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Retirement may be a long way off, but when it does come time to leave your business, you want to ensure it is in the best shape it can be. And that requires some forward planning.

What is an exit strategy?

As a business owner in the UK, it's essential to have a plan for exiting your business. A business exit strategy is a plan that outlines how you will sell, transfer, or otherwise dispose of your business when the time comes. It's a critical component of any business plan, and it's essential to have one in place even if you don't plan to exit your business for many years.

The benefits of an exit strategy

So, what are the benefits of having a business exit strategy? For starters, having a plan in place can help you maximise the value of your business.

By preparing for an exit, you'll be able to identify any potential issues that could impact your business's value and address them before they become problematic.

You'll also have a clear idea of what your business is worth, which will help you set realistic goals for your sale or transfer.

Another benefit of having a business exit strategy is that it can help you maintain control over the process. If you wait until you're ready to exit your business to start planning, you may find yourself in a position where you're forced to make decisions quickly and under pressure.

By planning ahead, you'll be able to take your time and make informed decisions that are in your best interests.

What happens if I don’t plan?

So, what is the worst-case scenario if you don't plan ahead? There are several potential consequences of failing to have a business exit strategy in place.

For starters, you may find that you're unable to sell your business for as much as you could have if you had prepared properly. You may also find that you're unable to find a buyer or that the sale process takes much longer than anticipated.

Additionally, failing to plan for your exit could lead to disputes among family members, business partners, or other stakeholders. These disputes could lead to legal battles or even the dissolution of your business.

By planning ahead and being clear about your intentions, you can help avoid these types of issues.

What do I need to do?

The first step is to determine your goals. Do you want to sell your business outright, transfer ownership to a family member or key employee, or wind down operations entirely? Once you've established your goals, you can start to develop a plan for achieving them.

Some key considerations to keep in mind when developing your exit strategy include tax implications, legal issues, and the timing of your exit. You'll also need to consider who your potential buyers or transferees might be and what they'll be looking for in a business.

In many cases, it's a good idea to work with a professional advisor when developing your exit strategy. An experienced accountant, lawyer, or business broker can provide valuable guidance and help you navigate the complex legal and financial issues involved in selling or transferring a business.

Having a business exit strategy is essential for any business owner. By preparing for your exit, you can maximise the value of your business, maintain control over the process, and avoid potential disputes or other issues. So, start planning your exit strategy today – your future self will thank you.

Need help? Get in touch today.

Starting up your own business may be the dream, but is it right for you? We look at some of the pros and cons of going it alone.

Making a change

Self-employment and traditional employment have their benefits and drawbacks. Choosing between them requires careful consideration of individual circumstances and preferences, including financial implications. Taxation plays a significant role in determining the pros and cons of being self-employed or employed.

Pros of self-employment

• Flexibility: Self-employment offers more control over work schedules and workload, allowing for a better work-life balance. Self-employed individuals can choose to work on a project-by-project basis or set their hours to fit personal needs, making it easier to attend to family and personal commitments.
• Unlimited earning potential: Unlike traditional employment, self-employment has no fixed salary, which means that earnings are directly related to the amount of work done. Self-employed individuals have an unlimited earning potential, which can significantly increase income over time.
• Tax benefits: Self-employed individuals have access to a range of tax benefits that are not available to traditional employees. For example, self-employed individuals can deduct business expenses from their tax bill, such as equipment, travel, and office space. Self-employed individuals can also claim capital allowances on certain assets, reducing their taxable income.

Cons of self-employment

• Financial instability: Self-employment is typically more volatile than traditional employment, with irregular income and cash flow. This can make budgeting and financial planning more challenging, particularly during the early stages of starting a business.
• Responsibility: Self-employed individuals are solely responsible for the success or failure of their business. This requires a level of risk-taking and entrepreneurial skill that may not be suitable for everyone. It also means that there is no safety net if things go wrong.
• Taxation: Self-employment can also have higher tax obligations than traditional employment. Self-employed individuals must pay both income tax and National Insurance contributions on their earnings. In addition, self-employed individuals may be required to register for VAT if their turnover exceeds £85,000.

