The 2022 Autumn statement impact on small businesses

For many, the contents of the Chancellor’s Autumn statement cum budget, came as no surprise. The country has suffered many significant setbacks over the past 2 years, as indeed have most countries. However, at some point, all the assistance and support that has been handed out over these years needs to be paid for. As small to mid sized business accountants, here’s how we see this budget impacting your business.

impact of 2022 budget on small businessesBefore we look at the impact on small businesses, let’s remember that small businesses represent 95% of all businesses in this country. Most are run by ordinary hard-working people. Home-owning, family centric people.

A quick review of the events of 2020 to 2022 that have ultimately led to the contents of this budget

Covid had a major impact on all of us. That is probably an understatement, but to put it into perspective along with this budget, consider the following.

The Covid-19 pandemic resulted in exceedingly high levels of public spending. This included the furlough scheme and assistance packages to businesses and healthcare. In all, it is estimated that between £310 and £410 billion was spent. That needs to be paid for and equates to around £4,600 to £6,100 per person (Commons Library).

Covid related issues saw global trade significantly impacted which resulted in supply shortages across many industries. This began to have an inflationary impact as the costs of numerous imported items started to rise affecting retail prices in the UK.

If that wasn’t enough, 2022 though saw another unexpected development; Russia’s invasion of Ukraine. The impact on European energy supplies and to a degree global food prices, has been unprecedented, both practically and politically. Prices at the pumps for regular unleaded petrol rose around 66% from Early 2020 to September 2022. Meanwhile 2022 has seen wholesale energy prices heading for an increase of over 80%, with many homes experiencing energy bills that will more than triple.

Such economic pressures have resulted in an inflation rate that is now at over 11%. To control inflation, governments increase interest rates. Ordinarily, higher interest rates are good for savers. However, few home owners will have cash to save because of the economic pressures they are now facing. Many homeowners are now feeling considerable financial pressure, with mortgage payments and interest rates rising considerably above the historic lows we’ve seen in recent years. The relatively short space of time over which rates have risen has caught many off-guard, with few having the financial reserve to cope with such trends. In short, many ordinary people are now facing a severe cash flow shortage. Having enjoyed mortgage interest rates as low as one or two percent, some home owners are facing rates of over 5%. For many, this is unsustainable.

What can business expect over the next year?

In many respects small businesses are unique in how they are affected by such conditions and the measures imposed by the budget, even though they constitute 95% of all UK businesses. This is because small businesses are run by people directly connected to the business. This opposed to regular employees or directors of larger firms often with the resources to weather such storms out. Small changes to smaller businesses can have a significant impact. Large changes, such as we are seeing, can have a traumatic impact.
Here’s why.

Measures that impact the tax paid by a small business and its owner

Corporation tax. This was already set to rise from 19% to 25% in April 2023. However, businesses with profits below £50,000 will continue to pay the current 19% rate. Those between £50,000 and £250,000 will pay 25% but with a rate relief deduction. As dividends are taken net of tax paid, increased corporation tax will lessen dividends payable.

Dividend tax relief. Currently £2000, this will reduce to £1000 in 2023 and then further to £500 in 2024. When added to current personal allowances, a director could expect their tax payment threshold (20%) to start at £14,570, this will now be £13,570 from April 2023. Given the current inflation rate and the freeze on personal allowances, this constitutes an overall reduction in income in real terms.

Capital gains tax exemption is currently at 18% for residential property gains and 10% for all other gains, such as investments, for basic rate payers, and 28% and 20% respectively for higher rate payers. The threshold for this in 2021 to 2022 is £12,300. However, from April 2023 this will drop to £6000 and to £3000 from April 2024.

Other measures that directly affect tax payments and operational costs, include:

The national minimum wage will increase by 9.7% for employees aged 23 or older. As many smaller businesses with employees paid at this level may struggle to increase their revenues by 10% this coming year, and hampered by a raft of other costs spiralling upwards, this will further pressure small business’s finances.

Class 2 National Insurance for self-employed to increase to £3.45 per week from April 2023.

Income and National Insurance thresholds for both employers and employees will be frozen until 2028. In a similar way to personal allowances, if these don’t rise in-line with inflation and other costs, they have a negative impact in real terms.

The VAT registration threshold has been frozen at £85,000 until 2026. This means that many more small businesses may have to register for VAT in the next few years if their profits increase.

Businesses are major energy users too. So while the Chancellor announced that the Energy Price Guarantee will stay in place for households until April 2024 at a higher rate, he didn’t mention support with energy bills for businesses after April 2023.

Since October this year, non-domestic energy users can get a discount to bring the price of gas and electricity in line with the government supported price. So if a business had to pay more than this, they could claim a discount for the difference from the energy provider. No information has been given to say what happens after April 2023, leaving small businesses concerned about this.

Was there any good news for smaller businesses?

In short, not much. The Chancellor did announce the following measures:

The Employment Allowance, which reduces the amount of National Insurance Contributions an employer has to pay, will remain at £5,000.

The smallest businesses impacted by measures that change their eligibility for small business rate relief or rural rate relief, will see their increase in bills capped at £600 per year from April 2023.

A plan to increase business rates by 10.1% will not go ahead in 2023, instead this has been frozen. If it had gone ahead, it would have represented the biggest hike in business rates in 32 years.

The hospitality, retail and leisure sectors will see their business rates discount go up to 75%, which will also be extended for another year.

Final thoughts

Many small businesses who successfully weathered the Covid storm, were looking forward to calmer seas ahead during 2022 and beyond. However a catalogue on global issues have resulted in increased pressures at home. For the next few years, as Brexit continues to play out, combined with the ongoing energy crisis, high inflation and interest rates, businesses need to run a tight ship.

Maintaining a healthy cash flow and building a small reserve to help weather the uncertainty ahead is going to be very important. A firm grip on costs through a plan that makes allowances for much wider variability in base assumptions, such as the cost of borrowing, fluctuations in the costs of raw materials and pressures on employee’s own financial circumstances is a key part of this.

Let’s not forget the struggling company owner who, years ago, decided that it would be a great idea to take the risk and run their own business, given what at the time were some reasonable incentives to do so. TaxAgility can help them through this tough time, navigating a path through the tax changes and streamlining the financial aspects of their business efficiently and hopefully, surviving the worst that is thrown at them over the next couple of years.

Call us today on 020 8108 0090 and find out how.


How digital enablement can help reduce cyber crime and fraud

While most business owners understand the risks they face from fraud, whether that be threats from cyber attacks or as we will consider here, internally from white collar crime, a surprising number lack the systems and controls to mitigate these threats. TaxAgility Accountants can help you fight these threats through digital enablement.

digital enablement in accounting helps to reduce fraudFor instance, a report by Symantec, the antivirus software firm, highlights that 43% of cyber attacks target small businesses. Why? Because the fraudsters know that these firms haven’t invested in the security, control systems and processes that they ought to have.

In this article, we’ll look at how the process of digitally enabling your firm can help mitigate a lot of the threats facing your business today.

Fraud isn’t just a problem faced by larger firms

When hearing about the problems faced by large firms caused by fraud, often internal fraud, smaller business owners may not relate to them. Often, owners feel that their firms are unlikely to suffer the same issues, the - “we’re a small fish, why would fraudsters bother with us?” syndrome. What these owners fail to realise is that often, external attacks are not perpetrated by people, but by bots. Only when a bot breaks through, do the real fraudsters get involved. Then they’ll take what they can get.

