Self-employed taxpayers due to make a payment on account can automatically defer the payment until 31 January 2021, it has been confirmed.Continue reading
Out of the doom and gloom of the pandemic, new businesses are sprouting up – many built around successful concepts launched and developed during lockdown.
Launching a business can be daunting and risky, to help, we have prepared seven tips that all start-ups can follow:
You must undertake thorough market research to ensure your idea will work and is competitive. This will help you to identify customers and competitors, analyse potential markets and consider the costs associated with the business.
Having conducted thorough research, entrepreneurs should be able to calculate their pricing strategy and begin to think about the development of their business in the future.
Comprehensive market research is also an important step in preparing your business plan and is likely to be essential if you want to raise capital at any point.
Assess your finances
To launch a business, you will need sufficient capital to carry out your plans. Finance is often one of the biggest barriers to launching a business and in the current climate lenders and investors are likely to be more risk-averse, which may make sourcing funding more challenging.
The finance you require depends entirely on the business you are launching. Some companies are relatively low-cost to set up and run, while others are resource and cost-intensive.
If you have properly identified the costs of setting up your company then you should be able to break the necessary investments up into three distinct categories.
Essential costs – Your business cannot operate without these.
Useful investments – These make your business more efficient but would not prevent your business from operating.
Additional investments – These offer small benefits to the business but are by no means essential or necessary.
Create a business plan
Start-ups need to have a comprehensive business plan that acts as the blueprint for their company.
If you have done sufficient market research and worked out your financial situation, then you should be in a strong place to tailor your plan to your needs.
A business plan is often a requirement for any form of financing you may be seeking and will help keep you on track.
Choose a business structure
You’ll need to decide if you’re going to start a business as a sole trader, a partnership or as a limited company.
Depending on which model you choose could lead to different tax and governance issues for you to consider.
Many businesses prefer the protection of operating as a limited company, as the liability is only tied to the amount you have invested within the business and not directly to the founders.
Establish and monitor KPIs
If you do not monitor key performance indicators it can be difficult to assess how well your business is doing. The most important growth metrics for young businesses tend to be:
Gross Profit Margin – The amount you receive once you have covered the cost of goods or services sold.
Customer Acquisition Cost – The price you pay to acquire a new customer.
Spend Rate – The speed at which the company spends its capital.
By monitoring data around each of these KPIs, you should be able to spot weaknesses quicker and also identify areas of growth in which to invest more resources.
Many start-ups find that investing in cloud accounting technology helps them to monitor and assess their performance, especially if they collaborate closely with their accountant.
Entrepreneurs are encouraged to avoid premature scaling by carefully monitoring their spending, minimising debts and keeping overheads to a minimum.
Overspending before establishing a market for your product or service is believed to be one of the key reasons for most premature business failures.
If you are carefully monitoring your KPIs and have a robust business plan in place you should be able to scale progressively.
New business owners do not have to go it alone. One of the first and most important things they can do is seek help from professional advisers, such as a trusted accountant.
A little invested early on in expertise can go a long way to helping a company survive and thrive.
The Finance Bill 2020 has now reached the report stage in Parliament. In response to the impact that COVID-19 has had on the country, the Government has confirmed several temporary tax concessions.
To help you make sense of these changes we have prepared a useful summary:
Taxation of Coronavirus support payments
The Government has confirmed that grants to help businesses, employers and individuals affected by the Coronavirus crisis are taxable income. This includes payments made under the:
- Coronavirus Job Retention Scheme (CJRS)
- Self-Employment Income Support Scheme (SEISS)
- Coronavirus Statutory Sick Pay Rebate Scheme (CSSPRS)
- Business supporting grant schemes.
The legislation ensures that grants made under the schemes are within the scope of Income Tax and Corporation Tax. However, whether any tax is paid will depend on the overall tax position in each case.
The amendment to the Bill also provides HM Revenue & Customs (HMRC) with additional compliance and enforcement powers in relation to the CJRS and SEISS.
Protected pension age of members employed as a result of Coronavirus
The tax regime applicable to registered pension schemes will be amended to ensure that those who have retired but return to employment to support the Coronavirus response do not suffer adverse tax impacts.
