Business News

With fluctuating incomes and the costs of living hitting businesses and individuals alike, people who have never previously had any issue with paying tax bills on time may have found themselves passing the 31 July payment on account deadline without being able to pay what they owe.

If this is the position you find yourself in, what should you do?

Don’t bury your head in the sand!

The very worst thing you can do when you owe money to HM Revenue & Customs (HMRC) is to do nothing.

Failing to act will see interest and penalties increase rapidly, meaning you’ll have to find even more money to cover your debt, plus any interest or fines charged.

Do speak to HMRC

For Self-Assessment debts of up to £30,000, HMRC lets you set up an instalment plan online to pay off the debt in more manageable monthly payments.

You can do this here.

To be eligible, you must be within 60 days of the payment deadline and able to make the repayments within 12 months.

If that is not the case, then you should call HMRC on 0300 200 3822.

If you cannot access HMRC’s Time to Pay arrangements, you might be able to spread the cost of your bill with a tax-specific loan.

Need more time to pay your tax bill? Speak to our tax team at Clemence Hoar Cummings for advice and support.

A new study has revealed the cashflow struggles faced by small businesses across the UK, resulting in calls for Government action.

The research, conducted by Xero Small Business Insights and Accenture, discovered that the average UK small business experienced a “cash flow crunch” for more than four months every year.

A cash flow crunch is when monthly takings do not sufficiently cover outgoings.

This issue often comes hand in hand with late payments, which have worsened since the Covid-19 pandemic. Late payments are cited as one of the main reasons for a stunt in business growth.

Alex von Schirmeister, Xero’s Managing Director for Europe, the Middle East and Africa, said: “We are seeing big businesses purposely withholding cash from their small customers. We must move away from calling it ‘late payments’, which legitimises poor practice and lacks urgency. It’s time we labelled this ‘unapproved debt’.

“Given the steady post-pandemic resurgence in cash flow issues that we’re seeing in the UK, we urge the Government to help.”

According to the research, 23 per cent of small businesses experienced a cashflow crunch for over six months each year, with 94 per cent doing so no less than once during 2021.

Hospitality sector worst affected

Firms impacted most negatively were those in the hospitality sector, struggling to keep their heads above water with the introduction of Covid-19 restrictions.

As a result, most companies in the industry with negative cash flow peaked at 54 per cent in July 2020.

Late payments are a significant issue for many businesses. We have helped a number of businesses to tighten their credit control processes, so find out how we can help you too.

Link: Cash flow crunch continues to hamper UK small businesses

HM Revenue & Customs (HMRC) has announced plans to offer a recurring direct debit to employers as part of their wider payment modernisation programme.

At present, employers can only set up a direct debit to collect a single payment.

The launch of this service, slated for mid-September this year, will see a change to the employer’s liabilities and business tax account (BTA) screens.

A link will also be included that will enable client companies to mandate a direct debit instruction, which will authorise the tax authority to collect money directly from their bank account.

Much like any other direct debit mandate, employers will be able to view, amend, or cancel the direct debit via a “manage your direct debit” once it has been set up.

Along with this update, HMRC stated that it has been extending employer PAYE for agent online services to allow accountants and advisers to see payment records held by HMRC along with employer liabilities.

If you would like help with setting up a recurring direct debit for PAYE, get in touch with our payroll team today.

Link: Employer PAYE — new recurring Direct Debit functionality

Ask anyone who either uses their vehicle for business reasons, or puts fuel in a company car, and you will soon realise business mileage can be a confusing topic.

It’s important to know that if you fall into either of these two categories, you might be able to claim tax relief for business mileage.

HM Revenue & Customs’ (HMRC) business mileage rates have stayed the same for the past 12 years, and currently stand at:

• 45p for the first 10,000 miles
• 25p for each business mile above the 10,000-mile threshold.

What’s more, being clear on what HMRC defines as business mileage will save you time when you claim back what you are entitled to.

HMRC currently defines business mileage as any travel that you do whilst doing your job. This can also be extended to cover travel made to a temporary workplace.

There are, however, certain caveats to this definition where relief isn’t available. These include:

• Normal travel between your home and permanent place of work
• Any travelling you conduct privately.

Even though the business mileage rates outlined above are HMRC’s standard, employers do not need to use these rates when paying business mileage and they could choose to set their own rates.