While the technology challenges of doing business in a digital world expose businesses to online attacks, another threat vector that smaller business owners overlook is the people they employ. Owners may feel that their staff are entirely trustworthy. Many may have been with the firm for years. However, when someone’s circumstances change, whether because they run into personal issues or whether they are being coerced by external forces, a trusted person can often cause more long term damage than a direct external threat, especially if such an event leaks out to customers and suppliers. This is one of the main reasons a large number of such fraud incidents go unreported.

Many factors may drive employees to commit fraud within their employment, also known as white collar crime. The most common scenario is when an employee gets into dire personal financial stress. If the employee is able to manipulate or embezzle small amounts of cash unnoticed, and that eases their pain, they may well be tempted into stealing larger sums. When somebody is under significant financial stress, it becomes easier for them to self justify, even telling themselves that what they are doing is justified and that they will pay it back before anyone notices. Unfortunately, that seldom happens, and the employer eventually finds out. Trust is then eroded, not just with the individual concerned, but suspicion may fall on others which will likely upset harmony in the company.

With threat vectors originating both internal and externally, what can a small to medium sized business do, and what do potential solutions have to do with digital enablement.

The role of digital enablement in reducing fraud

Cynics may suggest that it’s because we are communicating more and our company’s operations have become more complex digitally, that being digital is the problem. There is of course an element of truth to this, as new technologies and automated processes can lead to data exposure, as indeed we’ve seen in the news.

Digital transformation though, is unavoidable, largely because it is mainstream and those your firm does business with are in the same boat. Financial systems are almost entirely digital now, your customers and suppliers are transforming. Failure to transform and enable digital service connections will mean that your business will not be able to compete and will suffer severe performance issues.

So, the question therefore centres on how digital enablement technologies not only increase your business’s efficiency, through process automation and service connectivity, but also increase your firm’s resilience to the threats we have seen?

Common types of fraud in the workplace

To see how digitisation of a company’s systems and processes may help with fraud, it is useful to summarise some of the most common types of workplace fraud, these include:

  • Holiday and sick leave manipulation.
  • Theft of cash or equivalent - such as, inventory/equipment/office and raw materials.
  • Falsified overtime, fictitious employees.
  • Unauthorised corporate credit card purchases.
  • Fabricated receipts.
  • Fictitious travel vouchers or purchase orders - i.e. non-existent vendors.
  • Forgery of official document approval .
  • Falsification of transaction details such as false mileage expense claims.
  • Entertainment without a legitimate business purpose.

Most often these examples of fraud can only happen because of lack of management oversight, poor controls, poor ledger and reconciliation reviews and, in busy companies with tight resources, poor separation of duties that allow the same individual to raise and approve purchases, work orders and payments to suppliers - typical in smaller businesses.

How can digital technologies assist in reducing and even preventing fraud?

Most fraud in businesses originates from the lack of oversight and process integration. Fragmented and dissimilar accounting and reporting systems, such as those used to track sales, expenses, payroll, purchases, accounts receivables and accounts payables, provide a wealth of opportunities for an internal fraudster to hide their tracks.

We are continually surprised to find smaller businesses that still track many of these processes using Excel spreadsheets. They’ve used them for years, many are customised using complicated macros developed by external consultants, and so they have been reluctant to drop them. Such systems hide multiple opportunities for manipulation.

The key aspect to reducing fraud in such systems is by reducing manual entry complexities and through automation and oversight. Digital systems and applications target key functional aspects of a business, such as payroll, accounts receivables, sales and purchasing. Such systems provide enhanced visibility, tracking, reporting and authorisation through the creation of process rules, making it very difficult for an employee or external threat to commit fraud without an alarm being generated.

Historically, it’s not been that easy for a manager to gain a detailed look at cash flows without having to deep dive into the back end accounting systems. The reports generated are simple summaries and hide the real issues that may be lurking behind the scenes. Today’s digital applications, though, allow the full detail and authorisation change of transactions to be revealed with a click of a button. Xero, is a great example of this, providing easy to understand management information, but an equally easy audit trail to pursue if things don’t look quite right. There’s no need these days to wade through reams of paper statements looking for problems, cloud based systems can be accessed from your mobile devices wherever you are.

Improving and integrating your business processes through the use of advanced digital applications and services increases transaction transparency and accountability, and improves the overall efficiency of your business. Here are some examples as to how this may work in your business.

1. Decoupling the old and the new

It helps to maintain a dose of realism when tackling process improvement. Smaller businesses are limited by resource and budget. There may be legacy systems, perhaps an inventory system, that can’t be replaced immediately. Identifying the slower systems from those that need to be faster paced, helps a business focus on what can be achieved shorter term. Often the greatest improvements to a business can be realised by improving the customer facing systems and processes. Decoupling these systems from the legacy systems helps, as it compartmentalises potential fraud opportunities and increases the number of your business’s processes that have greater transparency.

2. Automating basic accounting functions.

This is where the latest generation of cloud based services excel. If processes such as accounts payable, accounts receivable, payroll, etc. are automated to a high degree, it’s very difficult for them to be tampered with without triggering some form of alert.

3. Streamlining and automating aspects of customer facing systems.

Companies that use e-commerce extensively in their business, perhaps because they operate an online store, understand this very well. Such systems are highly automated and provide a high degree of customer satisfaction. They minimise the need for staff to be involved in the processes of sales, order fulfilment and inventory control. By thoroughly examining your business processes, especially those that are customer facing and choosing to digitise them through the use of sales or customer service portals, again reduces the opportunity for fraud.

4. Use the cloud

Long gone are the days where there’s a need to update critical software on a PC. Of course, such software still exists, but for the most part applications focused on the basic operations of a company, particularly the financial operations, are available in the cloud. This means they are accessed through a secure web browser connection. Using cloud based ERP & CPM systems (for larger businesses) and cloud based accounting software suites, can drastically cut costs and increase the time people have to focus on the core of their business. Not only that, but many cloud based accounting services have a multitude of plugin additions that can be used to customise your operations through functional additions (e.g. payroll, financial controls, enhanced AR, online payment tools), further increasing efficiency. Many are available on an industry related basis too.

Integrated cloud based systems decrease the number of exposed end points often used by fraudsters to gain access to sensitive financial operations, such as through hacking office based systems, exploiting employee based phishing schemes, accounts payable fraud, etc.

5. Analytics and reporting

It’s critical that as a business owner and manager you have fingertip access to data, whether that be raw data or interpreted. There are artificial intelligence applications and advanced analysis tools available that help make sense of your day-to-day operations and in developing forecasts. The enhanced reporting they provide makes it much easier to spot nefarious activities or to trigger internal alarms and restrictions when rules are broken - whether intentional or not.

TaxAgility can assist with your digital transformation process

As an accountancy firm and tax advisers, we’ve had the privilege of working with a huge variety of small and mid-sized businesses. We are familiar with typical systems and processes they employ within the finance and operations departments. We're also very aware of the digital applications and tools available to these companies that are essential to achieving the goals of process improvement, enhanced business efficiency and fraud reduction.

As our client, we can take a look at your operations and make recommendations as to the ways you can achieve these goals. We may have seen or have been involved in similar improvement examples to your business.

Call us today and talk through your needs and we’ll explain how our digital enablement experience can help your business.


selling your business in 2022

Thinking about selling your business? Here’s how we can help

There comes a time with any business, large or small, when the owners decide they want to move on and sell their business. There can be many reasons for this, often it’s because they want to retire or maybe because they have just had enough and want to reap the benefits by selling on the business. There’s a well worn path to follow when selling a business, a process Tax Agility has been part of with businesses in the Richmond, Putney and surrounding London areas. However, as the saying goes “the devil is in the detail”. Key aspects of any business sale need to be carefully prepared so as to provide a fair representation of the business’s health and outlook that can be presented to prospective buyers.

