With current economic difficulties, it is crucial to ensure that you have a detailed business plan. As inflation rises, you should consider how to modify your business.
Author Archive: Muhammad Zia
Chancellor downplays tax rises in Autumn Statement, but freezes on allowances will hit taxpayers, says Rotherham Taylor Limited
Preston-based accountancy firm Rotherham Taylor Limited says the decision to freeze and reduce personal tax reliefs, thresholds and allowances in the Autumn Statement will have a significant impact on many taxpayers.
Faced with the challenge of inflation, rising energy costs and higher interest rates, as well as an economy weakened in recent months by world events and the actions of his predecessor, the Chancellor outlined his “plan for stability”.
Having reviewed the Government’s new fiscal policies, Rotherham Taylor Limited says that while it has the potential to steady the national finances, it will come at a cost.
The Chancellor was keen to point out that his latest measures avoided increases to tax rates, but the reality of his speech means that tax bills for many business owners and workers will increase over the next few years.
A big element of this increase was his decision to extend the freeze on personal allowances, such as the Nil-Rate Band for Inheritance Tax and the Personal Allowance for Income Tax, until 2028.
Rebecca Bradshaw, Director at Rotherham Taylor Limited, said: “These allowances were already frozen until 2026, but the decision to further delay increases means that inflation is likely to drag more taxpayers into higher tax bands as their wages rise.
“To many observers, the Autumn Statement may have seemed quite fair and balanced, but there are certain groups – particularly high earners – who will need to think carefully about how these measures affect them.”
Alongside the freeze to allowances, the Chancellor also announced reductions to thresholds and exemptions for Dividend Tax and Capital Gains Tax in the next two tax years, and a cut to the Additional Rate Income Tax threshold from £150,000 to £125,140 in April 2023.
“The impact of these changes and the inflationary pressure on wages means that while the rate at which most taxes are paid hasn’t gone up, many more people will still be paying more tax,” added Rebecca.
When it came to the finances of businesses, Rotherham Taylor Limited said that the £13.6 billion of support to help with the transition to a new business rates system over the next five years was welcomed and would help those hit hardest in recent years, including bars, restaurants and retailers on the High Street.
However, further changes to the SME R&D tax system would be less welcome, especially the reduction to the SME scheme additional tax deduction, which will fall from 130% to 86% for expenditure on or after 1 April 2023.
“The Government has been concerned about abuse in this tax system for some time, but it seems somewhat unfair to penalise those who have acted within the existing rules,” said Rebecca.
“However, the real impact of this change may not be as great as feared due to the rise in Corporation Tax from April, which may mean that the amount of relief businesses receive won’t change significantly – especially for those paying the top 25 per cent rate of tax.”
Rotherham Taylor Limited said that subtle but important changes in the Autumn Statement required careful consideration and professional advice.
To find out more about Rotherham Taylor Limited’s wide range of accounting, tax and business advisory services, please visit www.rtaccoutants.co.uk.
Autumn Statement 2022
The message from the Chancellor, Jeremy Hunt, in the days before he rose to the despatch box in the House of Commons to deliver the Autumn Statement was clear; he would be outlining billions of pounds of tax rises and spending cuts.
These spending cuts and tax rises, he said, would affect everybody and were necessary to re-establish the markets’ trust in the future health of the public finances.
What was less clear was exactly who the announcements would affect the most and how they would be impacted.
Of course, the challenges for the Chancellor extended well beyond winning the trust of the markets in relation to his stewardship of the public finances. He will also have been thinking about inflation, the cost-of-living crisis, interest rates and promoting economic growth, not to mention the political optics.
These are competing but intricately related pressures; action to address the cost of living carries with it the risk of further inflation; action to reassure the markets brings the twin dangers of not addressing the cost-of-living crisis or promoting economic growth. Different economic considerations do not exist in a vacuum.
Further underscoring the scale of the challenge, just a day earlier, the Office for National Statistics announced that inflation had reached a 41-year high of 11.1 per cent.
