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There is an inherent degree of risk in any business growth strategy – but keeping this risk to a minimum can help you grow your business without sacrificing your hard work.

Growing your business hinges on your ability to take calculated risks, whether that be by investing in innovation or by taking on a new member of staff.

This risk is not a negative thing – in fact, it is indicative of a strong growth strategy.

However, it is important to understand how risk mitigation fits into your business growth strategy rather than viewing it as an isolated consideration.

This way, you can grow your business safely and sustainably. Here’s how:

Diversification

Expanding your product or service offering can help spread risk across multiple markets, particularly if your market is prone to fluctuations.

By not relying on a single source of revenue, your business can better withstand variations in the market which might temporarily reduce the value of a product or service.

Diversification can also include entering new markets or demographics, as well as introducing entirely new products or services, reducing the impact of poor performance in any one area.

Financial management

Robust financial management is crucial for growth and risk reduction.

This includes maintaining a healthy cash flow, setting aside reserves for emergencies, and managing debt responsibly.

For example, you may take on a business loan to finance growth. This is likely to carry an acceptable level of risk, provided you allocate funds according to genuine need and make timely repayments.

Regular financial reviews can help you make informed decisions, spot trends, and address issues before they escalate.

Market research

Understanding your market is key to successful growth.

Continuous market research helps you stay ahead of trends, understand your competition, and identify new opportunities.

It also allows you to make data-driven decisions, reducing the risk of costly mistakes by showing you which risks are, statistically speaking, worth taking.

Investment in technology

Technology can streamline operations, improve efficiency, and open new channels for business.

Investing in the right technology can also help you stay competitive and responsive to changes in the market.

For example, management software can offer substantial time savings over traditional administration methods with automation and integrations, which streamline repetitive tasks.

However, it’s important to assess the risks and ensure that any technology investment delivers value by continually monitoring return on investment and identifying bottlenecks.

Strategic partnerships

Forming alliances with other businesses can provide mutual benefits, such as access to new markets, shared resources, and enhanced capabilities.

Partnerships can also help spread risk through these avenues and by, for example, sharing the cost of investment in a new venture.

It’s important to choose partners wisely and ensure that agreements align with your business goals and values.

It is also important to seek external advice from experts before making significant decisions within your business, which could carry high levels of risk.

We can help you identify your growth priorities and make investments and operational improvements in the right places to achieve these goals.

Contact us today to find out how. 

A survey by the Bank of England (BoE) and the Department of Business and Trade has identified a potentially significant challenge facing SMEs on their journey towards growth.

The survey’s findings indicate that investment is crucial to sustaining growth for SMEs, but that many businesses faced barriers to accessing finance to make sufficient investment in areas, such as research and development, operational improvements and recruitment.

Most significantly:

• Half of businesses reported using only internal funds for investment
• 20 per cent said that they had underinvested
• 70 per cent preferred slower growth to incurring debt
• Use of equity finance is very low in SMEs
• Financial constraints are a key factor in discouraging borrowing

All of this begs the question – are you struggling to boost growth in your business due to these barriers to investment?

The key in the lock

Often, financial investment is the most effective – or only – way to achieve real growth within a business.

It opens the door to improvements in your product or service, innovations, enhanced marketing efforts and the ability to recruit the right talent for your team.

However, early-stage businesses or SMEs typically lack the large cash reserves of larger businesses and, therefore, struggle to invest sufficiently using only internal funds – leaving the options of slow growth or external investment.

The former is the preferred choice of most UK businesses, according to the research, but this does not need to be the case.

We can advise you on the right forms of external financing for you and help you seek a loan or investment that aligns with your growth strategy and financial plans.

What options are available?

External financing for businesses typically comes in two forms – investment or loans.

Equity finance – funds which do not come from bank loans but rather investment in exchange for a stake in the company – is demonstrably low among SMEs.

However, innovative new businesses with high growth potential are prime targets for investors, so important that you know what types of investments are open to you and how you might prepare to access them.

Investment can come in several forms and generally involves an individual or organisation providing funds for your business in exchange for a proportion of profits or a stake in the company.

Types of investment your business might attract include:

• Angel investing: Investors provide capital for a business start-up, usually in exchange for a portion of the business profits or partial ownership. Angel investors often contribute not just capital but also advice and business connections.
• Venture capital: Venture capital firms offer significant amounts of capital to start-ups and high-growth companies with the potential for high returns. In exchange, they usually require equity and significant influence on company decisions.
• Private equity: Private equity investors provide capital for businesses looking to expand, restructure, or transition ownership. Investments are often in larger, established companies compared to venture capital. This investment is in exchange for shares in the company.
• Crowdfunding: Through online platforms, businesses can raise small amounts of capital from many individuals. This method offers the advantage of not having to give up equity or repay the investment directly, though some platforms enable equity crowdfunding.

