News

You and each member of your family is entitled to make tax-free capital gains of up to £12,300 in the 2021-22 tax year. If you have made no disposals that would trigger a capital gain in 2021-22, consider the following:

If you have assets, shares for example, that you are thinking of selling, you may want to realise enough to produce gains up to the £12,300 limit.

Transfers of assets between married couples or civil partners can be made free of Capital Gains Tax (CGT). In which case, if you have used your £12,300 allowance and still have assets that you want to sell, then transfer enough of these remaining assets to your spouse or civil partner for them to sell and utilise their separate CGT tax-free allowance.

Please note that you may have to pay CGT if you sell a personal possession for £6,000 or more. For example, a sale of:

• jewellery
• paintings
• antiques
• coins and stamps, or
• sets of things, e.g., matching vases or chessmen

You will not have to pay CGT if you dispose of your private car or any personal possession with a limited lifespan, e.g., clocks. The only exception is if a car or other limited lifespan asset was used in a business. Disposals of business assets may create a tax charge.

Now that the majority of COVID-19 restrictions are being eased, or removed completely, can we assume that normality can return in place of the unremitting uncertainty of the past two years?

Whilst this may seem to be a welcome prospect, business owners badly affected by this disruption will have two issues holding them back:

• A depleted balance sheet – reserves used to survive extended periods of shut-down or reduced trading.
• The repayment of loans taken out to fund overheads and other fixed costs during lockdown.

Both of these issues will inhibit a sudden rush of activity unless sales are made on a cash basis.

To minimise any downside risks we recommend pausing to create a realistic business plan for at least the next twelve months. This will identify any dips in cash resources and reveal the level of profitability that can be achieved.

Please, pick up the phone if you would like to discuss the best way to build a plan for your business.

HMRC recently published a reminder targeted at married couples with an unused personal tax allowance. They said:

Marriage Allowance allows married couples or those in civil partnerships to share their personal tax allowances if one partner earns an income under their Personal Allowance threshold of £12,570, and the other is a basic rate taxpayer.

Eligible couples can transfer 10% of their tax-free allowance to their partner, which is £1,260 in the 2021-22 tax year. It means couples can reduce the tax they pay by up to £252 a year. Couples can apply any time, backdate their claims for any of the 4 previous tax years and receive a payment of up to £1,220 at a time when they need it most.

Married couples may have experienced a change in their circumstances which could now mean they are eligible for Marriage Allowance, including:

• a recent marriage or civil partnership
• one partner has retired and the other remains working
• a change in employment due to COVID-19
• a reduction in working hours which means their earnings fall below their Personal Allowance
• unpaid leave or a career break, or
• one partner is studying or in education and not earning above their Personal Allowance

If a spouse or civil partner has died since 5 April 2017, the surviving person can still claim by contacting the Income Tax helpline.

Marriage Allowance claims are automatically renewed every year.

More challenges to our financial plans last week as the Russian incursion into Ukraine has boosted the price of oil and gas and adds a new layer of uncertainty to global economic activity in the coming year.

How will this affect our current business plans?

There is a tendency to see a business plan as fixed in stone; something that you have to aspire to come what may. Of course, this is completely unrealistic. Consider, for example, the plight of business owners in the entertainment and hospitality sectors during the past two years.

What business owners may benefit from is a flexible budgeting approach.

Why flexible budgets?

To be of use to your business, plans need to be flexible. And there are sound commercial reasons for this approach. For example, by reconsidering your plans as external challenges arise, you may decrease or perhaps eliminate the down-side risks to:

• Cashflow
• Overhead cost increases
• Sales volume
• Sales price sensitivity
• Staffing issues
• Investment decisions
• Tax planning
• Solvency
• Business exit plans

Part of monthly management accounts review process

Experience of the past two years, more recent challenges to global trade, rising inflation and forthcoming company tax increases all point to the need to adopt a more dynamic approach to monitoring our financial plans.

We now recommend consideration of a walk-through review of critical aspects of your business plans on a monthly or quarterly basis to ensure that remedial changes can be made before any effects on cashflow, profitability or solvency become critical.

It may well be that this short review will endorse a ‘steady as you go’ approach. But this is not wasted effort. As recent disruption has revealed, setting aside time to consider the wider context of challenges to your business plans will catch those downside risks before they become terminal events.

Please call if you would like to discuss the adoption of this strategy for your business.

EMI Scheme

Most share option schemes, with an eye to tax benefits, use the Enterprise Management Incentive (EMI) scheme.

For qualifying arrangements, there are tax incentives for the employer and employee.

