Click here to send us an email. Click here to call us.

Author: Steve Jones

Exploring your options as interest rises.

 Most businesses rely on funding in one form or another to keep their operations running, invest in new equipment or projects, and grow.

The past few years in particular have made it necessary for many businesses to source extra funds, either for dealing with the impacts of the pandemic or the rising cost of supplies.

According to UK Finance, SMEs borrowed a total of £22.6 billion in 2021, with demand for finance stabilising towards the end of the year.

But as interest rates rise, so does the cost of debt, and that’s putting additional pressure on businesses across the UK. As loans become more expensive, you might be wondering about your other options when it comes to financing.

Debt vs equity

You don’t have to choose between debt and equity finance – in most cases, businesses use a combination of the two. But it’s important to know the pros and cons, so you can make sure you’ve got the right mix.

Put simply, debt finance means you’re borrowing the money and will need to pay it back, usually with interest. Equity, meanwhile, means you’re selling a stake in your business to an investor – so they won’t expect you to pay the money back.

Because of this, getting finance through investment means you avoid the problem of rising interest rates altogether. But it does mean you’re giving up a portion of your business – and its profits – to someone else.

Your investor will expect to receive a return on their investment, and they’ll want reassurance you can provide it. This will generally mean you have more reporting obligations to show shareholders your progress, and they may want to influence your business decisions.

Having multiple owners can make processes like selling or closing the business more complicated when you eventually want to leave, so it’s always important to make sure you set up and understand the right formal agreements with them from the outset.

With a loan, meanwhile, you maintain a greater degree of independence from the lender, and full control over your company. Your only obligation is to repay the loan, but once that’s done in full, the lender won’t have any involvement in your business.

That said, having an experienced investor on board can also be an advantage, giving you access to their business knowledge and networks.

Types of debt finance

A common form of debt finance is a term loan. This is a loan you receive as a lump sum, that must be repaid over a set period of time. These can be long or short-term, and may be secured (meaning you offer a valuable asset your business owns as collateral, in case you can’t repay it) or unsecured.

The interest might be fixed over the period of the loan, or variable, so it’ll change over time depending on the bank’s borrowing costs or the Bank of England base rate.

For shorter-term financing needs, you might use a credit card, an overdraft, or another line of credit you can access as and when you need to. You’ll only pay interest on the amount you borrow with these, although there can be fees involved and you’ll pay extra if you miss your repayment date or go over your credit limit.

Besides these two traditional loan options, there are various alternatives to explore, too. Peer-to-peer lending websites, for example, allow people to lend and borrow money through a marketplace-style setup. These can, in some cases, be easier to access than a traditional loan, but they can also come with higher fees and interest rates.

It’s also worth looking into whether any Government loans are available to you. During the pandemic, thousands of businesses accessed emergency relief such as bounce-back loans and the coronavirus business interruption loan scheme, and while these are both closed, you can still apply for the recovery loan scheme until 30 June 2022.

Types of equity finance

If you decide to go down the equity finance route, one option is to seek funding from an angel investor. These are individuals who invest in your business because they can see an opportunity in it – perhaps they have a particular interest in your sector, or in what you’re trying to do.

For later-stage funding, venture capitalist (VC) investors are another option. These are professional investors who’ll want to see a substantial return on their investment, and generally want to be more involved in your business because of this.

VCs will sometimes be incentivised to invest through Government tax relief schemes, including the enterprise investment scheme (EIS), seed enterprise investment scheme (SEIS), or venture capital trusts (VCT).

Equity crowdfunding is another option if you can get enough people interested in what you’re trying to do, allowing you to offer unlisted shares in your business to multiple members of the public. This is often more relevant for consumer products than it is for business-to-business ones.

For certain businesses, particularly within the tech sector, you can also look at development schemes such as incubators and accelerators. These programmes offer investment, but they can also provide resources, mentorship and access to networks.

Finally, a common option for new businesses is to get some initial investment from friends and family. The people closest to you might be the most willing to help you succeed, and to put their money towards your goals – but make sure both sides are clear on what they’re getting into.

