Business News

The Government continues to freeze both the personal allowance and the higher-rate income tax thresholds – leading to an increase in the number of higher-rate taxpayers this year.

The result of ‘fiscal drag’ – a phenomenon where tax thresholds fail to keep up with inflation or wage growth – the freeze will continue to increase the number of higher-rate taxpayers until it is due to end in 2028.

This freeze not only impacts numerous taxpayers but will also have broader economic implications by increasing the tax burden on a larger segment of the population – potentially influencing consumer spending and savings habits.

By not adjusting the thresholds for inflation, the Government has effectively increased tax revenue without the need to formally raise tax rates.

Taxpayers must consider this in the context of the Government’s long-term fiscal strategies and align it with their personal tax planning.

Future policy adjustments will likely be influenced by broader economic conditions and political change, underscoring the importance of staying informed and discussing the issue with us.

We often recommend a few simple ways to reduce your tax liability and manage your marginal rate, including:

• Income splitting: This strategy involves distributing income among family members to keep individual earnings below the higher tax thresholds, thus reducing overall tax liability.
• Tax-efficient investments: Leveraging tax-free savings accounts and pensions can significantly reduce taxable income, providing long-term financial benefits.
• Year-end tax planning: Regularly review your financial situation as the tax year draws to a close, making any necessary adjustments to income and deductions to optimise tax outcomes.

Being proactive in managing your tax position is crucial, especially with the thresholds remaining static and fiscal drag likely to impact more taxpayers.

For those seeking more comprehensive guidance or specific information, reaching out to a specialist is advisable. 

Child benefit supports parents or guardians of children under 16, or under 20 if in approved education, by contributing towards the costs of raising them.

Since January 2013, the High Income Child Benefit Charge (HICBC) affects those earning above a specific threshold but this was revised in the Spring Budget 2024.

Initially, families with one parent earning over £50,000 saw a phased reduction in Child Benefit, ceasing at £60,000.

However, from 6 April, the HICBC threshold has increased to £60,000, with a new tapered charge between £60,000 and £80,000, reducing the benefit by one per cent for every £200 earned over £60,000.

This adjustment exempts about 170,000 individuals from the full charge and could affect you if your income is within this range as you are now eligible to claim.

In essence, the Government raised the threshold to ease the financial strain on middle-income families and encourage more parents to claim Child Benefit, avoiding the previous steep penalties for higher earnings.

Moreover, the Government plans to consult on a shift to a household-based assessment system by April 2026, aiming for a fairer approach by considering total household income.

If your earnings exceed £50,000 and you now need to register or adjust your Child Benefit, you likely fall into two categories:

• New claims: You can register for a child not previously claimed for, with benefits backdated up to three months or from the child’s birthdate.
• Existing claimants: Adjust your HICBC via Self-Assessment if your income falls within the new threshold.

If you require any other guidance relating to the HICBC, contact our team of experts. 

With the 6 July deadline nearing, it is essential to understand the updated reporting requirements for Class 1 National Insurance Contributions (NICs) on benefits in kind (BIKs).

Employers offering benefits, such as private healthcare, living accommodation, travel expenses, and company cars must report additional NICs through the payroll process or on a P11D form.

Significant changes are coming, however, that will simplify reporting BIKs through P11D forms for each employee receiving taxable benefits.

Employers currently have the option to manage BIKs directly through their payroll, a method known as ‘payrolling’, which must be set up before the tax year begins.

Otherwise, P11D forms need to be submitted online by 6 July following the tax year end.

Employers must also report the amount of Class 1A NICs via the P11D(b) form and ensure payments are made to HMRC by the 22 July deadline.

Late submissions can result in penalties of £100 per 50 employees for each month the forms are overdue.

All taxable benefits, excluding exempt expenses like business travel, business entertainment, and uniforms under specific conditions, need to be reported.

Certain trivial benefits are not taxable and thus exempt from reporting.

Remember from April 2026, it will become mandatory to report and pay Income Tax and Class 1A NICs on BIKs through payroll software, reducing administrative burdens due to the P11D and simplifying compliance.

If you have any queries about P11D reporting or any other payroll processes, please get in touch.  

In its latest research into the UK’s SME economy, NatWest Group has identified an encouraging trend among the country’s independent operators, as SME growth continues for the fifth consecutive month.

Two sectors led the charge, as the service industry continues to be a significant driver of growth, while the manufacturing sector enjoyed expansion after a period of stagnation.

