Enterprise - Small Business Newsletter - Jan 2023

WELCOME

A new year means new opportunities, new challenges, and of course new tax legislation. January can be a time for setting goals, business planning and looking forward to the year ahead. While the U.K. has so far managed to avoid recession, the economic climate remains challenging with high inflation eating away at business margins.

It’s more important than ever to protect your business from unnecessary costs and in this edition, we look at protecting you from new VAT penalties as well as the latest tax deadlines. We also look at how Business Protection insurance can provide a business with a vital lifeline should a serious illness or death impact the business. Finally, we all know that protecting our long-term business future sustainability, must be a key goal. Our sustainability expert takes a look at how sustainability can deliver real commercial benefits to your business, as well as protect the planet.

I hope you find the newsletter full of useful and informative information, and please don’t hesitate to get in contact with any of the authors with any questions you may have.

Mike Cahill Partner

UPCOMING TAX DEADLINES

JANUARY 2023

22nd PAYE/CIS liabilities for month ended 5th January 2023 if paying electronically.

31st Last filing day for 2021/22 self-assessment tax returns and payment of tax due; balancing payments for 2021/22 and 1st payment on account for 2022/23.

FEBRUARY 2023

1st Payment of corporation tax liabilities for periods ending 30th April 2022 for small and medium sized companies not liable to pay in instalments.

7th VAT return and payment for December 2022 quarter (online).

19th PAYE/CIS liabilities for month ended 5th February 2023 if paying by cheque. File monthly CIS return. Pay Class 1 A NIC if applicable (paying by cheque).

22nd PAYE/CIS liabilities for month ended 5th February 2023 if paying electronically. Pay Class 1 A NIC if applicable (paying electronically).

MARCH 2023

1st Payment of corporation tax liabilities for periods ending 31st May 2022 for small and medium sized companies not liable to pay in instalments.

7th VAT return and payment for January 2023 quarter (online).

19th PAYE/CIS liabilities for month ended 5th March 2023 if paying by cheque. File monthly CIS return.

22nd PAYE/CIS liabilities for month ended 5th March 2023 if paying electronically.

VAT2023

NEW VAT PENALTIES

From 1 January 2023, the current penalty system is undergoing a significant reform. In many ways, the new system for penalising late payments of VAT will be fairer, but in addition to penalties (and interest) being levied for late payment of VAT due, penalties may arise for not filing the return on time.

This means that those who are VAT registered, but normally obtain refunds cannot simply ignore the due date for filing their VAT return.

LATE FILING PENALTY

A new points-based system will apply to VAT returns starting on or after 1 January 2023. A business will receive a point for every late VAT return. If its points exceed a threshold, it will receive a £200 penalty and a further £200 penalty for each subsequent late submission.

Businesses submitting monthly returns will reach the threshold at five late returns, for businesses on quarterly returns, this will be four.

If enough subsequent returns are submitted on time, the points are reset at zero. For quarterly returns, “this period of compliance” is 12 months, for monthly returns, 6 months.

Among other considerations, the new late filing penalty may affect the desirability of monthly (rather than quarterly or even annual) VAT returns, particularly for those whose average claim is below the potential late filing penalty of £200.

LATE PAYMENT PENALTY

If you do have a liability, the key change here is that the sooner a business pays the VAT due, the lower the penalty rate will be. This contrasts with the Default Surcharge System where the penalty was the same whether payment was one day or one year late. Under the new system, when fully implemented, HMRC say:

• You will not be charged a penalty if you pay the VAT you owe in full or agree a payment plan on or between days 1 and 15.

• You will receive a first penalty calculated at 2% on the VAT you owe at day 15 if you pay in full or agree a payment plan on or between days 16 and 30.

• You will receive a first penalty calculated at 2% on the VAT you owe at day 15 plus 2% on the VAT you owe at day 30.

• You will receive a second penalty calculated at a daily rate of 4% per year for the duration of the outstanding balance. This is calculated when the outstanding balance is paid in full or a payment plan is agreed.

