The Chartered Institute of Taxation (CIOT) has emphasised the importance of accurate and up-to-date tax reporting for all crypto-asset owners.

Crypto investors in the UK are urged to review their tax obligations as HMRC begins issuing “nudge letters” to those it suspects may have underpaid tax on their crypto gains.

Gary Ashford, chair of CIOT’s Crypto Assets Working Group, highlighted that many investors might not realise that profits from crypto assets are subject to income tax or capital gains tax (CGT), similar to other assets. He advised that even those who do not receive a letter should review their crypto activity and ensure they meet their tax obligations.

Ashford also pointed out tax liabilities could arise even if investments appear unprofitable. Actions such as selling, lending, “staking” crypto assets, or transferring them between portfolios can trigger a taxable event. He warned that these disposals are taxable within the relevant tax year, regardless of whether the overall portfolio shows a loss after the year ends.

Furthermore, from April 2024, the CGT reporting threshold for those outside self assessment has been reduced to £3,000, down from £6,000 and significantly lower than the £12,300 limit before April 2023. As a result, more individuals may find themselves subject to CGT reporting and payments without realising it. Those with taxable gains exceeding this threshold, including from crypto assets, must report them to HMRC and pay any tax due or face potential interest and penalties.

Although HMRC has introduced measures to assist taxpayers, such as a dedicated section for reporting crypto disposals in the 2024/25 tax returns and a disclosure service for previous years’ disposals, the CIOT is calling for further efforts to raise awareness of these obligations.

Talk to us about your tax obligations.

How your structure affects tax and liability.

Choosing the appropriate structure for your business is one of the first and most important decisions you will make. It affects everything from your tax obligations to the level of personal liability you will face, and even how you can raise funds. If you are thinking of starting a business, or restructuring an existing business, it is worth taking a closer look at the options available to ensure you make the best choice for your business.

Key considerations when choosing your structure

When choosing the right structure for your business, there are several key factors to consider.

1. Tax implications: Different structures come with different tax obligations. Sole traders and partnerships are taxed on their income, while limited companies pay corporation tax and may benefit from lower personal tax rates on dividends.
2. Personal liability: One of the main advantages of a limited company or limited liability partnership (LLP) is the protection of personal assets. If personal financial exposure is a concern, these structures may be more appropriate.
3. Compliance and administration: Limited companies and LLPs require more administrative work, including filing annual accounts and tax returns, which in turn results in additional costs. Sole traders and partnerships, on the other hand, have fewer regulatory requirements.
4. Investment and growth: Some structures make it easier to raise capital or attract investors. For example, limited companies can issue shares, whereas sole traders and partnerships may struggle to attract outside investment.
5. Tax flexibility: One advantage of a limited company is the ability to retain profits within the business without needing to withdraw them as dividends. This can allow you to defer tax liabilities, whereas sole traders and partners are taxed on the entirety of their profits in the year they are earned. This flexibility can be useful for managing cashflow and planning for future growth.
6. Perception and credibility: Operating as a limited company can enhance your business’s credibility. Many clients and potential partners view a limited company as more official and established compared to a sole trader, which can help build trust and attract larger contracts or partnerships.
7. Long-term goals: Consider the future direction of your business. While starting as a sole trader or partnership may be simpler, switching to a limited company down the line could bring added tax benefits and protections.

Understanding your options

There are several business structures available in the UK, each with its own set of advantages and drawbacks. These include sole traders, partnerships, limited liability partnerships (LLPs) limited companies, and community-interest companies (CICs). The choice you make should be based on your business’s size, industry, long-term goals and the personal preferences of those involved. Let’s examine each structure more closely.

Sole trader

The simplest and most common business structure in the UK is the sole trader. As a sole trader, you are the sole owner and responsible for all aspects of the business, including its debts and liabilities. While this offers great flexibility, it also means that your personal assets are at risk if the business faces financial difficulties.

From a tax perspective, as a sole trader, you will pay income tax on your business profits through the self-assessment system. National Insurance contributions (NICs) are also applicable, though for the 2024/25 tax year, Class 2 NICs have been scrapped and are now only payable on a voluntary basis. You will still pay Class 4 NICs on profits between £12,570 and £50,270 at 6%, with a 2% rate on profits above £50,270.

Many individuals choose this route because it is easy to set up and manage. However, as the business grows, it may be worth considering whether a more structured approach, such as forming a limited company, could offer better tax efficiencies and protection.

Partnership

A partnership is similar to being a sole trader but involves two or more people sharing responsibility for the business. Each partner shares the profits, as well as the risks, liabilities and losses. Like sole traders, partners are personally liable for any debts the business cannot cover.

From a tax perspective, partnerships also fall under the self-assessment system, with each partner paying income tax and NICs on their share of the profits. For the 2024/25 tax year, the same NIC thresholds and rates apply as for sole traders. There are likely to be slightly more administrative burdens when compared to acting as a sole trader as you’ll want to draft a partnership agreement, as well as have partnership accounts prepared each year.

