Starting your own business is a major achievement and you will have spent a lot of time planning this venture and hoping for success.
But navigating through the first year of this new business will be essential to achieve your goals and it can be difficult to know what you should be doing.
Last year saw a considerable rise in the number of charitable gifts left in Wills.
In fact, the total number of charitable gifts left in 2022 amounted to £21.3 billion.
So, if you are named as the Executor of a Will and a charitable gift is included, you might be wondering how this impacts the estate and the amount of Inheritance Tax (IHT) due.
Do charitable gifts contribute to the value of the estate?
In ordinary cases, gifts made within seven years of the death will be included in the estate’s value.
But gifts given to charities following the death of the individual are exempt from IHT and could even reduce the amount of IHT due.
How can charitable gifts reduce Inheritance Tax (IHT)?
If 10 per cent or more of the net value of the estate passes to charity, a reduced IHT rate of 36 per cent will apply to the estate above the nil rate band instead of the standard IHT rate of 40 per cent.
To determine whether a charitable gift qualifies the estate for the lower rate of IHT, a figure known as the baseline is used.
This figure is the value of an estate after the nil rate band and any other exemptions and reliefs have been deducted, but before the gift to charity has been made.
For instance, if the estate is worth £1.5 million, the baseline is:
£1.5 million less £325,000 (nil rate band) less £175,000 (residence nil rate band) = £1 million.
In this case, for the estate to qualify for the lower rate of IHT, a gift of at least £100,000 must be made to charity.
The beneficiaries can also decide whether to gift part of the estate to charity following the individual’s death to meet the level required for the estate to be taxed at the lower rate.
How can Rotherham Taylor help?
As tax experts and a licensed provider of probate services, we can guide you through the probate process, from valuing the estate to distributing the assets.
We can also ensure you fulfil your tax obligations and meet the necessary return deadlines, so you don’t have to worry.
Small business owners need to take measures to avoid costly mistakes when it comes to calculating, reporting and paying Value Added Tax (VAT).
The best way to prevent errors and stay on the right side of HM Revenue & Customs (HMRC) is to have an expert take care of your VAT affairs.
Having a qualified accountant or bookkeeper can ensure that all calculations are correct, up-to-date, and submitted on time and in line with the latest VAT regulations, including Making Tax Digital.
Employing an accountant to keep on top of record keeping will go a long way in preventing expensive mistakes and financial penalties related to VAT.
Some of the most common VAT errors include:
To cut down on the chance of errors there are a few things you can do to improve VAT reporting:
Speaking to a VAT expert will help you avoid any of these mistakes, which can be easy to overlook, but could be costly to you and your business.
Business plans provide goals to work towards, help identify potential problems, give insight into competitors, and highlight potential opportunities.
A great business plan should include a concept, strategy, executive summary, market analysis, competitor analysis, the company’s financials and a clear action plan.
Concept
This part of the business plan is usually broken down into three elements:
The executive summary will highlight the mission of the business by describing its products and services.
It might also be a good idea to briefly explain why you are starting your business and include details about your experience in the industry that you are entering.
Strategy
Understand the scope of your business, as well as the amount of time, money, and resources you will need to get started by writing it down to help clarify your ideas.
Market analysis
You should identify your target customers’ needs, desires and pain points and understand how you can meet them. You also need to understand what else is available on the market and how your offering differs.
Competitor analysis
While it is important to understand the market you are operating in, it is also important to assess the success and weaknesses of competitors within your market to spot gaps and beat the competition.
Financials
A crucial area, this should outline projections for short-term growth and long-term profitability. You should include projections of your profit and loss statements, balance sheets, and cash flow statements for the next three years.
Setting these points out should help you create a clear set of definable actions that can help your business to grow and flourish. Having a detailed, well-prepared business plan will increase the chances of survival and success for any venture.
Making Tax Digital for Income Tax Self-Assessment (MTD for ITSA) will now come into effect in April 2026 for businesses, self-employed individuals, and landlords with gross business and/or property income over £50,000.
This will be followed in April 2027 for those with similar incomes over £30,000. The question is, how soon should your business start using cloud-based compatible software before that deadline?