Whereas the existing system allowed at least one “default” before penalties were levied, the new arrangement does not. But as a concession, HMRC will not be charging a first late payment penalty for the first year from 1 January 2023 until 31 December 2023, if payment is made in full within 30 days of the payment due date.

In addition to the late payment penalty, HMRC will charge interest at the Bank of England base rate plus 2.5%.

A formal time-to-pay agreement reached with HMRC will prevent penalties being charged but not interest.

Chamberlain VAT Senior Manager

steve.chamberlain@albertgoodman.co.uk

Steve

ESSENTIAL PROTECTION FOR BUSINESS OWNERS

Many business partners or company directors are potentially vulnerable should death or serious illness cause a major change to their business situation. This unpalatable possibility is something that all too often gets overlooked, it’s uncomfortable considering your own morbidity or mortality.

The high mortality rates seen during the Covid pandemic has caused people to place renewed priority on ensuring the appropriate protection is in place to provide for both their business and their families.

Where death or illness occurs, major disruption can follow, causing potential management disputes and financial pressure on the business. If a shareholding director or a partner in a partnership dies, the surviving decision makers may have to accept someone from the deceased’s family, taking a decision-making role in the business. It’s easy to see how that could become an intolerable situation.

And where the deceased’s earning power was instrumental in the success of the business, surviving the reduction in income and finding the money to recruit a suitable replacement – will take significant capital resources that many businesses won’t have available.

Many small, medium sized enterprises might not survive these challenges, making the protection of the business an absolute priority. Solutions are readily available to enable directors or partners to buy out the deceased’s share of the business and provide funding to replace the lost expertise. Many assume that the cost of this protection will be prohibitive – but in many instances, it’s available for significantly less outlay than they assume.

Albert Goodman has specialist expertise in this area and can offer an initial discussion free of charge and obligation. andrew.hopper@albertgoodman.co.uk

Andrew Hopper

Workplace Pensions Consultant

SUSTAINABILITY

IS SUSTAINABILITY A COST?

There is often a misconception that having a sustainable focus within an organisation will drive up costs and not a lot else. However, implementing sustainable changes within your business could bring a wider multitude of benefits including financial reward.

At Albert Goodman we practice what we preach! We are committed to becoming net zero across scopes 1 & 2 by 2030 and want to support those with whom we work to do the same. 2030 may seem some time away but if an organisation is to achieve this with minimal use of any carbon offsets then there needs to be a number of changes to the way in which a business operates and we all know that change takes time.

So how could having a more sustainable outlook benefit your business?

GAIN NEW BUSINESS

More organisations are looking to align the types of business with whom they work with their own organisational values and priorities.

Many large organisations are already considering their supply chains and asking businesses within them to either meet specified sustainability targets or be able to articulate what the business is doing in this regard. Should you not be able to comply with this or can not put together a plan in order to do so then you may miss out on future business tenders or lose contracts which are already in place.

If you know you have large organisations in your supply chain, engage with them now to understand their future expectations.

WIN THE TALENT WAR

Lots of businesses are feeling the pressure to secure and bolster their headcount. When you ask the standard “Have you got any questions” to conclude the interview, do not be surprised if you get a question around what your business is doing in the local community or how are you becoming sustainable. Many people want to work within an organisation that demonstrates that it cares. Although you may be able to rattle off a text book answer, what is important is that this is genuine. When people commence their employment they will be able to see for themselves whether or not you truly do what you said.

It would also be wise to ask the people within your business what is important to them from a community and/ or sustainability perspective to ensure that you are also meeting their needs where it is viable to do so.

STAY AHEAD OF FUTURE REGULATION

The regulations around financial and narrative reporting of Environmental and Social Governance currently surround large organisations only. There are however many consultations in place which have this under review and may see the scope expand in the future.