Preparing to attract investment can be a long process as it requires detailed insights into the value and future potential of your business, but you may also gain long-term partnerships and insights from investors.

The other major benefit of investment is that you will not be taking on debt – although another person or company may own a stake in your business.

On the other hand, if you would prefer to retain full control over your business, business loans may be an option.

Although over two-thirds of business owners would prefer slower growth to debt, responsibly managed loans do not have to be a hamper to growth.

Taking on some debt with correct management, such as timely repayment and reasonable loan amounts, can help boost your business’s overall creditworthiness and open doors to future financing.

The key to successfully managing debt for higher growth is to be ambitious but realistic in your strategy and to ensure that you can cover repayments, even in case of slower growth than anticipated.

Managing funds for investment

However you choose to bring funds into your business, you must plan to make strategic investments to ensure growth and a return on investment.

This is the overall goal of investment and carries benefits for:

• You, allowing you to repay debt or grow your business
• Investors, who will see a return on their investment
• Clients or customers, who may benefit from new products or services

Demonstrating that you can manage and allocate external funding is also beneficial for plans and may make your business more appealing to further investment or additional credit further down the line.

For advice on accessing external funding for your business and managing your investments, contact a member of our team today. 

New research by Marktlink suggests that around 33 per cent of UK business owners are unaware of the value of their company – only slightly lower than the European average figure of 40 per cent.

While you are not alone if this applies to you, you must know what your business is worth.

Why? Let us show you.

Know your worth

The value of your business is not just a number, it is a measure of growth and what you have achieved since founding your company.

For this reason, the total value of your business is an important metric by which growth and future potential can be measured.

There are many scenarios which might require you to know the exact value of your business or at least understand its market worth, including:

• Strategic planning – Your business’ value, alongside data, such as revenue, turnover and profit, can help you to make strategic decisions including investments and operational improvements, as well as provide a measure of success for these initiatives.
• Sales or acquisitions – Most sales of your business will require an accurate valuation to ensure a fair price for both you and the buyer that reflects market rates.
• Investment opportunities – Similarly to buyers, investors will need to know the value of your business to assess risk and potential return on investment (ROI).
• Financial reporting – Some financial statements require an accurate valuation of a business, particularly when it has been passed on to another person as part of an inheritance, making a valuation crucial to succession planning.

Calculating the value of your business

Put simply, a business’s value is the financial value of everything owned by your business.

While this may seem straightforward, there are a number of techniques used to calculate the value of a business depending on its sector, its structure, the reason for valuation and the type of assets it possesses.

These include:

• Asset valuation – One of the more straightforward forms of valuation, this involves adding up the total value of all assets owned by the company, including tangible assets such as land and intangible assets such as brand reputation.
• Discounted cash flow – A more complex and sophisticated method, DCF requires accurate cash flow projections as it calculates how much a business may be worth in the future by determining the present value of future cash flows.
• Market capitalisation – Used for incorporated companies with shareholders, this method multiplies current share price by the total number of outstanding shares, which can provide a useful picture long-term, but may be impacted by market volatility as a one-off calculation.
• Revenue or earnings multiplier – If your business is new and lacks earnings history for other methods, this model calculates your current revenue and multiplies it by an industry-specific standard, typically between 0.5 and 2.

Different methods will be suitable for different types of businesses.

For example, asset valuation may result in a lower price for a business that holds low levels of tangible assets but has significant future growth prospects or ‘goodwill’ attached to its name.

It is best to seek professional advice when valuing your business to ensure that you have accounted for every asset and that you are applying the method correctly.

Business valuations can be complex and, as an important benchmark for the growth and success of your business, must be accurate to hold value for investors, buyers and your own strategic decisions.

To get to know the value of your business and stay prepared for sales, investments and market changes, get in touch with our team today.

HM Revenue & Customs (HMRC) recently reported a £2 billion increase in income tax receipts, reflecting a strong self-assessment period and an evolving dynamic within the tax landscape.

The Government’s recent changes, including adjustments to National Insurance Contributions (NICs), have both mitigated and exacerbated the overall NIC burden.

