Articles

Omicron-hit employers can reclaim statutory sick pay

Small and medium-sized employers can reclaim money from the Treasury to cover statutory sick pay (SSP) paid to employees with COVID-19.

Chancellor Rishi Sunak reintroduced the SSP rebate scheme last month, after it initially closed on 30 September 2021.

It forms part of a series of measures announced to support businesses affected by the new wave of COVID-19 infections caused by the Omicron variant.

The scheme means employers with fewer than 250 employees can get SSP reimbursed for COVID-related absences, for up to two weeks per worker.

Most employers have to pay SSP of £96.35 a week to employees who are off sick or isolating for more than four consecutive days, including non-working days.

The cost of providing SSP is one of employers’ main concerns, with reports claiming they face the prospect of up to a million absences in the first months of 2022.

Mike Cherry, chairman at the Federation of Small Businesses, said:

“This will reduce stress for small employers up and down the country, helping those who are struggling most with depleted cashflow.

“It’s vital that small firms – once again up against a massively disrupted festive season – can reclaim the costs of supporting staff.”

Talk to us about managing payroll. 

February 2022

Deadline looms for new hospitality and leisure grants

Eligible businesses in England have until the end of this month to apply for the new Omicron hospitality and leisure grants.

The Treasury announced more support for hospitality, leisure and accommodation businesses before Christmas last year.

Chancellor Rishi Sunak said at that time the new grant scheme was part of a new support package worth £1 billion.

That followed hospitality and leisure firms being hit by a collapse in bookings amid consumer concerns over the spread of Omicron.

According to Hospitality UK, many of these businesses reported lost trade in December 2021 – often their most profitable month – of 40-60%.

Restaurants, bars, cinemas and theatres in England have until an specified date in February 2022, determined by local authorities, to apply for a grant of up to £6,000 for each of their premises.

The Treasury has set aside an initial £683 million for these firms and it will be provided under existing council-run schemes.

The scheme is based on business rates. Firms with a rateable value of up to £15,000 will be eligible for grants of up to £2,700.

Those with a rateable value from £15,000 to £51,000 will be eligible for grants of up to £4,000.

Those with rateable values over £51,000 can get the £6,000 grants, so larger chains will be the ones to benefit from the top end of this support.

To receive funding, businesses must have been trading on 30 December 2021 and be the current ratepayer in occupation of business premises appearing on the local rating list on the same date.

Successful applicants will receive their grants on or before 31 March 2022.

Speak to us about managing cashflow.

February 2022

How to value your business in 2022

Is it only worth what the buyer wants to pay?

The last year has been challenging for all of us, let alone business owners who’ve had to claim emergency support and battled hard to stay afloat. 

Having survived those choppy waters, maybe it’s time to get your business valued as thoughts drift towards an exit strategy or securing external investment to facilitate growth.

It might be difficult to say what that value is from within your business. After all, you’ve put hours of hard work into building your business from the ground up. But what does that translate to in monetary terms?

A good place to start is to know exactly what it is you’re selling. That could be the name of your business and its reputation, or a lease on a premises you or your company currently own.

Then there’s the type of business you are, the sector you operate in, any assets it holds, and the people who work there. Those factors all contribute to your business’s overall value and its appeal to buyers.

Like most things, a business is only worth what a buyer is willing to pay for it.

However, having a clear picture is a great starting point when it comes to reaching an accurate valuation of your business, and to attract potential buyers.

Why value your business?

Valuing a business is usually done because you want to sell up and do something else, or to raise investment within your business, but other reasons also abound.

When it comes to selling your business, valuations can also help you to determine the right time to sell, to negotiate the best possible deal, or to move negotiations along.

Valuations can also be particularly useful to know when you’re planning your retirement, and thinking about your financial future and that of your family.

Research by Which? suggests one-person households spend an average of £19,000 a year and households with two people spend an average of £26,000 a year.

The latter figure covers all the basic areas of expenditure and some luxuries, such as European holidays (when we’re allowed to go overseas), hobbies and dining out.

Alternatively, a business valuation can help you grow your business. You could even choose to carry out annual valuations to give you an accurate picture of the stage your business is at.

Things to consider

Several factors might come into play when determining your business’s value, and some of these are included in the valuation methods we’ll describe in more detail later.

Assets and liabilities: What assets do your business own? How full is your order book? Be transparent about any debt or other liabilities the business has.

