Business News

The majority of adults will have flirted with the idea of starting a business and becoming the next Branson or Musk.

That idea would have been firmly buried for many during the pandemic, but new figures show that early 13 per cent of UK adults are running fledgling businesses, according to research, the highest percentage since the late 1990s.

They are in the first three months of starting a new business or are already running a young enterprise, according to the Global Entrepreneurship Monitor. This compares to just eight per cent of adults in 2020.

Indeed, more than 70 per cent of Britons believe it is easy to start a business in the UK, but less than one in 10 has any intention of doing so.

For those willing to take the leap, here are just a few tips to get you started:

Be prepared and plan carefully

Overnight success is a rarity, so remember to focus on what’s achievable and be consistent.

You should create good habits and follow routines that power you on when that initial motivation wanes.

Taking one step at a time is important, as diving in headfirst can be disastrous.

The best way to accomplish any business target is to plan it out step by step.

Decide what kind of business you wantThink about what you love and what you are good at can lead you to a brilliant idea for your next business.

If you already have an idea, measure it against the market, consider whether you’re good at it and have the passion to succeed, and most importantly consider whether it is truly profitable.

Research thoroughly

The first stage of any competition study is primary research.

This entails obtaining data directly from potential customers rather than basing your conclusions on past data.

You can use questionnaires, surveys and interviews to learn what consumers want.

You should also review similar ideas within existing markets and see whether your product or service has a sufficient unique selling point that could beat the competition.

Create Your Business Plan

A business plan is a dynamic document that serves as a roadmap for establishing a new business.

This document makes it simple for potential investors, financial institutions, and company management to understand and absorb.

Even if you intend to self-finance, a business plan can help you flesh out your idea and spot potential problems.

Are you looking to start a new business? We have helped dozens of business owners set up and scale up their company. To find out more about our services for start-ups, please contact us.

National Insurance and Dividend Tax rates have increased by 1.25 percentage points as of 6 April, as part of the new Health and Social Care levy.

These changes have brought additional complications to the payments of National Insurance Contributions (NICs) and dividends that businesses are just getting to grips with.

How have NICs changed as a result of the increase?

The 1.25 percentage point increase in NI affects the contributions made by employees, employers and the majority of self-employed workers.

While the move will help to raise more than £12 billion for the NHS and social care system, it will mean that businesses face a sudden rise in their employment costs this month.

The increase in NICs will initially affect everyone over the age of 16, but below the state pension age, earning more than £190 per week through employment (rising to £242 from July 2022) or with profits of £9,880 or more a year in self-employment (rising to £12,570 from July 2022).

The 1.25 percentage point increase also applies to employer NICs, minus any reliefs that a business may be entitled to.

The increase will not apply to Class 2 NICs, which is the flat rate paid by the self-employed with profits above the Small Profits Threshold or Class 3 NICs, made up of voluntary contributions from taxpayers to fill in gaps in their contributions’ records to qualify for benefits.

How are dividends changing?

Most businesses have favoured a balanced pay strategy for directors, which saw a larger proportion of their income paid through dividends versus a regular salary, to reduce the amount of tax and NICs the business is liable for.

Dividends are paid out of a company’s profits to its shareholders and every individual also benefits from a £2,000 tax-free allowance for dividend income.

Any dividends over this amount are taxed at different amounts depending on a person’s marginal rate.

Businesses do not pay any NICs on dividends, providing a clear benefit to the company.

Before the increase in the Dividend Tax rate, most people were taxed as follows:

• Basic rate – 7.5 per cent
• Higher rate – 32.5 per cent
• Additional rate – 38.1 per cent

However, as of the start of the new tax year, these rates are now as follows:

• Basic rate – 8.75 per cent
• Higher rate – 33.75 per cent
• Additional rate – 39.35 per cent

From an employer’s NIC perspective, paying out more in dividends may make more sense given the upcoming changes.

However, those in receipt of dividends may not be as happy as it could affect how their income is taxed.

What about the changes to the NIC thresholds?

To soften the blow of the increase to NI rates, the Chancellor announced in his Spring Statement that the Primary Threshold (PT) – the point at which employees start paying National Insurance – will increase by £3,000 from July to bring it in line with the personal tax allowance of £12,570, which is the rate at which workers begin to pay income tax.

The change does not affect the Secondary Threshold, which is the point at which Employers start paying National Insurance Contributions (NIC). This will remain the same.

However, the Chancellor has extended the annual Employment Allowance to eligible businesses (those with employers’ Class 1 National Insurance liabilities that are less than £100,000 in the previous tax year) by an additional £1,000 a year to £5,000.

The Treasury has said that the changes to thresholds will help cut up to £6 billion worth of NICs – cutting the NIC bill for the ‘typical employee’ by around £330 a year.

