Summary of 2021 Spring Budget – what are the implications for Business?

In today’s blog you can find a Summary of the Key Aspects relevant to Business of the 2021 Spring Budget, announced by the Chancellor of the Exchequer, Rishi Sunak, on 3 March 2021.

KEY BUDGET HIGHLIGHTS FOR BUSINESS

CJRS FURLOUGH SCHEME EXTENDED TO 30 SEPTEMBER

The current version of the furlough scheme that started on 1 November 2020 was scheduled to end on 30 April 2021. In order to avoid a “cliff-edge” with resulting widespread redundancies the chancellor has announced a further extension of the scheme and also a phased reduction in support to employers. The CJRS furlough grant for May and June will remain at 80% of the employees’ usual pay for hours not working but it will then be limited to 70% for July and then 60% for August and September.

This phased reduction will operate in a similar way as in September and October 2020 with the employer being required to contribute the remaining 10% and then 20% of an employee’s regular pay so that they continue to receive 80% pay for furloughed hours. In addition to the 10% and 20% contributions employers will continue to be responsible for paying employers national insurance and pension contributions on the full amount being paid to employees.

SELF-EMPLOYED INCOME SUPPORT GRANTS ALSO EXTENDED

In line with the further extension of the CJRS furlough scheme for employees the chancellor has also set out further support for the self-employed. The Fourth grant will continue to be 80% of average profits for the reference period capped at £2,500 a month and can be claimed from late April. There will then be a fifth SEISS grant covering the 5 months to 30 September.

The chancellor has extended the scheme to include certain traders who were previously excluded. Thus, those who commenced self-employment in 2019/20 will now be included provided they had submitted their 2019/20 tax return by 2 March 2021. This is potentially a further 600,000 traders.

Conditions for the fifth grant will be linked to a reduction in business turnover. Self-employed individuals whose turnover has fallen by 30% or more will continue to receive the full grant worth 80% of three months’ average trading profits, capped at £2,500 a month. Those whose turnover has fallen by less than 30% will receive a 30% grant, capped at £950 a month. We are awaiting further details of this fifth grant.

CORPORATION TAX RATES TO INCREASE TO 25% BUT NOT FOR ALL COMPANIES

The UK corporation tax rate is currently one of the lowest rates of the G20 countries and the government states it is committed to keeping the rate competitive. With other countries considering raising corporate tax rates the chancellor has announced that the UK will follow suit and consequently the rate will increase to 25% from 1 April 2023 where profits exceed £250,000. However, where a company’s profits do not exceed £50,000 the rate will remain at the current 19% rate and there will be a taper above £50,000. Businesses will however be able to take advantage of new tax breaks to encourage investment in equipment and an enhanced carry back of losses.

SUPER-DEDUCTION FOR INVESTMENT IN NEW EQUIPMENT

In order to encourage companies to invest in new capital equipment the chancellor announced a radical new “super-deduction” of 130% where they invest in new plant. This would mean that when a company buys plant costing £10,000 they would qualify for a £13,000 deduction in arriving at business profits. The new deduction, which will run for two years from 1 April 2021, will not be available for motor cars. Certain assets such as fixtures in buildings will only qualify for 50% relief in the first year.

THREE YEAR CARRY BACK OF TRADING LOSSES

Many businesses will have made a loss in the last year as a result of the Coronavirus pandemic and the difficult trading environment. Trading losses can normally only be set against profits of the preceding accounting period or previous tax year in the case of unincorporated businesses. This has now been extended to three years.

NATIONAL INSURANCE RATES

The national insurance contribution (NIC) rates and bandings were announced 16 December 2020 to take effect from 6 April 2021. Employees and the self-employed will not pay national insurance contributions (NIC) on the first £9,570 of earnings for 2021/22, an increase of £1 a week. The employee contribution rate continues to be 12% up to the Upper Earnings limit £50,270, with the self-employed paying 9% on their profits up to the same level. Note that employer contributions will apply to earnings over £170 per week, £8,840 per annum which is also a £1 a week increase.

5% VAT RATE FOR FOOD, ATTRACTIONS AND ACCOMMODATION EXTENDED

In order to continue to support businesses and jobs in the hospitality sector, the reduced 5% rate of VAT will continue to apply to supplies of food and non-alcoholic drinks from restaurants, pubs, bars, cafés and similar premises across the UK until 30 September 2021. The 5% reduced rate of VAT will also continue to apply to supplies of accommodation and admission to attractions across the UK. From 1 October until 31 March 2022 the rate will be set at 12.5% and will then revert to 20% from 1 April 2022.

VAT REGISTRATION LIMIT FROZEN AT £85,000 UNTIL 1 APRIL 2024

The VAT registration limit normally goes up each year in line with inflation but will remain at £85,000 for a further two years. Arguably this makes it easier for businesses to assess whether or not they are required to register for VAT as it is no longer a moving target.

MAKING TAX DIGITAL EXTENDED TO ALL VAT REGISTERED BUSINESSES FROM 1 APRIL 2022

The government has confirmed that the requirement to maintain accounting records in a digital format and submit the data to HMRC electronically will be extended to all VAT registered businesses from 1 April 2022 regardless of the level of taxable supplies.

NEW GRANTS FOR HIGH STREET BUSINESSES AND HOSPITALITY SECTOR

Businesses forced to close due to the Coronavirus lockdown will be eligible to apply for grants depending upon the rateable value of their business premises. This will apply to pubs, restaurants, hotels, gyms and hairdressers as well as non essential retail businesses. The grants are intended to be a contribution towards the fixed costs of the business during the period that they have been unable to trade normally. Staff costs continue to be covered by the CJRS furlough scheme. Scottish Government has not yet confirmed how these new grants will be implemented.

NEW RECOVERY LOAN SCHEME

The government have already announced a longer repayment period for “Bounce-back” and CBIL loans. From 6 April 2021 a new Recovery Loan Scheme will provide lenders with a guarantee of 80% on eligible loans between £25,000 and £10 million to give them confidence in continuing to provide finance to UK businesses. The scheme will be open to all businesses, including those who have already received support under the existing COVID-19 guaranteed loan schemes.

NO CHANGES TO INCOME TAX RATES AND PERSONAL ALLOWANCE FROZEN

The personal allowance has been increased in line with inflation to £12,570 for 2021/22. This threshold will then be frozen until 2025/26. Scottish Tax rates are set by the Scottish Parliament and were announced on 28 January so announced increases to Higher Rate threshold will not apply in Scotland.

There had again been rumours that the dividend rate might be increased, but dividends continue to be taxed at 7.5%, 32.5% and then 38.1%, depending upon whether the dividends fall into the basic rate band, higher rate band or the additional rate band. Note that the first £2,000 of dividend income continues to be tax-free.

So whilst some tax increasing measures were announced in the budget, no major changes to the basis of taxation were announced. However it has now been announced that on 23 March important consultation documents will be issued, which will seek views on future tax changes. That may be when expected reforms to Capital Gains Tax and Inheritance Tax as well as changes to Pension contributions relief will be announced.

As always please contact me if you have any questions.

Until the next time!

Contact us

Photo self 2

Charles Donkers (ACMA), Tulip Thistle Accountancy

The information contained in this blog is for general information purposes only. The information is provided by Tulip Thistle Accountancy and while we endeavour to keep the information up to date and correct, we make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability or availability with respect to the blog or the information, products, services, or related graphics contained on the blog for any purpose. Any reliance you place on such information is therefore strictly at your own risk.

In no event will we be liable for any loss or damage including without limitation, indirect or consequential loss or damage, or any loss or damage whatsoever arising from loss of data or profits arising out of, or in connection with, the use of this blog.

Grants now available for recently self-employed & some businesses not receiving rates relief

In today’s blog a quick update on a new Scottish scheme to support recently self employed & some businesses not receiving business rates relief.

