Small businesses are the lifeblood of the UK economy, but with rapid inflation and other economic headwinds making trade difficult, they can struggle to access support.

There is a wide range of important tax reliefs available to SMEs, which could provide some much-needed financial assistance.

These include:

Employment Allowance claims

This scheme allows eligible businesses to reduce their National Insurance contributions (NICs) bills by claiming up to £5,000 each year of their NIC bill. This is available to employers if their Class 1 National Insurance liabilities were less than £100,000 in the previous tax year.

Super-deduction and Annual Investment Allowance

Businesses can cut their tax bill through the super deduction by up to 25p for every £1 they invest in qualifying equipment, which can include machinery, computers, most commercial vehicles and office furniture.

The temporary £1 million limit for the Annual Investment Allowance (AIA) has also been extended to the end of March‌‌‌ 2023.

The AIA allows businesses to spend up to £1 million on qualifying business equipment, and deduct in-year its full cost before calculating their taxable profits.

Business rates savings

Any tax cut is welcome, which is why the retail, hospitality and leisure sectors, should take advantage of the 50 per cent business rates cut.

The Government says this is worth £1.7 billion for up to 400,000 eligible properties.

The business rates multiplier has also been frozen for another year. This is used to calculate business rates and usually rises with inflation each year, but for the coming year has been held at 49.9p and 51.2p, depending on the type of business.

There is further relief through green technologies, where there will be no business rates from April this year and eligible heat networks will also receive 100 per cent relief.

Big discounts on digital technology

Eligible businesses can receive a 50 per cent discount on buying new software worth up to £5,000 with the Government’s Help to Grow: Digital initiative, which also offers free impartial advice and guidance on the best technology to choose.

Its sister scheme, Help to Grow: Management, is 90 per cent funded by the Government and uses UK business schools and one-to-one mentoring to deliver business expertise on everything from leadership and financial management to marketing and digital adoption.

Claimants for both schemes must:

• Be based in the UK;
• Have actively traded for at least a year; and
• Have between five and 249 staff members.

Fuel duty savings for businesses

The Government has cut fuel duty on petrol and diesel by five pence per litre for 12 months.

The Government says that this represents a saving of £200 for the average van driver and £1,500 for the average haulier.

However, the reality is that many of these savings have been absorbed by fuel retailers who have continued pushing up the price at the pumps.

As a result, Boris Johnson has reportedly asked transport officials to draw up plans to target petrol stations that choose not to pass on the 5p fuel duty cut to customers.

According to reports in The Telegraph, Transport Secretary Grant Shapps has suggested a “pump watch” name-and-shame scheme, with Downing Street officials confirming that they “are considering mechanisms available to expose those companies that aren’t passing on tax benefits to consumers.”

Link: Five ways SMEs can get financial support for their business

From 6 July 2022, the Primary Threshold (PT) for National insurance will increase to £12,570. This is the threshold at which employees begin paying National Insurance contributions (NICs).

This will bring the rate in line with the current rate of personal allowances for income tax and means those earning below this amount each year will pay no tax or NICs.

It also means that a larger proportion of a person’s income will be free of NICs, meaning that most employees will enjoy a cut to their NICs.

This jump in the PT comes at a time when many employees are experiencing difficulties due to the cost of living and follows the Government’s decision to increase NIC rates in April.

On April 6th, the rates of NICs increased by 1.25 percentage points. This means, for example, that the main rate for employees rises from 12 per cent to 13.25 per cent.

The increase in NICs was legislated for to increase spending on health and social care and will be formally replaced by a new Health and Social Care Levy in April 2023, which will maintain this increase to provide funding to these sectors.

The increase in the PT means that most employees should see minimal change in their NIC bill, while lower earners below the limit might see their contributions cut entirely.

How does this help self-employed individuals?

The Lower Profits Limit (LPL), the point at which self-employed people start paying Class 4 National Insurance, will also be increased to £12,570 at the same time.

This measure also reduces Class 2 NICs liabilities to nil on profits between the Small Profits Threshold (SPT) and LPL.

This ensures that no one earning between the SPT and LPL will pay any Class 2 NICs but continue to accrue National Insurance credits.

What about employers’ contributions?

The changes to the NI thresholds do not affect the Secondary Threshold. This is the point at which employers must start making contributions, which remains at £9,100 per year.

As such, employers will have to continue paying NICs for their employees once they earn £9,100 per annum or more, even though the employee does not have to contribute until they earn £12,570 per year.

Do Directors enjoy the same threshold?

The PT for Directors for the entire tax year is £11,908 per year. Changes to the NI rules and an increase in dividend tax rates mean that it is important to reassess your remuneration strategy to minimise the tax burden on the business and individuals.

