In Business? Add these to your new year resolutions

The end of the calendar year is a popular accounting date for many businesses, but for those of us with a year-end accounting date of 31 March 2020, reviewing your management accounts for the nine months to the end of December 2019 is a must-do. Please use the following notes as a check list when you undertake this review:

 

  • If you are self-employed and for the nine months you are predicting lower profits for 2019-20 (compared to 2018-19) it may be possible to reduce your self-assessment payment on account due at the end of January. Contact us so we can file an appropriate election.
  • If you are self-employed and your profits are predicted to be higher for 2019-20, then you may have underpaid your self-assessment tax for 2019-20. Again, contact us so we can estimate this possible underpayment and work out a realistic savings plan to accumulate the necessary funds to meet this additional tax charge when it becomes due 31 January 2021.
  • Use the nine months figures to update your financial budgets for 2020-21. We recommend that all businesses undertake this task as it will identify high points and low points in your cash flow and solvency. Please call if you need help with this task. If you have never created a budget before we can help you crunch the necessary numbers.

 

Needless to say, if you are concerned by the historical results to 31 December 2019 or the outlook for 2020-21, let’s get together and see how best to meet these challenges. With the external pressures that Brexit may pose for your business this is not a time for wishful thinking. Be prepared.

What now?

Even though many of the uncertainties that have plagued UK politics during 2019 are still to be decided, at least the hiatus in parliament has been resolved; the Conservatives now have a working majority and we can expect action on a number of fronts.

Brexit

Business readers with any sort of trading platform with the EU need to consider their options as the EU withdrawal agreement is likely to be ratified by 31 January 2020. At a minimum, EU traders should complete their Brexit impact assessments and take steps to mitigate any apparent risks identified.

Please call if you would like our help with this process.

When will the 2020 Budget be announced?

The new government will probably concentrate on the EU withdrawal process during January and it is unlikely Budget announcements will be in evidence before February.

Budget issues do need to receive fairly urgent attention as there are a number of Income Tax reliefs that are still to be determined for 2020-21.

As details emerge we will be publishing our usual Budget round-up and advising clients of any new opportunities to trim their tax bills and take advantage of any new opportunities revealed.

Minimum wage rates increase from April 2020

Businesses that have a significant number of staff paid at Minimum Wage or National Living Wage rates should take note that from April 2020 the rates are increasing.

 

In more detail the changes announced 31 December 2019 are:

  • Annual pay rise of up to £930 for a full time worker.
  • National Living Wage (NLW) increasing from £8.21 to £8.72 per hour.
  • New NLW rate starts on 1 April 2020 and applies to over 25 years olds.

Nearly 3 million workers are set to benefit from the increases to the NLW and minimum wage rates for younger workers, according to estimates from the independent Low Pay Commission. The rise means Government is on track to meet its current target for the NLW to reach 60% of median earnings by 2020.

The new rate starts on 1 April 2020 and results in an increase of £930 over the year for a full-time worker on the National Living Wage. Younger workers who receive the National Minimum Wage will also see their pay boosted with increases of between 4.6% and 6.5%, dependant on their age, with 21-24 year olds seeing a 6.5% increase from £7.70 to £8.20 an hour.

It is worth pointing out that these are not advisory rates, they are compulsory if your staff qualify for either the National Minimum or National Living Wage rates.

Those who are not entitled to the minimum wage, according to the HMRC website, are:

  • self-employed people running their own business
  • company directors
  • volunteers or voluntary workers
  • workers on a government employment programme, such as the Work Programme
  • members of the armed forces
  • family members of the employer living in the employer’s home
  • non-family members living in the employer’s home who share in the work and leisure activities, are treated as one of the family and are not charged for meals or accommodation, for example au pairs
  • workers younger than school leaving age (usually 16)
  • higher and further education students on work experience or a work placement up to one year
  • people shadowing others at work
  • workers on government pre-apprenticeships schemes
  • people on the following European Union (EU) programmes: Leonardo da Vinci, Erasmus , Comenius
  • people working on a Jobcentre Plus Work trial for up to 6 weeks
  • share fishermen
  • prisoners
  • people living and working in a religious community

HMRC’s powers to enforce compliance in this area have teeth. Not only will you have to stump up for any arrears if you pay less than the statutory rates, HMRC can also levy penalties.

