Inflation has been described as paying £15 for the £10 haircut you used to get for £5 when you had hair.

It is soaring at the moment and leaves business owners facing real problems. If they increase their prices, they risk losing customers, but if they peg prices, they put their profits and potentially their business at risk.

Inflation hits just about everything, from raw materials to higher fuel and energy costs to customer confidence.

The hope is that it will be short-term, but with borrowing costs spiralling as interest rates rise, businesses should look at practical savings and decide:

• Are you paying for services you no longer use regularly?
• What measures can you adopt to cut energy bills?
• Can you achieve discounts with bulk ordering or cut costs by reducing excessive orders?
• Are you making efficient use of your staff?

Maximise technology use

Accounting and financial technology can give you instant information on sales, costs and products and allows cloud-based apps to reduce the time needed for vital but time-consuming tasks.

This can include invoicing systems that tell you what’s been paid and other apps that help you keep track of your cashflow.

Examine your products and workforce

• Can you abandon or suspend certain products which deliver weak margins? At the same time, can a best seller withstand a price increase and boost profitability?
• Are you overstaffing shifts?
• Do you have lengthy processes with unnecessary steps?
• Do you really need those temporary workers?

Stay competitive and prioritise customers

Check out the competition, both locally and nationally, to see what they are charging for similar products and services.

This can often depend on different areas of the country and levels of relative prosperity. Can less well-off consumers withstand price increases?

Make maximum use of your accountant

Accountants offer a wide range of services, including strategic advice and money-saving and revenue-boosting ideas, including:

• Advising on business strategy
• Addressing your cashflow
• Debt management and credit control.

Link: Effect of inflation on business

The season of goodwill is just around the corner as Christmas approaches.

It is a time of year when employers look to reward their staff for their efforts throughout the year.

But they should be aware that certain tax, National Insurance and reporting obligations could apply.

We want to ensure that you enjoy the festive season just as much as your team, so we’ve put together our top tips to ensure that you stay on the right side of the taxman this Christmas.

What about staff parties?

According to HMRC, the total cost must not exceed £150 per head and must be for your employees and any members of their family and household who attend as guests. The total needs to include VAT and other costs, such as transport and accommodation.

All staff must also be invited. If you spend more than £150 per person, the entire amount is a ‘benefit’ and must be declared on the P11D and tax will be due.

Getting gifts right

Trivial benefits are items of value given to an employee that do not count towards taxable income or National Insurance Contributions (NICs).

To qualify, the gift must meet ALL of the following conditions:

• The gift isn’t in the terms of the employee’s contract
• It is below the value of £50
• It isn’t a performance-linked reward
• It isn’t cash or a cash voucher.

A trivial benefit in kind could include a Christmas lunch, a small Christmas present, or a gift on the day of an employee’s wedding.

If the gift does not meet all of the above criteria, it must be reported as a benefit in kind to HM Revenue & Customs (HMRC) and tax must be paid as appropriate.

What about incidental expenses?

Incidental expenses, as described by HMRC, are expenses “incurred by an employee while travelling overnight on business”.

These may include purchasing newspapers, paying for laundry or using the hotel telephone.

As long as the value of the expenses does not exceed more than £5 per night for travel within the UK and £10 per night for travel outside the UK, they do not have to be reported to HMRC.

Link: Tax on trivial benefits

The status of IR35 or off-payroll working has caused some confusion since the repeals to reforms put forward by former Chancellor Kwasi Kwarteng were subsequently scrapped by new Chancellor Jeremy Hunt.

IR35 is tax legislation designed to deal with a form of tax avoidance known as disguised remuneration, where individuals attempt to avoid paying the full rate of Income Tax and National Insurance Contributions (NICs), by providing their services through an intermediary, such as a Personal Service Company (PSC).

Engagers now responsible

The IR35 rules, which originally changed in April this year under the 2021 reforms in the private sector, exist to ensure that an individual providing services via a PSC, and who would have been an employee if they were providing their services directly to an end client, pay broadly the same income tax and NICs as a ‘regular’ employee would.

Under this legislation, all medium and large-sized private sector end clients are responsible for deciding a contractor’s employment status, as opposed to previous rules, where freelancers decided their employment status themselves.

The official guidelines for businesses affected by these rules are as follows:

• Pass your determination and the reasons for the determination to the worker and the person or organisation you contract with
• Make sure you keep detailed records of your employment status determinations, including the reasons for the determination and fees paid
• Have processes in place to deal with any disagreements that arise from your determination.

If the determination results in a contractor being within the IR35 rules, it is your responsibility to deduct and pay tax and National Insurance contributions to HM Revenue & Customs via PAYE.

Where an employer fails to correctly identify a disguised employment scheme, the worker’s tax and National Insurance Contributions become their responsibility.

What businesses does this apply to?

