Business News

Inflation has been described as paying £15 for the £10 haircut you used to get for £5 when you had hair.

It is soaring at the moment and leaves business owners facing real problems. If they increase their prices, they risk losing customers, but if they peg prices, they put their profits and potentially their business at risk.

Inflation hits just about everything, from raw materials to higher fuel and energy costs to customer confidence.

The hope is that it will be short-term, but with borrowing costs spiralling as interest rates rise, businesses should look at practical savings and decide:

• Are you paying for services you no longer use regularly?
• What measures can you adopt to cut energy bills?
• Can you achieve discounts with bulk ordering or cut costs by reducing excessive orders?
• Are you making efficient use of your staff?

Maximise technology use

Accounting and financial technology can give you instant information on sales, costs and products and allows cloud-based apps to reduce the time needed for vital but time-consuming tasks.

This can include invoicing systems that tell you what’s been paid and other apps that help you keep track of your cashflow.

Examine your products and workforce

• Can you abandon or suspend certain products which deliver weak margins? At the same time, can a best seller withstand a price increase and boost profitability?
• Are you overstaffing shifts?
• Do you have lengthy processes with unnecessary steps?
• Do you really need those temporary workers?

Stay competitive and prioritise customers

Check out the competition, both locally and nationally, to see what they are charging for similar products and services.

This can often depend on different areas of the country and levels of relative prosperity. Can less well-off consumers withstand price increases?

Make maximum use of your accountant

Accountants offer a wide range of services, including strategic advice and money-saving and revenue-boosting ideas, including:

• Advising on business strategy
• Addressing your cashflow
• Debt management and credit control.

Is your business struggling with the strain of inflation? Get in touch to find out how we can help you create strategies to help you better monitor and manage your costs.

Link: Effect of inflation on business

Investing in property can still provide a strong return, but it needs careful planning to achieve the best outcomes.

Just buying new properties without a clear strategy would be risky.

While it is true that rates of interest continue to increase, as do many of the costs associated with being a landlord, with the correct approach property can continue to provide a good income.

Mortgages

Many landlords enter the market by purchasing their property using a buy-to-let mortgage.

In the past, these have provided a competitive means by which to purchase new houses with minimal deposits.

In many cases, landlords have even forgone paying off their mortgage favouring interest-only buy-to-let mortgages, which minimise their monthly outgoings to enjoy a greater overall return.

However, with the Bank of England steadily increasing the base rate, many lenders are also increasing their interest rates driving up the cost of debt.

For those on fixed-rate mortgage deals, their current rate shouldn’t change until their current offer ends, but for those on tracked and variable rates, which increase alongside the base rate, the costs of their mortgages could wipe out any profits.

Lenders are unlikely to offer any new fixed deals at lower rates for some time, so what can be done to cut mortgage costs?

One option to consider if you already have multiple buy-to-let mortgages is consolidation.

Consolidating multiple debts into a single property loan could help to reduce the amount paid overall.

Especially if you have a wide variety of rates on each previous loan. This could help to reduce the overall cost of your lending.

If you are considering further growth and you have multiple mortgages, you might want to consider a buy-to-let portfolio mortgage.

Many lenders offer this kind of product, which allows you to combine your borrowing under a single web of loans, while also allowing you to use the equity within the portfolio to cover deposits for new homes.

Incorporation

If you currently operate as a sole trader it might be worth considering incorporating your portfolio into a limited company.

This carries with it several advantages, including:

• Limited companies currently pay Corporation Tax at 19 per cent. This is lower than income tax on profits, which if you are a higher-rate taxpayer is paid at 45 per cent.
• You can still enjoy a 100 per cent tax relief on the mortgage interest your limited company pays. This is restricted on personally held properties to just 20 per cent.
• It is easier to transfer limited company shares to beneficiaries or others than privately held property.

While incorporation has its benefits it also comes with the additional Companies House administration and you would have to pay Stamp Duty Land Tax on the transfer of your portfolio into a limited company, which could be costly.

Looking to sell?

We appreciate that given the current situation, some landlords might be looking to dispose of some or all of their property portfolio.

