MAH, Chartered Accountants

Author: Mohammed Haque

  • Is entertaining tax deductible?

    Business entertainment means the provision of free or subsidised hospitality or entertainment. The person being entertained may be a customer, a potential customer or any other person.

    We’ve broken it down into 3 categories:

    1) Clients and potential customers

    Client entertainment usually isn’t allowable for tax purposes. Examples may include:

    • taking clients out for meals/drinks
    • tickets to sporting or cultural events
    • holidays, flights or hotel accommodation

    Promotional events arranged to advertise products are not in themselves business entertainment but the cost of any food, drink or other hospitality provided as part of the event is disallowable.

    Sponsoring a sporting or cultural event is allowable if the business receives publicity, but the cost of giving free tickets or private boxes etc to clients isn’t allowable.

    Business gifts are only allowable if they incorporate a conspicuous advert for the company, such as a logo, and the cost is below £50 per person per year. However, the gift cannot be food, drink, tobacco or vouchers.

    The cost to a business of giving away its own goods or services for the purpose of advertising those goods or services to the general public is not business entertainment expenditure. Examples include  a manufacturer giving out free sweets to the general public or a trial run of hotel facilities to a bulk buyer or a free meals to restaurant critics.

    2) Staff

    Staff entertaining such as a Christmas party or sporting event is allowable, so long as it is wholly and exclusively for the purposes of the trade and is not merely incidental to entertainment which is provided for customers.

    So if a business takes out a client to a restaurant, the cost for the staff who also attend won’t be allowed.

    But if the only attendees are employees, then the cost will usually be allowable. Also allowable are costs for subcontractors or self employed “workers”.

    However, there may be additional P11D taxes for benefits in kind (payable by both the company and staff) unless the entertaining relates to one or more annual events that are open to all staff and cost less than £150 per person in total.

    3) Directors

    A business meeting that involves significant food/drink and is only between directors and doesn’t involve any other employees may still qualify for a corporation tax deduction. However, it will then usually be subject to P11D taxes and so it isn’t usually efficient to claim a corporation tax deduction.

    Incidental expenditure

    In addition to the examples mentioned above, costs that are incidental to entertainment are also disallowed for tax purposes. For example, travelling costs to a client meal are also barred. As would the costs of maintaining an asset, such as a yacht, used for business entertainment.

    The law

    The key legislation is S1298 Corporation Tax Act 2009 and S45 Income Tax (Trading and Other Income) Act 2005.

  • Pension contributions tax savings

    Pension contributions can be a great way to save tax.

    Disclaimer

    Decisions about whether or not to make pension contributions should normally be led by investment considerations and our clients generally use financial advisers to decide whether or not to contribute as the money will usually be locked away and there can be various risks involved as well.

    We can only comment on the tax side. We are able to recommend a financial adviser if needed.

    Tax relief

    There are 2 main forms of tax savings that are usually relevant to our clients:

    1) personal contributions: tax relief at source to increase the pension pot and also an increase in the 20% tax band will reduce the amount of 40% or 45% tax paid and result in a tax refund in the self assessment.

    2) corporation tax: employers pension contributions are tax deductible, so the company will save tax at 19% (in 2021) on the amount of contributions paid.

    Allowances

    There is an annual allowance of £40,000 that is eligible for tax relief and this includes both employer contributions and also amounts that clients contribute personally, based on the tax year upto 5 April each year.

    Clients can also carry over unused allowances from the previous 3 years if they need to invest more.

    However, it should be noted that personal contributions are limited to an individual’s earnings, although the company can contribute an extra amount to utilise the £40k allowance. If there are no taxable UK earnings, the limit is much less (£2,800 gross in 2021/22).

    There are some other circumstances, please check HMRC to confirm, for example if individuals earn more than £200,000 a year.

    Personal contributions

    Personal pension contributions are typically made from net pay (after tax) via payroll into a company scheme or from paying separately into a personal plan (eg SIPP).

    Our clients will generally receive 20% “relief at source” on their pension contributions automatically by their pension scheme as the provider adds 20% to the pension pot.

    When completing their self assessment, we need to enter the gross payments into the tax return, which is the actual contributions paid plus 20%.

    If they’re a 40% or 45% taxpayer they’ll also then receive a tax refund as the higher rate tax band will be increased by the gross contributions.

    For example:

    Pension statements show personal contributions of £8,000 in the tax year. This is declared in the tax return as the gross value £8,000 /80%*100% = £10,000. This will result in a tax refund of £10,000*20% = £2,000 if they’re a 40% taxpayer or £10,000*25%= £2,500 if they’re a 45% taxpayer.

    Employer contributions

    The company will get a corporation tax deduction on its contributions into registered pension schemes and there will not be any income tax or NIC payable on employer contributions.

    There needs to be a contractual arrangement/obligation for the company to make a separate contribution to the client’s personal contributions, whether its into a company pension scheme or a personal SIPP or pension plan.