This is because they encompass rate reductions for certain income brackets, aimed at reducing financial strain and boosting disposable income to stimulate economic activity, and the introduction of higher thresholds for others, which, by freezing or raising these thresholds for higher earners, effectively increases their tax burden.

This development poses challenges and opportunities for taxpayers, highlighting the need for strategic tax planning in response to the increasing tax burden, which is escalating at a rate surpassing inflation.

The data that HMRC has released reveals a contrasting trend – an 11.9 per cent rise in PAYE tax receipts contrasts with a 1.7 per cent decline in Self-Assessment income tax collections.

This trend points to the heightened economic strains on sole traders and partnerships, with inflation eroding small business profitability.

In response, the Government has allocated £200 million towards small business support, aiming to fortify the economic foundation for these entities.

Looking ahead, tax receipts are poised for further growth, propelled by the continuous fiscal drag from frozen income tax thresholds.

These developments signal an escalating tax burden for UK residents, despite the recent cuts to NICs, and emphasise the critical role of informed tax planning.

An examination of other tax receipts

Since April 2023, an examination of the tax receipt composition reveals widespread increases across several categories, culminating in total receipts of £761.1 billion.

This increase spans Income Tax, Capital Gains Tax, National Insurance Contributions, VAT, and other business taxes.

A notable peak in Inheritance Tax collections, which reached £6.8 billion, reflects the Chancellor’s strategic budgetary decisions to maintain current levels of this tax.

For individuals and businesses, understanding the intricate details of the current tax framework is going to be essential for effective financial planning and decision-making this tax year (2024/25).

Adapting to these changes necessitates a focus on tax efficiency strategies and preparation for future tax policy shifts.

Given the complex and changing nature of the tax system, professional tax advice is going to be increasingly important for managing your finances.

Please speak to our team for more information on this issue.

From 6 April 2024, UK redundancy rules will change, particularly surrounding pregnant employees and those on family-related leave.

The new legislation extends the ‘protected period’ for redundancy to 18 months after the birth or adoption placement, requiring employers to prioritise these employees for suitable alternative employment in case of redundancies.

The financial impact on your business, because of these changes, could be significant too if you must consider making redundancies.

You will likely face higher operational costs as you must now retain staff or find them alternative roles instead of making them redundant.

The tax treatment of redundancy payments, which are tax-free up to £30,000, will also need careful consideration to ensure compliance with HM Revenue & Customs (HMRC).

Adjustments in payroll and HR practices should also be considered, and you will need to update your redundancy policies and consultation process to align with the new rules.

From a purely payroll perspective, these changes make it all the more important to accurately track maternity, adoption, or shared parental leave.

By preparing now, you can ensure that you meet these new requirements, minimise financial risk, and support your employees effectively during these critical life stages.

If you require further guidance or information on payroll changes relating to redundancy, please don’t hesitate to get in touch. 

With the start of the new tax year, taxpayers can expect significant changes that will directly impact their finances in the next tax year (2024/25).

If you haven’t already, it’s time to closely examine your financial planning, including savings, investments, and tax compliance.

So, what changes should you be aware of from 6 April 2024?

• Employee National Insurance contributions (NICs): Primary Class 1 NICs for employees will be reduced from 10 per cent to eight per cent, aligning with the Government’s efforts to lower the tax burden and simplify the tax code.
• Self-employed National Insurance contributions (NICs): Class 4 NICs for the self-employed will drop from nine per cent to six per cent, alongside the abolition of Class 2 NICs for those with profits over £12,570, simplifying tax responsibilities and maintaining access to contributory benefits.
• Capital Gains Tax (CGT): From April 2024, the higher CGT rate on the sale of second and additional homes drops from 28 per cent to 24 per cent. This move means you might need to reassess your property investment and disposal strategies.
• Stamp Duty Land Tax (SDLT): The Government is scrapping Multiple Dwellings Relief starting 1 June 2024. If you’re buying multiple properties in one go, you may need to rethink your strategy.
• VAT registration threshold: Rising from £85,000 to £90,000 in April 2024, the new threshold offers a slight reprieve for small businesses. It’s crucial to understand when you must now register for VAT.

Consulting with your accountant is the best way to navigate these changes effectively.

What do these changes mean for you?

For the self-employed, the significant decrease in Class 4 NICs from nine per cent to six per cent, coupled with the abolition of Class 2 NICs for those earning over £12,570 will simplify your tax-paying process, potentially reducing your overall tax liability and allow for a better allocation of funds towards business growth, savings, or personal investment.

