HM Revenue & Customs have released a new tool designed to help businesses find out what VAT registration would mean for their business.

VAT registration becomes mandatory if:

• your total taxable turnover exceeds £90,000 over the previous 12 months.
• you expect your taxable turnover to go over £90,000 in the next 30 days.
• you’re based outside the UK and supply goods and services to the UK.

Taxable turnover refers to the total value of everything you sell except for anything that is exempt from VAT.

It is also possible to register for VAT voluntarily even if your annual taxable turnover is below £90,000.

If the majority of customers for your business are VAT registered then there is no increase in costs for them, and so voluntary VAT registration can be worthwhile so that you can claim VAT back on the purchases you make.

The new HMRC tool can help you to estimate what VAT might be owed or reclaimed by your business if you were to register for VAT. You are free to use the tool to explore multiple ‘what-if’ scenarios so that you can compare various situations and how you might be affected.

To use the tool, please see: https://www.gov.uk/guidance/check-what-registering-for-vat-may-mean-for-your-business

 

Shawbrook Bank recently conducted research that indicated that half of small business owners have had to raid their savings to fund their businesses.

Its survey found that small businesses applying for finance from lenders over the last year said that it didn’t meet their needs. So, they were using savings and credit cards to provide the necessary funds to grow their business.

For small businesses, the path of growth is often obstructed by financial constraints. Whether it’s investing in new equipment, expanding operations, or hiring more staff, accessing the right funding is crucial.

What are some viable options available to small businesses?

• Traditional bank loans: Perhaps the most common form of financing, bank loans provide businesses with a lump sum that is repaid over a predetermined period with interest. While they offer stability and structured repayment plans, securing a bank loan can be challenging due to stringent eligibility criteria and lengthy approval processes.
• Government Schemes: The government has introduced schemes to facilitate access to finance. For instance, the Growth Guarantee Scheme, which is the successor to the Recovery Loan Scheme, will launch with accredited lenders on 1 July 2024. The scheme provides lenders with a 70% government backed guarantee, thereby reducing the risk associated with lending to small businesses and making finance easier to obtain. (See: https://www.british-business-bank.co.uk/finance-options/debt-finance/growth-guarantee-scheme)
• Alternative Lenders: With the rise of fintech, alternative lending platforms have emerged as a viable alternative to traditional banks. Known as marketplace lending, peer-to-peer lending, or P2P lending, alternative lending typically takes place through online platforms that bring borrowers and loan investors together.
• Angel Investors and Venture Capitalists: For businesses with high growth potential, seeking investment from angel investors or venture capitalists can provide the necessary capital injection. In exchange for equity ownership, investors offer funding along with their own strategic guidance and industry connections.
• Crowdfunding: Crowdfunding platforms have gained popularity as a means of raising capital by pooling small contributions from a large number of individuals or investors. These platforms offer businesses the opportunity to showcase their ideas and garner support from the crowd.
• Grants and Subsidies: Various government grants and subsidies are available to small businesses across different sectors. These can range from grants for research and development projects to subsidies for hiring apprentices or investing in energy-efficient technologies. While it can be competitive trying to obtain one, securing a grant can provide businesses with non-repayable funds to fuel growth.
• Asset-Based Financing: Asset-based financing allows businesses to leverage their assets, such as inventory, equipment, or property, to secure funding. Options like asset-based lending and sale-and-leaseback arrangements enable businesses to unlock the value of their assets without relinquishing ownership.
• Revolving Credit Facilities: A revolving credit facility provides businesses with access to a pre-approved line of credit that can be drawn upon as needed. Unlike a traditional loan, where funds are disbursed in a lump sum, revolving credit offers flexibility and allows businesses to manage cash flow fluctuations effectively.
• Personal Savings and Friends/Family Loans: Coming back to where this article started, of course personal savings and friends/family loans are often a practical option in the early stages of business growth. While this option may lack the formality of traditional financing, it can provide a quick source of capital without the need for extensive paperwork or collateral.

