News

Readers should take note of the following changes:

• Income Tax Allowances frozen: The Income Tax personal allowance and the rates and bands are frozen until April 2026. Whilst this is not a direct tax increase, it does mean that any increases in earnings will be fully taxed and certain taxpayers may find that this process will push some of their income into the higher rate bands.
• Dividend Tax: To ensure that the tax payable on dividend income increases in line with the increase in NIC next year, from April 2022 the new rates payable on dividends in excess of the £2,000 tax-free allowance will be:
  • Dividends that form part of the basic rate band – 8.75% (7.5% 2021-22)
  • Dividends that form part of the higher rate band – 33.75% (32.5% 2021-22)
  • Dividends that form part of the additional rate band – 39.35% (38.1% 2021-22)

For most director/shareholders of smaller companies who have adopted the high dividend low salary approach to remuneration, will pay more tax as a result, but this should not affect the overall strategy.

• Corporation Tax: The planned increase in rates to 25% (currently 19%) from April 2023 was confirmed. From 1 April 2023, there will be two rates of CT. Taxable profits up to £50,000 will continue to be taxed at 19%, taxable profits more than £250,000 will be taxed at 25%. Profits between £50,000 and £250,000 will be subject to a marginal tapering relief. This would be reduced for the number of associated companies and for short accounting periods.
• Increasing the normal minimum pension age: The earliest age at which pension savers can access their pensions without incurring an unauthorised payments tax charge is changing. From 6 April 2028, the normal minimum pension age is increasing from 55 years to 57 years. Affected individuals may need to revisit their retirement plans.

If you are concerned by any aspects of the recent Budget, please call.

There was little good cheer in the Chancellor’s announcements to parliament on 27 October. A short summary of the good news is listed below:

• Annual Investment Allowance (AIA): The £1m limit to claims for tax relief when purchasing qualifying assets was due to return to a more modest £200,000 from the 1st of January 2022. This change has now been postponed until 31 March 2023. This takes the urgency out of decisions to purchase appropriate assets. This is a welcome extension of tax relief for capital expenditure, especially for unincorporated businesses who do not have access to the new 130% Super-deduction that is only available to companies.
• Museums and Galleries: The Museums and Galleries Exhibition tax relief is extended for a further two years until 31 March 2024.
• Theatre, Orchestra and Museums and Galleries Exhibition Relief: rates of relief have been increased to 31 March 2024.
• Capital Gains Tax deadline increased: The requirement to file calculations of capital gains due on certain residential property sales and pay any tax due within 30-days of completion – primarily on disposal of second homes and buy-to-let property – has been extended to 60-days. This affects all sales completed on or after 27 October 2021.
• Business rates relief extended: The business rates multipliers are frozen for a second year until 31 March 2023. The small business multiplier is set at 49.9p and the standard multiplier at 51.2p. Different rates apply in London and in Wales. The freezing of the multipliers will mean that your business rates will not increase in 2022-23. Eligible retail, hospitality and leisure properties will benefit from a 50% relief in their business rates for 2022-23, subject to a cap of £110,000 per business.
• National Living Wage: The basic NLW rate is increasing to £9.50 per hour from April 2022.

Business gifts are not allowed as a tax deduction against profits. The legislation treats gifts in the same way as business entertaining expenditure, which is also disallowed.

HMRC define a gift as:

“… something that is given to a person without receiving anything in exchange. It is offered voluntarily and without any expectation of a return. An example of this would be gifts provided for potential customers who take a test drive in a new car – there is no obligation to buy the car and so nothing has been given to the trader in return for the gift.

Gifts may also arise where goods or services are supplied at less than the cost to the trader. For instance, a hotel might offer meals to its suppliers at a nominal charge. Here the difference between the cost of the meal and the price paid is a non-allowable gift. By contrast, if a baker reduces the price of fresh bread at the end of the day, this is a normal commercial transaction (as the bread will be worthless by the next day) and the cost is allowed in full.”

Readers are reminded that there is a tax-free allowance for the provision of an annual party or other event for the benefit of staff and their partners. The present limit to tax relief is £150 per head. If this amount is exceeded, the full cost of the benefit is taxable not the excess over £150.