Other types of finance

Besides loans and investment, there are some other options to consider when accessing finance for your business.

Government grant schemes may be able to provide support, depending on your location, sector, and business activities. You can find a list of the schemes available on the Government website.

It’s also important to consider how you might be able to save money within your business, either by reviewing and streamlining your costs, or by making the most of the tax relief and allowances available to you.

Tax reliefs are available for research and development projects, for example, or for specific sectors like the creative industries.

You might be surprised by how much you can save by using these and cutting down on your tax bill – so be sure to find out exactly what you can access before making any financing decisions.

Get in touch to talk about financing your business.

Small and medium-sized businesses are underprepared for Making Tax Digital (MTD), according to new research by the Association of Chartered Certified Accountants (ACCA).

Working with the Corporate Finance Network (CFN), the ACCA’s SME tracker showed that 14% of accountants in the UK say their SME clients are “unprepared and will not be ready” for future phases of MTD.

In a survey of 8,900 accountants, 40% said their clients are “partially prepared” but are “not confident they will be ready”.

In comparison, only 22% said their clients are fully prepared for MTD and have the appropriate software set up.

Analysis also revealed a north-south divide between SMEs and their awareness of MTD, with half of London-based advisers saying businesses will be ready, compared to with just 17% outside of London.

MTD aims to remove paper-based filing and currently involves online submission of VAT.

From April 2024, MTD will apply to self-employment and property income over a £10,000 threshold, spelling the end of the self-assessment tax return as we know it, while MTD for corporation tax will arrive no sooner than April 2026.

The SME tracker also found that businesses are underprepared for other tax schemes, which could stump the Government’s plans for the future.

For instance, 42% of accountants said their SME clients have not asked about the ‘help to grow’ scheme or do not know what it is.

Instead, businesses are focused on immediate issues, according to the ACCA, such as tax compliance and access to finance.

Glenn Collins, acting head of ACCA UK, said:

“Government strategies to spur investment for the future are not cutting through with SMEs who seem to be taking a short-term approach, coupled with a belief that schemes are not applicable or relevant to them.

“SMEs outside of London also need a comms boost to ensure they’re part of the levelling up agenda – the Government can do this by working with intermediaries and the UK’s local authority infrastructure.”

Contact us to discuss the benefits of MTD.

Employees who claimed tax relief for working from home during the pandemic may no longer qualify in the 2022/23 tax year as HMRC changes its guidance for the scheme.

During the COVID-19 pandemic, people who could do their normal job at home were required to do so at various times and were allowed to apply for tax relief for the whole year.

The relaxed take on the system remains in place until the end of the current tax year but the rules for eligibility changed on 6 April 2022 now that there are no longer any legal restrictions on going into workplaces.

Tax relief can now only be claimed by workers who must work from home, as opposed to those who prefer to.

As a result, working-from-home tax relief can only be claimed if one of the following applies:

  • there are no appropriate facilities for you to work on your employer’s premises
  • the job requires you to live so far from the employer’s premises that it is unreasonable for you to travel there on a daily basis
  • you are required, under Government restrictions, to work from home.

You may be able to claim for additional household costs when working from home, but only the element of the cost that relates to your work.

Speak to us about claiming tax relief.

HMRC has confirmed it will raise interest rates on late tax bills by 0.25 percentage points after the Bank of England increased the base rate of interest to 1%.

 The announcement means the late payment interest rate and corporation tax pay and file rate will increase to 3.5% from 24 May 2022 (16 May 2022 for quarterly instalment payments) after the Government increased it to 3.25% on 5 April – the highest rate since the height of the financial crisis in January 2009.

Late payment interest is payable on late tax bills including income tax, National Insurance contributions, capital gains tax, and stamp duty land tax..

HMRC interest rates are set in legislation and are linked to the Bank of England base rate, which the Bank increased from 0.75% to 1% on 5 May 2022.

There are two main rates:


  • late payment interest, which is set at the base rate plus 2.5%
  • repayment interest, which is set at the base rate minus 1% with a lower limit of 0.5%.

Corporation self-assessment interest rates relating to interest charged on underpaid quarterly instalment payments rose to 2% on 16 May 2022, up from 1.75%.