Grants recently self employed

LIFELINE SUPPORT FOR BUSINESS CONFIRMED

The recently self-employed, who are excluded from the UK’s “Self Employed Income Support Scheme” but suffering hardship, will be able to receive £2,000 grants.

For creative, tourism and hospitality companies of up to 50 employees not receiving business rates relief, there will be rapid access £3,000 hardship grants or larger grants up to £25,000 where it can be demonstrated support is needed.

Background

Support for the newly self-employed and firms suffering hardship is to be paid in early May.

The Economy Secretary recently confirmed that grant funding for newly self-employed suffering hardship and Small and Medium Sized Enterprises (SMEs) in distress will be available shortly.

The £100 million fund to support the self-employed and  SMEs announced last week will be broken into three separate funds as follows:

  • £34 million Newly Self-Employed Hardship Fund, managed by Local Authorities, will be allocated to the newly self-employed facing hardship through £2,000 grants
  • £20 million Creative, Tourism & Hospitality Enterprises Hardship Fund, managed by the Enterprise Agencies in partnership with Creative Scotland and VisitScotland for creative, tourism and hospitality companies not in receipt of business rates relief
  • £45 million Pivotal Enterprise Resilience Fund, which is managed by the Enterprise Agencies for vulnerable SME firms who are critical for the local or national economic foundations of Scotland*

The Scottish Government will also be providing £1 million to top up Creative Scotland’s Bridging Bursaries in the not-for-profit sector.

Speaking in parliament, the Economy Secretary also confirmed that the grant funding will be open for applications by the end of April and highlighting that recipients will receive funds in early May.

Lifeline Support – Full Report

So some good news for newly self-employed as well as some businesses who previously did not qualify for grants.

Until the next time!

* The support and larger grants for pivotal SME’s will depend on the specific need of the enterprise and be developed by the relevant enterprise agency with wraparound business advice and support.

Contact us

Photo self 2

Charles Donkers (ACMA), Tulip Thistle Accountancy

The information contained in this blog is for general information purposes only. The information is provided by Tulip Thistle Accountancy and while we endeavour to keep the information up to date and correct, we make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability or availability with respect to the blog or the information, products, services, or related graphics contained on the blog for any purpose. Any reliance you place on such information is therefore strictly at your own risk.

In no event will we be liable for any loss or damage including without limitation, indirect or consequential loss or damage, or any loss or damage whatsoever arising from loss of data or profits arising out of, or in connection with, the use of this blog.

 

“Coronavirus Self-Employed Income Support Scheme”; what you need to know

In today’s blog, here at Tulip Thistle Accountancy, we are going to explain the recently announced Government “Self-Employed Income Support Scheme”, to help self-employed people (and those in partnerships) understand how the scheme works and how to check if they qualify.

Self Employment Support Scheme

HELP FOR THE SELF EMPLOYED

Chancellor Rishi Sunak has announced measures to support the self-employed and partnerships.

The scheme is called the Coronavirus Self-employment Income Support Scheme (CSEISS).

If you have suffered a loss in income, a taxable grant will be paid to the self-employed or those in partnerships, worth 80% of profits up to a cap of £2,500 per month.

Initially, this will be available for three months in one lump-sum payment and will start to be paid from the beginning of June.

You cannot apply for this scheme yet. HMRC will contact you if you are eligible for the scheme and invite you to apply online.

Who is eligible?

Self-employed individuals and a those who are a member of a partnership. You must satisfy all five conditions below:

  1. have submitted your Income Tax Self-Assessment tax return for the tax year 2018-2019
  2. traded in the tax year 2019-20
  3. are trading when you apply, or would be except for COVID-19
  4. intend to continue to trade in the tax year 2020-2021
  5. have lost trading/partnership trading profits due to COVID-19

Your self-employed trading profits must also be less than £50,000 and more than half of your income should be from self-employment. This is determined by at least one of the following conditions being true:

  • having trading profits/partnership trading profits in 2018-19 of less than £50,000; and these profits constitute more than half of your total taxable income
  • having average trading profits in 2016-17, 2017-18, and 2018-19 of less than £50,000; and these profits constitute more than half of your average taxable income in the same period

If you started trading between 2016-19, HMRC will only use those years for which you filed a Self-Assessment tax return.

There a few individuals who have not submitted their 2018-19 Self-Assessment tax return and to qualify, they now have until the 23 April 2020 to do so.

And finally please be aware that any payments made by HMRC will be taxable in the 2020/2021 tax year.

Now Let’s look at a couple of examples:

Examples

Example 1

John is self employed and also has some other income (e.g. from employment, savings income or rental income etc.)

Tax Year Self-Employed Profits (£) Other Income (£) TOTAL Income (£) % Self Employed
2016 – 2017 10,000 40,000 50,000 20%
2017 -2018 20,000 30,000 50,000 40%
2018 – 2019 40,000 10,000 50,000 80%
TOTAL 70,000 80,000 150,000 47%
average 23,333
monthly avg 1,944.44
    • Income and profits above show John has been trading in the last three years. John also traded in the 2019 – 2020 Tax Year (from 6 April 2019 – 5 April 2020) and he plans to continue to trade in 2020/2021 Tax Year but with lower profits due to COVID-19
      • Above means the basic 5 conditions are met
    • Additional requirement is that John’s trading profits must also be less than £50,000 and more than half of his income should be from self-employment.
      • Again he can meet this requirement as based on 2018/2019 Tax Year he had Self-Employed profits of £40,000 (i.e. less than £50,000 threshold) and his self-employed profits were 80% of his total income (more than 50% as required).
      • Note that John would not meet the requirements on the basis of average profits (only 47% of his income originates from self employment) but you only have to pass either of the tests…
    • John’s 3 year average monthly profits are as follow: £70,000 divided by 36 months = £1,944.45 John would qualify for 80% of these; £1,944 x 80% = £1,556 per month (rounded)
    • He would therefore be entitled to a payment of £4,667 (again rounded and based on three months support at £1.944.44/month), payable in June 2020

Example 2

Mary started her business in October 2017 and her position is shown below*:

Tax Year Self-Employed Profits (£) Other Income (£) TOTAL Income (£) % Self Employed
2017 -2018 17,000 3,000 20,000 85%
2018 – 2019 40,000 8,000 48,000 83%
TOTAL 57,000 11,000 68,000 84%
average 28,500 5,500 34,000 84%
monthly avg 3,166.67
      • Income and profits are available for the past two tax years and effectively cover 18 months (October 2017 – March 2019). Again Mary also traded in the 2019 – 2020 Tax Year (from 6 April 2019 – 5 April 2020) and she plans to continue to trade in 2020 -2021 Tax Year but with lower profits as a result of COVID-19
        • As Mary started trading between 2016-19, HMRC will only use those years for which she filed a Self-Assessment tax return and therefore once again the basic 5 conditions have been met
      • Additional requirement is that Mary’s trading profits must also be less than £50,000 and more than half of her income should be from self-employment.
        • Mary meets both additional tests (remember meeting one is enough!)
      • Mary’s 2 year average monthly profits are as follows: £57,000 divided by 18 months = £3,166.67 per month. Mary would qualify for 80% of these; £3,167 x 80% = £2,533 per month (rounded)
      • However there is a £2,500 monthly cap/maximum
      • Mary would therefore be entitled to a payment of £7,500 (based on three months support at £2,500/month), payable in June 2020

Hopefully this blog has created a bit more clarity on how the “Coronavirus Self-Employed Income Support Scheme” will work and what payments people can expect, if they meet the criteria and are invited to apply by HMRC.

* please keep in mind opening year rules will still apply!

Until the next time!

Contact us

Photo self 2

Charles Donkers (ACMA), Tulip Thistle Accountancy

The information contained in this blog is for general information purposes only. The information is provided by Tulip Thistle Accountancy and while we endeavour to keep the information up to date and correct, we make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability or availability with respect to the blog or the information, products, services, or related graphics contained on the blog for any purpose. Any reliance you place on such information is therefore strictly at your own risk.