Summarising its overview of the SME economy, the Group employs its NatWest SME PMI Business Activity Index to quantify SME growth, with a reading of 50 or above signalling a general expansion among UK SMEs.

Recorded at 52.6 in the first quarter of 2024, the Index reveals sustained growth for SMEs that prioritise long-term success over short-term figures.

However, individual sectors were not the focus of this latest research – that title goes to the potential for future sustainability and investment.

Investing in sustainability

It may come as little surprise that the latest report found investment in energy efficiency and green working practices to be a major priority for 36 per cent of SMEs in the coming year.

With 18 per cent planning to invest within the next 12 months, and a further 41 per cent set to invest within five years.

It seems that the benefits to SMEs of sustainable processes are becoming more widely acknowledged and accepted.

From a financial perspective, the long-term benefits of sustainability are considerable, including access to additional tax relief and funding.

Additionally, adopting cutting-edge working practices to support sustainability inevitably has a positive impact on overall efficiency as businesses seek a return on investment beyond ESG objectives.

Planning cash flow for growth

It is evident from the report’s findings that SMEs are going to need sufficient access to funds to facilitate growth in the coming years if this pattern is going to continue.

Central to this is going to be cash flow planning, particularly if costs continue to rise and SMEs face accompanying financial challenges.

We typically recommend that SMEs create a healthy cash flow through:

• Forecasting future cash flow to support long-term plans for investment
• Maintaining liquidity reserves to cover unexpected expenses
• Utilising financing options such as bank loans, lines of credit, or even trade credit
• Regularly reviewing and managing costs through automation or new supplier contracts, for example

For support with making sustainable investments or growing your business, contact a member of our team to discuss your needs.

If you are a Self-Assessment taxpayer, it is almost time to make your second ‘payment on account’ – advance payments towards your tax bill.

Those who submit a Self-Assessment tax return and owe £1,000 or more will be required to make their second payment on account by midnight on 31 July 2024.

How do payments on account work?

‘Payments on account’ are a way of paying Income Tax for Self-Assessment (ITSA) for business owners, sole traders and other taxpayers that spread out the expected cost of an upcoming tax bill.

There are two payments on account each year – one payable on 31 January and the other on 31 July during the tax year.

Each payment is typically half of the previous year’s tax bill, including Class 4 National Insurance Contributions.

The expectation is that, when you file ITSA, you will not need to have a major cash reserve to pay your entire bill at once.

What if my income is lower this year?

Payments on account work for many taxpayers because they assume that they will owe a similar amount or more tax than in a previous year.

If you expect your income to be substantially lower this year than in the previous year, you can apply to HM Revenue & Customs (HMRC) to reduce the payments on your account.

When you submit your tax return, if it turns out that you have overpaid, this will be refunded or offset against future tax liabilities.

What happens if I can’t pay?

If you cannot pay your upcoming payment on account, it is important to contact HMRC as soon as possible.

Missing the deadline without explanation can mean that interest will be charged to your account, and you could end up owing much more than your original bill.

You may be able to set up a ‘Time to Pay’ agreement with HMRC, which is a formal payment plan. If you:

• Have filed your latest tax return
• Owe £30,000 or less
• Are within 60 days of the payment deadline
• Do not have any other payment plans or debts with HMRC

You can set up a Time to Pay agreement online through your account with HMRC.

For support with compliance and managing the cost of your tax bill, contact us.

The Department of Business & Trade (DBT) has released the finalised draft of the Code of Practice on Fair & Transparent Distribution of Tips – the next step towards bringing the Employment (Allocation of Tips) Act 2023 (the Act) into force.

The Act will require businesses, where tips and gratuities are provided by customers, to pass on 100 per cent of these payments to staff through a fair distribution method, without withholding any amount to cover costs.

The long-awaited Code of Practice offers clarification on some key points within the legislation – most significantly, that requirements within the Act will be delayed until 1 October 2024.

This offers hospitality businesses an additional three months’ grace if they are implementing tronc management systems for the first time and make any further preparations required.

How to prepare

The requirements of the Act present two major areas in which business owners need to prepare to be fully compliant with regulations:

• Implementing a tronc system
• Cash flow planning to cover costs

From now until 1 October, we urge businesses to look at the solutions they have in place and identify areas where improvements could be made.

Troncs and troncmasters

Under the new legislation, hospitality business owners will be required to store and distribute tips and gratuities paid to staff through a tronc – the system that a business uses to pool and distribute tips.

As part of your compliance efforts, you will need to decide on how you will define ‘fair distribution’, as well as appoint a troncmaster who is responsible for distributing tips through the tronc system.