One of the main advantages of a partnership is the pooling of resources and expertise. However, the lack of personal liability protection can make it a risky option for those involved, especially in sectors with higher levels of financial exposure.

Limited liability partnership (LLP)

For those who want the benefits of a partnership but with added protection, a limited liability partnership (LLP) may be a better fit. In an LLP, each partner’s liability is limited to the amount they have invested in the business. This can be particularly useful for professional services businesses, such as law firms and accountancy practices.

LLPs are taxed similarly to partnerships, with each partner paying income tax and NICs through self assessment on their share of the profits. However, as LLPs are legally separate entities, the business itself must comply with certain administrative requirements, such as filing annual accounts and a confirmation statement with Companies House.

An LLP provides a flexible structure with the added benefit of limiting personal financial exposure, but the increased administrative burden may not be suitable for every business.

Limited company

A limited company is a separate legal entity from its owners (shareholders) and directors. This means that, unlike sole traders and partners, the personal assets of the shareholders and directors are protected if the company faces financial difficulties. However, the increased protection comes with greater responsibility in terms of compliance and administration.

Limited companies in the UK pay corporation tax on their profits. For the 2024/25 tax year, the main rate of corporation tax is 25% for companies with profits over £250,000. Companies with profits between £50,000 and £250,000 will pay a tapered rate between 19% and 25%, while those with profits under £50,000 will continue to pay 19%.

Shareholders may also be liable to pay tax on dividends. The dividend allowance for the 2024/25 tax year is £500, with dividends above this threshold taxed at rates of 8.75%, 33.75% and 39.35% depending on your income tax band.

For many businesses, the tax efficiencies offered by a limited company structure outweigh the increased administrative responsibilities. However, it’s important to understand the implications for cashflow and the additional legal requirements that come with running a company.

Community-interest company (CIC)

A community-interest company (CIC) is a type of limited company designed specifically for social enterprises. CICs must work for the benefit of the community and are subject to additional regulations that ensure their profits are used to achieve their social objectives.

CICs can either be limited by shares or by guarantee, and they must submit an annual community interest report to demonstrate how they are benefiting the community. While CICs do not receive any special tax treatment, they may be eligible for certain grants or other forms of funding that are not available to other types of businesses.

For those looking to balance running a business with making a positive impact, a CIC may be the most suitable option. However, the additional regulatory requirements should be carefully considered before proceeding.

Legal and regulatory requirements

When choosing a business structure, it’s important to understand the legal and regulatory obligations associated with each option. These requirements vary depending on the structure you select and may involve everything from initial registration to ongoing compliance.

Sole traders are the simplest structure in terms of legal obligations. If you operate as a sole trader, you must register with HMRC for self assessment and ensure you submit your tax return each year. There’s no requirement to file annual accounts or register with Companies House. However, sole traders are still required to keep accurate records of their income and expenses.

Partnerships share similar obligations to sole traders but with the added responsibility of registering the partnership with HMRC. Each partner is responsible for paying tax on their share of the profits, and accurate records must be kept for both individual partners and the partnership as a whole.

For limited liability partnerships (LLPs), the regulatory requirements increase. In addition to each partner submitting their own self assessment tax return, the LLP itself must file a partnership tax return (SA800) with HMRC, detailing the business’s income and how it is divided among the partners. LLPs must also register with Companies House, submit annual accounts, and file a confirmation statement each year.

Limited companies face the most stringent legal requirements. They must register with Companies House, appoint directors, file annual accounts and submit a confirmation statement. Additionally, limited companies must register for corporation tax with HMRC and file a corporation tax return each year. Directors have a legal responsibility to act in the best interests of the company and comply with company law, including maintaining accurate statutory records and minutes of key decisions.

Failing to meet these legal and regulatory requirements can result in penalties, fines and even the risk of being struck off the Companies House register. Therefore, it’s essential to stay on top of your obligations, regardless of the structure you choose.

Come to us for further advice

The decision about which business structure to choose is not one to take lightly. Each structure comes with its own set of benefits and responsibilities, and the right choice for you will depend on your specific circumstances, goals and plans for the future.

We are here to help you make the best decision for your business. Whether you’re just starting out or considering restructuring an existing business, we can offer tailored advice based on your needs.

Contact us today to discuss how we can support your business in making the right choice for the future.

Strategic planning of gifts to minimise tax liabilities.

Tax-efficient gift-giving is an essential aspect of estate planning that can significantly reduce your inheritance tax (IHT) liabilities while benefiting your loved ones. By carefully planning and utilising the available allowances and exemptions, you can ensure that more of your wealth passes on to your family and less is lost to taxes. At our practice, we believe that understanding the rules around gift-giving is key to making informed decisions. In this guide, we’ll walk you through the essentials of tax-efficient gift-giving for the 2024/25 tax year.

Understanding the basics of tax-efficient gift-giving

When we talk about tax-efficient gift-giving, we refer to the strategic planning of gifts to minimise tax liabilities, particularly IHT. For tax purposes, a gift is any transfer of money or assets to another person without receiving anything of equal value in return. This could include cash, property, shares or other valuable assets.