    So to save corporation tax, the client has to show that the company is making an employer’s contribution.

    Our clients usually explain to their pension provider that they want to make an employer’s contribution before making the payment. This is important because we need some documentation from the pension provider to prove that its an employer’s contribution.

    The contributions can be made throughout the accounting year or as a lump sum, but the company will obtain the corporation tax deduction in the accounting period in which the company pays the contributions.

    The pension contributions cannot be accrued or backdated.

    The contributions can also be included R&D tax credit claims (for the proportion of time spent on eligible R&D projects)

    For example:

    Director salary is £8,000 and has a personal SIPP and no auto enrolment. Although the salary is low, the company can still pay £40,000 into the SIPP as long as the correct forms are filled in to show its an employer’s contribution. Tax relief in 2019 would be £40,000*19%.

    If the company year end is 31 December, £40k could be paid in March and another £40k in December to maximise contributions in this particular accounting year, as it straddles the 5 April tax year end used for the £40k allowance.

    Income from state & other pensions: 

    These are usually taxable and need to be included in the self assessment tax return.

    State pensions: the client should have a letter with their weekly State Pension amount

    Other pensions: the client should have a P60 or similar annual statement, the total gross amount before tax needs to be declared in the self assessment.

    Other circumstances

    Pensions can be very complex. Further advice should be sought from a partner at MAH if dealing with:

    • something different to the examples and explanations above
    • early/flexible access to pension pots & lump sum payments/refunds
    • overseas pension schemes

    (Notes from HMRC manuals are below)

    BIM46035:

    A pension contribution by an employer to a registered pension scheme in respect of any director or employee will be an allowable expense unless there is a non-trade purpose for the payment.

    contributions are paid wholly and exclusively for the purposes of the trade where the remuneration package paid in respect of a director of a close company, or an employee who is a close relative or friend of the director or proprietor (where the business is unincorporated) is comparable with that paid to unconnected employees performing duties of similar value.

    NIM02716:
    Section 308 ITEPA 2003 provides that an individual is not liable to income tax where an employer makes a payment to a registered pension scheme (“RPS”; NIM02715). Where that section applies, such a payment is disregarded in the calculation of earnings for Class 1 NICs purposes.

    EIM01570:

    registered personal pension scheme arrangements made by an employee (or director) may provide for employer contributions as well as employee contributions. Where, under such arrangements, the employer pays employer’s contributions the contributions are not chargeable on the employee as earnings of the employment (Section 308 ITEPA 2003).

    RPSM05400020:

    a deduction can only be given for the period in which the contribution is paid.

    I make regular accruals regarding pension costs in my company accounts, can relief be given in respect of these accrued amounts?
    No. Tax relief can only be given on contributions that have actually been paid. The amount shown in the profit and loss account in respect of obligations in respect of defined benefit schemes may be substantially different from the amount of contributions paid to the scheme. But it is only the amount actually paid that can be considered for tax relief.

  • Can VAT on entertaining be reclaimed?

    You cannot usually reclaim input VAT on business entertainment however you can sometimes reclaim it for staff entertainment.

    The notes below primarily come from VAT Notice 700/65 and VIT43200.

    1) What is entertainment?

    Entertainment involves hospitality of any kind, such as:

    • provision of food and drink
    • provision of accommodation (such as in hotels)
    • provision of theatre and concert tickets
    • entry to sporting events and facilities
    • entry to clubs and nightclubs
    • use of capital assets such as yachts and aircraft for the purpose of entertaining

    2) Business entertainment

    VAT incurred for the purposes of business entertainment is specifically blocked from recovery under the Value Added Tax (Input Tax) Order 1992 (SI 1992/3222), art. 5. Case law defines business entertainment as: the free provision of hospitality to persons who are not employees of the business, employees including directors of limited companies.

    For example, hosting or taking clients to the entertainment below cannot be reclaimed for VAT:

    • golf days
    • track days
    • trips to sporting events
    • lunch/evening meals at a restaurant
    • trips to nightclubs

    Exception: Meetings

    VAT can be reclaimed if basic food and refreshments such as sandwiches and soft drinks are provided at a meeting held in the office to help it continue without interruption.

    However, the VAT cannot be reclaimed if a meeting is held at a restaurant and the meal is classed as lavish. If no office is available, HMRC could potentially argue that it could have been held at location such as a meeting room for hire or a coffee shop.

    Potential Exception: Overseas customers

    HMRC mention:

    The term ‘overseas customer’ means any customer not ordinarily resident or carrying on a business in the UK, including the Isle of Man.

    VAT incurred on the entertainment of overseas customers may be recoverable when incurred for the purpose of the business if it’s reasonable in scale and character. However, there will be an output tax charge if there is a ‘private benefit’ to the individual enjoying the entertainment which will cancel out any recoverable input tax.