Pros of traditional employment

• Financial stability: Traditional employment provides a stable income, with regular pay, benefits and job security. This can make it easier to plan and budget for personal and family expenses.
• Employee benefits: Traditional employees typically have access to a range of benefits, such as sick pay, holiday pay and pensions, which are not available to self-employed individuals. These benefits can significantly enhance the financial well-being of employees.
• Reduced tax obligations: Traditional employees have lower tax obligations than self-employed individuals, as employers are responsible for paying a portion of National Insurance contributions on behalf of their employees.

Cons of traditional employment

• Limited earning potential: Traditional employment typically has a fixed salary or wage, which means that earnings are limited. There is less opportunity for rapid income growth than self-employment.
• Less flexibility: Traditional employment generally requires employees to work set hours and adhere to strict schedules, reducing the flexibility to attend to personal and family commitments.
• Limited control: Traditional employees have limited control over their job responsibilities and career trajectory, which can be frustrating for those seeking autonomy and career growth.

The decision to become self-employed or seek traditional employment depends on individual preferences, circumstances and financial goals. While self-employment offers more flexibility, unlimited earning potential and tax benefits, it also carries financial instability, responsibility and higher tax obligations. Traditional employment, on the other hand, offers financial stability, employee benefits and reduced tax obligations, but comes with limited earning potential, less flexibility and limited control over job responsibilities and career growth.

If you are thinking of going self-employed and would like any advice, give us a call.

There are a number of reasons why you may look to close your limited company. This could be because the limited company structure no longer suits your needs, your business is no longer active, or the company is insolvent. You will usually need the agreement of all the company’s directors and shareholders to close down the company.
The method for closing down a limited company depends on whether it is solvent or insolvent. If the company is solvent, you can apply to get the company struck off the Register of Companies or start a members’ voluntary liquidation. The former method is usually the cheapest.
It is the responsibility of the company directors to ensure that all of a company’s assets and liabilities are dealt with before it is dissolved. For example, you have settled any outstanding bills and collected all debts owed to the business. Any assets or rights (but not liabilities) remaining in the company at the date of dissolution can pass to the Crown as ownerless property.
Where a company is insolvent, the creditors’ voluntary liquidation process must be used. There are also special rules where the company has no director, for example if the sole director has passed away.
A company can also elect to become dormant. A company can stay dormant indefinitely, however there are costs associated with this option. This might be done if for example a company is restructuring its operations or wants to retain a company name, brand or trademark. The costs of restarting a dormant company are typically less than starting with a new formation.

The changes to VAT penalties from 1 January 2023 will affect everyone who submits VAT returns, including nil or repayment return. The default surcharge regime has been replaced by a new penalty system with different penalties for late submission of VAT returns and late payment of VAT. It’s also changing the way interest is calculated when taxpayers are late in paying HMRC.

The new points system

HMRC intend for this to be less punitive when the taxpayer misses the occasional deadline. It will allocate 1 point each time a filing deadline is missed, and that point will expire after a specified time unless you go over the penalty thresholds. When you reach a relevant number of points, a £200 penalty will be charged, and all subsequent missed deadlines will incur a penalty.

Points for penalties

A penalty will be charged when your total equals these thresholds:

Submission period Points threshold

Annual 2 points

Quarterly 4 points

Monthly 5 points

Expiration of penalty points

Like driving license ‘points’, your points will expire when you have met a longer test of compliance – submitting everything on time.

Late payment of VAT

The new points system will apply in two stages, fixed penalties and daily penalties. The later your payment, the higher the rate of penalty. Payments that are up to 15 days late will not trigger a penalty irrespective of the number of occurrences.

• Payments between 16 and 30 days late – 2% penalty of amount outstanding at day 15
• Payments that are 31 days late or more – 2% penalty of amount outstanding at day 15 plus additional 2% penalty calculated on the amount outstanding at day 31

There will also be a daily penalty from day 31 on the amount outstanding.

It is important to note that the penalties and interest charges can add up quickly, and can have a significant impact on a business's finances. Therefore, it is essential for small business owners to take their VAT obligations seriously and stay on top of their VAT returns and payments.

Need help?

If you need help or support with your VAT obligations, get in touch.