This article takes a look at some of the specific areas that Tax Agility pays close attention to when supporting the sale and how we can help businesses create a package of information ready for presentation to a prospective buyer. We can even assist with the presentation of the material in a professional manner too.

What’s my business actually worth?

selling your business in 2022Quite understandably, a business owner’s first thought and maybe that which prompted thoughts of selling in the first place, comes down to their perceived value of the business. Emotions can run a little high and lead to over optimistic expectations, especially with smaller businesses. This is why it is important to have professionals on hand who can review your business’s operating position and provide a fair view on market value.

The process of valuing a business is multifaceted. There are simple ‘rule-of-thumb’ guides that can help you. Often though, these are only suited to companies that have an established track record. One in particular is P/E (price/earnings ratio), or multiples of profit or EBITDA to arrive at an enterprise value. The multiple used depends on the market conditions and desirability of the sector the business is in. The other simple way to value a business is simply to assess its ‘assets minus liabilities’.

However, these are just snapshots of the business and don’t take into consideration a host of other factors, such as the business’s prospects going forward, or what the current owners plan to leave in the business, such as cash and other assets. Plus, of course, sellers have a number of ways in which they can make a business look more attractive than it actually is. An example here would be the timing of the sale where seasonal cash flow variations in working capital can influence the value of the business on first glance.

Areas where Tax Agility can assist

To present as fair a view as possible of the business’s financial operating position, it’s important to establish some baselines - or ‘normalisations’. These are essentially financial views that try and iron out variations that could cause significant shifts in aspects such as working capital.

In assisting the business sale process, we focus on:

  • Acting for vendors and purchasers of businesses.
  • Reviewing your business records to ensure they are in the best possible shape for due diligence by the buyer.
  • Assistance with the drafting of normalised earnings schedules to determine your true underlying earnings on which to base the valuation.
  • Assistance with the drafting of net debt schedules, which are required in cash free, debt free valuations of businesses.
  • Assistance with the drafting of normalised working capital. This is necessary to ensure the valuation is accurate and that there is sufficient cash headroom in the business.
  • Management accounts while the business is being sold. Monthly management accounts may be required to give potential suitors crystal clear visibility, affording them the confidence in presenting their bids.
  • Although we are not solicitors we will review the legal mechanisms in sale and purchase agreements and the accounting representations and warranties, which should be reviewed by a suitably skilled accountant.
  • We explain to vendors the different ways a company can be sold and the underlying tax implications of each. This includes a sale of the shares of the company the vendor owns, or as a sale of the assets and liabilities of the company, leaving the cash shell of the company in the vendor possession.

Will your business records stand up to due diligence?

Any potential buyer is going to want a full view of your company and as such, if they are really serious about buying (or investing) in your firm, they will want to conduct a due diligence audit as part of the sale closure process. This can be an extensive process, depending on the size and scale of your business. Nevertheless, undertaking one should be seen as a positive sign, but you must have prepared for this.

What will the due diligence process involve?

The simple answer is, everything, literally - from the business itself, its commercial and legal contracts, its assets and its people.

The type of company involved will of course dictate where the process may spend more time. For example, if you are a technology development company, focus may lie with ongoing development contracts, overseas facilities or contracts, ownership rights to key technology IP, technical competence in the company in the form of key personnel, etc. Generally though, the typical areas that detailed information will be requested on are:

  • Operations - typically everything from your products and services, manufacturing processes, product warranties, ongoing contracts with suppliers and other third parties, pricing, client contracts, profit margins and the company’s infrastructure, such as IT, software, etc.
  • Financials - cash flow statements, P&L, balance sheet, shareholdings, share valuations, expenses, debt, equity, depreciation and financial projections.
  • Asset base - from property, fixed and variable, equipment and Intellectual Property.
  • Compliance - financial returns, e.g. tax and VAT, insurances, any licences, any environmental issues.
  • Human Resources - company structure, external consultants / employees, executive and board bios, employee salaries, employee handbook, benefits, pension plans / policies, disputes, etc.
  • Sales and marketing - current programs and performance, budgets, etc.

This list is only meant to provide a perspective on what types of information will likely be requested. Based on your business type, Tax Agility will take a thorough look at the information that will likely be requested. We will work with you to ensure information pertaining to all the areas of interest are available and presentable.

Drafting of normalised earnings schedules

During a financial year there can be many financial events that impact a company’s apparent earnings. While there may be regular income from client contracts and investments, there can also be non-recurring exceptional income events, such as an asset disposal. On the flip side, there can be one-off non-recurring expenses such as a directors bonus payment, or the settlement of a legal claim. Furthermore, the nature of the business may be seasonal, meaning at any given time, the earnings position of the company may appear artificially high or low because most orders come through during a particular time of year or that suppliers may not have been paid. This variability makes it hard for potential purchasers to get a real feel for the business’s earnings over a year.

Normalisation, therefore, seeks to remove income or expenses that are exceptional or unusual, in other words, events that the new owners may not reasonably expect to pay. The process of doing this helps smooth out the effects of those events, presenting a normalised trend to purchases giving greater accuracy towards projecting future earnings and therefore the potential enterprise value of the company

TaxAgility will work through your operations and accounts to identify such events and produce a normalised earnings schedule (adjusted)  showing earnings over the current year and usually two preceding years.

Drafting of net debt schedules

The amount of debt a company carries affects cash flow, as interest expense flows into a company’s income statement. The debt balance appears on the balance sheet and the repayments the business makes on the principal sums owed flows through the cash flow statement. It’s therefore essential to make sure the debt a company carries and its impact on the company’s operations is clear to any prospective purchaser. This is where a debt schedule is key.

Many businesses are sold on a cash free, debt free basis, meaning the enterprise value of the business is calculated by computing enterprise value and deducted net debt.

Enterprise value is computed by multiplying sales or earnings or EBITDA by a suitable multiple (sales multiple, earrings multiple or an EBITDA multiple).

Adding the net cash in the business or deducting the net debt, from the enterprise value, to reach a net consideration for the share capital of the company.

Types of debt that is shown in the debt schedule include:

  • Loans
  • Leases
  • Bonds
  • Debentures

Tax Agility will assist in creating a Debt Schedule. This seeks to provide a realistic view of a company’s debt position, It shows debt based on its maturity and helps a prospective purchaser construct their own cash flow forecast and to structure the sale in the most sensible way.

Drafting of normalised working capital

Working capital, or rather ‘net working capital’, is the money relating to stock, accounts receivable and accounts payable left in your business, excluding Net Debt items.

Cash flow shows the ‘ebbs and tides’ of money coming in and going out relating to earnings, working capital movements, investments and disposals, shareholders withdrawals and injections and movements in net debt, over a specific period.

If your business income suffers a setback, such as losing a major client or through a wider economic downturn, it’s the cash or cash-like assets that you’ll need to turn to in order to ride out the problems. This is your working capital.

Normalising your net working capital takes into account the typical day-to-day fluctuations in levels of working capital the business experiences so as to provide a fair view. A business may experience seasonal swings in working capital too, this is also factored in. A normalised view can then be used when valuing the business. If this isn’t done, then irregularities can occur, such as the temptation by a seller to over value working capital by delaying certain payments. This would artificially increase cash equity value.

Tax Agility will walk through your working capital requirements and trends to produce a fair view taking into consideration all of the factors (and more) discussed above.