    There is usually a private benefit when business entertainment is provided. However, in cases where the expenditure is necessary and for strict business purposes the private use may be ignored. Hospitality provided because it would be polite, because it’s expected, or because it would improve relationships is not for strict business purposes.

    The rules on overseas customers relate to the joined Danfoss/Astra Zeneca ECJ case and this involved basic working lunches provided to customers free of charge.

    Our policy is not to reclaim VAT if the entertainment involves any overseas customers unless it involves basic refreshments which are not lavish. So restaurant meals cannot be reclaimed.

    Rare exceptions: hospitality with obligations

    To be non-recoverable expenditure, the hospitality must be free of charge or obligation. In the case of C & E Commrs v Kilroy Television Co Ltd [1997] BVC 422, the participants in the talk show were provided with a buffet meal. The court found that the company had put itself in a contractual position to provide the buffet, which was the only payment the participants received for taking part in the show. Therefore, there was no business entertainment provided. In a similar case, a market research company provided sandwiches at product trials where the public were invited to sample alcoholic beverages and complete questionnaires on them. HMRC accepted that the alcoholic beverages were not business entertainment but assessed the VAT recovered on the provision of food. The tribunal found that the food was a necessary part of supplying the drinks and was not business entertainment (DPA (Market Research) Ltd [1997] BVC 4,071).

    3) Staff entertainment

    Staff entertainment relates to providing employees with entertainment wholly for business purposes, such as to incentivise them and to foster team spirit.

    The VAT can be reclaimed on staff entertainment, for example team meals/drinks, parties and other events.

    Staff and employees do not include 3rd parties such as prospective employees, shareholders, former employees or pensioners, self-employed subcontractors, relatives or partners or friends of employees.

    Travel & Subsistence

    This is separate from entertainment if the primary purpose is not for entertaining. If an employee or director has to travel for business purposes then the input VAT of meals and accomodation can be reclaimed. HMRC generally use a five-mile radius from the office as an unofficial guide.

    Entertaining involving only the Directors/partners

    If no staff are included and the cost cannot be claimed as subsistence, then the VAT cannot be reclaimed. For example, the directors have a general lunch at a restaurant or attend a sporting event without any other staff.

    If the directors work in separate locations far away from each other and decide to meet in person to discuss business matters then the VAT could potentially be reclaimed as subsistence.

    4) What if entertainment is held for both staff and clients/customers?

    Meals/subsistence

    If staff/directors are working from their usual place of working (eg home or their office) and then they meet with a client some distance away specifically for that meeting, then the primary purpose would appear to be entertainment, so the VAT cannot be reclaimed for the staff/directors.

    If the staff/directors are working away at a client site for the day or travelling, then they have to eat. So if a client were to join them for the meal and the entertainment is secondary to the primary business purpose of the meal, then the VAT for the staff/directors can be reclaimed.

    Our general policy is not to reclaim VAT on UK restaurants unless we are specifically informed that it includes subsistence and the number of proportion of the meal being claimed, to confirm the non-staff VAT is reclaimed.

    General entertaining

    If the staff are not acting as hosts for the clients/customers, then the VAT can potentially be reclaimed for staff. However, this is such a grey area and difficult to prove, our policy is not to reclaim VAT if the entertainment involves any clients or customers unless we are specifically informed that the staff were not acting as hosts.

    5) Why does MAH take a conservative approach to reclaiming VAT on entertainment?

    Although we have dealt with a number of VAT investigations and enquiries and have a lot of experience in the kinds of things HMRC ask for, we don’t feel that its worthwhile trying to fight HMRC over entertainment as the rules about what is allowed or not are so grey.

    When we look at the VAT court cases we find that event the Big 4 accounting firms KPMG and EY have lost cases against HMRC when they aggressively reclaimed VAT on entertaining.

  • Autumn Budget 2021 update

    We have analysed the Autumn Budget 2021 for the key changes relevant to small and medium businesses (SMEs). Please find below the key points which we feel may be of interest to our clients.

    1) Payroll taxes / NIC

    From April 2022 there will be a new employment tax of 1.25% for the Health and Social Care Levy to fund investment in the NHS and social care. This will increase both employee and employer NICs (class 1) and also the self employed will have to pay higher Class 4 NIC. From April 2023 it will also apply to the earnings of individuals working above the State Pension age.

    2) Income tax / dividends:

    The personal allowance threshold will not change and will stay at £12,570 per year and the higher rate tax will also still start at £50,270.

    From 6 April 2022 the dividend tax rates will all increase by 1.25%.

    To avoid higher rate of income tax in 2022-23, we would recommend a salary of £9,100 and dividends of £41,170. There will be £2,945 tax on total income of £50,270.

    Please refer to our separate post for further details and calculations about the most tax efficient level of salary and dividends for 2022-23.

