Reporting Employee Benefits-In-Kind

Employee benefits in kind, the P11D and what employers must report.

Attracting and retaining valued employees is not at all easy these days. One way employers like to try and ‘sweeten’ their employment packages is through benefits such as, private healthcare schemes, company vehicles to the humble mobile phone, but these have tax consequences too.

Why have benefits-in-kind (BIK) become such an issue?

You might wonder why in a time where employees find it increasing difficult to retain valued staff, why the Government is slowly making it unattractive to provide these benefits? The simple reason is that some companies have chosen to use this route to reduce their own tax bills by offering more benefits while providing lower salaries. Lower salaries mean less National Insurance and Pension costs. For instance on an employee earning £30K per year, the company pays 13.8% or in this case around £2,800 and then another £716 in pension payments per year. With a lot of employees, this soon mounts up.Reporting Employee Benefits-In-Kind

It works the other way too. In years past, an employee may have been able to opt for benefits ion return for a reduced salary - called "optional remuneration arrangements”. By doing this, the employee would pay less tax and national insurance.

Company cars have received harsh treatment in recent years, with the tax rate currently at 37%. The only exception, one that is becoming increasingly interesting for employees, is having a fully electric vehicle. Current tax legislation applies a zero tax rate to this type of vehicle.

So, to make benefits-in-kind a less attractive way to reduce a company’s tax burden, the government has continued to tax them.

What employers need to know about benefits-in kind and the P11D.

As an employer you’ll need to understand what constitutes a benefit-in-kind, what to report, how to report it and what the deadlines for reporting are. So here’s a recap.

What is a benefit-in-kind (BiK)?

In short, a benefit-in-kind is any benefit (perk) that an employee or director receives which is not included in their salary or wages. If you’re not sure, talk to us.

What are considered benefits?

The list of actual ‘perks’ HMRC considers as benefits is quite extensive, covering around 60 categories. You can see the full benefits list here.

For most people it comprises typical things such as private medical insurance, a company car, child care, expense allowances, clothing, mobile phones, home use, fuel for personal cars, etc. 

Mistakes are often made and employers / employees which can land them in trouble, such as when a director has overdrawn the director’s loan account by over £10,000. As this is deemed a loan, interest is due. Also, it’s very easy to forget about work related calls made from personal devices, such as a home phone or mobile and where this has been claimed back by the employee.

If you are not sure about any potential benefit you are giving or receiving, check with a knowledgable accountant like Tax Agility first.

How to Report Employee Expenses and Benefits

Employee expenses and benefits need to be submitted at the end of each tax year using form P9D or P11D, depending on the expense or benefit in question. The Government has provided a detailed list of common expenses and benefits online, clicking through to each of which will tell you which form you need, and how you should calculate what you owe.

You’ll need to submit a separate form for each employee; so if, for example, two full-time employees are provided with a mobile phone each for work, you’ll need to complete a separate P11D for each employee. If you submit a P11D you’ll also be required to submit a P11D(b), reporting what Class 1A National Insurance is due on your expenses and benefits payments. You can complete an online declaration if you didn’t submit a P11D, to ensure HMRC won’t contact you about it.

All forms should be filed through either HMRC’s PAYE Online service, your own payroll software, or by downloading the form online and posting it to the address you send your paper tax return to.

If you under-report on your employee expenses and benefits and, therefore, pay less tax than is required of you, you’ll likely be charged a penalty by HMRC if they believe your under-reporting to have been deliberate or due to carelessness. You may be asked to show evidence of how you accounted for each expense or benefit; records must be kept for three years.

PAYE Settlement Agreements

What are PAYE Settlement Agreements? It’s common for some employees to have to claim for small and infrequent expenses or benefits - perhaps a bond or reward for service or performance in a year, or a business trip claimed by the employee. These can be a pain to have to report separately. So, if you only pay small, irregular, and impracticable expenses or benefits to your employees you can simplify your tax and National Insurance Contributions by applying to receive a PSA so you only have to make one annual payment to cover all and any payments owed. Checkout our other article on PAYE Settlement Agreements (PAYE Settlement Agreement)

Are there any exemptions to benefits-in-kind?

The recent pandemic may have people asking this question, especially if they are using company cars. If your vehicle was not used for 30 days or more, you may be able to apply for an exemption. However, as with many things related to HMRC, you may need to be prepared to prove this.

As an employer, you generally don’t have to report typical expenses such as the following, provided that you are either paying a flat rate to your employee as part of their earnings - this must be either a benchmark rate or a special (‘bespoke’) rate approved by HMRC, or paying back the employee’s actual costs.

  • business travel
  • phone bills
  • business entertainment expenses
  • uniform and tools for work

Calculating Employee Earnings

Each employee expense or benefit will need to be calculated at a rate. The Government recommends you do this by adding the value of all expenses and benefits an employee has received over a given tax year to that of their annual salary (if they haven’t worked a full year with you, calculate the full-year equivalent of their salary and all expenses and benefits received).

When to report to HMRC using your P11D?

The deadline for submitting your P11D and P11D(b) is the 6th July after the end of the tax year.  For the 2020/2021 tax year, for instance, the deadline is 6th July 2021.  You must ensure that copies of the individual P11d forms are given to each of your employees by this deadline.

Class 1A National Insurance payments must be submitted by is July 19th or the July22nd if you are paying online.

Experienced P11D Tax Accountants

To speak with a professional to discuss whether you need to start paying tax on your employee’s expenses and benefits, contact us today on 020 8780 2349 or get in touch with us via our contact page to arrange a complimentary, no-obligation consultation.


How to get a PAYE Settlement Agreement (PSA)

Calculator_TaxAgility Accountants LondonIf you’re a small to medium-sized (SME) business owner with a number of employees, you may wish to consider applying for a PAYE Settlement Agreement (PSA) to simplify your tax and National Insurance Contributions (NICs) paid on small, irregular, and impracticable expenses or benefits paid out to your employees.Read more


Complacency is the real business killer

Is complacency the real reason why businesses fail?

You’re probably thinking, “Oh no, not another one of those ‘why businesses fail articles’”. This article is certainly about why businesses fail, but this one is looking at the issue from a slightly different point of view. You see, the pandemic, for all its downsides, affords us a view of business issues from an accelerated lifecycle perspective. As an accountancy practice in London, Tax Agility we’ve learnt a lot over the past year.

In just a short space of 12 months, businesses have been hammered by a range of common issues one might not expect to see all at once during the normal lifecycle of a small business. At least not in such a short space or time, or as a result of a cascade of other business related troubles.

Business turmoilFor instance; it’s common for a business to fail because it experiences cash flow issues, or the loss of a major client, or staff turnover, problems or supply chain issues, or reduced seasonal footfall, even the occasional export/import issues. In recent times though, some businesses have experienced all of these, all together, as a result of both pandemic issues and the fall-out from Brexit impacting European supply routes and trading partners.

In a normal business lifecycle, all these issues can surface from time to time, sometimes over many years, and many can be weathered if handled competently. However, the global pandemic and Brexit have effectively put many businesses in a lab test tube, exposing them to a variety of tests within a short space of time. Many business owners and entrepreneurs have struggled with this. Furthermore, many more mature businesses have found that their business models simply cannot weather this type of storm.

While it’s easy to simply blame the pandemic or even Brexit, for some, the reason the business failed is not just because of these two protagonists. It’s likely that the business was already weak due to several other non-visible issues. The pandemic and Brexit have acted as a catalyst and exposed an underlying complacency in the way business has been done up to now.

Check out our articles on:

Complacency in business is a killer

complacency kills businessesIt’s important to be clear here, there’s no suggestion that a business fails because the operator of the business is sat twiddling their fingers or just counting the cash coming in. That’s not what we mean by complacency. Complacency can be as simple as working hard to meet business goals, but without acknowledging that the markets are changing around them. It’s a case of being overly ‘self satisfied’. The root cause can often be attributed to fear – fear of change, fear of upsetting what appears to be working. Under such circumstances a business owner simply convinces themselves that all is okay, rather like looking in a mirror and only seeing what you want to see.

The problem could best be exemplified by what has happened to the High Street, particularly larger stores. Such stores rely extensively on foot traffic, so when this dried up during the pandemic, so did cash flow. Some did have an online element to their business model, but not enough to support the operational cash requirements of the business when regular footfall derived income fell away.

