Author: Steve Jones

Stand out from the crowd.

According to data from Companies House, 222,068 new companies were set up in the UK within the first 12 weeks of 2023, a year-on-year rise of 8.2%. The question remains: “how unique are these businesses?”

It might seem safest to stick to tried and tested methods when you’re starting a new venture, but when you have an abundance of businesses offering the same service, it’s hard to compete. After all,  one in five new businesses in the UK close within the first year.

How can you stand out? One option is to target a niche market.

What is a niche business?

As the name suggests, a niche business aims for a specific target audience. One example of this is TomboyX, a clothing business specifically marketing to members of the LGBTQIA+ community. Or Lush, which prides itself on ethically-sourced cosmetics.

Rather than cater to a generalised audience, niche businesses offer goods and services to specific groups of people with certain values.

Starting a niche business isn’t just for the benefit of prospective customers but also for you as the business owner. This is because it allows you to instil your values in the business, championing your interests and principles. It also gives you a better opportunity to compete and build a loyal brand following.

But, before you start planning on opening your niche business, there are pros and cons to consider.

What are the advantages of running a niche business?

Although starting a niche business comes with a set of challenges, it also has a wealth of advantages.

Less competition

The more specialised your goods or services, the less likely you are to encounter an identical business. While others may have similar ideas, you won’t be up against myriad businesses selling the same product to the same people.

If you’re considering opening a coffee shop appealing to ‘coffee aficionados’, we’re sorry, but that’s not rare. But if you were to open an online coffee shop focusing on strictly vegan and ethical customers, you might have slightly more edge.

Word of mouth

Due to the nature of niche audiences, word spreads quickly if you’re successful – the smaller the demographic, the more connected they’ll be. If you connect with your audience and they value your services, you’ll gain more credibility over time.

Setting the price

When offering niche goods or services, you have more wiggle room to set the market price. You won’t have the pressure of price matching or staying as competitive. And, if you can connect with your desired customers in the right way, they’ll likely be willing to pay more for a product that’s suited to them.

Cons of marketing to a niche audience

While it’s good to go against the flow sometimes, trying to enter a niche market isn’t as straightforward as you may think.

An unpredictable market

In business, it’s quite rare to have a truly unique idea. That’s why it can be so difficult to penetrate the market. If there is an established business with a similar model to yours, you can find yourself competing for a smaller portion of a much smaller market.

Harder to grow

Only some businesses want to achieve unparalleled growth. You may want that boutique coffee shop in Shoreditch to stay small and focus on providing the best service possible to a relatively limited clientele.

But a niche business could be challenging if you have ambitions to expand. This is because your market will have a cap.

Even if you break into your niche demographic, maintaining that business over time can be the next hurdle. You’ll have to offer a product which cultivates a repeat customer base or at least attracts new people. With a niche, this can be tricky. How many left-handed pens do you really need in your life?

How to avoid falling into obscurity

If you decide to start a niche business, you’ll want to do everything you can to ensure it resonates with your target audience. As we said at the start,  one in five businesses close within the first year. So, with that in mind, here are some steps you can take to mitigate that risk.

Identify and understand your niche audience

There’s little sense in targeting a niche audience without fully understanding their culture and values. Do your due diligence and research, and continue to follow trends in the community. This will keep your business relevant, and help you understand how to market to your audience.

Remember, these days, audiences are far more switched on to disingenuous marketing ploys and will likely be able to see through the veil if you’re not 100% behind your niche’s values and principles.

According to a survey from Sprout Social, consumer’s transparency expectations grow daily, and long-term relationships inspire long-term trust.

Promote your speciality

Whatever your product or service, you want to ensure your niche audience sees its value. You should aim to make yourself the poster child of your chosen niche – a business that will meet the needs of its specific customers.

So, when you’re marketing your niche business, you’ll want to really hammer home what makes you so unique. Why do you offer a niche service? Why do you believe people may want or need it?