The current UK tax rules provide several ways to give gifts without incurring immediate tax liabilities. However, these gifts’ timing, structure and documentation are vital to ensuring they remain tax-efficient. As of the 2024/25 tax year, IHT is charged at 40% on estates above the nil-rate band, which remains at £325,000 (there is also a ‘residence nil rate band’ of £175,000 per person, subject to certain restrictions). Properly planned gifts can reduce the taxable value of your estate, potentially saving your beneficiaries a significant amount in IHT.

Annual gift allowances

One of the simplest and most effective ways to give tax-efficient gifts is by utilising the annual gift allowance. For the 2024/25 tax year, you can give away up to £3,000 each year without it being added to the value of your estate for IHT purposes. This is known as the annual exemption.

If you didn’t use your £3,000 allowance in the previous tax year, you can carry it forward, allowing you to give away up to £6,000 tax-free in the current year. However, this carry-forward can only be used for one year, so planning your gifts is important.

The annual exemption can be used to make gifts to any number of individuals, but it’s worth noting that this is the total amount you can give away tax-free each year, not the amount per recipient. For example, you could give £1,000 to three people or the entire £3,000 to one person.

Exempted gifts

In addition to the annual gift allowance, certain gifts are completely exempt from IHT. These exemptions provide further opportunities for tax-efficient gift-giving.

Small gifts exemption

You can give away up to £250 to any number of individuals each tax year, provided that the recipient doesn’t also receive part of your £3,000 annual exemption. The small gifts exemption is particularly useful for making regular small gifts to friends and family without affecting your estate’s IHT position.

Gifts to spouses or civil partners

Gifts between spouses or civil partners are completely exempt from IHT, as long as both individuals are UK-domiciled. This means you can transfer any amount of money or assets to your spouse or civil partner without it being subject to IHT. This exemption is one of the most effective ways to manage the tax impact of your estate.

Gifts to charities and other exempt organisations

Gifts to registered charities, political parties and certain national institutions are also exempt from IHT. If you’re charitably inclined, this exemption allows you to support your favourite causes while reducing the taxable value of your estate. Additionally, leaving 10% or more of your estate to charity can reduce the IHT rate on the remainder of your estate from 40% to 36%.

Potentially exempt transfers (PETs)

A potentially exempt transfer (PET) is a gift that becomes exempt from IHT if you live for seven years after making the gift. PETs are a powerful tool for reducing the taxable value of your estate, but they require careful planning and documentation.

When you make a PET, the value of the gift is immediately removed from your estate for IHT purposes. However, if you pass away within seven years of making the gift, it may still be subject to IHT. The rate of tax applied to a PET that becomes chargeable within seven years is reduced on a sliding scale, known as taper relief. For example, if you survive three to seven years after making the gift, the IHT rate progressively reduces from 40% to 8%.

This sliding scale makes it beneficial to make large gifts as early as possible. Even if you’re unsure about living for the full seven years, the potential reduction in IHT liability can still make PETs a valuable part of your estate planning strategy.

Regular gifts from surplus income

One often overlooked exemption is the ability to make regular gifts from your surplus income. These gifts are exempt from IHT as long as they’re made from your income (not capital), are regular and don’t affect your standard of living.

To qualify, you must demonstrate that the gifts are part of a regular pattern and that you have sufficient income to cover your living expenses after making the gifts. Common examples include regular payments to children or grandchildren, contributions to someone’s living costs or paying for life insurance premiums.

Keeping detailed records is essential to proving that these gifts qualify for the exemption. You should document the source of the income, the amounts gifted and evidence that your standard of living hasn’t been affected. If done correctly, this exemption allows you to reduce the value of your estate over time without triggering an IHT liability.

Gifts for weddings and civil partnerships

Weddings and civil partnerships provide another opportunity for tax-efficient gift-giving. You can give tax-free gifts to someone getting married or entering a civil partnership, with the amount varying depending on your relationship with the couple.

• parents can give up to £5,000
• grandparents can give up to £2,500
• anyone else can give up to £1,000.

These gifts must be given on or shortly before the wedding or civil partnership ceremony to qualify for the exemption. They are a straightforward way to provide financial support to a loved one on their special day while also reducing the value of your estate for IHT purposes.

The importance of record-keeping

Accurate record-keeping is a critical component of tax-efficient gift-giving. Without proper documentation, you may find it difficult to prove to HMRC that your gifts qualify for the various exemptions and allowances.

For each gift you give, you should keep detailed records that include:

• the date of the gift
• the recipient’s details
• the value of the gift
• the type of gift (for example, cash, property)
• any relevant exemptions or allowances applied.

For regular gifts from surplus income, you should also maintain records of your income and living expenses and how you calculated that the gifts didn’t affect your standard of living. This documentation will be invaluable if HMRC questions your estate after your death, ensuring that your gifts are correctly accounted for and exempted from IHT.

