by Paul Weller | Friday, November 24, 2023
HIGHLIGHTS
- The main rate of class 1 employee national insurance contributions (NICs) will be reduced from 12% to 10% with effect from 6 January 2024. The main rate of class 4 self-employed NICs will be cut from 9% to 8% from 6 April 2024 and class 2 will no longer be required.
- Full expensing of investments made by companies in qualifying plant and machinery will be made permanent and will therefore continue after April 2026.
- The main income tax allowances and thresholds, the main NICs thresholds plus the inheritance tax (IHT) nil rate bands will stay at their current levels for 2024/25.
- The new and old state pension as well as pension credit will rise by the full triple lock increase of 8.5% for 2024/25. Universal credit and most other benefits will increase by 6.7%.
- Investors will be allowed to make multiple subscriptions to ISAs of the same type each year from April 2024, when partial transfers of ISAs between providers will also be permitted.
- The national living wage will increase to £11.44 an hour.
- All alcohol duties have been frozen until August 2024.
- The government is seeking to persuade people with health conditions to find work. There is extra funding, as well as new sanctions for those who are found to be able to work but refuse to look for employment.
by Paul Weller | Thursday, November 23, 2023
The 2023 Autumn Statement was presented against a background of inflation falling from recent peaks. Annual inflation for the last quarter of 2023 is now expected to be 4.8%, against a previously anticipated 2.9%. With recent large price increases now baked in, the government’s 2% target is now forecast to be hit in the first half of 2025, a year later than previously thought.
GDP growth is now forecast to be 0.6% for 2023, compared with the projection last March of a negative 0.2%. For the next four years, it is expected to average 1.6%, so about 0.5% less than previously thought. Cumulative real growth from 2023 to 2027 is now 2.4% lower than predicted in the March forecast.
The OBR expects living standards, as measured by real household disposable income, to be 3.5% lower than pre-pandemic in 2024/25.
Higher inflation, particularly in an environment of fixed tax thresholds, has resulted in a sharp increase in forecast tax receipts. Because departmental and other spending has been largely unchanged in cash terms despite the higher inflation, by 2027/28 that results in real spending cuts of over £19 billion.
The following tax-cutting measures were announced:
- National Insurance – The Chancellor announced a reduction in national insurance rates for employed and self-employed people. Although the thresholds are unchanged, Class 1 primary (Employee) national insurance will be reduced from 12% to 10% from January 2024. That is charged on monthly income between £1,048 and £4,189. From April 2024, Class 4 (profit-related) national insurance for self-employed people has been cut from 9% to 8% on profits between £12,570 and £50,270 and the flat-rate weekly contribution of £3.45 is being scrapped in order to remove the complexity for these workers.
- Full expensing for Businesses – For companies, the main tax change will only be of real benefit to larger companies. The temporary ‘full expensing’ of capital expenditure was scheduled to end in March 2026. That has now become permanent and allows companies to claim a 100% deduction against taxable profits for the cost of ‘main rate’ fixed asset purchases.
- Tax Benefits for Freeports and Investment Zones – Three new investment zones were announced to focus on advanced manufacturing in West Midlands, East Midlands and Greater Manchester. These are expected to unlock £3 billion of private sector investment and create 65,000 new jobs. The tax benefits for investment zones and freeports will be extended for a further five years. A further new investment zone was announced in Wales.
- Tax cut for Hospitality, Retail and Leisure businesses – The 75% discount on business rates for businesses in the hospitality, leisure and retail sectors has been extended for another year.
- Research and Development – The R&D expenditure credit (RDEC) and the small and medium-sized enterprise (SME) intensive schemes are being merged into one.
Other measures announced included:
- The main National Living Wage rate will be increased by 9.8% to £11.44 per hour from 1 April 2024 and the age threshold will be reduced by two years to 21.
- Alcohol duty will be frozen for a further year, up to August 2024.
- The state pension triple lock will be implemented in full, resulting in an increase in State Pensions of 8.5% from April, and despite rumours to the contrary, Universal Credit and other working-age benefits will rise by 6.7% in line with the September inflation rate. The local housing allowance cap will also be raised to the 30th percentile of local rent levels.
- The Chancellor announced a set of pension reforms intended to enhance the benefits for those saving for retirement, encourage a more integrated pensions market, and allow pension funds greater flexibility to diversify their investment portfolios. Employees will be able to have contributions paid into a scheme of their own choice, rather than one selected by the employer.