In conclusion, obtaining finance isn’t always straightforward or easy as a small business. However, there are options out there and by carefully assessing your funding needs and being open minded about the options, you can find the right financing solution to fuel your growth ambitions.

HM Revenue & Customs (HMRC) have released figures showing that 295,250 Self-assessment tax returns were filed in the first week of the new tax year. Almost 70,000 were filed on the first day – April 6^th.

This seems to suggest an increasing trend for filing tax returns early. Last year, 246,210 returns were filed in the opening week.

Tax returns do not need to be filed until 31 January 2025, however filing early does bring advantages. You get more time to budget and plan for paying your tax bill as well as peace of mind from knowing an essential task has been ticked off your to-do list.

However, it is especially good if you have overpaid tax since tax refunds will be paid as soon as the return has been processed, Therefore, the earlier the tax return is filed, the earlier a refund can be received.

You may need to complete a tax return for the 2023 to 2024 tax year if:

• You are self-employed with an income over £1,000.
• You received any untaxed income in the year over £2,500.
• You rent out one or more properties.
• You claim Child Benefit but you or your partner’s income is above £50,000.
• You are a partner in a partnership business.
• Your taxable income from savings and investments is more than £10,000.
• Your taxable income earned from dividends is more than £10,000.
• You have paid Capital Gains Tax on assets sold for a profit above the Capital Gains threshold.

If you are new to self-assessment and think you might need to complete a return, you can use HMRC’s online tool to check your situation.

If you would like help in completing your tax return, please do not hesitate to contact us at any time. We will be happy to help you!

 

The deadline – 6 July – for reporting expenses and benefits to HM Revenue & Customs (HMRC) is rapidly approaching. It’s important for all employers to understand their responsibilities regarding this crucial tax form. Whether you’re a seasoned business owner or new to the world of employment taxes, we’re here to guide you through the essentials.

What is a Benefit in Kind?

A benefit in kind (BIK) refers to any non-cash benefit provided to employees that holds monetary value. These benefits are additional perks that go beyond regular salary and wages. Common examples include company cars, private health insurance, interest-free loans, and gym memberships. While these perks can boost employee satisfaction, they are considered taxable benefits by HMRC.

Why is the P11D form required?

The P11D form is required by HMRC to report these benefits in kind. Employers must complete a P11D for each employee who has received any taxable benefits or expenses during the tax year. This ensures that the correct amount of tax is paid on these benefits.

Types of benefits to include on the P11D

This is not an exhaustive list, but some common benefits provided by employers might include the following:

1. Company Cars and Fuel: If you’ve provided a company car to an employee, this must be reported, along with any fuel provided for personal use.

2. Health Insurance: Private medical insurance paid for employees should be included.

3. Interest-Free or Low-Interest Loans: Any loans provided to employees exceeding £10,000 must be reported.

4. Living Accommodation: If you provide housing for employees, the value must be included.

5. Gym Memberships: If you offer free or subsidised gym memberships, these are taxable benefits.

Deadline for P11D submission

As mentioned, the deadline for submitting this year’s P11D forms is 6 July 2024. It’s crucial to meet this deadline to avoid penalties. If you are late in submitting, you’ll get a penalty of £100 per 50 employees for each month or part month your P11D is late.

You will also be charged penalties and interest if you’re late paying HMRC. Which brings us to …

Paying Class 1A National Insurance

Many benefits require a payment by the employer of Class 1A national insurance. This is basically a substitute for the employer’s national insurance that would have been paid if the employee had received the same monetary value through payroll rather than as a benefit.

This payment has to be made by 22^nd July (or 19^th July if paid by cheque) and, as mentioned, penalties and interest can apply if you’re late paying.

Of course, if you are already ‘payrolling’ your expenses and benefits then you may have already paid all or most of the amount due.

Completing the P11D Form

Completing the P11D form involves the following steps:

1. Gather Information: Collect details of all benefits provided to each employee during the tax year.

2. Use the Correct Forms: Ensure you’re using the correct version of the P11D form for the relevant tax year.

3. Accurate Valuation: Accurately determine the cash equivalent of each benefit provided. HMRC provides guidance on how to value different types of benefits.

