Business News

The 2023-24 tax year may seem a long way off, but it is important that companies are prepared for changes to the system a little more than year down the line.

The main rate of Corporation Tax (CT) will rise to 25 per cent for the financial year commencing on 1 April 2023, but it is slightly more complicated than the headline figure and the rate will vary depending on company profits.

How will companies be affected?

For companies recording profits of £50,000 or less, the ‘lower profits limit’, the current CT rate of 19 per cent will still apply, but those firms with profits between £50,000 and £250,000, the so-called ‘upper profits limit’, will pay the main CT rate of 25 per cent.

However, they will receive what is known as marginal relief to cut their tax bill which increases the rate incrementally, as profits rise, until the upper limit of 25 per cent is reached for firms with profits of £250,000 or more.

The lower and upper profit limits are reduced proportionately where the accounting period is less than 12 months. They are also reduced where a company has one or more associated firms.

Broadly, a company is associated with another company at a particular time if, at that time or at any other time within the preceding 12 months:

• One company has control of the other
• Both companies are under the control of the same person or group of persons.

Effectively, the full amount of CT at the rate of 25 per cent is calculated before marginal relief is deducted. The marginal relief calculations are based on offsetting ‘augmented profits’ against the total taxable profits.

According to HMRC, ‘augmented profits’ are the company’s total taxable profits plus exempt distributions from non-group companies.

These include dividends, distribution of assets or amounts treated as a distribution on the transfer of assets or liabilities or the repayment of share capital.

The calculations are quite complex so we can help you with assessing just how much CT you will have to pay to HMRC. To find out how the changes to CT will affect your business, please contact us.

Link: Corporation Tax Charge

Whether it is down to the spread of the Coronavirus or just a general trend to a more cashless society, card payments have boomed in the last couple of years.

While restrictions were in place, hardly anyone accepted cash and it is a trend that looks like it will continue with more and more payments being made through card readers.

According to figures from UK Finance, a trade association for the UK banking and financial services sector, in 2020 over half of all payments in the UK were made using cards.

While overall card payments in 2020 declined during the lockdown, their share of payments increased with over half (52 per cent) of all payments being made by cards in 2020.

This was due to many retailers encouraging card and contactless use, along with many people opting to shop online while physical stores were shut.

So, businesses must be properly prepared with the right equipment to process these transactions.

Security is vital both for customers and businesses and there is a whole range of different debit and credit card machines to choose from. There are three types, a desktop or countertop reader, a portable card reader and a mobile device.

What are the benefits of each device?

Countertop machines are fixed points in your store or restaurant and offer good connectivity.

The portable device is linked to Wi-Fi and is ideal for places like restaurants or pubs, where staff can take payments at the table.

Mobile card readers are battery-powered devices that use a GPRS signal but can link to Wi-Fi to take payments while on the move at places like outdoor markets or hospitality events.

If businesses are choosing card payment facilities, there are several platforms on the market to consider, including:

• TakePayments
• Tyl (by Natwest)
• Paymentsense
• Shopify WisePad Reader 3
• SumUp Air
• Zettle Reader 2
• Square Reader
• MyPOS Go
• Dojo Go
• Barclaycard Anywhere

What do they cost?

The costs include the device and the cost of payment processing fees. Mobile readers cost between £15 and £30, while desktop or countertop card machines cost between £150 and £200.

You can either buy the device outright or rent the device for a monthly cost. This changes from provider to provider.

What fees will the business have to pay?

Transaction fees are taken by your card payment provider as a percentage of every payment made through your card machine. They are typically between 1.5 per cent and 2 per cent of the value of the transaction.

So, if the customer buys an item costing £50 and your transaction fee is 1.75 per cent, you will be charged around 87p by your provider.

Card payment providers will also advertise a ‘card not present’ (CNP) transaction when neither the cardholder nor their card are present for the transaction – for instance, an online or phone payment, or a recurring payment.

CNP fees are usually around 2.5 per cent. They are higher for the simple reason that there is a greater risk of fraud during these kinds of payments.

If you are interested in implementing new payments systems into your business, including cloud-connected card payments we can help. Our innovative team at Clemence Hoar Cummings can find the best solution for you so get in touch.

Taxpayers who are unable to pay their Self-Assessment (SA) bill can use the option of paying by instalments with a Time to Pay arrangement with HM Revenue & Customs (HMRC).