HMRC reflects on 2019 successes

Not all penalties levied by HMRC are civil, many cases are serious enough to warrant a criminal investigation. The first post in the “money” section of the gov.uk website in 2020 reflects on this. The title of the post is a give-a-way:

“Busted! HMRC reveals biggest criminal cases of year 2019”

In what could be seen as a propaganda exercise HMRC are clearly underlining the fact that tax evasion of the criminal kind has their full attention. In more detail the press release says:

This year’s top criminal cases include:

1. 2 wealthy professionals who attempted to steal more than £60 million through a fraudulent tax avoidance scheme which claimed to invest in HIV research and conservation and were jailed for a total of 14 and a half years.

2. A Berkshire-based gang that stole £34 million in VAT and laundered £87 million, the proceeds from selling illicit alcohol through bank accounts in Britain, Cyprus, Hong Kong, Dubai and other countries – were jailed for more than 46 years.

3. A fugitive £17 million tax fraudster who is finally behind bars after he was tracked down to his Prague hideaway and brought back to the UK to serve his 8-year sentence.

4. Five people, including the former owners of a Sussex petrol station, who were sentenced for distributing and selling an estimated 4.8 million litres of illicit fuel to unsuspecting motorists, including haulage companies across the South East.

5. The jailing of a former Top Gear mechanic who helped father and son tax cheats escape from the UK via ferry and Eurotunnel prior to sentencing for a £1 million VAT fraud.

6. Payback time for 5 wealthy tax fraudsters who were involved in one of the UK’s biggest tax frauds.

7. An apparently jobless Londoner who enjoyed a sociable lifestyle of golf and exotic holidays by dodging tax on smuggled tobacco has been jailed.

8. A charity treasurer who tried to steal more than £330,000 in a Gift Aid repayment fraud and spent the money on lavish cruise holidays.

9. Our work with Interpol to take apart a pan-European crime gang involved in cigarette trafficking, drug smuggling and money laundering.

 

All in all, not a bad haul. We can expect HMRC to expand the range of their anti-tax evasion activities in 2020. No doubt the forthcoming spring budget will have the usual sprinkling of fine print, adding more regulation to the tax code.

High Street funding announced

High Street rejuvenation funding announced

The first 101 places to benefit from up to £25 million each from the Future High Streets Fund were announced over summer. In the latest step of the £3.6 billion investment in towns and high streets, 20 pilot areas across England will lead the way in rejuvenating town centres with expert and tailored support from the High Streets Task Force. The government has announced the first 14 of these 20 pilot areas.

The High Streets Task Force will give high streets and town centres advice, training and information to adapt and thrive, piloting a range of products and services with 20 places before rolling out across the country next year. The first 14 of the 20 areas were announced 30 December 2019 and are listed below.

The Task Force brings together a range of expert groups on reinventing and restructuring places, including the Royal Town Planning Institute and The Design Council.

Today the government is also announcing an extra £1 million dedicated to providing further support to the 101 high streets announced over summer in planning for the £25 million of funding that is available to them, ensuring the vibrance of these high streets for years to come.

The first fourteen places that will take part in the pilot are:

1. Salford – Swinton Town centre

2. Croydon – Thornton Heath

3. Staffordshire Moorlands – Cheadle

4. Rushmoor – Aldershot Town Centre

5. Birmingham – Stirchley

6. Hyndburn – Accrington Town Centre

7. South Lakeland – Kendal

8. Preston – Friargate

9. Coventry – Coventry City Centre

10. Hartlepool – Hartlepool Town Centre

11. Cheshire West and Chester – Ellesmere Port Town Centre

12. Sandwell – West Bromwich Town Centre

13. Knowsley – Huyton Town Centre

14. Manchester – Withington District Centre

Still time to file your tax returns

The deadline to file your 2018-19 tax returns is fast approaching, the 31 January 2020. Most of our clients will have the reassurance that we have filed their returns online, but for those who still need to file their 2019 return, it’s time to get into action. If you file after 31 January 2020 late filing penalties will be applied.

In an uncharacteristic display of humour, HMRC’s press release published 27 December, was titled: “We've been Santa lot of Elf Assessments”.

Apparently, on Christmas Day and Boxing Day over 12,000 tax returns were filed online. To put this into context, HMRC are expecting over 11million returns to be filed for 2018-19.

Don’t forget to pay your self-assessment tax

The 31 January 2020 is also the time when any underpayment of tax for 2018-19 – and any first payment on account for 2019-20 – are payable.

Clients reading this post, and who may be unsure how much tax they need to pay, should call so we can confirm any amounts that may be due.

End of the 2019-20 tax year

Following fast on the heels of the tax return deadlines for 2018-19 is the end of the 2019-20 tax year.

We recommend that all business clients and high-income earners complete a review of their tax planning options before 6 April 2020. Once that particular Rubicon is passed 99% of tax planning options for the current tax year become ineffective.

