Articles

The Government is joining forces with lenders and agencies to tackle the high level of bounce-back scheme fraud cases.

A new report shows that £1.1 billion worth of loans provided through the Government’s bounce-back loan scheme (BBLS) have been marked as suspected fraud.

The Department for Business, Energy and Industrial Strategy (BEIS) released a document on 5 September on the scheme’s performance, with data covering up to 31 July 2022.

Data released by the BEIS has confirmed that since September 2020, investigations have only been launched into £160m worth of claims out of the £1.1bn total.

The BBLS provided rapid financial aid to small businesses affected by the Covid-19 pandemic.

Applicants were required to self-declare their eligibility criteria for the loans to encourage banks to lend quickly.

The large amount of fraud committed against BBLS is thought to have occurred due to the speed and urgency of the scheme’s rollout, with some businesses giving false information when filling out their applications.

To date, the scheme has paid out £46.6bn worth of loans, and the Government estimates 500,000 businesses could have permanently ceased trading had the scheme not been in place.

Protections were introduced from the start of the scheme to reduce the number of fraudulent claims, and lenders were required to make or maintain various checks to screen applicants.

Lenders reported preventing over £2.2bn worth of fraud from being committed against the scheme as a result of these checks.

The Government says it is working with the British Business Bank, lenders and law enforcement agencies to tackle fraud in BBLS and penalise fraudsters.

In the new report, the department for BEIS said:

“It is unfortunate that some have taken the decision to take advantage of this vital intervention by defrauding the scheme for their own financial gain.

“The Government has always been clear that anyone who sought to do so is at risk of prosecution.”

Get in touch to talk about your business.

The Bank of England (BoE) has predicted that the UK will enter a recession before the end of the year.

The prediction, backed up by the British Chambers of Commerce (BCC), follows consecutive rises in interest rates, with inflation reaching a 40-year high of 10.1% in July.

Although the BoE expects the economy to contract over 2023, the BCC predicts that it will grow slowly over the next year at 0.2%.

Both agree that inflation, as measured by the consumer price index rate, will hit a peak of around 14% in the last quarter of 2022.

The sharp rise in inflation is due to increasing energy costs and supply chain issues following the Covid-19 pandemic and the war in Ukraine.

Alex Veitch, director of policy at the BCC, said:

“We have revised our projected inflation rate upwards by four percentage points to a new high of 14%.

“Inflation is running rampant, and it is not only impacting the cost of doing business but also the ability of some firms to keep their doors open.

“Time is fast running out. The Government must step up to the plate and do what is needed to protect businesses, livelihoods and jobs.”

 

Talk to us about your budget during the fiscal squeeze.

The additional tax rate has been scrapped completely by the new Chancellor.

Kwasi Kwarteng has announced the biggest bundle of tax cuts since 1972 in his first fiscal statement as Chancellor.

Income tax, corporation tax and stamp duty make up the majority of the most significant cuts in a bid to promote growth within the economy.

The basic rate of income tax will decrease by 1% to 19% from April 2023, and the 45% additional rate for top earners will be scrapped altogether.

The stamp duty threshold for house-buyers in England and Northern Ireland will be doubled from £125,000 to £250,000, and first-time buyers will not pay stamp duty on homes worth £425,000.

The Chancellor estimated that the energy bill relief scheme, announced earlier in September, would be worth more than £60bn over the next six months from October.

As anticipated, the Government is reversing the 1.25% percentage point increase in National Insurance, effective immediately. The planned rise in corporation tax will also be scrapped, along with the cap on bankers’ bonuses.

The Government will also introduce low-tax investment zones, VAT-free shopping for overseas visitors and tighter rules for people receiving Universal Credit.

Contact us about your taxes.

The Government has announced a £400 energy bill grant will be paid to customers over six payments to help households cope with the cost of living crisis.

As part of an £11.7 billion energy support package, some 29 million households will receive grants to help pay for their energy bills this winter, starting in October.

The money will be credited to bills by energy providers in six payments of £66 for October and November, then £67 from December to March.

Business Secretary Kwasi Kwarteng said:

“While no Government can control global gas prices, we have a responsibility to step in where we can and this significant £400 discount on energy bills we’re providing will go some way to help millions of families in the colder months.”