Accounting aside there are also many other sustainability focussed regulations and targets which have been set out as the government moves the UK towards a net zero future. It is important to ensure that you are aware of the changes which impact your industry as some will require a fundamental shift to the way in which a business operates.

SECURE BETTER FINANCE OPTIONS

Environmental and Social Governance (ESG) finance options are already available with various lenders and provide organisations with an opportunity to obtain reduced interest rates for hitting certain ESG targets which can often be defined by the organisation. This form of incentivised sustainability lending, although in its infancy, is likely to grow and will be a great opportunity for businesses who are able to demonstrate that they are on their own ESG journey.

ACCESS FUNDING

With the UK being at the early stages on the roadmap to net zero there are frequently available funding options for those looking to input sustainable changes in their business such as electric charging points for vehicles. No one knows for how long these funding measures will remain in place so if you are considering sustainable changes to your business then do review government and local area funding schemes as you may be able to access support.

SUMMARY

Yes there may be some costs in connection with sustainable adaptations to your business, however it is important to ask yourself whether these outweigh the benefits that being a sustainable business can bring.

COLLABORATE TO ACHIEVE

If you would like to find out how we can work with you to achieve sustainability in your business then get in touch with your usual Albert Goodman contact or Sophie Parkhouse direct.

Sophie Parkhouse Partner

sophie.parkhouse@albertgoodman.co.uk

HAVE YOU CHECKED YOUR STATE PENSION RECORD?

In order to qualify for a full state pension, the current rules require you to have paid national insurance contributions for at least 35 years. For some people this isn’t an issue, but for others, if you have had periods when you weren’t working or perhaps spent some time abroad, your record can fall short of the required 35 years.

To check this, you need to access your personal tax account. This is a system set up by HMRC which helps you to manage your tax affairs. More details on personal tax accounts can be found here Personal tax account: sign in or set up - GOV.UK (www.gov.uk)

Up until April 2023, you can go back to 2006 and buy missing years. After this date, you will only be able to go back six years.

If you are over 45 and haven’t taken your state pension yet and have missing years from 2006 to 2017, it’s worth considering making voluntary contributions to make up these gaps. This will depend on your age, number of missing years and future work plans, but this will be your last chance to go back and fill in the gaps for these years.

If you think you may be affected and would like to discuss this further, please contact me or your usual Albert Goodman contact.

Michael Cahill Partner michael.cahill@albertgoodman.co.uk

AUTUMN STATEMENT 2022

PERSONAL TAX POSITION

Firstly, with income tax allowances frozen until April 2026, more and more people may find themselves drifting into the higher rates of tax. With prices rising and mortgage rates increasing there may be the need to draw more income from your company to meet day to day living costs. Depending on your personal circumstances and with careful planning it may be possible to get more out of your company and stay within the basic rate of tax.

Although just a small reduction, the Dividend Allowance is being reduced from £2,000 to £1,000 from April 2023 and to just £500 from April 2024. Whilst this sounds painful, for a basic rate taxpayer, the reduction to £500 will cost £131.25 in additional tax a year. Careful planning is going to be needed to maximise income and keep the tax burden down.

FOR THE COMPANY

The biggest change coming is the introduction of the 25% corporation tax rate which comes in on 1 April 2023. The 19% rate will become a small profits rate payable by companies with profits of £50,000 or less. Companies with profits between £50,001 and £250,000 will pay tax at the 25% rate reduced by a marginal relief adjustment. My colleague Kelly produced an article on the impact of the new rate in our last newsletter and this can be viewed on our website; Corporation Tax Increase in 2023 | Albert Goodman.

Given the increased rate, consideration should be given to factors within your control to reduce taxable profits. Things to consider are:

• Investment – the Annual Investment Allowance (AIA) is being kept at £1m. This means that any spend on qualifying plant and machinery will reduce taxable profits. Whilst it’s not sensible to spend just to save tax, considering the timing of planned investment in plant and machinery is important to ensure you maximise tax relief.