This followed warnings from the Bank of England’s Monetary Policy Committee, as it increased interest rates to three per cent in early November, that the UK faces a “prolonged” recession.
The only real questions concerned the detail of what the Chancellor would do. Which taxes would be affected? Will they rise now or in the future? Would tax rates rise? Would the focus be on freezing thresholds? How much pain would there be? Who would bear the brunt?
And, most importantly, would it work?
Addressing the Office for Budget Responsibility’s (OBR) economic forecasts, the Chancellor said that the economy is now in recession and is expected to shrink by 1.4 per cent in 2023/24 before growing in 2024/25.
Meanwhile, he said unemployment is expected to rise to 4.9 per cent in 2024, up from 3.6 per cent now, before falling to 4.1 per cent the next year.
Borrowing this year stands at 7.1 per cent of GDP, according to the OBR. Debt as a percentage of GDP is expected to peak at 97.6 per cent in 2025/26 before falling to 97.3 per cent in 2027/28.
Beginning with personal tax, the Chancellor said that the threshold for the additional 45p rate of Income Tax will fall from £150,000 to £125,140 from April 2023.
At the same time, National Insurance, Inheritance Tax and Income Tax thresholds and Allowances will be frozen at their current levels for a further two years to 2028.
He said the Dividend Tax Allowance will fall from its current level of £2,000 to £1,000 in 2023/24 and then to £500 in 2024/25.
Turning to Capital Gains Tax, the Chancellor said the current Annual Exempt Amount will fall from £12,300 to £6,000 in 2023/24 and then to £3,000 in 2024/25.
He then turned his sights to electric vehicles, saying that a road tax will apply to them from 2025.
Finally, on personal tax measures, he said that the Stamp Duty Land Tax (SDLT) cuts announced by his predecessor, Kwasi Kwarteng, in September 2022 will end on 31 March 2025 and will not be permanent.
Turning to business taxes, the Chancellor said he would reduce the enhanced deduction rate for Research & Development (R&D) Tax Relief for SMEs from 130 per cent to 86 per cent of qualifying expenditure from April 2023. The tax credit for loss-making SMEs will fall from 14.5 per cent to 10 per cent.
On Business Rates, he said that the revaluation exercise will go ahead as planned in April 2023. £13.6 billion of support will be provided over five years to help businesses transition to the new bills.
He said the Business Rates multipliers will be frozen in 2023/24 and there will be extended and increased relief for businesses in the retail, hospitality and leisure sectors. That relief will increase to 75 per cent.
The National Insurance Secondary Threshold will remain at £9,100 until April 2028.
National Living Wage, Energy and Pensions
Turning to the National Living Wage (NLW) and National Minimum Wage (NMW), the Chancellor announced he would increase the rates for those aged 23 and over by 9.7 per cent to £10.42 an hour from 1 April 2023.
Meanwhile, the rate of NMW for those aged 21 and 22, 18 to 20, and 16 and 17 will rise to £10.18, £7.49, and £5.28 an hour respectively. The apprentice rate will also rise to £5.28 an hour.
Moving to address energy costs, the Chancellor said the current Energy Price Guarantee (EPG) will remain in place until April 2023, limiting typical energy bills to £2,500 per year. From April 2023, the EPG will rise to £3,000 for the typical household.
Concluding his speech with pensions, the Chancellor said that the State Pension Triple Lock will remain in place, meaning the State Pension will rise in April 2023 in line with September 2022’s rate of CPI – 10.1 per cent.
The economy is a complex and dynamic system, and there are limits to what can be known about how it will respond to any particular intervention – it is the sum of the ever-changing actions of millions of individuals.
What is more, the Chancellor only has his hands on some of the levers of economic influence, not all of them, and moving one of the levers he controls can stop him from moving another.
Mr Hunt will be hoping he has pulled the right levers by the right amount and that the factors out of his control move in the direction he wants them to.