Gifting property and other high-value assets

Gifting property, shares or other high-value assets can have significant tax implications, particularly with respect to capital gains tax (CGT). When you gift an asset that has increased in value since you acquired it, you may be liable for CGT on the gain.

However, there are strategies to minimise CGT liabilities when making such gifts. For example, you could transfer assets that have not appreciated significantly or utilise the CGT annual exemption, which allows you to make gains of up to £3,000 (for the 2024/25 tax year) without incurring CGT.

Gift Hold-Over Relief, on the other hand, essentially allows the individual to gift an asset and not have to pay any capital gains on the gift (with the recipient instead paying it when they sell the asset). The gift has to be business assets (which can include shares, but they must be unlisted).

To further minimise CGT, if an individual has exhausted their annual exemption, they could transfer the asset to their spouse, who can then gift it, utilising their own exemption. Similarly, for the £3,000 annual gift exemption and wedding gift exemptions, if more needs to be given, assets can be transferred to a spouse, who can then re-gift to the intended recipient, effectively doubling the exemptions by using both spouses’ allowances.

If you’re considering gifting high-value assets, it’s advisable to seek professional advice to explore the most tax-efficient way to do so. We can help you navigate the rules and ensure that your gift achieves the desired tax benefits.

The role of trusts in tax-efficient gifting

Trusts can be valuable in tax-efficient gift-giving, particularly for managing large gifts or protecting family wealth across generations. By placing assets into a trust, you can reduce the value of your estate for IHT purposes while retaining some control over how the assets are used.

There are different types of trusts, each with its own tax implications.

• Discretionary trusts: These allow trustees to decide how to distribute the trust’s income and capital among the beneficiaries. These can be useful for providing for future generations while maintaining flexibility.

• Bare trusts: In a bare trust, the beneficiaries have an absolute right to the trust’s assets. The assets are held in the trustee’s name, but the beneficiaries have the right to the income and capital.

Trusts can be complex, and setting one up requires careful consideration of your goals and the tax implications. It is essential to work with an adviser who can guide you through the process and ensure that the trust is structured to achieve your objectives.

Seeking professional advice

While the principles of tax-efficient gift-giving are straightforward, the rules can be complex and mistakes can be costly. Professional advice is invaluable when planning significant gifts or complex arrangements, such as trusts or gifting high-value assets.

Our firm specialises in helping clients navigate the rules around gift-giving and estate planning. We can work with you to develop a personalised strategy that maximises the tax benefits of your gifts while ensuring that your wealth is preserved for your loved ones.

In summary

Tax-efficient gift-giving is essential to estate planning, allowing you to pass on your wealth while minimising tax liabilities. By understanding the available allowances and exemptions, keeping accurate records and seeking professional advice when needed, you can ensure that your gifts are both generous and tax-efficient.

Whether you’re looking to make small gifts to family members, transfer high-value assets or set up a trust, we’re here to help. Contact us today to discuss your estate planning needs and learn how we can help you and future generations.

Unlock the benefits of R&D tax credits for your business.

Research and development (R&D) tax credits are a crucial incentive designed to encourage businesses to innovate and invest in new technologies, processes and products. Yet, despite their significance, many businesses either aren’t aware of their potential benefits or aren’t fully utilising them.

We explore what R&D tax credits are, who can claim them, and how businesses can maximise their potential.

What are R&D tax credits?

R&D tax credits are government incentives designed to encourage businesses to spend more on R&D activities. The purpose is simple: by reducing a company’s tax bill or providing a cash lump sum, these credits make it easier for businesses to reinvest in innovation. They’re available to a wide range of companies, from large corporations to small and medium-sized enterprises (SMEs), regardless of their industry.

Who can claim R&D tax credits?

One of the most common misconceptions about R&D tax credits is that they are only for companies involved in scientific research or high-tech industries. This isn’t the case. Any company undertaking a project seeking to advance science or technology can potentially claim R&D tax credits. This includes activities such as developing new products, processes or services and significantly improving existing ones.

Eligible projects

To qualify for R&D tax credits, a project must meet certain criteria set out by HMRC. It should:

• aim to create an advance in science or technology
• attempt to overcome scientific or technological uncertainties
• not be readily available or easily deducible by a competent professional in the field.

Importantly, these projects don’t need to succeed to qualify. Even if the project fails or the company doesn’t fully achieve its objectives, the R&D expenditure could still be eligible for tax relief.

How R&D tax credits work

The process for claiming R&D tax credits can seem complex, but it essentially revolves around calculating the company’s eligible R&D expenditure and applying the relevant tax relief. The calculation differs slightly depending on whether the company is an SME or a large business.

R&D tax credits for SMEs

For SMEs, R&D tax credits are particularly generous. To qualify as an SME, a company must have fewer than 500 employees and either an annual turnover under €100m or a balance sheet total under €86m.

