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What is the ultimate goal of your business?

Planning for the future is essential when running a business and, ideally, you should have a perspective of where you want to be in three to five years.

Goals or targets provide a sense of direction, focus, and motivation. But how do you set aims effectively?

You could try the SMART method. This relies on five key criteria – Specific, Measurable, Achievable, Realistic, and Time-Based – which allow you to create a clear target for success.

What is the plan to get you there?

It may be that small steps are needed before achieving the ultimate goals and could include:

  • Establishing your USP. What can you offer that the competition cannot?
  • Identifying your ideal customer, do you need to pivot the business to attract new clients?
  • Maximising talent. Your staff are your most important asset.

How you can build SMART goals into your business plan:

Specific

A specific goal clearly defines what needs to be achieved, by whom, where and when it is to be achieved (and sometimes why).

Measurable

Measuring draws your focus, and the latest tracking software can measure this accurately.

When you measure, you need to ask certain questions:

  • How much?
  • How often?
  • How many?

Achievable

When you set goals, ensure they’re achievable. It’s a mistake to set unreachable goals because you’re setting yourself up for failure from the beginning.

Realistic

Make sure the goal that you set has long-term importance in what you want to achieve as an individual or an organisation.

Time-based

It sounds obvious but set up a timeframe. A deadline can be an excellent motivator.

Struggle to set goals? Need help monitoring your KPIs? It makes the most sense to seek professional support so you can create a SMARTer approach to working.

Companies House goes fully digital

Companies House has gone fully digital after the announcement of the closure of its office in London and all filing being transferred online.

It has also permanently shut the public counters in Cardiff, Belfast and Edinburgh.

Online services will be available 24 hours a day, seven days a week.

Changes have taken place with improved security features, which include:

  • Multi-factor authentication
  • The ability to link your company to your WebFiling account to give you more control over your filings
  • Being able to digitally authorise people to file on your behalf on WebFiling, and to remove authorisation
  • To view who’s digitally authorised to file for your company
  • An option to sign up for emails to help you with the running of your company

WebFiling is an online service that Companies House provides, designed to make the submission of official paperwork easier and paper-free.

Once you’ve linked your company to your account, you will not need to enter your authentication code every time you file online.

Key changes, which form part of the 2020 to 2025 strategy and part two of the Economic Crime Bill, are expected to go through Parliament this spring and will include:

  • Filing deadlines will not be shortened at the moment, but legislation will be introduced to facilitate future changes.
  • Small companies will no longer have the option to prepare and file abridged accounts and will be required to file both their profit and loss account and directors’ report.
  • Micro-entities will also be required to file their profit and loss accounts but will continue to have the option to not prepare or file a directors’ report.
  • Dormant companies will be required to file an eligibility statement.
  • All companies will be required to file accounts digitally, with full tagging.

Be prepared for changes to Capital Gains Tax thresholds

The exemption for paying Capital Gains Tax (CGT) is changing.

The CGT annual exemption will fall from £12,300 to £6,000 from April 2023, before being cut in half again to £3,000 from April 2024.

CGT is what you pay on any gains that you make when you come to sell an asset, such as a second home or shares.

However, the annual CGT exemption allows you to make a certain value of gains before you pay tax on any additional gains.

Higher-rate or additional-rate taxpayers pay 28 per cent on gains from residential property and 20 per cent on gains from other chargeable assets.

If you are a basic-rate taxpayer, you will be charged 18 per cent on residential property and 10 per cent on other gains.

Steps that could reduce your CGT liabilities include:

  • Ensuring you use your allowance for the current year as soon as possible.
  • If you are married or in a civil partnership, you can utilise your partner’s unused allowance. You can transfer your assets into joint names if you are married or in a civil partnership without triggering a tax event. This doubles your £12,300 allowance to £24,600 in one year.
  • Utilise tax-efficient investments such as the Enterprise Investment Scheme and Venture Capital Trusts.
  • Using Business Asset Disposal Relief when selling a business.

Now is a great time for investors to review their portfolios and decide whether they should transfer or dispose of certain assets before these changes take place.