According to the Companies Act 2006, a business is defined as ‘medium’ or ‘large’ if it meets two of the following criteria:

• The company has a turnover of £10.2 million or more
• The company has a balance sheet total of £5.1 million or more
• The company has 50 employees or more.

Link: Understanding off-payroll working

Card payments rocketed during the pandemic and that trend has continued since then.

According to figures from the British Retail Consortium (BRC), card payments account for four out of every five payments made.

But as consumers switch, the soaring cost of accepting card payments is hitting retailers and adding to the cost of doing business.

According to the Institute of Chartered Accountants in England and Wales (ICAEW), in October last year both Visa and Mastercard raised their cross-border interchange fees on purchases made by UK consumers to European businesses from 0.2 per cent to 1.15 per cent for debit cards, and 0.3 per cent to 1.5 per cent for credit card transactions.

Move to improve services

Meanwhile, transaction fees on digital wallets are also on the up as PayPal increased its fees for payments between businesses in the UK and Europe from 0.5 per cent to 1.29 per cent in November 2021.

Following a review by the Payments System Regulator (PSR), the Government watchdog announced new rules in October to improve card services and help businesses shop around and switch to more cost-effective services.

From January next year, 14 of the most significant providers of card-acquiring services will be required to remind businesses at the end of their contract term that they could compare prices to get a better deal.

In addition:

• Providers will also have to provide information to businesses about their charges and provide an initial online quotation tool of key charges to help businesses make a choice.
• Following concerns that businesses were being locked into lengthy contracts for card readers, the regulator is also limiting point-of-sale (POS) terminal contracts to 18 months.

Link: Mitigating card payment costs

If you are an owner of a limited company, taking money out of your business using dividends is a mainstay of effective tax planning, thanks to an additional £2,000 annual allowance and lower rates than apply when taking money in the form of salary.

However, there are restrictions on the circumstances in which a limited company can pay a dividend.

Crucially, the company must have sufficient profits from the current and previous financial years to cover the dividend payment.

The company will also need to pay a dividend to all eligible shareholders, so you will need to factor this into any calculations.

Dividends must be declared by the directors and minutes of the meeting must be kept, even if there is only one director.

A dividend voucher will need to be prepared, including the date, the company name, the names of the shareholders receiving the dividend and the amount.

Copies must be given to the shareholders receiving the dividend and retained on the company’s records.

Link: Running a limited company: Your responsibilities

The markets have experienced considerable volatility as a result of the ‘Growth Plan’ delivered by the former Chancellor, Kwasi Kwarteng on 23 September.

That made regaining economic confidence an urgent task for the newly appointed Chancellor, Jeremy Hunt, who has delivered a reversal of many of the key tax measures announced in the mini-Budget in a new fiscal statement.

The only big measures to survive were changes to Stamp Duty Land Tax (SDLT) thresholds and the cut to National Insurance due on 6 November.

The new announcements at a glance:

Changed:

Income Tax

As previously announced, the Additional rate of Income Tax will remain in effect.

The Chancellor has now also cancelled the one penny-in-a-pound cut to the Basic rate, which was brought forward by Kwasi Kwarteng from April 2024 to April 2023. It will now remain at 20 per cent indefinitely.

Dividend Tax

The 1.25 percentage point increase that took effect from April 2022 will no longer be reversed from April 2023. This means the current rates of dividend tax will instead remain in effect.

Corporation Tax

As announced by the Prime Minister on Friday, Corporation Tax will not remain at 19 per cent for all companies and instead will be levied at 25 per cent for those with profits of more than £250,000 from April 2023.

Those with profits below £50,000 will continue to pay at 19 per cent, while marginal relief will be available to those with profits between £50,000 and £250,000.

Energy Price Guarantee

The Energy Price Guarantee for households will remain in effect until April 2023, rather than for two years as originally announced. The Energy Bill Relief Scheme for businesses will also be reviewed before April 2023.

HM Treasury will review these policies with a view to reducing the cost of the measure and making business support more targeted.

IR35/Off-payroll Working Rules

The planned reversal of the 2017 and 2021 reforms to the IR35/Off-payroll Working Rules in the public and private sectors from April 2023 will now not take place.

It will remain for employers to determine whether a contractor falls within the scope of the rules and should be taxed similarly to an employee.

Alcohol Duty

The planned freeze in Alcohol Duty rates from 1 February 2023 has been cancelled.

Unchanged:

National Insurance/ Social Care Levy

The cancellation of the increase in National Insurance from 6 November and the Social Care Levy that was to have been introduced from April 2023 remains in effect.

Stamp Duty Land Tax (SDLT)

The changes to the Stamp Duty Land Tax (SDLT) thresholds that took effect immediately after the mini-Budget remain in place and will not be cancelled.

Annual Investment Allowance

This tax relief on plant and machinery will be permanently retained at £1 million, as outlined in the mini-Budget.

Tax-advantageous investment schemes

The Seed Enterprise Investment Scheme and the Company Share Options Plan will also continue to further support business investment having been expanded upon in the mini-Budget.