In no event will we be liable for any loss or damage including without limitation, indirect or consequential loss or damage, or any loss or damage whatsoever arising from loss of data or profits arising out of, or in connection with, the use of this blog.

COVID-19: Government Support for Business

In today’s blog, here at Tulip Thistle Accountancy, we are outlining the Government Support Package available for Businesses in the current COVID-19 (Coronavirus) crisis.

covid-19-4908691_1920

The package of measures to support businesses includes:

  • Coronavirus Job Retention Scheme: all UK employers will be able to access support to continue paying part of their employees’ salary for those employees that would otherwise have been laid off during this crisis. HMRC will reimburse 80% of furloughed workers wage costs, up to a cap of £2,500 per month
  • Deferring VAT and Income Tax payments:
    • VAT
      • the deferral will apply from 20 March 2020 until 30 June 2020.
      • All UK businesses are eligible.
      • This is an automatic offer with no applications required.  Any liabilities that have accumulated during the deferral period need to be settled by the end of the 2020 to 2021 tax year. VAT refunds and reclaims will be paid by the government as normal
    • Income Tax
      • For Income Tax Self-Assessment, payments due on the 31 July 2020 will be deferred until the 31 January 2021
      • If you are self-employed you are eligible. This is an automatic offer with no applications required.
      • No penalties or interest for late payment will be charged in the deferral period.
  • A Statutory Sick Pay (SSP) relief package for Small and Medium Enterprises (SMEs): applies to small-and medium-sized businesses and employers
    • This refund will cover up to 2 weeks’ SSP per eligible employee who has been off work because of COVID-19
    • Employers with fewer than 250 employees will be eligible – the size of an employer will be determined by the number of people they employed as of 28 February 2020
    • Employers will be able to reclaim expenditure for any employee who has claimed SSP (according to the new eligibility criteria) as a result of COVID-19
    • Employers should maintain records of staff absences and payments of SSP, but employees will not need to provide a GP fit note. If evidence is required by an employer, those with symptoms of coronavirus can get an isolation note from NHS 111 online and those who live with someone that has symptoms can get a note from the NHS website
    • Eligible period for the scheme will commence the day after the regulations on the extension of SSP to those staying at home comes into force
    • The government will work with employers over the coming months to set up the repayment mechanism for employers as soon as possible.
  • For Scotland the following Non-Domestic Rates package has been announced:
    • 1.6% rates relief for all properties across Scotland, effectively reversing the planned below inflation uplift in the poundage from 1 April 2020
    • Retail, hospitality and leisure businesses will get 100% rates relief. To get this relief, a property has to be occupied.
    • Grants: Retail, hospitality and leisure businesses with a rateable value between £18,000 and up to and including £51,000 will be able to apply for a one-off grant of £25,000.
    • Support for business that pay little or no business rates:
      • A one-off grant of £10,000 will also be available to small businesses who get:
        • Small Business Bonus Scheme relief
        • Rural Relief
    • attached website provides further detail on Non-domestic Rates & Grant support packages: Scottish Government Rates Support for Businesses
  • The Coronavirus Business Interruption Loan Scheme offering loans of up to £5 million for SMEs through the British Business Bank
    • A new temporary Coronavirus Business Interruption Loan Scheme, delivered by the British Business Bank, will launch this week to support businesses to access bank lending and overdrafts. The government will provide lenders with a guarantee of 80% on each loan (subject to a per-lender cap on claims) to give lenders further confidence in continuing to provide finance to SMEs. The government will not charge businesses or banks for this guarantee, and the Scheme will support loans of up to £5 million in value. Businesses can access the first 12 months of that finance interest free, as government will cover the first 12 months of interest payments.
    • You are eligible for the scheme if:
      • your business is UK based, with turnover of no more than £45 million per year
      • your business meets the other British Business Bank eligibility criteria
  • A new lending facility from the Bank of England to help support liquidity among larger firms, helping them bridge coronavirus disruption to their cash flows through loans
  • HMRC Time To Pay Scheme:
    • All businesses and self-employed people in financial distress, and with outstanding tax liabilities, may be eligible to receive support with their tax affairs through HMRC’s Time to Pay service.
    • These arrangements are agreed on a case-by-case basis and are tailored to individual circumstances and liabilities. You are eligible if your business pays tax to the UK government and has outstanding tax liabilities.
    • If you have missed a tax payment or you might miss your next payment due to COVID-19, please call HMRC’s dedicated helpline: 0800 0159 559. If you’re worried about a future payment, please call them nearer the time

Here is a link providing further detail on the above schemes, including details on eligibility and how to apply etc.

Guidance to Employers and Business

In addition from a more personal financial perspective, here is some other relevant information:

Most self-employed people will not be entitled to Statutory Sick Pay (similarly those earning below the Lower Earnings Limit of £118 per week are also not eligible). If you have COVID-19 or are advised to self-isolate, you can now more easily make a claim for Universal Credit (UC) or new style Employment and Support Allowance. If you are self-employed and receiving Universal Credit and you have COVID-19 or are advised to self-isolate, the requirements of the Minimum Income Floor will be temporarily relaxed. This change took effect on 13 March and will last for the duration of the outbreak, to ensure that self-employed UC claimants will receive support.

If you need to claim Universal Credit but have COVID-19 or are self-isolating, you will now be able to claim and to access advance payments upfront without needing to attend a Job-centre Plus.

If you are eligible for new style Employment and Support Allowance, it will now be payable from day 1 of sickness, rather than day 8, if you have COVID-19 or are advised to self-isolate.

For more information on how to claim, please visit Universal Credit and Employment & Support Allowance

Financial Difficulties

If you are experiencing financial difficulties meeting your mortgage repayments because of COVID-19, you may be entitled to a mortgage or rental holiday for 3 months. This includes if you are a landlord whose tenants are experiencing financial difficulties because of COVID-19. If you are a tenant experiencing financial difficulties because of COVID-19, the government will ensure you do not face the threat of eviction for at least 3 months:

  • the government has agreed with mortgage lenders that they will offer repayment holidays of 3 months to households in financial difficulty due to COVID-19
  • this will also apply to landlords whose tenants are experiencing financial difficulties because of COVID-19
  • the offer of a payment holiday can be made available to customers who are up to date with payments and not already in arrears
  • customers who are concerned about their current financial situation should contact their lender at the earliest possible opportunity to discuss if this is a suitable option for them
  • emergency legislation will be taken forward so that landlords will not be able to start proceedings to evict tenants for at least a 3 month period. This applies to private and social renters
  • at the end of this period, landlords and tenants will be expected to work together to establish an affordable repayment plan, taking into account tenants’ individual circumstances

If you are experiencing difficulties paying back personal loans or credit card bills as a result of COVID-19, please read the following information:

  • the Financial Conduct Authority (FCA) called on lenders to use flexibility built into their rules to support consumers, taking into account customers’ individual circumstances. Many major lenders have already made statements to this effect
  • if you are experiencing difficulties paying back loans or credit card bills because of COVID-19, you should talk to your lender
  • if you agree a payment holiday with your lender, they should record these in such a way that will not impact on your credit score

Attached link provides further information

Support for those affected by COVID-19

what's next -4241792_1920

What should I do next?

It goes without saying that you should follow all Government guidelines for you, your family, co-workers, employees, customer and community interaction.