R&D expenditure credit for large companies

Large companies that don’t qualify as SMEs can claim R&D tax relief through the R&D expenditure credit (RDEC) scheme. The RDEC offers a credit of 20% of qualifying R&D expenditure, which is taxable, resulting in a net benefit of 15%. While this rate is lower than the SME scheme, it still represents a significant incentive for larger companies to invest in R&D.

This scheme can also be used for SME’s whose expenditure doesn’t qualify for the SME scheme (e.g. the expenditure was covered by grant funding or was “customer-led”).

Notable changes to the rules

The UK Government has announced it will be merging the SME and RDEC R&D tax relief schemes into a single, streamlined scheme from April 2024 (although elements of the SME scheme still remain for R&D-intensive companies in the form of the enhanced scheme).

This new approach will follow the RDEC model but retain some SME benefits. While the consolidation aims to simplify the process, it may result in reduced relief for certain SMEs, especially those that don’t qualify for the enhanced R&D intensive scheme. The merger also introduces changes such as subcontracting rules and relief caps, making the claims process more complex and reinforcing the importance of seeking specialist advice. The HMRC website is regularly updated with relevant information.

Common misconceptions about R&D tax credits

Despite the availability of R&D tax credits, many businesses miss out on claiming them due to common misconceptions.

Misconception 1: R&D tax credits are only for large, high-tech companies

As mentioned earlier, this is not true. Companies of all sizes and across various sectors can claim R&D tax credits. Whether a business is involved in manufacturing, construction, agriculture or even creative industries, there’s a good chance that R&D tax credits are relevant.

Misconception 2: The application process is too complex

While the process of claiming R&D tax credits involves detailed documentation and a clear understanding of what qualifies as R&D, it’s not as daunting as it seems. Many companies choose to work with specialist advisers who can guide them through the process, ensuring that all eligible activities are identified and accurately claimed.

Misconception 3: We didn’t achieve our project goals, so we can’t claim

One of the biggest benefits of the R&D tax credit scheme is that it rewards innovation, even when projects don’t go as planned. If your company attempted to resolve a technological or scientific uncertainty, it could still qualify for relief, regardless of the outcome.

How to maximise your R&D tax credit claim

Given the significant financial benefits, businesses should approach the R&D tax credit claim process with a well-planned strategy.  Here are some tips to ensure you’re getting the most out of your claim.

1. Keep detailed records

Accurate and comprehensive records are crucial for a successful R&D tax credit claim. This includes documenting project objectives, methodologies, time spent by staff and all related costs. The more detailed your records, the easier it will be to substantiate your claim and maximise the benefit.

2. Identify all qualifying activities

It’s easy to overlook certain activities that qualify as R&D. Beyond obvious R&D work, consider whether your company has been involved in process improvements, software development or even trials and testing that attempted to solve scientific or technological challenges. An experienced R&D tax adviser can help identify these activities.

3. Understand the scope of eligible costs

R&D tax credits cover a wide range of costs, not just direct R&D expenses. Qualifying costs can include:

• staff salaries, wages and other associated costs like employer NICs and pension contributions
• costs of materials and consumables used in R&D
• utilities like power and water which are used in R&D processes
• software costs directly related to R&D activities
• payments to subcontractors and external agencies, provided they relate to R&D (Note: For the accounting period starting 1 April 2024, the subcontractor needs to be based in the UK).

By thoroughly understanding the scope of eligible costs, you can ensure that your claim is as comprehensive as possible.

4. Work in ‘projects’

It is helpful to think of your R&D activities as distinct projects, each representing its own area of innovation. HMRC typically prefers claims to be split into projects, so keeping detailed records for each project throughout the year will help ensure a well-organised and comprehensive claim.

5. Review past claims

R&D tax credits can be claimed for previous years, typically up to two years from the end of the accounting period in which the R&D expenditure occurred. If your company has overlooked R&D tax credits in the past, it might be worth reviewing previous periods to see if there’s potential for a claim.

6. Work with a specialist adviser

While handling R&D tax credit claims internally is possible, working with a specialist adviser can significantly increase the likelihood of a successful and maximised claim. Advisers have the expertise to identify all qualifying activities and costs, and they can help navigate the intricacies of HMRC’s requirements.

Significant changes have recently been made and continue to be made to the schemes, making claims even more complex, further justifying the need for an adviser. Furthermore, historically, HMRC enquired for further detail on 1% of claims, but to reduce fraudulent claimants abusing the scheme, now look into 20% of claims.

The impact of R&D tax credits on business innovation

R&D tax credits are more than just a tax relief; they’re a catalyst for innovation. For many companies, the financial relief these credits provide makes the difference between pursuing and shelving a new idea due to cost concerns.

According to HMRC’s statistics, for the tax year 2021 to 2022, over 90,315 companies claimed R&D tax credits, amounting to £7.6bn in tax relief. This represents a significant investment in the future of UK businesses, helping to drive forward new technologies, products and services.

Encouraging growth and competitiveness

By lowering the financial barriers to innovation, R&D tax credits help businesses of all sizes remain competitive. They enable companies to take risks on new projects, invest in research and develop cutting-edge solutions that might otherwise be unaffordable. This, in turn, strengthens the UK economy by fostering a culture of continuous improvement and technological advancement.