The answer – the sooner the better.
Beyond compliance, the benefits of MTD cloud accounting software include:
MTD-compliant cloud accounting software will generate the summary updates, which must be sent to HMRC every quarter via your HMRC digital account under Making Tax Digital.
You will be able to see how much tax you owe based on the information you have provided, so you can be better prepared for future tax bills.
Being prepared for MTD and having the correct software in place and ready to use will ensure a smooth transition to the new system, but, as you can see, the benefits go far beyond compliance.
With the end of the tax year fast approaching on 5 April, it makes sense to assess your tax situation and make use of the reliefs and allowances available to you.
Here are a few quick wins you can consider to help reduce your liabilities now and in the future:
Inheritance Tax (IHT)
Each tax year individuals are allowed to give away up to £3,000 worth of assets or cash without it being added to the value of their estate, referred to as your ‘annual exemption’.
If you have any unused annual exemption, this can be carried over to the next tax year.
Capital Gains Tax Allowances
Capital Gains Tax (CGT) is charged when you sell or dispose of an asset and make a profit. You are only taxed on the amount you gain from the sale or disposal.
UK residents can make a certain amount of gains each tax year before being charged CGT, this is known as the Capital Gains Tax Exemption.
The figure for 2022/23 is £12,300 but this will fall to £6,000 for 2023/24, before being reduced to £3,000 for 2024/25.
You should ensure that you are using your CGT Exemption before the end of the tax year and plan disposals to take advantage of the current higher rate.
Personal Allowance (PA)
Each individual is entitled to their own personal allowance (PA), which is set at £12,570 for 2022/23.
Part of the PA can be transferred between spouses and civil partners. The Marriage Allowance of £1,260 can be transferred, but only where neither spouse/civil partner pays tax at the higher rate.
Annual Pension Allowance
Ensuring you have made full use of your annual pension allowance is an important way to save tax. The current allowance allows most individuals to invest up to £40,000 a year before tax is applied. This allowance can be carried over several years if it has previously been unused.
Individual Savings Accounts (ISAs)
You pay no Income Tax on the interest or dividends you receive from an ISA and any profits from investments are free of Capital Gains Tax. You can pay your whole allowance of £20,000 (for 2022/23) into a Stocks and Shares ISA, a Cash ISA or any combination of these.
Taking advantage of these allowances will save you and your business money. It is good practice to repeat the process every tax year.
With the Spring Budget looming in March, it is easy to be tempted to delay tax planning until afterwards in hopes of favourable tax cuts.
However, the Chancellor has made it clear that significant cuts to taxation aren’t likely to be in his speech and so businesses should be taking steps now to prepare for the changes already being introduced in the months ahead.
Tax planning for businesses doesn’t have to be complicated. Small business owners can take advantage of certain deductions, credits and other tax benefits to help reduce the amount of tax they owe.
Corporation tax is a major tax for companies and tax planning allows businesses to reduce liabilities by taking advantage of capital allowances, R&D tax relief or other initiatives that encourage investment by offsetting expenditure against profits.
Effective tax planning can enable you to bring forward expenses or defer income, so as to delay tax payments into future years.
Your taxation planning should be part of a wider business plan helps you to:
A robust and well-prepared corporate tax plan can help you to make the most of the money and investments within your company.
Your business may be sailing along quite nicely, or it may be struggling with the effects of shortages, rising prices and an energy crisis.
In both cases could be time to step back and reflect on where you are, develop what has worked and abandon methods that don’t.
It is time to plan out a strategy for the long term. It could be a one-year or five-year plan that considers:
Within this plan, you will need to consider commercial guidance and tailored business planning, including funding, financial management, advice on succession planning, your business structure and strategy and of course financial reporting.
You make take pride in how you run your business, but it makes sense to enlist professional support. That advice can save you money and help plan for future growth.
As a business owner, you’re no stranger to uncertainty. But this can make planning for the year ahead challenging.
If you are running a business, handling VAT returns can be complex.
You may have submitted returns with errors previously if you were unsure of what to do and could be at risk of further investigation or fines from HM Revenue & Customs (HMRC).
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