Business News

Taxpayers are being reminded that COVID-19 support grants or payments should be declared on company tax returns as they are taxable.

HM Revenue & Customs (HMRC) has issued a reminder that the filing deadline for company tax returns (CT600) is 12 months after the end of the accounting period it covers.

The deadline to pay Corporation Tax will depend on any taxable profits and when the end of the accounting period occurs.

HMRC says that Coronavirus Job Retention Scheme (CJRS) grants, Eat Out to Help Out (EOHO) payments, or any other support payments made by local authorities or Government, must also be reported as income when calculating taxable profits.

Company tax return

If you received a CJRS grant or an EOHO payment, you will need to do both of the following:

• Include it as income when calculating your taxable profits in line with the relevant accounting standards
• Report it separately on your Company Tax Return using the CJRS and EOHO boxes.

You should record all other taxable COVID-19 payments as income when you calculate your taxable profits.

If you have already filed a return and have not declared your Coronavirus support grants or payment as taxable income, you will need to submit an amended return.

CJRS grants or EOHO payments must be reported separately in the boxes provided on the CT600 corporate tax return. These boxes were added on 6 April 2021.

It is important to update third-party software by downloading the latest version to be able to complete the relevant boxes in the company tax return.

Taxable grants include:

• Test and trace or self-isolation payments in England, Scotland and Wales
• Coronavirus Statutory Sick Pay Rebate
• Coronavirus Business Support Grants (also known as local authority grants or business rate grants).

When furloughed employees were paid through real-time information (RTI), the employer was responsible for making the usual PAYE, National Insurance contributions (NIC) and automatic enrolment deductions.

Employers must treat the grant as taxable income for Corporation/Income Tax purposes but can deduct employment costs as normal when calculating their taxable profits.

If you are struggling to manage the tax implications of the COVID-19 funding you received, please get in touch.

Thousands of taxpayers benefited from the Self-Employment Income Support Scheme (SEISS) as the pandemic raged over the last two years, before its closure last year.

The scheme, which involved five grant payments, was set up by the Government to provide support for the self-employed, for example sole traders, provided certain eligibility criteria were met.

However, there are many pitfalls facing taxpayers as HM Revenue & Customs (HMRC) claws the money back and it appears many individuals may have misunderstood the rules.

Payment difference

You must tell HMRC if you received more than they said you were entitled to.

The tax office expects you to report this without further prompting.

Accountants in the dark

Many accountants may not have the full details of SEISS grants claimed by individuals and cannot, therefore, advise self-employed workers on the tax implications this year.

This is because the grants had to be claimed through an individual’s personal Government Gateway, which accountants were locked out of to speed up the payments to those in dire need.

Taxpayers should immediately make their accountants aware of the situation if they have claimed so that it can be incorporated into tax calculations and during reporting.

Claims not showing on the tax return

The first three grants were paid before 6 April 2021, so they should have been declared on the taxpayer’s 2020/21 tax return.

HMRC created new boxes on the return forms to report grants and so the self-employed needed to be particularly careful to include the SEISS grants in the box relating to the self-employed grants, not the box for ‘any other income’ or ‘support payments such as CJRS’.

Incorrect declaration on tax return

If the total value of SEISS grants declared on the 2020/21 tax return did not match SEISS grants one to three, which HMRC believes it paid out to that taxpayer, it has confirmed that it will automatically correct the Self-Assessment calculation.

When you receive or assess your tax bill it is important to check in case HMRC has corrected or included a grant.

The tax authority has said some individuals’ tax identities may have been misused to submit a fraudulent claim.

Payments on account

The system assumes the taxpayer will receive at least the same amount of taxable income in 2021/22 as in 2020/21. But the SEISS grants received in 2021/22 are likely to be lower as a maximum of £15,000 could be received in that year compared to a cap of £21,570 in 2020/21.

As a taxpayer, you can apply to reduce the payments on account for 2021/22 through the personal tax account online service or a paper form SA303.

