If you are setting up a new business one of the options, you will need to consider is your business structure. There are two basic choices:

1. Be self-employed, or
2. Incorporate your business, be a limited company.

There is a world of difference between the two options.

Self-employed

Self-employed suggests that you work on your own, and this is certainly one self-employed option, but there are others.

You could have a business partner, or partners, and trade as self-employed but in a formal partnership arrangement. There are two basic types of partnership: a limited partnership (where the partners are not personally liable for any business risks) and a non-limited version where the partners’ personal assets are at risk in the event that the business cannot pay its debts.

This personal liability aspect is one of the key reasons that need to be considered when deciding on a structure for your business. The other is the impact of NIC and income tax.

If you are self-employed the profits of the business are taxable based on the tax status of the business owner or owners. There is no flat rate applied to business profits. The more you earn, the more NIC and income tax you will pay. And don’t forget, if you are self-employed and you run into financial difficulties, your personal assets may be at risk – unless you have opted for the Limited Liability Partnership arrangement.

A limited company

Alternatively, you could set up a limited company that is treated as a legal entity in its own right. Companies pay corporation tax, not income tax, at a single rate, presently 19%.

At first sight it may seem like a no-brainer, why would you be self-employed and pay much higher rates of NIC and income tax? Combine this with the limited liability aspect and the argument for trading as limited seems compelling.

Planning is key

Every potential new business-person should consider both options. There are pluses and minuses to each, and both need to be considered.

If you are thinking about a new business, perhaps your first venture into self-employment, please call so we can help you consider all the possibilities. This is not a process to be taken lightly and messing up could prove to be very expensive.

The way we organise our business and personal financial affairs determines the amount of taxes we pay. Most of us are focussed on outcomes, outcomes that on the face of it increase our profits or income without due regard for the effect these transactions have on our tax position.

A classic example is the rule that removes your entitlement to the annual personal tax allowance if your income exceeds £100,000. For the tax year 2019-20, your £12,500 personal tax allowance would be reduced by £1 for £2 that your income exceeds £100,000. And so, when your income reaches £125,000 you will no longer be entitled to claim this allowance. Because you are being taxed at a 40% income tax rate and you also progressively lose your personal tax allowance – between £100,000 and £125,000 – you are effectively taxed at 60% on this top £25,000 of your income.

With the benefit of hindsight, or more practically, with the benefit of tax planning, there might be lawful ways that you could reduce your income without compromising your finances and maintain your claim to the personal tax allowance.

Clearly, cost benefit considerations need to be advanced at this point. It is difficult to argue that you adopt a tax planning strategy if the cost of the support you need are more than taxes saved.

Planning requires a three-step process:

• A fact-find to fully understand your present position,
• Research to discover if there are any viable planning opportunities, and
• The agreement of a course of action based on an appreciation of the investment required to provide the necessary advice and the likely tax outcome(s).

If your business or personal financial matters are complex, and you don’t invest in an annual tax planning review, we would be interested in talking with you to see if we could impact your tax footprint in a positive way. Please call, we can help.

As UK resident persons we are obliged to comply with the law, if we don’t, there are consequences. These range from financial penalties to imprisonment.

Tax compliance covers areas such as submitting returns to HMRC by the required dates and observing certain disclosure rules if our personal or financial circumstances change in a particular way. For most of us this means submitting an annual tax return and paying any calculated tax, NIC or VAT liabilities as they fall due.

For most taxpayers this s a chore that cannot be avoided, and it is tempting to see any investment in professional fees to complete these returns as a cost. As advisors we have sympathy with this point of view and yet there are compelling reasons to view this compliance service as beneficial, as an investment not a cost.

Firstly, if you don’t have to complete and fret over what does and what does not need to be returned, you will have more time to spend on activity that furthers your business interests or gives you more time to spend with your family. It will also, we hope, give you comfort that your affairs are being handled professionally – the sleep better at night outcome.

Secondly, an impartial review of your tax affairs – in order to deal with your compliance obligations – may reveal opportunities to change the way you organise your business or personal financial affairs in order to reduce the impact of taxation.