Competitive business models will erode your primary revenue sources

You might be thinking that it’s a little harsh to criticise stores for not foreseeing something like a pandemic. The reality though is that more and more business is being done online, the trend is clear and some businesses simply haven’t adopted this extensively enough or quickly enough. Of course, it’s harder for some product lines to adapt because of the need for consumers to interact directly with this products. But not for all though, especially consumer electronics, many leisure items, regular domestic consumables and many others. Even retail apparel, although harder to manage online, is destined to increase further.mail order catalogs

Buying without fist seeing a product is far from new. Mail order has been around since the 60’s – the 1860’s!  The first mail order business was formed in 1861 by Welshman Price Pryce-Jones.

Another famous clothing and fashion related mail order catalog, Grattan, started life in 1912 and became very popular in the days prior to the internet, along with Littlewoods, Kays, Freemans, Marshal Ward and Great Universal Stores. Much has happened to them since the internet revolution. Most have either been acquired or evolved, with a web front being a major part of their business model. Take Littlewoods for instance. After merging with Great Universal Stores to become Shop Direct in 2003, very.co.uk was launched in 2009. They pride themselves on consistent reinvention. Check out Very’s story here.

Retails stores have been popular because people like to go out and shop. Will this continue? Probably. However, the population has now had an experience like no other and along with other pressures, such as the parking ordeal many towns now represent for those driving, and Covid’s likely legacy, the attraction may wane. The point is, alternatives exist, business models evolve, consumer appetites are fickle and popularity can change in an instant.  If you don’t have a Plan B, then beware. In fact, if your Plan B was the internet, it probably now needs to be Plan A.

Innovation, make it part of your company’s culture

Innovation is central to a business being able to keep up with the fast pace change we see in today’s consumer markets. We believe that for a company to be truly successful, innovation must be part of its culture. Just like Very. If it isn’t, employees and key management are likely to get complacent, because they are on the same tread mill everyday, with little motivation to explore new ideas and way to better serve their market.business needs innovation

Of course, we recognise that most companies have an eye on where their markets are going. More often though, the changes they foresee are not necessarily seismic in nature. Often they represent new product or service derivatives – more subtle shifts, as opposed to something that represents a completely different way of working. The latter represents more of an environmental response. Environmental pressure is the most likely catalysts behind evolution – not just in nature, but in business too. Nature is a great teacher.

Innovation should be a key focus area for a business’s management, not just product or service improvements, but also environmentally, in how markets and consumers are reached, engaged, and fulfilled in response to changing attitudes, technologies and needs.

It’s not just a case of, ‘lets get online’ either. That ship has sailed, so to speak, as every business should have an online aspect to their brand. Innovation online today requires thought around user experience, and how to create a better ‘experiential’ dimension to a user’s journey.

Complacency is behind many of the commonly associated reasons for business failure

The following represents a list of some of the most common reasons why a business fails.  There’s nothing new in terms of the reasons. However, if we look at these with a somewhat different eye, it’s not hard to see the part complacency plays.

1. No viable business or marketing plan

No viable business planThe business has been set up, undoubtedly with good intentions and a vision, but without any form of business planning – basically, on a ‘wing and a prayer’, because the person behind it believed totally in what they were doing, perhaps even disregarding what others were saying or what the market indicators suggested.

A business plan is meant to take a good look at the realistic requirements for a business to achieve success, the resources required, and timescales. It should also look carefully at contingencies given associated risks with the target market. For instance, what would happen if first sales don’t come within the planning timeframes? How much cash would the company need to cover the deficit and how long could it survive before sales revenues begin to appear?

Excited entrepreneurs can often cast risk to the wind, believing firmly in themselves and ignoring sage advice or overly satisfied with early encouragement from prospects. How often have you heard a potential prospect, lavish praise on a new product you are trying to sell, provide endless encouragement, but then not buy.  The danger is that a business owner can believe the hype over reality and become overly self-satisfied in the strength of the product and market acceptance. In other words, complacent belief in success, despite other possible waning signs.

As a small business accountancy firm, we are always surprised how often we find businesses that run in to problem for the simple reason that they either don’t have a business plan (or marketing plan). Don’t make this simple mistake, it’s business 101.

2. Lack of a strong value proposition

no value propositionSimilar in nature to lack of a business plan, not having a strong value proposition clearly articulated and tested, can stem from over confidence gained from an early interest in a product or service from friends and family eager to boost egos. Ultimately, only your target audience really matters and early affirmation of product viability through market research should replace friendly encouragement as the basis of the business. Put simply, does the market actually need your product and do they buy into the value it professes to offer?

3. Lack of cash

A fundamental mistake many new small businesses make is to run out of cash. They just get the numbers wrong. Again, it’s usually due to over confidence, over estimating revenues, underestimating timescales and underestimating costs.cash flow issues

Few plans ever go to exactly to plan, there are always hiccups and unforeseen problems. How well you have built contingencies to cover the costs of these ‘problems’, will determine how likely you will survive if a problem becomes extended and starts eating into cash. A common cause is simply due to revenues not arriving to plan. This is almost entirely out of the hands of the business, unless it’s secured early orders, but once they have been fulfilled, ongoing revenues need to happen quickly.

As we saw with the pandemic, it’s likely the vast majority of small businesses would not have survived unless they were given cash lifelines – either loans or help to pay salaries. However, few could have foreseen the extent of the crisis and there’s still an uncertain future, as many business still don’t know if their markets will return to a level that will support their operational cash flow needs.

As accountants working with a variety of small business types, our tip is to at the very least spreadsheet your cash flow workings, be realistic and brutally honest with yourself – look at worst case scenarios and build up from that. Do this regularly too, especially if circumstances change.

4. Over reliance on a few large customers

Over reliance on a few large clientsIt’s a nice feeling, having a couple of really great clients feeding your cash flow each month. For some business owners, such reliance would make them feel distinctly nervous. However, for others, especially those who have a great working relationship with their clients, perhaps are even friends, complacency can set in.

Tax Agility Accountants also works with its clients as business advisers, and businesses with a heavy reliance on a few major clients is an all too familiar pattern, especially with smaller or niche clients.

The problem is that you may never know there’s a problem with a client until it’s too late. When a business gets into trouble, it can be tough for a business owner to admit this to themselves and take action early. Also, because pride and ego play a part, a troubled business owner may not let his clients or suppliers know. Ultimately, the troubled business stops paying its bills, leaving your business looking at a write-off. As time ticks on, complacent business owners realise that they may not be able to fill the revenue gap quickly enough, as new business development can take a lot of time, especially for specialist or niche products and services. If this isn’t reconciled quickly, cash flow problems arise and that company’s ability to pay its debts leads to insolvency.

The answer here is to always have more clients that you actually need to make a comfortable profit margin. Don’t let a few large clients dominate your cash flow security.

5. Taxation oversight

Tax and VAT oversightTax is a complex discipline, made worse where issues such as overseas VAT is concerned. Always get specialist advice, especially now we are post-Brexit and the situation with the EU is far from clear.

Don’t make the mistake of simply assuming you don’t have to pay taxes.  Or indeed, that the country you are doing business with won’t demand tax is deducted until you can prove where your company is domiciled, can be simpler said than done. There’s a heavy focus by governments at present on taxation as applied to digital products and services.

Having a chunk of change removed from your expected invoice payments, because a clients obliged to hold back tax payments, can cause serious cash flow issues.

Tax advice and tax planning are key services Tax Agility provide. It is a complex issue, so take good tax advice if you are in any doubt

6. Dependency on key staff

key staff and trust issuesHaving people you can trust in key positions within your business is a great help and a boost to confidence, in that you believe somebody ‘has your back’ and is working with your’s as well as their own interests at heart.

However, one can get complacent and start ignoring the warning signs that all may not be well with your ‘partners in business’, or indeed people you rely onto get fundamental aspects of the job done. Circumstances might arise where a key person becomes incapacitated or unreachable on holiday. Business may become severely affected. Worse still is the prospect of effectively being held to ransom by a key skill bearer who suddenly decided that they are unhappy.

People are naturally defensive where sharing aspects of their work is concerned. For some, the thought that they could be replaced is unbearable. At some point the “you couldn’t do this without me” syndrome becomes a clear and present danger to the business, especially if the individual concerned is a key member of the team.

Always ensure other people can cover the roles required and, make sure this attitude is part of the company culture and embraced by all.

The other concern with dependence on key staff is the potential for fraud. It’s a subject of its own. We have an article on small business fraud here.