• For a business owner, look at expenditure being paid for personally out of taxed income. Could the company pay for this and obtain tax relief? Things like pension contributions and life assurance are two possible areas to look at. Going one step further, if you were considering buying an electric car personally, it may be more tax efficient to do this through your limited company. However, it should be noted that from April 2025 electric vehicles will start to pay Vehicle Excise Duty.

Looking at VAT, for businesses that aren’t VAT registered, the threshold at which you must register is being frozen at £85,000. Given the current inflation rates, this may bring more and more business into charge. If your turnover is close to this limit, you need to monitor this and make sure you register if necessary.

Further increases are set for the national living and minimum wage from 1 April 2023. For some small businesses, these rates are becoming unsustainable. Not only do the lower paid staff have to be paid more, but the next tier up also demand a rise. As wage rises generally result in increased employer national insurance payable and pension contributions, consideration should be given to other benefits that could be given to those in this next tier up, rather than outright pay increases. Paying higher rates of pensions contributions or offering company life assurance could be an attractive benefit to some. There are also still some useful salary sacrifice schemes that could be considered.

If you would like to discuss any of the above points please contact me or your usual Albert Goodman point of contact.

Sharron Quick Senior Manager

With so much uncertainty around politics over the last few months, the

Autumn statement that

was delivered by

Jeremy

Hunt on 17 November was perhaps less dramatic than we had all thought it would be. But in reality, what does it mean for your average owner managed business operating through a limited company?

sharron.quick@albertgoodman.co.uk

NEW LOOK XERO

People who use Xero on a regular basis will notice that some of the views that we all know and love have changed and now have a whole new look. However, rest assured that none of the functionality has been lost and there are added benefits. For a breakdown of what has been changed and when, have a look at Xero’s help article

- Building on Beautiful – Xero Central Some of the key pages that have changed already are Sales Invoices, Bills to Pay, Contacts and Inventory.

ADD BILLS FROM EMAILS

Thinking of bills to pay, one feature that is really brilliant and I always recommend to clients is the ‘Create bill from email’ function. This allows bills to be emailed directly into Xero. After the initial email Xero will learn from your entry and the next time you email a bill from the same supplier it will fill in as much as it can – supplier, due date, amount, tax codes, etc. It works brilliantly for clients whose bills are in the form of an email attachment with one invoice per file. The invoices sit ready for approval in drafts. I have found many clients really enjoy this function!

REPORTS

- CHARTS, DATE RANGES AND TRANSFERRING OLD REPORTS INTO NEW LAYOUTS

VISUAL ELEMENTS ON REPORTS

Some reports have a nifty chart function - have a look at the Income and Expense reports and see what you think. Look out for the ‘Chart and table option’ at the top of the report where you can customise the visual aspect of the report. I feel sure that there will be more reports with this function coming in the future!

CUSTOMISING DATES

Not everyone realises that it is possible to compare a custom date with the exact same date a year or a month ago – to do this, set the date that you want your report to cover, go into Compare periods and select year or month and you can see that it gives you customised comparison periods.

BRINGING CUSTOM REPORTS INTO THE NEW REPORTING LAYOUTS

As part of Xero’s updated look, many reports have been changed and any custom reports built on the old reports layouts will be removed next year.

If you have set up custom reports you can now easily put them into the new style reports. There are instructions how to do this here: Bring old report layouts over to new custom reports – Xero Central.

CREATE BILL FROM VAT RETURN

There is a new option that has been added to VAT returns to ‘Create draft bill/invoice for return’. This option will appear when you receive the submission confirmation and it will create a bill or invoice coded to the VAT account for the amount of VAT due or receivable. This means when the transaction appears in the bank it will automatically tie up to the bill or invoice, speeding up the reconciliation process.

If you have any top Xero tips, please do let us know and we can feature them here for others to benefit from!

becky.rhode@albertgoodman.co.uk

Becky Rhode Cloud Accounting

MTD FOR ITSA - WHAT’S THE LATEST?

