Business News

The furnished holiday lettings (FHL) tax regime is set to be scrapped from April 2025, with draft legislation already on the table.

If you own a holiday home, now is the time to get familiar with these forthcoming changes and consider how they could impact your tax liability.

From April 2025, the tax incentives associated with Furnished Holiday Lets (FHLs) will no longer be available, meaning you will lose the advantages that come with the current regime.

Current tax benefits

At present, FHL owners enjoy several tax benefits, such as being able to claim up to £1 million of capital expenditure under the Annual Investment Allowance (AIA).

FHL owners may qualify for Business Asset Disposal Relief (BADR), which offers a lower tax rate compared to standard Capital Gains Tax (CGT) if their FHL activities are deemed a business.

Expenses like mortgage interest can be fully deducted from rental income, reducing taxable profits for FHLs significantly more than for non-FHL properties.

Additionally, income from FHLs is classified as earned income, making it eligible for relief at the owner’s highest Income Tax rate.

What’s changing?

When the FHL tax regime ends, the tax treatment of these properties will likely become similar to that of standard residential rentals. This will result in:

• Interest deductions capped at the basic Income Tax rate.
• Abolition of capital allowances for new expenditures, although relief for replacing domestic items will remain.
• Income no longer counting as UK earnings for pension relief purposes.
• Profit splitting for jointly owned FHLs will also cease, aligning with rules for traditional investment properties where income must be split according to ownership shares. This will remove the current flexibility FHL owners have to optimise their tax liabilities by adjusting income distribution.

What should you do next?

If you are running a FHL business or managing FHL properties, you have until April 2025 to take full advantage of the available tax reliefs. Now is the perfect time to claim capital allowances on your eligible properties if you haven’t already done so.

If you have delayed making a capital allowance claim due to cash flow concerns or a lack of urgency, it is important to act now to secure these tax benefits.

Even if your FHL business is currently running at a loss, claiming these allowances can still be a smart move. It can increase the amount of loss you report, which you can carry forward to offset against future profits.

Plus, you can review and claim allowances for past expenditures as long as your FHL business is still up and running.

Alternatively, you might want to consider selling your property, especially if you planned to do so already, as the sale could benefit from the current 10 per cent Capital Gains Tax relief under BADR.

If you own a furnished holiday let and would like to discuss how these upcoming changes may affect you, don’t hesitate to get in touch.

While we’ve made meaningful progress in the global energy transition, the pace is still too slow.

The charity Accounting for Sustainability (A4S) and Aviva Investors have sounded the alarm in their new report, Accelerating the Transition: Assessing Progress and Driving Action.

Despite the shift from voluntary to mandatory sustainability reporting, emissions continue to rise.

Scientists suggest that we have six years to aim for a 1.5°C limit on global warming but current trends indicate a potential increase of 2.7°C, alongside a significant decline in the natural ecosystems that absorb carbon.

For businesses, this means growing pressure to comply with new sustainability regulations, often with limited resources. But with the right guidance, this challenge can be turned into an opportunity.

How sustainable practices benefit your business

Adopting greener energy solutions is a great step towards reducing your carbon footprint, but it’s also a smart financial decision.

Renewable energy sources like solar, wind, or hydro can lead to significant long-term savings, despite the initial costs.

Additionally, businesses that embrace sustainability often see enhanced reputations, attracting customers who value environmental responsibility.

It is crucial to clearly understand the financial benefits of going green. By carefully analysing the costs and savings associated with renewable energy, you can make informed decisions that will pay off over time.

Understanding the financial impact of renewable energy

When considering greener energy options, it is essential to evaluate the full financial impact. This means looking beyond the upfront costs to consider potential savings on energy bills and maintenance over the longer term.

Additionally, there are various Government incentives and grants available that can offset initial expenses and improve your return on investment. Staying informed about these opportunities can provide valuable insights that might otherwise be overlooked.

Tailored energy solutions for your business

Every business is unique, and there’s no one-size-fits-all solution when it comes to energy efficiency. Tailoring your approach to your specific needs and circumstances is key to maximising the benefits of going green.

For example, a small retail business might benefit from simple energy-saving measures like switching to LED lighting or improving insulation. In contrast, a larger manufacturing company could explore more substantial investments in renewable energy generation.

