Are you a sole trader or partnership? Do you use an accounting date between 6 April and 30 March?

If you answered ‘yes’ to both questions, you need to be prepared for a change coming from HMRC in the way it assesses your profits.

From 6 April 2024 you will be assessed on your profits for each tax year that runs from 6 April to 5 April. This change will affect how you fill in your tax return if you use an accounting date between 6 April and 30 March.

There will be a transition year from 6 April 2023 to 5 April 2024, to allow any overlap relief that you may be due to be used against your profits for that tax year.

The changes will mean the amount of tax that you owe in the 2023 to 2024 tax year may change if you use an accounting date between 6 April and 30 March. You will be assessed on the tax for profits for the:

• 12-month accounting period you have previously been using
• rest of the 2023 to 2024 tax year — minus any overlap relief that you may be due — spread over the next five tax years

You can spread the profits from the rest of the 2023 to 2024 tax year over a shorter period if you wish.

How your profits for the 2023 to 2024 tax year will be assessed

The way your profits are assessed if you use an accounting date between 31 March and 5 April will not change, nor does this update affect companies.

Profits for businesses with accounting periods ending between 6 April 2023 and 30 March 2024 will be divided and assessed over the five tax years starting on 6 April 2023. If you have any overlap relief available, that will be set-off against those profits first.

Any increased profits from the 2023 to 2024 tax year will be treated in a special way to minimise the impact on benefits and allowances.

Overlap relief

If you used an accounting date between 6 April and 30 March when you started your business, you may have paid tax twice on some of your profits and be entitled to overlap relief.

Usually, businesses can only use overlap relief to get this tax back when they stop trading or when they change their accounting date. However, HMRC will allow any business that uses any accounting period and that has unused overlap relief to use it in the 6 April 2023 to 5 April 2024 transition year.

HMRC will publish guidance on how to check how much overlap relief you may be due in the future.

Changing your accounting period

You do not have to change your accounting period and can continue to use whatever accounting date suits your business.

However, you may want to consider changing your accounting date to 31 March or 5 April. If you do, this will align your accounting period with the end of the tax year and you will not need to apportion profits on your tax return every year.

The restrictions on changing your accounting date that are currently in place will be lifted starting from the tax return for 2023 to 2024. If you change your accounting date in your tax return for a year before 2023 to 2024 you will not be able to spread any extra profits that arise in the tax year that you have made the change in.

If you need any advice regarding this change, please get in touch.

Green investment can help future-proof the UK economy, but we need to ‘act fast and act now’.

Those were the words of Trade Secretary Kemi Badenoch when she spoke at a landmark trade event in the North East of England.

Speaking to an audience of global investors and executives at the Green Trade and Investment Expo in Gateshead, she set out a three-pronged approach to using trade to ensure the UK is ready to tackle crucial global challenges.

She said: “We believe that green trade and investment will be the future-proofing force that will help us create a better tomorrow.

Economic benefits

“First, we know that growing our green industries is crucial to reaching net zero. Second, to protect our energy security we need to grow our own industries.

“And third, green trade and investment act as a future-proof by creating those jobs of tomorrow.”

Her speech celebrated figures that show the UK’s progress toward clean and sustainable energy is delivering huge economic benefits for the UK.

In the past two years, the Government has secured £19.8 billion in new investment, creating over 11,000 new jobs. Total foreign investment has created nearly 85,000 new jobs for people across the UK in 2021-2022 alone. An unprecedented £100 billion of private sector investment is expected to support nearly 500,000 new jobs by 2030.

She said: “We know trade and investment grows our economy, creates jobs, and puts money in people’s pockets – but it also has the power to tackle the challenges we see around the world.”

Centre of excellence

Hosted by the Department for International Trade (DIT) and the Department for Business, Energy and Industrial Strategy (BEIS), the Expo brought together UK businesses and global investors to capitalise on the commercial opportunities stemming from the UK’s journey to net zero.

Minister of State for Climate Change Graham Stuart said: “The UK is number one in Europe for renewable investment opportunities, with the highest offshore wind capacity, one of the largest potential CO2 storage bases, and a fast-emerging centre of excellence for hydrogen propulsion and EV batteries.”

The clock is ticking down to complete Self Assessment tax returns with HM Revenue and Customs (HMRC) reminding customers not to forget to include a very important payment.

More than 2.9 million people claimed at least one Self-Employment Income Support Scheme (SEISS) payment up to 5 April 2022. These grants are taxable and should be declared on tax returns for the 2021 to 2022 tax year before the deadline on 31 January 2023.

Myrtle Lloyd, HMRC’s Director General for Customer Services, said: “We want to help customers get their tax returns right, first time. We have videos and guidance available online to support you with your Self Assessment.”

