It’s a new year and many people who may have lost their jobs during the pandemic or have decided to take their life in a new direction, will be looking to start up a business.

It could be a full-time endeavour or a part-time business looking to make a bit of extra income to cope with the current cost of living crisis.

The upside is that we appear to be over the worst of the pandemic, and it is in the Government’s interests to get the economy on the move again, so help will be available.

There are so many ideas for business start-ups, but insurance broker Simply Business has researched some of the most popular small business ideas that might be worth exploring for 2022.

After analysing new business insurance policies taken out, a number of key areas came up as the most popular for starting up this year.

They include:

Craft stall

According to Simply Business, craft stalls were the fastest-growing small business trade in 2021, experiencing a 237 per cent growth.

If you have a hobby like candle making, pottery or needlework, opening a craft stall to sell your wares could be a venture worth pursuing this year.

Market trader

COVID restrictions, as well as people feeling less comfortable in indoor spaces, have seen outdoor businesses thrive since 2020.

It’s no surprise, then, that market trading was the second-fastest-growing small business idea in 2021, with a 113 per cent increase.

Online retailer

According to Simply Business, the number of new online retailers increased by 62 per cent in 2021.

When it comes to selling goods online, the key is to do your research and select the right type of product.

Some of the products that have traditionally sold well online include homeware, tech gadgets and accessories, exercise gear and clothing.

Photographer

The number of freelance photographers in the UK increased by 56 per cent in 2021, making it the fourth-fastest-growing small business.

This could be the ideal year to launch a freelance photography business, especially if you specialise in wedding photography.

The number of weddings is expected to increase significantly this year because of all the postponements.

Handyman or handywoman

One of the impacts of the pandemic is that many people have been spending more time at home.

Not surprisingly, many have been finding issues with the current state of their properties and have been looking to make improvements or upgrades.

The result has been an increase in demand for repair people, with a 44 per cent rise in this type of business in 2021.

Catering

Catering businesses witnessed a 39 per cent rise in 2021.

If you have a passion for cooking, throwing parties or event planning, catering could be a great small business to consider starting this year.

Teaching/tutor

Research by Simply Business shows that the number of businesses in this sector was up 21 per cent in 2021 and teaching or tutoring (in person or online) could be a great small business idea for people who have teaching experience.

Home baking

People have been cooking and baking more at home during the pandemic.

Not surprisingly, some have looked to use their cooking and baking skills to provide income.

As a result, the number of UK home baking businesses saw an increase of 24 per cent between 2020 and 2021.

Dog walking

Millions of Brits have bought pets since the start of the pandemic.

This means that the demand for pet walkers is now higher than ever. New dog walking businesses have increased by 22 per cent year on year.

If you love dogs, starting a dog walking business could be a great way to make some cash this year.

Every year employers across the UK submit an end-of-year report to HM Revenue & Customs (HMRC) outlining the benefits provided to each employee and director, which were not included in their wages.

This report is sent using the P11D form, which must be submitted by 6 July following the end of the tax year. At the same time, you must also provide employees with a copy of the P11D and tell HMRC the total amount of Class 1A National Insurance you owe using form P11D(b).

This can be quite an onerous task and lead to penalties if it isn’t completed on time or correctly. You will also be charged additional penalties and interest if you’re late paying HMRC.

Do I have to complete a P11D each year? 

Unbeknownst to many employers, you can now payroll benefits you provide to your employees so that you do not have to produce a P11D each year.

You can do this as long as you register with HMRC before the start of the tax year to let them know that you intend to payroll staff benefits. You can do this online here.

By choosing to payroll your benefits, the cash equivalent of the employees’ benefits is added to their taxable pay, which is charged to them through the real-time payroll process.

This system is much easier for employers as they do not have to produce P11Ds each year, but they must continue to calculate the Class 1A National Insurance contributions and complete form P11D(b) by the 6 July following the end of the tax year.

If you miss the registration deadline, you can ask HMRC to informally payroll benefits by writing to the Complex Caseworker Team at HMRC’s National Insurance Contributions and Employer Office.

If you choose to use this option, you must still complete form P11D at the end of the tax year and mark each report as ‘payrolled’.

HMRC should then stop collecting tax that has already been deducted from your employees.

The benefit of this system, beyond the need to produce detailed reports, is that employee tax will be collected in real-time, rather than being collected using an adjusted tax code in the following tax year.

This approach may be unsuitable for some businesses, so professional advice should be sought from a trusted accountant.

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.

Link: If you cannot pay your tax bill on time

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.

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 your accountant will be able to help you with assessing just how much CT you will have to pay to HMRC.

Link: Corporation Tax Charge

Small and medium-sized enterprises (SMEs) are the lifeblood of the country, accounting for 99.9 per cent of all businesses across the UK.