From a business perspective I would recommend the following steps:

  1. Work out your total expenses for the next three months (including salaries/wages)
  2. Identify your estimated sales over the next three months (if any)
  3. Using 1 & 2 as well as you current bank balances, work our your Cash position
  4. Get your team involved in a discussion of likely trading conditions and get their input on reducing costs and maintaining revenues
  5. Agree extended payment terms with suppliers in advance
  6. Review your debtors list and contact your customers to get information on when you will be paid
  7. Talk to your bank if you have loans or an overdraft
  8. Apply (if necessary) for Government and Bank Support
  9. Above all maintain relationships with your customers & suppliers and try to come to an arrangement which is manageable for both parties

This is a time of great uncertainty and the situation is changing daily but help is available & by taking action now to work out where your business is, you can plan for the future and get clear on the next steps for your business.

Until the next time!

Contact us

Photo self 2

Charles Donkers (ACMA), Tulip Thistle Accountancy

The information contained in this blog is for general information purposes only. The information is provided by Tulip Thistle Accountancy and while we endeavour to keep the information up to date and correct, we make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability or availability with respect to the blog or the information, products, services, or related graphics contained on the blog for any purpose. Any reliance you place on such information is therefore strictly at your own risk.

In no event will we be liable for any loss or damage including without limitation, indirect or consequential loss or damage, or any loss or damage whatsoever arising from loss of data or profits arising out of, or in connection with, the use of this blog.

UK Capital Gains Tax: what is it all about?

In today’s blog, here at Tulip Thistle Accountancy, we are covering UK Capital Gains Tax (CGT), who it applies to, the different rates involved, as well as some of the available reliefs.  Capital Gains - UK

Introduction

Capital Gains Tax (CGT) is a tax on the profit when you sell (or ‘dispose of’) an ‘asset’ that has increased in value. The most common way for a person to dispose of an asset is to sell it to another person. However, a gift is also seen as a disposal in this context. CGT applies to individuals as well as companies (N.B. if a company makes a taxable gain it pays corporation tax on its gain).

Most property other than cash in sterling is an asset for CGT purposes. However there are some specific exemptions*:

  1. Cars are always exempt from capital gains tax (but not vans and lorries)
  2. Wasting chattels. A chattel is “tangible, movable property”, i.e. an asset that can been seen, touched and moved. A wasting chattel is one with a useful life of no more than 50 years (e.g. greyhounds  and racehorses)
  3. Gilts. Gilts are Treasury Stock issued by the UK Government on which annual interest is payable
  4. Shares in an Individual Savings Account (ISA) are exempt
  5. Shares held in approved share incentive plans through employment
  6. Shares in Venture Capital Trusts are exempt, provided they were acquired within the investment limit for the year of acquisition
  7. Gains on shares in Enterprise Investment Schemes (EIS) and Seed Enterprise Investment Schemes (SEIS) are also exempt subject to certain conditions
  8. Foreign currency held for personal expenditure outside of UK & Foreign currency bank accounts
  9. Certain other assets specifically listed as Exempted Assets for CGT

In summary an Asset is subject to Capital Gains tax if it is not specifically exempt under the CGT legislation. So the sale of a buy-to-let property, selling shares held outside of an ISA but also gains on valuables (e.g. jewellery, paintings, antiques, coins and stamps etc.), are all subject to CGT. However if personal possessions you dispose of are worth no more than £6,000, any gain is exempt (NB: if you sell a set (of chairs, for example), the £6,000 limit applies to the set, not each item).

Every individual has an Annual Exemption for capital gains tax (£11,700 in the 2018/2019 Tax Year).

Any transfers between spouses and civil partners are treated as taking place at no gain and no loss. So effectively the receiving partner is deemed to have acquired the asset at the same time and for the same price as the original partner. Gifts to charities also take place on this basis.

For example: Jane acquired some shares in a company on 1 January 2017 for £20,000. In March 2018 Jane gifts these shares to her husband John. At the time of the gift to John,  Jayne is assumed to have disposed of these shares at the same value as she bought them for originally (i.e. £20,000) so no Capital Gain results at the time of the gift. When John sell the shares on 31 December 2018 for £40,000 he has made a capital gain of £20,000; the sales proceeds of £40,000 less the cost of acquisition of £20,000 (the original amount his wife Jayne purchased the shares for).

The rate at which any Capital Gain is taxable depends on:

  1. the level of an individual’s taxable income and
  2. the nature of  the asset being disposed of

If an individual pays tax at the higher or additional rates on his income, then the rate of capital gains tax is 20%. Otherwise gains are generally taxed at a rate of 10% to the extent that they do not exceed the individual’s unused basic rate band (amount of basic tax rate band remaining after an individual’s income has been taxed) and 20% to the extent that they exceed the amount of unused basic rate tax band.

However where a gain arises on disposal of residential property, the 10% and 20% rates are increased to 18% and 28% respectively*. Where an individual has both non-residential property gains and residential property gains, the annual exemption can be allocated in the most beneficial way in order to minimise the tax payable.

Capital Gains are assessed through Self-Assessment and as such Capital Gains Tax is due and payable in full on 31 January following the tax year in which the gain was made.

There are several reliefs available; in today’s Blog we will discuss three of the main ones:

  1. Principal Private Residence Relief (an individual is entitled to this relief when they make a capital gain on the sale of their only or main residence). If the taxpayer has lived in the property as their home throughout the whole period of ownership, 100% of the gain is exempt and no gain is chargeable. A gain will only arise if the taxpayer has been absent from the property at some point during their period of ownership (e.g. let out their property or lived elsewhere). A taxpayer’s principal private residence also includes gardens and grounds, provided the entire area including the site of the house does not exceed half a hectare (slightly over 1 acre).
  2. Entrepreneurs’ Relief (applies to disposals of business assets). The relief is available to tax payers who sell or give away their business. The aim of entrepreneurs’ relief is to reduce the rate of capital gains tax paid by taxpayers on qualifying disposals. Gains are eligible for entrepreneurs’ relief up to a maximum lifetime limit which is currently £10 million. Relief is given by taxing gains qualifying for entrepreneurs’ relief at a flat rate of 10%, regardless of whether the taxpayer is a basic, higher or additional rate taxpayer. There are several qualifying criteria (e.g. you’re a sole trader or business partner and you have owned the business for at least one year (2 years from 6 April 2019) before the date you sell or close it). In these scenarios I would always recommend obtaining professional advice from an accountant as the rules are complicated. In the case of the disposal of shares or securities in a company, the main conditions are that the company is the taxpayer’s “personal trading company” (the company must be “trading” and the taxpayer must have at least 5% of the ordinary shares & voting rights of the company (in addition some additional requirements will apply from 6 April 2019); and the taxpayer must work for the company (or for another company in the same group). There is no minimum hours worked stipulation, so full or part-time employees or directors will be eligible.
  3. Holdover relief (where a trader disposes of a business asset and reinvests his proceeds in buying another business asset, they can make a claim to defer the gain that was made). Rollover relief is a deferral relief, as it pushes the capital gains back to a later period in time. The way rollover relief works, is that the amount of the gain deferred is “rolled over” and reduces the base cost of the new asset purchased. Rollover relief must be claimed by the trader within four years from the end of the tax year in which the gain arises or the new asset is acquired (whichever is the later).

And finally you should always record and report Capital Losses as well. CGT is charged on your total gains each tax year. So if you make a profit when selling one item, but a loss when selling another, you can deduct the loss from the gain before working out how much tax you owe.  While you can’t carry forward any unused allowances (£11,700 in the 2018/2019 Tax Year), you are allowed to carry forward any losses that haven’t been used to offset gains. So even if you don’t owe any CGT, it’s important to submit details of losses in your Self-Assessment Tax Return to make it easier to offset them against a potential gains in future years.

As so very often with Tax, the rules surrounding Capital Gains Tax are complex and in this blog we have only provided an introduction. If you want to learn more or discuss your specific circumstances in detail, please get in touch.

Until the next time!

Contact us

Photo self 2

Charles Donkers (ACMA), Tulip Thistle Accountancy

* please note this is not an exhaustive list

** A residential property is a property which at any time during the individual’s period
of ownership was used as a dwelling or was suitable for use as a dwelling.