If this is the case, then they need to consider the tax implications of doing so.

When a main home is sold, there is usually no Capital Gains Tax (CGT) due thanks to Principal Private Residence Relief, but tax may be owed on the gains you have made on a second home or investment property.

Higher and additional rate taxpayers pay CGT on property disposals at a rate of 28 per cent, while basic rate taxpayers may pay tax on some of their chargeable gains at a rate of 18 per cent.

Tax is only charged on the gains made on a property, not the total value of the sale, and most taxpayers benefit from an annual CGT tax-free allowance of £12,300 (2022/23).

Any CGT due on UK residential property disposals made by UK residents must be reported and paid within 60 days of completion.

Whether you are looking to grow or sell your portfolio it is important to have a plan in place and seek professional advice to make the most of your assets.

If your property portfolio has been affected by recent changes to legislation or rising costs, it is important that you speak to us for the latest advice and guidance.

If you are an owner of a limited company, taking money out of your business using dividends is a mainstay of effective tax planning, thanks to an additional £2,000 annual allowance and lower rates than apply when taking money in the form of salary.

However, there are restrictions on the circumstances in which a limited company can pay a dividend.

Crucially, the company must have sufficient profits from the current and previous financial years to cover the dividend payment.

The company will also need to pay a dividend to all eligible shareholders, so you will need to factor this into any calculations.

Dividends must be declared by the directors and minutes of the meeting must be kept, even if there is only one director.

A dividend voucher will need to be prepared, including the date, the company name, the names of the shareholders receiving the dividend and the amount.

Copies must be given to the shareholders receiving the dividend and retained on the company’s records.

Be aware, that the current £2,000 Dividend Tax Allowances will be reduced to £1,000 from April 2023, and then cut further to £500 from April 2024.

It is important to consider the impact that this could have on your tax planning.

For decades we have helped business owners find the most tax-efficient way to take money out of their businesses. To find out how we can help you, please get in touch.

Link: Running a limited company: Your responsibilities

Card payments rocketed during the pandemic and that trend has continued since then.

According to figures from the British Retail Consortium (BRC), card payments account for four out of every five payments made.

But as consumers switch, the soaring cost of accepting card payments is hitting retailers and adding to the cost of doing business.

According to the Institute of Chartered Accountants in England and Wales (ICAEW), in October last year both Visa and Mastercard raised their cross-border interchange fees on purchases made by UK consumers to European businesses from 0.2 per cent to 1.15 per cent for debit cards, and 0.3 per cent to 1.5 per cent for credit card transactions.

Move to improve services

Meanwhile, transaction fees on digital wallets are also on the up as PayPal increased its fees for payments between businesses in the UK and Europe from 0.5 per cent to 1.29 per cent in November 2021.

Following a review by the Payments System Regulator (PSR), the Government watchdog announced new rules in October to improve card services and help businesses shop around and switch to more cost-effective services.

From January next year, 14 of the most significant providers of card-acquiring services will be required to remind businesses at the end of their contract term that they could compare prices to get a better deal.

In addition:

• Providers will also have to provide information to businesses about their charges and provide an initial online quotation tool of key charges to help businesses make a choice.
• Following concerns that businesses were being locked into lengthy contracts for card readers, the regulator is also limiting point-of-sale (POS) terminal contracts to 18 months.

The way in which you manage payments to your company can have an impact on the success and profitability of your business. If you would like advice on the best approach to payments, speak to us.

Link: Mitigating card payment costs

The status of IR35 or off-payroll working has caused some confusion since the repeals to reforms put forward by former Chancellor Kwasi Kwarteng were subsequently scrapped by new Chancellor Jeremy Hunt.

IR35 is tax legislation designed to deal with a form of tax avoidance known as disguised remuneration, where individuals attempt to avoid paying the full rate of Income Tax and National Insurance Contributions (NICs), by providing their services through an intermediary, such as a Personal Service Company (PSC).