4. Class 1A National Insurance: Calculate and report Class 1A National Insurance contributions on these benefits using the P11D(b) form.

5. Submission: Submit the completed P11D forms to HMRC by 6 July. Provide employees with a copy of their individual P11D by the same date.

By staying informed and organised, you can ensure that your P11D forms are completed correctly and submitted on time.

If you need assistance or have any questions, don’t hesitate to contact our team. We’re here to help you navigate the complexities of tax compliance, allowing you to focus on running your business.

As accountants, we are often asked about the financial and tax implications of buying a second home. Sometimes the pull of a country or seaside retreat might inspire you to think about having a second home. Or maybe you have spare cash or income and are wondering if a second home could be a good investment.

Whatever the reason, before you take the plunge, what are some things you might want to consider?

What are the costs of buying a second home?

It will sound obvious to say, but outside of the purchase price there are a number of other costs to think about that may impact on your decision.

• Stamp Duty Land Tax (SDLT): This is one of the significant costs to consider. For second homes, there’s an additional 3% surcharge on top of the normal SDLT rates.
• Council Tax: Second homeowners in England should also be aware of potential increases in council tax. From April 2025, under the Levelling Up and Regeneration Act 2023, councils will have the discretion to charge up to 100% more in council tax on furnished homes not used as main residences. This means you could end up paying double the usual amount.
• Insurance: Because they’re often unoccupied for periods, insurance premiums are sometimes increased for second homes.

How will you pay for it?

Unless you have cash available to buy a second home outright, you’ll likely want to think about how you will finance your purchase. With this, there are essentially two options.

• Mortgages: Meeting the conditions to get a mortgage on a second home can be challenging. For instance, a higher deposit is often required than would be the case for your main home. An interest-only mortgage could help to keep the costs down, but over the long term you’ll still need a repayment plan.
• Equity release: Your main home may have equity that you could release to fund your purchase. You might be able to borrow on the value of this equity using an equity release scheme. These have risks though, so you should get expert advice if you are considering this as an option.

Are there any tax implications to think about?

Besides the SDLT we discussed before, tax implications will depend on how you plan to use your second home and what your future plans are for selling it.

• Tax on rental income: Some second homeowners rent the home out for a period or use it as a holiday let. These can be good ways of helping to cover your costs if you don’t plan to live in the property yourself. However, any rental income you make will need to be declared on your tax return. On the plus side, some of the costs of running a rental property can be offset against the income.
• Selling your second home: When you sell your second home, any profit will be subject to Capital Gains Tax (CGT). The gain is calculated as the difference between the purchase price and the selling price, minus any allowable expenses and reliefs. This is different to the situation where you sell your main home, which is usually tax-free. If you plan to permanently move to your second home at some point in the future, then any gain you make from that point onwards could be tax-free.

Given the complexities of tax regulations around second homes, it’s essential to get expert advice. As your accountants, we can help you navigate these rules and make informed decisions. Please get in touch and we’ll be happy to provide you with personalised advice.

Whether you’re considering buying a second home for personal use or as an investment, understanding the financial and tax implications will help you manage the costs effectively, avoid any surprises, and enjoy the benefits that come from your new place with peace of mind.

Picture this: your business is booming, and it’s time to invest in some new equipment or a company vehicle. But with so many financing options out there, how do you decide which one of them is right for you? Let’s break down three popular choices – leasing, contract hire, and hire purchase – so you can make an informed decision without getting lost in financial jargon.

Lease

Leasing means renting an asset (such as machinery, vehicle or computer) from a finance company for a set period. After the lease term ends, you usually return the asset, although sometimes there is an option to be able to buy it.

Short-term rentals where the payments cover the asset’s use, rather than its full value, are known as operating leases. At the end of the lease, you return the item and can lease a newer model.

Longer-term rentals where the payments cover the full value of the asset over time are known as finance leases. The leasing company legally owns the item, but you use it as if is yours.