    3) R&D tax credits

    The previously delayed cap on the cash refund for R&D tax credits has now come into effect from 1 April 2021. The new cap is that a company can claim upto £20,000 plus 3 times its PAYE/NIC bill for the period. However, a company is exempt if its employees are creating/managing IP and it doesn’t spend more than 15% of qualifying R&D expenditure on subcontracting or externally provided workers to connected persons. Accounting periods commencing before 1 April 2021 will need to be split/apportioned into 2 periods before and after this date so that the new rules can be applied.

    Data and cloud costs can also be claimed from April 2023.

    4) Corporation tax

    Reminder from the March 2021 budget:

    An increase in the UK corporation tax rate from 19% to 25% was substantively enacted in May 2021 and will take effect from 1 April 2023. A new small profits rate of 19% will also apply to profits below the lower limit of £50,000 and profits exceeding the upper limit of £250,000 will be charged at 25%. Where a company’s profits fall between the lower and upper limits, it will be able to claim an amount of marginal relief, providing a gradual increase in the corporation tax rate.

    5) Capital allowances / company cars

    The government will legislate in Finance Bill 2021-22 to extend the temporary £1,000,000 level of the Annual Investment Allowance until 31 March 2023. So there is a tax deduction on 100% of qualifying expenditure on plant and machinery.

    Company car tax: no significant changes, although the technical system for  approving CO2 levels is being updated due to Brexit. Reminder that electric vehicles benefit in kind is scheduled to rise to 2% from April 2022. The cost of purchasing a brand new electric vehicle (not second hand) will have 100% tax deduction.

    6) Other issues

    Business rates: A new temporary business rates relief for eligible retail, hospitality and leisure properties for 2022-23. Eligible properties will receive 50% relief, up to a £110,000 per business cap. This won’t usually apply to office leases.

    Capital gains tax property payment window: From 27/10/21 UK and non-UK residents selling UK residential property will have to report and pay CGT within 60 days of completion. For mixed use properties the deadline will also be 60 days for the residential element of the property gain.

    Online sales tax: there may be a tax in future for E-Commerce sites, the government is consulting on it.

    Pensions: There will be an increase to the earliest age at which most pension savers can access their pensions without incurring an unauthorised payments tax charge, the normal minimum pension age, from 55 to 57. This increase will have effect from 6 April 2028.

    Making tax digital for Self Assessment:
    Sole traders and landlords with income over £10,000 per year (doesn’t include rental properties held through a LTD company) will have to file through MTD from 6 April 2025. Every 3 months a tax return will need to be sent to HMRC showing the summary of business income and expenses. At the end of the year another final tax return will need to be submitted. The timing of the usual July/January payments is not currently expected to change.

    Clampdown on promoters of tax avoidance
    We generally advise our clients not to use aggressive tax avoidance schemes as these have regularly been found to fail, even when designed by tax barristers and large accounting firms. Companies or individuals can then find themselves with large tax bills to pay, even many years after they used the scheme.

    There will be new penalties for anyone promoting or supporting tax avoidance schemes.

    Recovery Loan Scheme – The Recovery Loan Scheme will also be extended until 30 June 2022 to ensure that lenders continue to have the confidence to lend to small and medium-sized businesses. Finance will be available up to a maximum of £2 million per business, supporting their recovery and growth following the pandemic. The government guarantee will be reduced from 80% to 70% to encourage the lending market to move towards normality as the economy continues to recover

    Work Visas
    Not a tax issue but many of our clients employ staff from overseas:

    High-Skilled Migration – The government is implementing changes to the UK’s immigration system to attract highly-skilled people to the UK. This includes a new Scale-up Visa, launching in spring 2022, that will help the UK’s fastest-growing businesses to access overseas talent. The visa will be open to applicants who pass the language proficiency requirement and have a high-skilled job offer from an eligible business with a salary of at least £33,000.

    Global Talent Network – Alongside immigration system reforms, the government will launch a Global Talent Network to bring highly skilled people to the UK in key science and technology sectors. This network will work with businesses and research institutions to identify UK skills needs and source talent in overseas campuses, innovation hubs and research institutions to bring to the UK. A concierge service will also be available to support people moving to the UK. The Global Talent Network will launch in 2022 in the Bay Area and Boston in the US, and Bengaluru in India. The government will also maintain the expanded Department for International Trade (DIT) Global Entrepreneur Programme.

    The full text of the Autumn Budget 2021 can be found here. The Government have also published guidance about the changes to tax legislation which can be found here.

  • Tax efficient director salary and dividends 2022/23

    THIS ARTICLE NEEDS TO BE UPDATED FOR THE NEW NIC THRESHOLDS ETC

    Compared to 2021/22, the personal allowance threshold will not change and will stay at £12,570 per year and the higher rate tax will also still start at £50,270.