It is important to note that the SEISS grant should not generally be included in the turnover of the business for the period.

Making payment into the wrong account

You can also tell HMRC if you want to voluntarily pay back some or all of the grants you received. You can do this at any time.

The SEISS repayment has to be made to a specific HMRC bank account set up for the purpose and be accompanied by the grant claim reference. The taxpayer should not repay the grant into their Self-Assessment tax account.

For help and advice on SEISS taxation, you should speak to us at the earliest opportunity.

Link: SEISS – A dangerous legacy

The cloud is king in the world of accounting, with a vast range of software and applications available, designed to be easy to use by businesses and their owners.

The beauty of cloud accounting is that the software can be accessed anywhere that has an internet connection on a range of devices.

Good accounting software can be critical for business leaders. It makes it easier to get a handle on company data and understand how the company is performing at any time.

This empowers you to work with your accountant to make effective decisions quickly and confidently.

Here are some areas where you can do more with accounts software:

Controlling budgets

Planning and controlling spending are key areas for business success, especially at this moment in time. Successfully implemented software can help your business grow by allowing you to allocate your budget to the areas of your business that make you the most money.

Once you have allocated budgets, your teams can record spending in the latest accounts software so you can always see if you are on track or overspending in less profitable areas.

Multi-user access

Using traditional accounting software can be expensive, difficult and time-consuming to upgrade. In comparison, most cloud accounting platforms update automatically for free and under most licenses, giving you multi-user access, without the need to install expensive software on multiple computers and devices.

Multi-user access makes it easy to collaborate online with your team and advisors and allows your accountant to access your data in real-time to provide insights that help your business thrive and grow or warn you of potential risks on the horizon.

Staff access to the software and security

You may not want everyone to see everything, which is why you can grant different levels of access to different people within your organisation.

The cloud is one of the most secure ways to store information thanks to the sophisticated encryption used by many platforms’ servers.

This means that no one can access your data unless they have a login to the online account and permission to view the information saved there.

There is an app for that 

The growth of platforms has been outpaced by the incredible number of connected apps that support the main functions of cloud accounting by helping with analysis and automation.

There really is almost an app for everything when it comes to cloud accounting. These provide you the tools to achieve incredible things.

Although much of the focus in recent years has been on the essential role of cloud accounting in compliance with Making Tax Digital, more and more businesses are learning about the great benefits on offer beyond this.

Our team at Clemence Hoar Cummings has helped a wide range of businesses embrace cloud accounting. Helping them to make best use of the latest technology and applications. To find out more about our online accounting services, please contact us.

Link: Eight tips to make the most of your accounting software

A cash flow statement provides data about all cash inflows a company receives from its operations and investments.

It tells you how much cash is entering and leaving your business in any given period.

Along with balance sheets and income statements, it is vital for managing your small business accounting and making sure you have enough cash to keep operating.

These important statements deliver accuracy because they track the cash made by the business in three main ways – through operations, investment, and financing.

It is a key part of understanding your business’s financial health, so much so that it was listed as third in the Financial Reporting Council’s (FRC) list of most frequently raised areas in their 2020–21 Corporate Reporting Review.

Transparency and integrity

The FRC, which regulates auditors, accountants and actuaries, and promotes transparency and integrity in business, found cash flow statements with items incorrectly classified.

It said in its Annual Review of Corporate Reporting for 2020/21: “We continue to be concerned about the number of queries we raise in relation to compliance with the requirements of IAS 7 ‘Statement of Cash Flows’.

“As in prior years, many of the cash flow statement errors described in sections 3.1.3 and 6.3 were identified through critically analysing the line items appearing on the face of the statement. Companies should increase their focus on cash flow statements as part of their pre-issuance reviews.”

To avoid errors, and to emphasise the importance of people taking personal responsibility for the stewardship of cash flow, sufficient time and resources should be allocated to prepare and review them.