Disclaimer: 

The information contained in this blog is for general information purposes only. The information is provided by Tulip Thistle Accountancy and while we endeavour to keep the information up to date and correct, we make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability or availability with respect to the blog or the information, products, services, or related graphics contained on the blog for any purpose. Any reliance you place on such information is therefore strictly at your own risk.

In no event will we be liable for any loss or damage including without limitation, indirect or consequential loss or damage, or any loss or damage whatsoever arising from loss of data or profits arising out of, or in connection with, the use of this blog.

Tips & Advice to help you complete your 2017/2018 Self Assessment Tax Return

In today’s blog, here at Tulip Thistle Accountancy, we are going to give some practical tips & advice on how to make the completion of your 2017/2018 Self Assessment Tax return easier. Remember that the deadline is the 31 January 2019 (for both tax return to be submitted as well as any tax due to be paid) and is only 70 days or so away, so time is marching on!

Self Assessment Clock 1718 v1.png

Tips & hints to complete your Self Assessment Return:

  1. Don’t leave it to the last minute! Rather obvious perhaps but even if you are a pro (and if you were,  you probably wouldn’t be reading this…..), your Self Assessment is likely to involve some “iteration”. You are probably going to find you are missing a piece of information, or you may need to ask for advice at some stage. Much nicer not to have to come to that conclusion at 23.45 on the 31st January, as well as better for your blood pressure and overall health. Similarly phoning HMRC Self Assessment helpline in January  requires  stamina, a sense of humour & plenty of time (trust me on this one…..)! In addition the HMRC Self Assessment website will be heavily used in the last few days ahead of the final deadline with all possible associated issues (stability, time taken to file etc.)
  2. Get organised! Before you sit down in front of your “electronic device of choice” (if you had wanted to file a paper return, you should have done so by 31 October last year, and therefore digital is the only option at this stage), check that you can log-on to your government gateway account*, and think about all the information you will need & gather it all together, e.g.**:
    • evidence of income from employment or pensions (e.g. P60, P45 & possibly P11d for any benefits in kind not processed by your employer through Payroll)
    • evidence of Savings Income received (e.g. Interest from Banks & Building Societies, Dividends from stocks & shares etc.)
    • Details of any Property income (buy-to-let, holiday lets etc.)
    • Other UK income such as employment lump-sums. redundancy pay-outs, share schemes, life insurance gains & income from settlements or trusts)
    • Any chargeable gains or losses (have you sold any shares, property or other investments? You may have to pay Capital Gains Tax if it exceeds the annual allowance of £11,700 in the 2017/2018 Tax Year)
    • Details of Expenses you have incurred relating to your job & any allowances you want to claim for (e.g. Gift Aid contributions & any Personal Pension contributions not deducted from your salary), as these will reduce you tax bill
    • Income from self employment or partnership (Trading Income). Remember Capital Allowances & your Annual Investment allowance as these can reduce your tax bill
    • Any gifts received or made by you
    • More “exotic” items such as Foreign Income, Residency, as well as Venture Capital & Investment Schemes deductions etc.
  3. Did you know that you can deduct fees or subscriptions to some approved professional organisations, if you have paid them yourself? Please note that you must have the membership to do your job, or it’s helpful for your work. Attached link allows you to check whether your “professional organisation or learned organisation” is HMRC approved
  4. if you have used your own vehicle on business for your job and you have not been reimbursed by your employer, you can claim a tax deduction of 45p/mile on first 10,000 business miles and 20p/mile for business miles above this threshold. If your employer has reimbursed mileage at lower rates than these official HMRC rates, you can claim the difference as a deduction
  5. Even if you have gifted or transferred an “asset” for free, these are seen by HMRC as a “disposal” and you may still need to pay Capital Gains Tax on it (if the gain exceeds your Annual Allowance of £11,700 in the 2017/2018 Tax Year). You incur Capital Gains Tax on the gain you make when you sell an “asset”, including
    • most personal possessions worth £6,000 or more, apart from your car
    • property that is not your main home
    • your main home if you’ve let it out, or used it exclusively for business or it’s very large (house & ground larger than 5,000 m2 (0.5 hectare), or just over 1 acre)
    • shares that aren’t in an ISA or PEP
    • business assets
  6. You can ask HMRC to reduce any “Payments on Account” that have been calculated for the following tax year.  For example if you expect your income to be lower in the next tax year (e.g. you have chosen to work less or you have lost a big customer etc.), or if you had a large one-off income or gain in the last tax year
  7. On the Self Assessment Return only fill in the boxes that apply, don’t fill in “0” or “nil”. Leave blank or empty otherwise
  8. You can use ‘provisional’ or ‘estimated’ figures if you can’t recreate all your records (e.g. if they have been lost or destroyed). ‘Provisional’ means you’ll be able to get paperwork to confirm your figures later. ‘Estimated’ means you won’t be able to confirm the figures. You must use the ‘Any other information’ box on the tax return to say that this is what you’re doing. In addition you may have to pay interest and penalties if your figures turn out to be wrong and you haven’t paid enough tax.
  9. Once submitted make sure you get a “submission reference/ID” &  retain an (electronic) copy as proof!
  10. Remember to Pay HMRC by 31 January 2019 at the latest, to avoid late payment fines & interest charges. HMRC must have received any Tax Payable in “cleared funds” (important for payment by cheque), by that date.

Where can I get some help?

  1. HMRC’s Online Self Assessment Guide
  2. I have already mentioned HMRC’s Self Assessment helpline; here is the telephone number:   0300 200 3310.  Remember to have your Unique Tax Reference (UTR, a 10 digit number) and/or your National Insurance number ready to hand.

If you prefer to have a professional complete you Self Assessment Return on your behalf, why not get in touch & let Tulip Thistle Accountancy complete this work on your behalf?

Until the next time!

Contact us

Until the next time!

Photo self 2

Charles Donkers (ACMA), Tulip Thistle Accountancy

* I am assuming you are already registered for Self Assessment with HRMC & have a ten digit unique taxpayers reference (UTR)

** please note this is not an exhaustive list

Disclaimer: 

The information contained in this blog is for general information purposes only. The information is provided by Tulip Thistle Accountancy and while we endeavour to keep the information up to date and correct, we make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability or availability with respect to the blog or the information, products, services, or related graphics contained on the blog for any purpose. Any reliance you place on such information is therefore strictly at your own risk.

In no event will we be liable for any loss or damage including without limitation, indirect or consequential loss or damage, or any loss or damage whatsoever arising from loss of data or profits arising out of, or in connection with, the use of

The Autumn Budget 2018 from a Scottish perspective

In today’s blog, here at Tulip Thistle Accountancy, we are going to take a closer look at some of the key highlights of Yesterday’s Autumn 2018 Budget for both individuals and businesses.

2018 Autumn Budget

Firstly it is important to realise that not all the measures announced in Yesterday’s Budget by Chancellor of the Exchequer Philip Hammond, apply to Scotland due to the devolved powers of the Scottish Parliament. The Scottish (Draft) Budget will be unveiled on 12 December 2018 by Derek Mackay. Of course I will write a further blog on the Draft Scottish Budget shortly after its presentation.

The economic context for the Autumn Budget 2018 remains challenging with economic growth forecast for 2018 reduced by the Office for Budget Responsibility (OBR) to 1.3% (down from 1.5% due to bad spring weather). Forecast for 2019 was raised slightly from 1.3% to 1.6% and annual forecasts raised to 1.4%, 1.4%, 1.5% and 1.6% in 2020, 2021, 2022 and 2023 respectively. These revised growth numbers compared to the last budget are mainly due to lower levels of unemployment & higher participation rates assumptions by the OBR. Productivity growth remains poor and well below historical averages.

The Scottish Government’s resource block grant from Westminster will increase marginally in real terms in 2019/20 compared to 2018/19.

