Methods to identify risks ahead of time.

Businesses at any stage in their life cycle can benefit heavily from creating and implementing a business plan.

Not only is a business plan there to map out your goals and aspirations, but also to identify any financial risks and operational challenges you may encounter.

According to research conducted by Fundsquire, 20% of small businesses fail in the first year, and around 60% fail within the first three years of trading, while CB Insights discovered:

• 29% fail because they ran out of cash
• 18% fail because of pricing and cost issues
• 17% fail due to a lack of a business model
• 14% fail because of poor marketing.

A business plan will usually outline strategies to avoid all of these issues – that’s why it’s important to create a thorough plan as early as possible in your business journey.

Here are some things you should include and what your business plan can do for you.

Why might you need a business plan?

A business plan has a number of advantages, including helping communicate your business goals, market knowledge, and financial understanding to potential shareholders and investors.

A business plan is also instrumental in accessing funding. If you want a lender to take you seriously, you’ll need to prove that you understand how you’ll use their money to grow your business and give them a return on their investment.

It’s not just startups that can use a business plan to secure further funding. Existing businesses looking to expand will also be able to use their business plan as supportive evidence towards a loan or investment.

Business plans are not only for expansion, however; they are also a form of contingency.

With businesses currently facing rising energy costs and a 2023 recession looming, it’s never been more important to look ahead and prepare for every eventuality.

According to the Centre for Retail Research, the total number of closures over the last year was 50% higher than in 2021.

To avoid the risk of closing prematurely, your business plan should account for any threats you may face and how you would overcome these obstacles. Cashflow forecasting can play a big role in this process, especially for existing businesses.

Looking at previous sales data may also help you predict trade patterns, which can be especially useful for seasonal businesses. If you identify that business is usually slow at a certain time of year, you’ll know that you’ll have to save through this period.

What to include in your plan

Usually, it’s best practice to keep your business plan reasonably short. If you’re expecting others to read it, the last thing you should do is present them with a 300-page plan that makes them lose interest before they get to the important details.

That said, there are a few things you must include if you want your plan to be comprehensive and a solid representation of what you’re expecting of your business.

Basic business information and research

First, you’ll need to clearly explain your business in the simplest terms possible. This includes what services you’ll offer, who your target market is, and your business structure.

You’ll also need to show any market research you’ve carried out on your competition. It’s important to demonstrate that you understand current trends and how to adapt to any market changes that may occur.

Finances

Your financial planning will make up a large part of your business plan, including cashflow forecasting, an income statement and a balance sheet.

Your cashflow forecast will take into account any income or funding you’ve received or are due to receive as well as any expenses you’re likely to incur. You can also include sales forecasts based on previous trade data.

When creating forecasts, you should be as realistic as possible. If you overestimate your costs and expenses, it could result in cashflow issues further down the line, and you could end up not being able to cover essential costs of your business operations.

It’s also important to include any plans for funding or investment. You should explain how much you need to reach your business milestones and how you’ll use the money to develop your business.

Marketing

Your marketing strategy will also be an essential element of your business plan, requiring you to consider how you’ll stand out from your competition and determine the most cost-friendly and efficient ways to sell yourself to your target audience.

Your sales strategies will intertwine with your marketing strategy, and you’ll need to ask yourself a number of questions to make sure you’re taking the right approach. For instance, is your business better suited to trading online or in person? Could you sell through retailers or agents?

Management and operations

Any effective business plan should contain information on your management and personnel structure as well as your business operations.

In this section, address the strengths and responsibilities of each team member. By identifying potential weaknesses, you’ll be able to put measures in place to cover those gaps.

Training and development plans should also be present in your plan, alongside the costs associated with recruiting new staff.

Again, being realistic is essential. You should discuss your expected staffing costs and how they might grow over time, as well as how your business would continue to run if you were to lose a key member of the team.

As your business premises are a key part of your operations, they should also be part of your plan. You’ll need to identify the size of your premises to start with, making sure you discuss how you’ll fully utilise the space, how much it will cost and how long it will be viable for.