The point to emphasise with EMI arrangements is that they can only be made by employers with their employees.

Unapproved option scheme

Unapproved share option schemes can be organised but there is no tax advantage for the recipient, who would be liable for income tax on the difference between the exercise price and the market value of options when exercised.

Employees may also be liable to pay NIC if the shares are readily convertible ta cash – for example, if a company is being sold.

However, unlike EMI arrangements, unapproved schemes can be offered to contractors, advisors, consultants and employees.

Growth shares

Growth shares provide the recipient with a share in the growth of the company from the date at which they were issued.

Recipients pay no tax on exercise of these arrangements but will pay capital gains tax when shares are sold.

Growth shares are useful if involving non-employees. They also minimise any dilution of value for existing shareholders.

Consider your options…

If you are considering an option or share scheme with key employees or other individuals, we can help. Please call so we can discuss the first steps.

The UK tax system does not allow families to spread the impact of taxation where there is one significant income earner providing for other family members.

For example, if one parent was earning £100,000, they will be paying income tax at 40% rates on almost £50,000 of their income when their partner and teenage children may have no income.

One strategy to consider in these circumstances is sharing taxable income with family members. Generally speaking, this option will only be available to the self-employed or owners of a limited company. If the major income earner is employed by a third-party employer there will be limited options to consider sharing these earnings with family members.

Self-employed options

It is possible for sole traders to convert their business into a partnership with their spouse/partner and divide the business profits between them.

There will be a number of issues to consider before undertaking this strategy:

• It is wise to have a commercial reason for the change.
• Combined tax and NIC savings need to exceed additional costs.
• Professional charges for taking care of a partnership and filing additional tax returns.

Limited company options

A spouse or partner taking shares or a directorship in an existing company will need to consider organising the issue or transfer of shares in the company and thus avoid triggering the ‘settlement legislation’. Settled property would be taxed as if the transfer had not taken place so no tax advantage would be achieved.

Employing a family member in the business

This is a perfectly acceptable strategy as long as there is a sound commercial reason for the appointment and rates of pay are in line with the usual rates for the type of work undertaken.

Other factors to consider if employing family members:

• Have a detailed job description, hours to be worked and rates of pay.
• Make sure that National Living Wage and National Minimum Wage levels are observed.
• There are limitations on the hours that can be worked by younger family members.
• Ensure that pension obligations are considered.

In summary

If you want to see if there is an acceptable way to bring members of your family into your business to reduce your family tax position and increase your family disposable income, we can help you create a feasibility study to quantify these savings. Please call for more information.

In a recent press release the Competition and Marketing Authority issued details of a poll of over 2,000 UK adults. According to the results of the poll:

• 7 out of 10 had experienced misleading online practices
• 85% believed businesses using them were being dishonest with their customers
• And 83% were less likely to buy from them in the future

Following the survey, the CMA has launched a brand-new campaign “The Online Rip-Off Tip-Off” to help shoppers spot and avoid misleading online practices that could result in them being misled or suffering financial loss.

With almost one-third of all retail purchases now taking place online, after the pandemic fuelled a surge in internet shopping, the CMA has become increasingly concerned about the impact of these “sneaky” sales tactics on consumers.

Research commissioned by the CMA shows that these practices, which are carefully designed to manipulate shoppers, can lead to wasted time and money, as well as anxiety and stress, and so cause significant financial and emotional harm. It revealed that 71% of people shopping online had encountered these tactics, and 61% described their experience as negative. This is exacerbated by the fact they are often hard to spot, and people don’t know how to avoid them.

The survey also revealed that, of those who had experienced misleading online practices, the biggest concern was about hidden charges (85% of respondents), followed by subscription traps (83%), fake reviews (80%) and pressure selling (50%).

Andrea Coscelli, the CMA’s Chief Executive, explained:

“As online shopping grows and grows, we’re increasingly concerned about businesses using misleading sales tactics, like pressure selling or hidden charges, to dupe people into parting with their cash.”

He added:

“None of us would accept these tactics in the real world. But we might not realise how much they influence what we buy online. So, we’ve launched “The Online Rip-Off Tip-Off” to help hand the power back to shoppers.

“We continue to crack down on practices that could break the law, such as fake reviews. But to tackle this problem from all angles, it’s vital shoppers are armed with the tools they need too. It’s only when we all know what these tricks are, and how they are designed to manipulate and mislead, that we are better equipped to avoid them.”

According to the UK-wide survey, many respondents reported that they had wasted money on a disappointing product or experience, spent cash they couldn’t afford or wasted time trying to undo the harm caused.

