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.

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


business crisis action

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

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

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

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

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

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

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

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

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

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


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


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

  • 1. Credit check

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

  • 2. Company House check

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

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

  • 3. An industry view

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

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

  • 4. Check the review sites

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

  • 5. Ask around

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

Some late payment statistics

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

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

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

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

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

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

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

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

 

(sources: Bacs, Intuit, ONS)

Why is cashflow so important?

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

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

How much cash should you keep in a company?

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

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

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

Do a cash flow projection

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

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

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

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

crisis planning

Cashflow management in a crisis


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

Forget about profit – for now

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

Crisis review

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

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

Examples may include issues such as:

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

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

Here are a few things you can do:

  • 1. Get a grip on your business environment

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

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

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

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

  • 3. Emergency short term action

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

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

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

  • 4. Strategic, longer term actions

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

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

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

    Account planning

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

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

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

    Operational efficiency

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

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

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

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

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

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

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

Closing thoughts

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

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

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

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

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

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

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

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


Domestic VAT reverse change for building and construction services

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

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

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

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

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

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

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

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

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

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

Further helpful definitions

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

When you must use the reverse charge

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

When you must not use the reverse charge

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

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

Some basic examples of how this works in practice

Example 1: a transaction under reserve charge

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

On your VAT Return:

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

Example 2: a transaction not under reverse charge

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

This is reported normally in your VAT return.

Important note on the cash accounting and VAT flat rate schemes

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

This will impact likely your cash flow, so be aware

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

If you aren’t sure, talk to Tax Agility

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

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


R&D Tax Relief Scheme Changes 2021

Changes to the SME R&D tax relief

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

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

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

An overview of the SME R&D tax relief scheme

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

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

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

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

Exemption

The new changes will not apply to companies that:

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

R&D and IP creation

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

‘Related party PAYE’

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

Talk to Tax Agility

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