Meanwhile, the repayment interest rate remains unchanged at 0.5%, the same level it’s been set at since 29 September 2009.

Get in touch to talk about your taxes.

The Bank of England (BoE) has raised its base interest rate to 1%, marking the fourth rise in a row and the highest base rate in 13 years.

The Bank’s monetary policy committee (MPC) voted 6-3 to increase the base rate of interest by 0.25% percentage points from 0.75% on 5 May 2022.

The current rate of inflation as measured by the consumer prices index (7%) is creating an intense cost of living crisis, with rising electricity and gas putting a strain on households and business – and pressure on the Bank to act.

The MPC said inflation will rise to just over 10% in Q4 2022 before gradually falling to its target of 2% in 2024.

The UK base rate of interest sets the rate at which individuals and businesses pay for borrowing money and what banks will pay to people saving with them, and is often seen as the BoE’s main tool to stave off inflation.

Kitty Ussher, chief economist at the Institute of Directors (IoD), said:

“We welcome the BoE’s judgement that the need to tackle high expectations of inflation is of greater concern than the risk of curbing demand too fast in the short-term”.

On the other hand, Suren Thiru, head of economics at the British Chambers of Commerce said the Bank’s decision will cause “considerable alarm”, adding:

“Higher interest rates will do little to address the global headwinds and supply constraints driving this inflationary surge. It also raises the risk of recession by damaging confidence and intensifying the financial squeeze on businesses and consumers.”

However, Julian Jessop of the Institute of Economic Affairs (IEA) described the rise as the “bare minimum” and said it did not go far enough. Indeed, the IEA’s so-called shadow MPC voted to increase rates to 1.5%.

It seems the BoE does not plan on slowing down its plan to increase interest rates, having based its inflation projections on an assumption that the Bank rate would have increased to 2.5% by mid-2023.

Talk to us about your debt repayments and savings.

All VAT-registered businesses must comply with Making Tax Digital (MTD) rules, regardless of how much they make each year.

Kicking in from 1 April 2022, the changes mean all VAT-registered businesses must compile and submit VAT returns using software that connects to HMRC’s systems.

They can do that either through a bridging tool or by using an application programming interface (API) to connect non-compatible software, such as Excel spreadsheets, to HMRC’s systems.

Alternatively, businesses can adopt one of several HMRC-recognised and compatible MTD software solutions, including cloud accounting platforms.

Although MTD for VAT is not completely new, this is a significant change for smaller businesses, many of which do not digitally store business records and file VAT returns.

Since April 2019, businesses with an annual turnover of £85,000 or above have been required to meet MTD for VAT obligations.

MTD is the Government’s flagship policy to digitise and modernise the tax system, making it more understandable and efficient so less tax revenue is lost to mistakes and errors.

All VAT-registered businesses must follow MTD for VAT rules from either 1 April, 1 May or 1 June 2022 depending on their VAT return quarters.

Any trader who should be filing VAT returns under MTD but has not registered will be charged a penalty.

However, businesses can apply for an exemption if they are unable to use digital tools, for example because of remoteness or religious beliefs.

MTD for income tax is expected to come into force in April 2024 after being delayed by a year to give businesses more time to recover from the worst of the pandemic.

Corporation tax is not expected to come into effect until April 2026 at the very earliest.


May 2022


Talk to us about MTD.

The Government has at last increased National Insurance (NI) and dividend tax by 1.25 percentage points after months of anticipation.

The 1.25% uplift came into effect on 6 April 2022 and will apply until April 2023, after which a separate health and social care levy will apply on peoples’ income at 1.25%.

The Government said it expects the levy to raise £39 billion over the next three years to help reduce the Covid-induced NHS backlog and reform adult social care.

The change means employees will pay NI at 13.25% on their earnings above the primary threshold up to £50,270 a year and 3.25% of earnings above that in 2022/23.

Some employees are exempt from the uprate in certain circumstances, including apprentices under 25 years old, employees under 21 years old, armed forces veterans and freeport employees.