Business age: Startups might have a lot of potential on their side, but they often make losses. More established businesses tend to be profit-making and face fewer risks in the eyes of buyers or investors.

Circumstances: Has the pandemic put you under pressure to sell quickly in order to repay debts or retire due to ill-health? Fire sales usually result in lower offers.

Finance: Do you have historical and current cashflow and profit projections? How well do you control costs? These factors play a big role in valuing your business.

Market demand: Market conditions tend to affect all businesses. Being able to show demand for your products or services will be very attractive to buyers or investors.

Reputation and customers: Does your business come with a good client base and a reputation for quality products or services? Having consumers’ trust can really boost the value of your business.

Staff: Is staff turnover high or do you reward employees via pay rises and benefits-in-kind? Good levels of staff retention retains experience and ties in with your business’s reputation.

Business valuation methods

Once you’ve gathered together all of the relevant information about your business, it’s time to get into the technical details of calculating its value.

There are five main methods for this, which we’ve set out below.

The most appropriate valuation method for you will largely depend on the type of business you operate: the sector it’s in, the size of the business, how long it’s been running, and so on.

Most people will use a combination of two or more methods to reach a final figure for their business’s value.

Valuing assets

Established businesses, such as those in manufacturing or property, are usually valued by the tangible assets they own, minus any liabilities. The overall value is based on that figure.

This method makes sense if you have a stable business with assets that have measurable value, and usually a physical form, such as equipment, machinery, furniture, land, and so on.

Valuations on intangible assets

Intangible assets, such as the skills and experience of your workforce, or intellectual property like patents, copyrights and trademarks, tend to be much more difficult to value.

That extends to negotiating skills, desirable relationships with customers or suppliers, and a strong management team and loyal staff who won’t jump ship at the first sign of a pay rise.

While you can’t put a figure on these types of assets, they play a key role in driving the business forward. Having them will certainly be more attractive to a buyer.

Discounted cashflow

Bigger companies with fairly stable cashflow can be valued using the discounted cashflow method, although this has become more difficult to predict since the pandemic.

Essentially, it works by using forecasts for several years to work out what a business’s future cashflow is worth today.

The business’s value is worked out at a discounted rate, to take into account potential risks and the decreasing value of money over time.

This method relies on several assumptions about long-term conditions. But as COVID-19 shows, nobody knows what’s around the corner and that makes this method more complex than it already was.

Entry-cost valuation

A much more simple method than discounted cashflow arrives in the form of entry-cost valuation. This is a way of working out a business’s value by estimating how much it would cost to launch a similar startup.

It should factor in the cost of everything from raising finance, buying assets and developing products, to employing and training staff, or building a customer base.

This method can also factor in any savings you could make, such as adopting more advanced technology, using cheaper materials, or basing the business in a less expensive area.

Price-to-earnings ratio

If your business has an established track record of making profits, the chances are it will be valued by its price-to-earnings ratio, or multiples of profit.

Calculations for these ratios are usually driven by profits. For example, if a firm has high forecast profit growth or a good record or repeat earnings, it could result in a higher ratio.

Let’s say you own a tech business which has £500,000 post-tax profits and you apply a ratio of four to it. This would mean your firm is valued at £2 million

There’s no such thing as a standard ratio that can be used to value all businesses, and the ratios can wildly differ.

Get in touch to value your business.

February 2022

Treasury’s pensions tax relief bill soars past £42bn

The costs involved with providing pensions tax relief are predicted to have increased to £42.7 billion in 2020/21, according to HMRC. 

Forecasts for the 2020/21 tax year showed another steady annual rise, following estimates of £41.3bn in 2019/20 and £38.2bn in 2018/19.

The 2020/21 figure of £42.7bn was split between £22.9bn in income tax and £19.8bn in National Insurance contributions.

Taxpayers receive this relief at their marginal rate of income tax, meaning those in the basic-rate band get 20% relief, rising to 40% and 45% in the higher and additional-rate bands.

Meanwhile, employer contributions to occupational schemes got £21.1bn in relief during 2019/20, £8.6bn of which went to the public sector.

The data also showed that employer tax relief on contributions to defined-benefit pensions increased by £400m to £15bn over the four years to 2019/20, while tax relief on contributions to defined-contribution schemes increased £4bn to £11.6bn.

The official data reignites speculation that Chancellor Rishi Sunak could be tempted once again to cut one of the Treasury’s most costly burdens.