- Although there are plans to reduce the overall size of the civil service to below pre-pandemic levels, HMRC will be provided with resources to tackle the tax gap, expected to yield an additional £5 billion over the forecast period.
- The processing of planning applications will be sped up, with local authority fees being refunded where deadlines are not met.
- £50m in funding was announced for apprenticeship schemes, to boost skills in engineering and other key sectors.
- Welfare reforms will come into force in the latter part of next year. Individuals who have been unable to secure employment for more than 18 months, but are deemed fit to work, will be required to engage in work experience placements. Benefit claimants who either turn down employment opportunities or fail to collaborate with job centre staff will be required to re-register for benefits, resulting in a temporary suspension of their benefit access. Furthermore, there will be significant changes to the existing guidelines for recipients of benefits based on health conditions that prevent them from working.
- Other measures were announced to boost housebuilding, including funding for local schemes in Leeds, Coventry and London, and a scheme to mitigate pollution risks intended to unblock the building of 40,000 homes via funding to the Local Nutrient Mitigation Fund.
The Chancellor of the Exchequer labeled the Autumn statement “110 measures to help grow the British economy”. For the full detail on the economic and fiscal policies aimed at addressing the UK’s current challenges click here.
We’ll be happy to explain more of the details and help you start planning a 2024 strategy to overcome your biggest business challenges.
by Paul Weller | Wednesday, August 9, 2023
When you’re the director of a business, it’s likely that there will be occasions where you borrow money directly from your company, or inject your own capital into the business.
A Directors’ Loan Account (DLA) keeps track of this money owed between the company and its directors. In many companies, the account is in credit – i.e. the company owes money to the director. This can be due to directors injecting startup capital into the company, not drawing dividends they are owed, or other expenses that have been subsidised by the director.
In these situations, it’s worth considering charging interest on the balance that’s due. But how do you do this? And what impact does charging interest have for the director and company?
Understanding interest on Directors’ Loan Accounts
Let’s take a look at some of the rules around applying interest on DLAs, and the potential benefits this can bring to your company and tax planning.
- Any interest paid re these DLAs will be deductible when calculating your company’s taxable profits. Because of this, it’s possible to achieve tax savings of up to 25%.
- For the individual, a basic-rate taxpayer has a Personal Savings Allowance (PSA) of £1,000 and will pay 20% on the excess. So, paying interest is more tax-effective than declaring dividends. The PSA for a higher-rate taxpayer is £500.
- The interest rate needs to be a commercial rate. In other words, the interest rate used must not exceed the rate you’d expect to see from a third-party lender.
- Where interest is paid to an individual, basic rate tax needs to be deducted at source from any payment made to the director.
- This tax is reportable to HM Revenue & Customs (HMRC) on a calendar-quarterly basis, with the amount deducted offset against tax due on the individual’s personal tax return. Where the company accounts are not drawn up to a calendar-quarter end, a fifth return is required up to the balance sheet date.
- The company can take into account any interest due, but not paid, until up to twelve months later when calculating its own profits. However, the individual will only include as income any interest that’s actually been paid. Note though that ‘paid’ can include crediting to a DLA!. This can give a timing advantage.
Talk to us about maximising the tax benefits of your DLA
Any interest you receive is not subject to National Insurance Contributions (NICs) and is particularly tax effective when shielded by the Personal Savings Allowance (PSA).
The reporting requirements for interest on DLAs are no walk in the park. Because of this, it’s a good idea to talk to us first, so we can make sure you have a workable system in place prior to making any payments. We can also give an opinion of the acceptability of the proposed rate of interest to pay, and how it measures up against current market rates.
Get in touch to talk about interest on your DLA.
by Paul Weller | Wednesday, August 9, 2023
Making time to look over your financial reports each month is an important task for any business owner. If you are not taking the time to do this, either because you’re too busy, or perhaps you don’t really understand what you’re looking at and it doesn’t make sense to you, then here are 6 reasons we recommend that you should start to.
But before we get our 6 reasons, let’s talk very quickly about which reports to look at. At a bare minimum, and depending on the complexity of your business, you should be looking at the following:
- The Statement of Financial Performance – also known as the Profit and Loss report (P&L) or the Income Statement – tells you, as the name suggests, how your business is performing over a period of time, such as a month or a financial year. In broad terms it shows the revenue that your business has generated, less the expenses for that same period. In other words, it shows how profitable your business is.
- The Statement of Financial Position – also known as the Balance Sheet shows the value of the business’s Assets, Liabilities and Equity.