1 March 2023 – Due date for Corporation Tax due for the year ended 31 May 2022.

2 March 2023 – Self-Assessment tax for 2021-22 paid after this date will incur a 5% surcharge unless liabilities are cleared by 1 April 2023, or an agreement has been reached with HMRC under their time to pay facility by the same date.

19 March 2023 – PAYE and NIC deductions due for month ended 5 March 2023 (If you pay your tax electronically the due date is 22 March 2023).

19 March 2023 – Filing deadline for the CIS300 monthly return for the month ended 5 March 2023.

19 March 2023 – CIS tax deducted for the month ended 5 March 2023 is payable by today.

1 April 2023 – Due date for Corporation Tax due for the year ended 30 June 2022.

19 April 2023 – PAYE and NIC deductions due for month ended 5 April 2023. (If you pay your tax electronically the due date is 22 April 2023).

19 April 2023 – Filing deadline for the CIS300 monthly return for the month ended 5 April 2023.

19 April 2023 – CIS tax deducted for the month ended 5 April 2023 is payable by today.

30 April 2023 – 2021-22 tax returns filed after this date will be subject to an additional £10 per day late filing penalty for a maximum of 90 days.

National Insurance credits can help qualifying applicants to fill gaps in their National Insurance record. This can assist taxpayers to build up the number of qualifying years of National Insurance contributions which can increase the amount of benefits a person is entitled to, such as the State Pension.

This could happen if someone was:

• employed but had low earnings;
• unemployed and were not claiming benefits;
• self-employed but did not pay contributions because of small profits; or
• living or working outside the UK.

National Insurance credits are available in certain situations where people are not working and therefore, not paying National Insurance credits. For example, credits may be available to those looking for work, who are ill, disabled or on sick pay, on maternity or paternity leave, caring for someone or on jury service.

Depending on the circumstances, National Insurance credits may be applied automatically or an application for credits may be required. There are two types of National Insurance credits available, either Class 1 or Class 3. Class 3 credits count towards the State Pension and certain bereavement benefits whilst Class 1 covers these as well as other benefits such as Jobseeker’s Allowance.

Taxpayers may be able to pay voluntary contributions to fill any gaps if they are eligible.

The Bank of England’s Monetary Policy Committee (MPC) met on 2 February 2023 and voted 6-3 in favour of raising interest rates by 50 basis points to 4% in a move to try and continue to tackle upward pressures on inflation. This is the tenth time in a row that the MPC has increased interest rates with rates now the highest they have been since November 2008.

This means that the late payment interest rate applied to the main taxes and duties that HMRC charges interest on increases by 0.5% to 6.50%.

These changes will come into effect on:

• 13 February 2023 for quarterly instalment payments
• 21 February 2023 for non-quarterly instalments payments

The repayment interest rates applied to the main taxes and duties that HMRC pays interest on will increase by 0.5% to 3% from 21 February 2023. The repayment rate is set at the Bank Rate minus 1%, with a 0.5% lower limit.

The annual exempt amount applicable to Capital Gains Tax (CGT) is to be more than halved from April 2023. This means that the exempt amount will be reduced from £12,300 to £6,000 from April 2023 before being further reduced to £3,000 from April 2024.

Taxpayers with small gains should consider the benefits of crystalising these gains before 6 April 2023 in order to fully utilise the £12,300 allowance for 2022-23. Married couples and civil partners both qualify for the £12,300 allowance in which case organising joint ownership of these assets before disposal may be beneficial if each individual partner is not fully utilising their annual allowance.

Transfers between spouses and civil partners are exempt from CGT. Making use of the full allowance can, in some circumstances, effectively double the CGT exemption before the end of the current tax year to £24,600.

CGT is normally charged at a simple flat rate of 20% and this applies to most chargeable gains made by individuals. If taxpayers pay basic rate tax on their income and make a small capital gain, they may be subject to a reduced rate of 10%. Once the total of taxable income and gains exceed the higher rate threshold, the excess will be subject to 20% CGT.

A higher rate of CGT applies to gains on the disposal of residential property (apart from a principal private residence). The rates are 18% for basic rate taxpayers and 28% for higher rate taxpayers.