    From 6 April 2022 the dividend tax rates will all increase by 1.25% :

    First £2,000 of dividends: no tax due to dividend allowance

    Dividends at basic rate (total income below £50,270): 8.75%

    Dividends for total income above £50,270 and below £150,000: 33.25%

    Dividends where total income is above £150,000: 39.35%

    Many of our clients prefer to keep cash in their company until they need it and to avoid higher rate of income tax. In this case, from April 2022 onwards we would recommend a salary of £9,100 (it is £8,840 for 2021/22) and dividends of £41,170.

    So for a company owner with total income of £50,270, their income tax for 2022/22 will be £2,945:

    IncomeTax
    Dividends:
    Personal allowance left after salary £9,100£3,470£0
    Basic rate dividends subject to dividends allowance£2,000£0
    Basic rate dividends taxed at 8.25%£35,700£2,945
    Total for dividends£41,170£2,945
    Salary£9,100£0
    Total income and tax£50,270£2,945

    If a director/owner takes dividends above this level, they will need to pay tax at 33.25% on the excess dividends above total income of £50,270 and 39.35% for excess dividends above total income of £150,000.

  • Coronavirus: 2nd update on Government support

    We would like to let you know about the latest financial support available for businesses and individuals affected by the Coronavirus.

    Please do call or email us if you’d like to discuss anything further.

    JOB RETENTION SCHEME FOR 80% OF SALARIES

    This was first announced a while ago but the full details were only released in the last day or so:

    • directors and staff who are NOT working are eligible to be “furloughed”
    • the company has to process the salaries first and HMRC will then re-imburse 80% of wages upto £2,500 per month (tax/nic has to be deducted)
    • directors/staff must have been on the payroll in February 2020
    • the claim will need to made on a new HMRC portal, this is expected to open at the end of April
    • directors who normally take a small salary may be able to file a higher salary for Mar’20 to boost the average wage eligible for re-imbursement
    • we will not file any claims for any directors/staff who are working as normal. HMRC have reserved the right to audit claims in future
    • we will email clients directly with our interpretation of the rules and whether we think they can claim or not (there are some technical issues)
    • Full details about the scheme are here:
      https://www.gov.uk/guidance/claim-for-wage-costs-through-the-coronavirus-job-retention-scheme

    SELF EMPLOYMENT GRANT SCHEME

    Self emplyment support scheme for sole traders to claim a grant for 80% of trading profits, capped at £2,500 per month for the next 3 months:

    • The scheme doe NOT apply to directors of limited companies or dividends
    • Only applies to sole traders
    • Cannot claim if profits exceed £50,000 per year
    • At least half of total income should come from self employment
    • HMRC will calculate average monthly trading profits for previously submitted tax returns from 2016-17, 2017-18, 2018-19
    • HMRC will contact you in June in order to claim it and will pay 1 lump sum into your bank account
    • It will be taxable and will need to be declared in the 2020-21 tax return


    TAX BILLS HAVE BEEN DEFERRED

    1. Self assessment payment which is due in July 2020 has been pushed back to January 2021 (automatic, don’t need to call HMRC)
    2. VAT bills which are due by 30 June 2020 have been deferred until March 2021 (automatic, don’t need to call HMRC)
    3. PAYE & Corporation tax: HMRC have setup a Coronavirus helpline for time to pay. You would need to call them and explain you’re unable to pay right now due to cashflow / business difficulties caused by the Coronavirus. We have heard that HMRC have deferred payments completely for 3 months for some clients, other clients have agreed a payment plan for the next 6 months.
      HMRC: 0800 0159 559

    PROTECTION FOR TENANTS

    1. Commercial tenants cannot be evicted for late payments until 30 June 2020. If you don’t pay your rent your landlord could potentially evict you later. You should contact your landlord about deferring the rent or requesting a rent free period. For example, our landlord has given us a rent free period and we have heard others have received a payment holiday.
    2. Residential tenants also cannot be evicted for at least 3 months (ie around end of June). But again you should contact your landlord to try and negotiate a rent free period, deduction or to agree a payment plan.

    MORTGAGE HOLIDAY FOR 3 MONTHS

    1. Homeowners: In our previous update we advised clients to contact banks about deferring payment. The Government and FCA have now given guidance that the banks should grant borrowers a payment holiday for an initial period of 3 months and that there should not be any additional fees for this, other than interest and that it shouldn’t have a negative impact on the credit score. Please do phone your bank or check their website, there may be an online application. In addition, banks have been advised not consider repossession unless a customer agrees to it.
    2. Buy to let: the above scheme has now also been extended to landords

    OTHER SCHEMES / SUPPORT

    Please refer back to our original update and also the Government’s own website for details of other Government schemes and support:

    https://www.mah.uk.com/2020-spring-budget-coronavirus-update/
    https://www.gov.uk/government/publications/guidance-to-employers-and-businesses-about-covid-19

  • 2020 Spring Budget & Coronavirus update

    This is a longer budget update then usual and we’ve put some general notes about cashflow etc as several clients have asked us about this and the recent Government updates. Please also call/email if you’re unsure of anything or need some advice.