If you think you may need to relocate further down the line, include this. Investors will need to know how you are preparing for expansion and how you plan to afford to scale up.

Business equipment, maintenance and general upkeep will factor into your future costs as well as your operational plan. Alongside inventory control, you’ll be able to show others how you plan to meet demand and adapt to both the busiest and slowest trading periods.

If your systems are outdated or unsuitable, investors will likely be more sceptical about supporting your business from the outset.

Even though the business landscape looks somewhat uncertain right now, a bit of careful planning and confidence can help prospective business owners make their latest venture a success.

Although you might not consider an accountant to be the first port of call for help when building your business plan, a keen financial eye is the most useful tool to have when you’re assessing your business’s position now and in the future.

Contact us to discuss the best ways to build and implement a business plan.

How the April tax rise affects SMEs.

After multiple policy U-turns and much uncertainty, the main rate of corporation tax will rise from 19% to 25% from 1 April 2023, affecting companies with profits of £250,000 and over.

The legislation provides that small companies with profits up to £50,000 will continue to pay corporation tax at 19%, with profits between the two limits being subject to a tapered rate.

All UK companies must pay corporation tax on the profits they generate, while the profits of non-incorporated businesses, such as sole traders and partnerships, are taxed via self-assessment.

Context around the measure

The April 2023 corporation tax rise was first announced by the then-Chancellor of the Exchequer, Rishi Sunak, in March 2021 during his Spring Budget.

At the time, the Government’s fiscal policy had been to reduce the annual deficit and deliver “sustainable public finances” after Sunak signed off on £400 billion more spending than planned in 2020, owing to the Covid-19 pandemic.

The Treasury estimated the changes to corporation tax would increase tax by an additional £17.2bn a year by 2025/26.

However, after Boris Johnson resigned as Prime Minister in July 2022 and was replaced by Liz Truss, the Government’s approach to fiscal policy changed radically.

Kwasi Kwarteng, the third person to serve as Chancellor in 2022, delivered his ‘mini Budget’ on 23 September, where he announced a range of tax cuts and cancelled the planned rise in corporation tax.

However, following a strong negative market backlash to the mini-Budget, the Government was forced into a U-turn, with Truss confirming on 14 October the corporation tax rise would in fact go ahead as planned.

In documents accompanying the Autumn Statement by Jeremy Hunt, who replaced Kwarteng after he was sacked as Chancellor the day of the corporation tax U-turn, the Treasury upgraded its estimate of the value of the tax rise to £17.9bn per annum by 2026/27.

Despite the increase, the UK will remain the country with the lowest effective corporation tax rate in the G7.

New rates & thresholds

The corporation tax hike will be applied on profits exceeding £250,000 a year, which means around 10% of all UK companies will pay the full higher rate, according to Spring Budget 2021 documents.

The Government will also establish a ‘small profits rate’, which will hold corporation tax at 19% on profits of £50,000 or less.

According to the Government, this means 70% of actively trading companies – 1.4 million businesses – will be completely unaffected.

For profits between £50,000 and £250,000, the Government will introduce a taper to limit the increased tax burden on medium-sized companies.

If you have a profit of £300,000, all of it will be taxed at 25%, not just the amount above £250,000– unlike income tax, where portions of your income are taxed at gradually increasing rates after a tax-free allowance.

How the taper will work

Companies and organisations may be able to claim marginal relief if their profits from 1 April 2023 are between £50,000 (lower limit) and £250,000 (upper limit).

However, these limits are proportionately reduced if your accounting period is shorter than 12 months. The lower and upper limits are also proportionally reduced by the number of associated companies your company has; this is referred to as the ‘adjusted limits’.

So, if your company has three other associated companies, the limits are divided by four, reducing the lower limit to £12,500 and the upper limit to £62,500.

You cannot claim marginal relief if you are a non-UK resident company or a close investment holding company.

Organisations will be able to work out the amount of tax they pay with the following formula:

(Adjusted upper limit – Augmented profits*) x (taxable total profit ÷ augmented profits) x (standard marginal relief fraction).