Cash flow planning

The most significant element of this legislation is that employers are no longer allowed to withhold a portion of tips paid by customers to cover costs, such as card payment charges or the cost of a tronc scheme.

If you have previously done this, you will now need to plan how to cover these costs through your existing cash flow.

For further guidance on the impacts of this new legislation, please contact a member of our team.

There is an inherent degree of risk in any business growth strategy – but keeping this risk to a minimum can help you grow your business without sacrificing your hard work.

Growing your business hinges on your ability to take calculated risks, whether that be by investing in innovation or by taking on a new member of staff.

This risk is not a negative thing – in fact, it is indicative of a strong growth strategy.

However, it is important to understand how risk mitigation fits into your business growth strategy rather than viewing it as an isolated consideration.

This way, you can grow your business safely and sustainably. Here’s how:

Diversification

Expanding your product or service offering can help spread risk across multiple markets, particularly if your market is prone to fluctuations.

By not relying on a single source of revenue, your business can better withstand variations in the market which might temporarily reduce the value of a product or service.

Diversification can also include entering new markets or demographics, as well as introducing entirely new products or services, reducing the impact of poor performance in any one area.

Financial management

Robust financial management is crucial for growth and risk reduction.

This includes maintaining a healthy cash flow, setting aside reserves for emergencies, and managing debt responsibly.

For example, you may take on a business loan to finance growth. This is likely to carry an acceptable level of risk, provided you allocate funds according to genuine need and make timely repayments.

Regular financial reviews can help you make informed decisions, spot trends, and address issues before they escalate.

Market research

Understanding your market is key to successful growth.

Continuous market research helps you stay ahead of trends, understand your competition, and identify new opportunities.

It also allows you to make data-driven decisions, reducing the risk of costly mistakes by showing you which risks are, statistically speaking, worth taking.

Investment in technology

Technology can streamline operations, improve efficiency, and open new channels for business.

Investing in the right technology can also help you stay competitive and responsive to changes in the market.

For example, management software can offer substantial time savings over traditional administration methods with automation and integrations, which streamline repetitive tasks.

However, it’s important to assess the risks and ensure that any technology investment delivers value by continually monitoring return on investment and identifying bottlenecks.

Strategic partnerships

Forming alliances with other businesses can provide mutual benefits, such as access to new markets, shared resources, and enhanced capabilities.

Partnerships can also help spread risk through these avenues and by, for example, sharing the cost of investment in a new venture.

It’s important to choose partners wisely and ensure that agreements align with your business goals and values.

It is also important to seek external advice from experts before making significant decisions within your business, which could carry high levels of risk.

We can help you identify your growth priorities and make investments and operational improvements in the right places to achieve these goals.

Contact us today to find out how. 

A survey by the Bank of England (BoE) and the Department of Business and Trade has identified a potentially significant challenge facing SMEs on their journey towards growth.

The survey’s findings indicate that investment is crucial to sustaining growth for SMEs, but that many businesses faced barriers to accessing finance to make sufficient investment in areas, such as research and development, operational improvements and recruitment.

Most significantly:

• Half of businesses reported using only internal funds for investment
• 20 per cent said that they had underinvested
• 70 per cent preferred slower growth to incurring debt
• Use of equity finance is very low in SMEs
• Financial constraints are a key factor in discouraging borrowing

All of this begs the question – are you struggling to boost growth in your business due to these barriers to investment?

The key in the lock

Often, financial investment is the most effective – or only – way to achieve real growth within a business.

It opens the door to improvements in your product or service, innovations, enhanced marketing efforts and the ability to recruit the right talent for your team.

However, early-stage businesses or SMEs typically lack the large cash reserves of larger businesses and, therefore, struggle to invest sufficiently using only internal funds – leaving the options of slow growth or external investment.

The former is the preferred choice of most UK businesses, according to the research, but this does not need to be the case.

We can advise you on the right forms of external financing for you and help you seek a loan or investment that aligns with your growth strategy and financial plans.

What options are available?

External financing for businesses typically comes in two forms – investment or loans.

Equity finance – funds which do not come from bank loans but rather investment in exchange for a stake in the company – is demonstrably low among SMEs.

However, innovative new businesses with high growth potential are prime targets for investors, so important that you know what types of investments are open to you and how you might prepare to access them.

Investment can come in several forms and generally involves an individual or organisation providing funds for your business in exchange for a proportion of profits or a stake in the company.