Link: Rates and thresholds for employers 2022 to 2023

A leading business organisation has highlighted the problems faced by industry after new figures show a steep rise in business costs.

According to figures from the Office for National Statistics (ONS), producer input price inflation stands at a record-high 18.6 per cent, and the consumer prices index at nine per cent and could go higher.

It says the disparity between the two figures shows how businesses are having to absorb rising costs rather than pass them on to the consumer.

How could Government help businesses manage costs?

The FSB says that although the Government cannot control the wholesale price of oil and gas, it can go further to help small firms with property costs – increasing the ceiling for small business rates relief and extending the energy support issued via the council tax system to the rates system.

In addition, a sick pay rebate for the smallest businesses would give them a measure of breathing space.

However, what can businesses do for themselves now?

Make better use of space

Maximise office space by checking whether you are stocking too many supplies or making optimum use of office furniture. You may also be able to renegotiate your lease or find cheaper premises.

With advances in communication technology, you could also explore the possibility of running your business from home or on the road.

Review your suppliers

Make sure you are getting the best value for money, particularly in areas like communication with mobile phone deals and the cost of broadband and consider cloud-based software for general bookkeeping and data management.

Go for ‘nearly new’ equipment

Sometimes, it may not be possible to invest in the latest piece of equipment and so it may be worth considering refurbished or remanufactured supplies.

Properly refurbished computer equipment can result in big savings as can equipment like copiers, without sacrificing too much performance.

Many refurbishment companies even offer warranties on the goods they sell. However, you should be aware that the purchase of refurbished or recycled goods could affect your ability to claim certain reliefs, such as Capital Allowances.

Make better use of your accountant

While accountants can manage your books and compliance tasks, they can also provide strategic advice and identify areas where savings can be made.

Link: Input price growth hits record-high

Research from the Federation of Small Businesses (FSB) shows that successful applications for finance among members have dropped to the lowest level on record.

Conversely, figures from the Bank of England show the annual growth rate of lending to big corporates has increased significantly since the start of the year.

It has led to the accusation that banks are “pulling up the drawbridge” on lending to small businesses.

The FSB’s quarterly Small Business Index (SBI) show just 43 per cent of applications have been approved and that just nine per cent applied in the first quarter of 2022.  That is the lowest number since SBI records began.

Lack of finance ‘a threat to economic growth’

The business body has now called for a culture change in financing and has warned that economic growth will be threatened otherwise.

Commenting on the survey, FSB national chair Martin McTague said: “Lenders pulling up the drawbridge for small firms will threaten our already faltering economic recovery.

“Businesses are born every day across the UK – many need funding to get off the ground, ensuring they reach a stage where they’re profitable and creating opportunities.

“A lot of those who’ve worked tirelessly to adapt, survive and thrive over lockdowns need finance too, empowering them to take their firms to the next level, driving our economic recovery and the transition to net zero in the process.”

A large proportion of what is available is being used to cover cashflow problems, often caused by late invoice payments from customers, according to the FSB.

Managing cash flow problems caused by late payments

The survey shows that 61 per cent sought traditional overdraft or loan products, while a quarter applied for asset-based finance, such as invoice finance.

Other methods included smaller numbers seeking funds through peer-to-peer platforms (seven per cent) and/ or crowdfunding (five per cent).

Your accountant will be able to provide advice and guidance.

How can businesses obtain necessary finance?

Measures that might persuade lenders to provide finance might include:

• Keeping balance sheets and other documentation to show the business has been well run
• Improving the company’s credit rating
• Producing a business plan that is strong, concise and clear
• Opting for the appropriate kind of loan, like instalment, short term or line of credit
• Having the ability to provide collateral for the loan

If you are looking to finance your business, you should seek professional advice beforehand.

Link: Lending to small businesses hits all-time low

From 1 September, changes to the rules regarding the Trust Registration Service (TRS) mean that more trusts will need to be registered with HM Revenue & Customs.

The TRS was introduced five years ago to make the beneficial ownership of assets held in trust more transparent.

While many trusts have had to sign up for the service already, the remit of the service is expanding to include a greater number and type of trusts than ever before.

What changes are being made to the Trust Registration Service?

From September, the requirement to register with the TRS will apply not only to trusts with a tax liability but to all trusts.

This includes trusts set up many years ago, which may have been forgotten about or left dormant, but which remain extant.

This registration process has been open since 1 September 2021, but time is running out to complete it.

Will your trust need to register?

If you operate a trust the answer is likely to be yes. Under the changes, only a limited number of exemptions exist.

Some other less common types of express trusts that are set up for particular purposes are also excluded from registration unless they are liable for tax.

Be aware that this change to the rules means that for the first time some offshore trusts will also need to be registered.

How do I register for the Trust Registration Service?