The Government has developed a digital calculator on the gov.uk website to automatically calculate your corporation tax bill after marginal relief.

All you need to know is your information relating to the equation above and your company’s accounting period start and end dates.

*Augmented profits are ‘taxable total profits’ and any exempt distributions received from companies that are not 51% subsidiaries or held through a consortium.

What is the marginal relief fraction?

In the equation the Government has provided taxpayers, the marginal relief fraction is 3/200ths, which is the difference between the main rate and the marginal rate expressed as a fraction.

To explain where this fraction comes from, the Government says:

• Corporation tax payable on the upper limit = £62,500 (because £250,000 x 25% = £62,500).
• Corporation tax payable on the lower limit = £9,500 (because £50,000 x 19% = £9,500).
• The tax payable difference between the limits is, therefore, £53,000.
• Dividing £53,000 by £200,000 (the difference between the upper and lower limit) provides the marginal rate of 26.5%.
• The difference between the marginal rate of 26.5% and the main rate of 25% is 1.5%, which can also be expressed as 3/200.

Mitigating corporation tax

ALthough corporation tax is rising for a lot of companies, they can still benefit from tax planning.

For instance, the annual investment allowance will remain at its highest ever permanent level of £1 million from 1 April 2023.

Meanwhile, the R&D expenditure credit (RDEC) will increase from 13% to 20% to give more tax money back for innovative projects.

However, the SME additional deduction will be cut from 130% to 86% from 1 April, and the SME credit will decrease from 14.5% to 10%, to “improve the competitiveness of the RDEC scheme”.

There are also several tax reliefs available for creative industries, including video games tax relief, film tax relief and various television reliefs.

The Government also promised in the Autumn 2022 Statement to “build upon the success of the audio-visual subset of the creative industry tax reliefs” to “further incentivise the production of culturally British content”.

Contact us to discuss your tax plan and other ways to reduce your corporation tax liability.

HMRC is inviting people to comment on draft guidance relating to the upcoming R&D tax credit relief reforms.

The reforms, expected to be implemented from 1 April 2023, will change how R&D works in practice and set out additional information requirements when applying for the relief.

Anyone wishing to comment can do so until 28 February via the Government website.

Initially announced in the Spring Budget 2021, the Government set out plans to review the R&D system to ensure that the UK remains a competitive location for research.

One of the main focuses of the R&D reforms is on qualifying expenditure in the UK and overseas.

For accounting periods beginning on or after 1 April 2023, expenditure on payments to subcontractors must be either UK-based or meet the overseas qualifying criteria for both SME R&D relief and the R&D expenditure credit.

Any companies wishing to claim R&D on overseas expenditure must ensure that the following three factors apply:

• the conditions necessary for the R&D are not present in the UK
• the correct conditions are present in the location where the work is carried out
• it would be wholly unreasonable to replicate the conditions in the UK.

There are also new reporting requirements, and first-time users of R&D relief will have to submit a claim notification form.

In order to apply, you will have to submit the following information:

• your unique tax reference (UTR) number – the same on your CT600
• contact details of the main R&D leader in the company
• contact details of any involved agent
• an agent reference number (if applicable)
• your accounting period start and end dates for the period where you carried out the R&D work.

The draft legislation for these measures was published for comment on 20 July 2022, and any final legislation will be taken forward in the Finance Bill later this year.

Talk to us about your R&D claims.

The Government has announced a new energy bills discount scheme (EBDS) for UK businesses, set to replace the current energy bills relief scheme (EBRS) once it ends in March.

The new support package will last from 1 April 2023 to 31 March 2024, giving organisations a discount on high wholesale prices instead of capping energy costs. This means that firms will benefit from support in proportion to their usage.

As with the current scheme, eligible organisations do not need to apply for the discount and will automatically receive reductions to their bills.

Businesses in industries with particularly high energy usage and trade intensity, such as manufacturing, will receive a “substantially higher” level of support.

According to Chancellor Jeremy Hunt, this reduced level of support will help bring down inflation while providing as much aid to businesses struggling with soaring energy bills as possible.