Start with your branding

You could have the best niche product in the world. Unfortunately, it won’t mean a thing unless you nail your branding. Not only do you want to be recognisable, but you also want to be the first business someone thinks of when looking for your niche product or service.

Brand recognition is an essential part of marketing for any business. We all recognise those golden arches, the happy-go-lucky colonel, even that identifiable swoosh on those fancy trainers.

Once you build brand loyalty, your product or service will likely gain traction (and, hopefully, staying power). It will also make you more competitive if there are similar businesses on the market.

Starting a niche business allows you to tap into a market that may be overlooked or just not catered to. But to make it a successful venture, you must meticulously plan the business’s delivery and track trends in your chosen demographic.

Get in touch to discuss starting your own niche business.

Are you hitting your business goals?

We’ve over halfway through 2023, so now is the opportune moment to review your business and progress for the year.

Chances are, it’s been a tough year so far: in the 12 months to May 2023, the consumer prices index of inflation rose by 8.7% and the bank rate is 5%. A skills shortage and the cost of energy continue to hurt businesses.

However, the Institute of Directors’ (IoD) index for business leader optimism stabilised at -6 in May, much improved from the -64 we saw in November 2022.

According to the IoD’s surveys, 55% of business leaders even expect revenues to rise in the year, compared to 19% who expect theirs to fall. Another 35% expect to increase their headcount in the next year, compared to 14% who expect it to reduce.

So, with 2023 still marked by an air of uncertainty, how are you going to make sure your business doesn’t just survive, but thrives in the current economic climate?

Business tax planning

Businesses face a tough tax treatment in 2023: corporation tax is higher for some companies, the income tax threshold remains frozen, and the capital gains tax and dividends tax allowances have been reduced.

Therefore, a great place to start with your mid-year review is to check whether your business is as tax-efficient as possible and create a tax plan.

Allowable expenses

Every tax plan will be different according to each business, but most can reduce their tax burden by claiming every allowable expense possible. By offsetting these against your pre-tax profit, you reduce the figure HMRC applies a tax rate to — ultimately reducing your tax bill.

To be allowable for tax purposes, expenses must be incurred “wholly and exclusively” for business purposes. So, training courses, staff expenses, stock for resale, raw materials, business travel, marketing costs, home office costs and uniforms (but not ‘regular’ clothes you wear to work) — they’re all allowable, as long as they fit HMRC’s criteria.

The most important part of allowable expenses is to ensure that your bookkeeping and record keeping is up to scratch — if you lose a receipt for an expense, for example, you’ll struggle to convince HMRC you actually purchased the item.

Capital allowances

If you purchase longer-life assets, you may be able to write off their value from your pre-tax profit through capital allowances.

Some, like the annual investment allowance (AIA) and temporary full expensing scheme, allow you to claim the full amount of certain assets in the same year you purchased them.

Then there’s the writing-down allowance, which a lot of companies use if they exceed the AIA limit (£1 million) or the asset does not qualify for the AIA or full expensing. This scheme lets them claim 6% or 18% of the value of an asset each accounting year, depending on the asset.

Finally is the first-year allowance, which allows you to claim the full cost of specific assets like electric cars and refuelling equipment.

Other reliefs

Limited companies in particular stand to gain from tax reliefs, including:

• Research and development tax relief if you’re attempting to make an innovative contribution to science or technology.
• Reliefs for creative industries if you’re in the theatre, film, television, animation or video game industries.
• Disincorporation relief if you’re closing your company to become a sole trader.
• Relief if you make a loss from trading, the sale of a capital asset or property income.

There are plenty of other ways to reduce your tax liability, so make sure you seek professional advice to save more money that you can reinvest into the business.

Managing cashflow

Is cash tight at the moment? No matter how many times you’ve tried cutting costs or increasing prices to improve your cashflow, it’s always worth checking whether there’s somewhere else you can improve.

Expanding your inflow

Proper invoice management is a relatively simple way to expand your inflow. So, make sure you send your invoices right away so clients can pay you as soon as possible. You can also set early payment discounts and late payment fees.