Engagers now responsible

The IR35 rules, which originally changed in April this year under the 2021 reforms in the private sector, exist to ensure that an individual providing services via a PSC, and who would have been an employee if they were providing their services directly to an end client, pay broadly the same income tax and NICs as a ‘regular’ employee would.

Under this legislation, all medium and large-sized private sector end clients are responsible for deciding a contractor’s employment status, as opposed to previous rules, where freelancers decided their employment status themselves.

The official guidelines for businesses affected by these rules are as follows:

• Pass your determination and the reasons for the determination to the worker and the person or organisation you contract with
• Make sure you keep detailed records of your employment status determinations, including the reasons for the determination and fees paid
• Have processes in place to deal with any disagreements that arise from your determination.

If the determination results in a contractor being within the IR35 rules, it is your responsibility to deduct and pay tax and National Insurance contributions to HM Revenue & Customs via PAYE.

Where an employer fails to correctly identify a disguised employment scheme, the worker’s tax and National Insurance Contributions become their responsibility.

What businesses does this apply to?

According to the Companies Act 2006, a business is defined as ‘medium’ or ‘large’ if it meets two of the following criteria:

• The company has a turnover of £10.2 million or more
• The company has a balance sheet total of £5.1 million or more
• The company has 50 employees or more.

The IR35 rules are complex and onerous. If you are affected by them, whether as an employer or a contractor, please speak to us for advice.

Link: Understanding off-payroll working

The season of goodwill is just around the corner as Christmas approaches.

It is a time of year when employers look to reward their staff for their efforts throughout the year.

But they should be aware that certain tax, National Insurance and reporting obligations could apply.

We want to ensure that you enjoy the festive season just as much as your team, so we’ve put together our top tips to ensure that you stay on the right side of the taxman this Christmas.

What about staff parties?

According to HMRC, the total cost must not exceed £150 per head and must be for your employees and any members of their family and household who attend as guests. The total needs to include VAT and other costs, such as transport and accommodation.

All staff must also be invited. If you spend more than £150 per person, the entire amount is a ‘benefit’ and must be declared on the P11D and tax will be due.

Getting gifts right

Trivial benefits are items of value given to an employee that do not count towards taxable income or National Insurance Contributions (NICs).

To qualify, the gift must meet ALL of the following conditions:

• The gift isn’t in the terms of the employee’s contract
• It is below the value of £50
• It isn’t a performance-linked reward
• It isn’t cash or a cash voucher.

A trivial benefit in kind could include a Christmas lunch, a small Christmas present, or a gift on the day of an employee’s wedding.

If the gift does not meet all of the above criteria, it must be reported as a benefit in kind to HM Revenue & Customs (HMRC) and tax must be paid as appropriate.

What about incidental expenses?

Incidental expenses, as described by HMRC, are expenses “incurred by an employee while travelling overnight on business”.

These may include purchasing newspapers, paying for laundry or using the hotel telephone.

As long as the value of the expenses does not exceed more than £5 per night for travel within the UK and £10 per night for travel outside the UK, they do not have to be reported to HMRC.

If you would like advice on benefits and gifts that you can give to your employees, whether at Christmas or any other time of the year, please contact us.

Link: Tax on trivial benefits

A merger in the legal sector typically involves a combining of services with mutually beneficial and recognised advantages in terms of increasing clientele, efficiencies, and capabilities.

Acquisition, as the name implies, refers to a firm purchased by another and can be friendly or hostile.

Companies acquire or merge for various reasons. They may seek cost-cutting measures, an avenue into diversification, or looking for a greater market share.

Other reasons for acquisitions include:

• Opening a gateway to a foreign market
• Taking advantage of a firm’s technology
• Taking advantage of workforce skillsets
• Enhanced capacity – this can lead to the avoidance of capital expenditure
• Healthy finances – a potential acquisition will have well-organised financial statements, which allows for smooth due diligence

What should my practice consider when merging with another law firm?

• The new firm’s finances

If you are looking to merge with another law firm, it is vital to investigate their finances and plans. Do they have a strategic plan for the next five years that aligns with yours?

• The new firm’s practice areas

Think about what your current firm can translate over to a new practice and vice versa. It would be ideal to merge with a firm that enables new opportunities for you.