The outlook for 2020-21

It is likely that the first Budget of the new government will be presented February 2020, this will no doubt set the tax scene for 2020-21.

Hopefully, the tax goal-posts will not be moved too far from their present position. We will post detailed of any changes as they are announced. During the election campaign the Conservatives did promise that they would not increase most taxes. However, it was suggested that the further planned reduction in corporation tax (from 19% to 17%) will not go ahead. We assume that the current 19% rate will therefore continue.

Happy New Year

Now that political uncertainties have been resolved, let’s hope that business owners across the UK can look forward to the resolution of the numerous challenges that our exit from the EU will likely create. The conclusion of the withdrawal process on 31 January 2020 is just the start of the process. UK businesses will be keen to see the details of the negotiated trade agreement with the EU that is timed to conclude 31 December 2020.

In the meantime, happy new year. And be sure to keep in touch. 

 

 

Too little, too late?

On 13th December, the Department for Business, Energy and Industrial Strategy in collaboration with Office for Product Safety and Standards, issued a cautionary warning to consumers buying toys this Christmas.

Leaving aside the late publication of this information – not all of us are last-minute shoppers – it is worth reproducing the twelve points that make up their press release. They are:

No one wants to take a risk with toy safety, so always bear in mind 12 tips when buying for children.

  1. Look for the CE symbol: This means the manufacturer has assessed the toy for safety. Find the symbol on the label or box.
  2. Check it’s for kids: Festive novelties can look like toys. Keep them away from kids.
  3. Reputation matters: Check the suppliers who have a good reputation for safe and reliable toys. They’ll have good safety standards and refund policies.
  4. Button battery safety: Christmas toys may have button batteries – which can prove lethal if ingested. Check they are screwed in safely before giving to a child.
  5. Check age restrictions: Toys must be clearly marked with age restrictions, which assess risks such as choking hazards. Always follow the age recommendations.
  6. Consider special needs: Remember that children with special needs might be more vulnerable, and make sure to shop accordingly.
  7. Choking hazards: Avoid toys with small parts or loose fabric – they can be a choking hazard.
  8. Loose parts: Loose ribbons on toys and costumes can be dangerous. Think before you buy.
  9. Inspect toy boxes: Wear and tear can make a toy unsafe. Check your children’s toys and get them repaired if necessary.
  10. Supervise when you need to: Some toys need an adult on hand during playtime. Read all the instructions so you can keep things under control.
  11. Tidy up: Boxes, plastic bags and wire can be a hazard. Clear away all packaging once everything’s unwrapped.
  12. Celebrate a safe Christmas: Completing these checks can save you a lot of stress later. Remember to get batteries (and dispose of these safely too)!

 

Readers who have concerns regarding any of their recent purchases for their children or younger relatives can access material from the consumer campaign page at https://www.gov.uk/guidance/consumer-safety-awareness-campaigns-materials.

An end to uncertainty

Whatever your political motivation most of us will be relieved that last week’s election has created a government with a working majority. At last, there is a light at the end of the uncertainty tunnel.

Brexit

Business readers with any sort of trading platform with the EU need to dot the i’s and cross their t’s regarding post January 2020 changes that we are promised will now happen. At minimum, EU traders should complete their Brexit impact assessments and take steps to mitigate any apparent risks identified.

Please call if you would like our input into this process.

When will the next Budget be announced?

The new government will need to get it’s Budget act together. Our feeling is that parliamentary time will be fully committed to Brexit matters until we leave at the end of January 2020.

Once that process is out of the way we should see a Budget date announced at some time during the first two weeks of February. Ordinarily, we should have had a Budget last month, but other matters prevailed.

Budget issues do need to receive fairly urgent attention as there are a number of Income Tax reliefs that are still to be determined for 2020-21.

As details emerge we will be publishing details and advising clients of any new opportunities to trim their tax bills and take advantage of any new opportunities revealed by the Budget announcements.

Approaching the end of the tax year

Once the Budget changes are announced there should be enough time to consider tax planning options to action before the end of the current fiscal year, 5 April 2020. Please call if you have not yet booked a tax planning review for 2019-20.

It is worth underlining that once the tax year end date passes, 99% of your tax planning options for 2019-20 will cease to be effective.

Post uncertainty

Debate is a valuable tool to resolve what should be done next. Unfortunately, if debate does not lead to informed action then paralysing uncertainty is the likely result.

It will be interesting to see what our new government manages to achieve in the coming months and years now that they have a mandate to act.

Land Registry property alert service

Property owners are potentially more at risk from the activities of fraudsters. They have more to lose and there are very real risks that the Land Registry property alert service is set up to counter.

Why consider this service?