Business leaders should take responsibility for cash management if there is a risk of business failure and avoid errors when reporting, certain guidelines should be followed, such as:

• Regular communication with those in charge of cash movements
• Strict controls over cash flow reporting
• Making sure responsibilities, reporting lines and staff cover for all cash-related matters are clearly understood
• Enhancing forecasting effectiveness to get a clearer idea of cash flow in real-time
• Preparing easy to understand cash flow reports to support critical business decisions and funding
• Increasing frequency of reporting
• Preserving underlying data in as much detail as possible.

The principles outlined should apply to all sizes or types of business. Cash flow is the lifeblood of any business and the monitoring and maintenance of it should not be underestimated.

If you are struggling to prepare cash flow statements, or you have more money going out of your business than coming, please get in touch with us.

While the national job vacancy boom is good news for job seekers, it could be a nightmare for businesses keen on retaining 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, many professionals see the use of salary sacrifice arrangements as a way of potentially reducing contributions – especially the provision of an electric company car.

For expert advice on salary sacrifice, in particular the tax benefits of electric company cars, please seek professional advice from our team.

Link: Salary Sacrifice

Businesses across the UK are already benefitting from the temporary tax relief offered by the super-deduction but many more could still be missing out on this vital support.

The super-deduction scheme was introduced on 1 April 2021 and will run until 31 March 2023. It allows firms investing in qualifying plant and machinery assets to benefit from a 130 per cent first-year capital allowance.

This allows companies to cut their tax bill by up to 25p for every £1 they invest. Most companies also benefit from a 50 per cent first-year allowance for qualifying special rate (including long life) assets.

Thanks to the super-deduction, companies will be able to claim allowances of 130 per cent on most new plant and machinery investments that ordinarily qualify for main rate writing down allowances, such as:

• Compressors
• Computer equipment and servers
• Electric vehicle charge points
• Foundry equipment
• Ladders, drills, cranes
• Office chairs and desks
• Refrigeration units
• Solar panels
• Tractors, lorries and vans.

Businesses can claim a first-year allowance of 50 per cent on most new plant and machinery investments that ordinarily qualify for special rate writing down allowances. Special rate investments include:

• Parts of a building considered integral – known as ‘integral features’
• Items with a long life
• Thermal insulation of buildings.

To benefit from the relief, the assets purchased must be new and not second hand or refurbished equipment.

The relief is also only available to incorporated companies, but unincorporated businesses, such as partnerships and sole traders, 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 until March 2023.

Here is an example provided by HM Revenue & Customs (HMRC) on how the super-deduction works:

• A company incurring £1 million of qualifying expenditure decides to claim the super-deduction
• Spending £1 million on qualifying investments will mean the company can deduct £1.3 million (130 per cent of the initial investment) when computing its taxable profits
• Deducting £1.3 million from taxable profits will save the company up to 19 per cent of that – or £247,000, which is 19 per cent of £1.3 million – on its Corporation Tax bill.

The AIA remains available alongside the super-deduction for incorporated businesses as well, so businesses must review how they use these schemes together to maximise the tax relief available.

If you would like assistance claiming tax relief using the super-deduction capital allowance or would like to know more about other ways to reduce your Corporation Tax bill, please speak to our tax team.

Link: Super-deduction

Every year employers across the UK submit an end-of-year report to HM Revenue & Customs (HMRC) outlining the benefits provided to each employee and director, which were not included in their wages.

This report is sent using the P11D form, which must be submitted by 6 July following the end of the tax year. At the same time, you must also provide employees with a copy of the P11D and tell HMRC the total amount of Class 1A National Insurance you owe using form P11D(b).

This can be quite an onerous task and lead to penalties if it isn’t completed on time or correctly. You will also be charged additional penalties and interest if you’re late paying HMRC.

Do I have to complete a P11D each year? 

Unbeknownst to many employers, you can now payroll benefits you provide to your employees so that you do not have to produce a P11D each year.

You can do this as long as you register with HMRC before the start of the tax year to let them know that you intend to payroll staff benefits. You can do this online here.