When people believe they have your complete trust, some may take advantage of this, or find themselves pressured in exploiting your trust because of negative personal circumstances. Don’t get complacent, review your relationships and levels of trust within the business regularly, so you can spot the warning signs.

Final thoughts

When it comes to the main reasons why businesses fail, there’s nothing new under the sun, as the saying goes. However, what recent events have taught us is that the catalysts for failure can be different to what we might normally be used to.

Is what we experienced recently just a ‘one-off’? An extraordinary event? Possibly. But, consider the pace of change we have seen in other areas of business over the past few years, such as new technologies, significant growth in internet enabled businesses, and the need to adapt to fast moving consumer / client trends as they adopt different buying or working practices. Such changes point to a future requiring businesses to be far more innovative and adaptable, not taking their client base for granted and definitely not being complacent in their day-to-day operations and outlook.

If you are concerned about the issues your business is facing, act today. Tax Agility accountants provide specialist accounting services for small businesses. We’re based in Richmond and Putney, but serve clients throughout London and the south east. Contact us here.

Why not check out our series on building a better business here.


Business to business networking

Small business owners, surprise! Your new best friend is?

Running a small business, or for that matter even a larger business in a time of crisis requires creativity and determination, and often help. When business is ebbing away due to your client base shrinking, you need to find new clients, which is not easy when businesses are in self protect mode. It may surprise people, but one source of potential business leads, could be your accountant. That would make him or her, your new best friend.

Regardless of which sets of numbers you believe, in relation to small business failure rates, it's clear that starting a new business or running a smaller business is a tough job, even more so, given the way the pandemic has affected so many small businesses and dramatically changed many businesses landscapes.

These businesses need all the help they can get; but there's one source of help that is often underestimated and under-utilised beyond their usual function, not so much from the perspective of the SME, but from the source itself, and that might surprise you!

No, not your dog, but your Accountant!Your accountant is your new best friend

Boring? Don’t click away, they, ‘we’, may have a reputation of being perhaps somewhat introverted, poor communicators, tired and dusty, but we want to dispel that myth and show you how, as a small business owner / operator, you should be looking to your accountant for business introductions.

A social B2B broker

Did you realise that your accountant could become the centre of your networking world? Now there's something to ponder! For that matter, how many accountants realise how much extra benefit they can add to their client’s business and growth opportunities, purely because of who they know and are connected to? There’s tremendous opportunity to be an effective business introducer, socially at a B2B level.

Many accountants talk about how they can help their client’s businesses grow. For the most part they are referring to the experience they have in identifying hurdles and obstacles to growth from a tax, cash flow or P&L basis. Often they are able to draw on experience from other businesses in similar markets or industries they have worked with over the years.

Smaller, more adaptive and eager for growth, just like our clients

accountants give you ideasHowever, the best way to help a business grow is to introduce it to potential clients. Some of the best accountants to do that are the ones that actually specialise in small business accounting. Why? Because they don't have the luxury of sitting back and servicing large corporate clients where little ‘personal’ interaction actually takes place.

For smaller specialist accountants, survival is all about capitalising on offering services that focus on customer service excellence and introducing services that make the accounting process highly efficient, so more clients can be served without sacrificing service levels. In short, small business accountants have to be highly adaptive, creative and fast.

This is why so many offer ‘cloud-based’ accounting services, such as Xero, our particular favourite. It puts the business firmly in control of essential management data, allowing them to make faster decisions.

For accounting firms such as ourselves, it means we can service more smaller clients and still provide valuable business advice and expertise, maintaining that close personal relationship we’ve built our name around. It just makes sense to leverage this for greater benefit of our clients.

Your accountant as a novel networking opportunity

Business to business networkingLet’s step back a moment, to the bit about introducing clients to other clients that may be potential customers. We’ve all been to networking events and know how potentially useful for new business opportunities that can be, but they can also be a terrible waste of time if they don't quite turn out as expected. As a small business operator, it’s likely your accountant is sitting on a wealth of potential opportunity for you. It’s in their interest to put people together, to quote a well-used phrase in networking circles, it’s about ‘givers gain’. And these shouldn’t be just any old referral, the nature of the business means referrals between clients are always going to be qualified high-quality introductions.

Furthermore, your accountant is often very aware of the different issues small businesses face when trying to grow. Part of what we do at Tax Agility, is to help clients overcome obstacles. And we can do that because we have helped others through the same problems. The insight this affords us also means we can see potential synergies between small businesses, where growth in one may represent an opportunity for another, or indeed, where growth in one could be the catalyst another business needs for growth.

Small business accountants often have a wealth of diverse clients, the smaller accountants with a solid base of clients are also likely to be more ‘personable’, ‘outgoing’, ‘fun’, ‘interesting’, in short, real people you can relate to, and, wait for it, becomes friends and hang out with! All the essential qualities for a little business match-making. Novel really, when you think of the usual accountant stereotypes.

We like to think we are breaking the mould and reinventing the accounting practice by not only providing essential accounting, tax and bookkeeping services to our clients, but also by proactively making the appropriate introductions between clients that could do business together.

Tax Agility is London's 'local accountants', serving small businesses, start-ups, contractors and individuals within the London area.

If you’d like to know more and let us become your best friend, call Tax Agility on 020 8108 0090


business crisis action

Business tips for weathering a crisis and the importance of cashflow management

To be able to achieve its goals and make a profit for its owners and shareholders, a company must be able to maintain an adequate cash flow. Cash is the lifeblood of a company, without it, no visions can be realised. It’s also the key to being able to weather a crisis.

Crisis events – such as an economic downturn, the failure of a key customer or supplier, a pandemic – have a way of stress testing a company’s financial position, particularly its cash position. So what are some of the best ways to build and maintain a healthy working flow of cash?

Most businesses in the UK have experienced issues with customer late payments and the statistics around this (shared below) are troublesome for many business owners. But, if you combine the late payment issue with a general crisis, such as the pandemic we have experienced, problems can mount up quickly, even for companies with a relatively strong cash position.

Once the crisis is over, any government support a business may have received will only have delayed problems if the business still can’t rely on a healthy cash flow.

Crises that affect an industry as a whole can mean that your normal cash resource – receivables – become very unreliable. Most businesses are used to chasing payments, but when those payments start to dry up because the clients concerned are going into receivership, you will have to rely on your own financial strength, and that’s where foresight and planning come in.

Preventing a crisis is better than trying to cure one, so here are a few points to consider that may help minimise the risks of suppliers and customers becoming a problem for business and impacting your operating capabilities and cash flow in the future.

Some of the key questions we look to answer in this article include:

  • “How do you survive a business crisis?”
  • “Who do you manage cash flow in a crisis?”
  • “How can a cash flow crisis be avoided”

As specialist small business accountants, Tax agility has advised and assisted many small business through troubled times. Read on to explore the advice and tips we have given our clients over the years.


5 simple due diligence checks to help protect your business against preventable crises


The following five checks are basic due diligence points many businesses often fail to conduct. Also, these checks aren’t something to be done once when first creating a relationship with a new supplier or client; it is good practice to keep an eye on the fortunes of those you work with on an ongoing basis.

  • 1. Credit check

    Knowing how good a company you’re about to work with is at paying their bills, is just sound practice. The good news is that unlike personal credit scores, credit scores for businesses are publicly available through credit reference agencies. In the UK, these are: Experian, Equifax and TransUnion.

  • 2. Company House check

    Your second stop is Company House. Take a look and check the following:

    • The type of business accounts. Beware of ‘micro accounts’ from smaller companies (with turnover less than £632k or have balance sheet less than £316k). There is nothing wrong with being small and agile, provided that they can weather the financial storms like bigger competitors and have a good chance to pay you on time.
    • When were they incorporated? If within the last 21 months, they don’t need to have filed any accounts yet, so you’re going to dig a little deeper into the directors backgrounds.
    • The latest set of accounts. These are usually up to 9 months out of date, but can still give you an idea where the business is heading. Also, you can often see just what is on the balance sheet and how much debt and creditors they carry that may make them susceptible in the future if the ‘winds of fortune’ change.
    • Have they been filing regularly and on-time?
    • How much cash do they have on hand? This indicates their abilities to pay current creditor liabilities, and gives an insight into their cash practices.
    • Look carefully at the company that you’ve been asked to invoice. Some companies are set up as shells or holding companies. While legitimate, they can sometimes hide poor intent. Holding companies are often asset protection strategies used to limit liability in a business structure. The problem you then have is that any claim you make is likely against a company that has no real assets, leaving you high and dry. Make sure that the company you are working for and the company you are billing are the same entity.
    • Check who the directors are and what other businesses they’re involved with. This is a good way of checking the performance history of a director. How many businesses do they run? How well are those businesses doing compared with the one you work with?

