Business News

With the end of the tax year fast approaching on 5 April, it makes sense to assess your tax situation and make use of the reliefs and allowances available to you.

Here are a few quick wins you can consider to help reduce your liabilities now and in the future:

Inheritance Tax (IHT)

Each tax year individuals are allowed to give away up to £3,000 worth of assets or cash without it being added to the value of their estate, referred to as your ‘annual exemption’.

If you have any unused annual exemption, this can be carried over to the next tax year.

Capital Gains Tax Allowances

Capital Gains Tax (CGT) is charged when you sell or dispose of an asset and make a profit. You are only taxed on the amount you gain from the sale or disposal.

UK residents can make a certain amount of gains each tax year before being charged CGT, this is known as the Capital Gains Tax Annual Exemption.

The figure for 2022/23 is £12,300 but this will fall to £6,000 for 2023/24, before being reduced to £3,000 for 2024/25.

You should ensure that, where possible, you are using your CGT Exemption before the end of the tax year and plan disposals to take advantage of the current higher rate.

Personal Allowance (PA)

Each individual is entitled to their own personal allowance (PA), which is set at £12,570 for 2022/23.

Part of the PA can be transferred between spouses and civil partners. The Marriage Allowance of £1,260 can be transferred, but only where neither spouse/civil partner pays tax at the higher rate.

Annual Pension Allowance

Ensuring you have made full use of your annual pension allowance is an important way to save tax. The current allowance allows most individuals to invest up to £40,000 a year before tax is applied. This allowance can be carried over several years if it has previously been unused.

Individual Savings Accounts (ISAs)

You pay no Income Tax on the interest or dividends you receive from an ISA and any profits from investments in an ISA are free of Capital Gains Tax. You can pay your whole allowance of £20,000 (for 2022/23) into a Stocks and Shares ISA, a Cash ISA or any combination of these.

It is good practice to repeat the process every tax year. To find out how we can help you with tax-efficient investments, please speak to us.

Making Tax Digital for Income Tax Self-Assessment (MTD for ITSA) will now come into effect in April 2026 for businesses, self-employed individuals, and landlords with gross business and/or property income over £50,000.

This will be followed in April 2027 for those with similar incomes over £30,000. The question is, how soon should your business start using cloud-based compatible software before that deadline?

The answer – the sooner the better.

Beyond compliance, the benefits of MTD cloud accounting software include:

• Reduce human error by keeping digital records and submitting tax information digitally
• Easily capture and digitise receipts using associated apps
• Making important decisions faster with a real-time overview of your financial position and performance
• Automate important financial functions, like cashflow forecasting
• Reduce your costs and saves you time by remaining constantly connected to your business through secure, remote servers
• Enjoy up-to-date software, with all the latest functions and legislative compliance
• Your work is saved automatically as you go, so you save both time and money on backup procedures
• Collaborate with your accountant anywhere in the world, at any time.

MTD-compliant cloud accounting software will generate the summary updates, which must be sent to HMRC every quarter via your HMRC digital account under Making Tax Digital.

You will be able to see how much tax you owe based on the information you have provided, so you can be better prepared for future tax bills.

Being prepared for MTD and having the correct software in place and ready to use will ensure a smooth transition to the new system, but, as you can see, the benefits go far beyond compliance.

Don’t wait until the last minute to adopt MTD-compliant cloud accounting software. Even though MTD for ITSA has been delayed until 2026, it’s important to start using cloud-based compatible software as soon as possible to benefit from its many advantages.

Take action today and speak to us to start using cloud-based compatible software to streamline your business and stay ahead of the curve.

Business plans provide goals to work towards, help identify potential problems, give insight into competitors, and highlight potential opportunities.

A great business plan should include a concept, strategy, executive summary, market analysis, competitor analysis, the company’s financials and a clear action plan.

Concept

This part of the business plan is usually broken down into three elements:

• Executive summary
• Company description
• Products/services.

The executive summary will highlight the mission of the business by describing its products and services.

It might also be a good idea to briefly explain why you are starting your business and include details about your experience in the industry that you are entering.

Strategy

Understand the scope of your business, as well as the amount of time, money, and resources you will need to get started by writing it down to help clarify your ideas.

Market analysis

You should identify your target customers’ needs, desires and challenges to understand how you products and/or services can meet them. You also need to understand what else is available on the market and how your offering differs.

Competitor analysis

While it is important to understand the market you are operating in, it is also important to assess the success and weaknesses of competitors within your market to spot gaps and beat the competition.

Financials

A crucial area, this should outline projections for short-term growth and long-term profitability. You should include profit and loss projections, balance sheets, and cash flow statements for the next three years.

Setting these points out should help you create a clear set of definable actions that can help your business to grow and flourish.

Having a detailed, well-prepared business plan will increase the chances of survival and success for any venture.

For help preparing an effective strategy for your business, speak to our experts.