This amendment ensures that individuals in this position do not lose their ability to receive pension benefits at an age below the current normal minimum pension age. The changes are retrospective to 1 March 2020.
Modifications of the statutory residence test in connection with the Coronavirus
The statutory residence test will be modified so that a day on which an individual is required to be in the UK to undertake work specifically related to coronavirus will be disregarded for the purposes of determining whether they are tax resident in the UK in the 2019-20 or 2020-21 tax years.
Future Fund – EIS and SEIS relief
Through its latest amendments to the Bill, the Government has confirmed that investors in a company who support the company using a Future Fund convertible loan note will not lose relief on any previous EIS or SEIS investments when that loan is redeemed, repaid or converted.
If any of these actions occur in the relevant holding period for the shares, they may be treated as the passing of value from the company to the investor.
Interest and surcharges on liabilities deferred due to the Coronavirus pandemic
Section 135 Finance Act 2008 provides that no interest or surcharge applies to payments due to HM Revenue & Customs (HMRC) deferred as a result of a disaster or emergency specified by HM Treasury (HMT).
A new measure outlined in the Bill enables HMRC to disapply interest and surcharges which would otherwise arise in relation to the specified deferrals that have been offered during the pandemic.
The disposal of interest from a main residence in a three-year period
Through amendments to the Bill the Government will introduce an extension to the three-year time limit in which to dispose of a previous main residence, and so qualify for a refund of the three per cent higher rate tax, where exceptional circumstances prevent the sale of a previous main residence within that period.
This temporary change only applies where the three-year time limit to sell the previous main residence ended on or after 1 January 2020.
Enterprise management incentives – disqualifying events
The Government will introduce a time-limited exception for participants of enterprise management incentives (EMI) share schemes who are not able to meet the necessary working time commitment due to COVID-19.
The modifications affect all matters from 19 March 2020 and will come to an end on 5 April 2021. This includes a provision for HM Treasury to extend the exception for a further 12 months by regulations if the Coronavirus pandemic has not ended by April 2021.
The Government has announced that the Future Fund – the support scheme for early-stage, high-growth firms – will be expanded so that more firms can benefit.
The scheme, which was announced by the Chancellor in April, offers Government loans ranging from £125,000 up to £5 million to high-growth start-ups that can attract equal match funding from private investors.
Under the original terms of the scheme, businesses were required to be UK-based. However, this has proven to be difficult for those that have participated in highly selective accelerator programmes that require them to have parent companies outside the UK.
The change means that businesses that have participated in accelerator programmes, such as TechStars or Y-Combinator, can now access the scheme if they have a parent company outside the UK in circumstances where at least half their employees are UK-based or at least half of revenues are from UK sales.
At the same time, HM Treasury has revealed that more funding has been made available for the scheme than the £250 million originally planned, with a total of around £320 million now invested.
Chancellor, Rishi Sunak, said: “Our start-ups and innovative firms are one of our great economic strengths. As we begin to bounce back from Coronavirus, they will help drive our recovery and create new jobs.
“This change means that those start-ups who have strived to be the very best, and taken opportunities to grow their business, will be able to benefit from our world-leading Future Fund.”
Business Secretary, Alok Sharma, added: “As we restart our economy, it is crucial that our innovators and risk-takers get all the support they need to flourish.
“Our decision to relax this rule recognises the importance of many of the UK’s most cutting-edge start-ups as we bounce back from Coronavirus.”
A report commissioned by HM Revenue & Customs (HMRC) to find out why 16 per cent of businesses have failed to comply with Making Tax Digital (MTD) for VAT more than a year after the rules came into effect has been published.
The IPSO Mori research found that a “lack of knowledge, information and skills were frequent barriers to MTD compliance” but notes that “the vast majority of businesses involved in the research were keen to comply with MTD for VAT”.
Since April 2019, most businesses with a taxable turnover of £85,000 or more have been required to keep digital records and make quarterly submissions using HMRC compatible software.
The researchers conducted 44 telephone interviews with businesses that were not yet MTD-compliant to find out the reasons why have not complied and to find out how businesses in this position can be encouraged to become compliant.