  • 3. An industry view

    Get an appreciation for how the firm is engaging with its audience. These days, the internet is buzzing with information, particularly on social media. Check out:

    • What are other people saying about your potential ‘partner’?
    • Who are their clients and likely suppliers and how are they doing?
    • How much positivity or negativity surrounds them?

  • 4. Check the review sites

    The internet is packed full of useful information, so search for reviews on your client or supplier. There may be review sites for companies in your specific business area. It doesn’t take a lot of effort to do and may reveal something valuable about them.

  • 5. Ask around

    You may know other people who do business with your client or supplier. Ask around to get an appreciation for the experiences other people have had with them.

Some late payment statistics

There are some 5.7 million SME’s in the UK (as of 2018). These account for over 98% of all businesses.

78% of these businesses are owed money and are on average waiting at least one month over their greed payment terms for payment.

40% of the companies owed money claim that large businesses are the worst offenders.

34% of SME business owners report that they have to rely on overdrafts to help make ends meet because of late payments.

43% of SMEs rack up around £4.4 billion in costs associated with chasing late payments.

11% of SMEs experiencing late payment difficulties end up employing debt collectors to chase payments.

14% (1 in 7) of small business owners have been unable to pay employees because of late payments.

38% of small business owners have been unable to satisfy debts due to late payment cash flow issues.

 

(sources: Bacs, Intuit, ONS)

Why is cashflow so important?

Cash is the lifeblood of a business. Without cash you can’t grow your business, and you can’t pay your employees or your suppliers. After a while, you’ll end up with a bad credit report which will bring on even more pain, especially if you need financing, as you’ll be considered a higher risk and will likely end up paying higher interest rates, or worse, not getting the loans you so desperately need. So, cash really is king.

Tax Agility Accountants offer it’s clients cloud based accounting services, such as Xero, that make day-to-day cash flow management and forecasting a simple affair.

How much cash should you keep in a company?

It’s quite normal to hear shareholders saying that keeping large amounts of money in a company is a waste of investment opportunity. The question though, is how much is it prudent to keep?

This really comes down to the operational characteristics of your business and its markets. For instance:

  • You have a good feel for how long it generally takes for people to pay you.
  • What your ‘burn rate’ is – i.e., your monthly cost base, the essentials you have to pay for.
  • How much you need to maintain stocks of products or materials for sales fulfilment or manufacturing.
  • At the end of the day, it’s up to you, but there are some rules of thumb more seasoned business owners stick to. For instance;  keep enough cash in the business, at all times, to keep the company afloat if there’s no income for three to six months.

Do a cash flow projection

If you know your burn rate, and likely payment dates for your payables and your receivables, then, along with your current cash balance, you can perform a cash flow projection. This is a little bit of analysis that takes a set of assumptions and calculates how much cash you’ll have to work with at a later date. It will also help you understand at what points in the coming months your cash situation is at its weakest. How accurate your forecast is depends upon how accurate the data is you put in.

Cashflow planning and projection is definitely something the team at Tax Agility can help you with. So why struggle? Call us today on 020 8108 0090.

A cash flow forecast also allows you to do a little ‘what-if’ analysis. For instance: What if a significant payment isn’t made to you on time or by a certain date, what impact will that have on your ability to pay your bills? The cash flow analysis is a critical part of running your finances proficiently. While you’re doing this, calculate your current break even point – what needs to come in to cover what goes out – basic month to month profitability.

Cash flow forecasts are also essential if your business is looking to grow, and you need to use your cash at strategic points in time – will you have the money you need? How much can you take out and commit to a project and over what period of time?

crisis planning

Cashflow management in a crisis


There’s one certainty in business and that’s uncertainty. Circumstances change, which can be a good thing, provided you have prepared for it, such as naturally evolving market conditions, maturing client/supplier relationships, cost of materials and key services, etc. Sometimes though, businesses can be caught off guard, such as what happened in the banking crisis of 2008, unforeseen aspects of Brexit, or the recent coronavirus pandemic.

Forget about profit – for now

No matter what the situation, cash is always king. Without it your business won’t survive. In times of crisis, forget about profit. Some believe that profit is the number one priority in business. It’s obviously essentially that a business makes a profit at some point, else why be in business? But, underpinning a business’s ability to make a profit is working capital, the money that keeps the gears in the company turning.

Crisis review

“Facing down the barrel of a gun”, is how some business owners describe the impact of the coronavirus pandemic. Without a regular flow of cash coming in, even with assistance from other areas, some businesses are only delaying the inevitable, as they must still have cash once a crisis is over to be able to recover.

However, not all crises are business-wide like a banking crash or global pandemic, they may be as a result of a crisis within a specific industry or just your company.

Examples may include issues such as:

  • Raw materials shortages because of sudden import restrictions.
  • Export issues caused by shipping issues (container shortages), such as happened with Brexit.
  • Sudden changes in currency exchange rates impacting profitability in other countries.
  • Changes in government regulations, such as the recent VAT rule changes in the construction industry that will impact those who rely on VAT collected as a form of cashflow.
  • The loss of significant personal affecting critical skill needs.
  • The loss of a major client revenue affecting cash flow.

The essential thing to do in any crisis is to urgently review your cash flow forecasts. Ideally, at some point you may have conducted a ‘what-if’ analysis and already know the minimums under which your business can function relatively normally. Now it’s time now to start looking at the areas you can make cuts.

Here are a few things you can do:

  • 1. Get a grip on your business environment

    • Golden rule:  Don’t panic. It’s especially important to those around you to see that the company’s leader is cool under pressure and reassuring. The last thing you want is to instil panic in your work force. However, people are naturally going to worry and likely have questions about their future, so prepare for that.
    • Don’t overreact. Decisions you make now will likely impact your business for years to come. The measures you take now should be calculated and step-by-step, not knee-jerk.
    • Call in assistance from those you trust – start with your accountant, then consult trusted acquaintances who know your business.
    • Keep an eye on your business’s focus, the value it brings to your clients and the market as a whole – the reason you are in business in the first place. If the changes you make take the business outside of this, you’ll likely be adding to your woes later. The changes you make should be in-line with your core business values.
    • Keep talking to your stakeholders and business partners. Make sure those who ‘need to know are in the know’. This is a basic foundation of trust, and you really don’t want to undermine that, otherwise you may start losing key support.

  • 2. What impact is the crisis likely to have?

    Dig out your cash flow forecast planning sheets. These were the ones you created when analysing your business’s operating cash flow needs and the ‘what-if’ scenarios that went with it. Look at the following:

    • Which areas of your business have been impacted and which will have the greatest impact?
    • What’s your current cash position?
    • What is the minimum amount of cash required to keep the company operating for a defined period and satisfying your essential client needs.
    • What costs are essential and which are not? Dig deep on this and prepare to be ruthless if need be.
    • Are your clients also impacted by the crisis, or is the crisis just affecting your business?
    • What debts are likely to fall due over what periods?
    • How quickly can you reduce your accounts receivables?
    • Revise your cash flow forecasts and set out new projections for the next 6 to 12 months, allowing for the variables above that you think are realistic, and perhaps a few you think may never happen. The point is to really stress test your business scenarios.

  • 3. Emergency short term action

    Once a crisis is apparent and the facts present themselves, it’s important take action quickly to preserve your cash reserves.  Consider the following short term actions:

    • All non-essential spending to be frozen.
    • Essential purchases to be approved first.
    • Impose spend limits on essential purchases.
    • Freeze salaries.
    • Freeze hiring.
    • Review temporary staff positions.
    • Look to improve working capital: Approach creditors for short-term revisions in payment terms. Reduce your accounts receivables.
    • Consider invoice financing; this is a way to finance your business short-term based on your legitimate receivables.
    • Look for other sources of financing, such as government loans or grants, private financing options, bank loans.

    During a crisis, it’s essential to have up-to-the minute information about the financial state of your business. Central to this is accurate and up to the minute set of management accounting reports. These allow you to snap-shot the current financial state of affairs, from the state of your receivables, current liabilities, cash in the bank, P&L and balance sheet. The systems you use will dictate how readily this information is to you. Those businesses already using cloud accounting software will have this information to hand, because of the flexibility tools like Xero Accounting Software provide. If you’re not using management reports in this way, here’s an article on why management accounts are critical to the operation of your business.