Where it’s not possible to calculate individual costs, an averaging process can be adopted. There are also other considerations that must be met to qualify for this relief.

Another way to benefit staff tax-free for Christmas is to consider making small gifts.

You don’t have to pay tax on a benefit (gift) to your employee if all of the following apply:

• it costs you £50 or less to provide
• it isn’t cash or a cash voucher
• it isn’t a reward for their work or performance
• it isn’t in the terms of their contract

Gifts that fall into this category are known as a ‘trivial benefit’; and whilst they may be much more than trivial in substance, you don’t need to pay tax or National Insurance or let HMRC know you are making the gift.

Any gifts that do not meet this definition will likely be taxable.

Gifts to directors are treated in a similar fashion with one over-riding condition: a director cannot receive trivial gifts of more than £300 in total each tax year. This restriction only applies to the directors of “close companies”. A close company is a limited company with five or fewer shareholders.

Watch out for VAT charge

If you recover the input tax charged when you buy gifts for employees, and if the total value of gifts given to an employee in a tax year exceeds £50, then you will have to account for VAT on the total value of gifts provided. If this is the case, you may be advised to avoid recovering the VAT in the first place.

Footfall measures the number of times a customer returns to your business to purchase goods and services.

Many business owners believe that the most effective way to increase turnover is to win more customers or to charge them more for purchases. Both of these strategies may work to increase sales, but both contain hidden costs.

Winning more customers

To be successful at this enterprise you will need invest in marketing campaigns, including advertising and social media costs.

Increasing your prices

The danger here is that customers will react to price increases and shop elsewhere for supplies.

Whilst we are not suggesting that you should abandon either of these strategies, by far the most cost-effective way to boost turnover numbers is to inspire your existing customers to increase the number of occasions they buy from you each year.

Increasing footfall

Cross-selling to existing customers is like preaching to the converted. You have met the costs of acquiring the customer, now you need to encourage them to come and buy from you more often.

Every time they return you increase sales and release more profit into your trading results.

If you are new to this notion, increasing footfall, we would be happy to discuss strategies that you could employ.

Of the three, increasing footfall, increasing prices, or winning new customers, increasing footfall will have the most impact on your financial results.

If you are buying Christmas gifts online this year, take care that you are not presented with unexpected VAT, excise duty or customs duty charges before you can take possession of your purchases. HMRC is urging shoppers to consider certain custom’s issues before they start browsing to buy gifts online. Otherwise, they may be hit with unexpected customs charges and end up over budget this holiday season.

Changes introduced on 1 January 2021 mean that in the same way that consumers have previously had to pay charges when buying certain items from non-EU sellers, they may now also need to do so when buying goods from the EU.

HMRC recommends you consider seven key areas to determine whether there will be charges on their goods. If there are charges to pay, shoppers are being warned that they may also need to pay a ‘handling fee’ to the courier company before their goods are released.

1: Be aware of where you, the recipient, are based

Shoppers based in Northern Ireland won’t be affected by these changes due to the Northern Ireland Protocol, however those in Great Britain should be prepared for potential changes.

2: Check if your order contains goods subject to excise duties, such as tobacco, alcohol or perfume

Unlike other items, there is no lower threshold for customs charges when it comes to excise goods, so there will be charges due no matter the value or origin of your goods.

Shoppers buying excise goods will need to pay import VAT and excise duty and may also need to pay customs duty (be mindful of the Bonus Tip below).

3: Check if your order is worth more than £135, before extra costs, such as shipping, and insurance are applied

Shoppers buying stocking fillers or small value items, not including excise goods, don’t need to worry as goods sent in consignments worth less than £135 should not attract additional charges, as UK VAT is collected by the seller on behalf of HMRC at the point of sale. This will also apply to goods being purchased from non-EU countries.

Anyone buying a more expensive product from abroad – over £135 – will now need to pay import VAT and may need to pay customs duty. The amount due will depend on a range of factors, including shipping and insurance costs so, to avoid surprises, consumers should consult their seller.

Shoppers who already know they will need to pay import VAT should make sure their seller does not charge them VAT, otherwise they may be charged twice. See Top Tip 5.