The increase in funding for the NHS is expected to generate associated increases for the Scottish budget of around £600m in 2019/2020. There were other, smaller announcements too which will also have implications for the Scottish budget. The 2018/19 capital budget will be higher by around £80m as a result of announcements of additional funding for fixing pot-holes and supporting schools maintenance. There will also be modest increases to the 2018/19 resource budget resulting from increases in social care spending.  In addition new reliefs in English business rates (in particular for smaller retailers) will result in small funding increases to the Scottish budget in 2019/2020. However, how the Scottish Government chooses to distribute these real increases in the budget in 2019/20 and beyond will be set out in the 2019/2020 Scottish Draft Budget due on 12 December 2018.

Beyond 2019/20, Phillip Hammond said that resource spending would increase by 1.2% in real terms in the next spending review period, and this level of increase will be expected to feed through – more or less – to the Scottish block grant.

Whilst the Personal Allowance increase to £12,500 will apply in Scotland, rates & tax bands are set by the Scottish Parliament so the increase of the Higher Rate Threshold to £50,000 does not. For the 2018/2019 tax year the Scottish Higher Rate Tax threshold is at £43,430, so if no changes are made to this rate in the Scottish Draft Budget, a wide gap will open up to the remainder of the UK. In addition Scottish taxpayers would face a very high marginal tax rate of 53% over an increasingly large proportion of income (as the National Insurance contributions for employees only drop to 2% above the new £50,000 Higher Rate Threshold, employees with income between the Scottish Higher Rate Threshold and the rest of UK Higher Rate Threshold, are taxed at 41% by the Scottish Government plus 12% for National Insurance Contributions). How this aspect of taxation  is addressed, will be a key issue for the 2018/2019 Scottish Draft Budget on 12 December 2018.

Some good news for Pension Tax relief as the Annual Allowance (permitting individuals to contribute up to £40,000 into a pension and receive income tax relief on those contributions) was kept unchanged and anticipated changes introducing restrictions on tax relief for higher & additional rate tax payers, did not materialise.

bank-business-cash-coin-41195

Autumn Budget 2018 – Key points for Individuals: 

  1. Personal Tax Allowance: increase to £12,500 in 2019/2020 (£11,850 in 2018/2019)Scottish Tax Bands: will be set by Scottish Government in its budget on 12 December 2018 (any changes to Tax Bands announced apply to England, Northern Ireland & Wales only)
  2. National Living Wage changes (all increases apply from April 2019):
    • £8.21/hour (up 38p) for over 25s
    • £7.70/hour (up 32p) for 21 – 24 year olds
    • £6.15/hour (up 25p) for 18 – 20 year olds
    • £4.35/hour (up 15p) for 16 – 17 year olds
    • £3.90/hour (up 20p) for apprentices
  3. Basic State Pension will increase by 2.6% to £129.20 per week. Those who are entitled to the full new single-tier state pension will see their payments increase to £168.60/week.
  4. Starting rate for Savings income will remain at £5,000 (assuming total income does not exceed £17,500 in 2019/2020, up to £5,000 in interest income is tax free)
  5. Dividend allowance remains at £2,000
  6. Standard ISA annual subscription limit will remain at £20,000 per person, but  limits for Junior ISAs and Child Trust funds will increase to £4,368/year from April 2019
  7. The Lifetime allowance for Pensions will rise in line with inflation (consumer price index) to £1,055,000 from next April
  8. Capital Gains Tax: the capital gains tax annual allowance will increase to £12,000 (up £300) for individuals
  9. Private Residence Relief:
    • there will be a tightening of the private residence relief rules from April 2020.  The private residence relief rules exempt all or part of a gain arising on a property that has been the owner’s main residence.  Currently if you vacate your main residence within 18 months of selling it, that final period of ownership still qualifies for the full exemption.  That final period exemption will be shortened to 9 months
    • From April 2020 lettings relief will only be available when the owner is in shared occupancy with the tenant
  10. Stamp Duty reliefs for first time buyers have been marginally extended for Rest of the UK, but will not apply to Scotland’s Land and Buildings Transactions Tax
  11. Fuel duty to be frozen for the ninth year in a row
  12. Beer, cider and spirits duties to be frozen
  13. Cost of a bottle of wine duty to rise by 8p, in line with inflation, in February
  14. Tobacco rate increases will apply that will see costs increase by 2% above Retail Price Index (RPI) inflation
  15. Air Passenger Duty: Short-haul rates for 2020/21 will not be increased. However, long-haul rates will be increased in line with RPI. The rates for long-haul economy will increase by £2, and the rates for those travelling in premium economy, business and first class will increase by £4

Autumn Budget 2018 – Key Points for Businesses:

  1. VAT: the current VAT registration threshold of £85,000 and the deregistration threshold of £83,000 will be maintained until April 2022
  2. Business Rates: announcements made are valid for Rest of UK only and do not apply in Scotland. Any changes for Scotland will be included in the 2019/2020 Scottish Draft Budget on 12 December 2018
  3. Entrepreneur’s relief: when selling all or part of your business (or shares or securities in your personal company) the capital gains tax rate is reduced to 10%. From April 2019 the minimum ownership period throughout which all other conditions (and these are complex!) have to be met is being extended from 12 to 24 months. In addition changes to the definition of a personal company (applicable from 29 Oct 2018) have been introduced in the budget
  4. Annual investment allowance (AIA) to be increased from £200,000 to £1m for two years (available to businesses for investments in qualifying plant and machinery)
  5. Off Payroll Working in the Private Sector: in order to bring the private sector in line with the public sector and agencies, the government will reform the off-payroll working rules (known as IR35) in the private sector. Responsibility for operating the off-payroll working rules will move from individuals (including those contracting via personal service companies) to the organisation, agency or other third party engaging the worker. To give people and businesses time to prepare, this change will not be introduced until April 2020. Small organisations will be exempt from the implementation of the new legislation
  6. Employment Allowance: most employers can currently claim an employment allowance of up to £3,000 to offset against their liability to employer Class 1 NICs.
    The Government are to restrict the allowance to employers with an employer NICs liability of less than £100,000 in the preceding tax year
  7.  Company Van & Fuel benefit changes: from 6 April 2019, the van benefit charge will increase from £3,350 to £3,430 and the van fuel benefit charge will increase from £633 to £655.

If you would like to discuss any of the above in relation to your own circumstances, or require professional advice on how the Autumn Budget 2018 will impact your business, please get in touch with us at Tulip Thistle Accountancy.

Until the next time!

Contact us

Photo self 2

Charles Donkers (ACMA), Tulip Thistle Accountancy

Disclaimer: 

The information contained in this blog is for general information purposes only. The information is provided by Tulip Thistle Accountancy and while we endeavour to keep the information up to date and correct, we make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability or availability with respect to the blog or the information, products, services, or related graphics contained on the blog for any purpose. Any reliance you place on such information is therefore strictly at your own risk.

In no event will we be liable for any loss or damage including without limitation, indirect or consequential loss or damage, or any loss or damage whatsoever arising from loss of data or profits arising out of, or in connection with, the use of this blog.

 

 

Is your business ready to become a Limited Company and why consider it?

In today’s blog, here at Tulip Thistle Accountancy, we are going to consider the question of your business’ structure/set-up and help you evaluate whether running your business as a Limited Company (Ltd.) could save you money.

Ltd company combination

What is a Limited Company?

A limited company* has special status in the eyes of the law. It is a business structure that has been incorporated at Companies House as a legal ‘person’.

It is completely separate from its owners, it can enter into contracts in its own name and is responsible for its own actions, finances and liabilities. The ownership of a limited company is divided up into equal parts called shares.

Because limited companies have their own legal identity, their owners are not personally liable for the firm’s debts. The shareholders have limited liability, which is the major advantage of this type of business legal structure.

Unlike a sole trader or a partnership, the owners of a limited company are not necessarily involved in running the business, unless they are also a Director.