• Equity vs non-equity

An equity offering usually includes the new partner receiving a loan to cover their equity buy-in or subtracted from your pay. Whatever way, you need to understand how it affects your compensation.

Due diligence: the key to an acquisition

Due diligence is important in establishing whether the target company is in sound financial health. If not, can the acquiring or merging firm deal with the debt and turn it around?

Things to consider and pitfalls that can occur when making a business acquisition or merger:

• If the asking price is wrong, many acquisitions or mergers fail, so ensure the price is right.
• Beware of any debt load – a target company with an unusually high level of debt should be treated with caution.
• Should that not be an obstacle, hiring a top-level chief executive will set it on the road to success again, and by stabilising the firm, ensure there is little or no financial drain.

Make sure you obtain proof that the target business owns key assets, such as property, equipment, and intellectual property, such as copyright and patents.

It is important to make you have details of any past, current, or pending cases, also look closely at the impact of a change in the business’ ownership on existing contracts.

For further information and advice on mergers and acquisitions, please get in touch with our expert team.

Selecting the most appropriate business structure for your law firm has long-term implications, which affect important aspects such as the amount of tax you will pay and how your firm operates in general.

It’s worth remembering that there is no ‘one-size-fits-all approach’ to how law firms are structured.

This means that you should consider what your particular circumstances are when choosing a structure.

Even though law firms have traditionally been structured as sole practitioners or partnerships, other options have grown in popularity in recent years.

Limited Liability Partnership (LLP) or Limited Company

For many firms, the choice falls between either an LLP or a limited company.

A limited liability partnership (LLP) offers some of the same benefits as a traditional partnership, but with a greater level of personal protection for the partners.

Your personal assets are at much greater risk if things go wrong without limited liability.

It is worth noting that even LLPs and companies are not bulletproof in this regard.

A director of a limited company could face claims of wrongful trading if their firm becomes insolvent.

Members of an insolvent LLP can also face a clawback of any payments received in the two years preceding them becoming insolvent.

Build in flexibility for the future 

By building in as much flexibility as possible, you will ensure your firm’s ability to cope with future changes.

Looking ahead to changes in the firm’s principles, members, (in an LLP) or shareholders and directors (in a limited company) will stand you in good stead.

For example, when changing profit sharing, and with a suitable agreement in place, LLPs can be a very robust way of amending a shareholding.

However, there can be a greater level of challenge when changing profit shares in a limited company.

Changes to the firm’s ownership can also be more complex and might bring about a share evaluation.

Most emerging firms are opting for either an LLP or limited company business structure.

For advice on the most appropriate and tax-efficient structure for your firm, get in touch with us.

Criminal barristers have recently voted to accept the Government’s legal aid fees pay deal and have ended their indefinite strike.

However, according to the Law Society, the long-running dispute over legal aid fees is not yet at an end, following its calls for criminal solicitors to receive an equal 15 per cent fee increase, matching the offer made to barristers.

The dispute over criminal legal aid funding is far from over. Solicitors must receive parity on the 15% fee increase offered to barristers by November, or the criminal justice system will be brought to its knees by a permanent exodus of practitioners.

Currently, solicitors’ fees are due to rise by just 9% which could threaten the future viability of some firms.

Law Society president, I. Stephanie Boyce, said: “Solicitors are the backbone of the crisis-hit criminal justice system.

“The justice minister may think he has got one problem off his table but there are bigger problems coming his way as this dispute continues. This is another example of a government U-turn making a bad situation worse.

“Our members will see that disruptive action achieves results that hard evidence and constructive engagement do not.”

Stephanie added: “Duty solicitor schemes in Barnstaple, Skegness and Ceredigion, among others, have already collapsed, and more will surely follow without immediate support for firms,”

“If this money can be found to bring a strike to an end, surely it can be found to give a fair deal to solicitors, who have kept the wheels of justice turning despite 25 years without a pay rise?

“This mounting permanent exodus of solicitors from the criminal defence profession won’t cause temporary problems for the criminal justice system, it will bring it to its knees altogether.”