Timing is also an issue. There are compelling reasons to have advance notice of tax payments. For example, our self-assessment tax returns do not need to be submitted until 31 January following the end of a particular tax year. So, for the tax year 2018-19, the filing deadline is 31 January 2020. Why leave completing your return until the last minute if this means you have no time to figure how you are going to fund tax payments due?

Tax compliance, if managed correctly, is much more than a rubber-stamping activity, and hopefully, this post will convince you that your investment in the process has advantages that will justify your investment. Please call if you need help with your tax compliance obligations.

The phrase “no-deal” is assuming a rather specific meaning as the exit from the EU grinds towards a conclusion – the present deadline for achieving a withdrawal agreement is the end of October. If we fail to achieve consensus by that date, there are three outcomes:

• We agree terms for the withdrawal agreement,
• We kick the deadline down the road, or
• We leave with no agreement.

Recent debates on this topic would seem to indicate that the first option is unlikely, the second option doubtful which promotes the no-deal option to the top spot, more likely.

Although the majority of smaller businesses in the UK do not have direct trading links with firms in the EU, it does not stretch imagination by many degrees to conceive that our expanded supply chains (customers of our customers, suppliers of our suppliers) are EU businesses.

This inevitable conclusion means that if there is a no-deal outcome, and if this triggers a disruption in supply lines, then we all need to sit up and take notice.

Many firms who trade with the EU have already invested in strategies to secure their business interests in the event that we leave the EU with no-deal and have to cope with World Trade Organisation tariffs. Other practical difficulties, moving goods across the channel for example, require more imaginative planning.

It is instructive that the only detailed instructions published by government departments cover the no-deal scenario. We recommend that all businesses take a look at this material. See:

https://www.gov.uk/government/publications/uk-governments-preparations-for-a-no-deal-scenario/uk-governments-preparations-for-a-no-deal-scenario#conclusion.

We are working with clients to run risk assessment tests and create plans that will help them manage a no-deal transition. If you would like to avail yourself of this advice, please call asap. This topic is now assuming greater prominence and there really is little time left to get prepared…

With all the present upheavals in UK politics it is reassuring that for one government department, the Treasury, it’s business as usual.

Ordinarily, we would expect the next Budget to be presented to parliament in the autumn, usually November. As part of the Budget 2018, certain changes to the tax code were disclosed in advance of their expected implementation, April 2020.

These future changes have now been published as draft clauses for the 2019 Finance Bill.

In their recent press release, HMRC have confirmed:

The government is today (11 July 2019) publishing draft legislation for the next Finance Bill to deliver on our Budget 2018 commitment to a competitive and fair tax system, including updating tax policies for the digital age by ensuring large digital companies pay their fair share through a world-leading Digital Services Tax.

This Finance Bill, published in draft form today, ensures that from April [2020] next year:

• large digital businesses pay a new Digital Services Tax that reflects the value derived from their UK users,
• off-payroll working rules will ensure that two people working side by side in a similar role for the same employer pay the same employment taxes,
• when a business becomes insolvent, more of the taxes paid in good faith by its employees and customers will go to fund public services as intended, rather than being distributed to other creditors such as financial institutions.

The consultations on the draft legislation will run until 5 September, with measures included in the next Finance Bill.

Apart from the above and a multitude of technical changes to be included in the Finance Bill 2019, there are also changes to Private Residence Relief for capital gains tax purposes. The mooted changes are listed below.

The measures make a number of changes to Capital Gains Tax private residence relief (PRR) where individuals have more than one residence.

• It reduces final period exemption from 18 months to 9 months (there are no changes to the 36 months that are available to disabled persons or those in a care home) and
• reforms lettings relief so that it only applies in those circumstances where the owner of the property is in shared-occupancy with a tenant.

And no doubt there will be more content added to the Finance Bill as the Brexit process unwinds.

According to the dictionary goodwill is:

1. a feeling of benevolence, approval, and kindly interest

2. (modifier) resulting from, showing, or designed to show goodwill: the government sent a goodwill mission toMoscow.

3. willingness or acquiescence

4. (Accounting & Book-keeping) accounting an intangible asset taken into account in assessing the value of anenterprise and reflecting its commercial reputation, customer connections, etc

Goodwill, as discussed in this post, is the intangible asset, that amount that a buyer is willing to pay for your business over and above the valuation of physical assets (plant, equipment, stock, property and net working capital).