To comply with the registration requirements, trustees will need to input details of the settlor, trustees and beneficiaries into an online portal.

At a minimum, trustees will need to confirm annually that there have been no changes and notify the TRS of any changes within 90 days.

Some trusts may have already completed a 41G form containing some of this information. However, HMRC has confirmed that this did not collect sufficient evidence to meet the requirements of the new rules.

Therefore, those trusts which registered separately with HMRC before using this form, must register and resubmit information via the TRS. 

HMRC strongly recommends that trustees familiarise themselves with the TRS system and obtain the information required to register in advance of the deadline in September. 

Link: Manage your trust’s details

Throughout the pandemic and into the current recovery period, the Government has offered a number of loans to help businesses survive and invest for their future.

However, only the Recovery Loan Scheme remains open, and this is due to end on 30 June, with no replacement taking its place.

Despite the popularity and value of these loan schemes, there are concerns that, without them, small businesses will struggle to access the finance they need.

However, it is understood that the Treasury is now in talks with the banking sector about making Government-backed loans to SMEs permanent to help businesses grow.

According to an article in the Financial Times, the loans could mirror previous Covid financial support schemes, including the use of Government backing to give banks the confidence to loan to more businesses.

A source close to the ongoing talks told the Financial Times that the focus of any future funding would be on growth, rather than survival – as had been the case with the previous loan schemes.

Questions are now being asked about the level of support from the Treasury, whether personal guarantees would be needed, and what sort of companies should be eligible.

It is hoped that additional details about new loan schemes could be made public in the coming months, although concern remains about the abuse of COVID financial support measures after the Department for Business, Energy and Industrial Strategy revealed that £4.9 billion could be unrecoverable from the £47.4 billion Bounce Back Loan scheme.

Until then, the current Recovery Loan Scheme, which guarantees 80 per cent of a bank loan up to £10 million remains open until the end of June to support those in need.

Already more than £3 billion has been lent by British banks under this scheme, according to a senior industry executive speaking in the same Financial Times article.

Link: Treasury small business loans could be permanent

There has been a surge in new company formations in the last few years, as entrepreneurs develop new and exciting business ideas and bring them to market.

On top of this, there are a growing number of workers with ‘side hustles’, who are quickly scaling up their operations to deal with demand from their customers and clients.

While many businesses may initially rely solely on the work of their founder, there comes a time when operations grow so much that they need to consider hiring their first employee.

Hiring your first employee will lighten the workload, but it also brings with it new tax and payroll requirements.

If you have previously been one of the 4.2 million businesses in the UK with no employees, other than yourself, and you are looking to bring in a new worker here are our top tips to get you started.  

Inform HM Revenue & Customs

Before you can hire someone, you need to register as an employer with HMRC. Doing so will provide you with an employer PAYE reference number so you can manage your payroll.

This must be done within four weeks of your new employee’s first payday. The registration process is fairly quick, but receipt of your reference number can take up to five working days, so you must factor this in.

Set up effective payroll processes

You will need to manage your payroll online each month, report this information to HMRC and make the correct payments of tax and National Insurance, as well as paying into any benefit schemes or pensions offered to your employees.

As such you will need to implement processes and payroll software systems that allow you to do this.

You may already have existing systems in place that manage your personal payroll, but you should consider whether these are still sufficient when you hire your first employee.

Don’t forget, you may also need to deduct student loan repayments, pension contributions, Payroll Giving donations and child maintenance payments.

The weekly or monthly administration of your payroll can be time-consuming and is often complicated by regular changes to the rules surrounding pay, which is why many businesses choose to have their accountant manage it for them.

Create a basic workplace pension scheme

If any of the workers you hire are eligible for a workplace pension you will need to set up and manage a scheme for them.

You must automatically enrol your staff into a pension scheme and make contributions to their pensions if all of the following criteria apply:

• They are classed as a ‘worker’
• They are aged between 22 and the State Pension age
• They earn at least £10,000 per year
• They usually (‘ordinarily’) work in the UK.

You will also need to calculate and make an employer’s contribution of at least three per cent each month to the scheme and ensure that an overall minimum contribution of eight per cent is made.

The additional five per cent is usually made up of an employee contribution, but both you and an employee can offer to contribute more should you wish to.

Your employees can choose to opt out and leave the scheme, but you will still need to re-enrol them every three years.

Paying the National Minimum Wage

You are legally required to pay your employees at least the correct National Minimum Wage (NMW) or National Living Wage (NLW) for those aged 23 and above. Failing to do so could result in you being fined and publicly named and shamed.