The Chancellor has also written to energy watchdog Ofgem to see if further action is needed to prevent energy companies from passing costs onto businesses.

Commenting on the downgrade of energy support, the Treasury said:

“The Government has been clear that such levels of this support, unprecedented in its nature and huge scale, were time-limited and intended as a bridge to allow businesses to adapt.”

MPs are demanding urgent improvements to HMRC’s “unacceptable service standards” after a parliamentary report discovered an “eye-watering” £42 billion is owed to HMRC from unpaid tax.

 The report also highlighted a dramatic drop in HMRC staffing levels, with 6,000 employees being cut over the past five years.

Dame Meg Hillier, chair of the committee, said:

“The eye-watering £42 billion now owed to HMRC in unpaid taxes would have filled a lot of this year’s infamous public spending black hole.”

The public accounts committee report, meanwhile, reads:

“We do not consider that HMRC has the resources required to provide the level of service its customers need, or to maximise the tax revenues it collects, at a time when the public finances are under huge strain.”

The average speed of answering incoming calls to HMRC helplines was 12.22 minutes in 2021/22, almost double the length of waiting times in 2019/20, while there have even been reports of people on hold at HMRC for hours at a time.

Harriett Baldwin, Head of the Treasury Committee, wrote to HMRC chief executive Jim Harra, requesting an explanation for the long phone waits experienced by taxpayers.

In light of the growing number of complaints, Baldwin asked whether the disruption to the service was due to high levels of demand, too many HMRC staff members working from home, or whether the delays were connected to the IT issues experienced in early December 2022.

In the letter, Baldwin said:

“It is of serious concern that taxpayers are apparently unable to reach HMRC by telephone in the run-up to the 31 January online self-assessment deadline.”

The MP also asked what steps were being taken to resolve the reported concerns and whether HMRC would implement procedures to prevent similar issues in the future.

Speak to us about your self-assessment.

Soaring inflation remained a key concern for businesses at the end of 2022, according to the latest quarterly economic survey from the British Chambers of Commerce (BCC).

 Of the 5,600 firms surveyed – 92% of which are SMEs – 80% said that inflation was a growing worry for their business in Q4 of 2022. Nearly 38% expressed concerns about rising tax burdens, while 43% said interest rates impacted their business.

Business confidence stabilised at a low level following significant declines in Q3, with just 33% of respondents experiencing an increase in sales over the three months to November 2022, while 25% reported a decrease.

Meanwhile, firms in the retail and hospitality industry were more likely to report a decrease in sales than an increase.

Only 34% expected higher profits in 2023, while 36% anticipated a decline in profitability.

Responding to the survey’s findings, director general of the BCC, Shevaun Haviland, said:

“The outlook from businesses remains bleak. Now, more than ever, we need to create the right conditions for firms to invest and grow.

“The Government’s New Year’s resolution should be to put business support for SMEs at the heart of its agenda and get the UK back on the road to recovery.”

Contact us to discuss your business costs.

One in four business leaders (24%) believe the Government’s energy bill relief scheme (EBRS) has removed a “serious risk” to their business, according to a poll by the Institute of Directors (IoD).

Of the surveyed 500 or so directors whose energy bills made up more than 5% of their costs, 11% stated they have been able to keep their premises open for longer due to the scheme.

A further 35% said that having the energy price cap in place over the winter has made it easier for their business to plan for the future.

Meanwhile, 5% said they would have stopped trading altogether if the Government had not stepped in to help businesses with energy bills.

However, the majority of directors (75%) disagreed with the idea that they would have had to stop trading if it were not for the energy price cap this winter, while 19% neither agreed nor disagreed.

The EBRS scheme is available to everyone on a non-domestic contract including:

• businesses
• voluntary sector organisations, such as charities
• public sector organisations such as schools, hospitals and care homes.

For all non-domestic energy users in Great Britain and Northern Ireland, the Government supported price has been set at:

• electricity – £211 per megawatt hour (MWh)/ 21.1p per kilowatt hour (KWh)
• gas – £75 per MWh/ 7.5p per KWh.