Support scheme payments

SEISS is not the only COVID-19 support scheme that should be declared on tax returns. If customers received other support payments during the 2021 to 2022 tax year, they may need to report this on their tax return if they are:

• self-employed
• in a partnership
• a business

Customers can check which COVID-19 grants or payments they need to report to HMRC on GOV.UK.

More than 66,000 taxpayers beat the clock and filed their tax return on 6 April – the first day of the new tax year. HMRC is encouraging others to complete their return as soon as they can, so they know what they owe and can budget to make the payment by the end of January. This also means that if a repayment is due, it can be claimed back sooner.

Don’t miss deadline

Completing a tax return using HMRC’s online filing service is simple and convenient. Last year, more than 95 per cent of customers filed online with many choosing to start it, save their progress and go back to it as many times as they needed before it was ready to submit. Those who submit their returns early still have until 31 January to pay.

Ms Lloyd said: “With less than 100 days to go until the online deadline, there’s still time to complete your tax return, to budget and look into the range of payment options if you need to.”

Filing early also means having plenty of time to access the number of payment options available including:

• paying via the free and secure HMRC App
• setting up an online monthly payment plan (self-serve Time to Pay)
• paying through PAYE tax code (subject to eligibility)
• payment on account

Advice available

Those who are unable to pay their tax bill in full can access the support and advice that’s available on GOV.UK. HMRC may be able to help by arranging an affordable payment plan.

All Self Assessment customers need to be aware of the risk of scams and HMRC is reminding them never to share their login details.

If you need any support, please get in touch.

Business owners who are minded to celebrate the forthcoming Christmas break with their staff are reminded that there is a tax-free allowance for the provision of an annual party or other event for the benefit of staff and their partners. The present limit to tax relief is £150 per head. If this amount is exceeded, the full cost of the benefit is taxable not the excess over £150.

Where it’s not possible to calculate individual costs an averaging process can be adopted. There are also other considerations that must be met to qualify for this relief.

Another way to benefit staff tax-free for Christmas is to consider making small gifts.

You don’t have to pay tax on a benefit (gift) to your employee if all of the following apply:

• it cost you £50 or less to provide
• it isn’t cash or a cash voucher
• it isn’t a reward for their work or performance
• it isn’t in the terms of their contract

Gifts that fall into this category are known as a ‘trivial benefit’; and whilst they may be much more than trivial in substance, you don’t need to pay tax or National Insurance or let HMRC know you are making the gift.

Any gifts that do not meet this definition will likely be taxable.

Gifts to directors are treated in a similar fashion with one over-riding condition: a director cannot receive trivial gifts of more than £300 in total each tax year. This restriction only applies to the directors of “close companies”. A close company is a limited company with five or fewer shareholders.

Watch out for VAT charge

If you recover the input tax charged when you buy gifts for employees, and if the total value of gifts given to an employee in a tax year exceeds £50, then you will have to account for VAT on the total value of gifts provided. If this is the case, you may be advised to avoid recovering the VAT in the first place.

Brexit. COVID-19. Cost of living. Energy prices. Number 10. Bank rates. Economic freefall.

It’s fair to say businesses have faced an unprecedented number of challenges over the past two years and if you’ve felt like curling up under a blanket until it’s all gone away, then you are not alone.

But there is an increasing number of people who want to say: “Bring it on. Do your worst”.

And these people have an ‘antifragile’ mindset.

The concept was introduced by writer, statistician and risk analyst Nassim Nicholas Taleb in his book Antifragile: Things That Gain From Disorder.

He explains that being antifragile is akin to a step-up from being simply resilient. Not only can you deal with life’s challenges, but you can also use them to your advantage.

And in the face of everything that is happening right now, being antifragile as a business owner can help you not only deal with the issues, but also make you stronger for the future.

Cash flow to build resilience

It’s tempting when times are good to enjoy the fruits of your labour. However, ensuring your business is prepared for future change and challenges means retaining sufficient funds to weather future storms. What does this look like? Most experts recommend three to six months of operating expenses to be held in your bank.

Skills and talent

Do you have the team you need now to support your business growth for the next 12 to 24 months? For most businesses, it’s the skills, talent and innovative nature of employees that can help sail you through choppy waters. Take time to assess your current team and consider what your customers could need in the future. Identify any skills gaps so your business can evolve to meet those needs.

Building an agile ecosystem

If you needed to pivot your business model to keep up with customer demand, could you? If, for any reason, your business had to focus on a new market to make sales, you would need to ensure the resources are at hand to deliver that change. And it’s not just your staff; it’s your software, processes and mentality of senior leadership that will be able to  support and guide these types of changes.

For business owners, becoming anti-fragile is about more than just a mentality shift; it’s acknowledging that change is constant and positioning yourself and your business in a place of strength and resilience.