Supporting SMEs and large businesses alike

While large companies often have the resources to dedicate entire teams to R&D, SMEs may find allocating funds to innovative projects more challenging. R&D tax credits level the playing field by making it more feasible for smaller companies to invest in research and development. As a result, SMEs can compete on a global scale, bringing new products and services to market and driving economic growth.

Don’t miss out on R&D tax credits

R&D tax credits are an invaluable resource for UK businesses, providing financial support that can be reinvested into further innovation. Whether your company is a small startup or a large enterprise, engaging in activities that advance science or technology could make you eligible for significant tax relief.

To ensure you’re making the most of this opportunity, keep detailed records of your R&D activities, identify all eligible costs and consider seeking advice from a specialist. With the right approach, R&D tax credits can provide the boost your business needs to stay ahead in a competitive market.

Get in touch with us today to learn more about how we can help your business innovate and grow.

0.25% reduction for late and repayment interests. The Bank of England (BoE) cut the base rate to 5.0% on 1 August, the first reduction in over four years.

HMRC will lower late payment and repayment interest rates for the first time in a year. This change has prompted HMRC to adjust its rates, which are tied to the base rate. The changes will take effect on 20 August.

From 20 August, the late payment interest rate will decrease to 7.5% from 7.75%, where it has remained for the past 12 months. The repayment interest rate will drop to 4.0% from 4.25%.

Late payment interest is set at the base rate plus 2.5%, while repayment interest is set at the base rate minus 1%, with a lower limit of 0.5%.

Additionally, on 12 August, the corporation tax self-assessment interest rate for underpaid quarterly instalments will decrease to 6.0% from 6.25%.

As a result, HMRC will continue to pay lower interest on overpayments, with the rate decreasing to 4.75% from 5.0%. Similarly, the interest on overpaid quarterly instalments and early payments of corporation tax not due by instalments will also drop to 4.75% from 5.0%.

Talk to us about your business.

Enforcement will focus on 11 specific regions: Belfast, Birmingham, Bradford, Cardiff, Cornwall, Cumbria, East Anglia, Glasgow, Liverpool, the North East, and Watford.

HMRC is cracking down on small and medium-sized businesses (SMEs) in 11 UK regions for potential non-compliance with the National Minimum Wage (NMW). Companies found guilty of underpaying will have to reimburse workers for NMW arrears, and face increased National Insurance Contributions (NICs).

Businesses that refuse HMRC’s initial offer of a health check meeting risk financial penalties of up to 200% and public naming and shaming.

Many SMEs might unintentionally breach regulations due to the complexity of NMW rules and common misunderstandings about calculating NMW beyond just an hourly rate.

HMRC has allocated over £27m to address NMW non-compliance, focusing on regional enforcement. Areas were chosen based on data indicating a higher number of workers potentially earning below the required NMW and intelligence from worker complaints.

Over 50% of SMEs in the targeted regions could be affected, facing significant administrative burdens, even if they are compliant. Many businesses have already received letters from HMRC as part of a three-stage process.

Targeted businesses will first receive a nudge letter listing common areas of NMW non-compliance. The next step is a letter offering a free HMRC health check. Ignoring this offer will result in HMRC opening a formal enquiry.

Talk to us about your small business.

Only 369,000 taxpayers paid CGT in 2023, resulting in a £2.5bn drop in revenue to £14.4bn.

Only 369,000 taxpayers paid capital gains tax (CGT) in the last tax year, a decrease of 40,000 from the previous year. Despite the overall reduction, CGT from residential property sales rose to £1.6bn.

High-income individuals had a significant impact, with those earning £5 million or more contributing 41% of total CGT payments, despite representing just 1% of all CGT taxpayers. Furthermore, 44% of CGT was paid by people earning over £150,000.

London and the South East continued to dominate, providing 50% of the CGT payments, mirroring trends from previous years. The remaining regions in the UK had a more even distribution of CGT liability.

Age-wise, taxpayers aged 55 to 64 were the most significant contributors, generating £26.7bn in gains and paying £4.7bn in CGT. Notably,  a thousand taxpayers aged 15 or younger collectively paid £5m in CGT.

While the total number of taxpayers and gains decreased, specific segments, such as high-income earners and certain age groups, contributed significantly to the CGT revenue.

Get in touch to discuss your taxes.

Bank of England cuts interest rates

The vote to lower the interest rate to 5.0% was close, with five members voting in favour and four against.

In its first cut for four years, the Bank of England (BoE) has reduced interest rates by 0.25%. The BoE was under pressure to make this reduction as inflation had hit its 2% target for the past two months.

Economists had predicted no cut until the next meeting in September.

The Bank explained that cutting rates from 5.25%, which had been in place for over a year, was “appropriate to slightly reduce the degree of policy restrictiveness”. It added that “the impact of past external shocks has diminished, and there has been some progress in moderating inflation persistence risks”.