For businesses and business owners, the impact of the changes is likely to vary considerably and a renewed focus on tax planning is likely to be needed.
Link: Autumn Statement 2022
Accountants helping businesses make savings, says survey
Accountants are saving businesses time and money as well as easing the pressure of rising inflation, according to a new survey.
Are you missing out on tax-free corporate investment allowances?
When it comes to running a business, you must keep up with the ever-changing industry you are a part of.
Simplifying filing obligations
Are you aware of the change to filing accounts at Companies House? If not, there are penalties for mistakes, so it is important to ensure that you are up to date with the latest information on these changes.
The most common mistakes people make when dealing with probate
The probate process isn’t easy, especially when you are trying to cope with the loss of a loved one.
If you have never applied for probate before, you might be overwhelmed by the steps involved, which can result in making mistakes.
To avoid wasting time, you need to make sure you get things right the first time around.
Our experts have outlined the key things to watch out for:
Failing to value the estate correctly
The first step in the process is to value the estate. You need to get this right to prevent issues further down the line, such as paying an incorrect amount of Inheritance Tax (IHT).
A common misconception is that the estate comprises of only money and property. But any possessions that were owned by the deceased also contribute to the estate.
If the individual gave away any gifts in the seven years before their death, this must also be added to the value of the estate.
Another detail that is often missed is any debts that the deceased owed. These must be accounted for in the valuation.
At Rotherham Taylor, we prepare a valuation like a balance sheet, to ensure we cover everything the first time around.
Miscalculating Inheritance Tax
Even if you have valued the estate correctly, there is still room for error when calculating whether you owe IHT.
You don’t want to be paying IHT if you don’t have to. But if you do owe IHT, underpaying can lead to penalties.
Knowing whether IHT is due is not as easy as it may seem, particularly if the Residence Nil Rate Band is applied.
If the deceased owned a business, or a share of a business, you might also be entitled to Business Relief for Inheritance Tax.
You could be entitled to receive Business Relief of either 50 per cent or 100 per cent on some of the estate’s business assets.
To give you the peace of mind that you need, it is best to consult a tax expert at this stage.
Keeping estate funds in personal bank accounts
Whilst you might not plan on keeping the money in your bank indefinitely, you shouldn’t deposit any money from the estate into your bank account until you receive a Grant of Probate.
Once you do have the grant, it might be worth setting up an executor’s bank account for the estate’s funds.
This will make it easier to keep track of funds when liquidating the estate, such as money from a property sale.
You need to also make sure that all debts have been paid, including any Income Tax and Capital Gains Tax owed to HMRC.
How can Rotherham Taylor help?
We can guide you through the probate process and make sure these errors are avoided.
As one of a small number of accountancy practices in the UK to be licensed to provide probate services, we can advise on tax matters and help to obtain the Grant of Probate.
How to protect your business from inflation
Inflation has been described as paying £15 for the £10 haircut you used to get for £5 when you had hair.
It is soaring at the moment and leaves business owners facing real problems. If they increase their prices, they risk losing customers, but if they peg prices, they put their profits and potentially their business at risk.
Inflation hits just about everything, from raw materials to higher fuel and energy costs to customer confidence.
The hope is that it will be short-term, but with borrowing costs spiralling as interest rates rise, businesses should look at practical savings and decide:
- Are you paying for services you no longer use regularly?
- What measures can you adopt to cut energy bills?
- Can you achieve discounts with bulk ordering or cut costs by reducing excessive orders?
- Are you making efficient use of your staff?
Maximise technology use
Accounting and financial technology can give you instant information on sales, costs and products and allows cloud-based apps to reduce the time needed for vital but time-consuming tasks.
This can include invoicing systems that tell you what’s been paid and other apps that help you keep track of your cashflow.
Examine your products and workforce
- Can you abandon or suspend certain products which deliver weak margins? At the same time, can a best seller withstand a price increase and boost profitability?
- Are you overstaffing shifts?
- Do you have lengthy processes with unnecessary steps?