The Chancellor’s announcements may have significant tax planning implications. Please contact us for advice.

The Prime Minister has announced that the Corporation Tax increase announced by the previous administration and then cancelled by the former Chancellor Kwasi Kwarteng will take place in April 2023.

What does the announcement mean?

Companies with profits of £250,000 or more

For companies with profits of £250,000 or more, the upper profits limit, the rate of Corporation Tax will rise from 19 per cent to 25 per cent.  

Companies with profits of £50,000 or less

For companies with profits of £50,000 or less, the ‘lower profits limit’, Corporation Tax will continue to be charged at 19 per cent.

Companies with profits between £50,000 and £250,000

Companies with profits between £50,000 and £250,000 will receive marginal relief so that the rate of Corporation Tax will rise incrementally until it reaches 25 per cent.

Companies with accounting periods of less than 12 months

The upper and lower profits limits will be reduced accordingly for companies with accounting periods of less than 12 months.

Groups and associated companies

Companies within groups or with associated companies will also see reductions in the upper and lower profits limits.

What should I do now?

The announcement by the Prime Minister means that the Corporation Tax rises that had been scheduled for April 2023 will take place as originally planned.

If you had already planned for the tax rise and had not changed your planning since the mini-Budget in September, you can stick with your existing plans.

If you have not planned for a tax rise, you should consider how you spread investments in your business over the coming years to maximise your tax efficiency.

Tax planning is complicated and comes with a vast array of permutations. Speak to us today for professional advice.

In his mini-Budget, the former Chancellor Kwasi Kwarteng announced plans for Tax-Free Investment Zones across England.

The Government says these new economic zones will drive growth by lowering taxes and freeing up planning to encourage development and business investment.

What are the benefits?

These zones will offer a number of advantages to the businesses that choose to operate in them, including:

• Companies within the zones will receive 100 per cent relief on business rates for newly occupied premises. The same will apply to existing businesses if they expand within the zone.
• Full Stamp Duty Land Tax (SDLT) relief will apply for land and property bought for commercial use or development or new residential developments.
• Employer National Insurance contributions will be rated at zero for new employees earning up to £50,270 per year.
• There will be a 100 per cent first-year enhanced capital allowance relief for plant and machinery to incentivise investment.

Partnership with local authorities

The scheme will involve agreeing with 38 Upper Tier Local Authorities and Mayoral Combined Authorities in England to develop dozens of Investment Zones.

They will be delivered in partnership with devolved administrations and local partners in Scotland, Wales and Northern Ireland.

The Government says it will set out further detail on Investment Zones in due course. However, a full list of local authorities working with the Government can be found here.

Link: Tax-Free Investment Zones

When the former Chancellor Kwasi Kwarteng announced his changes to the basic rate of Income Tax you may have wondered what it meant for you.

From 6 April next year, the basic rate of Income Tax will be reduced by one percentage point – from 20 per cent to 19 per cent.

This cut to Income Tax was first announced by Rishi Sunak but has now been brought forward a year in the new Government’s changes to taxation.

• Non-savings, non-dividend income for taxpayers in England, Wales and Northern Ireland
• The savings basic rate which applies to savings income for taxpayers across the UK
• The default basic rate which applies to non-savings and non-dividend income of any taxpayer that is not subject to either the main rates or the Scottish rates of Income Tax.

Link: Income Tax factsheet

The IR35 and off-payroll working rules, which affect how contractors operating through a personal service company (PSC) are classed and taxed, will be repealed in April 2023.

Under the most recent reforms, IR35 in the private sector limited the way that contractors and freelancers could work in medium and large companies as employees through an intermediary PSC, which would typically be their own private companies.

When was the legislation introduced?

The off-payroll working rules came into effect for contractors working in the public sector in April 2000.

The rules were introduced by HM Revenue & Customs (HMRC) to try to prevent disguised employment and to determine whether a non-payroll worker should be classed and treated as a contractor or employee.

It was designed to ensure that an individual who works like an employee, but through their own limited company, pays broadly the same Income Tax and National Insurance contributions (NIC) as an employee on the payroll.

In 2017, HMRC transferred responsibility for assessing whether someone was acting as an employee in the public sector from the individual contractor to the organisation that engaged their services.

Similar rules were then applied to the private sector in April 2021 to medium and large businesses.

The impact of IR35

This rule change resulted in many businesses reducing their use of contractors or applying blanket determinations to all contractors to ensure they were compliant.

As a result, two things happened, the number of contractors shrunk and many of the remaining contractors increased their fees to account for the changes in taxation and National Insurance where they were deemed to be inside IR35.

What the repealing of IR35 means for contractors

The repeal of these rules means that the contractor will, from April next year, be responsible for determining their status and ensuring that they pay the correct amount of tax and NIC for the services provided.

Link: Growth Plan 2022