They found that “overall businesses lacked a clear understanding of [the] purpose and rationale driving MTD for VAT and were unaware of any potential benefits to them or HMRC”.
The report goes on to recommend that “having a better understanding and awareness of the drive and reasons behind MTD for VAT has the potential to increase motivation amongst non-compliant businesses to sign up to and comply with MTD”.
The language used by HMRC around MTD for VAT also attracted criticism from the researchers, who said that the use of words like ‘might’ or ‘may’ “does not resonate with businesses”. Instead, they say “the use of language across all messages and communications needs to be more direct and definitive to avoid confusion and mitigate the risk of businesses not taking the messages seriously enough or ignoring the messages altogether.”
A range of new corporate insolvency rules have come into effect after the Corporate Insolvency and Governance Act 2020 (the Act) received Royal Assent.
The Act contains a combination of permanent reforms to the corporate insolvency rules and short-term governance measures to deal with the fall-out from the Coronavirus crisis.
The new legislation was fast-tracked through Parliament amid fears that a large number of businesses will be at risk of insolvency as a consequence of the crisis.
One of the most eye-catching provisions in the Act is the introduction of a new free-standing moratorium. The free-standing moratorium will provide an extendable 20 days’ breathing space for companies from their creditors while they implement rescue measures, including restructuring and seeking new investment.
Under these provisions, the existing directors would be able to continue running the company themselves, overseen by a ‘monitor’ in the form of a licensed insolvency practitioner.
Companies are generally eligible for a free-standing moratorium unless one of a limited set of exclusions applies.
To enter a free-standing moratorium, directors must confirm that the company either is or is likely to be unable to pay its debts.
The monitor must also make a statement confirming that a moratorium would be likely to bring about the rescue of a company as a going concern.
Crucially, suppliers must still be paid during a moratorium and failing to do so can lead to the monitor cancelling the contract or ending the moratorium.
The temporary measures in the Act have been in place for some time and are provided for retrospectively.
This includes the temporary relief from winding-up petitions until 30 September 2020 and relief from wrongful trading measures.
Innovative businesses, both large and small, are hungry for funding to assist them as they emerge from lockdown and begin their recovery.
While the Government has offered several loans and grants to COVID-stricken businesses, there is an existing tax relief that remains largely unclaimed.
Data from HM Revenue & Customs (HMRC) analysed by tax reclaim specialists Catax suggests that more than £84 billion of Research and Development (R&D) tax credits have not been claimed, while it is estimated that around 80 per cent of eligible companies have either not claimed or have under-claimed.
This tax relief allows SMEs to claim up to 33p for every £1 spent on qualifying R&D activities, while large companies using the Research and Development Expenditure Credit (RDEC) can claim up to 10p for every £1 spent on qualifying R&D activities.
Claims can even be made against projects that result in a loss or previous R&D activities in the last two years.
To benefit from R&D tax credits, you must:
- Be a UK limited company that is subject to Corporation Tax.
- Have completed qualifying research and development activities.
- Have spent money on an eligible project.
- Have incurred qualifying expenditure.
Businesses can claim R&D tax credits where they develop a new product, service or process or if they enhance an existing one.
When submitting an R&D tax credit claim, there is a wide variety of expenditure that can be covered including employment costs, subcontracted R&D work, software and consumable items used in the development.
When you deduct R&D expenditure from your taxable profits or add it to your losses you can benefit from a Corporation Tax reduction if you are profit-making, a cash credit if you are loss-making or a combination of the two.
Why aren’t more businesses claiming R&D tax credits?
Considering the availability of funding via this tax relief it may seem odd that more firms don’t make claims. The reasons why many businesses don’t utilise tax credits are often complex, but a key issue is that they do not believe they are eligible.
There is a common misconception that these tax credits are only available to firms in the most innovative of sectors such as IT and engineering. However, claims have been processed successfully for a wide range of sectors.
Think you might be eligible for a claim?
If you believe you might be eligible for R&D tax credits it is highly recommended that you speak to specialists who can assess and assist you with your claim.