Employers will pay 15.05% on earnings above £9,100 and the self-employed will pay 10.25% above £11,908.

Some have criticised the Government for going ahead with the plan it first announced in September 2021, saying it is mistimed with the current cost of living crisis as inflation runs at 6.2%.

However, from July 2022, the point at which individuals pay NI will rise by £2,690 to £12,570 – equal to the income tax personal allowance.

The Government said this means around 70% of taxpayers will end up paying less in NI even when taking into account the 1.25% uplift.

However, Torsten Bell, chief executive of the Resolution Foundation, said lower earners will not benefit as much as others, commenting:

“Middle and higher income households will gain most from the rise in the National Insurance threshold, but only £1 in every £3 of additional support announced today will go to the bottom half of the income distribution.”


May 2022


Talk to us about your tax liability.


The Government has set up an arbitration system to help resolve outstanding commercial rent debts as the general moratorium on commercial eviction ends.

From 25 March, a legally binding arbitration process is available for eligible landlords and tenants who have not yet reached an agreement.

The Government hopes this will resolve disputes about pandemic-related rent debt and help the market return to normal.

The law applies to commercial rent debts of businesses that were mandated to close under Covid lockdowns and restrictions in part or in full from March 2020 until the date restrictions ended for their sector.

During the pandemic, commercial tenants received a moratorium on evictions, which ended on 24 March 2022 in England and Wales.

However, eligible businesses remain protected for the next six months, during which time arbitration can be applied for.

Business minister Paul Scully said:

“This new law will give commercial tenants and landlords the ability to draw a line under the uncertainty caused by the pandemic so they can plan ahead and return to normality.

“Landlords and tenants should keep working together to reach their own agreements where possible using our code of practice to help them, and we’ve made arbitration available as a last resort.”


May 2022

Talk to us about your property.

IR35 Reform Landing Period Ends

Penalties now apply to businesses that make mistakes under new IR35 rules for the private sector.

The Government extended the off-payroll working rules reform to the private sector in April 2021, but promised to be lenient on mistakes in the first year.

The landing period has now ended, so employers caught within the reformed IR35 rules will have to pay a penalty of their unpaid tax between 30-100%.

Introduced in 2000, IR35 was designed to prevent tax avoidance by contractors who supply their services via intermediaries in a way so they enjoy the benefits of ‘employment’ and a lower tax rate than actual payrolled employees.

Known as ‘disguised employment’, this loophole was costing the Government millions of pounds in lost taxes each year.

Recent updates made the hirer, rather than the contractor, responsible for designating employment status and rolled out the new rules from just public sector businesses to medium and large private businesses.

After one year, some businesses seem to be struggling, with one YouGov survey suggesting the reform of IR35 has negatively impacted the finances of two in five companies.

Derek Cribb, chief executive of the Association of Independent Professionals and the Self-Employed, said:

“The changes to IR35 in the private sector in April 2021 have made it harder for [businesses] to hire contractors and has therefore made it even more difficult for them to grow during these turbulent economic times.”


May 2022

Talk to us about IR35.

How to prepare and protect your estate.

 We are all somewhat used to living with economic doom and gloom at present, from sky-high inflation rates to tax rises being splashed across the news headlines. But recent analysis from the Office of Budget Responsibility shows that you may also get stung harder after you are gone.

They estimate that HMRC inheritance tax takings are set to rase to £37 billion cumulatively over the next five years. That’s compared to £26.7bn for the previous five years to and including the 2021/22 tax year. The rise will be driven by inflation, and the freezing of the thresholds at which inheritance tax becomes payable.

This means that more people, and more of their wealth, get drawn into the scope of inheritance tax.

The good news is there are numerous planning strategies for managing inheritance tax liability. With a little savvy planning, many people are able to take themselves out of its scope completely, or at the very least reduce its impact significantly.

Inheritance tax rules

The standard rate of inheritance tax is 40%, but with careful planning it is possible to significantly reduce your potential IHT exposure thanks to a series of allowances and exemptions.

The most significant of these is your inheritance tax allowance, known as the nil-rate band. This allows the first £325,000 of your estate to be paid free from inheritance tax.