Making Tax Digital for Income Tax Self Assessment

(MTD for ITSA) was due to come in with effect from 6 April 2024 for all sole trade businesses and landlords with combined gross income of over £10,000. This is the next step in the Government’s plans to digitalise taxes and become “one of the most digitally advanced tax administrations in the world” and follows on from MTD for VAT that was made compulsory for all VAT registered businesses from April 2022.

In a U-turn announced just a few days before Christmas HMRC confirmed that MTD for ITSA would now not become mandatory until April 2026. They have also increased the income threshold from £10,000 to £50,000 for the April 2026 start date and those with income between £30,000 and 50,000 will have to comply from April 2027.

Whilst this represents a significant delay, HMRC have confirmed that they are committed to deliver MTD for ITSA. If you think you are likely to be affected and would like to take some steps to digitalise your records, then please contact us. The are many steps that you could take now to ensure that you are ready as we get closer to April 2026 such as:

• Ensuring you hold a dedicated business bank account will help when your records are kept digitally and will save you time when processing the details for the quarterly submissions. If you don’t currently have a separate bank account for each trade, you may want to consider opening a new account and this could be a traditional bank account or an online account which is now more readily available.

• If you currently use a manual cashbook to record your income and expenses, you may want to look at using Microsoft Excel instead, to start that “digital” journey.

• Returns will need to be submitted quarterly so you may want to start to get in the habit of completing the bookkeeping on a more regular basis than you currently do. This might be looking at it every few months instead of once a year for your tax return.

• You may also wish to bite the bullet and start to use MTD compliant software, such as Xero, now to allow yourself more time to adapt to the new ways of reporting ahead of it becoming compulsory. You may also want to make the most of the other advantages that keeping digital records can have, such as real time information being available to assist in cash flow and tax planning.

If this is something that you might be interested in, then please feel free to get in touch with your usual point of contact who will be able to assist you.

Katie Hodge Senior Tax Consultant

CHANGES TO RATES PAYABLE FOR SELF-CATERING AND HOLIDAY

LET ACCOMMODATION

Whether you pay business rates will depend on how many days your property is available to let each year and how many days it was actually let.

The Valuation Office Agency (VOA) will work out the rateable value of your property based on its type, size, location, quality and how much income you’re likely to make from letting it.

If you only let one property and its rateable value is less than £15,000 you may be eligible for small business rate relief which means you may pay little or no rates.

There are different rules in Scotland which I won’t go into in this article.

RULES UNTIL 31 MARCH 2023

If your property is in England and available to let for short periods for at least 140 days per year, it will be rated as a self-catering property and valued for business rates.

If your property is in Wales, it will be rated as a self-catering property and valued for business rates if it’s both:

• available to let for short periods for at least 140 days per year

• actually let for at least 70 days per year

RULES FROM 1 APRIL 2023

If your property is in England, it will be rated as a selfcatering property and valued for business rates if it’s both:

• available to let for short periods for at least 140 days in total over the current and previous tax years

• actually let for at least 70 days in the last 12 months

If your property is in Wales, it will be rated as a self-catering property and valued for business rates if it’s both:

• available to let for short periods for at least 252 days in total over the current and previous tax years

• actually let for at least 182 days in the last 12 months

As you can see from the above, changes come into force from 1 April 2023 and if the new criteria are not met, you may find that you no longer qualify for business rates and will have to pay Council Tax instead.

Unlike business rates, there is no relief available if you are liable to Council Tax, so this change could have an impact on the rates you have to pay post 1 April 2023.

Sharron Quick Senior Manager

sharron.quick@albertgoodman.co.uk

TAUNTON | BRISTOL | WESTON-SUPER-MARE | WEYMOUTH | YEOVIL

Albert Goodman Chartered Financial Planners is the trading style of Albert Goodman Financial Planning Ltd, which is authorised and regulated by the Financial Conduct Authority.