By choosing to payroll your benefits, the cash equivalent of the employees’ benefits is added to their taxable pay, which is charged to them through the real-time payroll process.

This system is much easier for employers as they do not have to produce P11Ds each year, but they must continue to calculate the Class 1A National Insurance contributions and complete form P11D(b) by the 6 July following the end of the tax year.

If you miss the registration deadline, you can ask HMRC to informally payroll benefits by writing to the Complex Caseworker Team at HMRC’s National Insurance Contributions and Employer Office.

If you choose to use this option, you must still complete form P11D at the end of the tax year and mark each report as ‘payrolled’.

HMRC should then stop collecting tax that has already been deducted from your employees.
The benefit of this system, beyond the need to produce detailed reports, is that employee tax will be collected in real-time, rather than being collected using an adjusted tax code in the following tax year.

This approach may be unsuitable for some businesses, so professional advice should be sought from a trusted accountant.

Want to learn more about the advantages of payrolling employee benefits? Get in touch with our team today.

It’s a new year and many people who may have lost their jobs during the pandemic or have decided to take their life in a new direction, will be looking to start up a business.

It could be a full-time endeavour or a part-time business looking to make a bit of extra income to cope with the current cost of living crisis.

The upside is that we appear to be over the worst of the pandemic, and it is in the Government’s interests to get the economy on the move again, so help will be available.

There are so many ideas for business start-ups, but insurance broker Simply Business has researched some of the most popular small business ideas that might be worth exploring for 2022.

After analysing new business insurance policies taken out, a number of key areas came up as the most popular for starting up this year.

They include:

Craft stall

According to Simply Business, craft stalls were the fastest-growing small business trade in 2021, experiencing a 237 per cent growth.

If you have a hobby like candle making, pottery or needlework, opening a craft stall to sell your wares could be a venture worth pursuing this year.

Market trader

COVID restrictions, as well as people feeling less comfortable in indoor spaces, have seen outdoor businesses thrive since 2020.

It’s no surprise, then, that market trading was the second-fastest-growing small business idea in 2021, with a 113 per cent increase.

Online retailer

According to Simply Business, the number of new online retailers increased by 62 per cent in 2021.

When it comes to selling goods online, the key is to do your research and select the right type of product.

Some of the products that have traditionally sold well online include homeware, tech gadgets and accessories, exercise gear and clothing.

Photographer

The number of freelance photographers in the UK increased by 56 per cent in 2021, making it the fourth-fastest-growing small business.

This could be the ideal year to launch a freelance photography business, especially if you specialise in wedding photography.

The number of weddings is expected to increase significantly this year because of all the postponements.

Handyman or handywoman

One of the impacts of the pandemic is that many people have been spending more time at home.

Not surprisingly, many have been finding issues with the current state of their properties and have been looking to make improvements or upgrades.

The result has been an increase in demand for repair people, with a 44 per cent rise in this type of business in 2021.

Catering

Catering businesses witnessed a 39 per cent rise in 2021.

If you have a passion for cooking, throwing parties or event planning, catering could be a great small business to consider starting this year.

Teaching/tutor

Research by Simply Business shows that the number of businesses in this sector was up 21 per cent in 2021 and teaching or tutoring (in person or online) could be a great small business idea for people who have teaching experience.

Home baking

People have been cooking and baking more at home during the pandemic.

Not surprisingly, some have looked to use their cooking and baking skills to provide income.

As a result, the number of UK home baking businesses saw an increase of 24 per cent between 2020 and 2021.

Dog walking

Millions of Brits have bought pets since the start of the pandemic.

This means that the demand for pet walkers is now higher than ever. New dog walking businesses have increased by 22 per cent year on year.

If you love dogs, starting a dog walking business could be a great way to make some cash this year.

Looking to start a new business? Or need help scaling up your current company? We have helped lots of firms to grow and flourish by providing useful insights and advice. Speak to our team today to find out more.