Alex Hall-Chen, senior policy advisor at the IoD, said:

“Our data shows that the Government’s energy bill relief scheme has been a crucial intervention, removing a serious risk to around a quarter of businesses.

“We therefore urge the government to continue the EBRS for sectors of the economy particularly vulnerable to current fluctuations in international energy markets.

“To this end, we are concerned that no provision was made for the extension of the scheme beyond March 2023 in the policy costings that accompanied the Autumn Statement.”

The Treasury has confirmed that Making Tax Digital for income tax self-assessment (MTD for ITSA) will be delayed a further two years until April 2026.

According to First Secretary to the Treasury Victoria Atkins, this phased approach will give businesses more time to prepare and adapt to new ways of working.

The minimum reporting level for businesses, self-employed individuals and landlords will be increased from £10,000 to £50,000, with those earning over £30,000 not needing to comply with MTD rules until 2027.

The Government will also launch a review into how MTD for ITSA can better serve the needs of smaller businesses, particularly those earning less than £30,000 a year.

Partnerships will not be brought into MTD for ITSA in 2025 as previously planned, and will instead be mandated to join the scheme at a later date.

Furthermore, a points-based system aimed at making penalties fairer and simpler will come into effect for taxpayers when they join MTD for ITSA.

In a statement on 19 December 2022, Victoria Atkins said:

“It is right to take the time needed to work together to maximise those benefits of MTD for small business by implementing it gradually.”

Talk to us for advice on MTD.

Monthly GDP grew by around 0.5% in October 2022, following 0.6% drop in September, according to the Office for National Statistics (ONS).

Despite the recovery in monthly figures, the UK economy nevertheless contracted by 0.3% in the three months to October.

The rise in GDP in October follows a 0.6% fall in September, which “was affected by the additional bank holiday for the State Funeral of HM Queen Elizabeth II”, according to the ONS.

October saw the services sector grow by 0.6% after falling by 0.8% in September, largely driven by a 1.9% rise in the wholesale and retail trade including the repair of motor vehicles and motorcycles.

Meanwhile, output in consumer-facing services grew by 1.2% in October – but only after falling by 1.7% in September and 1.6% in August.

Commenting on the figures, economics director at the Institute of Chartered Accountants in England and Wales (ICAEW), Suren Thiru said:

“October’s rebound is a false dawn for the economy, as it mostly reflects the favourable comparison with September.

“The positive start to the fourth quarter may not prevent recession with the growing squeeze on incomes likely to drive falls in GDP in November and December.”

Talk to us about your business.

What to expect from April 2023.

A number of changes are coming to income tax in April 2023 that will affect taxpayers across the UK.

Many of these measures were announced by Chancellor of the Exchequer Jeremy Hunt in his Autumn Statement on 17 November 2022. According to Hunt, these decisions will see everyone pay “a bit more tax” from the 2023/24 tax year onwards.

Many of the decisions announced in the September mini-budget, including those affecting income tax, have been changed or scrapped completely. The new measures are expected to raise a further £34 billion a year for the UK Government.

As the cost of living crisis worsens and the UK enters a recession, it’s increasingly important to be aware of your liabilities. Understanding these measures may help you take the necessary steps to safeguard your finances.

Here’s what you need to know about the upcoming changes, and how they’ll affect your income tax bill.

Recap of changes to income tax

Additional-rate threshold

One of the biggest announcements made in the Autumn Statement was the lowering of the additional-rate threshold for income tax from £150,000 to £125,140.

Around 660,000 taxpayers currently pay the additional rate of income tax, and a further 232,000 people will fall into the tax bracket once the changes come into place in April 2023.

This is in stark contrast to previous Chancellor Kwasi Kwarteng’s announcement that the 45% additional rate would be scrapped altogether, which has now been reversed.

Personal allowance taper

By lowering the additional rate tax threshold to £125,140, the Government has aligned the top rate of tax with the personal allowance taper.

Under current legislation, taxpayers’ personal allowance is reduced by £1 for every £2 their net income exceeds £100,000. That means if your income is £125,140 or higher, your personal allowance will be zero.