Since 2009, HM Land Registry has prevented 254 fraudulent applications being registered by fraudsters. Common attempts to "steal" property Include selling or mortgaging your property without your knowledge.

How the service works

It Is possible to monitor up to ten properties already registered with the Land Registry or those of a relative – you don't have to be the owner of a property to set up an alert.

An example of the type of fraud that can be countered by this service – as published on the gov.uk website – is reproduced below:

Mr Mills rented out his property in England while he lived overseas. He realised that absent landlords are more at risk of property fraud, so he signed up to our Property Alert service.

Sometime later he received an alert email informing him that someone had made an application to register a mortgage on his property worth over £300,000. As Mr Mills wasn’t expecting this, he contacted our property fraud line. As a result of Mr Mills alerting us to the fact that the mortgage request was suspicious, we investigated and prevented the application from being registered once we realised it was fraudulent. As Mr Mills’ contact details were out of date, we advised him to update them so that if we needed to contact him in the future, he would be sure to receive our emails or letters.

As a result of signing up to Property Alert, Mr Mills was able to spot suspicious activity on his property and his prompt action in alerting us meant we were able to stop the fraudulent transaction from being registered.

To set up an alert fill in the online application at https://propertyalert.landregistry.gov.uk/.

Basic terms and conditions of the service

  • The property you want to monitor must be situated in England or Wales and registered with HM Land Registry
  • You must create a Property Alert account to use the service
  • You will receive a HM Land Registry email (please check spam inbox) to enable you to verify your email details
  • You must then sign into your account to add a property
  • Email alerts are sent when official searches and applications are received against a monitored property
  • If you receive an alert about activity that seems suspicious you should take swift action. The alert email will signpost you to who to contact.
  • You don't have to own a property to set up an alert
  • The same property can be monitored by different people.
  • Property, especially flats/apartments, can be registered with two titles. Blocks of flats are often owned by companies (Freehold), and the person owning the individual flat (Leasehold). When registering for this service please choose Leasehold title for individual flats/apartments.
  • You can use the service if you are not online. Call the Property Alert team on 0300 006 0478.

What constitutes profit for tax purposes?

There is no simple answer to this question. We have listed below some of the matters that need to be are considered. As self-employed business owners’ profits are subject to income tax and National Insurance – and limited companies to corporation tax – we have divided our comments accordingly.

Before making this distinction it is important to state that profit shown on your accounts is not the figure that is used by HMRC to work out taxes due. Your published figures are adjusted to reflect the following (this is not a comprehensive list):

  • Depreciation of assets is always added back and replaced with a capital allowance. Generally, capital allowances claimed will reduce your tax bill and on some occasions the amount claimed can be more than any depreciation charge shown in the accounts.
  • Certain business expenses are not allowed for tax purposes. A common example is business entertaining.
  • Payments to the owners of the business are treated differently if the business is incorporated or self-employed. Some of these distinctions are set out below.

Self-employed – income tax and Class 4 NIC

Sole traders and partners in trading partnerships (including Limited Liability Partnerships) are subject to income tax and Class 4 NIC. Profits adjusted for tax purposes are treated as the income of the business owner.

The self-employed are not taxed on the funds they withdraw from the business but the profits they earn.

They will pay income tax at 20%, 40% or 45% depending on the amount of profits earned. Additionally, the self-employed pay Class 4 NIC of 9% on profits between £8,632 and £50,000. This 9% rate drops to 2% for profits earned in excess of £50,000.

This exposure to potentially high rates of income tax and NIC is the main reason for considering the incorporation of successful self-employed business.

Limited companies

In the majority of cases limited companies pay corporation tax on their adjusted trading profits at a fixed rate. Currently, corporation tax is charged at 19%.

However, if director/shareholders withdraw money from the company they are taxed separately on those withdrawals. The most common director shareholder rewards are:

  • A salary – taxed under the PAYE rules. Salaries and employer NIC charges are an allowable deduction for corporation tax purposes.
  • A dividend – dividends are a distribution of taxed profits (company trading profits less corporation tax paid). They are not a cost to the business and do not reduce the company’s corporation tax bill. Any dividends received by shareholders in excess of £2,000 are taxed at hybrid rates of income tax (7.5%, 32.5% or 38.1%) the rate you would pay depends on the level of your overall income.
  • A benefit, company car etc – most benefits are treated as income and will increase a beneficiary’s income tax charge. Additionally, companies will be charged extra NIC based on the total value of benefits provided.

Planning note

Working out the best structure for your business should take the above into account. However, there are a range of other “risk” considerations that should be examined. If you are concerned that you may not be operating in the most tax efficient way please call so we can help you work through your options.