If you have a business, goodwill is a payment a buyer is prepared to pay for your customer list and the reputation that your business may have built over the years.

Valuing goodwill is a tricky process as it necessarily involves consideration of intangible items. Ultimately, the agreed valuation will be the amount someone is prepared to pay, and the amount you are prepared to accept.

How is the sale of goodwill treated for tax purposes?

A company or person selling goodwill will create a taxable gain. If possible, sole-traders, partners or shareholders would seek to have this gain taxed under the capital gains tax legislation and claim reliefs that would restrict any tax payable to 10% of the chargeable gain.

HMRC, on the other hand, would prefer that any gain is taxed as income, and subject to the much higher income tax rates.

These opposing points of view can make for lengthy and complex arguments that often play out in the courts.

Goodwill is a payment for the hard work that you have committed to your business and you will want to plan for any sale with an eye to any tax payable, which is why planning a sale is a must-do. Very often the way that you structure a sale, and its timing, will determine the tax outcome.

As with most tax planning this process should be completed before contracts for sale are signed.

Readers contemplating a sale should invest in professional advice. In this way you will maximise the amount you receive for goodwill and minimise any tax liabilities. Please call if you would like to discuss your options, we can help.

In the not too distant past, if you filed a set of accounts for a registered company with Companies House this usually involved sending the required documents using the postal system.

Inevitably, this involved a certain amount of delay: initially, for the package to find its way from your location to Companies House, and then for the document to be opened and processed. Which is fine if allowed plenty of time for delivery to complete or to send a replacement set of documents if the item was “lost in the post”.

Clearly, leaving this process to the last minute is a recipe for disaster as there are now fines if you fail to file accounts or other documents by the required filing deadlines.

Fortunately, Companies House now has an online filing portal which means you can file using an electronic version of your accounts; no more fretting about the postal system.

From 1 October 2019, Companies House are updating their internal guidance which dictates how they will respond to appeals against late filing penalties.

In a recent press release Companies House offered the following advice to companies:

We remind all customers to:

• plan ahead – do not leave your accounts until the last minute
• make sure your accounts are correct before you file them
• check the status of all documents you’ve filed using Companies House service

You should also use our online filing service wherever possible. It:

• is quicker to complete and register (it can take around 10 days to process paper accounts at peak times)
• uses less paper and is more environmentally friendly
• lowers your risk of getting a penalty, as companies receive electronic confirmation that we’ve received your accounts and if they’ve been accepted or rejected
• has lower rejection rates than paper filed accounts (0.5% for electronic accounts against 6% for paper filed accounts)

Clients reading this update will be relieved to note that we do file accounts – where this is possible – online.

For those readers who still rely on the postal system please give yourself plenty of time, failure to meet the required deadlines can result in significant financial penalties. Currently they are:

• £150 – if less than one month late
• £375 – if more than one month but less than three months late
• £750 – if more than three months but less than six months late
• £1,500 – if more than six months late

The above penalties automatically apply to all overdue accounts. Failure to comply with the filing requirements for the previous financial year will result in the above penalty being doubled.

And don’t forget:

A private company has 9 months from the end of the accounting reference period in which to deliver its accounts, and if you change the accounting reference period the filing time may be reduced.

If you are in business you either buy (manufacture) or sell goods, or you deliver a service based on your personal skills.

If you buy or sell goods there is no reason to believe that once you have achieved a sale to a particular person of business, they will return to buy again. Unless, what you sell will eventually “run-out” and the buyer will return to buy again. Importantly, to make subsequent sales of goods you will have to manage stocks and a delivery function.

If you sell services that fix one-off issues – say remove a dead tree – once the service is delivered, unless the customer has a forest, it is unlikely they will contact you for more dead-tree removal issues.

However, if you are contracted to mow acres of lawn for a local authority, as long as you don’t fall foul of spending cuts or other issues your contract to provide these services will reoccur.

Again, to deliver these recurring services (as with repeat orders of goods) you will physically need to maintain equipment and supply labour.