Essentially, anyone who falls into the additional rate tax band from April onwards will pay income tax on all their earnings.

Basic rate

The basic rate of income tax in England, Wales and Northern Ireland will remain unchanged at 20% in April 2023, despite previous plans to lower it to 19%.

In the 2022 Spring Statement, then-Chancellor Rishi Sunak announced the basic rate would drop to 19% in April 2024. This plan was then supposed to be brought forward to April 2023 by Kwasi Kwarteng in the mini-budget.

However, the basic rate of income tax will instead stay fixed at 20% “indefinitely”, saving the Government approximately £6bn a year.

Frozen thresholds

The Chancellor announced several threshold freezes that will affect taxpayers in England, Wales and Northern Ireland over the coming years.

The following freezes were already in place until 2026, but will now be extended a further two years until 2028:

• the personal allowance threshold at £12,570
• the higher-rate threshold at £50,270.

Freezes to the various National Insurance contribution thresholds are also in place, which are important to be aware of alongside income tax.

Income tax in Scotland

While Westminster sets income tax rates for most UK taxpayers, the Scottish Government sets its own rules. This means that many of the measures set out in the Autumn Statement will not apply to people in Scotland.

Deputy First Minister of Scotland, John Swinney, announced a number of changes to income tax in the Scottish Budget on 15 December 2022 that will affect top earners the most.

Much like the rest of the UK, the threshold for Scotland’s top rate will be lowered from £150,000 to £125,140 in April 2023, pushing more taxpayers into the top band.

Unlike the rest of the UK, tax rates for higher earners are also changing in April. The higher rate of income tax will rise from 41% to 42% while the additional rate will rise from 46% to 47%. There will be no changes to the starter, basic or intermediate rates of income tax in Scotland.

Furthermore, the UK Government’s decision to freeze the personal allowance threshold at £12,570 applies to taxpayers nationwide, including Scotland.

The Welsh Government also has devolution powers, but has chosen not to use them so far.

How the changes will affect your income tax bill

The Government has said that the “fairest way” to restore public finances is for everyone to contribute a little, with the highest earners paying a “larger share”. However, many taxpayers who fall into lower tax bands will also be affected by the upcoming changes.

With thresholds frozen until 2028, taxpayers across all bands will see a greater proportion of their earnings going towards their income tax bill as wages rise with inflation.

The Office for Budget Responsibility (OBR) estimates these freezes will create an additional 3.2m new taxpayers, causing 2.6m people to fall into a higher tax bracket.

Because of this, many are viewing the threshold freezes as a “stealth tax”, and some people may find their pay rises effectively cancelled out by increased tax liabilities.

For example, individuals who currently pay the 20% basic rate of tax will need to pay 40% on their income above £50,270, if it exceeds that level between now and 2028.

Furthermore, people on lower incomes may need to tighten their purse strings as inflation continues to soar while the personal allowance threshold remains fixed at £12,570.

Meanwhile, around 232,000 taxpayers currently paying the higher rate will need to pay the additional rate once the threshold is lowered in April.

According to the Government, the impact of this measure will vary depending on individual circumstances. On average, the cash loss will be £621 for those who earn between £125,140 and £150,000, and £1,256 for people with incomes above £150,000.

However, those who do fall into the additional tax rate band in April will be able to take advantage of the more generous pension relief it offers.

Basic rate relief of 20% is automatically applied to each person’s pension contributions, and people who pay the additional rate can claim a further 25% on top of that.

To benefit from this relief, top earners will need to claim the money back in their self-assessment tax return.

Work with tax experts

With legislation constantly evolving, it can be difficult for individuals to navigate the complexities of income tax. Without a good understanding of your obligations, you may end up with a bigger income tax bill than you bargained for and risk incurring extra costs.

Working with an accountant will help you stay in HMRC’s good books, and may save you time and money in the long run. As tax experts, we can explain how the new changes will affect your finances directly, and calculate and submit your returns on your behalf.

Your accountant can also draw up an in-depth tax strategy, ensuring you take home as much of your hard-earned profits as possible.

Talk to an expert about the upcoming changes to your income tax bill.