If you cannot pay a Self-Assessment tax bill you can make your own Time to Pay arrangement using your Government Gateway account, if you:

• Have filed your latest tax return
• Owe less than £30,000
• Are within 60 days of the payment deadline
• Plan to pay your debt off within the next 12 months or less.

The limit for a self-serve time to pay arrangement, which was increased during the pandemic, remains at £30,000 tax due.

Myrtle Lloyd, HMRC’s Director General for Customer Services, said: “We understand some customers might be worried about paying their SA bill this year, and we want to support them.”

What you will need to make a Time to Pay arrangement

• The relevant reference number for the tax you cannot pay, such as your unique tax reference number
• Your VAT registration number if you are a business
• Your bank account details
• Details of any previous payments you have missed

HMRC will ask you:

• How much you can repay each month
• If you can pay in full
• If there are other taxes you need to pay
• How much money you earn
• What you usually spend (including bills and entertainment) each month
• What savings or investments you have.

If you have savings or assets, HMRC will expect you to use these to reduce your debt as much as possible.

If you have received independent debt advice, for example from Citizens Advice, you may have a ‘Standard Financial Statement’. HMRC will accept this as evidence of what you earn and spend each month.

The amount you will be asked to pay each month is based on the money you have left after you pay any rent, food or utility bills and fixed outgoings, like subscriptions.

You will usually be asked to pay around half of what you have left over each month towards the tax you owe.

If taxpayers owe more than £30,000, or need longer to pay, they should phone the self-assessment payment helpline on 0300 200 3822 to make an arrangement.

If you need assistance with paying tax or have other queries about your tax affairs, please speak to our tax team today.

Link: If you cannot pay your tax bill on time

Well according to a recent Employment Appeals Tribunal (EAT), yes, they should.

In this latest case, a taxi driver in Watford was employed by a firm, which dictated that as part of his conditions of employment he was required to provide a vehicle and uniform, both of which were rented from a company associated with his employer.

Rental costs

In the case of Augustine v Data Cars Ltd, Mr Augustine was employed as a taxi driver by Data Cars.

But at the end of his employment, he brought a variety of claims to the employment tribunal, including that he had not been paid the NMW.

When making remuneration calculations, there are certain allowances and expenses which are deductible.

Mr Augustine argued the cost of the car rental and the purchase of the uniform should be deducted from his total remuneration.

Successful appeal

The initial employment tribunal disagreed, concluding the payments did not need to be considered for the purposes of calculating NMW, on the basis that both payments were optional and not a condition of employment.

Mr Augustine successfully appealed, with both payments found to be deductions for the purposes of calculating his NMW.

The EAT allowed the claimant’s appeal and pointed out that the correct test was whether the expenditure was incurred “in connection with” the employment and that both the rental payments and uniform costs satisfied that test.

This case highlights the complexities involved with calculating pay for NMW purposes and the potential pitfalls of getting your calculations wrong.

Careful calculations

Employers risk a penalty and being ‘named and shamed’ publicly by HMRC if they fall foul of the NMW regulations, even if the mistakes may have been made quite innocently.

Many employers are caught out because of their uniform policies. NMW regulation 12 and 13 provide that any deductions made by an employer for the cost of uniform provided or for the cost of uniform to be purchased (whether from the employer directly, a third party generally or by the worker directly) does not reduce worker pay below the minimum wage in the relevant pay period.

The same principle also applies to tools which workers are required to provide or that they are provided with for the purposes of their work.

It does not matter that the uniform or tool can also be used for the worker’s benefit. What matters is that wearing the item or having the tool is a requirement of their employment. Any additional uniforms or tools bought by the worker are not counted for NMW purposes.

A common issue, as in this case, is that many employers do not appreciate that unbranded items of clothing, which were required to be worn at work such as white t-shirt, black trousers or flat black shoes, are also considered to be ‘uniform’ by HMRC when assessing whether NMW had been complied with.

This kind of area can be a minefield for employers, but basically, when calculating hourly pay you must divide total pay by the number of hours worked.

Remember, the National Living Wage increases to £9.50 from £8.91, while the National Minimum Wage for 21- and 22-year-olds rises to £9.18 from £8.36 from next April.

The rules around the provision of vehicles and uniforms and the impact on pay can be very complex. Our team at Clemence Hoar Cummings are here to help, so give us a call.