Conducting an energy audit is a practical first step. An audit will identify where energy is being wasted and highlight opportunities for improvement. With this data, you can make informed decisions about the greener energy options that will deliver the best results for your business.

Why now is the time to act

Adopting sustainable energy goes beyond fulfilling regulations by offering a meaningful chance to boost your business, satisfy your customers, and safeguard the environment.

By combining financial expertise with a commitment to sustainability, you can make decisions that benefit everyone.

If you’re ready to explore how sustainable practices can benefit your business, we’re here to help. Please get in touch for tailored advice and support.

Your environmental, social and governance (ESG) strategy might just pave the way to growth for your business.

ESG initiatives are increasingly important for businesses in terms of client values and acting ethically. However, tracking and reporting on ESG objectives may also be the key to achieving efficiency and optimised business performance – crucial drivers of growth.

Setting the right goals

ESG is a wide-ranging term which covers many activities, from supporting a charity to taking your office paperless.

It is important that you set goals which make a material difference, but which are also attainable within your business strategy and budget.

Before setting ESG goals, identify areas of your business where efficiencies could be introduced or improved and try to align your objectives with these areas.

For example, if you want to go paperless, consider investing in a document management portal to more efficiently and securely share information.

Tracking key metrics

To accurately introduce ESG initiatives into your reporting, you need to collate and analyse the right data.

For inclusion in your regular financial reporting, this means data relating to cost, efficiency-related savings and the real impact of your initiatives.

Adopting new technologies may allow you to automate the collection and processing of this data into a report on your ESG affairs, further reducing costs which can be reinvested in growth.

Reporting your findings

Integrating ESG metrics and progress into your financial reporting is both an efficient way of seeing how you are performing and measuring the impact of these initiatives on your overall efficiency, productivity and profitability.

This will show you:

• The cost of your ESG initiatives and any return on investment (ROI)
• Areas where ESG has made your business more efficient
• Areas where your processes could be improved and made more ESG-friendly
• Regulatory compliance and areas for improvement
• Projects for ROI on long-term risk management

With further analysis, you can also highlight any positive trends in brand reputation and talent retention that has resulted from engaging with ESG – creating additional space to invest in growth.

This is where we come in, helping you to identify key metrics and keeping track of them alongside your day-to-day finances.

For example, we can help you streamline the time spent on administrative tasks within your business and guide you on implementing a document management system – one designed to introduce efficiencies and save you time and money.

Your accountant is ideally placed to support you with ESG reporting, with access to and insight into your business operations, financial situation and long-term goals. If ESG is a priority for you, make sure to get us involved.

Need to discuss your business growth with the experts? Contact our team today.

Having the right team that aligns with your goals and values is key to the success of your business.

However, many sectors are currently facing a skills and staffing shortage. Government data shows that over one-third of vacancies were skills-shortage related, with around a quarter of all employers having at least one vacancy within their organisation.

Addressing skills and staffing shortages

Chronic shortages of skilled staff can lead to issues for your business that include:

• A high cost of recruitment and training
• Lost or inefficient productivity
• Slower growth
• Poor team morale, which can worsen staff shortages.

It is important to actively engage skilled staff, both prospective and current, with your business and to optimise the efficiency of your existing skills base. This might include:

• Flexible working – It is increasingly common for employees to prioritise work-life balance, which can be supported by flexible hours or hybrid working
• Upskilling – Offering training to existing staff can eliminate the need to recruit and provide progression opportunities to boost job satisfaction
• Compensation – Highly skilled staff will look for appropriate compensation, including salary and benefits, making this a potentially high-reward investment for employers
• Streamlining recruitment – If you work with a recruiter, make sure they are right for your sector and needs
• Outsourcing – You may consider outsourcing a process or service in your business to a specialist external provider, provided they are reliable and gel with your company’s values and goals.

Your ultimate goal is to create a productive, collaborative and happy working environment that minimises turnover rates – reducing recruitment cost and disruptions.

Is your accountant working for you?

Did you know that your accountant can help you to minimise the impact of staffing shortages on your business?

Most obviously, we can support you with your finances, your reporting, tax returns and your business strategy – with input along the way from you, to ensure that your business is moving in the right direction.