Management accounts while the business is being sold

The sale of a business can take some time depending on the size and scale of the business concerned. Meanwhile, normal business activities continue. It’s essential during this period to maintain a tight management view on the business’s operations, so as not to impact the due diligence audit taking place unduly, or as a tools to inform them of any important changes taking place, such as supplier or client changes, unforeseen cash or capital expenditure, perhaps due to unscheduled maintenance needs.

Management reports are a key part of any business’s reporting mechanism. They show a period by period (weekly, monthly, etc) snap-shot of changes in the business financial status. A typical management report can include:

  • Executive summary
  • Profit & Loss
  • Budget variance
  • Balance sheet
  • Aged receivables
  • Aged payables
  • Cash summary

You can read more about the importance of management accounts and reporting in our article here:
How can management accounts be used effectively?

Check out our other article on exiting a business here.

Conclusion

The process of selling a business is a multifaceted operation, one that can distract a business from its normal day to day activities. It’s essential to be prepared well before any potential suitors begin their due diligence process. In this way, you will minimise the impact on the business and make the due diligence process proceed faster and more efficiently. Resolving any deficiencies can increase the value you realise for your business by unlocking its true underlying value.

At Tax Agility our goal is exactly this - to prepare your business for sale and assist in making the due diligence process as painless as possible. Ultimately, we want to help you extract the maximum possible value out of the sale of your business as effortlessly as is realistically achievable.

Call Tax Agility’s business sale specialists today on 020 8108 0090 and discuss how we can help in the sale of your business.


capital expenditure super deductions 2022

Super deductions - how to maximise your business’s tax efficiency

Most business owners understand that it is important to ‘capitalise’ certain company assets. These ‘fixed assets’ can be used to reduce your corporation tax bill. However in April 2021, the Government increased the usual 100% deduction to 130% until April 2023. Read on to find out how you could benefit from this increase.

What is a super deduction?

capital expenditure super deductions 2022Over the years, successive governments try to find ways to incentivise industry or stimulate areas of business. This is especially true during troubled times, such as the financial crisis of 2008 and more recently the problems brought on by the Covid pandemic.

Reducing broad ranging tax rates, such as reducing corporation tax, VAT, capital gains, etc, introduce problems of their own, most often political, as they can appear to favour selective groups in society, so governments look for more niche methods to achieve their aims. The ‘super deduction’ is one of them, as this applies purely to businesses that qualify for corporation tax. It’s also limited in its range, as it can only be applied to new plant and machinery that ordinarily qualify for the 18% main pool rate of writing down allowances.

How does this affect the Annual Investment Allowance?

Essentially, it compliments it. Since January 1 2019, companies have been able to annually invest up £1 million in qualifying assets, these already benefit from 100% relief. This is known as the ‘Annual Investment Allowance’. Prior to 2019, the AIA was set at £200,000.

The £1 million limit has been extended to March 31 2023.  The Introduction of an extra 30% deduction is, therefore,  a most attractive additional incentive for owners to invest in their businesses - or even start new ones.

What is the SR Allowance that was also announced?

Along with the Super Deduction, the Government also introduced the SR Allowance.

Not all purchases can qualify for the super deduction, such as those that qualify for the 6% write down allowance rate - typically long life assets such as those associated with buildings and property. To incentivise this industry, the Government has introduced a ‘special rate for first year allowance’ - the SR allowance. This affords new plant or machinery in this bracket with a 50% first year allowance.

What businesses qualify for Super Deduction?

This benefit is only available to those entities who qualify for corporation tax. In other words, it is not applicable to those in business as individuals, sole traders, or partnerships.

What purchases qualify for the Super Deduction?

There are a wide range of asset types that can take advantage of the SD beyond the most obvious forms of fixed assets, such as computers, IT systems, manufacturing equipment and the like. In short, most purchases that contribute to the operation and functioning of your business should be treated as an asset, rather than an expense, and capitalised accordingly.

However, there are other less obvious expenditures that can close be capitalised and gain SD relief. The most common of these include:

Development costs: Under FRS 102 costs associated with bringing a system into working condition, such as those attributed to the development, can be classified as tangible fixed assets. For example, developing a new website or piece of software, could be treated as such and gain the SD allowance benefit.

Borrowing costs: When developing a new product or building a new manufacturing plant or product line, a business may be required to finance the operation. The costs of borrowing may be capitalised.

Hire purchase: Assets on hire purchase or similar purchase contracts where possession rather than ownership passes to the business can also benefit from super deduction, but only at the point where the asset began use.

The most obvious test of applying the SD benefit is that the purchased plant or machinery needs to be new and not second hand. Also, you cannot decide to capitalise something bough in prior accounting periods just to take advantage of the SD.

What happens if I don’t make a profit, can I still apply the Super Deduction?

carry over super deduction allowanceYes. Not all businesses make a profit each year. Indeed, some businesses may choose to capitalise equipment porches in a  financial year specifically to reduce their tax bill to zero - typically smaller businesses. If you make a loss in a year where capital purchases were made, you may carry any unused deductions forward to use as losses.

Selling an asset that qualified for Super Deduction

It may enter the minds of some that as the government is giving away an extra 30% in the form of a tax deduction, which is true, if they quickly sold the purchase, they may benefit further. Also, there are legitimate reasons why a firm may have to sell assets that benefited from the SD. So what happens and how is this accounted for?

Naturally, the Government is going to want their ‘pound of flesh’ in this instance. You will need to carefully track any asset that benefited from the SD, so when it comes to selling the correct treatment can be applied.

The first thing to note is that if the disposal of an SD qualifying asset is before April 1 2023, its disposal value is 1.3 times the actual disposal value. This income should then be treated as taxable profits and not allocated to ‘pools’.

Read more about the government's super deduction scheme here.

Is this a good time to start a business?

This may indeed be a good time to start a new business if that business is going to need significant investment in new capital equipment. Furthermore, if your established business is an entity in the form of a sole-proprietorship or partnership and you are looking to grow, this may be a good time to incorporate.

Talk to Tax Agility about how your business can take advantage of the super deduction scheme.

Tax Agility are chartered tax accountants operating in the Richmond, Putney and Wimbledon area. We specialise in assisting small and medium sized businesses navigate the complexities of company taxation. Our goal is to ensure your business is as tax efficient as possible and to effectively exploit incentives such as the super deduction scheme.

Why not call us today on 020 8108 0090and discuss how we can help take your business to the next level of tax efficiency.


Business growth concept

Managing your business finance for success

Every business exists to make money and grow, and one of the essential ways is through good financial management.

Getting your business finance in order through good budgeting, accurate cash flow analysis and effective use of management accounting all share a single objective, which is to improve your business efficiency.

When your business is efficient, it can convert all the available resources to maximise output with ease, thereby delivering better products and/or quality services, increasing sales, improving staff morale, enhancing customer experience, to name but a few. As a result, your business will be in a good financial position to meet its financial obligations and have strong cash surplus to put back into your business for growth.

In this article, our small business management consultants at Tax Agility discuss how we can assist small business owners in London, Richmond and Putney to better manage their business finances for success.

Understanding your business and objectives

A client once commented that he quit his 40-hour a week job to launch a business that required him to work 80-hour a week. Highly driven, he was managing most tasks by himself apart from business finances which he turned to our small business consultants. His reason was simple – the best way to unlock any business potential is to get assistance from experts who can provide honest advice based on financial statements.