There is a provision for employees to claim the difference at the end of each tax year where a company mileage rate is lower than HMRC’s. However, if your employer pays a higher rate of mileage than the HMRC standard, this will be subject to tax.

You must keep accurate records of all the mileage, dates, and details of your business travel, as you will need this information if you want to claim Mileage Allowance Relief.

Need additional advice on business mileage? Speak to our team today for further guidance.

A new report highlights emails as the prime vulnerability for law firms, as four out of five cybercrime reports to the Solicitors Regulation Authority (SRA) involve email fraud and scams.

The report highlights how digital innovation, particularly in the wake of the pandemic, has led to risk as well as opportunities for firms.

The Risk Outlook report shows how new threats are emerging as criminals use new technology.

The report states that 83 per cent of cybercrimes reported in 2021 involved email, including widespread phishing scams, with conveyancing reported as the most common target.

It also highlights the growing threat of ransomware attacks which steals data as well as encrypting it, with criminals threatening to release the sensitive information of victims.

Ransomware attacks can be random or targeted, with the report warning that firms acting for clients with national infrastructure or for Ukrainian or Russian clients, could be at higher risk.

The report also warns that criminals, responding to firms boosting their IT security systems, could be focussing on new scams such as voice modification software to impersonate the voice of a solicitor on phone calls to clients.

Paul Philip, SRA Chief Executive said: “Law firms are targeted by cybercriminals as they often hold large amounts of client money and/or sensitive information. It is in everyone’s interest that firms take all reasonable steps to protect themselves and their clients; all the more so as innovation and increased use of IT make information security a priority.

“Protection isn’t just about software. Having the right systems in place, such as anti-virus software or multi-factor identification, really matters. But good training and a culture in relation to managing risks is just as important.”

For expert business advice and information to strengthen your firm’s cyber security, please contact us.

HMRC has issued a reminder about the new deadlines for paying Capital Gains Tax (CGT) after selling a residential property in the UK.

From 6 April 2020, UK residents had to notify HMRC about the gain and pay any tax due within 30 days of completion.

This was then extended to 60 days for completion dates on or after 27 October 2021.

HMRC’s CGT guidance can be found online and taxpayers can report and pay any tax due via HMRC’s online service.

From March this year, HMRC have been writing to UK taxpayers who disposed of a property in early 2020 to 2021 but have not filed a CGT return.

They are contacting those people who at the time of the property’s disposal, had 30 days to report and pay any CGT due.

Those affected are being asked to consider whether they owe CGT following the disposal and to file a late CGT return if they need to do so.

The letters also ask them to contact HMRC if they do not believe they have CGT to pay or if they have already reported the property disposal.

For expert advice on Capital Gains Tax and related tax matters, please contact us.

The Solicitors Regulation Authority (SRA) has updated its plans on how it approaches issuing financial penalties to law firms and solicitors who do not follow expected professional standards.

It comes after the SRA launched a public consultation last year on proposed changes to their approach to issuing penalties.

The SRA aims to have a robust approach to provide a deterrent and for cases to be resolved more quickly.

Based on the feedback received in the consultation, the SRA now aims to take into consideration the turnover of firms/financial means of individuals when setting fines and to seek an increase to the maximum fine that can be issued internally to traditional firms, from £2,000 to £25,000.

The regulator also plans to amend its guidance for cases that involve discrimination, sexual misconduct or any form of harassment. Restriction on practice or strike off will be considered the more appropriate sanction, with financial penalties issued in exceptional circumstances.

It also plans to introduce ‘fixed penalties’ for lower-level breaches to speed up the time it takes for cases to be dealt with.

Anna Bradley, SRA Chair said: “The overwhelming majority of solicitors meet the standards we all expect, but when they don’t, we step in to protect the public and maintain confidence in the profession. These changes mean we can resolve issues more quickly, saving time and cost for everyone and, importantly, reducing the inevitable stress for those in our enforcement processes.

“It was good to see broad support for our proposals, as well as getting feedback that has helped us refine our approach. It is vital that everyone can be confident that our approach is fair and transparent.”

A further consultation on the details of the new fixed penalty notices will be launched later this year.

Any fines the SRA imposes go to the Treasury, and solicitors and firms would retain the right to appeal any penalty imposed to the Solicitors Disciplinary Tribunal.