The grants will also apply to tenants renting properties with domestic electricity contracts from landlords, where energy costs are included in their rent.

However, charities and campaigners expressed concern that more than two million prepayment meter customers may have difficulty accessing the support.

Customers who use ‘non-smart’ prepayment meters will not receive the support automatically but will instead have to redeem a discount voucher.

It’s said that 1% of households will not be eligible for the grant, mainly those without an electricity meter or a direct relationship with an energy supplier.

Contact us for advice on your finances.

Make use of these allowances while they last.

When a business incurs costs, such as salary payments or stationary procurement, it can usually fully deduct them as expenses from its taxable profits, reducing the tax due. However, when it buys assets for operational purposes, things are not quite so straightforward.

There are HMRC incentives to help you pay less tax on the assets you buy: these are called capital allowances. But there are a myriad of rules for which this tax relief can be applied to get your head around.

Here is a rundown of the main capital allowance tax reliefs.

 

The super deduction

The super deduction is the most generous of the capital allowances. It gives you 130% first-year relief on qualifying plant and machinery – significantly better than even a fully deductible expense. In fact, it saves you up to £247 in corporation tax for every £1,000 you invest.

There is a catch, though: it is time-limited and expires at the end of March 2023.

It is time-limited because of its generosity. It was introduced in April 2021 as part of the Government’s economic response to the COVID-19 pandemic, a sweetener to encourage apprehensive businesses to invest and boost productivity.

At the time, already low levels of business investment had dropped another 11.6% between Q3 2019 and Q3 2020 – as you will recall, this spanned some of the darkest days of the pandemic.

The Government’s generosity is genuine; the positive effect on capital allowances makes now an excellent time to invest in qualifying assets.

If a business were to invest £50,000 in plant and machinery which qualified for the super deduction, it would be treated as £65,000 expenditure in its capital allowances computation (130% of £50,000). This would lead to a corporation tax saving of £12,350 as opposed to £9,500 if the deduction had been 100%.

 

More about the super deduction

Only a limited company can benefit from the super deduction and it can only be claimed on new plant and machinery, as opposed to second-hand assets. Moreover, your purchases must be for direct use within your business, not for leasing or renting out to customers.

There is not an exhaustive list of qualifying plant and machinery which can be referred to, but suffice it to say that HMRC considers most tangible assets that would normally qualify for the main rate pool to be acceptable for the super deduction. So, computer equipment; office furniture; vans, tractors and lorries; ladders, cranes and drills; and electric vehicle charge points, to name a few, are likely to fall into scope of the super deduction.

One notable exception is cars, even if they are solely for business use.

It is important to plan ahead if you wish to take advantage of the super deduction, particularly in relation to the timing of the purchase and when your accounting year ends. But with only a matter of months remaining until the super deduction is due to expire, you ought to start your planning process as soon as possible.

Don’t forget, though, that there are other capital allowances available, even if you miss the deadline for the super deduction or your purchases don’t qualify.

 

Annual investment allowance

The annual investment allowance (AIA) is another capital allowance tax relief which allows you to gain first year relief on plant and machinery purchases in full.

In principle, the AIA is a permanent relief. However, while it normally has a £200,000 qualifying expenditure cap, this has been temporarily boosted to £1 million. The expiry date of the temporary boost, like that of the super deduction, is 31 March 2023.

The general kinds of qualifying purchases are the same as for the super deduction but, significantly, the AIA is available for second-hand purchases and assets purchased for leasing.

The rate of relief is 100% which is generous compared to most capital allowances, but not as good as the super deduction. Therefore, if you qualified for both, it would be better to choose the super deduction over the AIA.

Remember, though, that the super deduction is only available to limited companies, so the AIA is an excellent choice for sole traders or partnerships.

It is always wise to seek the advice of an accountant to ensure your tax position is optimised.

 

Other capital allowances

If you are unable to claim the super deduction or AIA, you should still be able to claim what are called writing-down allowances.

The disadvantage of these is that you are unable to get the full tax benefit against the first year: something which is generally good for cashflow. Instead, you deduct a percentage of the value of the asset from your taxable profits every year.