However, the headline figure of how much pensions tax relief “costs” masks a multitude of underlying factors.

Steve Cameron, pensions director at Aegon, said:

“The figure mixes employer and employee contributions and to date, suggestions for pensions tax relief reform have focussed on employee tax relief, although moving to a flat rate might require higher-rate taxpayers to have employer contributions taxed as a benefit-in-kind to avoid a salary-sacrifice loophole.

“The other major factor is defined benefit versus defined contribution [pension schemes].

“Reforms will be particularly complex for defined benefit but omitting the latter would be grossly unfair and would also significantly reduce any ‘saving’ for the Treasury.”

Contact us about any aspect of pensions.

February 2022

Utilising your pension to cut inheritance tax

Pensions usually fall outside of your estate.

Inheritance tax was thought to be ripe for reform in last year’s Autumn Budget but, as it happened, it was left untouched for another tax year. 

What that means is the £325,000 nil-rate band has been in place since 2009, while the 40% standard rate of tax that can apply on any amount above that figure goes back even further than that.

This form of death duty is levied on our estates, which consist of any property, money and possessions.

While we don’t pay it ourselves, it can take a sizable chunk out of what your beneficiaries receive, especially if you are not in control of your estate.

There are many estate planning strategies, ranging from using ISAs and trusts to writing a legally-valid will and making potentially-exempt transfers, all of which we can help you with to form a comprehensive plan.

Another one of these tactics involves using your pension to reduce the value of your estate, ensuring you leave more of your wealth to your loved ones rather than HMRC.

Failing to do this, particularly if you have an estate worth more than £500,000 including your main residence, or up to £1 million if you’re in receipt of your deceased spouse’s full unused entitlement, leaves the door open for the taxman.

Fail to plan is planning to fail

It is easy to ignore inheritance tax. Some people think it’s only aimed at wealthy people, while others mistakenly believe they can take their money with them when they die.

Every individual in the UK has an inheritance tax-free threshold of £325,000. If your estate is worth more than this figure, tax can apply at 40% on everything above this threshold.

Indeed, between April and December 2021, HMRC had collected £507.7 billion – £114.1bn more than the same period a year earlier – although coronavirus-related deaths offer a big caveat

Property is one of the biggest assets that forms part of your estate, and the average price of a UK house was £252,687 in November 2021 – almost 15% higher than March 2020 when the COVID-19 crisis started.

And with both the nil-rate band and the residence nil-rate band frozen up to and including the 2025/26 tax year, it’s easy to see how more and more people will be dragged into inheritance tax’s net over the coming years.

Taking charge of planning your estate has arguably never been more important if you wish to pass on as much of your estate as possible to your loved ones.

What happens to your estate?

Depending on the total value of the assets you own when you die, your estate might be liable for inheritance tax.

The amount of inheritance tax HMRC will collect on behalf of the Treasury will vary, according to the total value of your estate and who your beneficiaries are.

Put simply, inheritance tax won’t apply if you have an estate worth less than £325,000. However, if your estate is worth more than this but you leave everything to your spouse, civil partner or a charity, inheritance tax also won’t apply.

But if you want to leave your estate to direct descendants, such as your children or grandchildren, inheritance tax could apply.

You might be able to leave them your family home as the residence nil-rate band (worth £175,000 per person in 2021/22) helps you to pass on your main residence.

For example, if your home is worth £1m, it’s possible to let your children inherit it without paying inheritance tax, assuming you have no other assets.

With house prices soaring, even the family home allowance is starting to look less than generous in many parts of the country. The good news is, however, your pension could help you cut your potential inheritance tax bill.

How your pension can help

Pensions usually fall outside of your estate for inheritance tax purposes. If you’ve ever nominated a beneficiary to inherit your pension, the pension will not form part of your estate.

As pensions are excluded from the calculation of whether your estate is worth £325,000 or more, the level at which inheritance tax typically becomes payable, they are a tax-efficient estate planning strategy.

Secondly, the pensions system can make it straightforward to pass on certain unused pensions to your beneficiaries, especially if you hold defined-contribution or money-purchase pension plans.

Finally, if you die before your 75th birthday, your nominated beneficiaries are entitled to all of the money with no tax to pay. If you die after age 75, they will still get the cash, but they must pay income tax at their marginal rate. The rules do change in certain situations, so please do check with us.