4: Remember there are new charges if you’re sending presents overseas – or if someone abroad sends gifts to you

If you’re lucky enough to receive a gift from someone based in the EU and it is valued at less than £39 and it does not contain excise goods, it will be exempt from import VAT and customs duty. Above the £39 threshold, import VAT will be due and once the value of the gift reaches £135, customs duty will also be payable. You could also be charged a “handling fee” – see Top Tip 5

If you are planning on sending a gift to someone based overseas, you should check guidance published by the relevant customs authority to check their specific rules and charges.

5: Be aware of how and when you could be notified of charges

Anyone needing to pay customs charges will be contacted by the courier company and asked to pay the charges before they can receive their goods. Alternatively, the seller may arrange to pay any charges upfront on your behalf, but you should check with the seller to avoid any unwelcome surprises.

6: Check the guidance available to you

To help shoppers navigate these changes, HMRC has produced diagrams outlining 3 fictional scenarios about buying goods from the EU and has published a simple guide on GOV.UK, which also contains essential information on how to dispute a charge, return unwanted goods and to get a refund on the charges paid.

Bonus Tip: Check with the seller whether the goods originated in the EU and whether they qualify for a zero tariff

Customs duty won’t be due on goods if they meet criteria set out in the EU-UK Trade and Cooperation Agreement and a zero tariff can be correctly applied.

The Rules of Origin requirements mean that even if your parcel is valued above £135, if the goods you are buying originate in – or have been sufficiently worked or processed within – the EU, the seller confirms this and the zero tariff is claimed on the customs declaration, you will not need to pay any customs duties although import VAT will still be due.

If customs duty is due, the rate – or the tariff – for each item can be found within the trade tariff tool but it’s recommended you check with your seller to find out exactly what you will owe.

HMRC have issued a press release that sets out the scale of criminal activity, convincing taxpayers to part with bank or personal details under threat of arrest or court action.

The scale of these self-assessment scams is staggering, apparently over 800,000 tax-related scams were reported to HMRC is the past year.

Why is this activity increasing now?

Self-assessment tax returns for 2020-21 have to be filed electronically by the 31 January 2022. This provides an excuse for scammers to up their game, as taxpayers would expect more communication from HMRC in this period.

And some of the emails you receive on tax matters will be from HMRC.

How to tell genuine from bogus communications

HMRC have issued the following advice:

“More than 4 million emails and SMS will be issued this week to Self-Assessment taxpayers pointing them to guidance and support, prompting them to think about how they intend to pay their tax bill, and to seek support if they are unable to pay in full by 31 January.

“However, the department is also warning taxpayers not to be taken in by malicious emails, phone calls or texts, thinking that these are genuine HMRC communications referring to their Self-Assessment tax return.”

HMRC’s Director General for Customer Services continues:

“Never let yourself be rushed. If someone contacts you saying they’re from HMRC, wanting you to urgently transfer money or give personal information, be on your guard.

HMRC will also never ring up threatening arrest. Only criminals do that.

Scams come in many forms. Some threaten immediate arrest for tax evasion, others offer a tax rebate. Contacts like these should set alarm bells ringing, so if you are in any doubt whether the email, phone call or text is genuine, you can check the ‘HMRC scams’ advice on GOV.UK and find out how to report them to us.”

There are even bogus websites that look just like HMRC’s webpages, where you are encouraged to submit your outstanding tax return.

If in doubt

If you do receive a phone call, email, or text purporting to be from HMRC, either threatening arrest, court action, promising a rebate, or some other urgent matter; before continuing with a conversation or replying to an email or text, end the call, do not reply to text or email and instead, contact HMRC directly using the contact numbers on the GOV.UK website, or login to your HMRC personal tax account.

And if you have a tax adviser, call them.

Take your time

It is very unlikely that HMRC staff would contact you demanding money or information without first sending out reminders. Before you reply, check that the communication you have received is from HMRC.

Unless you are committed to dying with your boots on, there will come a day when you desire to exit from your business and retire or try something different.

The way that you organise your business, and in particular, the way you organise your finances, will have an impact on the value (£’s) you can expect to receive when you hand over the keys.

Who will you sell your business to?

There are a number of options. For example:

• Hand over the business to a family member.
• Sell the business to a competitor.
• Sell the business to your management team.