The Bank warned that despite a stronger-than-expected GDP, restrictive monetary policy continues to weigh on real economic activity, leading to a looser labour market and reducing inflationary pressures. While it did not indicate whether further cuts are forthcoming, the cooler inflation figures suggest it is likely.

The Bank expects the fall in headline inflation and normalisation in many inflation expectation indicators to continue to weaken pay and price-setting factors for businesses.

A 0.25% cut will not significantly impact mortgage holders or businesses with large loans but signals the Bank is moving in the right direction.

The Bank said:

“A margin of slack should emerge in the economy as GDP falls below potential and the labour market eases further.

“Domestic inflationary persistence is expected to fade away over the next few years, owing to the restrictive stance of monetary policy.”

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Take steps to secure your future.

As an accounting practice, we often stress the importance of having an emergency fund to our clients. An emergency fund is essential for financial stability, offering a safety net during unexpected situations such as job loss, medical emergencies, or significant repairs.

In this guide, we will outline the steps to build an emergency fund, provide tips for maintaining it, and highlight the benefits of having this financial buffer.

Understanding the importance of an emergency fund

An emergency fund is a dedicated savings account that covers unforeseen expenses. Without this fund, unexpected costs can lead to debt and financial stress. According to the Office for National Statistics (ONS), 41% of UK adults reported that they do not have enough savings to cover a month’s expenses if they lose their main source of income. This statistic underscores the importance of having a financial cushion.

Determining the right amount

The first step in building an emergency fund is determining how much you need to save. A general rule of thumb is saving three to six months’ worth of living expenses. To calculate this, add all your essential monthly expenses, including rent or mortgage, utilities, groceries, transportation, and insurance. For example, if your monthly expenses total £2,000, you should aim to save between £6,000 and £12,000.

Setting achievable goals

Saving a substantial amount can seem daunting, but setting achievable goals can make the process more manageable. Start by setting a target for your first £1,000. Once you reach this milestone, gradually increase your savings target. Breaking the overall goal into smaller, more attainable steps will keep you motivated and make the task less overwhelming.

Creating a budget

A detailed budget is crucial for building an emergency fund. Track your expenses to identify areas where you can cut back. This may involve reducing discretionary spending on non-essential items like dining out, entertainment, or luxury purchases. Redirect these savings into your emergency fund.

Here is a simple example of a monthly budget:

By sticking to a budget, you can ensure that you are consistently contributing to your emergency fund.

Automating your savings

One effective way to build your emergency fund is to automate your savings. Set up a direct debit to transfer a fixed amount from your current account to your savings account each month. This method ensures you consistently save without the temptation to spend the money elsewhere. Many banks offer this service, making it easy to set up and manage.

Choosing the right savings account

Choosing the right savings account is vital for maximising your emergency fund. Look for an account that offers a competitive interest rate, easy access to your funds, and no penalties for withdrawals. High-interest savings accounts or instant access accounts are often suitable choices. Ensure the account is protected by the Financial Services Compensation Scheme (FSCS), which protects up to £85,000 per individual per institution.

Monitoring and adjusting your fund

Regularly review your emergency fund to ensure it remains adequate for your needs. Life circumstances can change, such as increased living expenses or a change in employment status. Adjust your savings goals accordingly to maintain an appropriate safety net. Conduct a review at least once a year or whenever you experience significant life changes.

Benefits of having an emergency fund

Having an emergency fund offers numerous benefits, including:

Financial security

An emergency fund provides financial security by covering unexpected expenses without relying on credit cards or loans. This can prevent debt accumulation and reduce financial stress. According to the Money Advice Service, one in five UK adults has less than £100 in savings. Without an emergency fund, an unexpected car repair or medical bill could lead to borrowing money at high interest rates, which can quickly become unmanageable. By having a dedicated fund, you can handle such expenses without compromising your financial health or accumulating debt.

Peace of mind

Knowing that you have a financial cushion gives you peace of mind. Life is unpredictable, and unforeseen events can disrupt financial stability at any moment. With an emergency fund in place, you can focus on your long-term financial goals without worrying about unexpected expenses disrupting your plans. The security of knowing you have money set aside for emergencies can significantly reduce anxiety and stress, allowing you to enjoy a more stable and balanced life.

Flexibility

An emergency fund provides flexibility during challenging times. Whether dealing with a job loss or managing an unexpected medical bill, having savings set aside allows you to make decisions without the immediate pressure of financial constraints. For instance, if you lose your job, an emergency fund can cover your living expenses while you search for new employment, giving you the flexibility to find a job that suits your skills and career goals rather than settling for the first available option. Similarly, if you face a medical emergency, you can focus on recovery instead of worrying about the financial burden.

Protecting your assets

Having an emergency fund can help protect your assets. In the absence of savings, you might be forced to sell valuable assets like your car or even your home to cover unexpected expenses. An emergency fund acts as a financial buffer, allowing you to preserve your assets and maintain your standard of living during tough times. This protection also extends to your investments; you won’t have to liquidate your investment portfolio at an inopportune time, which could result in financial losses.