There is an additional nil-rate band for your primary residence of £175,000, if you leave it to direct descendants (including adopted, foster or stepchildren). Your total net estate must be valued at less than £2 million for this to apply. Above this, the additional nil-rate band will be tapered away by £1 for every £2 exceeded.

Furthermore, inheritance tax is not payable on anything left to a spouse or civil partner. Indeed, they can carry over your unused allowances, meaning a married couple (or rather their beneficiaries) enjoy a £650,000 inheritance tax allowance, or £1 million if the primary residence nil-rate bands are also available.

Anything left to charities or community amateur sports clubs is also exempt from inheritance tax.


Giving gifts

Once you understand the above allowances, gift giving is another effective tactic for reducing inheritance tax liability.

There is some smaller scale gifting around weddings (up to £5,000), annual gifts (up to £3,000) and small gifts (up to £250 per person per year) which you can use to reduce your liability.

But the bigger opportunity potentially comes from regular gifting, and utilising the seven-year rule.

Normally, if you give money away within seven years of your death and it does not fall within one of the above gift exemptions it is treated as if it remains within your estate for inheritance tax purposes. However, regular gifting rules say that if you gift money regularly out of your normal income after you have met all your own living costs, there is no limit to how much you can give tax-free.

The seven-year rule for non-income based gifts is a bit more involved. It refers to a taper system where the inheritance tax liability on a gift reduces in the years after you give it. If you survive for seven years, the liability reduces to zero, no matter the gift’s value. The tapering reduces the tax rate as follows:


  • Zero to three years – 40%
  • Three to four years – 32%
  • Four to five years – 24%
  • Five to six years – 16%
  • Six to seven years – 8%
  • Seven or more years – 0%


To qualify, you must give the gift without reservation. This means you have no right over the gift and cannot benefit from it unless you are paying a market value.

So, if you gift a house you cannot live in it unless you were to pay rent. If you gifted a painting, you could not continue to hang it on your wall. If you gifted money, you would have to make clear that it was not a loan which you expected to be repaid.

But other than this, there’s no limit. So, as part of a long-term strategy, gifting is a highly effective way to reduce inheritance tax liability.


Making a will

If understanding how inheritance tax works is one important piece of the puzzle, making a will is another.

While a good gifting strategy can help your estate sidestep inheritance tax while you are still alive, a will can help your estate manage the liability after your death.

It’s your opportunity to specify exactly how your estate is apportioned after you die. While the primary driver of this is usually to ensure assets go to the right people, there can be unwelcome tax consequences that are realised if you do not have a will.

If you do not have a will, your estate is subject to intestacy law. This is highly prescribed, and often assets are not distributed how you might imagine. We are focused on estate planning here, so won’t go into detail about the family arguments that might arise as a result.

But to illustrate just one consequence of intestacy, your spouse may not automatically get all your estate without a will in place – even if you wanted them to.

Intestacy says that a spouse gets all the personal belongings plus the first £270,000 of the estate. Then, if there are surviving children, the excess of the estate above £270,000 is split – with 50% going to the spouse and 50% to be shared equally amongst the children (including those from previous relationships if applicable).

Because any estate left to a spouse is not subject to inheritance tax, intestacy could yield a tax bill where none needed be due if it diverted assets away from a spouse.


Other considerations

We have already mentioned that anything left to charities is exempt from inheritance tax. It is also possible to pay a reduced rate of 36% inheritance tax on some assets if you leave at least 10% of the net value of your estate to a qualifying charity.

For some people, a life insurance pay-out may be made and become part of their estate. This could then be significantly reduced by inheritance tax. There is a simple way to avoid this, which is by making sure the life insurance policy is written in trust.

Most insurers give you the choice automatically when policies are taken out, so you can check if this was selected. Even if it wasn’t, you can put a policy into trust at any time, although you may need professional help.

Finally, consider that pensions can in some cases be passed on to beneficiaries without being subject to inheritance tax. This is not the primary purpose of a pension and they are subject to complex rules, but it may be useful to know for some.

May 2022

Talk to us about estate planning.