At the start of 2021, there were estimated to be 5.6 million UK private sector businesses.

But they acknowledge, according to a survey, that their operations would struggle to function efficiently without the assistance of accountants, particularly as COVID-19 has swept across the country.

Strategic guidance vital to SMEs

The survey has confirmed the importance of accountants to SMEs, rating the profession as the go-to business service as firms struggle with problems over the pandemic, Brexit and other areas like moving across to Making Tax Digital (MTD).

This is where the expertise of accountancy firms in the latest cloud accounting technology eases the burden on their clients.

The survey, commissioned by accountancy software supplier Sage, shows 91 per cent of SME owners rating accountants as an important part of their business operation, while 49 per cent are happy to approach them for strategic business guidance.

When asked what services they would go to when first starting a business, more than a third (34 per cent) said accountants would be the first port of call.

The survey also found:

• Over a quarter (28 per cent) said Covid-19 had driven them to seek out the help of an accountant
• A fifth (18 per cent) named Brexit as the driving factor. In fact, during the pandemic, over half increased their reliance on accountants
• Sage also found that two-fifths (39 per cent) of SMEs name Making Tax Digital as the number one reason they sought accountancy services.

Named by small and mid-sized businesses as ‘critical’, the new study discovered a huge 91 per cent of SMEs use the services of an accountant, with half (49 per cent) using their services at least weekly.

Paul Struthers, MD, UK and Ireland, Sage, said: “Accountants play a critical role in accelerating this success and our research shows they are vital to the UK’s economic recovery.

“Our research shows accountants have an open door to become a de-facto strategic partner for their clients – this is an opportunity they must embrace.”

Link: SMEs name accountants as ‘number one’ service, report finds

Under new rules set by the Government, the system of penalties for VAT and Income Tax Self-Assessment (ITSA) are changing.

The new system of fines is aimed at tackling non-compliance by taxpayers who repeatedly fail to meet their obligations to provide returns and other information requested by HMRC. Those who make occasional and infrequent mistakes will be less likely to be penalised.

It will see the current system of automatic financial penalties removed and a new points-based system implemented, which will require taxpayers to incur a certain number of points for missed obligations before a financial penalty is issued.

The changes were initially meant to apply to VAT customers for accounting periods beginning on or after 1 April 2022, before being introduced later to ITSA customers with business or property income over £10,000 per year, who are mandated for Making Tax Digital (MTD) for ITSA, from the tax year beginning 6 April 2024, and for all other ITSA customers from the tax year beginning 6 April 2025. However, now the new rules for VAT will be delayed until 1 January 2023.

What will be considered a late submission?

The new rules are part of the ongoing implementation of MTD, which requires taxpayers to submit tax information digitally each quarter using compliant software.

Late submission under the new rules will be a failure to provide either a quarterly MTD update or an annual return on time.

However, it will not apply to other occasional submissions to HMRC, which will continue to be covered by the current penalty regime for the relevant submission.

How do the new late submission penalties work?

Every time you miss a submission deadline you will receive a point, which HMRC will notify you of on each occasion.

After you receive a certain number of points an initial financial penalty of £200 will be charged. The threshold that must be reached for a penalty to be issued is determined by how often a taxpayer is required to make their submission.

However, not only will a penalty be charged for that failure but every subsequent failure to make a submission on time. This means that those who continually fail to meet their obligations could face big fines.

The penalty thresholds are as follows:

The points are only applied to each type of submission you need to make, as you will only have points totals for each obligation.

That means if you miss two deadlines for separate submissions in the same month, you will be penalised separately for each submission type.

It is only where you regularly miss consecutive deadlines for a single type of submission that you will begin to accrue points that lead to a fine.

In general, if a taxpayer makes two or more failures relating to the same submission obligation in the same month, they will only incur a single point for that month.

This is to prevent a taxpayer reaching the points threshold too rapidly to be able to improve their compliance. However, there are exceptions to this rule, which can be found here.

Are late submission penalty points retained over time?

The points that are issued only have a lifetime of two years, after which they expire to prevent historic failures combining with occasional recent failures resulting in a fine. This period begins the month after the month in which the failure occurred.

Points will not expire when a taxpayer is at the penalty threshold. This ensures they must achieve a period of compliance to reset their points.

After a taxpayer has reached the penalty threshold, all the points accrued within that points total will be reset to zero when the taxpayer has met both of the following conditions:

• A period of compliance; and
• The taxpayer has provided all submissions due within the preceding 24 months (It does not matter whether these submissions were initially late).

Both requirements must be met before points can be reset. The periods of compliance are:

If a taxpayer is at the penalty threshold and has achieved the period of compliance, but has not submitted outstanding submissions, they will remain at the penalty threshold and continue to be charged penalties for any further failures to make submissions on time.