Consider adding discounts to your products, too, to turn products cluttering your shelves into cash.

Finally, if you’re expecting a temporary cashflow shortfall, you can get short-term financing, such as invoice financing, to get the money you need.

Controlling your outflow

There are many ways you can control your outflow. For instance, you can explore an alternative place of business by downsizing or adopting a co-working arrangement. Of course, there’s always working from home, too.

You can also take a look at how you buy stock; big orders often come with discounts attached. If you can’t afford a big order at the moment, consider finding another business to team up with.

Next, consider using part-time and freelance staff, switch from print to digital marketing and make sure you’ve cancelled all those free trials you signed up for. And above all, don’t be afraid to haggle with suppliers!

Cashflow forecasting

Creating a cashflow forecast is an essential part of cashflow management — without an idea of how much money you can expect to enter and leave your business in a period of time, how can you plan ahead? How will you spot issues early on or know the extent to which you need to employ some cashflow management techniques?

When drawing up your forecast, it always pays to create multiple with different assumptions, like a summer downturn or a higher energy bill. That way, you should be prepared for anything.

The importance of regular accounting

Good accounting is about more than submitting your annual accounts at year-end: you can also split the year into smaller ‘accounting periods’ to keep on top of your finances so you can make well-informed business decisions.

That’s essential for ambitious business owners, especially during 2023 with lingering uncertainty since Brexit and the pandemic.

Regular accounting will also give you a more balanced workload as you’ll be doing your accounting in smaller batches over the year, making your year-end accounting far simpler.

That ensures you can keep your records in order to create accurate accounts that tell the true story of your finances, reveal hidden problems and highlight potential opportunities.

Talk to your accountant

Ultimately, if you’re unsure about your business’s performance in 2023, or just want to ensure the best year possible, you should always get in touch with your accountant.

We’ll be able to give you more detail about everything we’ve talked about so far — and more.

Talk to us about your business.

The self-assessment telephone helpline has been closed by HMRC for the entirety of summer.

Taxpayers hoping to contact HMRC for help with their self-assessment will now have to use digital services until 4 September 2023.

During this time, HMRC says it will trial prioritising online guidance, digital assistance and web chat.

According to HMRC, the self-assessment helpline has 50% less demand over the summer, even though around 5 million calls are made to the number every year.

Between June and August 2022, nearly 1.2m people called the helpline, with over 900,000 staying on the line to try and reach an agent, with the remainder deciding not to wait on hold.

HMRC says the move will free up 350 advisers who will be able to take on ‘more urgent’ calls on other lines.

Adam Harper, director of professional standards and policy at the Association of Accounting Technicians, said:

“This pilot raises significant concerns about the impact it will have on taxpayers, particularly those who are digitally excluded or who cannot currently access the service they require via digital platforms.

“The need for such a pilot, in order to redirect staff elsewhere, highlights the much bigger challenge that HMRC faces in balancing competing priorities with a constrained budget.”

Talk to us about your self-assessment tax return.

HMRC has revealed that the self-assessment threshold for PAYE taxpayers will increase from £100,000 to £150,000 for the 2023/24 tax year.

Currently, individuals taxed through PAYE only are legally required to file a self-assessment tax return if they make more than £100,000 annually.

The threshold change means that fewer taxpayers will need to submit their returns for this tax year, potentially reducing their administrative burden.

In its latest agent update, HMRC said that affected taxpayers should not take action yet, as the threshold remains at £100,000 for the 2022/23 tax year.

Anyone who makes between £100,000 and £150,000 during this period will still need to submit a tax return by the usual deadline on 31 January 2024.

However, those taxpayers will receive a self-assessment exit letter from HMRC after submitting their return — so long as they do not meet any of the other submission criteria.

Taxpayers in business partnerships and self-employed people who earn over £1,000 a year must continue filing their annual returns after the threshold change comes into effect.