Building better financial habits

Creating and maintaining an emergency fund can help build better financial habits. By consistently saving money and prioritising your financial security, you develop a disciplined approach to managing your finances. This habit of saving regularly can extend to other areas of your financial life, such as retirement planning or saving for major purchases, ultimately leading to a more robust and stable financial future.

Enhancing financial independence

An emergency fund enhances your financial independence by reducing reliance on external financial support. Whether it’s borrowing from family and friends or taking out high-interest loans, relying on others for financial help can strain relationships and lead to financial dependency. With an emergency fund, you can handle unexpected expenses on your own, reinforcing your financial autonomy and confidence in managing your finances.

Reducing the impact of income fluctuations

An emergency fund is particularly crucial for those with variable incomes, such as freelancers, contractors, or small business owners. It can help smooth out income fluctuations, ensuring that you have enough money to cover your expenses during lean periods. This financial buffer can provide stability and peace of mind, allowing you to focus on growing your business or career without the constant worry of financial shortfalls.

Supporting mental health

Financial stress is a significant contributor to mental health issues such as anxiety and depression. Having an emergency fund can reduce the financial stress that comes with unexpected expenses. This financial cushion can improve your overall mental well-being, allowing you to approach life’s challenges with a clearer and more focused mind. A sense of security and control over your finances can lead to a healthier, happier lifestyle.

Common questions about emergency funds

How long will it take to build an emergency fund?

The time it takes to build an emergency fund depends on your savings goals, income, and expenses. You can steadily build up your fund by consistently saving a portion of your income each month. For example, if you aim to save £6,000 and can set aside £250 per month, it will take you two years to reach your goal.

Should I pay off debt or build an emergency fund first?

It’s important to strike a balance between paying off debt and building an emergency fund. Start by saving a small emergency fund of £500 to £1,000 to cover minor unexpected expenses. Then, focus on paying down high-interest debt. Once your debt is more manageable, shift your focus back to increasing your emergency fund.

Can I invest my emergency fund?

An emergency fund should be easily accessible and low-risk. Investing these savings in stocks or other high-risk assets is not advisable, as their value can fluctuate significantly. Instead, keep your emergency fund in a high-interest savings account or other low-risk, easily accessible accounts.

How can I boost my savings rate?

To increase your savings rate, consider the following strategies:

• Reduce discretionary spending: Cut back on non-essential purchases such as dining out, entertainment, and luxury items.
• Increase your income: Take on additional work, freelance projects, or part-time jobs to boost your income.
• Review and adjust your budget: Review your budget regularly to identify additional savings opportunities. Redirect any windfalls, such as bonuses or tax refunds, directly into your emergency fund.

How can I maintain my emergency fund over time?

Maintaining an emergency fund requires regular monitoring and discipline. Keep track of your expenses and make sure to replenish the fund if you need to use it. Set up automatic transfers to your savings account to ensure consistent contributions. Additionally, review your budget periodically to find new ways to save and boost your fund. Keeping your emergency fund intact is crucial for long-term financial stability and peace of mind.

Final thoughts

Building an emergency fund is crucial to financial stability and peace of mind. Setting achievable goals, creating a budget, automating your savings, and regularly reviewing your fund can ensure you are prepared for unexpected expenses. We are committed to helping you achieve financial security. If you have any questions or need assistance with building your emergency fund, please don’t hesitate to contact us.

Investing time and effort into building an emergency fund now can save you from financial distress in the future. Take the first step today and secure your financial future with a well-established emergency fund.

Need assistance with setting up an emergency fund? Contact us today for a consultation.

Targeted efforts yield high returns from unpaid IHT as HMRC recovers £285 million from 3,028 investigations.

The amount of tax collected from unpaid inheritance tax (IHT) investigations is soaring, but HMRC could recover even more. Over the past five years, HMRC has conducted thousands of investigations into estates suspected of owing IHT, collecting £1.39 billion in unpaid taxes.

In 2023/24, HMRC recovered £285m from 3,028 investigations. However, the number of enquiries has nearly halved since 2019, according to figures from NFU Mutual. In 2019/20, there were 5,658 investigations, recovering £273m. By 2023/24, investigations had dropped by over 2,000 to 3,028, a 49% decrease.

In 2020/21, investigations fell to 3,574 due to reduced activity during the COVID-19 pandemic, yet HMRC still raised £254m. This trend indicates that the number of investigations does not necessarily correlate with the amount of IHT collected.

The 2021-22 tax year saw HMRC recover the highest amount in the past five years, with £326m collected from 4,258 investigations. Despite the decrease in investigations, the amount of money recovered has remained relatively stable, except for the notable increase in 2021/22.

The data indicates that despite decreasing investigations, HMRC’s effectiveness in recovering unpaid IHT remains robust. The lower number of investigations suggests that these efforts are becoming more targeted and forensic in nature. To maximise returns, industry experts have recommended that HMRC continues to prioritise identifying and targeting cases with substantial unpaid taxes.

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