Although this does represent a saving, in reality, much of this ‘tax cut’ is taken up by the rise in NI rates.

If you require assistance updating your payroll systems in light of these changes or would like advice on setting pay or managing employment costs, please get in touch.

Links: Four things to know about National Insurance contributions and the April increase

Financing a new venture is a challenge, even harder in the current climate of high inflation, global uncertainty and the backdrop of war in Europe.

Difficult, but not impossible. With planning, careful research and the right advice, you should be able to find the finance that is right for you.

If traditional funding is difficult, other forms of finance may also be a good option and are generally easier to obtain than bank funding.

Peer-to-peer, crowdfunding, angel investors and other forms of alternative funding can be more flexible and may not require the extensive credit history of a bank loan.

However, with all forms of finance some pitfalls are best avoided:

Lack of preparation

In some ways persuading a financial institution or financier to lend you money for a business is a bit like getting a mortgage.

They will want to see that you can afford the loan or support being offered and have a clear plan for repayments and the initial equity to kick start the company.

They may take the view that if you are not prepared to invest in yourself, then why should they?

For most loans you will need to provide some collateral, should there be a default in payment, but lenders will also want to see a clear business plan and some indication of income to support regular repayments and interest.

Planning is the key

You know what they say, failure to prepare is preparing for failure.

As mentioned, you must have a business plan. Unfortunately, many start-ups apply for finance with an underprepared or even non-existent business plan.

To persuade a lender to part with the funds, a clear and costed business plan is essential for them to see your goals and specifically, how you intend to reach them.

Choosing equity or loans

Equity investments can come from friends and family, angel investors online or even crowdfunding platforms.

Equity is less risky than a loan because there is typically less or nothing to pay back. Instead, investors enjoy a cut of your profits by being given shares in your company.

This can free up additional funds needed early on within a business but can create conflict, especially where investors are friends and family.

On the other hand, a bank or lender doesn’t have any ownership of your business and has no say in the way you run your company.

A loan can be short-term or long-term. Whatever the loan’s terms, however, you must pay the money back within a set time frame, plus any interest.

If you are not sure which option is best for you, speak to a professional adviser beforehand.

Know your borrowing limits

It seems obvious, but you should not borrow too much (or too little).

You should have a clear conversation with potential lenders about how much you need and how much they think you can afford.

You shouldn’t make the mistake of asking for more than you need, but it is a good idea to build a contingency into the amount of working capital you budget for, just in case something unexpected arises.

Make sure you manage your credit score

Your credit score will always be a factor when a lender considers offering you a business loan.

A lender may take the view that if a business owner hasn’t taken care in managing their personal credit, there is the potential that they will take the same approach to their business credit.

Because of that, managing your personal credit is critical and starts with knowing your current score and creating a plan to improve it if necessary.

If you are looking to start up or scale up a business, then you must seek professional advice on financing beforehand. To find out how we can help you access the funding you need, please speak to our team.

You have worked long and hard to get your business up and running and have put your heart and soul into making it successful.

The thought of losing it can be incredibly stressful, both for you and any employees who could lose their jobs.

Equally, if you have a customer who owes you money, you may want to take more immediate action if it looks like they may be in distress.

So, how do you avoid getting into difficulties and spot the signs of business failure? And begin firefighting potential problems?

The warning signs that a firm is struggling include:

Problems with cash flow

They say that money isn’t everything, but poor cash flow is a problem in business and is often a clear indication that the business is in trouble.

Cash flow issues can be identified with proper forecasting, which will identify the cash shortage problem areas or overspending.

Excessive debts

Interest rates are creeping up again after more than a decade of historically low rates and having too much debt within a company may place it at risk.

If you are seeking out additional funding and lenders are seeking stronger personal guarantees or security against any money they lend this could be an indication that your own business is in trouble.

It can be more challenging to spot debt issues in another business, but regular late payments from a customer can be an indication that they are struggling to manage their own money.

Defaulting on bills

We have all heard the phrase, “you will be paid by the end of the month,” often used to overcome short term shortages.

If this becomes a regular occurrence, it could suggest a business can’t pay its way.

When it comes to your own finances, defaults on tax payments to HMRC or other formal payment arrangements can be particularly damaging and lead to penalties.

It can also be bad for your reputation and that of your business if it becomes clear that you are struggling to make payments on time.

Chasing payments

A lot of businesses are reluctant to chase payment because they do not want to damage their relationship with customers or reduce the prospect of future work.

However, regularly allowing late payments can affect your own finances and prevent your own suppliers from being paid.

If you are dealing with late payment issues you should seek professional advice to improve your credit control processes and, if necessary, eliminate late-paying customers from your business.