The abolition of Class 2 NICs, while streamlining your tax contributions, may mean that the self-employed need to make voluntary NICs to be eligible for crucial state benefits.

The VAT registration threshold increase to £90,000 has the potential to significantly benefit SMEs, likely delaying the requirement for VAT registration for many.

This change could positively affect your cash flow and simplify compliance efforts in the short term.

To fully understand the impact, you must review your business’s current and projected turnover, ensuring you remain compliant with VAT registration requirements at the new threshold.

Having said this, it is sometimes worth registering for VAT early to simplify your pricing structure and have access to the Flat Rate Scheme which gives you clear visibility of your VAT liabilities.

The abolition of Multiple Dwellings Relief in June 2024 requires a strategic shift for those investing in property.

With this relief gone, it becomes more costly to acquire multiple properties in a single transaction and you’ll need to explore alternative tax-efficient investment strategies, perhaps focusing on sectors or assets not affected by this change, such as commercial properties or investments that qualify for other forms of tax relief.

The Government is also promoting tax reliefs for investments in digital and green technologies, aiming to foster innovation and environmentally sustainable business practices.

These incentives, like Enhanced Capital Allowances, could offer considerable savings and should encourage investment in qualifying technology and green energy projects, including solar panels, wind turbines, and energy-efficient equipment.

For higher-rate taxpayers dealing with the sale of second and additional homes, the decrease in the CGT rate from 28 per cent to 24 per cent offers a more favourable tax environment for disposing of residential properties.

This change suggests a window of opportunity for tax-efficient disposals and requires a review of your timing and strategy to maximise benefits.

Looking further ahead, the reform targeting non-UK domiciled individuals, transitioning to a residence-based tax system from April 2025, brings increased responsibility for those affected.

If you are a non-dom residing in the UK for over four years, you’ll face heightened tax obligations on your global income and gains.

This tax year might be an opportune moment to carefully review your residency status and potentially restructure your financial affairs to mitigate the impact of these changes.

With taxes undergoing considerable changes in the 2024/25 tax year, it is going to be crucial to actively review and adapt your financial and tax planning strategies.

Engaging with a tax professional is the best way to receive customised advice that helps you navigate the complexities of the tax system effectively, ensuring you leverage every available relief and adjustment to optimise your financial position.

If you require further information on your new tax liabilities, please contact one of our team. 

The introduction of Making Tax Digital for Income Tax Self-Assessment (MTD for ITSA) is going to create some upheaval within the SME sector.

No doubt, some of you are already using MTD-compliant software to file your taxes or your accountant is doing it for you.

However, if you are yet to make this change, you should be aware that this will soon become the standard for ITSA.

It is best, therefore, to make the necessary changes to your processes now, rather than having to scramble to remain compliant when MTD for ITSA comes in.

What is MTD for ITSA?

Commencing April 2026, MTD for ITSA will mandate landlords and self-employed individuals, including partnerships, with annual business or property income over £50,000 to submit quarterly updates to HM Revenue & Customs (HMRC).

This threshold will extend to those with income over £30,000 from April 2027.

The initiative is part of the Government’s broader strategy to digitise the tax system, aiming to make tax administration more efficient, effective, and easier for taxpayers to get their tax payments right.

Impact on unincorporated businesses

Limited companies are already familiar with digital reporting through the Corporation Tax digitalisation and the Making Tax Digital for VAT regimes but unincorporated businesses, like sole traders and partnerships, will need to readjust the way they file taxes.

Traditionally reliant on annual Self-Assessment tax returns, these businesses must now transition to a digital-first approach, maintaining digital records and submitting income and expense updates to HMRC every quarter.

This move necessitates a re-evaluation of current bookkeeping practices and possibly an investment in new software or training to meet the MTD requirements.

You may need to look into your:

• Software compatibility: One of the first steps is to ensure that your business’s accounting software is MTD-compatible. This software will be crucial in compiling the necessary financial information and facilitating direct communication with HMRC’s systems. Alternatively, you could outsource this to a qualified accountancy professional to avoid the stress and hassle of doing it yourself.
• Record-keeping: Digital record-keeping becomes mandatory under MTD for ITSA. Businesses must ensure that their financial transactions are recorded digitally, providing a real-time, accurate reflection of their financial position.
• Advisory support: Engaging with an accountant or bookkeeper who is well-versed in MTD regulations can provide invaluable guidance. They can assist in software selection, setup, and ensuring that your quarterly updates are accurate and timely.
• Financial planning: With the introduction of quarterly updates, businesses will have a clearer, ongoing view of their tax liabilities. This information can be instrumental in financial planning, helping businesses manage cash flow more effectively and plan for tax payments.