Here’s why leases can be good:

• Better cashflow: Low upfront costs and spread-out payments help keep your cash in hand.
• Stay updated: Easily upgrade to newer equipment or vehicles.

Here are some things to think about with leases:

• No ownership: You don’t own ever own the asset.
• Higher long-term cost: Over many years, leasing can be more expensive than buying.

Contract Hire

Contract hire is often used for vehicles. Contract hire is like leasing, but usually includes maintenance and servicing in the monthly payments.

Here’s why contract hire can be good:

• Fixed costs: You’ll know exactly what you’ll pay each month, including upkeep.
• Cash flow friendly: Like leasing, it spreads out the cost.

Here are some things to think about with contract hire:

• Mileage limits on vehicles: Exceeding agreed mileage can cost extra.
• No ownership: You can’t keep or modify the vehicle.

Hire purchase

With hire purchase, you buy the asset over time. You make a deposit and then regular payments. Once all payments are made, you own the asset.

Here’s why hire purchase can be good:

• You own it: At the end, the asset is yours.
• Predictable payments: Fixed monthly payments make budgeting easier.

Here are some things to think about with hire purchase:

• Bigger upfront cost: Requires a higher initial deposit compared to leasing.
• Maintenance responsibility: You’re in charge of upkeep and repairs.
• Cash flow impact: Higher monthly payments can strain cash flow initially.

Making the decision

To choose the best option for you, you may want to consider the following points:

• Cash flow: How much can you afford each month? Leasing and contract hire usually have lower monthly payments.
• How long you’ll use it: If you need the asset short-term or it becomes outdated quickly, leasing or contract hire might be best.
• Ownership needs: If owning the asset is crucial, hire purchase is the way to go.
• Financial impact: Leasing keeps liabilities off your balance sheet, while hire purchase adds both an asset and a liability.

Conclusion

Choosing how to finance your new asset doesn’t have to be complicated. By considering your businesses cash flow, how long you’ll need the asset, and whether ownership matters, you can pick the best option for you.

Tax can also be a factor in the decision. For personalised advice, please feel free to contact us at any time. Our team of experts is ready to help you navigate the complexities of asset financing and find the best solution for your business.

For businesses that run as a partnership, there often comes a time where you need to consider admitting a new partner into the partnership.

Perhaps it’s a case of looking for someone who will pave the way for an existing partner to retire, maybe it’s a family business and there are plans to bring the next generation on board, or perhaps you have a key employee that brings value to the business and is looking to grow their role and status in the business.

Whatever the reason, what are some of the things you should consider before admitting a new partner? Let’s have a look.

Skills and experience

Does the new partner bring skills and expertise that complement the existing partners? This could be in finance, marketing, operations, or in some technical knowledge that is specific to your business.

Spend some time evaluating the prospective partner’s experience in your industry and how it can contribute to the growth and success of the partnership.

Financial contribution

How much capital will the new partner contribute to the partnership? Assess whether this capital is sufficient to meet the current and future needs of the business.

It also pays to check on the financial stability of the prospective partner. Will they be able to meet their financial commitments to the partnership?

Cultural fit

Things can get very uncomfortable if there’s a mismatch of values among partners in a business. While it’s not necessary to agree on everything – in fact an ability to have different ideas can be very valuable for a business – long-running disagreements or feuds can be very detrimental to morale across the business. So, consider whether the prospective partner’s values, work ethic, and vision align with those of the existing partners.

Look at how well the new partner will fit into the existing team. Healthy interpersonal dynamics are crucial for the smooth operation of the partnership.

Legal and regulatory considerations

Review your partnership agreement and update it to include terms related to the new partner’s rights, responsibilities, and share of profits and losses.

Make sure too that the new partner understands and is willing to comply with all the legal and regulatory requirements relevant to the business.

Impact on existing partners

How will the admission of a new partner affect the distribution of profits among existing partners?

Besides profit sharing, also consider how the prospective partner’s admission will impact decision-making processes within the partnership. More partners can complicate decision-making although they can also bring diverse perspectives.