If you want to take advantage of the current CGT tax rate it is best to seek advice from a qualified tax adviser.

Time to rethink your property portfolio? What you need to consider

Investing in property can still provide a strong return, but it needs careful planning to achieve the best outcomes.

Just buying new properties without a clear strategy would be risky.

While it is true that rates of interest continue to increase, as do many of the costs associated with being a landlord, with the correct approach property can continue to provide a good income.

Mortgages

Many landlords enter the market by purchasing their property using a buy-to-let mortgage.

In many cases, landlords have even forgone paying off their mortgage favouring interest-only buy-to-let mortgages, which minimise their monthly outgoings to enjoy a greater overall return.

However, with the Bank of England steadily increasing the base rate, many lenders are also increasing their interest rates driving up the cost of debt.

For those on fixed-rate mortgage deals, their current rate shouldn’t change until their current offer ends, but for those on tracked and variable rates, which increase alongside the base rate, the costs of their mortgages could wipe out any profits.

Lenders are unlikely to offer any new fixed deals at lower rates for some time, so what can be done to cut mortgage costs?

One option to consider if you already have multiple buy-to-let mortgages is consolidation.

Consolidating multiple debts into a single property loan could help to reduce the amount paid overall.

If you are considering further growth and you have multiple mortgages, you might want to consider a buy-to-let portfolio mortgage.

Many lenders offer this kind of product, which allows you to combine your borrowing under a single web of loans, while also allowing you to use the equity within the portfolio to cover deposits for new homes.

Looking to sell?

When the main home is sold, there is usually no Capital Gains Tax (CGT) due thanks to Principal Private Residence Relief, but tax may be owed on the gains you have made on a second home or investment property.

Higher and additional rate taxpayers pay CGT on property disposals at a rate of 28 per cent, while basic rate taxpayers may pay tax on some of their chargeable gains at a rate of 18 per cent.

Tax is only charged on the gains made on a property, not the total value of the sale, and most taxpayers benefit from an annual CGT tax-free allowance of £12,300 (2022/23).

Any CGT due on UK residential property disposals made by UK residents must be reported and paid within 60 days of completion.

Whether you are looking to grow or sell your portfolio it is important to have a plan in place and seek professional advice to make the most of your assets.

Majority want Inheritance Tax scrapped or cut as rate is frozen again

More than half (52 per cent) of UK adults want to see Inheritance Tax (IHT) either scrapped or reduced, according to a new survey.

It comes as £8 billion is expected to be raised in IHT receipts by 2027/28 after Chancellor Jeremy Hunt announced a freeze on the 40 per cent threshold in his Autumn Statement.

That figure from the Office for Budget Responsibility (OBR) shows an increase of 28 per cent in that period.

The survey by Handelsbanken Wealth & Asset Management shows more than a quarter (27 per cent) of adults want to see IHT scrapped and a quarter (25 per cent) want to see it reduced, with over-65s at 30 per cent most in favour compared with just 22 per cent of 35 to 49-year-olds

The Treasury took in £4.1 billion of Inheritance Tax from April to October this year, £ 500 million higher than in the same period a year earlier and an increase of 14 per cent, according to HMRC.

How does it work?

There’s normally no Inheritance Tax to pay if either:

  • The value of your estate is below the £325,000 threshold
  • You leave everything above the £325,000 threshold to your spouse, civil partner, a charity or a community amateur sports club

The standard 40 per cent is only charged on the part of the estate that’s above that threshold.

For example: If the estate is worth £500,000, the Inheritance Tax charged will be 40 per cent of £175,000 (£500,000 minus £325,000).

But with house prices rising and the value of estates increasing, more people are likely to be dragged into paying the tax.

What else can you do to reduce the Inheritance Tax liabilities?

  • If you give away your home to your children or grandchildren your threshold can increase to £500,000
  • Provide gifts of up to £3,000. This will be tax-free and under annual exemptions.

Other ways which may allow you to reduce your IHT liability include Business Property Relief and Agricultural Property Relief.