Meanwhile, individuals who receive any untaxed income, such as interest on savings or rental payments, may also need to submit a return.

Talk to us about your self-assessment tax returns.

The Government is running a call for evidence on how to simplify and widen accessibility to employee share schemes.

The Treasury is inviting comments on ‘save as you earn’ (SAYE), the company share option plan (CSOP) and the share incentive plan (SIP) until 25 August 2023.

Through the call for evidence, ministers aim to improve the schemes and make them easier for businesses to set up.

Businesses and representatives can answer questions to help the Government improve the schemes by submitting their responses online.

Employee share schemes give companies ways to incentivise employees by offering them a direct stake in the company, together with a more generous tax treatment.

A Government survey found that a third (31%) of businesses find the schemes too complicated to set up, however, describing them as “time-consuming and costly”.

The evaluation also showed that more than half (55%) of companies did not know whether they had registered for SAYE, CSOP or SIP in the last ten years.

Meanwhile, 38% of these “unaware claimant companies” said they did not offer employee share schemes because of “corporate governance, financing and structure”.

And yet, 81% of respondents said share schemes help boost their business, with almost three-quarters saying the schemes help them retain and recruit staff.

In June 2022, 1,030 employee-owned businesses were running in the UK.

Victoria Atkins, financial secretary to the Treasury, said:

“Employee share schemes are an effective way to boost motivation in workforces by giving people an extra stake in what they do – and they offer a boost for business.

“Growing the economy is a priority for this government, and one way to make this happen is by making these schemes as easy as possible to set up.”

Get in touch to talk about your employee share scheme.

Tax specialists at the Low Incomes Tax Reform Group (LITRG) have warned taxpayers who use third-party companies to claim tax refunds from HMRC to do so cautiously.

Although taxpayers can apply for a refund directly from the Government, some prefer to use agents to do so on their behalf.

If HMRC decides at a later date that the refund was invalid, however, it can request those taxpayers to repay the full amount plus interest.

As well as requesting repayments from taxpayers, HMRC can also issue penalties. In extreme cases, HMRC may be able to claim overpayments dating back 20 years.

To help taxpayers avoid invalid claims, LITRG has published some key information to consider before applying for a tax refund.

1. Choose an agent carefully. LITRG stresses that while most refund companies are completely legitimate, others may not be. Taxpayers must carefully read through any terms and conditions set out by a company.
2. Carefully check your claims. Legitimate agents will ask you to provide proof to support your claim, and review it before they submit it .
3. You’re responsible for your tax return. Even if you use an agent, receive payment and settle the agent’s fees, you will have sole responsibility for any repayments to HMRC if your claim is invalid.
4. Do not share your Government gateway details. A good refund agent will have their own software, so you should not need to provide your details.
5. If it looks too good to be true, it likely is. If a company approaches you about a tax refund out of the blue, it may not be legitimate.

Joanne Walker, LITRG technical officer, said:

“If the promise of a tax refund sounds too good to be true, the chances are it probably is. Therefore, it is important that taxpayers think about the risks before using an agent to claim a tax refund on their behalf.”

Contact us to discuss your tax returns.

Recent HMRC data shows that the Treasury collected £786.6 billion in taxes in 2022/23 – a 9.9% increase on last year’s total of £715.3bn.

Receipts from income tax, capital gains tax and National Insurance contributions hit £47bn – accounting for over half (57%) of the total tax take.

Meanwhile, property price increases mean more families are now over the inheritance tax threshold, which raised a further £7.1bn – around £1bn more than the same time last year.

Business taxes for 2022/23 also rose significantly, jumping by £17.5bn to £84.9bn. According to HMRC, this was partly due to higher offshore receipts as a result of Russia’s invasion of Ukraine and the new energy profits levy.

The surge in total tax receipts can be largely attributed to recent tax threshold freezes, often dubbed “stealth tax rises”.

The inheritance tax nil-rate band is frozen at £325,000 until 2026, while both the personal allowance and higher rate threshold for income tax will remain frozen until 2028.