Strategic fit

Does the new partner support the partnership’s long-term strategic goals? Their vision and goals ought to align with the partnership’s growth strategy.

Also, can the prospective partner bring new clients or access to new markets that will benefit or add to the strategic direction of the partnership?

Reputation and integrity

Unless you already know the new partner well, it is important to carry out thorough background checks to ensure that they have a good reputation and a history of integrity.

The reputation they have in their professional network can also benefit the partnership as a whole, so it’s worth assessing how strong this is too.

Exit strategy

However happy things are on the way into an agreement, it is always wise to ensure that you have a clear buy-sell agreement that outlines the terms for a partner exiting the partnership, whether through retirement, resignation or other circumstances.

Consider too how the admission of a new partner fits into the partnership’s long-term succession planning.

Summary

Admitting a new partner is a multifaceted decision that requires careful consideration of financial, operational, and interpersonal factors.

It’s essential to evaluate the prospective partner’s skills, financial contribution, cultural fit, and strategic alignment with the partnership. Legal and regulatory compliance, the impact on existing partners, the reputation of the individual, and an agreed-upon exit strategy are also critical components.

Conducting thorough due diligence and having open discussions among existing partners can help ensure a successful and mutually beneficial addition to the partnership.

Tax is also a consideration when a new partner joins a business. Why not ask us about the tax implications of admitting a new partner into your business? We will be happy to help you!

 

Data releases in recent weeks from the Office of National Statistics (ONS) coupled with Bank of England decisions might make recent news about the economy seem a bit confusing. Understanding how this news affects businesses is important so let’s break it down.

Growth in the economy

The latest reports show that the economy grew by 0.6% from January to March 2024, which is good news! It is a 0.9% increase from the previous quarter and means the recent recession seems to have reached its end – businesses generally are doing well. However, swings over a short period underscore the necessity for businesses to adapt swiftly to change.

Interest rates and prices

Despite hopes otherwise, the Bank of England decided not to change the official interest rate because of ongoing concerns over inflation.

The Consumer Price Index (CPI) declined slightly from 3.4% in February to 3.2% in the 12 months to March 2024, but remains above the Bank’s target of 2%. While inflation is falling, it has not fallen as quickly as hoped earlier in the year.

The delay in reducing the official rate has led to implications for borrowing costs, and this has been seen in the recent uptick in the prices of 2-year and 5-year fixed rate mortgages.

What this means for businesses:

So, what does all this mean for businesses? Well, it’s a bit of a mixed bag. The good news is that the economy is growing, which is generally good for businesses. But, because prices are still going up faster than the Bank of England would like, they’re keeping interest rates the same. This may make borrowing money more expensive.

What businesses can do:

With economic shifts like these, businesses need to stay resilient and agile. Here’s a few things you can do:

• Strategic financial planning: Analysing finances, sales, and customer spending patterns can help you recognise trends. You can then work out what to do to head off potential risks or capitalise early on opportunities.
• Keep your costs streamlined: Make sure that you’re getting value out of what you pay money out for. Cheapest isn’t necessarily best and cutting costs by switching suppliers doesn’t always make for good business, however it’s often possible to identify areas to save some costs without interrupting your business.
• Keep customers happy: Make sure you’re offering good value for money to your customers, so they keep coming back to you. You might look at whether products or services you offer could be enhanced to appeal to more customers. Perhaps a change in pricing strategy could win more customers or be more profitable (not necessarily the same thing!). Or, maybe an adjustment to your customer care might lead to a better experience that builds stronger loyalty.

While recent economic indicators paint a mixed picture, businesses can still thrive by being smart and staying prepared for whatever comes their way.

 

Over the last two years, the tax-free allowance for capital gains tax has been cut by over three-quarters. For the tax year that recently began on 6 April 2024, the Annual Exempt Amount has been reduced to £3,000 (£1,500 for trustees).

These reductions mean that more and more of us are likely to be affected by capital gains tax.

