Company cars – in another less than green announcement, electric cars, vans and motorcycles will begin to pay vehicle excise duty (VED) in the same way as petrol and diesel vehicles. This measure is due to come into play from April 2025, but has already been criticised for failing to provide an incentive to switch to electric vehicles. The benefit-in-kind rate for electric and ultra-low emission cars emitting less than 75g of CO2/km will increase by 1 percentage point annually from 2025/26 to 2027/28. The rate will be a maximum of 5% for electric cars and 21% for ultra-low emission cars. The rate for all other vehicles will be increased by 1 percentage point for 2025/26 and fixed until April 2028. Talk to us about the business impact of the Autumn Statement There are choppy economic waters ahead for the UK’s business leaders. Navigating the coming year will be challenging, so it makes sense to review and refresh your business strategy and 2023 planning. We can help you understand the impact of the Autumn Statement on your future planning, to help you bring things up to date. If you’re concerned about any of the Autumn Statement announcements, or want to sit down and talk through your 2023 strategy, please do contact us for a chat.

  • How to make your retail business recession-proof

    The world is going through some crazy times. Whether you’re still selling online, doing click and collect, or not selling at all — there are steps you can take now to minimise the impact of a recession or protect your business from it. Invest in digital transformation - When stores were forced to close, retailers that had strong digital infrastructures were in a relatively better position to act. Companies that didn’t have their digital ducks in a row had to ramp up their efforts because it was the only way to survive. Doubling down on ecommerce and connecting with shoppers digitally are critical actions to take. Now is the perfect time to integrate all your systems. Get all your channels working together - Connect all your sales channels together and keep all your data in sync. Aside from saving you from having to reconcile your records and re-enter your data, having a tightly integrated system enables your sales channels to work together, so you can provide services like curbside pickup, local store fulfilment, and same-day delivery. Run a leaner retail business - Cut unnecessary spending and focus your resources on revenue-driving activities. Are there programs you’re paying for but no longer using? Talk to your team about the need to cut costs, they may be able to provide helpful insights or if you are an army of one, review your profit and loss account (P&L) to identify potential cost savings. Strengthen your customer relationships - Stay on top of customer communications by regularly touching base with shoppers. This is a great way to stay top-of-mind. Depending on your customer base, utilise various communication channels, including phone, email, SMS and social media. Be creative with how you position your business - Getting people to spend during a recession is much harder, but it’s doable if you position your business the right way. For instance, positioning your products as useful items for working from home. Make sure your brand messages are relevant to your customer's situation. When revenue picks up, stockpile cash - Cash is vital for your long term viability, especially during a downturn. Make sure you have enough liquid funds in your account at all times. A good rule of thumb is to have at least 10% of your annualised revenue in the bank and you may want to set this higher. You’ll need to ensure you have cover for your compliance obligations too. If you are facing multiple challenges in your business, focus on the things that you can change (and that matter). We can help with your short and long term business plans to build a stronger business. Use the buttons below to book a virtual discovery meeting or call:

  • National Insurance changes have now been reversed

    One of the many big changes in the Chancellor’s mini budget was the reversal of the Health and Social Care Levy, which will no longer go ahead. From 6 November 2022, the temporary 1.25 percentage point increase in National Insurance rates is being reversed for the rest of the financial year. Despite the wholesale scrapping of many mini-budget policies by the new Chancellor, Jeremy Hunt, on 17 October, the changes to NI will still be reversed. The Government had increased employees’ and employers’ National Insurance contributions (NICs) as of April 2022. It had been a contentious move by the Government, with some people seeing the policy as a necessary way of generating extra revenue for the NHS and social care, whilst others questioned if a tax on workers is a positive step at this stage. Mr Hunt reiterated in his financial statement that the NIC increase would be reversed, starting with the November pay month. What does this mean for your payroll and NI contributions? In essence, the reversal of the temporary NIC increase will revert contributions back to their pre-April 2022 levels. The 1.25 point increase will therefore only affect contributions made in payroll months between April 2022 and October 2022. The Chancellor’s announced measure will: Reduce the main and additional rates of Class 1, Class 1A, Class 1B and Class 4 National Insurance contributions from 6 November 2022. Repeal the Health and Social Care Levy Act 2021. As a consequence, the 1.25% Health and Social Care Levy will not come into force from 6 April 2023 as previously planned. Because NI for directors is calculated on an annual basis, a blended rate for 2022/23 will apply which is: Earnings between £11,909 and £50,270 - Director 12.73%, Company 14.53% Earnings above £50,270 - Director 2.73%, Employer 14.53% For self-employed people, the blended rate for class 4 contributions is 9.73% on profits between £11,909 and £50,270 and 2.73% on any profits above £50,270. The class 1A rate for benefits in kind will be 14.53% Talk to us about planning for the NIC changes Reverting legislation that has only been active for five months is clearly less than ideal – and is likely to create a lot of work for your payroll team in the run-up to the November payroll. If you’d like to talk to us about this new NI measure, get in touch!

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