The current NMW rates, as of April 2022, are as follows:

23 and over	21 to 22	18 to 20	Under 18	Apprentice
April 2022	£9.50	£9.18	£6.83	£4.81	£4.81

Be careful if you make deductions from pay, other than for tax, National Insurance or a small number of other exceptions, as these cannot normally reduce a worker’s pay below the National Minimum Wage – even if they agree to it.

Many employers have previously been caught out by this, as well as other important changes, such as a person’s birthday where it carries them into the next NMW band.

Protect your business

Although not directly related to tax or pay, businesses should take steps to protect their interests. This includes ensuring the new staff member has the correct legal status to work in the UK, producing clear, written employment contracts and policies, and taking out employer’s liability insurance in case of accident or injury at work.

Failing to take these steps could leave your business exposed to costly risks, including fines and potential compensation payments.

Seek help

These are only a few of the steps that you as a prospective or new employer may need to take and it is well worth seeking payroll and HR advice before hiring your first employee, both to protect yourself and to take away the administrative burden.

Link: Becoming an employer for the first time? What you need to know

HM Revenue & Customs (HMRC) has retained its online portal for claiming working from home tax relief for the 2022/23 tax year.

But, while the rules and value of the relief remain unchanged, unless there are any further lockdowns this year far fewer people are likely to be able to claim.

That is because only people instructed by their employers to work from home some or all the time can make a claim. The rules once again require that costs must have increased as a result of the arrangement.

With most hybrid workers free to work in the office if they wish, most people in this situation will not be eligible for the relief.

Relief worth £6 a week can be claimed through the online portal without needing to provide evidence of increased expenses. Taxpayers benefit according to the rate at which they pay income tax. A basic rate taxpayer will save 20 per cent of £6 a week (£1.20).

If you have been instructed to work from home and have incurred increased costs as result, you can check your eligibility and claim here.

HM Revenue & Customs (HMRC) is issuing fresh warnings to employers to ensure their payment reference numbers are correct so that payments are recognised.

Each payment reference number relates to a specific employer and covers a particular accounting period.

HMRC uses these reference numbers to allocate payments and to help process taxes related to PAYE payments as quickly as possible.

The tax authority has said that the use of the incorrect PAYE reference number could result in it issuing penalties and charges even if an employer has paid on time.

To complicate matters further, online banking services may also default to a previous payment reference, creating additional confusion, so employers must check this is right every time a payment is made to HMRC.

How to check if the payment reference number is correct?

Businesses need to make sure that they use the correct Accounts Office reference, which can be found on:

• The letter HMRC sent when they first registered as an employer
• The front of their payment booklet
• The letter from HMRC that replaced the booklet
• Their Business Tax Account if they’ve already added Employer PAYE enrolment to it.

Where an employer is not paying for the current period, they need to add four additional characters to the end of the reference number that indicates the year and the month or quarter the payment is for.

Each tax period has a different payment reference number, so it’s important to make separate payments for each period.

Ensuring you use the correct reference can be complicated. HMRC wants to make sure that employers get this right and avoid penalties, which is why it is encouraging businesses to use its ‘Pay now’ tool on GOV.UK to find the right reference number to use each time.

If this is a further admin burden you don’t need when you are trying to run a business, get in touch with us today to find out how we can take payroll headaches off your plate.  

Link: Support from HMRC

A phoenix company, as the name implies, refers to a phoenix rising from the ashes.

It describes a business that has been purchased out of a formal insolvency process, such as administration or liquidation, often by the existing directors seeking to avoid paying debts and tax liabilities.

Now HM Revenue & Customs (HMRC) has given the Insolvency Service the power to investigate directors who were suspected of the practice.

The Insolvency Service already had powers to investigate directors of companies that enter a form of insolvency, including administration and liquidation. 

The new powers complement the Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Act, designed to tackle directors who have dissolved their companies to avoid repaying government-backed loans, such as the Bounce Back Loan Scheme.

These powers have been extended to enable live companies to be investigated where there is evidence of wrongdoing.  If misconduct is found, directors can face sanctions including being disqualified as a company director for up to 15 years or, in the most serious of cases, prosecution.

It should go some way towards dealing with “phoenixism” where directors of dissolved companies set up a near-identical business after the dissolution, often leaving customers and other creditors, such as suppliers or HMRC, unpaid. 

These powers also focus on rogue directors seeking to avoid paying back their debts, including Government loans provided to support businesses and save jobs during the COVID-19 pandemic.

The Business Secretary, Kwasi Kwarteng, said: “The Government is committed to tackling those who seek to leave the British taxpayer out of pocket by abusing the COVID-19 financial support that has been so vital to businesses.”

For many companies dealing with problems in a legitimate way, and have debts that they cannot pay, the directors may wish to enter into a Creditors’ Voluntary Liquidation (CVL) and your financial adviser will be able to help.

For expert advice on related matters, contact our experts today.