Beyond that, we can also advise you on implementing technology and cloud architecture into your business processes, allowing automations and streamlined workflows to ease the burden of skills shortages.

For further advice on staffing your business, please contact our team today.

HMRC has begun to issue ‘nudge letters’ to cryptoasset owners who may have underpaid tax when selling their assets, urging them to amend or submit a tax return.

In this rapidly evolving sector, asset holders are not always clear on what income or profit generates a tax liability.

This follows the introduction of CARF – The Cryptoasset Reporting Framework – earlier in 2024, requiring cryptoasset firms to share customer data with HMRC when requested.

What do I need to report?

Profit on the sale (disposal) of cryptoassets are typically considered to be capital gains rather than income – although income on investments in cryptoassets may be subject to Income Tax and National Insurance Contributions (NICs).

Any gain (profit) you make when disposing of cryptoassets will therefore be subject to Capital Gains Tax (CGT).

You will be taxed at a rate of:

• 10 per cent – on gains within the basic Income Tax band, if you pay the basic rate on your income.
• 20 per cent – on gains that exceed the basic Income Tax band, if you pay the basic rate on your income or if you are a Higher Rate taxpayer.

Gains should be reported on a Self-Assessment form via HMRC’s Online Service. HMRC will then tell you how much CGT you need to pay, how to pay it, and when to do so.

Mitigating tax liabilities

If your total gains are less than £3,000 (including any other capital gains you have made in the financial year), then you do not have to report and pay CGT on cryptoassets.

You may consider planning the disposal of cryptoassets before or after the start of a new financial year to maximise each year’s allowance.

You should also make sure that you have applied any allowable business expenses to your taxable profit when reporting investment income for Income Tax and NICs.

Contact us for further advice on cryptoassets and Capital Gains Tax.

The issue of late payments has become a growing concern for small businesses.

Recent data from Xero Small Business Insights reveals that, on average, payments were made 7.3 days late between April and June 2024.

This is an increase of 1.8 days from the previous quarter.

This marks the largest quarterly increase in late payments since the onset of the pandemic – with the retail trade and hospitality sectors hit hardest

This has further strained the cash flow of businesses already grappling with rising inflation and uncertain economic conditions.

Strategies to manage and mitigate late payments

To manage and mitigate the impact of late payments, we suggest you adopt several strategies:

• Clear payment terms: Ensure that your payment terms are clearly stated in all contracts and invoices. Specify the due date, late payment penalties, and preferred payment methods. This clarity can help set expectations and encourage timely payments.

• Invoice promptly and accurately: Send invoices as soon as the goods or services are delivered. Ensure that the invoices are accurate and include all necessary details to avoid delays caused by disputes or misunderstandings.

• Automate invoicing and reminders: Use accounting software to automate invoicing and send payment reminders. Automated systems can help you keep track of due dates and follow up with customers who are late in making payments.

• Offer early payment discounts: Encourage early payments by offering a small discount for payments made before the due date. This can incentivise customers to pay promptly.

• Build strong relationships with customers: Maintain open communication with your customers. Building strong relationships can make it easier to discuss payment terms and address any issues that may arise.

• Assess creditworthiness: Before extending credit to new customers, assess their creditworthiness. This can help you identify potential late payers and mitigate the risk of late payments.

• Legal recourse: As a last resort, consider legal options for recovering overdue payments. While this can be a lengthy and costly process, it may be necessary for persistent late payers.

Managing late payments can be challenging, but you do not have to navigate it alone.

Speak with your accountant or tax adviser to discuss your specific situation and develop a tailored strategy to improve your cash flow.

An experienced professional can provide valuable insights and help you implement effective solutions to protect your business from the adverse effects of late payments.

Speak to a member of our team for more information or assistance. 

Recently, there has been a significant increase in company closures due to petitions from creditors, particularly HM Revenue & Customs (HMRC).

In 2023, forced closures rose by 63 per cent compared to 2022.

This spike is mainly due to high interest rates making Covid-era debts hard to manage, along with HMRC’s backlog of cases.

Many companies, called “zombie companies,” continue trading despite being unable to pay their bills.

Creditors, including suppliers, utility companies, banks, and HMRC, are pushing to liquidate these debtors to recover what they can.

As such, we believe businesses need to take proactive steps to manage their finances and deal with creditors effectively.