Be prepared for changes to Capital Gains Tax thresholds

The Capital Gains Tax allowance (CGT) reductions announced by Chancellor Jeremy Hunt in November’s Autumn Statement could have a significant impact on investors. 

The threshold for starting to pay will fall from the current rate of £12,300 to £6,000 from April 2023 and £3,000 from April 2024. 

CGT is what you pay on any gain that you make when you come to sell an asset, such as a second home or shares. 

However, the annual CGT exemption allows you to make a certain value of gains before you pay tax on any additional gains.  

Higher-rate or additional-rate taxpayers pay 28 per cent on gains from residential property and 20 per cent on gains from other chargeable assets. 

If you are a basic-rate taxpayer, you will be charged 18 per cent on residential property and 10 per cent on other gains — if the amount is within the basic income tax band. Steps which could minimise taxation include: 

  • Make sure you use your allowance for the current year as soon as possible.  
  • If you are married, you can utilise your spouse’s unused allowance.  You can transfer your assets into joint names if you are married or in a civil partnership without triggering a tax event. This doubles your £12,300 allowance to £24,600 in one year.  
  • Consider greater use of tax-free schemes, such as ISAs. 
  • Increase pension contributions and use your pension fund to make your investments. 
  • Utilise tax-efficient investments such as the Enterprise Investment Scheme and Venture Capital Trusts. 

So now could be a time for investors to review their portfolios and decide whether they should transfer or dispose of certain assets before these changes take place. If you want to take advantage of the current CGT tax rate it is best to seek advice from a qualified tax adviser. 

Landlords targeted over undeclared income from residential property

Landlords are being targeted by HM Revenue & Customs (HMRC) over what appears to be undeclared rental income or income related to residential property. 

HMRC’s Wealthy External Forum sent 606 letters to landlords who have submitted deposits into a tenancy deposit scheme, questioning them about understating their rental income. 

Landlords and letting agents are required by law to protect tenant deposits on rental property in a Government-approved tenancy deposit scheme. 

The Housing Act 2004 law applies to landlords who let under assured shorthold tenancies, usually used to let residential properties. 

Check and correct tax return 

The HMRC nudge letters are based on information received from other Governmental departments, banks or, in this case, the Tenancy Deposit Scheme (TDS). 

HMRC believes it will be able to estimate the total rental income for the year, based on the level of the deposits placed within the scheme.  A deposit usually amounts to four to five weeks of gross rent 

The letter urges the taxpayer to check and correct their 2020/21 tax return, and their 2021/22 return if it has already been submitted.  

The HMRC letter reminds landlords that if they have disposed of the property, they must declare that sale or disposal, and pay capital gains tax (CGT) on any profit they have made. 

The Government approved  tenancy deposit schemes in England and Wales are: 

These organisations all have privacy policies that allow them to share data with certain Government departments, but the Tenancy Deposit Scheme says it will “submit any details requested by HMRC or other Government agency or local authority under the relevant legislation.”  

HMRC has made such a request to one or more of the deposit protection schemes, and received data about landlords who have placed deposits with those schemes.  

HMRC says the letter does not open a tax enquiry or compliance check, but it does ask the taxpayer to correct their 2020/21 tax return within 30 days. 

Millions pay more tax as income tax thresholds are frozen

Millions of new taxpayers will be created by the extended freeze on the income tax thresholds announced by Chancellor Jeremy Hunt.

In his Autumn Statement, he further froze the thresholds until the tax year 2027/28.

Now income tax thresholds for basic (20 per cent) and higher rate (40 per cent) taxpayers are frozen for a further two years, while the £12,570 personal allowance, the amount you can earn before you start to pay tax, has also been frozen for the same period.

In addition for those paying the additional rate of 45 per cent, the threshold has been reduced to £125,140 from April 2023.

In what has been described as a stealth tax, gradually more low-income households will be dragged into paying basic rate tax which kicks in at £12,570 and those with earnings nearing £50,000 into the higher 40 per cent rate. For some, the 9.7 per cent rise in the minimum wage next year will affect them straight away.