If you’re married or in a civil partnership, you could be one of the 2.1 million couples currently benefiting from Marriage Allowance.

Understanding Marriage Allowance

It is a tax benefit that is available to married couples and civil partners in the UK. The allowance allows for a portion of one partner's unused personal allowance to be transferred to the other partner, reducing their tax bill.

Benefits of the allowance

The financial benefits of Marriage Allowance can be significant, especially for couples with one partner earning significantly less than the other. The partner who earns less than the personal allowance threshold (currently £12,570 in the tax year 2022/23) can transfer up to £1,260 of their unused personal allowance to their partner, who will receive a tax credit of 20% of this amount, currently £252. This reduces the higher-earning partner's tax bill by up to £252, providing a welcome boost to their joint finances.

Tax Year Marriage Allowance amount

2022/23 £252

2021/22 £252

2020/21 £250

2019/20 £250

2018/19 £238

Marriage Allowance eligibility

To be eligible for Marriage Allowance, both partners must meet certain criteria.

• You’re married or in a civil partnership and are not currently in receipt of Married Couple’s Allowance
• You do not pay income tax or you earn less than your Personal Allowance so are not liable to tax. For the tax year 2022/23, this means an income of less than £12,570
• Your partner pays tax on their income at the basic rate so is not liable to higher or additional rate taxes. This means your partners income is between £12,571 and £50,270 before Marriage Allowance

Use the free Marriage Allowance Calculator on GOV.UK to check if you could be eligible for the tax relief.

These thresholds are subject to change each tax year, so it is important to check the latest information from HM Revenue and Customs (HMRC) to ensure you are eligible and understand the amount of Marriage Allowance you may be able to claim.

Overall, Marriage Allowance can provide a valuable financial benefit for UK couples, helping to reduce their tax bill and boost their joint finances.

How to apply for Marriage Allowance

You can apply online to HMRC at GOV.UK. You’ll need your national Insurance numbers and identification. You can also apply by calling 0300 200 3300.

Running your own business can incur a number of costs, not least renting premises. But if you are a sole trader you may prefer to work from home.

It’s convenient, there’s no commute and you’re on hand if extra childcare is needed. Plus, there is the bonus of saving costs.

But did you know there are a number of working-related expenses that you can claim for if you are using your home as your office.

After all, you may not be paying rent on a town-centre location, but your general household bills will go up with the extra electricity, heating and home insurance.

You can claim for some of these expenses though, including utility bills, internet, council tax and your mortgage interest.

How do I claim?

There are two methods you can use for calculating your expenses – one is straightforward, but favours the taxman, while the other is more cost-effective for you.

Using HMRC flat rate

This is the easier method and is unlikely to face any HMRC challenges. It is calculated on the number of hours a month you work at home. So, from a minimum 25 hours up to 50 hours you can claim £10 a month. The figure rises to £18 a month for 51 to 100 hours and anything over 100 can be claimed at £26 a month.

As an example, say you work 140 hours a month for eight months of the year (£26 x 8) and 60 hours for four months (£18 x 4), you could claim £208 £72 = £280.

The flat rate does not take into account telephone/internet expense. You can claim for the portion of the bill that is related to business use.

Manual method

The second calculation involves doing some sums. First, work out how much you pay in total for the following:

• Mortgage interest (not the full mortgage payment) or rent
• Electricity
• Water
• Internet/telephone

• Insurance
• Council tax
• Repairs
• Heating

Now, count the number of ‘living space’ rooms in the house – this doesn’t include the bathroom, kitchen, utility. The next step is to calculate the number of days you use your office and the number of hours each day.

Let’s say the answers are:

• Total household bills: £6,000
• Number of rooms: 4 (three bedrooms and one lounge)
• Number of days a week you work: 5
• Number of hours a day: 8

Divide the annual cost of £6,000 by the number of rooms (6,000/4=1,500)

You use the office five days a week (1,500/7*5=1,071)

Divide 1,071 by 120 (the number of hours in five days) and multiply by 40 (the number of hours you work each week) = £357.14

The total is more than the £280 you could claim with the flat rate.

Need help?

If you are unsure what you can claim, get in touch.