If you were to use your pension savings to purchase an annuity – an insurance contract paying you a regular income for life or a specified period – you might be able to pass on cash to the people or causes closest to your heart.

The annuity must be set up in the right way when you buy it, selecting options which allow you to pass on payments in the form of income or a lump sum. If this is not done on your death, no further payments will be made.

Annuity rates are determined by the Bank of England’s base rate of interest – which remained at 0.1% from March 2020 before increasing to 0.25% in December 2021 – and competition among insurers, while offering measly returns.

You could potentially reduce any inheritance tax liability by leaving your pension untouched and funding your retirement with other assets that do form part of your estate.

Getting some expert help

If you’re married, you leave your estate to your surviving spouse and you are the first partner to die, no inheritance tax will apply. If your nil-rate band has been unused, your partner can transfer the unused balance and add it to their own, up to a value of £1m.

However, if you have left bequests to others (and lifetime gifts made within seven years of death), your estate might attract inheritance tax if it’s large enough and may use up some or all of the nil-rate band.

As you can see, the rules affecting inheritance tax are complex and getting the details absolutely right is essential. Your wealth and the future of your beneficiaries after you have gone are too important to be left to chance.

We can provide expert assistance to help you minimise inheritance tax, not just by using your pension, but with detailed estate planning to take full advantage of all the strategies.

Get in touch to discuss inheritance tax.

February 2022

How should you structure your business?

Business structures are essential for tax purposes.

If you’re looking to join the 4.3 million people in the UK who made the jump into self-employment, you might be wondering how to start your new business.

Assuming you’ve weighed up the pros and cons involved and decided launching a startup is right for you, one of the first things to consider is how will you pay tax?

This requires you to choose a structure for your new business. The three most popular options are sole proprietorship, general partnership or limited company.

Last year, operating as a sole trader was the most common structure as around 3.2m sole traders accounted for 56% of the UK’s entire private-sector business population.

By comparison, there were 2m actively-trading companies and 384,000 general partnerships, making up 37% and 7% of the business population, respectively. You can also be a limited liability partnership.

The vast majority of those sole proprietors are genuine one-man bands; that’s to say they don’t have any employees (in an official capacity, at least).

There’s no rhyme or reason for going it alone and it’s worth being aware of the key options on the table when you start a business. You can also change your business’s structure whenever you like, although that can prove costly.

Sole proprietorships

Being a sole trader means there’s no legal distinction between your business and your own personal finances.

You will be solely responsible for any losses the business makes during the tax year, which currently runs from 6 April to 5 April the following year, as well as any of the business’s bills.

It will also be your responsibility to keep accurate records of any income and expenses from the tax year. This will be of paramount importance when Making Tax Digital for income tax comes in from April 2024.

In terms of your tax liabilities, your business profits will be assessed for income tax where not covered by the personal allowance (£12,570 in 2021/22). You currently need to file a self-assessment tax return relating to the previous tax year on or before midnight on 31 January.

Any amount of your business turnover, minus any expenses, that exceeds the personal allowance up to £50,270 will be charged income tax at the basic rate of 20%.

The slice of business profits worth £50,271 up to £150,000 will be taxed at 40%. Any excess profits above £150,000 will be taxed at the additional rate of 45%.

You will also need to pay National Insurance contributions (NICs) above certain thresholds. Class 2 NICs are currently fixed at £3.05 a week, unless the profits are less than £6,515. Class 4 NICs are charged at 9% of profits between £9,569 and £50,270 and 2% on profits above £50,270.

General partnerships

Ordinary business partnerships share many things in common with sole proprietorships. They’re both usually registered as self-employed and liable for income tax and NICs at the same rates and thresholds.

The key difference is that two or more people manage and operate the partnership, rather than the one individual in a sole proprietorship.

Partners split any profit in a pre-agreed ratio, and the same ratio determines responsibility for any losses the partnership makes.

Business partners’ tax reporting obligations are slightly different to sole traders, however. When you register as an ordinary partnership, you have to ‘nominate’ a partner to be responsible for submission of the partnership tax return.

This SA800 form simply asks for details of the partnership’s income in a tax year. That should include income from trades and professions, interest or alternative finance receipts from banks, building societies or deposit takers, all of which should all be reported on or before midnight on 31 January following the end of the tax year.

After the profits have been allocated, each partner needs to file their own personal tax return through self-assessment, reporting their profit share.