Essentially, he was looking for a management consultant who can help him to create accurate budgets and forecasts, giving him data that he needed to make informed decisions. Today, his financial performance is strong, allowing him to have an office with a team of staff. Growth is stable and consistent, adding value to his company and achieving success.

The path to success often starts with a realisation that you may be too overwhelmed with day-to-day tasks and diversions to look at your business objectively. This is why engaging a small business consultant makes sense, though the key is to find one who can take time to understand your business and aspirations.

At Tax Agility, we often kick-start a no-obligation meeting by listening to you first. It is only through listening, understanding, and looking at your business through a clear lens that will allow us to create strategic plans that can meet your financial goals accordingly.

Improving business finance

Every business is unique and consequently, there isn’t a standard recipe which every small business owner should apply when it comes to improving one’s business finance. Areas that we may discuss with you include:

  • Ways to eliminate redundancies
  • Ways to reach your cost and revenue targets
  • Improving return on investment
  • Using historical financial data to do forecasts and budgets
  • How to analyse budgeted versus actual results
  • Reviewing of management accounting
  • Reviewing of credit control and cash flow
  • Analysis of key trends in your business
  • Analysis of risk management

Key benefits of improved business finance

Regardless your areas of focus, our small business consultants always strive to deliver three key benefits to your business and they are:

1. Financial control

Knowing how to make money doesn’t necessarily mean knowing how to best manage the money you earn. Managing money requires disciplines and conscious choices. Take cash flow for example, not many small business owners have time to monitor the amount of cash the business has in the bank or check which customers have paid you on time. Yet when you need to make a purchase, you may not think twice. In this instance, our small business consultants help to reign in control by providing cash flow forecasts that can guide your decisions.

2. Informed decisions will spur growth

A series of good decisions equate to success. If your decisions are data-centric, they will create a positive impact on your business finances quickly, which will further strengthen your financial position. Here is an example – many entrepreneurs believe that borrowing is good, but borrowing without knowing your ability to pay it back is far from good and will quickly ruin your business reputation. Borrowing to spur growth, for example, is only good if you have a repairmen plan in advance, as well as knowing where else you can cut expenses and save.

3. Set, measure, optimise

At Tax Agility, we believe in setting KPIs and measuring performances that help your business to achieve its goals. Financial numbers from every week, every month, every quarter, every year should be tracked and measured. It is worth bearing in mind that even the best plan may lead to occasional bumps along the way, which is why optimisation is essential. Having our small business management consultants on hand to guide you can make all the difference.

Optimising business processes

While not the specific domain of Tax Agility, it is an essential part of improving your business's financial standing and something we strive to help our clients understand. Business owners and operators should routinely review their operations to ensure they are working at peak efficiency. A key consideration is whether some processes may be better served if they were outsourced or handled in a different manner. Consider the following scenarios:

1. Company bookkeeping and accounts.

Many small firms start out doing their own bookkeeping and accounts as a way to save money, not surprisingly. However, many continue to do so even after they have grown substantially, employing several staff to handle the multiple aspects of a company's financial operations. While this may make sense to a large firm, it can be come an expensive proposition for an SME. With the advent of cloud based accounting and outsourced accounting, it can make more sense to off load these functions to an external accounting firm. These firms have optimised around offering dedicated accounting support to small businesses. Cloud accounting tools such as Xero, enable company management to keep a firm grasp on financial matters, as the tools give immediate access to the companies financial data 24 x 7.

2. Financial management

There's been a trend in recent times to not only outsource the accounting function, but also, to outsource the financial management and oversight of a company too. There comes a point in a company's growth when the firm should really consider the appointment of a financial director or a CFO. This can be a big step to take and, of course, such positions are not cheap to fill. This is a function that can make sense to outsource for some companies. Alternatively, they can appoint an interim CFO, one that doesn't work full-time and is not an actual employee. There are obvious cost efficiencies to doing this, also some risks to consider too.

3. Specialist staff.

It can obviously make sense to keep certain specialists you depend upon on your payroll full-time. After all, they may hold the keys to your success within the skills they bring and you'll ant to protect that. However, businesses in search of efficiency, will want to look closely at this. Many of the more advanced skills, particularly in the creative and manufacturing sectors could effectively be outsourced, so long as the right levels of security and IP protection are put in place. Also, diversification of your base source of the key skills you need will allow you to develop resilience to change, both in skills required and protecting the business against the whims of specific individuals. Being able to draw upon a greater source of skills could also increase your competitiveness.

4.Employee base.

Recent global turmoil has been forced businesses to reconsider the basis upon which the employ staff. In times before the pandemic of 2020, employers kept pretty much to a straight forward 37 hour 9 to 5 type of working arrangement, particularly where more office based staff are concerned. Post pandemic though, things are markedly different. Power has shifted and employees now demand greater freedom to work from home (or wherever they consider home to be). Such demands prior to the pandemic were often inconceivable to some employers. However, thought through wisely and putting long standing work practice prejudices aside, such flexibility could also work in favour of the employer. In a lot of instances, employers could see this as an opportunity to restructure how they employ people and they type of employment they need. for instance, not having people in the office regularly not only saves costs but also allows the potential to employe people on a freelance basis, offering greater cost saving opportunities through more optimised processes - i.e. only employing somebody when they are actually needed.

Tax Agility can help to improve your business finance

At Tax Agility, we understand that small business owners have limited resources. Our aim is to help you transform the limited resources available to you into success by focusing on your business finances.

We believe in growing together with our clients – when you grow, we grow too. This is why our dedicated small business management consultants work cohesively with you to help build your business and take it to the next level. We use financial numbers and data to recommend changes, mitigate risk and improve profitability.

Most important, we provide fast, quality management support to small business owners without any hidden charges. Give us a call on 020 8108 0090 today because your business deserves the best opportunity to succeed.

Payroll consideration

A growing business requires staff with skills that can help your business expand further and faster. Your staff can consist of short-term contractors or permanent employees. Contractors are often cheaper, more flexible, and they tend to be specialists in niche areas like database development and network security which you only require from time to time. On the other hand, permanent employees are focused and loyal to your business; they are the people you can rely on to grow your business.

Employing permanent staff requires PAYE, National Insurance, a pension scheme, as well as other benefits your company provides. These are time-consuming administrative work. Instead of hiring a full-time payroll employee, a cost-effective option for many small business owners is to outsource the payroll function. At Tax Agility, our payroll services for small business are here to assist payroll preparation and compliance for you.

VAT

VAT is a complex subject and when a business experiences strong growth, it tends to involve international suppliers and customers. Trading internationally, meaning importing goods from and exporting goods to other countries, often leads to more questions about VAT.

If expanding internationally is on the card, the general guidelines for VAT are:

  • If you are VAT-registered, the suppliers from an EU country do not charge you VAT for goods that they sell to you. However, you must account for the VAT yourself.
  • Suppliers from a non-EU country do not charge you VAT for goods that they sell to you, but you will pay import VAT before customs release the goods to you.
  • If you are selling goods to customers in EU countries and they are not VAT-registered, you will be charging them the UK VAT. But if your customers are VAT-registered, you can then zero-rate (ie not charging VAT) on the goods you sell to them.
  • If you are selling goods to customers outside of the EU, you do not normally charge VAT.

For solid VAT advice, sector-specific VAT issues, completion of VAT returns, and other VAT concerns, talk to one of our VAT service team for small business today by calling 020 8108 0090.

 

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


Thinking about exiting your business? Here’s what you need to know?

There comes a time with many businesses, especially those that are owner / managed, where the owner thinks about exiting. In this article we will explore some of the ways this can be achieved.