What factors will increase the value of your business?

A key item that a potential outside buyer will be interested is your customer list. Do you have a number of regular, high value customers, or are you reliant on one or two key customer relationships? If the latter, this will tend to devalue goodwill as the loss of one or more of these high-value customers may have a serious impact on the buyer’s ability to maintain profitability.

Another issue that would help a buyer achieve a success transition is if you are willing to stay on, after your sale is completed, and support the transition process for a fixed period.

Building a competent team, and the systems to run your business effectively, will also add value to the selling price of your business.

Planning is critical

Business exit planning should be close behind business building activity. It can and should be planned for…

And the planning process is not a one-off affair. It is something you should review on an annual basis. In this way you can build your business with a clear end goal in view and make decisions that will not only maximise returns while you are in charge, but also increase the value of your business to an eventual buyer.

If you would like to discuss your business exit options, we can help.

If you are importing goods into the UK for the first time you may be advised to seek the assistance of a qualified customs agent. The process of creating and filing the correct documentation, such that the goods can pass through border controls with no hold-ups, and any duties or import VAT are paid, is not a process for the faint-hearted.

For example, a Duty Deferment Account (DDA) is the main payment method for customs and excise duty. It can also be used to pay import VAT. Having a DDA lets you defer payments for customs duty, excise duty and import VAT. It also lets you make monthly payments to HMRC through Direct Debit, instead of paying for individual consignments immediately at import, or when released from a duty suspensive procedure such as customs warehousing or excise warehousing. If payments are above £20million this will need to be paid by CHAPS.

If you import non-controlled goods into Great Britain from the EU and use delayed declarations, you will need to have access to a DDA when submitting your first supplementary declarations. You will have 175 days to attain a DDA and submit a full declaration from the day the goods arrive in GB.

Either you or your agent must also be authorised to use Simplified Customs Declarations Processes and have a DDA.

In order to successfully obtain an account, you must meet certain authorisation criteria. Once your application is successful you will be sent a Deferment Approval Number (DAN). The DAN used for declarations must always be quoted on all declarations.

All account holders must continuously satisfy the authorisation criteria in place, even after the application is successful. When making an application, you will need to provide information about your business such as an EORI number, Business Address associated with your EORI number, correspondence address; and you might require your VAT number (VAT numbers are usually not required for DDA).

Moving goods across the UK’s borders in either direction requires compliance with a whole raft of red tape. Unless you have the tenacity and time to burrow into the various customs clearance and duty/VAT payments processes, we again suggest that you consider the services of an experienced customs agent to take care of these chores for you.

ULEV expands to Ultra Low Emission Vehicles. It is an acronym that we will see on a more frequent basis as climate issues climb in importance.

Most families have cars, some use commercial vehicles. The majority are presently fuelled by petrol or diesel.

As manufacturers commit investment to the development of carbon-free transport options, primarily the use of electric powered units, these same families will be faced with ever-rising incentives to ditch their petrol or diesel vehicles and join consumers encouraged to buy electric.

Government seems committed to this change in its attempt to achieve a carbon net-zero economy by 2030.

A few of the present incentives to buy electric are set out below:

• Electricity is not considered to be a combustible fuel, and therefore fuel duty would not be added to electricity consumed to power electric vehicles.
• VAT added to present road fuels is 20%. Electricity used to charge a car at home would incur a 5% VAT charge.
• Zero or low CO2 rated electric vehicles will incur a much lower benefit in kind charge than petrol/diesel alternatives.
• As electricity is not a fuel, the car and van fuel benefit charges – for private use fuel provided by employers – will not apply. However, it can apply to plug-in hybrid cars.
• Electric company cars may attract higher capital allowances.
• Plug-in grants are available for the purchase of qualifying cars and commercial vehicles. These grants are administered by the vehicle dealerships.

Price continues to be a brake on a rapid uptake to ULEVs, but as demand increases, new developments in the technology of low-carbon transport will evolve and prices will fall.

Other challenges, a dearth of charging points and journey ranges between recharges, are gradually being addressed.

The future of transport seems to be electric or other “clean” fuel alternatives. We may be fast approaching the day when diesel and petrol pumps are solitary features in the coming ULEV charging and refuelling stations.