What is capital gains tax?
You could think of capital gains tax as a tax you pay when you make money from selling something that has increased in value. This “something” could be anything from a house to shares or even a piece of art. So, let’s say you bought shares for £500 and sold them later for £1,000. The £500 profit you made could be subject to capital gains tax.

How much tax you pay depends on a few things. Firstly, it depends on what you are selling and how much profit you have made. Secondly, it depends on how much money you make overall in a year. For instance, if you earn more, you might pay a higher rate of tax on your gains. Thirdly, the total amount of gain you make in a tax year is reduced by the Annual Exempt Amount.

However, not all gains are taxed. For instance, if you sell your main home or certain types of investments like ISAs, you might not have to pay any tax on the profit.

Are there ways you can reduce capital gains tax?

There are a few things you could think about doing to help reduce the amount of capital gains tax you might need to pay.

• As mentioned above, the rate of tax you pay depends on how much money you make overall. If you can reduce the income you are taxed on, this might mean you can pay capital gains tax at a lower rate. One way to do this is by making pension contributions as these reduce your income for tax purposes.

• Where an asset can be separated into different parts – a portfolio of shares would be a good example – you might be able to split the sale between two tax years. For example, you might sell some shares on 5th April, and then more shares on 6th April. This could give you two years’ worth of allowances to spread your gain against.

• If you have no plans to sell off assets during a tax year, you could sell some of them to use up your Annual Exempt Amount, and then immediately buy them back within an ISA. Any future gains you make on those assets will then be tax-free.

• The Annual Exempt Amount can be combined for jointly owned assets, so you may be able to split your assets with your spouse or civil partner. You can also transfer assets between you without having to pay capital gains tax. If your spouse or civil partner pays income tax at a lower rate than you do, or perhaps has made a loss on selling other assets, this might be a way of reducing the capital gains tax you pay as a couple.

The reductions in Annual Exempt Amount mean that more of us could end up having to pay capital gains tax. However, there may be ways to reduce the amount you pay.

As experienced tax advisers, we have tools that can help you calculate what capital gains tax you might have to pay and can provide personalised advice on the steps that may help you reduce that tax. Why not talk to us to make sure you’re following the rules and not paying more tax than you need to?

 

HM Revenue and Customs (HMRC) has updated its guidance on what qualifies as ordinary commuting and private travel for tax purposes to include hybrid or flexible working.

Generally, where an employee works at home as an objective requirement of the job, then HMRC will usually accept that the employee is entitled to tax relief for the expenses of travelling from their home to another workplace, such as the office, when this is in performance of the duties of their job.

Usually, HMRC will only accept that working at home is an objective requirement of the job if facilities that an employee needs to do their job are only practically available at their home.

On the other hand, if an employer provides appropriate facilities in other locations that could be practically used by the employee, or the employee chooses to work from home, then HMRC will not accept that working from home is an objective requirement of the job.

HMRC provide an example to illustrate this. The work of an area sales manager living in Glasgow requires her to manage the company’s regional sales team across Scotland, but the company’s nearest office is in Newcastle. Since the manager cannot practically attend that office and is required by her employer to keep all client information securely at home, she is entitled to tax relief for her costs on the occasions she travels to the company’s office in Newcastle.

Since COVID and with the developments in communication technology, many employers now allow their employees the choice of working from home on a flexible or hybrid basis. The employee will usually have a base office that they attend on the days they are working in the office.

Since this flexible way of working is voluntary for the employee, they are not required to work from home. This means that any journeys they make from home to the office are ordinary commuting and do not qualify for tax relief.

This is important to be aware of as an employer if you reimburse staff using the approved mileage rates. You must make sure that you do not reimburse expense claims for home-to-office travel for employees who are hybrid workers by their own choice. If you do, the payment then becomes a benefit and will need to have tax and national insurance deducted via payroll.

If you are not sure about whether you or an employee qualifies for tax relief on home-to-office journeys, please feel free to call us at any time. We will be happy to help you!
See: https://www.gov.uk/guidance/ordinary-commuting-and-private-travel-490-chapter-3#employees-who-work-at-home