Some family businesses may be in the fortunate position to be able to pass down the business ownership / management to a younger family member. This way the business continues and there’s a chance that other family members can benefit, while still offering the possibility of providing a lucrative income for the current family member owner - likely a parent, for their retirement. For others though, that luxury may not exist and the business owner, deciding that the time is right to step back, is forced to look at the options they have to exit the business.

planning to sell your businessYou’ll note that we didn’t say close the business down. While that is a last resort many may follow, other options exist, and these may be more beneficial if they are possible to achieve. The key issue here is to be planning early enough and not deciding one day to get out and then seek quick alternatives to closing the business.

When planning a business exit, what do you want to achieve?

While this may sound like a silly question, it’s important to get your expectations right. Ultimately, what do you want from this business exit? The four most common reasons are to:

  • Pass on the business to somebody you trust, like a family member.
  • Sell the business for a decent return.
  • Merge the business with another firm and eventually walk away.
  • Shut the business down and bank any profits that may still exist in the business.

Let’s look at the practical aspects of each of these in turn.

Passing on your business to a family member.

This may appear the most sensible option for many family run businesses, and indeed for many it is. However, this isn’t a step that happens over night. It needs to be planned thoroughly. For one thing, the family member you’re considering for the succession naturally needs to be fully bought in to this plan, else it will come to nothing quickly. It’s normal for company succession to be planed and prepared for some years before the event. This way, the person in question can be fully up to speed in the role, but perhaps more importantly, will have had time to develop the required relationships within the firm, its clients and any supply chain.

If there are multiple ‘suitors’ involved, things can get quite tricky, as each person and their role needs to be defined precisely. If they are not to be involved in the day-to-day operations of the business, but you still want them to benefit from the business, then the type of shares they have will likely differ from those involved in actually day-to-day operations. For instance: shares may be voting or non-voting shares, but the non-voting shares may still have preferential rights to dividends. You will also likely decide on share ownership percentages based on how much a child contributes to the operations of the company (or has done to date) and the seniority of their role. Be prepared though, as these discussions can get quite tricky as emotions and egos get involved, depending on how ‘functional’ your family is. In the short term, if you are concerned, you could always opt to retain a majority of the voting rights. Additionally, you could arrange to be retained as a ‘consultant’ to the business, as this would also enable you to continue to benefit directly through income and boost any earning you may receive through dividends as a smaller shareholder.

Whatever you decide to do though, needs to be recorded and set out either in a shareholders agreement or in revised articles of association.

Selling your business for a profit

If you are the sole owner of a business and don’t have family members to pass the business on to, or simply don’t want to continue the business, selling it maybe the best option for you.

If you have partners in the business, then naturally, this offers a similar opportunity to passing it on to a family member, only here, they would be presented with an opportunity to buy you out or find somebody else to buy you out and take over your role.

Selling your business requires significant preparation, often a year or two in advance. This allows sufficient time to gather the information needed, ensure you have a good set of metrics upon which to base a valuation and also to improve the business’s performance in its last years of ownership by yourself.

So what are the steps you need to take to sell your business?

  1. Start by getting a professional valuation.
    This isn’t something you can really do yourself as personal attachment tends to lead to unrealistic valuations, especially where market dynamics and current business realities are concerned. There are ‘rules-of-thumb’ to help you obtain a view to help set your expectations. For instance, small businesses are often worth between two and five times their annual cashflow, although there are many caveats to this, including its ‘actual’ financial health. However, it’s not just cashflow that will decide whether a business is worth it’s valuation or not. For one thing, new investors / owners, will want to consider how the business will survive if you are no longer driving it, especially if the business is ‘account’ based and those relationships relied upon your presence.
  2. Improve your bottom line.
    A business that makes a lot of sales but yields little return is unlikely to be of interest to prospective purchasers. If you are planning an exit by selling your business, you would be best served by focusing the year or two prior to sale on cleaning up your business, reducing unnecessary costs, streamlining processes and systems, and increasing your sales. Essentially, spend what time you have by working to increase your net profit margin.
  3. Provide a solid business view.
    As an owner, you’ll no doubt be looking at the business’s past performance. Having a well documented set of accounts dating back 3 to 5 years is essential to providing provenance for the business. However, new owners will be looking at future potential, so one also needs to present a balanced view of how the business could perform, the market forces in play and the expectations you may have. Also, providing information on your clients, within the bounds of confidentiality, will help the prospective purchasers assess value and risk. The interested parties will of course conduct their own due diligence, but it helps to present your own as confidence will receive a considerable boost if both party’s views essentially come to the same conclusions after the due diligence is done. This will significantly help your negotiating position too.
  4. Due diligence on your part.
    Many business sales fall through, as many as half of these because of complication that arise through due diligence. It’s therefore to be realistic and it’s important that when you prepare for exit that you spend some time putting yourself in the shoes of a prospective buyer, not just you as the seller. A little on-line research will give you a very good idea as to the process a potential buyer will go through and the questions they will want answering along with the supporting data they will need.
  5. Buyer qualification.
    It’s very easy to get excited when somebody becomes interested in buying your company and starts asking questions. However, the phrase ‘seller beware’ is important to consider. Selling a company is a detailed and often frustrating process given the number of ‘hoops’ you will likely be asked to jump through to prove the value and overall potential of the company. It’s important then, to ensure the people asking the questions are:

    • Genuine and realistically placed to buy and are not simply on an information gathering exercise.
    • A good match for your business and have the experience necessary.
    • Have the funds available to close the sale and not have to go and seek funding that could ultimately fall through and waste everyone’s time.
    • Not fraudsters or con-artists, either trying to trick you out of fees, deposits or vital information.
    • Working within a reasonable timeframe, one you can work to without compromising your own due diligence and exit planning. If you are being hurried in to decisions, consider the previous point about fraudsters or time wasters.
  6. Tax planning.
    Without proper guidance and advice, you could wind up loosing a significant portion of the proceeds of a business sale, as it is considered as a capital gain. How much you pay depends on your particular circumstances and inheritance planning. Other considerations an accounting firm like Tax Agility can assist with include whether you qualify for schemes like ‘entrepreneur’s relief’ - now called ‘business assets disposal relief’.
  7. Use a third party business broker.
    Unless you have already got potential suitors lined up, this is probably the best way forward. For one thing, you’re likely to get a much more balanced view of the sale potential. A broker can assist with many aspects of the sale, some will handle all of it for you. Of particular importance are aspects such as:

    • Valuation.
    • Due diligence on your part and due diligence throughout the sale process.
    • Identifying potential buyers.
    • Buyer qualification.
    • Negotiation assistance.

Spending the time to prepare your business for sale, is a very sensible step to take. You want your business records, P&L, cashflow and debt position to be as up to date and as clear as possible. Checkout our latest article on how Tax Agility can help you prepare your business for sale and what prospective purchasers will be looking for.

Thinking about selling your business? Here’s how we can help

Merging your business before personally exiting

Another particularly attractive way to exit your business, is to merge your firm with another. This is very popular within the professional services industry. Law firms and accounting practices often experience mergers where a senior partner in a firm merges the firm with another practice. That partner can benefit from the years of developing the business, take equity that’s owed to them and walk away. In reality many scenarios see the partner retained for a period of time to assist with the hand-over and to ease confidence with existing and key staff members (and clients) that the acquiring firm would wish to retain.

Many mergers happen between firms that are known to each other or through brokers that know the parties. Quite often the merger may be the brain child of the partners in two firms that have known each other your years and bring in an experienced broker to help the process along professionally. That said, third party brokers are equally capable of arrange suitable mergers as well as complete acquisitions.