Link: Mr W Augustine v Data Cars Ltd: EA-2020-000383-AT(previously UKEAT/0254/20/AT)

Self-Assessment taxpayers have been warned to be on their guard against fraudsters trying to steal their information.

Over the last year, HM Revenue & Customs (HMRC) received nearly 900,000 reports from the public about suspicious HMRC contact, which included phone calls, texts or emails.

More than 100,000 of these were phone scams, while over 620,000 reports from the public were about bogus tax rebates.

HMRC is issuing reminder emails and SMS texts to Self-Assessment taxpayers about the 31 January deadline and is warning people to not be taken in by malicious emails, phone calls or texts, thinking that these are genuine HMRC communications referring to their tax return.

Some of the most common techniques fraudsters use include phoning taxpayers offering a fake tax refund.

They are also pretending to be HMRC by texting or emailing a link that will take customers to a false web page, with a similar appearance to the HMRC official page, where their bank details and money will be stolen.

Fraudsters are also known to threaten victims with arrest or imprisonment if a bogus tax bill is not paid immediately.

What to look out for

It could be a scam if calls, emails and text messages, are:

• Unexpected
• Offering a refund, tax rebate or grant
• Asking for personal information like bank details
• Threatening in their nature
• Telling you to transfer money.

More than four million genuine emails and SMS are being issued to Self-Assessment taxpayers pointing them to guidance and support.

The communication will prompt them to think about how they intend to pay their tax bill and to seek support if they are unable to pay in full by the deadline at the end of January. Taxpayers should consult their accountant for advice on this.

Always be on your guard

Myrtle Lloyd, HMRC’s Director General for Customer Services, said: “Never let yourself be rushed. If someone contacts you saying they’re from HMRC, wanting you to urgently transfer money or give personal information, be on your guard.

“HMRC will also never ring up threatening arrest. Only criminals do that.

“Scams come in many forms. Some threaten immediate arrest for tax evasion, others offer a tax rebate. Contacts like these should set alarm bells ringing, so if you are in any doubt whether the email, phone call or text is genuine, you can check the ‘HMRC scams’ advice on GOV.UK and find out how to report them to us.”

People can report suspicious phone calls using a form on GOV.UK; customers can also forward suspicious emails claiming to be from HMRC to phishing@hmrc.gov.uk and texts to 60599.

HMRC has a dedicated team working on cyber and phone crimes using state of the art technology to counter misleading and malicious communication.

Anyone who is in doubt about whether a website is genuine should visit GOV.UK for more information about Self-Assessment and use the free signposted tax return forms.

If you are concerned about the validity of a communication you receive from HMRC or any other agency, make sure you speak to us.

Link: HMRC warns customers about Self-Assessment tricksters

For busy small businesses, a PAYE Settlement Agreement (PSA) offers a simpler alternative to pay your employees.

It allows you to make one annual payment to cover all the tax and National Insurance due on minor, irregular or impracticable expenses or benefits for your workforce.

According to HM Revenue & Customs (HMRC), if you get a PSA for these items, you will not need to:

• Put them through your payroll to work out tax and National Insurance
• Include them in your end-of-year P11D forms
• Pay Class 1A National Insurance on them at the end of the tax year (you pay Class 1B National Insurance as part of your PSA instead).

Why go for a PSA?

The scheme may allow you to cut back on paperwork and administration if you are forever totting up minor taxable expenses, such as employee entertainment, birthday presents, or incentive awards.

You will no longer have to put these expenses through your employee’s payroll, pay Class 1A NICs on them (you’ll pay Class 1B NICs through your PSA), or include these expenses in forms P9D and P11D.

The expenses categories of the settlement agreement include:

Minor expenses

These could be birthday presents, health club memberships, expenses deemed to be personal yet incidental, or even a present, flowers, or a voucher should an employee fall ill.

Irregular expenses

These could include:

• Relocation expenses over £8,000 (these are tax-free below £8,000)
• The cost of attending overseas conferences
• Use of a company holiday flat.

Impracticable expenses or benefits

These are expenses are things that are difficult to place a value on, or divide up between individual employees, but could include:

• Staff entertainment that is not exempt from tax or National Insurance Contributions
• Shared cars
• Personal care expenses, for example, hairdressing.

How to apply

You will need to contact HMRC, with a description of expenses you believe are covered.

Once they’ve agreed on what can be included, they’ll send you two draft copies of form P626. Sign and return both copies. HMRC will authorise your request and send back a form – this is your PSA.