How businesses should handle themselves

To navigate the current challenges, we suggest you closely monitor your business’s financial health by regularly checking income and expenses.

You should also track all debts, especially those remaining from Covid, and prioritise paying off high-interest ones to reduce financial strain.

Maintain open communication with creditors, including HMRC. If you anticipate trouble paying bills, discuss extending payment deadlines or setting up easier repayment schedules.

Alternatively, you can contact HMRC to arrange a “time to pay” agreement for tax debts to manage repayments over an agreed period.

You may want to consider options like a Company Voluntary Agreement (CVA) to keep trading with creditors’ consent and look at other insolvency options, such as administration and voluntary liquidation, which might be better alternatives to a winding-up petition.

Paying debts on time helps you avoid becoming a zombie company and attracting HMRC’s attention.

Be aware of HMRC’s service delays and their impact on processing applications.

Keep detailed records of all communications to avoid misunderstandings and ensure a clear audit trail.

How an accountant can help

As accountants, we can offer expert advice on managing your finances, restructuring debt, and ensuring tax compliance.

We can also help set up “time to pay” arrangements with HMRC and negotiate with creditors, guide you on rescue tools like CVAs, and help you understand other insolvency options.

Given the economic situation and HMRC’s pressure, we are strongly suggesting that businesses work closely with their accountants on all aspects of their tax and finances.

To speak with a qualified and experienced accountant, please get in touch with our team. 

Recently, many pensioners received surprising news: a tax bill for the first time.

This stems from HM Revenue & Customs (HMRC) decision to send letters to over 140,000 pensioners, who have taxable income but are not filing Self-Assessment.

In total, 560,000 pensioners will receive letters, covering the 2023/24 tax year.

Why is this happening?

The basic rate tax threshold has been frozen at £12,570 for three years, while state pensions have risen in line with inflation.

This means many pensioners now have incomes that cross this threshold, leading to tax liabilities.

If you are one of the 140,000 pensioners who have received a letter from HMRC, you are not alone.

However, this may be your first encounter with the ‘Simple Assessment’ system.

Simple Assessment is a way for HMRC to collect tax directly from those who do not file a Self-Assessment tax return.

The letter you received includes a Simple Assessment tax statement (form PA302), which details the tax you owe for income received between April 2023 and April 2024.

Payment must be made online or via the HMRC app, with deadlines usually set for 31 January 2025 or three months from the date of the statement.

How to manage this new tax bill

For our clients who have received this unexpected tax bill, we advise you:

• Don’t panic: Receiving a tax bill for the first time can be daunting, but it is manageable. Take a deep breath and read through the letter carefully.

• Check the details: Review the calculation provided by HMRC. Ensure all your income sources are correctly listed, including state pensions, savings, and any other income. Look out for any deductions you might be entitled to, such as charitable donations, pension contributions, or professional subscriptions.

• Seek help if needed: If you’re not comfortable using online services, ask a family member or friend to assist you. Alternatively, consider speaking to us.

• Make the payment: Follow the instructions in the letter to make your payment online or through the HMRC app. Ensure you do this by the deadline to avoid any penalties or interest charges.

• Stay informed: HMRC has provided an online guide for Simple Assessment. While there’s no phone helpline, the online resources can be quite helpful. Familiarise yourself with these guides to better understand the process.

Managing an unexpected tax bill doesn’t have to be stressful and by carefully reviewing your HMRC letter, seeking help when needed, and making your payment on time, you can stay on top of your tax obligations.

However, we recognise this process can be complex, and it is easy to overlook important details but speaking to an accountant can simplify and streamline everything for you.

We are here to help you understand your tax bill, ensure all calculations are correct, and guide you through the payment process.

Please reach out to our team for professional assistance – it can make all the difference in managing your finances smoothly.

In a bid to ease the regulatory burden on businesses, new thresholds for classifying company sizes have been announced.

This change, introduced by the previous Government, could allow around 132,000 businesses to skip mandatory audits.

Under the current plans, which may be subject to change, companies will be able to benefit from the threshold changes for financial years commencing on or after 1 October 2024.

How will this affect my business?

By increasing the audit thresholds, many SMEs will no longer require statutory audits.