Advantages of a Limited Company:

Although the sole trader route, which is commonly referred to as being self employed, is the most popular way of running a business in the UK, there are significant advantages of operating as a limited company:

1. Tax

The main advantage of running your business as a limited company is that you are likely to pay less Personal Tax than as a sole trader.

If you are the director and shareholder of a limited company, you will normally choose to take a small salary and draw most of your income in the form of dividends.

By doing this you can minimise the amount of National Insurance Contributions (NICs) you have to pay because dividends are taxed in a different way, and are not subject to NICs

As a sole trader the majority your profit is subject to National Insurance Contributions. Running your business as a limited company could therefore help you to take home more of your earnings.

In addition other Tax Optimisation can be considered by making a spouse (or registered civil partner) a Director and/or Shareholder to utilise both parties’ Personal & Dividend Tax Allowances**.

2. Separate Entity

A limited company is a completely separate entity from its owners. Everything from the company bank account, to ownership of assets and involvement in tenders and contracts is purely company business and separate from the interests of the company’s shareholders.

3. Limited Liability

Assuming no fraud has taken place, your ‘limited liability’ means you will not be personally liable for any financial losses made by your business. A limited company can therefore give you added protection should things go wrong***.

Those running a business using a different structure (e.g. as a Sole Trader) do not enjoy such protection from financial claims.

4. Professional Image

In some businesses and industries, having a limited company can provide a more professional image.

If you are doing business with larger companies, you may find that they prefer to deal with limited companies rather than sole traders or partnerships.

5. Protected Business Name

Once you register your company with Companies House, your company name is protected by law. No-one else can use the same name as you, or anything deemed to be too similar.

6. Different Shareholder Classes

A limited company can issue various classes of shares, with differing rights & entitlements attributed to them. This means you can relatively easily sell stakes in the company, or transfer ownership of shares.

7. Ownership and Control

In the case of Private Limited Companies, the Directors are also usually the main shareholders of the Company. Thus both the ownership and control of the business remain in their hands.

8. Pension Contributions by Company to Director’s Pension Scheme

A limited company can fund its director’s pensions as a legitimate business expense. This can offer a further tax advantage over those who are running their business on a self-employed basis****.

9. Employee Shareholders – In some instances employees can purchase shares (or be granted shares via a company share scheme) and become shareholders of the company. This allows Key Employees to share in the company’s success and creates goal alignment between employees & the company. Structured well this method can also be used to retain talented individuals.

10. Sale or Transfer of Business

If a shareholder wishes to retire, sell their shareholding, or dies, it is far easier to transfer ownership of a limited company than a non-registered business structure.

Ltd company combination - option 2

And what about the disadvantages?

1.  Increased administrative burden

As a Director you have specific responsibilities , mainly to:

  • keep company’s records (records about company itself as well as financial and accounting records), and to report changes
  • file Accounts with Companies House & file a Corporation Tax return with HMRC (normally annually)
  • pay Corporation Tax
  • follow the Company’s rules, shown in its Articles of Association
  • Tell other shareholders if you might personally benefit from a transaction the company makes
  • Complete an Annual Confirmation Statement

You will need to keep details of any shareholder votes and resolutions, including any Dividends declared (which also need to have the correct documentation in place).

With the right professional advice from your Accountant these requirements do not have to be an intimidating prospect and can easily be managed.

2. Cost

Whilst the initial cost of setting-up a Limited company is relatively modest, most business owners will need some professional advice from an accountant to help them operate the company & ensure tax position optimisation. Accountancy fees for Private Limited Companies are higher than for other legal structures, mainly due to more stringent Accounting Reporting requirements as well as the need for a Company Corporation Tax return, in addition to Self-Assessment Returns for Directors. A Company Payroll Scheme will also need to be run, depending on profit extraction model chosen.

However for companies with profits in excess of c.£25,000***** per year, the higher running costs are offset by savings made in Personal Tax position. In addition the other advantages of Private Limited Companies become available too.

3. Private Use of Company’s assets

Potential Benefit-in-Kind rules kick in where there is any personal use of Company assets by Directors, which was not reimbursed at market rates. Company cars are not recommended due to high rates of taxation through the Benefit-in-Kind regime (with tax implications for Directors as well as the Company). However instead you can use your private vehicle and charge mileage accrued on business to the company (at standard HMRC rates). These are tax deductible for company and non taxable on individual. In addition there is a possibility to run a pick-up style vehicle as a “company van”, which can work out to be cost efficient too due to lower Benefit-in-kind rates applicable.

Conclusion

For many business it will make sense to investigate how they could benefit from changing their business structure to a Private Limited Company set-up, unlocking the advantages of this legal form. With good professional advice from a knowledgeable Accountant the additional administrative burden can be minimised and managed, to help you maximise the (financial) rewards of your entrepreneurship!

If you would like to discuss any of the above in relation to your own circumstances, or require professional advice on whether your business could benefit from being run as a Private Limited Company (Ltd.), please get in touch with us at Tulip Thistle Accountancy.

Until the next time!

Contact us

Photo self 2

Charles Donkers (ACMA), Tulip Thistle Accountancy

* we will limit our topic today to Private Limited Companies in the UK (Ltd.), whose shares do not trade on a stock exchange.

** Tax rules are subject to change and therefore you should be careful to incorporate solely to optimise your tax position

*** sometime banks, before lending money to a Ltd. company will insist upon a personal guarantee by Directors

**** Subject to normal Annual & Lifetime allowances limits. See my earlier blog on Pensions for more information

***** It can be much lower and completely depends on indvidual tax payer’s personal circumstances

Disclaimer: 

The information contained in this blog is for general information purposes only. The information is provided by Tulip Thistle Accountancy and while we endeavour to keep the information up to date and correct, we make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability or availability with respect to the blog or the information, products, services, or related graphics contained on the blog for any purpose. Any reliance you place on such information is therefore strictly at your own risk.

In no event will we be liable for any loss or damage including without limitation, indirect or consequential loss or damage, or any loss or damage whatsoever arising from loss of data or profits arising out of, or in connection with, the use of this blog.

 

How to create a budget for your business?

In today’s blog, here at Tulip Thistle Accountancy, and as a follow up to my recent blog on how to increase your business’ profit and Cash Flow, today’s topic is how to create a budget or financial plan for your business.

business plan-2904770_1920

Every business whether small or large, should create a financial plan. Level of detail (and time horizon) will depend on size and complexity of the business but the main objectives remain the same:

1. translate business objectives into financial targets

2. create a baseline against which Actual performance can be judged

3. identify capacity constraints (machinery, people, process)

4. manage the limited resources of the business so that they are focused on activities which support business objectives

5. articulate the Key Performance Indicators which demonstrate the health of your business

Business Objectives

Are you clear on what you want your business to achieve in the next quarter or year? Objectives work best if they are SMART (Specific, Measurable, Realist and Time-bound). Here are some examples:

1. increase business profit by 10% next year

2. double my number of clients next quarter

3. increase productivity by 50% next financial year. Rather than it taking 10 working hours to deliver my consultancy product, I want to do it in 5 hours instead

4. improve customer service. Reduce customer complaints by 10% versus last year

5. spend £1,000 of business income next year on charity donations

6. generate £50,000 of Cash Flow to invest in new machinery or technology next year to boost our capacity

Let’s take a close look at business objective 1  above. On it’s own this goal won’t be enough; you will need to identify how to deliver a 10% profit increase and as the table with worked example below shows, this can be achieved in different ways

  1. increase sales by +7% (maintain margin of 30%).
  2. if able to increase your margin to 35%, sales can actually reduce by -9%
  3. increase sales by +28% (drop margin to 25%)
  4. reduce your overhead costs (e.g. rents, rates, insurances, administration) by -20%
£’000 Last Year Same margin Increase margin Reduce  margin Reduce O/Heads
Sales 500 533 457 640 500
Cost of Sales (350) (373) (297) (480) (350)
Margin 150 160 160 160 150
Overheads (50) (50) (50) (50) (40)
Profit before Tax 100 110 110 110 110
Margin as % sales 30% 30% 35% 25% 30%
Admin as % sales 10% 9.4% 10.9% 7.8% 8%

Overlaying your knowledge of your market place & customers, you will be able to come up with an approach to achieve your business objective of 10% profit increase.