Thousands of Britons facing a cost-of-living crunch have been withdrawing funds from their Lifetime ISA (LISA) accounts and getting hit with significant penalty charges.

According to HM Revenue & Customs (HMRC), a record 77,500 LISA savers were issued over £33 million worth of early withdrawal charges in 2021/22.

Early withdrawal from LISAs attracts a 25 per cent penalty. During the pandemic, the Treasury cut the early withdrawal charge from 25 per cent to 20 per cent to ensure those accessing their LISA, while facing serious hardship, were not unfairly penalised. However, this has now ended.

What are LISAs?

• You can use a LISA to buy your first home or save for later life. You must be 18 or over but under 40 to open one.
• You can put in up to £4,000 each year until you’re 50. You must make your first payment into your ISA before you’re 40.
• The Government will add a 25 per cent bonus to your savings, up to a maximum of £1,000 per year.
• The Lifetime ISA limit of £4,000 counts towards your annual ISA limit. This is £20,000 for the 2022/23 tax year.
• You can hold cash or stocks and shares in your Lifetime ISA or have a combination of both.

Although the benefits of leaving LISAs untouched are considerable, they can be accessed in an emergency.

As inflation approached double figures in April, around 9,000 savers decided to accept the penalties to take their money out early.

In total, LISA savers made unauthorised withdrawals worth over £14 million, the highest figures for the year.

If you’re a first-time buyer or think you might be in the future or want to save for retirement, a LISA isn’t a straightforward savings account, and may not be right for everyone.

If you are considering saving via a LISA or need to withdraw money from an existing account, please consider the penalties you may face. If you need any advice on tax-efficient savings and investment, please speak to us.

A company has lost an £11 million dispute with the taxman over whether contract construction workers were entitled to claim travel costs tax-free.

As many as 600,000 temporary workers in the UK are thought to be employed by umbrella companies, used by recruitment agencies and companies to cut temporary payroll costs.

Exchequer Solutions Limited (ESL) is an umbrella company that supplies workers to the building trade and the dispute with HM Revenue & Customs (HMRC) was over whether their workplace was permanent or temporary.

The dispute

The issue revolved around whether ESL employed the workers under the umbrella contract of employment continuously while working on various projects, or whether there was a series of separate contracts, with gaps between the employment, where a worker might be temporarily employed elsewhere.

The appeal against HMRC at the First-Tier Tribunal raised the question of whether workers should be reimbursed for travel and subsistence expenses, without being subject to tax or National Insurance contributions (NIC).

What is an overarching contract?

If there is an overarching or umbrella contract of employment, each place of work is a temporary workplace, and the expenses can be paid tax-free.

However, if there is a separate employment contract for each assignment, the workplace is a permanent workplace, and any payments came within the scope of tax and possibly NIC.

HMRC argued that there was no overarching contract of employment so the payments relating to expenses were subject to PAYE income tax and NIC.

The relevant tax years were 2013/14 through to 2016/17 and HMRC issued determinations amounting to a total of £11 million in unpaid taxes and NICs.

ESL claimed there was an overarching or umbrella contract and appealed against the Regulation 80 Determinations and the NIC Notice of Decision.

Following detailed arguments from both, the judge ruled against ESL’s argument.

In conclusion, the Judge determined that the two parties, ESL and HMRC, should agree on the amount of any liability to income tax and NIC based on the amount of the travel and subsistence expenses paid by ESL to its employees.

Deadline set for full hearing

A deadline of 30 November 2022 was set for agreement to be reached at which time a hearing would be organised to finalise the amount of any liabilities.

If the matters covered in this article affect you or your business, please contact us at the earliest opportunity.

More and more people are being drawn into paying Inheritance Tax (IHT), as the price of property soars.

This is because former Chancellor Rishi Sunak froze the nil rate thresholds for paying the tax at £325,000 until 2026, while the value of homes has rocketed, potentially drawing more people into paying the tax.

There are some exceptions, which are listed below, but generally, people are then faced with paying 40 per cent IHT on anything gained over the £325,000 figure.

How much do I have to pay?

IHT is levied at 40 per cent on everything in an individual’s estate at their death above the Nil Rate Band of £325,000.

However, many taxpayers also benefit from the Residence Nil Rate Band, which adds an additional allowance of £175,000 for their main property if it is passed to direct descendants.

If you are married or in a civil partnership these allowances can be passed to a spouse or partner once the other person dies.