With this change comes new challenges. Many stakeholders and investors rely on audits to provide them with accurate insights into the business’s financial health, so, the exemption could lead to reduced financial transparency and oversight.

It is essential for SMEs to carefully consider whether the savings from reduced audit costs outweigh the benefits of voluntary audits in ensuring strong financial health and maintaining investor confidence.

Although some companies may no longer be mandated to conduct statutory audits, they will still be under regulatory scrutiny.

This change promotes a risk-based approach to financial management, internal controls, and reporting, ensuring transparency and accountability without the need for a formal audit.

The new audit thresholds

For micro businesses, the turnover threshold has increased from £632,000 to £1 million and a gross asset threshold of £500,000 increased from £316,000.

For small businesses, the turnover threshold has increased from £10.2 million to £15 million and a gross asset threshold of £7.5 million increased from £5.1 million.

For medium businesses, the turnover threshold has increased from £36m million to £54 million and a gross asset threshold of £27 million increased from £18 million.

Any figure exceeding this would categorise the entity as a large company.

Currently, the employee numbers for micro, small and medium enterprises will stay the same at 10, 50 and 250 respectively, however, further consultation is expected on the threshold of medium-sized enterprise employees to increase it from 250 to 500 employees.

Additionally, consideration is being given to eliminating the requirement for medium-sized enterprises to prepare a strategic report.

To be eligible for the exemptions you need to meet two out of the three threshold criteria.

How should I prepare?

While many businesses will feel relief from these changes, they need to stay on top of their financial management and uphold strong governance and reporting standards.

By managing risks well and sticking to best practices, businesses can adapt to these changes smoothly and contribute to a healthy, resilient economy.

If you would like assistance with your audits or would like advice on whether your business requires one, please contact our team.

The first Budget of the new Labour Government has been announced to take place on 30 October 2024.

Ahead of the budget, Chancellor Rachel Reeves has announced that spending cuts worth £13.5 billion will be required over the next two years.

She explained that this was due to the scale of the previous Government’s overspending, which was unsustainable. The Chancellor said there is a £22 billion black hole in the public finances.

The immediate action Labour will take to deal with this issue includes cancellation and delays of major infrastructure projects.

Key takeaways on tax

According to Ms Reeves, the first Budget will require “difficult decisions” to be made to meet Labour’s fiscal rules, including major decisions on spending and tax.

In correlation with the Labour manifesto, she did rule out raising income tax, national insurance (NI) and VAT, however, a report to close tax loopholes and tax avoidance to recover public finances is intended to be published.

Additionally, changes to Capital Gains Tax (CGT) and Inheritance Tax (IHT) have not been ruled out.

Valuable reliefs, such as Business Asset Disposal Relief, could also be cut to bring in more tax, and this would affect anyone selling their business or a substantial number of shares.

Before the election, in the Spring Budget, the former Chancellor Jeremy Hunt announced the abolition of non-dom status in the UK and the eventual removal of the remittance basis, under a transitional process.

The new Government is set to double down on its plans announcing a “modern scheme” intended only to support people “genuinely in the country for a short period.”

The transitional arrangements due to be in place from April 2025, will not be retained under Labour’s plans and they have confirmed that they intend to end the use of offshore trusts to avoid Inheritance Tax.

This will, they say, ensure “that everyone who makes their home here in the UK pays their taxes here.”

Universal winter fuel payment

During her speech, Ms Reeves confirmed that she would be ending universal winter fuel payments, which are currently paid to all pensions.

She stated that starting this year, individuals who are not receiving pension credits or other means-tested benefits will no longer be eligible for these payments.

Pension tax relief

Rachel Reeves might consider lowering higher rate tax relief on pension contributions and introducing a flat rate scheme that applies to everyone, no matter their income.

There are also rumours that the 25 per cent tax-free lump sum people can currently take from their pension pots might be reduced in the future.

However, nothing has been revealed yet, but we should know once the Budget is delivered.

Office of Value for Money (OVM)

The Government will establish a new watchdog to ensure that all Government spending delivers value for money.

The Chancellor also confirmed to the Commons that a Covid anti-corruption probe will proceed, designed to recover money lost to Covid-related fraud.

If you have any questions following Rachel Reeves’s speech or would like advice ahead of the Budget, please get in touch.