- Assets include things like money in bank accounts, Plant and Equipment, Accounts Receivable balances
- Liabilities include things like Bank loans and credit cards, Accounts Payable, and Hire Purchase balances
- Equity is the difference between your Assets and your Liabilities and includes Retained Earnings and Owner Funds Introduced
- Accounts Receivable Ageing report (Aged Receivables) – this shows how much money is still owed to the business as at a certain date in time, and is usually segmented as to how overdue they are, or sometimes by how far past the invoice date they are. Generally, you will have Current, 30, 60 and 90 days columns.
- Accounts Payable Ageing Report (Aged Payables) – this report shows who the business owes money to as at a certain date in time and, like the Accounts Receivable Ageing report, is usually segmented by overdue period.
So why bother?
- Understand your business better – by looking at your Profit and Loss report monthly you will get a good picture of how your business is performing month by month and it will give you a better understanding of what makes up your profit. It can be helpful to compare periods, or to look at a month by month P&L, so you can clearly see on one page the revenue and expenses month by month. This will help to identify trends in your data and many also help to highlight anomalies in coding/categorising.
- Accurate information for lending purposes – If you are applying for a loan or an overdraft, the bank or financial institution will look closely at both your Profit and Loss report and the Balance Sheet as a lot can be learned about a business by looking at these reports together. If you are unsure what some of your balances are in your accounts, get in touch and we can explain them further.
- Get paid quicker and reduce bad debts – by looking at your Accounts Receivable Aged Summary each month you can follow up with overdue accounts promptly which often results in getting paid quicker. The longer an overdue amount is left unpaid the higher the risk of it not being paid at all, so it is important to keep on top of this.
- Better relationships with your suppliers – Assuming you are entering your supplier bills into your accounting software (recommended for most businesses to get an accurate profitability figure) your Aged Payables report will alert you to any unpaid or overdue amounts. Supplier relationships are an important aspect of your business and paying on time is crucial to maintaining those relationships.
- Better cashflow – having an accurate understanding of how much money the business is owed, and how much money the business owes, can help with cashflow planning to ensure that there is enough money when needed. Additionally, understanding the trends of your business, its profitability drivers, its expenses, etc., can help to plan sales and marketing campaigns so that the revenue keeps coming in.
- Better business decision making – Your financial reports tell the story of your business and it’s important that you understand the story that they are telling you. The better you understand what’s going on in your business the stronger position you will be in to make better business decisions that affect the profitability of your business and its financial viability.
If you would like to know which reports are relevant to your business, and you want to better understand what’s going on in your business , then get in touch so we can make a time to go through them with you.
Your business success is important to us and we are here to help you.
by Paul Weller | Friday, July 28, 2023
Whether you’re applying for government subsidies, taking out a business loan or seeking investor support, you need to be able to demonstrate your ongoing viability as a business.
To prove this viability, it’s important to have the right financial information at your fingertips. This information is also just as important for your own internal planning and decision-making.
So, where do you start and what are the reports that you’ll need?
The numbers that prove you’re a business with a future
Any lender or government body wants to know that your business has a future.
As the owner, you may believe in the destiny of your company, but you also need the numbers to reinforce this argument. Banks, lenders and investors are taking a risk in backing you. Because of this, they want to know that you’re capable of making the agreed repayments, and that the business is in a financial position to deliver profits and payouts for investors.
Before investing in your business, organisations will want to see:
- Evidence of a healthy sales pipeline and sales revenue
- Manageable debt that’s not eating into your capital
- A positive cashflow position that covers your main costs
- Forecasts that show stability or growth in your revenues
- A meaningful business strategy for the next two to five years of growth
The data you need to plan your future
You can’t run a business on a wing and a prayer. With so many different ways to track and record your business data, there’s no excuse for not being up to speed with your performance, your targets and your forecasted sales, cashflow, debt and profits.
This information isn’t just useful when approaching investors and lenders. It’s also vital for your own strategic thinking, your business planning and your internal decision-making
Crucial management information to know will include:
- Your targets and budgets for the upcoming period
- Your sales and financial performance against these targets
- Your basic financial position and health
- Your forecasts for future sales, cashflow and end profits
The 5 key reports that define your company’s growth
Today’s cloud accounting software makes it a breeze to produce detailed and informative financial statements. These are the main statements and reports to focus on:
- Business plan – your business plan is a written document that outlines the company’s goals, strategies and financial projections for future success. It’s your route map for the business journey that lies ahead, and a crucial document when approaching investors.