In short, while the impact on unincorporated businesses is likely to be significant, we believe that with proper planning and a proactive approach, this could be beneficial to you and your business.

How to prepare for the transition

Preparation is key to a seamless transition to MTD for ITSA.

You should start by assessing your current systems and processes and identifying any gaps in digital record-keeping and reporting capabilities.

The next step involves selecting suitable MTD-compatible software, considering factors such as functionality, ease of use, and integration with existing systems.

Finally, businesses should consider undertaking training for staff to ensure they are comfortable with the new processes and software.

Alternatively, you could outsource these processes to ensure that your financial information is correct and that you remain compliant with the new legislation.

Again, an accountant can be an invaluable asset when it comes to MTD for ITSA, and we can give you the advice and guidance your business needs to grow and thrive.

For more information, please get in touch with us.

In a significant development for the hospitality industry, the Employment (Allocation of Tips) Act 2023 (the Act), which received Royal Assent on May 2, 2023, is set to revolutionize tipping payment practices across the UK.

Due to come into force on 1 July 2024, and affecting approximately two million workers in the sector, this new Act presents substantial implications for employers’ cash flow and payroll processes.

Understanding the Act

The Act helps to delineate tips or gratuities as voluntary payments made by customers, distinguishing them from service charges, which are typically added to the bill by default.

Under the new legislation, employers are mandated to distribute all qualifying tips to workers fairly and without undue deductions, save for necessary tax withholdings.

Ahead of the change in legislation, the Government has published a draft Code of Practice to complement the Act (the Code).

Whilst still under consultation, this Code aims to clarify the criteria for achieving a distribution of tips that is both fair and transparent, as mandated by the Act, ensuring that workers fully understand their entitlements:

• Scope: This section clarifies the Act’s coverage, including the definition of “tips” and the acceptable methods of payment.
• Fairness: At the heart of the Act lies the principle of fairness. This part of the Code offers guidance on factors employers might consider when allocating tips, such as the performance of individual employees and the intentions of customers.
• Transparency: It mandates that employers must maintain and make accessible to their employees a documented policy on the distribution of tips. This policy should detail the allocation and distribution process for tips, alongside the measures the employer will adopt to adhere to the Act.
• Addressing Problems: This ensures that employers establish equitable procedures for resolving disputes related to tip distribution. These procedures should apply not just to direct employees but to agency workers as well.
• Glossary of Terms: To aid understanding, this section provides clear definitions for essential terms used throughout the Code, including “agency worker” and “basic pay.”

Historically, the legal regime around tips and service charges has varied, with different rules applying to cash tips, tips paid into a communal staff box, and those paid by card.

The introduction of the Act necessitates a more uniform approach, ensuring tips are distributed fairly among workers, managed transparently through a tronc system under an independent troncmaster, and reported accurately to HM Revenue & Customs (HMRC).

The implications for the hospitality industry

This legislative shift aims to rectify longstanding controversies around the retention of tips by employers, spotlighted by media scrutiny and public outcry.

The Act is intended to deliver fairness in the distribution of tips, especially in light of the financial strains imposed by the pandemic and the evolving cashless economy, where the majority of tips now transact via card payments.

The Act introduces several key requirements:

• All tips must be passed on to employees, barring a few specific exceptions.
• Companies must disclose their tipping policies to their employees.
• Employers are obligated to maintain accurate records of how tips are distributed among staff.

Under the Act, employees will gain the right to request a copy of their tip distribution records. This provision is designed to empower workers to assert their rights through employment tribunals, if necessary.

For hospitality sector employers, adapting to these changes requires a strategic rethink of how tips and service charges are handled, including the potential creation of a compliant tronc scheme.

Businesses also need to consider the immediate cash flow consequences of these changes.

The Act’s introduction at a time of economic uncertainty poses additional challenges, necessitating adjustments in operational practices to ensure compliance while maintaining financial viability.

Employers must now develop written policies outlining the fair and transparent distribution of tips, keep detailed records for three years, and adapt to the inclusion of agency workers under the Act’s provisions.

Non-compliance carries the risk of claims in Employment Tribunals, with potential financial penalties.

As businesses navigate these changes, the support and expertise of knowledgeable professional advisors become essential. If you require guidance, please speak to us.