  • 4. Strategic, longer term actions

    It’s important to regularly review the situation your business finds itself in and, if you can, plan for a post crisis future. Although not welcome, crises can be beneficial in some ways. A time of great change can shake up a business and make it realise what it has been missing out on. For instance, complacency in business is another major business killer. Complacency comes in many forms, but usually occurs when a company is enjoying profitability and success for a long period of time. However, many things can upset the utopian world, not least:

    • Taking your eye off the competitive situation and losing market share.
    • Not responding to changes in the market; becoming irrelevant.
    • Being unaware of changes in consumer attitude and buying trends; being replaced.
    • Not taking advantage of new technologies and processes.
    • Internal systems that become inefficient and expensive to run.
    • Staff becoming lazy in their duties.
    • A feeling of entitlement among key staff members.
    • Poor crisis cash flow planning, indeed, poor planning.
    • Lack of realistic growth plans.
    • When responding to a crisis, many of these issues will surface and need to be resolved.

    There are other essential issues you should be look at when planning a recovery too.

    Account planning

    Consider the origin of your cash; your key clients. Crises that extend beyond your business may naturally be affecting your clients and your suppliers. They may approach you either for quick payment or delayed payment terms, just as you may ask. Relationships in business are another source of life and need to be protected.

    As part of your crisis planning, review your clients and suppliers and their fundamental importance to your business:

    • Which ones could be sidelined temporarily?
    • Which should you look to accommodate as much as you can?
    • Can your cash flow support extended credit terms for key clients that have also been affected.
    • Consider reduced payments or temporarily suspend contracts.
    • Can you use this opportunity to negotiate better terms with suppliers, or even clients?

    Operational efficiency

    Crises may reveal underlying problems in your business processes, typically things you have taken for granted in the past that may now be a burden. One example may be your IT systems and software licensing. If you have internal staff managing this, maybe it’s time to consider a more effective outsource solution. Equally, if you do outsource, maybe your contractor has become complacent too and now is a time to make a competitive comparison and ask for more favourable terms.

    Software licenses: These have a habit of auto renewing. Make sure you are still using the software and that it’s still needed.

    Review your staff structure: Are you using your headcount efficiency?

    Is everyone really pulling their weight? Could tasks be combined, and staff levels reduced?

    Unused inventory and inventory levels: Are you sitting on inventory that is either sold or represents unused material? Can this be returned or recycled? How much does it cost to store these items and are cheaper options available? Could you move to a more efficient ‘just-in-time’ practice, thus reducing exposure.

    Office space: Going forward, do you really need your current office space. Changes in working practices may mean that more people can work from home and share office space if needed. Review your current leasing arrangements and perhaps plan for smaller offices in the future, investing instead in technology and processes that enable a more geographically dispersed staff base.

    Accounting practices: Review your accounting and financial management practices. Some companies have in-house accounting or bookkeeping staff. With improvements in technology, cost efficiencies can be gained. Also, it may be better to outsource your accounting function. It’s a popular choice these days, especially as cloud software such as Xero allows delegated people in a company direct access to up to the minute operational financial data. Regular management reports can be run, up to the minute cash flow reports can be created and receivables information is at your fingertips. The best thing is, with this technology, you can have access to essential management information no matter where you are, through your mobile devices.

Closing thoughts

As we have seen, cashflow management and planning is the gateway to understanding your business’s ability to weather a crisis and it’s also a testimony to the quality of your business management too.

Consider also that, crises don’t just represent a clear and present danger. Provided a company is essentially sound and financially viable, a crisis can also represent an opportunity. Weathering a crisis is an opportunity to review your company’s operations and to look for opportunities where perhaps other competitors are not able to recover so well.

Crises are times when a company is stress tested by natural events. As such it can be an opportunity to make more drastic changes to your company’s operation – justifiably so.

The message is then, don’t panic, react calmly. Take a balanced look at what steps you have to take to weather the storm. But, also use this as an opportunity to emerge a stronger and more competitive company.

The business world is more data-driven than ever before, to the point that even the smallest businesses now need the flexibility and accessibility to critical business data at their fingertips, rather than just when they review things with their accounting or bookkeeping staff.

Cloud accounting tools like Xero can help. No matter, where you are or what device you have, you have access to essential financial management information 24/7.

Furthermore, data-driven accountants like Tax Agility can help you get a better grasp of your company’s day-to-day financial management too, particularly in how to prepare and respond to business crises.

So contact us and find out how we can help in a proactive way.


Domestic VAT reverse change for building and construction services

Traditionally, the value-added tax or VAT is a tax based on a percentage of the sale price; and is applied at each stage in the production and distribution chain. However, for the construction industry, that's all changed.

CIS VAT reverse charge schemeFrom 1 March 2021, the new VAT domestic reverse charge system for building and construction services will take effect. As the name implies, it only affects jobs that building tradespeople carry out for their clients in the construction industry.
This new system aims to reduce the missing trader fraud common in the construction industry, whereby a supplier or subcontractor would invoice and charge VAT to another builder, before going missing or going into liquidation. With this reverse charge, the VAT is moved down the supply chain, making the main contractor responsible for the VAT and pay it directly to HMRC.

To aid the process, the government has published a flow chart which lists key questions that can help you determine whether a reserve charge should be applied or not if you are supplying services customers. As such your customer must have the following attributes:

  • Does the supply fall within the scope of Construction Industry Scheme (CIS)?
  • Is the supply standard-rated or reduced-rated?
  • Is your customer VAT-registered?
  • Is your customer registered for CIS?
  • You’re not an employment business supplying staff or workers
  • Your customer has confirmed that they are not an end user or an intermediary supplier?

If the answer is ‘yes’ all of these questions, then the domestic reverse charge applies, meaning when you issue an invoice to your main contractor, you don’t include VAT on your invoice. Instead, your invoice should state “Reserve charge: Customer to pay VAT to HMRC", along with the VAT rate. This is to make it clear that the reserve charge system has been applied, and the main contractor knows what rate to declare on their return later.

If the answer is ‘no’ to any of the first four questions, then normal VAT rules apply.

Further guidance provided, explains some of the differences between ‘end users’ and ‘intermediary suppliers’.

What is the difference between an end user and an intermediary supplier?

End users are the actual consumers or final customers of a service. The reverse charge does not apply to end users.

An intermediary supplier is a CIS and VAT registered business connected or linked in some way with an end user. This connection could be through the holding of relevant interests in the land or buildings with the construction work is to take place. Landlords and tenants are an example, as are constructions services carried out within a group of companies.

Further helpful definitions

To help define the circumstances and applicable scenarios further the government provides the following additional guidelines:

When you must use the reverse charge

  • Constructing, altering, repairing, extending, demolishing or dismantling buildings or structures including offshore installation services;
  • Constructing, altering, repairing, extending, demolishing of any works forming, or planned to form, part of the land, i.e. walls, roadworks, power lines, electronic communications equipment, aircraft runways, railways, inland waterways, and more;
  • Installing heating, lighting, air-conditioning, ventilation, power supply, drainage, sanitation, water supply or fire protection systems in any building or structure;
  • Internal cleaning of buildings and structures, so far as carried out in the course of their construction, alteration, repair, extension or restoration;
  • Painting or decorating the inside or the external surfaces of any building or structure; and
  • Services which form an integral part of, or are part of the preparation or completion of the services i.e. site clearance, earth-moving, excavation, tunnelling and boring, laying of foundations, erection of scaffolding, site restoration, landscaping and the provision of roadways and other access works.

When you must not use the reverse charge

Do not use the charge for the following services, when supplied on their own:

  • Drilling for, or extracting, oil or natural gas;
  • Extracting minerals and tunnelling, boring, or construction of underground works, for this purpose;
  • Manufacturing building or engineering components or equipment, materials, plant or machinery, or delivering any of these to site;
  • Manufacturing components for heating, lighting, air-conditioning, ventilation, power supply, drainage, sanitation, water supply or fire protection systems, or delivering any of these to site;
  • The professional work of architects or surveyors, or of building, engineering, interior or exterior decoration and landscape consultants;
  • Making, installing and repairing art works such as sculptures, murals and other items that are purely artistic signwriting and erecting, installing and repairing signboards and advertisements;
  • Installing seating, blinds and shutters; and
  • Installing security systems, including burglar alarms, closed circuit television and public address systems.