Shutting down the business and banking profits

The last option we will consider here is where an owner of a business just wants to call it quits and get out - where the person doesn’t want the hassle of a merger or acquisition and has no interest on passing on the business. Basically, they just want to sell off any assets they have and bank any cash in the business.

The main issue here is on how the owner can get their hands on the cash in a tax efficient manner. Any cash in the business, often retained earnings or cash gained from the sale of assets, would be taxable if taken directly by the owner.

If the owner simply closed the business and took the cash, that would result in a significant taxable event. Without good tax planning you could lose a significant portion of the proceeds. Closing your business is unlike selling your business, as you are likely the sole owner and simply want to take the cash out of the business.

Your options are somewhat limited but do include the following opportunities:

  1. Take dividends up to your basic rate tax limit and if you really need the cash, pay a higher rate of tax on the rest as earnings.
  2. Make a pension contribution. Your company can make a contribution to your personal pension up to £40,000 per year. This is an allowable business expense and so helps reduce your company’s overall tax burden. So, if you are considering an exit of this nature, forward planning can really help, as you could max out on dividends and pension contributions. The main disadvantage of this is that any pension payments made will become inaccessible until the pension is payable and then only in amounts payable through the annuity you purchase (or 25% cash tax free).

For most owners, option 2 with a combination of pension and dividends likely is the most obvious option.

One could also consider not closing the company, minimising all overheads, and have it pay dividends each year. The main draw back with this is that the cash will likely lose value through inflation, as it will remain uninvested and likely to attract poor interest payments. It depends to a high degree on what monetary amounts are involved. You could also consider investing the company’s money, to help increase its longer term value.

Business closing costs

Shutting down a company is not free. You will need to pay an accounting firm (or in some circumstances, an insolvency practitioner) to assist in closing your business properly.

The simplest method, for a solvent company, especially one with a single share holder, is through ‘Company Dissolution’. The company must follow strict guidelines though, including: ensuring all creditors are paid in full, telling HMRC, closing the bank accounts, and having your accountant prepare final accounts. The company must also cease trading three months prior to closure.

There are other closure options depending on the ownership share structure or the company and whether it is solvent or not. These include:

  • Member’s voluntary liquidation (MVL) - typically for more complicated share structures where multiple owners / partners are involved. It’s more expensive as you need to involve a licensed insolvency practitioner (IP).
  • Creditors’ Voluntary Liquidation (CVL) - used where the companies creditors / shareholders take control of the closure process and force the company’s directors to liquidate the company so they may recover some of their investment.
  • Compulsory liquidation  - where creditors take legal action to wind up a company.

Are you considering exiting from your business? If so, talk to Tax Agility first.

The team at tax Agility have knowledge and experience that can guide you through the options and help you come to the right decision that matches your personal circumstances and needs. In addition, our experts can help you with all the tax planning considerations and wealth management issues that may arise from a sale or closure of your business.

Call us today on 020 8108 0090 and tax through your business exit plans with one of our specialists in either our London Richmond-Upon-Thames office or our London Putney Office.


vat on shipping in EU and rest of the world

VAT on shipping in the UK and overseas

VAT has always been one of the more complicated taxes. It’s applicable to most products but not all and the rate of tax varies. The arrival of Brexit and the UK’s withdrawal from the European Union have done little to improve the reputation of VAT and make the situation seem clearer. There is still confusion around how VAT works when doing business with Europe.

vat on shipping in EU and rest of the worldAn area that causes misunderstanding is how VAT relates to shipping. Shopping online has seen a significant increase as a result of the pandemic and consumers are often surprised by the shipping costs, and VAT charges, applied even when buying from inside the UK.

While VAT might seem a tricky grey area that really isn’t the case when it comes to shipping costs. Whether you’re buying online or sending products for your business the basic principles of VAT are more straightforward than you might think.

What is VAT?

Value Added Tax (VAT) is a consumption tax. It’s applied to the majority of goods and services at a rate of 20%, 5% or zero per cent. Do note at this point that it relates to products consumed in the UK as well as services.

A small number of items are exempt from VAT and these include things like postage stamps and insurance.

Businesses with a turnover of VAT rated goods above £85,000 are required to register for VAT. It is possible to register prior to that voluntarily which means you must charge VAT but can also claim it back.

Don’t forget VAT is a tax. Don’t think of it as income for the company making the charge. Instead, remind yourself that it is being collected by them and passed on to the government.

VAT on shipping in the UK

It can be a bit of a surprise to realise that VAT is charged on shipping in the UK. When we buy something in a shop on the High Street we don’t really think about VAT because it is included in the price. When you order something online if the company is VAT registered then VAT is added to the delivery cost. This is because it is a tax applied on services as well as goods. Arranging postage and delivery of an order is considered to be a service. You may have spotted above that postage stamps are exempt from VAT and that wasn’t a typo. Postage stamps themselves are VAT free but when you post an item to a customer you are providing a service and that’s where VAT comes in.

Additionally, not charging VAT on shipping would create an opportunity for tax evasion that HMRC would be keen to avoid. If delivery was VAT free then the cost of goods could be reduced and shipping costs pushed up as a way to avoid paying tax.

How much VAT is charged on delivery is based on the VAT rate of goods. So it’s easy if everything you sell has the same rate. However, an online shop that sold goods with a mix of rates would need to take this into account when adding VAT to their shipping rate. The tax needs to be applied proportionally by looking at the percentage of the total goods at each rate makeup.

To calculate this look at the cost of the goods before applying the shipping charge and see what percentage of the total is made up of goods at each rate. Then apply that breakdown to the shipping total. For example, if a £10 purchase is made up of a £7.50 item rated at 20% and a £2.50 item rated at 5% then 25% of the shipping cost will have 5% VAT and the remaining 75% will need the 20% rate applying.

If you’re not certain of the VAT rate for an item check the list on the HMRC website or talk to our VAT specialist at Tax agility.

The VAT should always be added to the total of the invoice and it’s this that can be off-putting for consumers online when they realise how much their shipping will cost. Of course, customers will only be playing a single shipping charge and some may use this as a reason to buy more and justify the cost. Others may abandon their baskets particularly if they are buying lower-cost products.

There’s no clear way to stop VAT on shipping from impacting your sales. However, there are a few approaches retailers can explore. Encouraging making more than one purchase may work as it will give a lower ratio of postage to item. Alternatively, increasing prices slightly and introducing free delivery for sales above a certain amount may make the difference. Free shipping is also VAT free but means the company will have to bear the cost of it and potentially make it up in the price of goods.

How does Brexit impact VAT on shipping?

With Brexit blamed for introducing extra complications and paperwork, it’s not unreasonable to assume that it must have an impact on VAT, and probably a negative one.

After all, in 2014, the introduction of VAT charges for digital products in the EU caused consternation amongst small businesses as it required the vendor to pay VAT on products in the country the purchaser lived in. Given the UK’s high minimum threshold for VAT, many small businesses were not registered and the potential costs associated with the change would have likely put them out of business.

But when it comes to the question of whether UK companies need to charge VAT on shipping post Brexit, the answer is clear.

VAT is charged in the country where the goods are used or the services are carried out. So for EU customers VAT applied is the location they reside in.

This means that VAT does not need to be charged in the UK on goods sent overseas or on international shipping. A rate of zero can be applied which extends to the shipping. Companies will need to ensure that they have paperwork in place to show that the items went outside the UK. Keeping the paperwork for 6 years is a requirement.