The Office for Budget Responsibility (OBR) predicts that inheritance tax receipts will raise £45bn between 2022/23 and 2027/28. The OBR expects the tax take to increase further in coming years as property prices and wages rise with inflation.

Contact us to talk about your tax liability.

The Institute of Chartered Accountants for England and Wales (ICAEW) is urging HMRC to rethink the quarterly reporting model for Making Tax Digital for income tax self-assessment (MTD for ITSA).

 In a letter to HMRC, the representative body is asking the Government to review the quarterly reporting process for the upcoming extension of MTD. According to the ICAEW, the change from annual reporting is “burdensome and not justifiable”.

While the ICAEW is “wholly supportive of the digitalisation of businesses and practices”, it criticises the reporting proposals, saying these will increase administrative costs for smaller businesses.

“Even when a taxpayer is maintaining digital records on a regular basis, having to ensure that these records are complete and checked by specific quarterly deadlines adds extra compliance burdens, especially where a bookkeeper or agent is involved, as we expect in the majority of cases,” ICAEW said.

There are hopes that the delay of MTD for ITSA until 2026 will give HMRC more time to analyse any feedback and consider further suggestions on the scheme.

In its letter to HMRC, the ICAEW added:

“‘MTD ITSA has become mired in controversy, the credibility of the project and the ‘MTD brand’ has been severely, if not irretrievably, undermined.

“To maximise support by business, the project needs a rethink and a rebrand, focused on the original aims, namely to deliver productivity benefits from the adoption of software and digital record keeping, and making it simpler for taxpayers to comply with their tax obligations.”

As well as the delay to the scheme’s rollout, HMRC has also paused the MTD for ITSA pilot scheme.

According to a Freedom of Information request, there were only 115 participants in the trial as of the start of 2023. HMRC has confirmed it will announce a revised testing stage to reflect the delays in the scheme’s launch.

Get in touch to talk about Making Tax Digital.

The Government has launched a consultation to modify the tax treatment of cryptoassets used in decentralised finance (DeFi) lending and staking transactions.

The law currently treats many of these transactions as disposals for tax purposes. This usually triggers a capital gains tax (CGT) charge, despite the owner still having an economic interest in the asset.

According to industry representatives and tax professionals, these rules cause difficulty and do not reflect the “underlying economic substance” of DeFi transactions.

Instead, the Government plans to introduce separate rules for DeFi lending and staking. Under the proposed changes, CGT will only apply once the asset is fully disposed of.

The Government hopes this measure will reduce costs and simplify the administrative burden for taxpayers involved in DeFi transactions. The approach also allows policymakers to make further legislative changes as the DeFi market evolves.

Gary Ashford, deputy president of the Chartered Institute of Taxation, said it was “encouraging” to read these proposals.

“Whatever the rules on taxing cryptoassets, the Government needs to work hard to raise awareness among owners of crypto of their obligations on both tax payment and reporting.”

The consultation will run from 27 April 2023 to 22 June 2023.

Talk to us about your tax obligations.

Protect your savings for the future.

Investments, always subject to a variety of risks that can impact their value, are never safe.

For example, the value of your investment could decline due to the performance of the company you invested in. If you hold fixed-rate bonds, a spike in interest rates could cause the value of your investment to fall, as demand switches to higher rate bonds.

But another investment risk has once again reared its head: high inflation. Usually measured as the average increase in consumer prices over a year, inflation erodes spending power if income or returns do not keep pace.

So, a fixed-rate bond that pays 2% would actually depreciate in value in a year where inflation runs at an average rate of 3% — despite the numbers in your bank account ticking upwards.

In the 12 months to March 2023, inflation hit 10.1% and, according to the Office for Budget Responsibility (OBR), will average 6.1% for 2023.

The OBR then forecasts inflation will drop to around 0% in mid-2026. Remember, though, that the Bank of England’s target is 2%, which it and the Government will want to return to. After all, a small amount of inflation is actually a sign of a healthy economy and acts as a barrier against the damages deflation (negative inflation) can bring.