Some basic examples of how this works in practice

Example 1: a transaction under reserve charge

You are a subcontractor who is VAT-registered and you charge 20% VAT normally. You carry out painting and decorating work in an office block for the main contractor AB Construction Ltd. Upon completion, you invoice AB for £2,000 on paint and other materials, and £4,000 for labour. You charge £6,000 in total but no VAT. Your invoice will mention the VAT rate (20%) and the phrase ‘Reserve change: Customer to pay VAT to HMRC’.

On your VAT Return:

  • VAT on sales – suppliers must not enter output tax on sales under reverse charge. The supplier only need to enter the net value.
  • VAT on purchases (goods) – if you buy services subject to reverse charge, you must enter the VAT charges as output tax on your VAT return. Make sure you do not enter the net value of the purchase as a net sale.
  • If the services provided (expertise/labour )are  subject to reverse charge from the subcontractor, the VAT must be accounted for in your VAT return and VAT will be recovered simultaneously on the same VAT return.

Example 2: a transaction not under reverse charge

You are a subcontractor who is VAT-registered and you charge 20% VAT normally. You carry out painting and decorating work in an office block for the owner, who confirms that he is the end-user. Upon completion, you invoice the owner £6,000 for the materials and labour, plus £1,200 for VAT.

This is reported normally in your VAT return.

Important note on the cash accounting and VAT flat rate schemes

An important point to note here is that the cash accounting scheme cannot be used for supply of services that are subject to the reverse charge. The same is true for the flat rate scheme (FRS). Users of these schemes will need to consider whether it is still beneficial to their businesses to use these schemes.

This will impact likely your cash flow, so be aware

Under the old scheme, a business would charge their fee plus VAT. If the customer was a prompt payer, the charging business would have a 20% cash flow advantage from the VAT, potentially for up to 3 months. Under the new scheme, the business won’t charge VAT and therefore won’t benefit from the cash flow advantage.

If you aren’t sure, talk to Tax Agility

Prepare yourself by making sure that your accounting systems and software can deal with the reserve charge, and take time to review your contracts with other builders and suppliers.

At Tax Agility, we are also here to provide professional guidance on this issue. You can speak to our VAT specialist.


R&D Tax Relief Scheme Changes 2021

Changes to the SME R&D tax relief

Changes announced late last year concerning the R&D tax relief scheme come into force on April 1 this year, are you ready?

R&D Tax Relief Scheme Changes 2021Aiming to put UK at the forefront of R&D and help companies compete on the world stage, the government has introduced various R&D tax reliefs, including R&D for small or medium-sized enterprise (SME), universities and charities, as well as R&D Expenditure Credit for large companies.

From 1 April 2021, the new SME R&D tax credit scheme will take effect, with the introduction of a cap on the amount of credits that could be claimed.

An overview of the SME R&D tax relief scheme

When the SME R&D tax credit schemed was first introduced in 2000, it had a cap on the amount of credits that a company could claim. In 2012, the cap was removed, thereby allowing eligible companies to deduct an extra 130% of their qualifying costs from their yearly profit, as well as the normal 100% deduction, making it a total of 230% deduction. Even when a company was making losses, it could still claim a tax credit worth up to 14.5% of the surrendarable losses.

The system was subject to abuse and fraud – HMRC announced that they had detected and prevented fraudulent claims amounting to over £300m in recent times. Many deceptions included people setting up a UK-based entity just to claim tax credit despite no R&D work was actually performed in the UK.

Consequently, from 1 April 2021, the government will introduce a cap, limiting the payable R&D tax credit to three times the total PAYE and NIC liability of the company for the year, plus £20,000. This also means that the first £20,000 of repayable tax credit claim will be exempt from the cap, thereby protecting smaller SMEs with few employees.

For a genuine SME that employs people to carry out R&D work in the UK, the new changes will have little or no impact. However, for a company that doesn’t have any real UK-based activities, or one that doesn’t employ people but relies on subcontractors, the new rule will discourage them from making an R&D tax credit claim.

Exemption

The new changes will not apply to companies that:

  • Have employees creating, preparing to create, or managing Intellectual Property (IP), and;
  • Do not spend more than 15% of its qualifying R&D expenditure on subcontracting R&D to, or the provision of externally provided workers (EPWs) by, connected persons.

R&D and IP creation

Ideally, R&D work would lead to IP creation, and if this is the case, your company could also take advantage of the Patent Box – a scheme that allows companies to apply a lower rate of Corporate Tax to profits earned from its patented inventions.

‘Related party PAYE’

In calculating PAYE and NIC liabilities, claimants may include related third parties, i.e. those companies performing R&D activities on the claimants behalf, as long as the work is directly attributable to the development activity.

Talk to Tax Agility

The first step is to seek professional guidance on this issue if you aren’t sure how it is going to impact your business.


A concept image of business that is closed due to COVID-19

An update on COVID-19 support available to small businesses

A concept image of business that is closed due to COVID-19

As the daily number of people tested positive for COVID-19 continues to rise across England, many businesses and self-employed individuals are bracing for tighter restrictions.

(Updated on 7 November 2020)

On Friday (30 October), as the Furlough Scheme was coming to an end, we wrote this blog to talk about the Job Support Scheme (JSS) and other measures. But a day later, Prime Minister Johnson announced the second lockdown in an attempt to slow down the spread of Coronavirus. Accordingly, we have updated this post to reflect the latest support available to small business owners.

The Furlough Scheme is extended

Introduced in March, the Furlough Scheme (also known as the Coronavirus Job Retention Scheme or CJRS) was supposed to end on 31 October 2020, but as the second lockdown is set to begin on 5 November 2020, the scheme will be extended until March 2021. Essentially, it allows you to furlough your staff full-time, or ask them to work on a part-time basis and furlough them for the rest of their usual working hours. You will have to cover their wages for the hours worked, as well as National Insurance and employer pension contributions. You will be able to claim either shortly before, during or after running your payroll.

Employees who are being furloughed will receive 80% of the current salary for hours not worked, up to a maximum of £2,500 per month. All of the 80% is fully funded by the government – this is in contrast to how the scheme was administered previously. Before November, the scheme required affected employers to pay 20% and the government paid 60% to make up 80% of the salary.

Employee eligibility: You can claim for employees who were on your PAYE payroll on 30 October 2020. You must have made a PAYE Real Time Information (RTI) submission to HMRC between 20 March 2020 and 30 October 2020, notifying a payment of earnings for that employee. If employees were on your payroll on 23 September 2020 (i.e. notified to HMRC on an RTI submission on or before 23 September) and were made redundant or stopped working for you afterwards, they can also qualify for the scheme if you re-employ them. Neither you nor your employee needs to have previously used the Furlough Scheme.

For employers, the first task is to check if your employees are eligible for the scheme, based on the information above. Then talk to your employees so they know if they are being furloughed fully or part-time, and agree working hours if applicable. Keep the records that support the amount of the furlough grant you claim, in case HMRC needs to check it. You can view, print or download copies of your previously submitted claims by logging onto your CJRS service on GOV.UK

Other forms of support

Before the announcement of the second lockdown, local councils have different levels of support to help businesses based on the COVID alert level of the area. But as the second lockdown is affecting the whole of England, the government has announced the followings:

  • If your premises is forced to closed, you will get £1,334 per month (for properties with a rateable value of £15k or under), £2,000 per month (for properties with a rateable value of £15k to £51k), and £3,000 per month (for properties with a rateable value of more than £51k).
  • £1,000 for every furloughed employee kept on until at least the end of January.
  • £1,500 for every out-of-work 16-24 year-old given a "high quality" six-month work placement.
  • £2,000 for every under-25 apprentice taken on until the end of January, or £1,500 for over-25s.

Job Support Scheme (JSS)

The Job Support Scheme (JSS) aims to help employers retain their employees if they are struggling or when they are required to close. The JSS, which was scheduled to come in on 1 November, has now been postponed.

Professional services grant

In July 2020, the government announced £20 million in new grants to help small and medium-sized businesses recover from the effects of this pandemic. The scheme will offer grants between £1,000 to £5,000 to these businesses, helping them purchase new technology and equipment, as well as paying for professional services (legal, financial, HR and other qualified services).

The schemed is administered through the Local Enterprise Partnership (LEP) and each LEP has a minimum of £250,000 to get the program going.

For businesses in London, you can access the businesshub.London page for more information.

Deferral of VAT

Back in March, the government announced that VAT-registered companies could opt-in to defer their VAT payments (between 20 March 2020 to 30 June 2020) and pay them by 31 March 2021. This scheme is now closed, but those who have opted-in have the option in pay in smaller payments until 31 March 2022 instead, a much longer period than previously announced.