Limited liability partnerships

Limited liability partnerships (LLPs) are similar to ordinary partnerships from a tax perspective, but similar to companies from a legal perspective since the partners’ liability is limited to the amount of money they invest in the business.

You can incorporate an LLP to run a business with two or more members. A member can be an individual or a company; the latter’s known as a ‘corporate member’.

An LLP agreement will set out the members’ responsibilities and share of the profits. Exactly like ordinary partnerships, each member pays income tax and NICs on their share of the profits, but they are not personally liable for any debts the LLP incurs.

Like a limited company, an LLP must be registered at Companies House and with HMRC, while you will also have to arrange for the annual accounts to be prepared and filed.

Incorporations

If you choose to incorporate your business, you will probably go down the limited company route. Broadly speaking, this is a legal structure for a business in which the liability of each shareholder is limited to their own investment.

Limited companies are governed by rules and regulations in the Companies Act (2006), one of which means you must register with Companies House.

Private-sector companies are usually limited by shares which are distributed among its shareholders and are not traded on public stock markets.

Companies pay corporation tax, currently at 19%, on any taxable profit they make during their accounting period. Depending on how you decide to pay yourself, taxes on income, dividends and NICs can all come into play for you personally.

While the prospect of having limited liability will seem attractive, you will have more responsibilities than if you were to operate as a sole trader.

Umbrella companies

If you’re on a short-term contract or just trying out the world of freelancing, working through an umbrella company might be a suitable option.

An umbrella company sits between you (the contractor) and your end-clients, or agency if there’s one involved. The umbrella company will employ you and be responsible for handling all of your employment taxes.

If you’re a contractor or freelancer, this offers peace of mind as the umbrella company pays your taxes and chases late payments from clients. It can also offer valuable benefits like sick pay and annual leave.

You simply do the work, fill in a timesheet, your end-client authorises it and invoices the umbrella company, who then deducts your taxes and its fee before paying you.

What’s the best option for you?

Being a sole trader offers the most control over your business and is both easy and cost-effective to set up. You will, however, be liable for any debts it racks up.

What can be said about sole traders also applies to partnerships, although with more than one person calling the shots in a partnership comes the potential for disagreements.

LLPs exhibit elements of a being in a business partnership and running a limited company. If you go down this route, you must start trading within a year of registering your LLP or face being struck off.

Limited companies offer you less personal financial exposure with the protection of limited liability and the flexibility to remunerate yourself in tax efficient ways. However, there can be significant set-up costs and your annual accounts and financial reports will be in the public domain.

Umbrella companies suit freelancers and contractors, and can ensure you stay on the right side of the off-payroll working rules more commonly known as IR35.

Get in touch to discuss your options.

January 2022

How to extract profits out of a company

Tax-efficient advice for limited company directors.

Believe it or not, there are more than 4.7 million limited companies registered in the UK, including the 810,316 incorporations that signed up in 2020/21.

Only around 2m are actively trading, but the number of new companies formed during the previous tax year was a 22% year-on-year increase.

Unsurprisingly, that percentage represented the highest number of incorporations on record. Surprisingly, this record high was reached during COVID-19.

As well as starting a company in the middle of a pandemic, company directors also need to work out the most tax-efficient ways to pay themselves.

Once you’ve set up an incorporated business and become a director, you have to be smart about how you extract profit to avoid paying more tax than you need to.

There are three main routes for a director to extract profits from their own limited company – salary, dividends and pension contributions. Usually, combining these three methods is the most tax-efficient approach to minimise your tax bill.

With corporation tax applying (at 19% in 2021/22) on any of your company’s taxable profits from its accounting period, the money you take out of the profits to pay yourself can potentially reduce your company’s corporation tax liability.

Pay yourself a small salary

When running a limited company, it might be easy to overlook that your business’s money doesn’t go straight into your personal bank account.

So, to get it into your pockets, consider paying yourself a basic salary. This is usually set just below certain thresholds for National Insurance contributions (NICs) with the aim of enjoying the benefits of paying NIC without actually suffering any.

If, for example, you pay yourself more than the lower-earning limit (£6,240 in 2021/22), you will accrue qualifying years towards your state pension.

While that’s a positive, paying yourself more than the Class 1 NICs secondary threshold (£8,840) would be a negative.

Your company will become liable for employers’ NICs at a rate of 13.8% on any earnings above that. If you pay yourself a penny less than £8,840 in 2021/22, your company avoids paying this jobs tax altogether.