There are tax-efficient ways of mitigating tax bill increases including:

Pension top up

You can reduce your income tax by topping up your pension. Personal pension contributions lower your ‘adjusted net income’ which HMRC uses to calculate your tax bill.

ISA allowances

ISAs are a tax-efficient way of saving. You don’t pay income tax or Capital Gains Tax (CGT) on investments inside an ISA and you can withdraw money whenever you like, tax-free. You can invest up to £20,000 in ISAs in the 2022/23 tax year.

Double your tax allowance

If you’re married or in a civil partnership, your tax allowances effectively double. For example, if you both open an ISA, that’s a combined £40,000 that you can shield from income tax and CGT each year.

We can guide you through these sometimes complicated issues.

Autumn Statement 2022

The message from the Chancellor, Jeremy Hunt, in the days before he rose to the despatch box in the House of Commons to deliver the Autumn Statement was clear; he would be outlining billions of pounds of tax rises and spending cuts.

These spending cuts and tax rises, he said, would affect everybody and were necessary to re-establish the markets’ trust in the future health of the public finances.

What was less clear was exactly who the announcements would affect the most and how they would be impacted.

Of course, the challenges for the Chancellor extended well beyond winning the trust of the markets in relation to his stewardship of the public finances. He will also have been thinking about inflation, the cost-of-living crisis, interest rates and promoting economic growth, not to mention the political optics.

These are competing but intricately related pressures; action to address the cost of living carries with it the risk of further inflation; action to reassure the markets brings the twin dangers of not addressing the cost-of-living crisis or promoting economic growth. Different economic considerations do not exist in a vacuum.

Further underscoring the scale of the challenge, just a day earlier, the Office for National Statistics announced that inflation had reached a 41-year high of 11.1 per cent.

This followed warnings from the Bank of England’s Monetary Policy Committee, as it increased interest rates to three per cent in early November, that the UK faces a “prolonged” recession.

The only real questions concerned the detail of what the Chancellor would do. Which taxes would be affected? Will they rise now or in the future? Would tax rates rise? Would the focus be on freezing thresholds? How much pain would there be? Who would bear the brunt?

And, most importantly, would it work?

Public finances

Addressing the Office for Budget Responsibility’s (OBR) economic forecasts, the Chancellor said that the economy is now in recession and is expected to shrink by 1.4 per cent in 2023/24 before growing in 2024/25.

Meanwhile, he said unemployment is expected to rise to 4.9 per cent in 2024, up from 3.6 per cent now, before falling to 4.1 per cent the next year.

Borrowing this year stands at 7.1 per cent of GDP, according to the OBR. Debt as a percentage of GDP is expected to peak at 97.6 per cent in 2025/26 before falling to 97.3 per cent in 2027/28.

Personal tax

Beginning with personal tax, the Chancellor said that the threshold for the additional 45p rate of Income Tax will fall from £150,000 to £125,140 from April 2023.

At the same time, National Insurance, Inheritance Tax and Income Tax thresholds and Allowances will be frozen at their current levels for a further two years to 2028.

He said the Dividend Tax Allowance will fall from its current level of £2,000 to £1,000 in 2023/24 and then to £500 in 2024/25.

Turning to Capital Gains Tax, the Chancellor said the current Annual Exempt Amount will fall from £12,300 to £6,000 in 2023/24 and then to £3,000 in 2024/25.

He then turned his sights to electric vehicles, saying that a road tax will apply to them from 2025.

Finally, on personal tax measures, he said that the Stamp Duty Land Tax (SDLT) cuts announced by his predecessor, Kwasi Kwarteng, in September 2022 will end on 31 March 2025 and will not be permanent.

Business Tax

Turning to business taxes, the Chancellor said he would reduce the enhanced deduction rate for Research & Development (R&D) Tax Relief for SMEs from 130 per cent to 86 per cent of qualifying expenditure from April 2023. The tax credit for loss-making SMEs will fall from 14.5 per cent to 10 per cent.

On Business Rates, he said that the revaluation exercise will go ahead as planned in April 2023. £13.6 billion of support will be provided over five years to help businesses transition to the new bills.