Self-Employment Income Support Scheme (SEISS)

Introduced in March 2020, the SEISS allows self-employed individuals whose businesses had been adversely affected by the pandemic to claim a taxable grant. To be eligible, you must have:

  • Traded in the tax year 2018 to 2019 and submitted your Self Assessment tax return on or before 23 April 2020 for that year
  • Traded in the tax year 2019 to 2020
  • The intention to continue to trade in the tax year 2020 to 2021
  • Trading profits less than £50,000 and at least equal to your non-trading income (if you are not eligible based on the 2018 to 2019 Self Assessment tax return, HMRC will look at the previous tax years)

The first SEISS grant ended on 13 July 2020 and the second grant ended on 19 October 2020. On 5 November 2020, the chancellor Rishi Sunak confirmed that a third grant – and a more generous one – will be made available to help self-employed individuals. The third grant will cover 80% of profits for November, December and January, up to a total limit of £7,500. Applications will be open from 30 November 2020. Details for the fourth grant, covering three months from February 2021 to April 2021, will be announced later.

Deferral of second payment on account

Self-employed individuals are aware of the two payments on account taking place each year, with the first one due on 31 January during the tax year and the second one on 31 July following the end of the tax year. The second payment on account for the 2019/20 tax year was supposedly due by 31 July 2020, but taxpayers with up to £30,000 of Self Assessment liabilities could defer the second payment (due July 2020) to 31 January 2021. In September 2020, the government further announced that you could pay instalments (by entering into a Time to Pay arrangement) if you couldn’t pay in full by 31 January 2021 – this means you could stretch the final payment to January 2022.

Other things to be aware of

Before the announcement of the second lockdown, the government had already encouraged companies to allow employees to work from home if they can carry out their normal duties without going to the office. Now people are told to stay at home, except for education, work (if cannot be done at home), exercise, medical reasons, shopping for food and essential items, or to care for others.

If an employee must self-isolate (either they have tested positive or been in contact with someone who has tested positive), the business owner must not knowingly allow the employee to come into the office or attend meetings elsewhere. Violating this provision is an offence with fines starting at £1,000 for the first offence, rising to £10,000 for the fourth and subsequent offences.

Be careful of COVID-19 scams

The pandemic has already affected millions of people across the UK, yet scammers are still actively targeting small business owners, their employees, as well as self-employed individuals. Apart from criminals pretending to be government agencies ‘phishing’ for information, some of us have also received emails from supposedly company server informing us of unread messages – but taking us to a phishing site instead.

Members of the public have also seen texts informing them of tax rebate from ‘HMRC’ and encountered fraudulent products, anything from hand sanitisers to COVID-19 swabbing kits. Remain vigilant is key, and report the scams to Action Fraud (0300 123 2040 or online).

Disclaimer
The information contained in this newsletter is of a general nature and no assurance of accuracy can be given. It is not a substitute for specific professional advice in your own circumstances. No action should be taken without consulting the detailed legislation or seeking professional advice. Therefore, no responsibility for loss occasioned by any person acting or refraining from action as a consequence of the material can be accepted by the authors or the firm.


Small Business: Managing business risk

Knowing how to identify and manage risk is essential for a small business to survive, operate and prosper amid competition and uncertainty.

A concept illustration of taking risk

“Tell me about the biggest risk you’ve taken in your life.”

If you were to ask this question to small business owners, chances are you would hear them all talking about taking risks to launch their respective business.

Entrepreneurs tend to embrace risk, and successful business owners also know how to identify and skillfully manage both internal and external risks that their business is facing. In this article, our small business accountants look to explore a few common types of risk and discuss how small business owners can benefit from a risk management plan that works for them.

Common types of risk

While it is obvious that every company faces its unique set of risks, there are a few common types that most of us face, given that we operate in a well-connected world. These risks include:

  • Financial, such as managing rising costs, depreciation of assets, cash flow issues, bad debts, repayment of loans, problems associated with erroneous company accounts and paying an incorrect amount of taxes.
  • Legal, such as not filing the appropriate documents with Companies House and HMRC, not applying for or renewing appropriate licences, and failure to carry out contractual obligations.
  • Health and safety, such as dealing with workplace accidents and equipment failure.
  • Global events, such as a sudden political deposition in another country and a global pandemic that restricts travel movement.
  • Market, such as changes in consumer behaviours and purchasing habits.
  • Reputation, such as damage to your brand.
  • Security, such as theft and fraud.
  • Staffing, such as the challenge of finding the right people for the right jobs and conflict management.
  • Technology, such as network interruption, email server failure and a breach in cyber security.
  • Natural disasters, such as floods, heat waves and earthquakes.

Some of the risks mentioned above might seem indirect or even unlikely to some businesses. For example, if you have no suppliers or customers outside of a town or a city, then it is easy to assume that what goes on elsewhere isn’t going to affect your business. The truth is all businesses are actually more connected than ever, and consumers today can be personally affected by world events that seem far away. Consequently, it is better to prepare for indirect risks than to ignore them.

Managing risks

Risk management is the process of identifying risks specific to your business and coming up with strategies to deal with the risks and recover from the impacts should the unfortunate happen. You can develop an effective risk management plan by following these steps:

  1. Identify the risk
  2. Assess the risk
  3. Manage the risk
  4. Review and update

You can certainly get assistance from various specialists to help with your risk management plan. For example, when assessing financial risks, involve your accountant or speak to a small business accountant like us. Our team of chartered accountants can work with you to review financial risks related to your company, including but not limited to:

  • Risks from how your company is structured
  • Risks from incorrect financial transactions
  • Risks from cash-flow shortage and how to overcome them
  • Risks from changing customer trends
  • Risks from inaccurate tax calculations

Essentially, what a risk management plan does is to help you identify issues in various business situations and from there, you develop practical ways to protect your business. To guide you through the process, here are the four steps involved.

Identify the risk

A good risk management plan starts by asking a series of ‘what if’ questions that could affect your business. A few examples are:

  • What if my key supplier went out of business?
  • What if my website was hacked?
  • What if a new competitor opens on the same street?
  • What if I add eCommerce to the website?
  • What if a customer sue me?

Assess the risk

Assessing the risk is about the likelihood of any particular risk happening and the consequences it would have on your business.

Here’s an example: let’s say you run an e-commerce site so you need your website to be available 24x7. You have a good hosting contract and the risk of your website going down is low. However, should the unfortunate happen, your costumers cannot reach you nor buy from you. Consequently, you may suffer a financial loss during the period when your site becomes unavailable.

Now you have thought about the risk and the consequence, the next step is to manage the risk.

Manage the risk

The common ways to manage risks are:

  • Accept them – if the risks are very unlikely to happen, too expensive to mitigate, or impractical, you may choose to accept them and have a recovery plan to manage the consequences should they happen.
  • Avoid them – you could avoid the risks by not proceeding with an activity or by using an alternative method to achieve the same outcome.
  • Reduce them – you could reduce the likelihood of the risk occurring or you could reduce the impact if the risk occurs.
  • Transferring them – you shift the responsibility to another party, such as your insurance provider, through outsourcing or new partnerships.

In the UK, you must get Employers’ Liability insurance from an authorised insurer as soon as you become an employer. Your policy must cover you for at least £5 million. Apart from this statutory obligation, you may consider other types of insurance that are useful to small businesses. They can include content and stock insurance, business interruption insurance, cyber cover, and audit insurance.

Review and update

Just like other business processes, your risk management plan should be reviewed and tested as risks can change, as your business and the environment you operate in.

Developing a recovery plan

Going hand-in-hand with a risk management plan is a recovery plan. The idea here is about how your business can recover and minimise losses should an unfortunate incident happen.

Cyber security is a good example to illustrate this. Small business owners are often targeted by ransomware, malware and malicious emails. The risk is real and it may even occur regularly. To mitigate the risk, you may already have established strict procedures like installing the latest security software to keep your network and devices secure, regularly backing up your data and educating your employees. Despite the best effort, hackers and cyber criminals may still gain unauthorised access to your system. Accordingly, you need to have a recovery plan, detailing anything from stopping the incident from getting worse, calling up experts who can help you resolve the incident, informing the authority if necessary, and considering what legal advice you should take if the incident causes a significant impact on your business or customers.