Specific actions may be needed to achieve cost reductions. Monitoring progress with milestones will ensure you know whether you are on track, or give you an early warning when you are not making progress as planned. So if you are not able to achieve the planned cost reduction, you may be able to set a revised sales target to still hit the 10% profit increase you want to achieve.

business numbers & paper -2904773_1920

You don’t necessarily need accounting software to create a budget and in many ways at the budget creation stage you are often well served using Microsoft Excel. However once you have set your budget, tracking progress against it becomes significantly easier to do if you use the budgeting modules in Cloud Accounting Software such as QuickBooks or Xero. That way at the end of each month you can easily see the progress made against the targets & take corrective action if required.

To help you set a meaningful budget, it helps to draw on your an in-depth understanding of your business.

Important information to have available when setting budgets:

  • product profitability
  • customer profitability
  • competitors & overall market you are working in
  • good understanding of your cost base
  • capacity constraints. For example it is no good chasing an 20% sales growth if with the current machinery in place you are already at full capacity. If sales potential is available, it may lead you you to assess whether investment in new capacity is viable
  • ensure you understand external constraints (e.g. changes in labour costs due to changes in minimum wage, additional pension contributions, new industry specific or general regulations etc.)

Key Performance Indicators

Once you have created a budget, you can identify certain key measures which you need to keep an eye on an check regularly, to make sure you deliver the plan. These Key Performance Indicators can be reviewed on a daily, weekly or monthly basis as required. For example Michael Welch, the founder of Blackcircles.com, used to review sales data daily & would take corrective action using promotion & other pricing tools as required.  Again having a Cloud Accounting Software package will simplify this task significantly.

If you need some professional advice setting up a budget for your business, let us know and here at Tulip Thistle Accountancy we would be happy to help.

Until the next time!

Contact us

Photo self 2

Charles Donkers (ACMA), Tulip Thistle Accountancy

Disclaimer: 

The information contained in this blog is for general information purposes only. The information is provided by Tulip Thistle Accountancy and while we endeavour to keep the information up to date and correct, we make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability or availability with respect to the blog or the information, products, services, or related graphics contained on the blog for any purpose. Any reliance you place on such information is therefore strictly at your own risk.

In no event will we be liable for any loss or damage including without limitation, indirect or consequential loss or damage, or any loss or damage whatsoever arising from loss of data or profits arising out of, or in connection with, the use of this blog.

How to increase your business’ Profit & Cash flow?

In today’s blog, here at Tulip Thistle Accountancy, we are going to take a look at 5 ways to increase the Profit & Cash Flow your business generates.

Boosting results

No matter if you are a small business or a well established company, whether you are a sole trader, a partnership or a Limited company, you can use the following techniques:

1) Make a Plan & monitor progress against it.

Ever heard of the five “Ps”?

“Poor Planning leads to Pretty Poor Performance”*

Knowing what you are aiming to achieve in a certain period (your goals & objectives), helps to focus the mind and allows you to check-in at regular intervals whether you are on track to deliver.

For example let’s assume that you need to replace some machinery next year as it has reached the end of its useful life. How will you know that you will have enough cash in your bank account to buy the machinery outright or reduce bank loans/other financing required? Planning things out allows you to reduce the amount of management time & distraction involved to the minimum.

Having a monthly (or quarterly) plan for sales, cost of sales, margin, administration & overhead costs, as well as cash flow that is generated by the business will give you assurance that you can afford to make the required investments. It will also allow you to plan other major cash outflows (for example buying of stock, replacement of vehicles or an upgrade for your business premises). In addition you can then track on a monthly basis how you are doing against the plan & make adjustments if you are off track.

A business plan does not need to be hugely complex. For different businesses different aspect may be more important to focus on. For an example if you are a consultant your administration & overhead costs are likely to be less important than fully planning out expected revenue & associated margins by customer. In addition building a capacity plan which includes allowances for time spent on securing business (contracting negotiations & associated administration activities) means you understand what capacity for creating revenue you have as a business. Overall aim is to have targets you can compare actual performance against & get an early warning when financial performance goes off track, so you have time to intervene & correct problems pro-actively.

Goals

In a future blog we will go into more detail around how to create value adding business plans.

2) Understand the profitability of your products & customers

Sounds simple, right? You know the price you have agreed upon so just deduct your costs. But are you recording the full cost of providing your product or service? Do you figure in time to set-up contracts, negotiations as well as ongoing management? Do you track time spent & cost incurred for business you did not secure?

These administration type costs may be widely different between customers too (some can be much more time demanding).

Understanding the full cost of the product or service you sell may lead you to price the same product differently due to associated administration costs.

Do you have a list of who your 10 most profitable customers are & do you understand what puts them there? Can you draw any lessons from why these customers are more profitable for you and how can you move your other customers to be more like your top 10? To improve Cash Flow you could also consider offering early payment discounts or offering payment through PayPal and other fast payment streams.

3) Cost control. Do you buy from the same supplier(s) year after year? Do you competitively tender? Have you ever asked your supplier how they can help you save money? Buying larger quantities may lead to a volume discount, but also remember that your specific requirements may lead to additional cost for the supplier, leading to higher prices.

When is the last time you sat down and critically reviewed your cost base?

Remember any money you save here goes straight to the bottom line!

4) Review your systems. Can your financial system provide accurate, up to date financial information, or do you need to wait to the end of the month or even the end of the year when your “traditional, compliance focused” accountant comes & discusses your firm’s numbers with you?

cloud software

Michael Welch, the founder of Blackcircles.com, used to review sales data daily & would take corrective action using promotion & other pricing tools as required.

With Cloud Based Accounting Packages such as Quickbooks and Xero you can not only review your businesses’ up-to-date financial information instantaneously, you can also monitor customer & product profitability.  One further key advantage of cloud accounting software is it you can raise quotes & invoices in any place and at any time that suits you. This can allow you to provide quotes more quickly, reducing cycle from initial contact to firm order, and allow you to do invoice immediately upon completion of the agreed work. No need to wait to the end of the month to do the invoicing as a batch job – the system will do the hard work for you, resulting in invoice going out sooner & you getting paid sooner too, which will improve Cash Flow. See my earlier blog on Cloud Based Accounting packages for more information.

5) Engage your team in helping you deliver your business’ targets. Look at your business process with your team and look for improvement opportunities and efficiencies. How many steps are there in the process from sales enquiry to order placed up to and including product or service delivery?  There are a range of continuous improvement techniques which can help you streamline your whole operation. Again this subject warrants a longer discussion, so look out for a separate blog on this topic.

Continuous Improvement

Working with a business focused Accountant & using a Cloud Based Accounting Package can help you transform your insight into your business’ financial performance and help you to increase your business’ profit and Cash Flow.

Until the next time!

Contact us

Photo self 2

Charles Donkers (ACMA), Tulip Thistle Accountancy

* “stronger” versions of the acronym are available…..

Disclaimer: 

The information contained in this blog is for general information purposes only. The information is provided by Tulip Thistle Accountancy and while we endeavour to keep the information up to date and correct, we make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability or availability with respect to the blog or the information, products, services, or related graphics contained on the blog for any purpose. Any reliance you place on such information is therefore strictly at your own risk.

In no event will we be liable for any loss or damage including without limitation, indirect or consequential loss or damage, or any loss or damage whatsoever arising from loss of data or profits arising out of, or in connection with, the use of this blog.