The next payroll consideration is the personal allowance (£12,570 in 2021/22). The basic rate of income tax doesn’t apply until you exceed this threshold.

One other pertinent point to consider is that any salary you pay yourself will be treated as a business expense, which means it will reduce your taxable profit and lower the amount of corporation tax your company has to pay.

Taking dividends 

Dividends are paid to an incorporated company’s shareholders out of post-corporation tax profits. Usually, a director will be one of those shareholders and quite often the sole shareholder.

Many directors pay themselves in a combination of salary and dividends. As dividends are drawn from profit, you need to show you have profit reserves available before issuing dividends.

If you cannot demonstrate that, HMRC could reclassify your dividends as salary and you would almost certainly need to pay income tax and NICs on that.

Dividends are a different form of taxable income, and they are treated slightly differently in comparison to salary. The same income tax bands apply, but different dividend tax rates are associated with them.

The best way to illustrate how dividends are taxed is through an example. Let’s say you’re the sole shareholder, your company has made post-tax profits of £29,570, and your accounting period runs parallel to the tax year.

You take £8,000 as salary in 2021/22 and £29,570 in dividends, £37,750 in total. The £2,000 dividend allowance makes £27,570 of your dividend potentially taxable, while what’s left (£35,570) will exceed the personal allowance (£12,570).

Once the personal allowance is deducted, £23,000 of your dividends will be taxable at 7.5%. You will fall into the basic-rate income tax band. This would leave you with a tax bill of £1,725, with the dividend being taxed as the top slice of income.

Pension contributions

The single most tax-efficient way to extract profits from your company, but not the most practical, is to make employer contributions towards your pension pot.

These will reduce the company’s liability to corporation tax and they are not subject to NICs, although this does involve taking money out of the company for future use.

You can potentially put up to £40,000 gross into your pension pot over the course of the tax year with no tax due. If you haven’t used any of your annual pension allowance over the last three tax years, you might be able to carry over any unused annual allowance from those years.

The total amount you can save without incurring charges into your pension pot is currently capped at £1,073,100, due to what’s known as the ‘lifetime limit’.

Assuming you stay under these thresholds, when the time comes to take your pension benefits – currently after the age of 55, but rising to 57 from April 2028 – 25% is normally tax-free.

The rest of your retirement income that exceeds the personal allowance will be taxed at your marginal rate of income tax under the existing rules.

However you go about extracting profits from your incorporated business, getting personal tax planning advice will always help you pay the least amount of tax legally possible.

Other tax-efficient tips

The main rate of UK corporation tax applies at 19% on your company’s profits, so the goal is to reduce those profits as much as you can before being assessed.

The easiest way to reduce your company’s corporation tax bill is to claim every business expense you’re entitled to. The general rule is these must be “wholly and exclusively” used for business purposes, though.

From stationery and phone bills to computer software and travel costs, there’s a long list of business expenses which you might be eligible for. You can claim for expenses with a dual purpose for business and personal use in certain circumstances as well.

The golden rule is to keep accurate records of these expenses if you want to claim tax relief on those costs to reduce your company’s year-end profits.

Taking advantage of the annual investment allowance is also a wise idea. This is currently set at £1m until 31 March 2023. This allowance lets your company deduct investments in plant and machinery – such as certain commercial vehicles, machinery and office equipment – from taxable profit in full.

For example, if your company has profits of £500,000 and you spent £250,000 on plant and machinery before 31 March 2023, the full amount can be deducted from your profits. This means only the £250,000 left would potentially be liable for corporation tax.

Finally, if you’re in a position to pay your corporation tax bill early without harming the company’s cashflow, HMRC will pay you interest.

You have nine months and one day after your company’s year-end to settle your corporation tax liability. But if you pay your tax six months and 13 days after the start of your accounting period, the tax authority will pay ‘credit interest’ back at 0.5% from the date you paid until it was due.

For example, your company’s accounting period runs alongside the tax year from 6 April 2021 to 5 April 2022. You can make an early payment any time between 19 October 2021 and 6 January 2023 and earn interest.

This interest would need to be included in your company accounts as it is taxable.

Bear in mind that the UK’s main rate of corporation tax will increase from 19% to 25% from 1 April 2023, so getting used to extracting profits now will be time well spent.

Speak to us for corporate tax planning advice.

January 2022

One in four buy-to-let landlords ‘plan to sell up in 2022’

Almost a quarter of landlords plan to sell up over the next 12 months as buy-to-let becomes increasingly difficult to navigate, a report has claimed.