If you are unable to effectively chase payment it may cause future cash flow problems.

Either way, sudden changes in these numbers should be investigated to see whether they are signs of something more serious.

Falling margins

High sales are great, but profit is the key to survival and growth.

Falling margins suggest that costs are too high, and prices or income are too low. This is not a sustainable position for any company.

Indications that this may be happening within a customer’s business are changes within its own operations, such as the cutting of service or product lines, redundancies or an overall poorer quality of goods or services.

Low morale

Reduced hours, contractual changes and pay freezes can all be signs of trouble within a business.

All of these indications may not necessarily mean the end, but they are a clear indication of money troubles.

With employment costs rising suddenly this month, you may start to notice this within more businesses that you deal with.

If you are concerned about your own financial health or that of a customer, you should seek professional advice as soon as you can.

To find out how we can assist you with issues related to business distress, please contact us.

The Government has been warned that as many as 164 university-led skills and training projects could be halted or axed due to European funding running out by the end of next year – reducing skills and training support for SMEs.

The UK Shared Prosperity Fund (UKSPF) will award £2.6 billion of new funding for local investment by March 2025 in place of European Structural and Investment Funds (ESIF), which the UK is no longer eligible for following Brexit.

According to advocacy organisation Universities UK, following the UK’s departure from the European Union, urgent action is needed from the Government to bridge the funding gap while it sets up its replacement for EU funding for local skills and training partnerships.

Support for small businesses essential

Universities UK is the collective voice of 140 centres of learning across the UK whose mission is to help universities be the best in the world, through their research and teaching, and the positive impact they have locally, nationally and globally.

It says that vital training, skills development, and jobs are at risk as is the retraining, upskilling and support for small businesses essential to the success of levelling up.

• There are currently 192 university-led projects in England, funded by £412 million of ESIF money, providing high-quality skills training, and supporting local pay, employment, and productivity growth, with half working with small and medium-sized businesses.
• In Wales, there are 53 projects led by universities with £300 million investment from ESIF.

Uncertainty on the allocation of the UKSPF will leave a significant gap in funding, putting vital community projects and the jobs of experienced staff at risk, according to Universities UK

The type of projects that could be impacted include:

The FLEXIS App project, led by Cardiff University, is generating green and economic growth across Wales through industrial partnerships. The project has received most of its funding, almost £3 million from the ESIF programme, which runs out in November 2022.

Productivity Through Innovation (PTI) is a project delivered by Nottingham Trent University, University of Nottingham and University of Derby to help around 200 local SMEs increase turnover, competitiveness and profitability. The project is receiving £3.5 million from the ESIF – half its total funding – which runs out in March 2023.

The University of Manchester’s Bridging The Gap programme, delivered by the Graphene Engineering Innovation Centre (GEIC), accelerates the adoption and commercialisation of graphene and 2D materials. The programme has engaged with more than 200 SMEs, generating new products and jobs. The project is receiving £1.9m from ESIF, which will end in December 2022.

Universities UK has written to Secretary of State for Levelling Up, Housing & Communities, Michael Gove, outlining the university sector’s concerns around the initial plans for the UK Shared Prosperity Fund.

For help and advice with related matters, please get in touch with our expert team today.

While the national job vacancy boom is good news for job seekers, it could be a nightmare for law firms that are keen to retain high-quality staff.

While a pay rise is always welcome, it may not always be the most tax or National Insurance efficient approach when compared with other benefits, including salary sacrifice, that could be as effective in persuading key employees to stay put.

Salary sacrifice enables employees to exchange part of their salary for a non-cash benefit from their employer, such as increased pension contributions, mobile phones and bus passes or even funding a new car.

Other examples of common salary sacrifice benefits include:

• Childcare vouchers
• Cycle to work scheme
• Car hire/lease scheme
• On-site nurseries
• Car parking
• Gym membership
• Pre-paid store cards
• Personal learning

For each salary sacrifice arrangement, both parties must agree on what the cash value of the benefits on offer is worth to ensure the benefit fairly compensates the employee for their loss of income.

Sacrifice arrangements tend to remain in place for at least 12 months unless the employee experiences a lifestyle change.

Effect on tax and National Insurance contributions

The impact on tax and National Insurance contributions payable for any employee will depend on the pay and non-cash benefits that make up the salary sacrifice arrangement.

You need to pay and deduct the right amount of tax and National Insurance contributions for the cash and benefits you provide. For the cash component, which means operating the PAYE system correctly through your payroll.

Calculate a non-cash benefit

For any non-cash benefits, you need to work out the value of the benefit by using the higher of the:

• Amount of the salary given up
• Earnings charged under the normal benefit in kind rules.