There will be time limits after which a point cannot be levied. The time limits for levying a point depend on the taxpayer’s submission frequency and start from the day on which the failure occurred, as follows:

The time limit for HMRC to assess a financial penalty will be two years after the failure which gave rise to the penalty.

Can I appeal the issuing of a penalty point?

You can challenge a point or penalty issued by HMRC through its internal review process or via an appeal to the First Tier Tax Tribunal.

To appeal the issuing of points or a penalty you will need to be able to prove you had a reasonable excuse for missing a filing deadline, this could include bereavement or illness.

The appeal process will be the same as the appeal process against an assessment of tax for the relevant tax on which the penalty is based.

Here to help

Although this guidance covers the basics of these upcoming changes there are additional rules that may affect how penalty points are issued against you or your business.

If you are concerned about these changes or would like advice on remaining compliant with MTD for VAT and ITSA, please speak to our team today.

Link: Penalties for late submission

All unincorporated businesses, including sole traders, the self-employed and trading partnerships, will be taxed on profits generated in the 12 months to 5 April (or 31 March) each year from 2024-25.

Here is what you need to know:

• The Government has proposed changes that will move the tax basis period for all unincorporated businesses
• This will affect sole traders, partnerships and LLP’s who do not have an accounting year-end at that date
• It may cause additional tax to be payable
• Extra tax due can be spread over up to five years or by using Time to Pay arrangements
• Overlap relief that has been accrued can also be used to offset a larger tax bill
• It will affect accounting periods from 6 April 2023, as there will be a transition period during 2023-2024 when all businesses will have their basis period moved to the end of the tax year.

These changes were meant to be brought in a year earlier but were delayed by the Government in September 2021 to give those businesses affected more time to prepare.

The current system

Currently, unincorporated businesses are taxed on profits arising in the accounting period ending in a given tax year.

By law, unincorporated businesses do not have to produce accounts. They are, therefore, free to choose any accounting date they like.

This means that a business’s profit or loss for a tax year is usually the profit or loss for the year up to the accounting date – this is known as the basis period.

Specific rules determine the basis period during the early years of trading. Where the accounting end date is not 5 April or 31 March, which is the equivalent of 5 April for the first three years of trade, the rules can create overlapping basis periods, which charge tax on profits twice and generate ‘overlap relief’, given when the business ceases.

As other forms of income such as dividends and income from property are taxed based on the tax year, the different rules for trading profits can confuse some taxpayers.

What is changing?

The proposed reforms will change the basis period for all unincorporated businesses to the end of the tax year, currently 5 April.

This will create the need for interim arrangements for businesses that do not currently have year-ends falling between 31 March and 5 April each year.

These businesses will potentially face a single, higher tax bill from their profits arising in the year-end falling in the 2023-24 tax year to 5 April 2024.

According to HMRC, businesses with a different accounting period end date to the end of the tax year:

• Will need to apportion profits/losses.
• May need to use provisional figures in their tax returns if the accounts and tax computations for later accounting periods in the tax year are not prepared before the tax return filing deadline (later amending their returns once figures are finalised).
• The statutory rule that deems 31 March to be the 5 April in the first three years of a trade would be extended to apply to all years including the transition period and potentially also to property businesses.

Reliefs, allowances and tax band thresholds will remain unchanged and will not be pro-rated. This could also move some taxpayers into higher tax bands, while also reducing their ability to benefit from various annual reliefs and allowances.

In addition to the direct impact of the transitional arrangements, businesses with year ends that have not aligned with the tax year will have a much shorter time between when they generate profits and when the tax falls due, which could have cash flow implications.

What help is available?

Recognising the impact that this may have on taxpayers, HM Revenue & Customs (HMRC) is considering an election to allow businesses with higher profits, due to the change, to spread those additional profits equally over five years.

HMRC will also offer regular Time to Pay arrangements for those that need to spread the costs further.

Businesses will also be able to use all overlap relief accrued when they began trading during the transition year (2023-24). This would mean that businesses in this position will only have tax to pay on 12 months’ profits.

In the future, once these new rules are in place, new businesses will not generate overlap relief and there will be no special rules required for starting or ceasing trading or for a change in the accounting period end date.

For the many unincorporated businesses that already have year-ends aligning with the tax year (which includes those falling between 31 March and 5 April), nothing will change.

However, for those with year-ends that are not synchronised with the tax year, there are several considerations and careful tax planning may be necessary.

How we can help

These changes, when implemented, are likely to have a significant impact on unincorporated businesses, leading to substantial tax bills and costs without careful planning.

Worried you may be affected by these reforms? Find out how we can assist you.

Link: Basis period reform

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.