Small business owners need to take measures to avoid costly mistakes when it comes to calculating, reporting and paying Value Added Tax (VAT).

The best way to prevent errors and stay on the right side of HM Revenue & Customs (HMRC) is to have an expert take care of your VAT affairs.

Having a qualified accountant or bookkeeper can ensure that all calculations are correct, up-to-date, and submitted on time and in line with the latest VAT regulations, including Making Tax Digital.

Employing an accountant to keep on top of record keeping will go a long way to preventing expensive mistakes and financial penalties related to VAT.

Some of the most common VAT errors include:

·         Entertainment: You can claim back VAT on entertaining employees, but not normally for clients.

·         Split usage: Where you provide items such as cars or phones, you can only claim VAT back on business use.

·         Inaccurate information: Entering the wrong figures on a VAT return may leave you liable to an investigation by HMRC or lead to you paying too much or too little tax.

·         Filing late: Ensuring that you file the necessary VAT information, on time, each quarter is essential to preventing the accumulation of penalty points, which can lead to a fine.

·         Failing to register: If you reach a taxable turnover of £85,000 or more in any tax year, you will need to register.

To cut down on the chance of errors there are a few things you can do to improve VAT reporting:

·         Take time to update – Keep on top of VAT by setting aside a regular time each week – or each day – to update your accounting records.

·         Maintain accurate records – It is important that you retain invoices and receipts so that you can accurately report VAT. This is easily achievable with the latest cloud accounting software and apps.

The SRA has proposed several amendments to its Standards and Regulations following feedback from the sector.

These planned adjustments will affect areas where rules were found to have had unintended consequences. It is also hoped the proposed changes will reduce the time taken on time-consuming regulatory tasks.

The proposed amendments include changes to the rules relating to:

• Solicitors reclaiming costs paid out on behalf of the client
• Firms managing bank accounts run on behalf of clients
• Pro bono work, or administering oaths or statutory declarations outside of a solicitor’s employment
• When indemnity insurance requirements apply for solicitors working in non-regulated bodies

Paul Phillip, CEO of the SRA, said: ‘When we introduced the new rules, the aim was to get rid of unnecessary and burdensome prescription and focus on what matters – high professional standards

‘Feedback so far suggests the approach of putting more trust in a solicitor’s professional judgement is working well and has been positively received. Firms have also really valued the extra flexibility our rules allowed throughout the Covid-19 pandemic.

‘There are, however, a few small areas where we have had feedback that the rules would benefit from amends to make them work better in practice. We have listened and these proposed changes will help make sure our rules aren’t creating unnecessary burdens or having unintended consequences.

These alterations, if ratified, are seen as being a positive step as more trust will be placed in a solicitor’s judgement.’

The SRA’s consultation is currently inviting feedback from the profession and will close on 8 March 2023.

Selling or merging firms can be a daunting process, which requires careful fiscal as well as legal considerations.

Taking this next step can be an exciting prospect with the potential for high levels of success, but your clients may encounter difficulties along the way if they are not fully prepared.

If your client is considering selling, merging, or acquiring a new enterprise, they should bear in mind the top five errors businesses make, to ensure a positive outcome.

Having a lack of information about the current condition of the sector

To have a good level of understanding of the sector they operate in and market competitors is a must. Many agreements fail due to a lack of awareness surrounding changes in a particular industry in relation to latest economic pressures and this can affect the sale price of the business.

In every industry, advancements and developments are continually being made which can influence the sale of your client’s business.

It is important for your clients to remain realistic about the value of their business and to work alongside financial specialists who can help them to maximise the value of their assets pre-sale.

Having incomplete or onerous contracts

To successfully complete a merger or acquisition, due diligence must be completed. This process comes to a halt if your client fails to provide complete records. A thorough audit of a potential investment will verify the accuracy of the seller’s information and assess its value, taking into account the latest market conditions.

Part of this process will of course involve a review of a firm’s existing contracts and agreements, as well as its general terms and conditions.

Not having a clear post-merger plan

Often, your client may be so focused on the process of the merger or acquisition that they lose sight of the long-term plan for the business.

It is vital to maintain a long-term commercial vision to ensure success. Whilst this may appear to be an obvious consideration, it is unfortunately where many businesses fail.

This is perhaps one of the most significant errors often made and one where your clients will benefit from not only speaking to you as their legal advisor but also to a specialist accountant with experience in M&As.

Failing to communicate the vision and strategic fit

It is important to consider whether your client’s business is compatible with the company they plan to merge with.

This should be considered before and during the process, ensuring open discourse between parties regarding the future of both entities. Regular communication between buyer and seller is crucial in the merger process and should be prioritised throughout the transition into the newly formed company.

We can support you and your clients through the buying, selling or the M&A process and also advise on the most tax efficient method of extracting assets where a director is planning to exit the business.