For cars with CO2 emissions of no more than 75g/km, you should always use the earnings charge under the normal benefit in kind rules.

The only benefits you do not need to value and do not have to report to HMRC for a salary sacrifice arrangement are:

• Payments into pension schemes
• Employer-provided pensions advice
• Workplace nurseries
• Childcare vouchers and directly contracted employer-provided childcare that started on or before 4 October 2018
• Bicycles and cycling safety equipment (including cycle to work)

How to set up a salary sacrifice scheme

As an employer, you can set up a salary sacrifice arrangement by changing the terms of your employee’s employment contract. Your employee needs to agree to this change.

A salary sacrifice must not reduce earnings below National Minimum Wage rates.

As the UK braces for a rise in National Insurance rates, the use of salary sacrifice arrangements could be a way of potentially reducing contributions – especially the provision of an electric company car.

For expert advice on salary sacrifice, please get in touch with us.

Whether you have clients who are setting up a new enterprise, or they already have a successful, well-established company, there are many ways that they can save money through tax reliefs and allowances.

Certain tax initiatives even allow business owners to save money that can be invested in their company.

Enhanced Capital Allowance (ECA)

Enhanced Capital Allowance (ECA) schemes encourage businesses to invest in efficient technologies. The scheme lets your firm and your business clients claim 100 per cent first-year allowances, i.e., tax relief, on investments in certain technologies and products.

If you buy an asset that qualifies for first-year allowances you can deduct the full cost from your profits before tax.

You can claim first-year allowances in addition to the Annual Investment Allowance (AIA) – they do not count towards your AIA limit.

What qualifies

• Some cars with low CO2 emissions
• Energy-saving equipment that’s on the energy technology product list, for example, certain motors
• Water-saving equipment that’s on the water-efficient technologies product list, for example, meters, efficient toilets and taps
• Plant and machinery for gas refuelling stations, for example, storage tanks, pumps
• Gas, biogas, and hydrogen refuelling equipment
• New zero-emission goods vehicles.

Your clients cannot normally claim on items their business buys to lease to other people or for use within a home you let out.

Annual Investment Allowance

This measure remains temporarily increased from £200,000 to £1,000,000 for qualifying expenditure on plant and machinery incurred during the period from 1 January 2022 to 31 March 2023.

This measure is intended to deliver positive outcomes for businesses by supporting and encouraging business investment, and by simplifying the tax relief for such investments.

R&D tax credits

You and your clients may be eligible for R&D tax credits, even if the project is running at a loss.

The HM Revenue & Customs (HMRC) definition is broad, and it is not necessary to be engaged in laboratory work to benefit from this incentive.

Software developers, architects and many other professionals have all successfully claimed R&D tax relief because of this incentive.

Repairs and renovations to property

The business renovation allowance will give smaller law firms and SMEs a tax break.

If the building your business plans to use has been empty for more than a year and was previously used in a different capacity, you may be eligible for a 100 per cent tax incentive on any renovations you might carry out.

Reduce NICs with the Employment Allowance

You can claim Employment Allowance if your employers’ Class 1 National Insurance liabilities were less than £100,000 in the previous tax year.

Employment Allowance allows eligible employers to reduce their annual National Insurance liability by up to £4,000.

You’ll pay less employers’ Class 1 National Insurance each time you run your payroll until the £4,000 has gone or the tax year ends (whichever is sooner).

You can only claim against your employers’ Class 1 National Insurance liability up to a maximum of £4,000 each tax year. You can still claim the allowance if your liability was less than £4,000 a year.

In some cases, a company can eliminate their Employer’s NIC bill as a result. Note, it is not possible to claim the allowance if the company only has one employee/director.

If you or your clients have questions about tax reliefs or need help and support identifying tax saving opportunities, please contact us.

HM Revenue & Customs (HMRC) has announced that it is having to prioritise its essential services by temporarily closing some of its telephone hotlines, following a surge in enquiries during and since the pandemic.

It has said that it is focusing on stabilising its phone service and tax credits/child benefits service at the start of this year and must take extra steps to meet its targets and support those customers most at risk.

During December, the tax authority ran a test on closing their Corporation Tax (CT) and VAT helplines (except bereavement) to assess the impact across three Fridays – using the time gained to clear a backlog of other enquiries.

Based on the success of these tests the CT and VAT telephony lines will see a further “telephony shuttering exercise” on Fridays between the following dates:

• CT – 25 February to 25 March 2022
• VAT (excluding bereavement) – 25 February to 25 March 2022 (excluding 4 March).

Businesses that are reliant on these phone lines need to be aware of this change and prepare for it if they need to contact HMRC about CT and VAT matters on these days. Let us know if we can offer any assistance.