- Do you really need those temporary workers?
Stay competitive and prioritise customers
Check out the competition, both locally and nationally, to see what they are charging for similar products and services.
This can often depend on different areas of the country and levels of relative prosperity. Can less well-off consumers withstand price increases?
Make maximum use of your accountant
Accountants offer a wide range of services, including strategic advice and money-saving and revenue-boosting ideas, including:
- Advising on business strategy
- Addressing your cashflow
- Debt management and credit control.
How to keep workplace gifts tax-free this Christmas
The season of goodwill is just around the corner as Christmas approaches.
It is a time of year when employers look to reward their staff for their efforts throughout the year.
But they should be aware that certain tax, National Insurance and reporting obligations could apply.
We want to ensure that you enjoy the festive season just as much as your team, so we’ve put together our top tips to ensure that you stay on the right side of the taxman this Christmas.
What about staff parties?
According to HMRC, the total cost must not exceed £150 per head and must be for your employees and any members of their family and household who attend as guests. The total needs to include VAT and other costs, such as transport and accommodation.
All staff must also be invited. If you spend more than £150 per person, the entire amount is a ‘benefit’ and must be declared on the P11D and tax will be due.
Getting gifts right
Trivial benefits are items of value given to an employee that do not count towards taxable income or National Insurance Contributions (NICs).
To qualify, the gift must meet ALL of the following conditions:
- The gift isn’t in the terms of the employee’s contract
- It is below the value of £50
- It isn’t a performance-linked reward
- It isn’t cash or a cash voucher.
A trivial benefit in kind could include a Christmas lunch, a small Christmas present, or a gift on the day of an employee’s wedding.
If the gift does not meet all of the above criteria, it must be reported as a benefit in kind to HM Revenue & Customs (HMRC) and tax must be paid as appropriate.
What about incidental expenses?
Incidental expenses, as described by HMRC, are expenses “incurred by an employee while travelling overnight on business”.
These may include purchasing newspapers, paying for laundry or using the hotel telephone.
As long as the value of the expenses does not exceed more than £5 per night for travel within the UK and £10 per night for travel outside the UK, they do not have to be reported to HMRC.
IR35 rules – What they are and why they matter
The status of IR35 or off-payroll working has caused some confusion since the repeals to reforms put forward by former Chancellor Kwasi Kwarteng were subsequently scrapped by new Chancellor Jeremy Hunt.
IR35 is tax legislation designed to deal with a form of tax avoidance known as disguised remuneration, where individuals attempt to avoid paying the full rate of Income Tax and National Insurance Contributions (NICs), by providing their services through an intermediary, such as a Personal Service Company (PSC).
Engagers now responsible
The IR35 rules, which originally changed in April this year under the 2021 reforms in the private sector, exist to ensure that an individual providing services via a PSC, and who would have been an employee if they were providing their services directly to an end client, pay broadly the same income tax and NICs as a ‘regular’ employee would.
Under this legislation, all medium and large-sized private sector end clients are responsible for deciding a contractor’s employment status, as opposed to previous rules, where freelancers decided their employment status themselves.
The official guidelines for businesses affected by these rules are as follows:
- Pass your determination and the reasons for the determination to the worker and the person or organisation you contract with
- Make sure you keep detailed records of your employment status determinations, including the reasons for the determination and fees paid
- Have processes in place to deal with any disagreements that arise from your determination.
If the determination results in a contractor being within the IR35 rules, it is your responsibility to deduct and pay tax and National Insurance contributions to HM Revenue & Customs via PAYE.
Where an employer fails to correctly identify a disguised employment scheme, the worker’s tax and National Insurance Contributions become their responsibility.
What businesses does this apply to?
According to the Companies Act 2006, a business is defined as ‘medium’ or ‘large’ if it meets two of the following criteria:
- The company has a turnover of £10.2 million or more
- The company has a balance sheet total of £5.1 million or more
- The company has 50 employees or more.