According to the Office for National Statistics (ONS), in 2009, the average price of a home in the UK was £227,000. In 2021 that had rocketed to £327,000, £2,000 above the initial Nil-Rate band.

In high-value areas, such as the South East and London, this figure is even higher, and it means that more and more taxpayers – and not just the wealthiest members of society – are facing IHT bills on their estates after death.

What is IHT?

Inheritance Tax is a tax on the estate (the property, money and possessions) of someone who’s died.

As mentioned, there is normally no Inheritance Tax to pay if:

• The value of your estate is below the £325,000 threshold
• You leave everything above the £325,000 threshold to your spouse, civil partner, a charity or a community amateur sports club
• If you give away your home to your children (including adopted, foster or stepchildren) or grandchildren your threshold can increase to £500,000
• If you are married or in a civil partnership and your estate is worth less than your threshold, any unused threshold can be added to your partner’s threshold when you die.

This means their threshold can be as much as £1 million!

What are the rates for IHT?

The standard IHT rate is 40 per cent. However, this is only charged on the part of your estate that is above the threshold.

So, if your estate is worth £600,000 and your tax-free threshold is £500,000. The Inheritance Tax charged will be 40 per cent of £100,000 or £40,000.

The estate can pay IHT at a reduced rate of 36 per cent on some assets if you leave 10 per cent or more of the ‘net value’ to charity in your Will.

Are there any ways to save on IHT?

Here are some of the ways that you can cut your IHT bill with careful planning:

Gifting

There’s usually no IHT to pay on small gifts you make out of your normal income, such as Christmas or birthday presents, which are commonly referred to as ‘exempted gifts’.

There is also no IHT to pay on gifts between spouses or civil partners and you can transfer as you like during your lifetime, as long as they live in the UK permanently.

However, other gifts count towards the value of your estate, and you could be charged IHT if you give away more than £325,000 in the seven years before your death.

Gifts include anything that has value, or anything transferred at a loss to a family member, such as the sale of a home to a descendant for less than it is worth.

however, you can give away £3,000 worth of gifts each tax year without them being added to the value of your estate thanks to the ‘annual exemption’.

If you have any unused annual exemption, you can carry it forward to the next year – but only for one year.

Each tax year, you can also give away additional gifts if they relate to special events such as weddings, birthdays or Christmas, or if they support the living costs of another person, such as an elderly relative or a child under 18.

You can give as many gifts of up to £250 per person as you want during the tax year as long as you have not used another exemption on the same person.

If there is IHT to pay, it’s charged at 40 per cent on gifts given in the three years before you die. Gifts made three to seven years before your death are taxed on a sliding scale known as ‘taper relief’. After seven years the gift will be IHT-free.

Business Property Relief or Agricultural Property Relief

Certain assets receive relief from IHT, these include Business Property, Agricultural Property and Heritage Assets.

These reliefs can reduce or eliminate the value of an asset being included within an estate, but they often rely on certain conditions being met.

However, not every interest in a business will qualify for these specialist reliefs so it is worth seeking specialist professional advice when managing your estate.

Charity

Anything left to charity in your Will won’t count towards the total taxable value of your estate. Known as a ‘charitable legacy’, this will also reduce the IHT rate on the rest of your estate from 40 per cent to 36 per cent, as long as you leave at least 10 per cent to charity.

Trusts

Trusts can play a role in reducing a family’s exposure to IHT so that more can be passed on to future generations, but they say they can also help look after family assets and provide for family members who are too young or vulnerable to deal with financial matters.

A trust is a legal arrangement where you gift cash, property or investments to a separate entity (the trust). One who gifts assets is the Settlor, the trustees then oversee the management of the assets for the benefit of a third party or parties.

One of the main benefits of a trust is that, should you elect to act as the trustee, you would continue to maintain control over the assets gifted whilst your estate’s exposure to IHT is reduced as, after seven years, the gift is out of the Settlor’s estate completely.

Assets transferred into a trust are no longer considered as belonging to the Settlor, so they are taxed according to the rules governing the trustee.

Many people would prefer to provide for a beneficiary through a trust as opposed to passing assets to them outright. This could involve a source of income for a beneficiary for life, or providing education for children but not allowing them to access funds until they are older.

Are you concerned about paying an IHT bill? Early planning is essential to making the most of the reliefs on offer, so please contact us.