Types of investment your business might attract include:

• Angel investing: Investors provide capital for a business start-up, usually in exchange for a portion of the business profits or partial ownership. Angel investors often contribute not just capital but also advice and business connections.
• Venture capital: Venture capital firms offer significant amounts of capital to start-ups and high-growth companies with the potential for high returns. In exchange, they usually require equity and significant influence on company decisions.
• Private equity: Private equity investors provide capital for businesses looking to expand, restructure, or transition ownership. Investments are often in larger, established companies compared to venture capital. This investment is in exchange for shares in the company.
• Crowdfunding: Through online platforms, businesses can raise small amounts of capital from many individuals. This method offers the advantage of not having to give up equity or repay the investment directly, though some platforms enable equity crowdfunding.

Preparing to attract investment can be a long process as it requires detailed insights into the value and future potential of your business, but you may also gain long-term partnerships and insights from investors.

The other major benefit of investment is that you will not be taking on debt – although another person or company may own a stake in your business.

On the other hand, if you would prefer to retain full control over your business, business loans may be an option.

Although over two-thirds of business owners would prefer slower growth to debt, responsibly managed loans do not have to be a hamper to growth.

Taking on some debt with correct management, such as timely repayment and reasonable loan amounts, can help boost your business’s overall creditworthiness and open doors to future financing.

The key to successfully managing debt for higher growth is to be ambitious but realistic in your strategy and to ensure that you can cover repayments, even in case of slower growth than anticipated.

Managing funds for investment

However you choose to bring funds into your business, you must plan to make strategic investments to ensure growth and a return on investment.

This is the overall goal of investment and carries benefits for:

• You, allowing you to repay debt or grow your business
• Investors, who will see a return on their investment
• Clients or customers, who may benefit from new products or services

Demonstrating that you can manage and allocate external funding is also beneficial for plans and may make your business more appealing to further investment or additional credit further down the line.

For advice on accessing external funding for your business and managing your investments, contact a member of our team today. 

New research by Marktlink suggests that around 33 per cent of UK business owners are unaware of the value of their company – only slightly lower than the European average figure of 40 per cent.

While you are not alone if this applies to you, you must know what your business is worth.

Why? Let us show you.

Know your worth

The value of your business is not just a number, it is a measure of growth and what you have achieved since founding your company.

For this reason, the total value of your business is an important metric by which growth and future potential can be measured.

There are many scenarios which might require you to know the exact value of your business or at least understand its market worth, including:

• Strategic planning – Your business’ value, alongside data, such as revenue, turnover and profit, can help you to make strategic decisions including investments and operational improvements, as well as provide a measure of success for these initiatives.
• Sales or acquisitions – Most sales of your business will require an accurate valuation to ensure a fair price for both you and the buyer that reflects market rates.
• Investment opportunities – Similarly to buyers, investors will need to know the value of your business to assess risk and potential return on investment (ROI).
• Financial reporting – Some financial statements require an accurate valuation of a business, particularly when it has been passed on to another person as part of an inheritance, making a valuation crucial to succession planning.

Calculating the value of your business

Put simply, a business’s value is the financial value of everything owned by your business.

While this may seem straightforward, there are a number of techniques used to calculate the value of a business depending on its sector, its structure, the reason for valuation and the type of assets it possesses.

These include:

• Asset valuation – One of the more straightforward forms of valuation, this involves adding up the total value of all assets owned by the company, including tangible assets such as land and intangible assets such as brand reputation.
• Discounted cash flow – A more complex and sophisticated method, DCF requires accurate cash flow projections as it calculates how much a business may be worth in the future by determining the present value of future cash flows.
• Market capitalisation – Used for incorporated companies with shareholders, this method multiplies current share price by the total number of outstanding shares, which can provide a useful picture long-term, but may be impacted by market volatility as a one-off calculation.
• Revenue or earnings multiplier – If your business is new and lacks earnings history for other methods, this model calculates your current revenue and multiplies it by an industry-specific standard, typically between 0.5 and 2.

Different methods will be suitable for different types of businesses.

For example, asset valuation may result in a lower price for a business that holds low levels of tangible assets but has significant future growth prospects or ‘goodwill’ attached to its name.

It is best to seek professional advice when valuing your business to ensure that you have accounted for every asset and that you are applying the method correctly.

Business valuations can be complex and, as an important benchmark for the growth and success of your business, must be accurate to hold value for investors, buyers and your own strategic decisions.

To get to know the value of your business and stay prepared for sales, investments and market changes, get in touch with our team today.