Business News

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.

HM Revenue & Customs (HMRC) recently reported a £2 billion increase in income tax receipts, reflecting a strong self-assessment period and an evolving dynamic within the tax landscape.

The Government’s recent changes, including adjustments to National Insurance Contributions (NICs), have both mitigated and exacerbated the overall NIC burden.

This is because they encompass rate reductions for certain income brackets, aimed at reducing financial strain and boosting disposable income to stimulate economic activity, and the introduction of higher thresholds for others, which, by freezing or raising these thresholds for higher earners, effectively increases their tax burden.

This development poses challenges and opportunities for taxpayers, highlighting the need for strategic tax planning in response to the increasing tax burden, which is escalating at a rate surpassing inflation.

The data that HMRC has released reveals a contrasting trend – an 11.9 per cent rise in PAYE tax receipts contrasts with a 1.7 per cent decline in Self-Assessment income tax collections.

This trend points to the heightened economic strains on sole traders and partnerships, with inflation eroding small business profitability.

In response, the Government has allocated £200 million towards small business support, aiming to fortify the economic foundation for these entities.

Looking ahead, tax receipts are poised for further growth, propelled by the continuous fiscal drag from frozen income tax thresholds.

These developments signal an escalating tax burden for UK residents, despite the recent cuts to NICs, and emphasise the critical role of informed tax planning.

An examination of other tax receipts

Since April 2023, an examination of the tax receipt composition reveals widespread increases across several categories, culminating in total receipts of £761.1 billion.

This increase spans Income Tax, Capital Gains Tax, National Insurance Contributions, VAT, and other business taxes.

A notable peak in Inheritance Tax collections, which reached £6.8 billion, reflects the Chancellor’s strategic budgetary decisions to maintain current levels of this tax.

For individuals and businesses, understanding the intricate details of the current tax framework is going to be essential for effective financial planning and decision-making this tax year (2024/25).

Adapting to these changes necessitates a focus on tax efficiency strategies and preparation for future tax policy shifts.

Given the complex and changing nature of the tax system, professional tax advice is going to be increasingly important for managing your finances.

Please speak to our team for more information on this issue.

From 6 April 2024, UK redundancy rules will change, particularly surrounding pregnant employees and those on family-related leave.

The new legislation extends the ‘protected period’ for redundancy to 18 months after the birth or adoption placement, requiring employers to prioritise these employees for suitable alternative employment in case of redundancies.

The financial impact on your business, because of these changes, could be significant too if you must consider making redundancies.

You will likely face higher operational costs as you must now retain staff or find them alternative roles instead of making them redundant.

The tax treatment of redundancy payments, which are tax-free up to £30,000, will also need careful consideration to ensure compliance with HM Revenue & Customs (HMRC).

Adjustments in payroll and HR practices should also be considered, and you will need to update your redundancy policies and consultation process to align with the new rules.

From a purely payroll perspective, these changes make it all the more important to accurately track maternity, adoption, or shared parental leave.

By preparing now, you can ensure that you meet these new requirements, minimise financial risk, and support your employees effectively during these critical life stages.

If you require further guidance or information on payroll changes relating to redundancy, please don’t hesitate to get in touch. 

With the start of the new tax year, taxpayers can expect significant changes that will directly impact their finances in the next tax year (2024/25).

If you haven’t already, it’s time to closely examine your financial planning, including savings, investments, and tax compliance.

So, what changes should you be aware of from 6 April 2024?

• Employee National Insurance contributions (NICs): Primary Class 1 NICs for employees will be reduced from 10 per cent to eight per cent, aligning with the Government’s efforts to lower the tax burden and simplify the tax code.
• Self-employed National Insurance contributions (NICs): Class 4 NICs for the self-employed will drop from nine per cent to six per cent, alongside the abolition of Class 2 NICs for those with profits over £12,570, simplifying tax responsibilities and maintaining access to contributory benefits.
• Capital Gains Tax (CGT): From April 2024, the higher CGT rate on the sale of second and additional homes drops from 28 per cent to 24 per cent. This move means you might need to reassess your property investment and disposal strategies.
• Stamp Duty Land Tax (SDLT): The Government is scrapping Multiple Dwellings Relief starting 1 June 2024. If you’re buying multiple properties in one go, you may need to rethink your strategy.
• VAT registration threshold: Rising from £85,000 to £90,000 in April 2024, the new threshold offers a slight reprieve for small businesses. It’s crucial to understand when you must now register for VAT.

Consulting with your accountant is the best way to navigate these changes effectively.

What do these changes mean for you?

For the self-employed, the significant decrease in Class 4 NICs from nine per cent to six per cent, coupled with the abolition of Class 2 NICs for those earning over £12,570 will simplify your tax-paying process, potentially reducing your overall tax liability and allow for a better allocation of funds towards business growth, savings, or personal investment.

The abolition of Class 2 NICs, while streamlining your tax contributions, may mean that the self-employed need to make voluntary NICs to be eligible for crucial state benefits.

The VAT registration threshold increase to £90,000 has the potential to significantly benefit SMEs, likely delaying the requirement for VAT registration for many.

This change could positively affect your cash flow and simplify compliance efforts in the short term.

To fully understand the impact, you must review your business’s current and projected turnover, ensuring you remain compliant with VAT registration requirements at the new threshold.

Having said this, it is sometimes worth registering for VAT early to simplify your pricing structure and have access to the Flat Rate Scheme which gives you clear visibility of your VAT liabilities.

The abolition of Multiple Dwellings Relief in June 2024 requires a strategic shift for those investing in property.

With this relief gone, it becomes more costly to acquire multiple properties in a single transaction and you’ll need to explore alternative tax-efficient investment strategies, perhaps focusing on sectors or assets not affected by this change, such as commercial properties or investments that qualify for other forms of tax relief.

The Government is also promoting tax reliefs for investments in digital and green technologies, aiming to foster innovation and environmentally sustainable business practices.

These incentives, like Enhanced Capital Allowances, could offer considerable savings and should encourage investment in qualifying technology and green energy projects, including solar panels, wind turbines, and energy-efficient equipment.

For higher-rate taxpayers dealing with the sale of second and additional homes, the decrease in the CGT rate from 28 per cent to 24 per cent offers a more favourable tax environment for disposing of residential properties.

This change suggests a window of opportunity for tax-efficient disposals and requires a review of your timing and strategy to maximise benefits.

Looking further ahead, the reform targeting non-UK domiciled individuals, transitioning to a residence-based tax system from April 2025, brings increased responsibility for those affected.

If you are a non-dom residing in the UK for over four years, you’ll face heightened tax obligations on your global income and gains.

This tax year might be an opportune moment to carefully review your residency status and potentially restructure your financial affairs to mitigate the impact of these changes.

With taxes undergoing considerable changes in the 2024/25 tax year, it is going to be crucial to actively review and adapt your financial and tax planning strategies.

Engaging with a tax professional is the best way to receive customised advice that helps you navigate the complexities of the tax system effectively, ensuring you leverage every available relief and adjustment to optimise your financial position.

If you require further information on your new tax liabilities, please contact one of our team.