A rising number of businesses are failing as the Government’s pandemic support is withdrawn and banks push their credit score limits higher making it harder to borrow.

The Office for National Statistics has reported that there were 5,600 registered company insolvencies from April to June this year, a 13 per cent increase from the first quarter of 2022.

But what is more disturbing is that it represents an 81 per cent increase from the same period last year.

Help has disappeared

When COVID-19 appeared on the scene, many businesses applied successfully for Government support to help them through that difficult period. But that help is no longer there and for many businesses, it is exposing cracks that had been papered over.

At the same time Experian has noted a nine per cent drop in credit scores across SMEs, making the challenge of borrowing money to sustain a business even more difficult.

With banks increasing the credit score threshold for borrowing money, businesses have nowhere to turn to find the financing to keep them afloat.

The current political situation with controversial mini-Budgets, U-turns and PM resignations is adding to the problem as risk-averse banks hold back from lending until the economic outlook becomes more stable.

What you can do

The question is, what steps can a business owner take to try to avoid their company becoming another statistic?

• Look for efficiencies within your business. No matter how small they may seem, it will all add up.
• Take a good look at your finances. Analyse where the money is going and work out if it is all necessary expenditure.
• Keep a good cashflow. Have you got outstanding debtors? Chase the money in.
• Loyalty is a fine attribute, but if your regular supplier can’t match the quote of a competitor, you need to put your business needs first.
• Talk to us. We are here to advise and may be able to see something that you have overlooked.
• Don’t give up. Nothing lasts for ever. Batten down the hatches and wait for the storm to pass.

The tax reductions set out in the Kwarteng/Truss mini-budget of 22 September 2022 have been scrapped, apart from the cancellation of the NIC increase for 2022-23, the withdrawal of the Healthcare Levy from April 2023, the changes to Stamp Duty Land Tax and the increase in the Annual Investment Allowance.

As we are presented with yet another new face at 10 Downing Street, the cabinet has delayed its fiscal statement until 17 November. We will be reporting on these developments in the next newsletter.

Hopefully, the new government will be mindful that recent changes in political circles have had a disastrous impact on small businesses across the UK. Double digit inflation and higher interest rates are compounding external pressures and making life difficult across multiple business sectors.

The way businesses register for VAT changed on 1 August 2022. A new VAT Registration Service (VRS) has been created to manage the process. 

One of the key features of the new VRS is that every business will be automatically signed up to Making Tax Digital (MTD) VAT as part of registration. This removes the need for businesses to take that extra step.   

To complete a VAT registration, you will need your:

• name 

• date of birth 

• National Insurance number 

• ID, such as your passport or driving licence 

• details of turnover and nature of business 

• bank account details (or a reason if no bank account details are provided) 

• Unique Tax Reference (UTR) number 

If you are registering a limited company, they must have a Company Registration Number and a Corporation Tax Unique Taxpayer Reference (UTR) to complete the VAT registration process. Individuals and Partnerships do not need to have a Self-assessment UTR to register for VAT, but if they do have one, they must supply it. 

HMRC recommend that you have this information to hand when starting an application. If you are waiting for information to register you can save and edit the application for 7 days by clicking ‘Save and Exit’. This will soon be increased to 28 days. 

Criminals claiming to be from HMRC have targeted individuals by email, text and phone with their communications ranging from offering bogus tax rebates to threatening arrest for tax evasion. Contacts like these should sound alarm bells – HMRC would never call threatening arrest.

Anyone contacted by someone claiming to be from HMRC in a way that arouses suspicion is advised to take their time and check the scams advice on GOV.UK.

Taxpayers can report any suspicious activity to HMRC. They can forward suspicious texts claiming to be from HMRC to 60599 and emails to phishing@hmrc.gov.uk. Any tax scam phone calls can be reported to HMRC using the online form on GOV.UK.

1 November 2022 – Due date for Corporation Tax due for the year ended 31 January 2022.

19 November 2022 – PAYE and NIC deductions due for month ended 5 November 2022. (If you pay your tax electronically the due date is 22 November 2022.)

19 November 2022 – Filing deadline for the CIS300 monthly return for the month ended 5 November 2022.

19 November 2022 – CIS tax deducted for the month ended 5 November 2022 is payable by today.

1 December 2022 – Due date for Corporation Tax payable for the year ended 28 February 2022.

19 December 2022 – PAYE and NIC deductions due for month ended 5 December 2022. (If you pay your tax electronically the due date is 22 December 2022).

19 December 2022 – Filing deadline for the CIS300 monthly return for the month ended 5 December 2022.

19 December 2022 – CIS tax deducted for the month ended 5 December 2022 is payable by today.

30 December 2022 – Deadline for filing 2021-22 self-assessment tax returns online to include a claim for under payments to be collected via tax code in 2023-24.