It is worth noting though that while there is no VAT on shipping, there is a good chance that the country you are shipping to will require import VAT to be paid. This is charged by the country that you are shipping to and as a result, will vary. To find out if this is the case, the process and whether it can be charged at the point of sale, you’ll need to check with their equivalent of the HMRC.

https://www.sage.com/en-gb/blog/customs-and-vat-after-brexit/#vat-anchor-link

An exception to the above is Northern Ireland where the rate charged will depend on whether goods are going to the EU or the rest of the World.

VAT and Shipping

Applying the basic principles of VAT makes understanding how it relates to charges on carriage quite straightforward. It doesn’t need to be confusing when it comes to shipping internationally or in the UK.

Just remember:

  • VAT registered companies in the UK have to charge VAT on shipping costs because it is a service.
  • The VAT charged on shipping is proportional to the VAT rates applied to the goods. The government refers to this as, “follows the liability of the goods”.
  • Goods shipped overseas are not subject to VAT in the UK and there is no VAT on their shipping.
  • Individual countries, including the UK, usually charge import VAT in the final place of consumption.
  • Businesses need to keep their VAT paperwork.

VAT is a broad area of taxation and to ensure that your business complies it’s always best to consult VAT experts like Tax Agility who know the ins and outs of the legislation.


2022 planing and strategy for small businesses in Richmond and Putney

Small business planning considerations for 2022

As the summer draws to a close, that is of course if you noticed summer or not, we enter a time of year where thoughts turn to next year’s business prospects. As an accounting firm, we’re mindful that businesses need to be looking hard at their bottom line and how they can operate as efficiently as possible.

2022 planing and strategy for small businesses in Richmond and PutneyEach year, we work with local businesses in the Richmond and Putney area, helping them plan for the following year, ensuring maximum tax efficiency and operational efficiency. Here are a few of our thoughts on what challenges business owners need to be looking at in 2022.

Covid business protection measures come to an end

There is a perfect storm of events nearing as September 30th approaches and earlier next year. On this date most of the governments business protection schemes come to an end.

Job retention scheme ends.

Known to most as the ‘furlough’ scheme, this ends after September. This means that business owners will once again bear the full brunt of employment costs. Think of this as a stress test for businesses that made heavy use of the scheme, as they will now need the cash flow to support employment costs.

Many businesses in the hospitality, health and leisure industries have relied heavily on the furlough scheme to survive. Although experiencing some return to normality since restrictions eased, business for many has not yet returned to pre-covid levels.

Ensuring outstanding receivables from customers are collected is going to be a significant factor underlying a businesses short-term viability. Also a challenge, will be working around potential new customer requirements and necessary adjustments to business models and practices brought about by the pandemic.

In a recent study by Santander, many small business owners surveyed said they did not believe they would see a return to any form of normality until mid-2022. That’s a long time to manage already damaged cash flow prospects. It’s perhaps not surprising that debt collection agencies and insolvency practitioners are readying for an increase in activity later this year and early next year.

Debt collection and insolvency

Business owners looking to recover debt owed to them during Covid, have been frustrated several times through government extensions to the Corporate Insolvency and Governance Act. However, these are now due to end on September 30th 2021. Debt owed before March 2020, when restrictions were implemented, can still be pursued though.

Figures from the Insolvency Service, suggest that unpaid business debt will reach £8.6b in 2021. In 2019 more than 17,000 companies shuttered their doors, with much debt written off and companies facing even more write-offs later this year. With the impact of business restrictions in 2020, some suggestions by financial analysts are that debt could reach £24b. But these figures do not factor in the impact of the lifting of financial support and debt recovery restrictions at the end of September. It’s likely that many businesses will simply not have the strength to continue, having been artificially supported by government schemes.

With a clear focus on improving cash flow, companies will want to chase down as much business debt as possible. A dilemma exists though. Chasing down client debts is a double edge sword. If you’re lucky, important clients will want to clear debts if they can and establish normal relations again, even if this is through a payment plan. Other’s though, may not be in a position to do so, or may simply be holding out, hoping your business will write it off. This will force businesses to look closely at the real value of their client base and force them to choose, as pushing hard will likely end a business relationship.

Commercial eviction ban ends

Many badly affected businesses that have been unable to pay rent since March 2020, face the prospect of eviction proceedings from April 2022 onwards, as the current ban on evictions was extended to March 25th 2022. Unless they can start paying off the rental debt or come to arrangements with their landlords, many will face insolvency proceedings.

Covid Loan repayments

In July, the government reported that it had made £80b in loans to businesses, including both Business Bounce Back Loans and Coronavirus Business Interruption Loans. This equated to around 1.6m business borrowing money through the banks. As mentioned earlier, we already know that insolvency practitioners are readying for an extent raft of new insolvencies, but the Banks too are believed to have invested heavily in strengthening their debt recovery teams, as it seems they are expecting a raft of defaults on these loans.

The main concern here is the potential for a cascade effect with some businesses, as one business relies on another. Very quickly, an insolvency in one firm could have a dramatic effect on several others.

Covid continues

Even though government assistance is drawing to a close, Covid is not done yet. While the severity of cases is lessened by the vaccination program, cases of Covid will still impact businesses and their staff throughout 2022.

Just as the virus evolve and introduces new complications, so too must businesses evolve. As we look forward to 2022 in our planning, we must make allowances for further interruptions. This may equate to keeping much more cash on hand or ensuring business models adjust and adapt to accommodate changes in the work force.

As Plato said: "Necessity is the mother of invention". New technologies that have been adopted to lessen the impact of Covid on business, such as the growth or home working technologies, have changed the way businesses work. This impacts other businesses too. One example is shared office space, networking hubs, and business office landlords in general. These are all highly sensitive to the circumstances we have experienced. As such businesses will need to adapt, else they may die.

Furthermore, we have already seen several large brands adopt different attitudes to staff working practices. Some declaring that nobody need be in the office for the foreseeable future, to others looking for a return to something close to pre-covid office attendance. This is sure to create a negative dynamic in many companies, especially where business owners need to foster close interworking that may have been a kingpin in supporting its brand persona or teams, placing even more pressure on perhaps a fragile business.

Job vacancies

With a record one million job vacancies reported in September, one might think this was a sign of business growth. However, there are also around one million people on furlough, many are young people too. However, it is highly unlikely that the two will just balance out or indeed if employees will still have jobs to go back to after the furlough ends.

Many industries have found that they now have a skills shortage, a lot to do with Brexit, but also as businesses shift their business models to adapt to new realities, people also need to adapt. For some, this may be problematic.

The reality is then, that businesses will likely struggle for some time due to staff shortages, just as the transportation sector is suffering currently.

Higher taxation

Business support for the past 18 months ultimately needs to be paid for. The chancellor unveiled plans to increase taxes on dividends and National Insurance by 1.25%. It may not seem a lot, but for businesses already squeezed by cash flow problems and directors who have probably not been paying themselves too well over the past year, this represents a further hit on cash flow and a reduction in income.

Planning for 2022

It’s clear that business owners, large or small, have much to consider and plan for in 2022. There are many unknowns, which of course makes planning very difficult. Ensuring your business is making best use of the financial resources available, tax efficient and is in good shape to take on the challenges of 2022 is where Tax Agility can help.

The team at Tax Agility in Richmond and Putney has many years of experience working with companies to help them structure and streamline their business to adapt to changes and to be resilient in coping with future challenges too. Our business consultancy service could be just what you need to close out the year and cement your plans for 2022, so contact us and discuss how we can help.


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