    Also please note that we’ve only tried to put the relevant budget changes here, there are many more in the official Budget documentation: https://www.gov.uk/government/publications/budget-2020-documents/budget-2020

    1) Coronavirus & recent Government announcements

    Business Interruption loans
    The Government announced approximately £330 billion of loans/grants for businesses. The details are not confirmed yet, however, smaller businesses would need to apply for a loan from a lender joined upto the scheme. The way it works is that the lender would review your business loan proposal in the normal way. But if “the computer says no”, then they can re-try the assessment with the Government guaranteeing 80% of the loan. So if you’re not able to pay the lender will get repaid by the Government.

    But your business will still be liable for the full debt.

    You can see more here:
    https://www.british-business-bank.co.uk/ourpartners/supporting-business-loans-enterprise-finance-guarantee/
     
    Also, the following are not on the list of partners but have been quite helpful in giving loans to our clients in the past:
    -Funding Circle
    -Iwocca
    -Capital On Tap
     
    Your normal business bank may also be able to provide an overdraft or a loan (and many bank are part of the above scheme).
     
    Paying HMRC
    If you call HMRC you may be able to defer payments or agree a payment plan with them.

    If you don’t call them and then don’t pay, HMRC could charge penalties/surcharges for late payment as well daily interest. They will also chase you and usually after 1-2 pass debts on to debt collectors.

    https://www.gov.uk/difficulties-paying-hmrc
    Coronavirus helpline: 0800 015 9559
    Payment Support Service: 0300 200 3835
     
    Reminder of taxes:
    PAYE/NI payable every month by 22nd
    VAT: payable 1 month and 7 days after quarter end
    Corp Tax: payable 9 months after year end
    Self assessment: 2 instalments a year, 31 July and 31 January
     
    Staff
    Historically not many of our clients have used the sickness pay scheme, but with the potential for long absences, you may wish to consider how you deal with sick staff:

    – If you have the money available, you could pay them the usual wage as normal
    – You could use up their annual leave (with employee’s permission)
    – Pay statutory sickness pay

    Statutory sickness pay
    Staff are paid £94.25 per week for upto 28 weeks. It usually starts from the 4th consecutive day of sickness (including non-working days). So days 1-3 are unpaid.
    But if staff are self isolating or have symptoms of the Coronavirus then SSP can start from day 1.
    SSP cannot usually be reclaimed, but you can reclaim upto 2 weeks per employee SSP due to Coronavirus from HMRC.
    You can ask staff for a sick note after 7 days illness, but cannot delay SSP if they don’t give it.
     
    Please let us know if you wish to pay SSP as we’ll need to update the payroll for this.
     
    There are also complex rules about laying off staff. We would recommend that you take legal advice before firing any staff or making them redundant.

    Managing cashflow
    We would advise you to make a list of outgoing payments you need to make (both in the business and your personal expenses) and calculate your budgeted expenditure for the next  6 months.

    Then see if any of these can be deferred or cut back.

    If you contact your mortgage lender you may be able to defer payments without impacting your credit score if you are affected by the coronavirus.

    Its possible that some landlords may be willing to offer a payment holiday. For example, we were looking at new offices and landlords are currently offering 3-9 months rent free period. They may say no, but it might be worth asking them. We’re not sure about any Government assistance for residential tenants yet.

    Keep a close eye on debts that you are owed. But you may wish to strike a balance between agreeing extended payment terms and formally/aggressively chasing debts depending on the relationship with your customers.

    You may also wish to defer large expenditure on equipment, cars or home/office improvements etc if they’re not urgent due to these uncertain times.

    Insolvency / Administration
    The business impact of the Coronavirus is unprecedented in living memory for most of us. Even in the 1991 recession when interest rates were sky high, businesses were still able to trade. But now many businesses cannot even trade and there will be a knock on effect that could potentially affect everyone else in time.

    We believe that most of our clients should be able to survive but  wanted to mention that there are strict rules about continuing to trade and to order goods and services if you know that the business is not viable and that you won’t be able to pay creditors. If you are worried about this, you may wish to speak with an Insolvency practioner.

    In a worst case scenario, if directors are found guilty of wrongful trading, they can be held personally liable for the company’s debts from the point they knew the company was insolvent.

    Business rates relief
    Unfortunately this won’t apply to the majority of our clients at the moment as offices still have to pay rates. However, retail, hospitality and leisure businesses will have a rates holiday for 1 year from April 2020.
     
    Grants for small businesses
    £10,000 grant (was previously £3,000) – This is only for businesses who qualify for Small Business Rates Relief (rateable value is under £15,000 ) and don’t pay much business rates. It will be paid directly by your local council in April if you qualify. We doubt that businesses who work from home will be able to claim it.