You’ll need to report anything that cannot be included separately using form P11D. You do not need to send a P11D if you’re paying employees’ expenses and benefits through your payroll.

Use form PSA1 to help you calculate the overall amount you’ll need to pay, otherwise, HMRC will calculate the amount and you will be charged more if this happens.

Send to HMRC as soon as possible after the end of the tax year. They’ll get in touch with you before 19 October following the tax year that the PSA covers to confirm the total tax and National Insurance you need to pay.

You’ll need to give an agent a signed letter of authority to make a PSA on your behalf if they do not have the authorisation to do so.

If you are struggling to manage your payroll or would like to know more about PSAs, please speak to our payroll team.

Campaigners are angry over the fact that more and more people will be drawn into paying Inheritance Tax (IHT), after a big rise in receipts.

They are angry that Chancellor Rishi Sunak has frozen the IHT nil rate band and residence nil rate band at £325,000 and £175,000, respectively, until 2026, while the value of homes has rocketed – potentially drawing more people into paying this tax.

Estates that exceed these allowances face paying 40 per cent IHT on anything above these amounts.

Given this freeze and rising house prices, it should come as no surprise that the latest IHT receipts totalled £3.6 billion between April and October this year, up from £3 billion in the same period last year.

What is IHT?

IHT is a tax on the estate (the property, money and assets) of someone who’s died. There’s normally no IHT to pay if:

• The value of your estate is below the £325,000 tax-free nil rate band allowance.
• You give away your main home to your children (including adopted, foster or stepchildren) or grandchildren, as the additional residence nil rate band increases your overall allowance to £500,000.

Any unused allowance can be passed to your partner after your death, if you are married or in a civil partnership. This could mean that a couple could pass on as much as £1 million tax-free if they make full use of the allowances on offer.

What are the rates for IHT?

The standard IHT rate is 40 per cent and it’s only charged on the part of your estate that’s above the threshold.

So, if your estate is worth £500,000 and your tax-free threshold is £325,000. The IHT charged will be 40 per cent of £175,000 (£500,000 minus £325,000).

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?

You can give up to £3,000 per year per person to a beneficiary without it being subject to tax after death.

If you haven’t previously given a gift in the preceding tax year then you can backdate it and make a gift of £6,000 in a single tax year.

Any gifts over this amount you give to beneficiaries while you’re alive may be taxed after your death, depending on when the gift was made.

Under the seven years rule, a ‘taper relief’ is applied that might mean the IHT charged on the gift is less than 40 per cent on a sliding scale.

Other reliefs, such as Business Relief, allow some assets to be passed on free of IHT or with a reduced bill, while trusts can help to pass on wealth tax-free.

If you are concerned about IHT and would like some advice from our experienced tax team, please get in touch.

Link: Inheritance tax climbs again – fury as more bereaved families dragged into ‘horrid tax’

Every year many of us decide to set a New Year’s resolution. Perhaps it is losing weight, going vegetarian or putting extra money away in your savings.

Of course, inevitably, life can get in the way and it is easy to lose track of the promises you set yourself.

However, if there is one goal, we would all like to achieve, it is for our businesses to flourish and thrive.

That is why we believe it is important to set some New Year’s resolutions for your organisation that builds resilience and helps you grow.

Here are our eight New Year’s resolutions for businesses to follow:

Look for new funding

It has, admittedly, got more challenging for businesses to find the finance they need to grow, but if you are planning to invest or you need some additional funding to tide you over next year you must consider your options.

Although many of the Government-backed schemes are now closed, the Recovery Loan Scheme has been extended into next year, offering much-needed support to SMEs.

The British Business Bank is also helping to manage many regional schemes for small businesses so it is worth taking a look at its website here.

If you can’t secure funding from traditional lenders, such as banks, have you considered alternative finance, such as peer-to-peer lending or crowdfunding?

Improve cash flow

Cash flow is the lifeblood of your business. Without good cash flow, many companies fail. If you are continually worrying about cash flow then you need to take action to improve it.

This could include strengthening or automating your credit control systems or finding ways to boost sales or reduce costs so that more money is flowing into your company or less is leaving respectively.

Review costs

The nation is experiencing a cost crisis driven by many factors, including price inflation on many goods and materials, energy costs and skills shortages.

These are beyond the power of our national leaders, let alone you as a business owner, but that doesn’t mean you should do nothing.