Research from the National Residential Landlords Association (NRLA) found that 23% of property investors intend to dispose of an additional residential property this year.

Buy-to-let landlords said tougher tax rules, extra costs to make green upgrades, and tighter restrictions on evicting problem tenants were their motives.

Nick Clay, research officer at the NRLA, said:

“Those planning to sell cited changes in tax and regulation, as well as increased costs as the key reasons for selling property.

“The fear of not being able to take back possession of property was the single most important regulatory reason why landlords were selling.

“On tax, the changes in mortgage tax relief continue to bite.”

Unincorporated landlords can no longer deduct any of their mortgage expenses from their rental income to reduce their income tax bills. Instead, they receive a basic-rate tax credit which is worth 20% of their mortgage interest payments.

The old system offered higher-rate and additional-rate taxpayers more generous 40% or 45% tax relief on mortgage payments.

Landlords who wish to sell additional residential property outside of their main residence have 60 days to report and pay any capital gains tax.

Speak to us before you dispose of an asset.

January 2022

More red tape for importers as new EU checks kick in

Most UK importers were unprepared for the recent introduction of import controls on EU goods, according to a report from the Federation of Small Businesses (FSB). 

Full customs declarations and controls took effect from 1 January 2022, although safety and security declarations are not required until 1 July 2022.

Before 1 January 2022, full customs declarations for EU goods could be deferred at the point of arrival.

Now, importers will have to submit paperwork which includes notice of food, drink, and products of animal origin imports in advance of arrival.

Research from the FSB discovered that only 25% of small importers knew of the changes and had prepared for them prior to this month.

One in eight (16%) importers polled said they were unable to prepare for the introduction of checks in the current climate, and 33% were unaware of the new rules prior to the study.

Mike Cherry, chairman at the FSB, said:

“A lot of small firms simply don’t have the cash or bandwidth to manage this new red tape.

“They should speak to suppliers to ensure they have all they need to make declarations, consider alternative providers if that looks like an efficient way forward, and think about different transportation routes.

“Stockpiling is naturally a temptation for those fortunate enough to have the funds for it, but there is already a squeeze on warehousing space – if everyone ramps up storage, that squeeze will only tighten.”

Importers have already had to contend with increased bureaucracy since the UK formally left the EU this time last year.

Complex VAT rules on imports changed at the same time, requiring UK businesses to account for import VAT on goods worth £135 or more.

Most firms impacted by this rule use the postponed VAT payment system, which allows them to account for VAT on imported goods on their next VAT return.

This means the goods can be released from customs without the need for immediate VAT payment.

Get in touch to discuss any aspect of VAT.

January 2022

Report sheds more light on changes to R&D regime

More details have emerged on upcoming changes to the UK’s research and development (R&D) regime, which will take effect from April 2023. 

The Treasury published a report on R&D following last year’s Autumn Budget, in which Chancellor Rishi Sunak announced several new measures.

“If we want greater private-sector innovation, we need to make our R&D tax reliefs fit for purpose,” said the Chancellor during his speech in October 2021.

The report centred on the R&D expenditure credit (RDEC) and the small and medium-sized enterprises (SME) R&D relief.

These schemes provide an injection of cash or a corporation tax reduction when evidence of qualifying R&D is submitted to, and approved by, HMRC.

The RDEC enables eligible companies to reclaim up to 11p, after the deduction of corporation tax, for every £1 spent on their qualifying R&D.

The R&D tax credit scheme for SMEs offers a benefit of up to 33% – the equivalent of up to 33p for every £1 spent on qualifying R&D.

Until 31 March 2023, there is no requirement that R&D activity must be undertaken in the UK for companies to be eligible for these R&D tax reliefs.

But from 1 April 2023, new restrictions will bid to ensure that reliefs focus on domestic R&D activity and incentivise greater investment in the UK.

The report also detailed how the scope of R&D will extend to include cloud computing and data costs to reflect how companies conduct research.

Measures to combat fraud and abuse will require R&D claims to be made digitally, and to notify HMRC before submitting a claim for relief.

The report stated:

“In considering other reforms, the Government’s objectives remain to ensure the UK remains a competitive location for cutting-edge research, that the reliefs continue to be fit for purpose, and that taxpayers’ money is effectively targeted.”

Talk to us about R&D tax reliefs.

January 2022