Business News

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.”

The markets have experienced considerable volatility as a result of the ‘Growth Plan’ delivered by the former Chancellor, Kwasi Kwarteng on 23 September.

That made regaining economic confidence an urgent task for the newly appointed Chancellor, Jeremy Hunt, who has delivered a reversal of many of the key tax measures announced in the mini-Budget in a new fiscal statement.

The only big measures to survive were changes to Stamp Duty Land Tax (SDLT) thresholds and the cut to National Insurance due on 6 November.

The new announcements at a glance:

Changed:

Income Tax

As previously announced, the Additional rate of Income Tax will remain in effect.

The Chancellor has now also cMiniancelled the one penny-in-a-pound cut to the Basic rate, which was brought forward by Kwasi Kwarteng from April 2024 to April 2023. It will now remain at 20 per cent indefinitely.

Dividend Tax

The 1.25 percentage point increase that took effect from April 2022 will no longer be reversed from April 2023. This means the current rates of dividend tax will instead remain in effect.

Corporation Tax

As announced by the Prime Minister on Friday, Corporation Tax will not remain at 19 per cent for all companies and instead will be levied at 25 per cent for those with profits of more than £250,000 from April 2023.

Those with profits below £50,000 will continue to pay at 19 per cent, while marginal relief will be available to those with profits between £50,000 and £250,000.

Energy Price Guarantee

The Energy Price Guarantee for households will remain in effect until April 2023, rather than for two years as originally announced. The Energy Bill Relief Scheme for businesses will also be reviewed before April 2023.

HM Treasury will review these policies with a view to reducing the cost of the measure and making business support more targeted.

IR35/Off-payroll Working Rules

The planned reversal of the 2017 and 2021 reforms to the IR35/Off-payroll Working Rules in the public and private sectors from April 2023 will now not take place.

It will remain for employers to determine whether a contractor falls within the scope of the rules and should be taxed similarly to an employee.

Alcohol Duty

The planned freeze in Alcohol Duty rates from 1 February 2023 has been cancelled.

Unchanged:

National Insurance/ Social Care Levy

The cancellation of the increase in National Insurance from 6 November and the Social Care Levy that was to have been introduced from April 2023 remains in effect.

Stamp Duty Land Tax (SDLT)

The changes to the Stamp Duty Land Tax (SDLT) thresholds that took effect immediately after the mini-Budget remain in place and will not be cancelled.

Annual Investment Allowance

This tax relief on plant and machinery will be permanently retained at £1 million, as outlined in the mini-Budget.

Tax-advantageous investment schemes

The Seed Enterprise Investment Scheme and the Company Share Options Plan will also continue to further support business investment having been expanded upon in the mini-Budget.

The Chancellor’s announcements may have significant tax planning implications. Please contact us for advice.

The Prime Minister has announced that the Corporation Tax increase announced by the previous administration and then cancelled by the former Chancellor Kwasi Kwarteng will take place in April 2023.

What does the announcement mean?

Companies with profits of £250,000 or more

For companies with profits of £250,000 or more, the upper profits limit, the rate of Corporation Tax will rise from 19 per cent to 25 per cent.  

Companies with profits of £50,000 or less

For companies with profits of £50,000 or less, the ‘lower profits limit’, Corporation Tax will continue to be charged at 19 per cent.

Companies with profits between £50,000 and £250,000

Companies with profits between £50,000 and £250,000 will receive marginal relief so that the rate of Corporation Tax will rise incrementally until it reaches 25 per cent.

In practice, this means that where companies have profits between £50,000 and £250,000 they will pay Corporation Tax at an effective rate of 26.5 per cent on each pound of profit in excess of the £50,000 lower rate band.

Companies with accounting periods of less than 12 months

The upper and lower profits limits will be reduced accordingly for companies with accounting periods of less than 12 months.

Groups and associated companies

Companies within groups or with associated companies will also see reductions in the upper and lower profits limits.

What should I do now?

The announcement by the Prime Minister means that the Corporation Tax rises that had been scheduled for April 2023 will take place as originally planned.

If you had already planned for the tax rise and had not changed your planning since the mini-Budget in September, you can stick with your existing plans.

If you have not planned for a tax rise, you should consider how you spread investments in your business over the coming years to maximise your tax efficiency.

Tax planning is complicated and comes with a vast array of permutations. Speak to us today for professional advice.

From 11 October, the interest rates on late tax payments rise again in line with the Bank of England’s (BoE) latest base rate increase.

The BoE increased the base rate by 0.5 per cent to 2.25 per cent in September, as a result of inflation.

Due to this, the late payment and repayment interest rates applied to tax debts will rise to:

• Late payment interest rate — 4.75 per cent
• Repayment interest rate — 1.25 per cent

HMRC interest rates are set in legislation and linked directly to the base rate, so the latest rise has been automatically triggered by these changes.

The late payment rate last increased to 4.25 per cent on 23 August – the highest rate since January 2009.

This interest is due on late tax bills for:

• Income Tax
• National Insurance Contributions
• Capital Gains Tax
• Stamp Duty Land Tax

The file and pay rate for Corporation Tax increases to 4.75 per cent with effect from 11 October.

Meanwhile, the interest charged on underpaid quarterly instalment payments increase to 3.25 per cent and the interest paid on overpaid quarterly instalment payments and on early payments of Corporation Tax not due by instalments rose to two per cent from 3 October 2022.

You should be aware that any further increases in the BoE base rate could further drive-up these rates and increase the cost of tax debts.

Link: HMRC interest rates for late and early payments