For further information on the specialist support we can offer you and your clients, please contact us today.

Does your firm do everything it can to protect against money laundering (AML)? Whilst the latest report from the SRA identified that only a minority of firms do not protect themselves against financial crime, there are still improvements required across the legal sector.

As you will doubtless be aware, AML is a wide-ranging set of policies, procedures and technologies which set out how firms are required to protect themselves against money laundering through the three steps of placement, layering and integration.

What did the SRA investigations find?

The SRA carried out 273 inspections and reviews of solicitors and law firms.

They found that 70 per cent of firms were compliant with their AML requirements.

However, they also found 252 reports of suspected breaches. This included breaches of failure to carry out customer due diligence, money laundering risk assessments and source of funds checks.

Other results from the investigation showed:

• 49 failures to carry out initial customer due diligence (CDD)
• 40 failures to carry out money laundering risk assessments
• 39 failures to carry out a source of funds check
• 28 failures to identify a client

What common compliance issues were discovered?

The report highlighted a number of firms had several SRA when asked to provide declarations relating to AML compliance.

It also revealed a failure to declare whether a compliant firm-wide risk assessment had been put in place.

Poor CDD including inadequate identification and verification of clients and source of funds checks was cited as another common area for failure.

Other areas included failure to apply enhanced customer due diligence and poor PCPs.

The Government has announced a two-year delay and further changes to the rollout of its Making Tax Digital for Income Tax initiative.

The delayed implementation of Making Tax Digital (MTD) for Income Tax Self-Assessment (ITSA) means it will now be phased in from April 2026 for a smaller number of taxpayers, rather than the original launch date of April 2024.

The move will give self-employed workers, sole traders and landlords more time to prepare for the upcoming changes.

What is changing? 

From the new start date, instead of MTD for ITSA applying to all self-employed workers and landlords with property and/or business income of more than £10,000, it will now only apply to those with income exceeding £50,000.

As per the original plan, they will have to keep digital records and provide quarterly updates on their income and expenditure to HMRC through MTD-compatible software.

Those with an income of between £30,000 and £50,000 will also need to comply with this from April 2027. However, all taxpayers will be able to join voluntarily beforehand if they wish to eliminate common errors and save time managing their tax affairs.

What about smaller businesses?

The Government has also announced a review into the needs of smaller businesses originally due to use the system in 2024, particularly those under the £30,000 income threshold.

The review will consider how MTD for ITSA can be shaped to meet their requirements and the best way for them to fulfil their Income Tax obligations. It will also inform the approach for any further rollout of MTD for ITSA after April 2027.

MTD for ITSA will not be extended to general partnerships in 2025, as previously announced. However, the Government says it “remains committed to introducing MTD for ITSA to partnerships in line with its vision set out in the Tax Administration Strategy”.

Under the original plans, MTD would also be extended to Corporation Tax, but the Government is yet to confirm when this final phase will begin.

Despite this delay, we still recommend that you begin preparations for MTD sooner rather than later. Our experience of supporting people with MTD for VAT has shown that early integration of the necessary online accounting systems can be essential to compliance, so speak to us.

Businesses are being advised that time is running out to be able to take advantage of the Corporation Tax super-deduction capital allowance scheme. This allows businesses to claim back 130 per cent on investments made in plant or machinery.

The scheme runs until 31 March 2023 and with Corporation Tax rates set to rise in April 2023 for more profitable businesses, there’s not much time left to take advantage of this generous scheme.

The scheme was an incentive to invest in new assets to aid the recovery of companies after the pandemic.

The measure allows organisations to claim a super-deduction providing an allowance of 130 per cent on most new plant and machinery investments that ordinarily qualify for main rate writing down allowances.

They can also use the first-year allowance of 50 per cent on most new plant and machinery investments that ordinarily qualify for special rate writing-down allowances.

What is classified as plant and machinery?

There are many forms of ‘tangible’ assets used in the day-to-day running of a business. Some examples include:

• Ladders, drills, cranes
• Office furniture
• Refrigeration units
• Electric Vehicle charge points
• Compressors

Certain expenditure is excluded, for example, the acquisition of company cars. To benefit from the relief the assets purchased must also be new and not second-hand or refurbished equipment.

How does it work?

A company incurring £1 million of qualifying investments decides to claim the super-deduction.

Spending £1 million will mean the company can deduct £1.3 million (130 per cent of the initial investment) in working out its taxable profits.

Deducting £1.3 million from its taxable profits will save the company up to 19 per cent of that – or £247,000 on its Corporation Tax bill.

What about unincorporated businesses?

The relief is only available to limited companies, but unincorporated businesses can continue to benefit from the Annual Investment Allowance (AIA), which permits a deduction of 100 per cent for qualifying plant or machinery expenditure up to the threshold of £1 million.

If you would like help claiming this tax relief before it ends, please contact our tax team today.