So, while making inflation-proof investments is essential in the short-term, inflation is something that investors always need to bear in mind in the future.

Here are some of the methods you can use to inflation-proof your investments.

Disclaimer: the following are investment methods that may or may not suit your situation, but should not be taken as investment advice. Always talk to a financial adviser before investing.

Invest in equities

Equities, also known as stocks, represent ownership in companies, and buying them has historically been seen as a good way to beat inflation.

That’s because some companies have enough market power to control the market prices of their products and services without losing their customers — in that sense, they’re ‘price makers’.

Such a power in the market makes these firms profitable even during times of economic hardship. As a result, the value of their stocks tend to increase over time to match or even overtake inflation in some cases.

Examples of price-makers in today’s economy include businesses in the energy and healthcare sectors — industries that offer essential goods that people will always need.

Alternatively, you could find a price-maker who can afford to increase prices without losing customers because they enjoy a loyal customer base or offer unique products.

However, investing in equities still carries significant risk, including the risk of losing your principal investment.

Additionally, the value of equities can be volatile, meaning they can fluctuate significantly in the short term. As such, it’s important to have a long-term investment horizon.

Consider real assets

Real assets are physical commodities with a high intrinsic value because they can provide a tangible benefit or use to their owners. Examples include precious metals, energy, infrastructure projects and agricultural goods.

There is also healthcare, including providers, drug developers and medical device developers.

These assets can be a good idea because during periods of inflation, the price of goods and services increases, leading to a decrease in the purchasing power of government-issued currency, like the pound or dollar.

However, real assets, especially those with real benefits to society, may be able to hold their value better than regular currency during inflationary periods. Gold has historically been seen as one of the better hedges against inflation.

Property investments

Among the real assets you could invest in is property. Property prices have increased impressively over the last few decades — while offering the owners an additional revenue stream in the form of rental income.

One thing to bear in mind is that property can be a little more hands-on than other types of investments (unless you’re willing to hire someone to manage your property for you).

Meanwhile, forecasts suggest the average house price could drop between 6% and 12% in the near future — but if the Bank of England slashes interest rates, which has a knock-on effect on the rates mortgage providers use to charge for their products, things could turn around.

Inflation-indexed bonds

Inflation-indexed bonds, known as index-linked gilts in the UK, are securities issued by the Government, offering a safe investment that hedges against inflation.

Index-linked gilts differ from conventional gilts (money you save with the Government in return for interest payments) in that principal payments are adjusted in line with inflation.

However, they do not completely protect against inflation: lag time between the release of inflation data and payment on the gilts means inflation-linked payments may not fully keep up with the actual rate of inflation.

Alternative investments

Alternative investments are investments that are not traditionally included in a portfolio of stocks, bonds, and cash. Examples of alternative investments include hedge funds or private equity.

Of course, there are also crypto-assets. While many of the more notable ‘coins’, such as Bitcoin and XRP, fell in value during the pandemic, the market has somewhat stabilised and could prove beneficial to investors.

Alternative investments, including crypto, can provide a hedge against inflation because they are often less correlated with traditional investments.

However, alternative investments can be complex and may require a higher level of expertise than traditional investments. Additionally, alternative investments — particularly crypto-assets — can be volatile and risky to invest in.

Diversify your portfolio

Diversifying your portfolio is one of the best ways to inflation-proof your investments — after all, why invest in just one of the assets we’ve discovered when you could invest in a number of them?

Meanwhile, investing in a variety of assets can reduce the impact of one class performing poorly against inflation or even an asset resulting in negative returns.

Your next steps

There are several strategies you can use to inflation-proof your investments in the UK. These include investing in equities, real assets, and inflation-protected securities, diversifying your portfolio, and considering alternative investments.

However, before committing your money to a risky endeavour, you should always talk with a professional. No investment is without risk.

Get in touch to discuss your finances.