During his Plan for Jobs announcement, the Chancellor Rishi Sunak announced a temporary eight-month cut in Stamp Duty Land Tax (SDLT) that ensures there is not a charge on ‘any’ residential property transactions with a value under £500,000.
The Government has achieved this by immediately lifting the lower SDLT nil rate band from £125,000 to £500,000, which it claims will mean that nine out of 10 main home buyers will not pay SDLT until the thresholds revert in March 2021 to their previous levels.
In its latest guidance, the Government has confirmed that the SDLT holiday only relates to residential property transactions up to £500,000 – above which the original rates continue to apply.
The guidance also confirms that the additional homes surcharge of three per cent will continue to be charged.
However, this applies across the newly-outlined threshold meaning that those subject to the surcharge will now pay three per cent on the first £500,000, rather than the first £125,000, which represents a significant discount on the previous SDLT rate.
Companies also benefit from this increase to the threshold, including businesses that buy residential property of any value above £500,000 where they meet the relief conditions from the corporate 15 per cent SDLT charge.
The nil rate band which applies to the ‘net present value’ of any rents payable for residential property on new leasehold sales and transfers is also increased to £500,000.
To help you visualise what this change means, we have prepared a helpful table below:
SDLT Holiday – First Time Buyer Rates
SDLT Holiday – Non-First Time Buyer Rates (no additional properties)
SDLT Holiday – Additional Homes Buyer Rates
£0 – £500,000 – 0%
£0 – £500,000 – 0%
£0 – £500,000 – 3%
£500,001 –£925,000 – 5%
£500,001 –£925,000 – 5%
£500,001 –£925,000 – 8%
£925,001 – £1.5 million – 10%
£925,001 – £1.5 million – 10%
£925,001 – £1.5 million – 13%
£1.5m+ – 12%
£1.5m+ – 12%
£1.5m+ – 15%
On 1 April 2021, the reduced rates shown in the above tables will revert to the normal rates of SDLT that were in place prior to 8 July 2020.
HM Revenue & Customs (HMRC) has revealed that a 57-year-old man from Solihull in the West Midlands was arrested on 8 July on suspicion of a £495,000 furlough fraud relating to claims from the Coronavirus Job Retention Scheme (CJRS).
HMRC says he is the first person to have been arrested in connection with fraudulent claims from the scheme.
As of 12 July, more than £28.7 billion had been claimed from the scheme by 1.2 million employers in respect of 9.4 million jobs.
HMRC says that the CJRS has four lines of defence against fraud, which it describes as:
- Employees have to have been on a payroll on or before 19 March – preventing the use of fake employees
- Claims are only accepted from employers known – and authenticated – by HMRC
- All claims are assessed by a specialist team within a 72-hour window
- Proportionate and reasonable interventions with customers after money has been paid.
Richard Las, the Acting Director at HMRC’s Fraud Investigation Service, said: “The CJRS is part of the collective national effort to protect jobs. The vast majority of employers will have used the CJRS responsibly, but we will not hesitate to act on reports of abuse of the scheme.
“This is taxpayers’ money and any claim that proves to be fraudulent limits our ability to support people and deprives public services of essential funding.”
He called on people to report suspected furlough fraud via HMRC’s online fraud reporting page here.
Those facing financial difficulty as a result of COVID-19 are being reminded that they can defer their second 2019/20 self-assessment payment on account, normally due at the end of July, until 31 January 2021.
To benefit from this deferral, taxpayers do not need to contact HMRC. Simply by not paying their tax bill due by 31 July 2020 they will opt into the deferral scheme.
Therefore, the only action taxpayers may need to take is to cancel their direct debit if they have one set up for their payments on account.
Where no payment is received, HMRC will update its systems to show the payment as deferred. HMRC has confirmed no interest or penalties will be incurred, providing the outstanding amount deferred is paid in full by 31 January 2021.
HMRC is reminding those using the deferral that not only will the amount be due on 31 January 2021, but they will also need to pay any 2019/20 balancing payment and first 2020/21 payment on account at the same time.
Those who believe they may struggle to pay these three separate payments in full in one go can contact HMRC about paying these combined amounts in instalments.
Those wishing to make a payment as normal have been advised that they can do so as normal as well if they do not believe they require the deferral.