Despite how challenging it may seem, there is often a way to reduce costs. This could include switching suppliers, finding savings by reducing or cutting unprofitable activities or recovering some of your costs through tax reliefs.

Get a better picture of financial health

It is very difficult to plan for the year ahead or react to changes in the market without having a clear picture of your organisation’s financial health.

Without the right data and information, how can you expect to make effective decisions?

Thankfully, there has perhaps never been a greater opportunity to learn more about your business through regular management accounts, supported by the latest cloud accounting technology – which can feed you information in real-time.

Retain and reward

Although we have spoken about cutting costs, the one area of your organisation where investment may be key, at least temporarily, is your workforce.

The UK, and much of the world, is experiencing labour shortages in certain sectors following the impact of the pandemic.

This crisis has led many people to reassess their life, including where they work and their goals.

With a million job vacancies in the UK, those who are dissatisfied with their current career are making a switch, so you need to think about how you can boost pay, provide benefits and change your work environment to secure the top talent.

Revitalise your business plan

When was the last time you properly reviewed your business plan? If you haven’t done it in a while, or you made temporary changes to it during COVID-19, you need to revisit it to make sure your goals and current strategies are aligned.

It is worth taking some time to review your operation as a whole and ask yourself what is profitable, what supports cash flow and where are your weaknesses.

This should help you formulate a new business plan for the next 12 months – but make sure you continue to review this and act upon your findings.

Cut your tax bill

Do you or your business pay too much tax? Many taxpayers often pay more than they need to because they do not make full use of the reliefs, allowances and tax saving opportunities available to them.

Every year we surprise our clients by helping them find ways to reduce their liabilities, often saving them and their business thousands of pounds.

This need not be a complex process if you seek the support of your accountant or tax adviser, who can review your activities, taxable income and investments to create a plan that reduces the tax paid.

Ask for more help

Perhaps the most essential advice we can offer is to ask for help. You aren’t alone and there are always people who can assist and support you.

A small investment at the start of 2022 in professional advice, could open up new opportunities to save time and money while reducing the stress and strain of running a business.

If you would like us to help you review and revitalise your business plans or financial processes, please speak to our team today.

The final stage of Making Tax Digital (MTD) for VAT is just a few short months away.

From 1 April 2022, even the smallest VAT registered business will need to comply with the quarterly digital recording and reporting of VAT – including those below the £85,000 VAT threshold who are voluntarily registered.

Millions of UK VAT registered businesses above the VAT threshold of £85,000 have already begun complying with MTD since it was introduced several years ago.

They have invested time and money to bring their systems and processes up to date with the tax regime’s requirements.

Now many more small businesses are likely to be caught out by this change, which will require them to use the latest MTD compliant cloud accounting software.

Given the scale of the change and the steps needed to comply with the regulations, businesses that are affected by this change must act now to ensure they are compliant.

To achieve this, they may need to invest in:

• HMRC compliant software
• Additional training
• Help from their accountant.

MTD compliant software

You must use the correct software to meet HM Revenue & Customs’ (HMRC) MTD requirements.

HMRC requires software that can:

• Keep records in a digital form
• Preserve digital records in a digital form
• Create a VAT or tax return from the digital records held in functional compatible software and provide HMRC with this information digitally
• Provide HMRC with VAT and tax data voluntarily
• Receive information from HMRC via the API platform that the business has complied.

Many of the existing cloud accounting platforms out there have been created or revised to ensure that they meet the requirements of MTD for VAT.

Not only that, but they offer many other advantages to businesses of all sizes. Often helping owners to save time and money while providing critical real-time insights into a business’s financial health, which can be invaluable for decision-making.

We can help you find online cloud accounting software that is suited to you and your business’s needs, thanks to our experience supporting many other organisations with this transition.

Failure to comply

Given the scale of the change, there are concerns that some businesses may not be ready in time.

Unlike the initial launch of MTD, there will be no soft-landing period for this latest stage and businesses can expect to be fined or even investigated by HMRC for non-compliance.

It is, therefore, essential that you seek advice to help you with your preparations for this change if you are not yet compliant.

We have already helped many businesses migrate to the latest cloud accounting technology in preparation for MTD, delivering many benefits beyond compliance.

Given the impending implementation of these new rules and the risks associated with not meeting them by April next year, we are ready and able to support businesses, like yours, as they prepare for MTD. To find out more about our cloud accounting and MTD services, please contact us.