Tax Agility can help you mitigate risks related to company finances

As leading chartered accountants for small businesses in London, Putney and Richmond-upon-Thames, we tend to involve risk management as part of our daily activities and discussions with our clients.

An obvious activity is that we can help to reduce your financial and compliance risks by managing your company accounts accurately and making sure that your business is tax-efficient.

We are also the person you can bounce ideas with, as we can help to evaluate risks and opportunities that are drawn upon financial data so you can make informed decisions accordingly.

If you are thinking of buying another business or selling an existing one, you can also count on us to assess the value by reviewing the business’s assets, operations, financial performance and tax compliance, to name but a few.

In short, by incorporating risk management, our goal is to make sure that your business is financially sustainable. You will also receive qualified insights that can help in your decision-making process and meet financial compliance.

Our services:

  • Accounting & Bookkeeping: leave your day-to-day finances to us. We will also provide monthly management accounts, prepare statements and help you set-up cloud accounting.
  • Tax: if you are tax-efficient, you will have more money to invest, expand and create jobs in your community. Let us help you with tax planning, tax computation and tax returns.
  • VAT: from VAT returns to manging VAT on import and export goods, we take care of them so you don’t have to.
  • Payroll: As your team grows, outsource your payroll administration to us so that you and your team can continue to enjoy accurate and on-time payslips every month.
  • Management consultancy: take your business forward with practical advice based on financial data and benchmark analysis.

Call our small business accountants today on 020 8108 0090.

Alternatively, you can use the contact us form to get in touch.

 

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This blog is a general summary. It should not replace professional advice tailored to your specific circumstance.


A concept of protecting valuable items

Trusts and Income Tax

A concept of protecting valuable itemsWe explain six main types of trusts preferred by UK residents and the different Income Tax rates of these trusts.

In the UK, there are six main types of trusts, namely:

  • Bare trusts
  • Interest in possession trusts
  • Discretionary trusts
  • Accumulation trusts
  • Settlor-interested trusts
  • Mixed trusts

For non-residents who want to protect their assets here or want to make sure that their dependents living in the UK are taken care of, the type of trust applicable would be a non-resident trust.

Before we go into each trust type and their tax obligations, let’s get familiar with these terms:

  • A settlor is a person who puts assets into a trust
  • A trustee is a person who manages the trust
  • A beneficiary is a person who benefits from the trust

1. Bare trusts

Bare trusts refer to a simple structure where the trustee holds the assets and incomes of the trust on behalf of the beneficiary. The beneficiary of a bare trust is responsible for paying tax on income from the trust.

Here is an example: you want to provide for a young child, so you set-up a bare trust and create an investment account or a saving account. All funds in the account belong to the child. Once the child reaches 18, they have the absolute right to the money.

Whether your child is 8 or 18, they enjoy the same standard Personal Allowance as everyone else, which is £12,500 a year currently. Anything beyond this threshold is subject to Income Tax.

Here is a snapshot of the income tax bands:

  • No tax to pay if the taxable income is below £12,500
  • 20% basic rate for taxable income between £12,501 to £50,000
  • 40% higher rate for taxable income between £50,001 to £150,000
  • 45% additional rate for taxable income over £150,000

2. Interest in possession trusts

An interest in possession trust means the trustee must pass on all trust income to the beneficiary as it arises (less any expenses). Who pays the Income Tax depends on the arrangements. If the trustee ‘mandates’ the income to the beneficiary (meaning it goes to the beneficiary directly instead of being passed through the trustee), then the beneficiary will need to include the income on their Self Assessment tax return and pay tax accordingly.

If the income is passed to the trustee first, then the trustee will be responsible for paying the Income Tax.

The tax rate depends on the type of income:

  • Dividend-type of income is taxed at 7.5%
  • All other incomes are taxed at 20%

If the beneficiary is a disabled person, special tax rules may apply. It is best to speak to our personal tax accountants if you find yourself in a situation which you aren’t sure.

3. Discretionary trusts

Discretionary trusts are often used when you want to safeguard your assets for the future generations, including descendants who have yet born. Depending on the trust deed, usually trustees of a discretionary trust can decide:

  • What gets paid out (income or capital)
  • Which beneficiary to receive the payments
  • How often payments are made
  • Any conditions to impose on the beneficiaries

Trustees are also responsible for paying tax on income received by the discretionary trust and the tax rates are as follows:

  • Dividend-type of income is taxed at 7.5% (below £1,000) and 38.1% (above 1,000)
  • All other incomes are taxed at 20% (below £1,000) and 45% (above £1,000)

There are two accompanying notes here. The first is that if the settlor has more than one trust, the £1,000 threshold is divided by the number of trusts they have. But if the settlor has set up five or more trusts, each trust is allowed to have the standard rate band of £200.

In addition, trustees do not qualify for the dividend allowance (which is set at £2,000 a year currently). This means trustees must pay tax on all dividends depending on the tax band they fall within.

4. Accumulation trusts

In an accumulation trust, trustees can accumulate income within the trust and add it to the trust’s capital. They may also be able to pay the income out. For example, the beneficiary may be an infant, so the trustees will accumulate the trust’s income until the beneficiary is legally entitled to receive the capital and all incomes.

Accumulation trusts are subject to the same taxation as discretionary trusts discussed above.

5. Settlor-interested trusts

As the name suggests, a settlor-interested trust benefits the settlor or the spouse or civil partner. The trust could be an interest in possession trust, a discretionary trust, or an accumulation trust. Settlor-interested trusts are becoming popular, given that ageing is affecting health care and social costs. What most people do is that they set up a discretionary trust and put their assets in the trust – doing so will make sure that they have money in the future when they can no longer work.

When it comes to taxes, the settlor is responsible for Income Tax on these trusts, even if some of the income is not paid out to them. But because the trustee is the person managing the trust, they have to pay the Income Tax on behalf of the settlor first.

Here’s how it works:

  • The trustee pays Income Tax on the trust income by filling out a Trust and Estate Tax Return.
  • They give the settlor a statement of all the income and the rates of tax charged on it.
  • The settlor tells HMRC about the tax the trustees have paid on their behalf on a Self Assessment tax return.
  • How much tax to pay depends upon what type of trust the settlor-interested trust is.

Give our Personal Tax accountants a call on 020 8108 0090 when you want to make sure your Trust and Estate Tax Return is correct.

6. Mixed trusts

When you combine more than one type of trust, you are setting up what is called a mixed trust. In this situation, the different parts of the trust are treated according to the tax rules that apply to each part.

Non-resident trusts

If you a settlor and you don’t reside in the UK and are not domiciled in the UK, and you have a mixture of resident and non-resident trustees, or you have trustees who all live outside the UK, then you may have set-up a non-resident trust to protect your assets in the UK. The tax rules of non-resident trusts depend on many factors and can get complicated quickly. It is best to speak to one of our personal tax accountants and discuss your situations, so we could advise how to handle capital gains arise from a non-resident trust.

Experienced Trust and Income Tax accountants

When you set-up a trust, you generally have a few objectives which could be:

  • You want to look after someone who can’t manage their money
  • You want to safeguard your assets for your children and grandchildren
  • You want to have enough money to pay for health care and social costs when you can no longer work
  • You want to lower the Inheritance Tax your estate is liable for

Accordingly, you will need to choose a trust that can best address your needs and think about how the different tax rules may affect you. This is where our personal tax accountants can help. We will listen to your situations and explain the characteristics of each trust in detail, including:

  • Advising on the tax advantages and helping you to select the most suitable type of trust
  • Transferring assets into a trust
  • Advising on wills to ensure tax efficiency
  • Maximising inheritance tax reliefs and exemptions
  • Planning lifetime gifts and making full use of exemptions and lower tax rates available
  • Advising on adequate life assurance to mitigate any inheritance tax impacts

Call us today on 020 8108 0090 to discuss your situations and how a trust and its tax rules can best match your financial needs. The first meeting is free and no obligation.

Alternatively, you can also use the enquiry form to get in touch.

Important note

The Provision of Services Regulations 2009 requires us to advise you that our professional indemnity insurer is HCC International Insurance Company PLC, 35 Seething Lane, London, EC3N 4AH.

Our territorial coverage is worldwide except for any professional business carried out from an office in the United States of America or Canada and excludes any action for a claim brought in any court in the United States of America or Canada.

We are not authorised financial advisers but will introduce you to suitable firms or individuals when you are considering transactions that would benefit from authorised advice.

We are not regulated by the Financial Services Act and will refer you to an FSA-regulated provider if that will benefit you.

 

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