He said the Business Rates multipliers will be frozen in 2023/24 and there will be extended and increased relief for businesses in the retail, hospitality and leisure sectors. That relief will increase to 75 per cent.

The National Insurance Secondary Threshold will remain at £9,100 until April 2028.

National Living Wage, Energy and Pensions

Turning to the National Living Wage (NLW) and National Minimum Wage (NMW), the Chancellor announced he would increase the rates for those aged 23 and over by 9.7 per cent to £10.42 an hour from 1 April 2023.

Meanwhile, the rate of NMW for those aged 21 and 22, 18 to 20, and 16 and 17 will rise to £10.18, £7.49, and £5.28 an hour respectively. The apprentice rate will also rise to £5.28 an hour.

Moving to address energy costs, the Chancellor said the current Energy Price Guarantee (EPG) will remain in place until April 2023, limiting typical energy bills to £2,500 per year. From April 2023, the EPG will rise to £3,000 for the typical household.

Concluding his speech with pensions, the Chancellor said that the State Pension Triple Lock will remain in place, meaning the State Pension will rise in April 2023 in line with September 2022’s rate of CPI – 10.1 per cent.

Conclusion

The economy is a complex and dynamic system, and there are limits to what can be known about how it will respond to any particular intervention – it is the sum of the ever-changing actions of millions of individuals.

What is more, the Chancellor only has his hands on some of the levers of economic influence, not all of them, and moving one of the levers he controls can stop him from moving another.

Mr Hunt will be hoping he has pulled the right levers by the right amount and that the factors out of his control move in the direction he wants them to.

For businesses and business owners, the impact of the changes is likely to vary considerably and a renewed focus on tax planning is likely to be needed.

Link: Autumn Statement 2022

Are you prepared for new VAT late filing and payment penalties?

HM Revenue & Customs (HMRC) is introducing a new point-based VAT penalty system from 1 January 2023 that replaces the existing late submission penalty regime and is in line with the latest Making Tax Digital requirements.

This new system will see taxpayers accrue a point for each submission deadline that is missed. Once a certain number of points for late submission are incurred, a fine will be issued.

HMRC says that this is a more progressive approach to penalties. However, how many points you will need to accrue before you are penalised will vary depending on how frequently you are required to submit information.

For example:

  • For annual submissions, accruing two points will result in a penalty.
  • In the case of quarterly reports, such as those required under Making Tax Digital, four points will result in a penalty
  • If you are required to make more regular monthly submissions, five penalty points will end in a fine.

A standard fine for each of these submission penalty thresholds is an automatic £200 penalty. However, every single late submission after this initial fine will result in an additional penalty being added.

Although points are accrued over time, they will also expire after two years when a taxpayer demonstrates ongoing compliance with the rules.

The two years are counted from the month after you received the point. However, points will not expire when the penalty threshold is reached.

You won’t face automatic fines for late submissions under this system but the potential for a larger overall fine for extended or regular periods of non-compliance is greater.

What about late VAT payments?

You will not receive a penalty if you pay the VAT you owe in full or agree on a payment plan on or between days one and 15.

If payment continues to be due from day 16 to day 30 you will receive a first penalty calculated at two per cent on the VAT you owe.

Finally, if your VAT payment is 31 days or more overdue, then you will receive a second penalty calculated at a daily rate of four per cent per year for the duration of the outstanding balance.

These penalties are calculated when the outstanding balance is paid in full, or a payment plan is agreed upon.

How to prepare

HMRC will not be charging a first late payment penalty for the first year from 1 January 2023 until 31 December 2023. However, it will be charging a second penalty for payments that are 31 days late or more.

However, before this new system of penalties is introduced, the online VAT services facility will close on 1 November 2022.

After this date, businesses that fail to file their VAT returns under the Making Tax Digital for VAT rules using compliant software face significant fines and interest.

If you do not comply, HMRC could issue fines of up to £400 for every VAT return and you could receive a penalty of between £5 and £15 each day that digital records are not kept, or digital links are not maintained.

Need help with Making Tax Digital for VAT? Speak to our team today.