The initial provisions of the Economic Crime and Corporate Transparency Act 2023 came into effect on 4 March 2024.

These updates mandate that from 5 March 2024, every company must, when submitting their next Confirmation Statement (form CS01):

1. Provide a registered email address for communications – Companies House will utilise this email for correspondence with the company, though it won’t appear on the public record; and
2. Verify that the company’s planned future operations are lawful.

If we are already managing your Confirmation Statement submissions, you can be confident that we will submit your forthcoming statement adhering to these updates.

Should you handle your Confirmation Statement filings independently, note that you will need to include a registered email address and confirm the company’s commitment to lawful activities before you can finalise your submission.

Further measures effective from 4 March 2024 include:

• A ban on using PO Box addresses as a company’s Registered Office address;
• Enhanced authority for querying information submitted to Companies House and demanding supporting evidence;
• More rigorous checks on company names before the registration of new companies;
• A requirement for all companies to affirm their lawful purpose upon formation and to verify that their intended future operations will be lawful with each subsequent Confirmation Statement;
• The option to mark the register when details seem ambiguous or misleading;
• Initiatives to cleanse the register, employing data matching to identify and eliminate incorrect data; and
• The sharing of data with other Government departments and law enforcement bodies.

Companies House changes beyond 4 March

Additional features of the Economic Crime and Corporate Transparency Act 2023, will be introduced in the coming months and beyond, including:

Companies House fee adjustments

You must also brace for a rise in fees from 1 May 2024. Companies House plans to revise its fee structure to accommodate new expenses and ensure the coverage of existing costs.

Identity verification

A key change will be the requirement for individuals involved in setting up, running, owning, or controlling a company to undergo identity verification.

To facilitate this, Companies House will introduce a service allowing you to verify your identity directly with them or through an authorised agent.

Changes to Accounts Filing

In line with the trend towards digitisation, Companies House is moving towards mandatory electronic filing of accounts, highlighting the push towards software usage.

This transition to online filing will occur over two to three years, though the exact timeline remains to be confirmed. Changes to filing options for small company accounts are also planned.

Limited Partnership Reforms

If you operate a limited partnership, prepare for procedural adjustments. Enhancements aimed at boosting transparency and accountability will require limited partnerships to submit information through authorised agents and provide additional details to Companies House.

Enhancing company ownership transparency

To further transparency efforts, you will need to supply additional information about shareholders in registers.

This includes the full names of individuals or corporate entities and their companies and a one-time comprehensive list of shareholders

Additionally, there will be new restrictions on the use of corporate directors, with specific details provided.

We will keep you updated on each new development. However, if you have any enquiries, do not hesitate to contact us.

If you are a business owner and work or run your business from home, then you may be entitled to reclaim VAT on certain costs.

In practice, this means that you can reduce the amount of VAT you have to pay on business income against the amount of VAT you have had to pay on services rendered to your business.

What can I claim?

Legislation around VAT claims for business owners recognises that you may incur a range of different costs in the course of running your business.

You can claim some of the cost of working from home as a business owner on plant and machinery and other assets needed for your home office, including:

• A proportional percentage of your utility costs
• Office furniture such as a desk or desk chair
• Certain redecoration costs
• Security costs for sensitive documents
• Office cleaning costs.

You will need to report any home working expenses that you choose to reclaim VAT on through your VAT return.

Is there anything I can’t claim for?

In general, you can claim VAT costs on anything that you use for running your business from home.

However, some costs are more obviously business-related than others. Costs, such as office furnishings, are related to your operations, but what about something like a phone bill?

This is simple if you have a separate work phone. You can claim 100 per cent of this cost. But if you use the same phone for business and leisure, you will need to work out what proportion of usage is business-related.

For example, if your bill is £40 per month and half of the calls and messages you send are for business purposes, you may be able to reclaim VAT on £20 of the total bill.

Remember to keep a record, including VAT receipts or invoices, of how much you have had to pay in relevant VAT costs as you may need to defend your decision to claim for certain items.

You should also consider whether a claim can be considered ‘fair and reasonable’.

For example, you should only claim for a reasonable proportion of costs such as heating or electricity.

One way of working this out could be the percentage of time in the day you spend in your home office, or the percentage of the floor plan it occupies.

With working from home becoming more common, there are likely to be further debates over what constitutes reasonable costs for VAT claims.

We advise that business owners keep an eye on regulations relating to reclaiming VAT and make sure that they keep accurate records in case any claims are challenged.

Contact us for further information or advice.