Apparently, February is the month that many homeowners take issue with their council tax banding in the hope and expectation that it will result in lower – not higher – council tax bills 2022-23.

Anticipating this, the Valuation Office, who oversee these reviews, have issued guidance. In their opening to a news story published 4 February 2022, they said:

“If you’re thinking about challenging your Council Tax band because you think it’s too high there are a few things to consider, in order to make sure you don’t spend time on a challenge that won’t be successful.

“Legally, we can only review your Council Tax band if you provide certain types of evidence to show your banding is wrong, or if it meets certain criteria. This evidence might include the addresses of similar properties to yours that are in a different band, or evidence of house prices which similar properties to yours have sold at.

“We cannot undertake such a review without any supporting evidence being submitted.”

Other circumstances that may qualify your property for a review include:

• If your property has changed – for example, it’s been demolished, split into multiple properties or multiple properties merged into one.
• If your property’s use has changed – for example, part of your property is now used for business.
• If your local area has changed – for example, a new supermarket has been built and has impacted the value of your property.
• If you’ve been paying Council Tax on your property for less than six months.

The Valuation Office Agency were keen to point out that your Council Tax band (as well as that of your neighbours) could actually be increased following a review as opposed to decreasing.

It is worth noting that council tax bandings can not only be influenced by the location of a property, but also on the size and characteristics of the building. This may help to explain why a neighbouring property is in a different band.

The Valuation Office Agency is only responsible for banding properties and entering them in the Council Tax list. Your local council sets rates and collects Council Tax payments. Any queries regarding billing or rebates should be addressed to your local council.

During the pandemic, businesses affected by COVID-19 disruption will have had their attention firmly focussed on survival. Certain sectors have suffered more than others with the hospitality, entertainment and leisure industries bearing the brunt of lockdown measures.

But what impact has this unprecedented period had on the value of your personal assets?

One thing we cannot change is the passage of time, and if not already retired, we are all heading in that direction.

The funds we are building to finance retirement need to be reviewed in much the same way that we examine the changes in our business balance sheets.

And are we aware that many of our decisions, unrelated to finances, may have an impact on our personal wealth?

For example, increasing the size of our family, or changing our marital or civil partnership status.

An annual review

We would recommend a focussed fact-find session to determine the assets and liabilities that make up your personal wealth balance sheet. Reviewed annually, or bi-annually, this will keep you up-to-date with your personal net worth. And will help to answer questions such as:

• Are your existing Wills and inheritance tax planning fit for purpose? Do they need changing?
• Is your wealth increasing or decreasing?
• What plans do you have that will impact your wealth creation strategies?
• What are the contingent risks arising from the sale of assets in future years – capital gains tax for example?
• Do you need to consider business exit planning?
• Are you on track to meet funding of retirement?

Planning note

If you do have contingent risks to consider – future tax payments for example – it is always better to plan a minimisation strategy before the events occur. And a key indicator to pin down these risks is to focus on creating wealth in tax-free zones and take advantage of all the available tax allowances and reliefs to which you may be eligible.

If you are inspired to take a look at these issues, please call so that we can consider your options.

During the pandemic, businesses affected by COVID-19 disruption will have had their attention firmly focussed on survival. Certain sectors have suffered more than others with the hospitality, entertainment and leisure industries bearing the brunt of lockdown measures.

But what impact has this unprecedented period had on the value of your personal assets?

One thing we cannot change is the passage of time, and if not already retired, we are all heading in that direction.

The funds we are building to finance retirement need to be reviewed in much the same way that we examine the changes in our business balance sheets.

And are we aware that many of our decisions, unrelated to finances, may have an impact on our personal wealth?

For example, increasing the size of our family, or changing our marital or civil partnership status.

An annual review

We would recommend a focussed fact-find session to determine the assets and liabilities that make up your personal wealth balance sheet. Reviewed annually, or bi-annually, this will keep you up-to-date with your personal net worth. And will help to answer questions such as:

• Are your existing Wills and inheritance tax planning fit for purpose? Do they need changing?
• Is your wealth increasing or decreasing?
• What plans do you have that will impact your wealth creation strategies?
• What are the contingent risks arising from the sale of assets in future years – capital gains tax for example?
• Do you need to consider business exit planning?
• Are you on track to meet funding of retirement?

Planning note

If you do have contingent risks to consider – future tax payments for example – it is always better to plan a minimisation strategy before the events occur. And a key indicator to pin down these risks is to focus on creating wealth in tax-free zones and take advantage of all the available tax allowances and reliefs to which you may be eligible.

If you are inspired to take a look at these issues, please call so that we can consider your options.