- Sales reports and forecasts – sales reports give a historic summary of your past sales data, so you can track how you’re performing. Sales forecasts project this data forward in time to show future sales trends and potential sales growth you may achieve.
- Revenue forecasts – a revenue forecast is a projection of your expected income or revenue for a specific period. Being able to track and forecast your revenue position is vital information when carrying out financial planning and decision-making.
- Cashflow forecast – a cashflow forecast is an estimate of your expected inflows and outflows of cash over a specific period. By forecasting these cash inflows/outflows you can aim to keep the business in a ‘positive cashflow position (more cash coming in than cash going out).
- Financial statements – the main financial statements to keep your eye on will be your:
- Cashflow statement – shows your current cashflow position, so you can make the most informed decisions about spending and cost management.
- Balance sheet – shows your present assets, liabilities, and equity. It’s a snapshot that reflects the company’s financial position at a specific point in time
- Profit and loss statement (P&L) – a breakdown of the income coming into the business, and the expenditure going out. Crucial for managing your profitability.
- Aged debts – categorises and analyses your outstanding customer invoices, based on when they should have been paid. Keeping on top of this helps to speed up payment and improve your cashflow position.
Talk to us about proving your business viability
Having the data and evidence to prove you’re a viable and stable enterprise is crucial. It’s these numbers that will help you plan your growth and access the investment you need to scale.
We’ll help you create a detailed business plan, revise your strategy and produce all the financial and non-financial statements you’ll need to make informed business decisions.
As your adviser, we’re in the best possible position to provide your management information.
Get in touch to talk about your financial reporting.
by Paul Weller | Monday, July 24, 2023
Many of us have hobbies that are dear to our heart, whether it’s playing guitar, building a giant model train system or knitting copious numbers of jumpers for our family.
In many cases, it’s pretty clear whether these activities are being carried out in the course of a trade, or are nothing more than a personal hobby. But disputes with HM Revenue & Customs (HMRC) do arise. Are the profitable activities you carry out as part of your niche interest no more than a hobby? Or are the loss-making activities you carry out considered to be a trade, with the losses used to reduce your overall tax bill?
Let’s look at how you prove if this is simply a hobby, or a profit-making trade?
The nine ‘badges of trade’ and what they tell you
There’s not much meaningful guidance in the UK legal statute on what does and what does not constitute a trade or hobby. So, how do you make the differentiation?
One approach has been to consider the ‘badges of trade’. These badges can show the presence or absence of certain aspects that indicate whether a trade does or does not exist.
These nine badges are:
- Profit-seeking motive: An intention to make a profit supports trading, but by itself is not conclusive.
- Number of transactions: Systematic and repeated transactions will support ‘trade’.
- The nature of any asset acquired: Is the asset of such a type or amount that it can only be turned to advantage by a sale? Or did it yield an income or give ‘pride of possession’, for example, a picture for personal enjoyment?
- Existence of similar transactions: Transactions that are similar to those of an existing trade may themselves be trading.
- Changes to the asset: Was the asset repaired, modified or improved to make it more easily saleable or saleable at a greater profit?
- The way the sale was carried out: Was the asset sold in a way that was typical of trading organisations? Alternatively, did it have to be sold to raise cash for an emergency?
- The source of finance: Was money borrowed to buy the asset? Could the funds only be repaid by selling the asset?
- Interval of time between purchase and sale: Assets that are the subject of trade will normally, but not always, be sold quickly. Therefore, an intention to resell an asset shortly after purchase will support trading. However, an asset which is to be held indefinitely, is much less likely to be a subject of trade.
- Method of acquisition: An asset that is acquired by inheritance, or as a gift, is less likely to be the subject of trade.
These badges are not an ‘all or nothing’ indicator. But when considered in the round, they may lead to an overall impression of whether or not a trade is being carried out.
Even if it is agreed that a trade exists, HMRC may argue that it’s not being carried out on a commercial basis. If so, this would deny any sideways loss relief (offsetting the losses of one activity against the profits of another for tax purposes).
Talk to us about checking the status of your hobby or trade
With the new trading allowance of £1,000 per annum, any activities you carry out which generate income below £1,000 won’t be required to be reported on your tax return. Because of this, there’s no danger of minor income from hobbies being targeted as trading activities.
The emerging problem is in areas such as crypto assets and day-trading of shares. Depending on the specific circumstances, these can be considered as trading, or generating capital gains and losses, or being outside of taxation altogether.