    £25,000 grant  – this will also be provided to retail, hospitality and leisure businesses operating from smaller premises, with a rateable value between £15,000 and £51,000.
     
    2) Updates to taxes

    IR35:     the reforms that were due to take place from April 2020 have now been delayed for 1 year

    Corporation tax will now remain at 19% from April 2020. It was supposed to drop down to 17% but this has been cancelled

    Employer’s Allowance has been increased to £4,000 (it was £3,000 previously) to save on employer’s NIC.

    Entrepreneur’s relief reduced to £1m of lifetime gains.

    Working from home: allowance will increase from £4/week to £6/week

    Pensions:
    Currently the annual allowance of £40,000 is reduced if gross pay + pensions contributions (e’ee + e’er) exceeds £150,000. But from 2020-21, the threshold will increase to £240,000.
    The highest earners who earn more than £300,000 (gross pay + pensions) will receive an allowance of £4,000 only (currently its £10,000)

    R&D
    There will be more funding for R&D and mathematics research. This is likely to be delivered through grants.
    You can check on the funding available through Innovate UK (used to be called Technology Strategy Board): https://apply-for-innovation-funding.service.gov.uk/competition/search
     
    R&D tax credits
    The refund rate is unchanged at 14.5%.

    Previously we mentioned that the SME scheme which allows for cash refunds would be restricted to the amount of PAYE paid. This has now been delayed 1 April 2021.
     
    Property tax:
    The government will introduce a 2% SDLT surcharge on non-UK residents purchasing residential property in England and Northern Ireland from 1 April 2021.

    Also we wanted to remind you that from 1 April 2020 mortgage interest tax deductions will be restricted to basic rate at 20%. The last few years the higher rate relief has been gradually decreasing and from now on there will only be relief at the basic rate.
     
    Company cars:
    The rules are quite complicated but if you’re thinking of buying or leasing a company soon please let us know the make/model you’re considering and we can check the tax situation. There are some generous tax reliefs if you buy or lease brand new cars, especially if they are very efficient/green.
     
    VAT:
    Zero rate of VAT to e-publications (ebooks etc) from 1 December 2020

    VAT Postponed Accounting – From 1 January 2021 postponed accounting for VAT will apply to all imports of goods, including from the EU

    VAT exemption for fund managers: the exemption for special investment funds has been extended to pension funds

  • Startup accountant

    We are startup accountants & can help you setup

    Setting up a new startup or business can be stressful with what looks like a mountain of paperwork and red tape to deal with.

    We’re here to help you with the tax and accounting side of things and have advised startups as diverse as a new hotel chain to a payments platform to fashion stores and e-commerce. We can support you with the fund raising process from seed rounds all the way through to an IPO.

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    Generally speaking, if you make money from a business then you have to pay tax on your profit.

    Profit is defined for tax purposes as your sales and business income minus eligible business expenses. Most expenses incurred in running a business will save tax, but some are disallowed such as entertaining customers/suppliers with restaurants, events or gifts.

    Business structure

    Limited company

    The vast majority of our clients are limited companies because this structure can save a lot of tax and offer a lot of flexibility.

    If you want to scale and grow quickly via investment then you’ll need a limited company to issue shares to investors. You can also use a holding company to own subsidiaries if you may need to sell in future or will have different sites/sectors.

    Limited companies also provide protection against personal assets (eg house/car) if the business goes bust and can’t pay its suppliers/lenders.

    Some examples of the tax savings:

    • use a salary and dividends payment structure to avoid NIC and pay less income tax
    • you can decide how much money to take out the business and when
    • delay/defer tax using a directors loan
    • appoint family members as shareholders/directors to save tax
    • EIS/SEIS tax breaks
    • R&D tax credits

    Limited companies are required to file annual accounts and corporation tax returns, as well as file an annual confirmation statement. There is also more documentation involved to deal with shares and directors will need to file a self assessment to declare their dividends.

    Sole trader

    Sole trader registration is best for very small businesses as it involves less admin and cost.

    If you expect your profit to exceed the annual personal allowance (2019: approx £12k per year) then you’ll need to be registered with HMRC as a sole trader.

    Once your turnover exceeds £40-50k per year then it will usually be worth converting to a limited company.

    If you expect to make a loss in the first few years then sole trader status can be quite beneficial as you offset the losses against previous years employment income to get tax refunds.

    The main filing requirement is to prepare a self assessment tax return with details of income and expenses.

    VAT

    If your sales will exceed a certain threshold (£85k per year in 2019) then you have to be registered for VAT. This means you have to hand over 20% of your sales to HMRC, but you can also reclaim input VAT on expenses.

    Most of our B2C clients will therefore add 20% to their planned sales prices so that they don’t suddenly start making a loss once VAT registration kicks in or lose consumers from having to increase prices. For B2B clients its not really an issue as business customers can generally just reclaim the VAT.