In all of the above cases, where there is a recurring element to repeat business value can be attributed, but something has to be done in order to deliver the repeat business.

What if you could build income streams based on an initial effort, but no follow-up activity (or very little) to maintain the income stream?

For example:

• you could write a book and enjoy royalties
• create a subscriber list for your news copy
• buy and let a property
• invent a product and receive licence fees

In all the above there is the possibility to leverage the benefits of your initial actions that will enable to receive income while you are “on the beach”.

1 July 2019 – Due date for Corporation Tax due for the year ended 30 September 2018.

6 July 2019 – Complete and submit forms P11D return of benefits and expenses and P11D(b) return of Class 1A NICs.

19 July 2019 – Pay Class 1A NICs (by the 22 July 2019 if paid electronically).

19 July 2019 – PAYE and NIC deductions due for month ended 5 July 2019. (If you pay your tax electronically the due date is 22 July 2019)

19 July 2019 – Filing deadline for the CIS300 monthly return for the month ended 5 July 2019.

19 July 2019 – CIS tax deducted for the month ended 5 July 2019 is payable by today.

1 August 2019 – Due date for Corporation Tax due for the year ended 31 October 2018.

19 August 2019 – PAYE and NIC deductions due for month ended 5 August 2019. (If you pay your tax electronically the due date is 22 August 2019)

19 August 2019 – Filing deadline for the CIS300 monthly return for the month ended 5 August 2019.

19 August 2019 – CIS tax deducted for the month ended 5 August 2019 is payable by today.

New defensive controls recently deployed by HMRC have put an end to fraudsters spoofing the tax authority’s most recognisable helpline numbers.

Fraudsters have increasingly mimicked legitimate HMRC helpline numbers (often beginning with 0300) to dupe taxpayers and steal money. Last year alone, HMRC received over 100,000 phone scam reports.

The ‘spoofing’ scam worked as taxpayers would receive calls and, on checking the numbers online, would find they appeared to belong to HMRC. This often led people to believe fake calls were real and enabled fraud.

The new controls, created in partnership with the telecommunications industry and Ofcom, will prevent spoofing of HMRC’s most used inbound helpline numbers and are the first to be used by a government department in the UK.

Criminals may still try and use less credible numbers to deploy their scams – but that means they will be easier to spot.

It looks increasingly likely that we are heading for a no-deal Brexit. Taken literally, this means that our present relaxed trading relationship with customers and suppliers in the EU will cease at the end of October this year.

Whilst there will be attempts to ease customs congestion and the effects of new tariffs, now is not a good time to sit back and see what might happen.

Many companies have already started a formal risk assessment to clarify how their supply lines and costs would be affected, and this is a process that we would recommend that all businesses consider, and as soon as possible.

Even if your business has no direct trade with the EU, many of your customers and suppliers will, and this indirect linkage will have ramifications for your sales and costs post Brexit.

Trying to double guess the antics in parliament is a seemingly fruitless endeavour. If we are going to survive the disengagement with the EU it would be wise to join the ranks of those businesses that are planning for all eventualities.

If you are still unsure how to proceed with a formal review of your Brexit planning, please call, we can help you consider your options.

The government have recently announced that they are to extend the criteria for an approved, and therefore tax-effective, cycle-to-work scheme as part of their drive to reduce pollution and CO2 emissions in urban environments.

E-bikes have an integrated motor that helps a cyclist pedal, allowing them to reach speeds of up to 15.5 mph in the UK. They are seen as a game changer for their potential to make it easier for older or less fit people to make cycling a part of their commute.

The refreshed guidance will make it easier for employers to provide bicycles and equipment including e-bikes worth over £1,000, by making it clear that FCA authorised third party providers are able to run the scheme on their behalf.

According to their press release, the government is also working to drive down emissions across all modes of transport, committing to end the sale of new conventional diesel and petrol cars and vans by 2040, investing in hybrid trains, doubling investment in cycling and walking since 2010, and launching the £2.5 billion Transforming Cities Fund which will develop innovative public transport schemes in some of England’s biggest cities.

Employers who draw their workforce from the local community might like to take a fresh look at adopting a formal scheme for their business.