Where you carry out any activities outside of your mainstream business, talk to us so that we can advise you of any potential tax traps and tax benefits that may arise.
Get in touch to talk through your non-business activities.
by Paul Weller | Friday, July 21, 2023
VAT on Serviced Accommodation and Holiday Lets
The long-awaited decision in Sonder Europe Ltd has been released, and Sonder have won quite convincingly, meaning that the court decided that TOMS should apply to the business’ sales of serviced apartments. We’re really pleased with this result and think this gives good grounds for other businesses to apply TOMS to serviced apartment in some circumstances, but would also add an air of caution as there are limits to the application of the decision at this time.
The Sonder case concerned whether TOMS could apply to sales of serviced apartments. Sonder leased apartments on long leases (3+ years) from landlords and sold on to guests directly for an average of 5 nights. Sonder sometimes took on the apartments from landlords on a furnished basis and other times unfurnished, and often added cosmetic changes to the apartments such as paint touch-ups and decorations. There was no mention of who paid for utilities. HMRC contested that Sonder could not fall into TOMS because it was not a tour operator and because it had materially altered the apartments.
The court decided that Sonder was a tour operator for the purpose of TOMS and that it did not materially alter the apartment. On this second point, this was for two main reasons:
The court did not accept that the lease duration mismatch was material alteration, saying that we must look at the characteristics of the actual apartment itself, rather than the terms on which it was supplied; and
The court believed that cosmetic additions to apartments which could easily be removed were not enough to materially alter the apartment and that they would expect “material alteration” of this nature to instead be structural.
With this in mind, it is clear at this stage that the court is seeking to apply TOMS widely.
Whilst being great news for the industry, this is by no means the end of the matter. Firstly, HMRC have 56 days to appeal the decision and, if appealed, it will likely be some time before a final answer is given to Sonder. Secondly, the time period in question relates to pre-Brexit where EU law took precedent, which may also change things for the position going forward. Thirdly, HMRC could decide to seek a change to the UK TOMS provisions going forward.
With this in mind, we would advise businesses to continue to exercise caution whilst using TOMS, and ensure that you fully review your position.
For those of you using the “two company strategy”, we would advise to continue with this to ensure any risks are limited.
We would ask those of you who are not currently using TOMS to consider lodging a backdated claim with HMRC as a first point on the back of this decision. This carries with it virtually no risk and would give your business a decision on whether you can use TOMS in your own circumstances.
Please do not get carried away and use TOMS for every supply without taking proper advice! It is easy to jump on the bandwagon when everyone in the industry is celebrating and deciding to use TOMS, but we still have a way to go to get a proper and final position going forward.
We now offer a full review service package for your eligibility for the TOMS scheme which may save VAT for operators in this sector.
The review will cover –
- Your customer base
- Your contracts with your landlords
- Your contracts with your customers
- Your eligibility to use the scheme
Please get in touch for further details.
by Paul Weller | Monday, October 17, 2022
17 October 2022
‘The Growth Plan’ – a further update
At 6.00 am on Monday 17 October, the Treasury issued a press release announcing that the (new) Chancellor, Jeremy Hunt, would making a statement “bringing forward measures from the Medium-Term Fiscal Plan”. The timing of the press release suggested that the Treasury was concerned it had not done enough the previous Friday to calm markets ahead of the end of Bank of England gilt purchase support.
The Chancellor’s statement was in two parts: firstly, a pre-emptive media statement in the morning, then an official statement to the House of Commons in the afternoon. He announced what amounts to a near total unwinding of Kwasi Kwarteng’s ‘fiscal event’ of 23 September.
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by Paul Weller | Tuesday, March 22, 2022
For those who work in the construction industry, it is crucial to be familiar with The Construction Industry Scheme (CIS), since it is a system that can lead to much confusion and significant financial penalties where not correctly applied. The CIS is essentially a scheme that was introduced (many years ago now!) to help reduce tax evasion within the construction industry, as well as protecting workers from being illegally employed. The CIS works by having contractors withhold money on payments to a subcontractor, for which the contractor must then make a payment of that money to HMRC. It is in effect an advance payment towards the subcontractor’s tax liability.
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by Paul Weller | Thursday, October 28, 2021
Setting out the government’s tax and spending plans for the year ahead, Mr Sunak said his plans were focused on the “post-Covid” era, and would pave the way for an “economy of higher wages, higher skills, and rising productivity”.
View our Budget Summary with further details.