    Many of our startup clients have voluntarily registered for VAT so that they can get regular refunds from HMRC for VAT paid on their expenses such as rent, software and consultancy etc.

    VAT returns and payments usually have to be made quarterly.

    Payroll

    If you hire staff then you have to setup a PAYE scheme and issue payslips to employees. You’ll also need to calculate their income tax and national insurance and pay this to HMRC every month.

    A pension scheme will also need to be setup and staff enrolled, although they can choose to opt out if they prefer.

    Most of our limited company clients will setup a PAYE, even if there are no staff, as directors can pay themselves a salary to save tax.

    Record keeping 

    As you can see above, various documents have to be filed with HMRC for accounts, self assessement and VAT etc on a regular basis.

    In order to prepare these documents we need to have the full records of the business including:

    • bank payments and receipts
    • sales
    • expenses
    • loans
    • share issues/options

    Most clients will enter the transactions into cloud software like Xero, or use our excel template. Some clients are too busy or hate bookkeeping and so we do it for them.

    Managing performance

    If the bookkeeping is done regularly then we can check how the business is performing. We can also prepare cashflow forecasts and predict how the business will do in the next year.

    This is important because the vast majority of startups fail in the first 3 years, but as we help clients to manage their performance, our clients tend to survive and thrive.

    For example, we noticed one of our clients had a lot of slow paying customers with low value invoices and helped them to setup direct debit collections to automate the process. On another client we helped them to analyse their margins and to increase prices.

    Next steps

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    Please contact us for a free, no obligation consultation to discuss your requirements. Our offices are at Liverpool Street or we’re happy to have a phone/email discussion.

  • Staff absence is expensive

    Staff absence

    Studies have shown that staff absences from sickness or holidays can be very expensive for businesses.

    The cost of annual leave

    Under UK laws, full time staff are entitled to annual leave of 28 working days. This is more than 1 month!

    If we take an example of an employee on £25,000 pa and they are only in the office for approximately 11 months of the year. This lost month will cost a business £2,276 (at 2017 tax rates) in wasted wages.

    Moreover, the business may need to hire temporary staff, contractors or pay overtime at a higher rate.

    There will also be disruption to the business and temporary replacements may not know how to deal with regular customers or issues.

    Sickness

    Statutory sickness pay only has to be paid after 3 days of continuous sickness, however many businesses will have more generous sick pay policies.

    Again, businesses are paying for lost worker hours.

    There could also be urgent problems or deadlines that can’t be dealt with until the worker gets back.

    What can be done?

    We do believe that staff absence should receive annual leave and sickness pay, but why should your business pay for this in an inefficient manner and suffer disruption?

    At MAH, we use teams of people to process your tasks and to get things done. This means that if one of our team will be absent for holidays or sickness, we’ll always have cover ready. This means your business will continue to run smoothly, without disruption and without paying for lost hours.

  • How can SMEs prepare for the rise of the robots?

    The robot apocalypse

    Robot workers and AI… read the papers or turn on the news and its all doom and gloom for the masses.

    Perhaps one day a robot will be able to smile, converse, think and empathise in a way that makes it indistinguishable from a human.

    The robot apocalypse is coming, but rather than firing nukes Skynet will be firing staff. Or rather the wealthy elites will be doing the firing, as they’ll be the robot masters.

    But what about small and medium businesses?

    Well, if a hard working entrepreneur can afford the latest in robots and AI tech, then great. Mega profits lie ahead. The reality, however, is that a small number of large businesses will develop or acquire the latest and best technology and use it to improve their services and drive down prices. They won’t licence the tech and SMEs won’t have the resources or know how to develop their own. The large businesses will be able to expand into new markets, niches and segments at will due to the low costs from their new tech. They will then beat SMEs at their own game and drive them out of their business.

    Sounds far fetched?

    When the likes of Uber automate their cars, how will independent minicab companies compete?

    When KPMG or Xero refine their tech and improve it such that they can offer prices at the same rate as the high street, why would businesses choose smaller accounting firms?

    The robot apocalypse won’t just put workers out of jobs, it’ll put many SMEs out of business. But, there’s always a but. Businesses that focus on a level of service that is hard to replace with machines can still prosper, and will be able to offer something that the large businesses can’t.

    For example, a personal service and a smile could go a long way. In the near future, advice that relies on instinct and experience and not just an algorithm will also be a winning formula. But in the long term, as machines get more and more data they’ll be able to analyse more and more complex situations and to use their “judgement”.

    What can be done

    SMEs need to take action now to break down their business into a set of distinct processes and figure out can be replaced by robots or AI in the future. Then focus on the areas that will be hardest to replace, the core features and benefits that will give them the best chance of survival.

    The processes that are at threat can then be delegated or outsourced, freeing up the core workers to do what they do best.

    Then, when the future arrives and the robots or AI tech is unattainable or prohibitively expensive, SMEs will stand a chance, not just to survive, but also to thrive.