The value is normally deemed as what you paid for the asset originally, unless it was a gift or you owned it before it had a business use. In these cases, you go with its current market value.

There are two rates which apply to writing down allowances. These are an 18% main rate and a 6% special rate. You group assets into pools based upon these rates.

Most things go into the more generous main rate pool, but a select few must go into the special rate pool. These include: items with a long life, integral parts of a building (this has a specific meaning which includes lifts, air conditioning systems and external solar shading among other things), thermal insulation of buildings and cars with high CO2 emissions.

As you might imagine, there is a bit more to the detail of working out writing down allowances. We will not go into this here as it gets rather complex, but it is good to know that this less generous relief is there as a safety net for when the super deduction or AIA is not available.

 

Beat the AIA and super deduction deadlines?

With 31 March rapidly coming over the horizon, you may feel the pressure to act to benefit from the super deduction or AIA. If your accounting period straddles the deadline, the enhanced tax benefits will be applied pro rata, based on the timing of your purchase within your accounting period as well as the deadline.

This really does make it essential to plan well with an accountant to ensure you choose the correct relief and get your budgets right.

One point to consider is, will these most generous of capital allowances end up being extended beyond March 2023? The AIA in its current guise has already seen extensions, and if they were introduced as a measure against economic headwinds, it can hardly be said that the UK is experiencing plain sailing in the economy yet.

The Institute of Directors is one voice calling for an extension, citing their own research, which shows that the super deduction has had a positive and measurable impact on business investment. Time will tell, but in these uncertain times, don’t rule anything out.

 

We can help you plan your capital allowances strategy.

An overview of the Government’s seven steps.

Hiring an employee for the first time is an exciting moment for any business owner. Suddenly, you’ve got another pair of hands to help out with jobs that used to fall entirely on you – and with that extra support, new opportunities for growth are possible.

There’s a vast amount of preparation and administration to do beforehand, however, and a lot of things you need to know depending on who and how you are hiring.

The Government advises there are seven main steps a business owner needs to take when they first become an employer. In this article, we go through each of these steps in detail so you know exactly what you need to do.

1) Decide how much to pay someone

How much you’re going to pay someone needs to be the first thing you decide and must, as you’ll be well aware, be equivalent to at least  the National Minimum Wage, which changes regularly and varies by the employee’s age.

If a worker is over the age of 23, you must pay them the National Living Wage, which is £9.50 an hour as of the 2022/23 tax year. It doesn’t matter how small your business is – you must always stay within this rule.

There is a calculator for employers on the GOV.UK website that you can use to accurately check that you’re correctly paying a worker the National Minimum Wage and National Living Wage. This also shows you whether you owe your employee payments from the previous year because you underpaid them.

Just make sure that you check the National Minimum Wage and National Living Wage rates, as they are subject to change.

 

2) Check if someone has the legal right to work in the UK

The exact documents someone needs to give will change depending on certain characteristics, namely their nationality.

For instance, a British citizen with a valid passport must provide you with a clear copy of the passport, including some of their personal details (nationality, date of birth, photograph, etc).

Other applicants may have to have immigration status documents or a Government letter showing their name and National Insurance number.

The recruiting and hiring service tool on GOV.UK will help you understand exactly what you need to ask your applicants to provide you.

 

3) Check if you need to apply for a disclosure and barring service (DBS) check

Formerly known as a criminal records bureau check, this is a criminal background check that is compulsory for new staff in certain fields.

These checks can tell an employer if their employees have unspent criminal convictions, cautions or an employment history that’s seen them barred from a particular role.

Any employer can request that a potential employee go through a DBS check, but other jobs (mostly professional roles) require one.

You can request:

• a basic check, which shows unspent convictions and conditional cautions
• a standard check, which shows spent and unspent convictions and cautions
• an enhanced check, which shows the same as a standard check, as well as any information held by local police that’s considered relevant to the role
• an enhanced check with barred lists, which is the same as an enhanced list, plus whether the applicant is on the list of people barred from doing the role.

DBS checks have no official expiry date, meaning that it’s up to you when a new check is needed.

Alternatively, if the applicant has signed up for the DBS update service, you can check whether their certificate is up to date online.

There are different rules for getting a criminal record check in Scotland and Northern Ireland.

 

4) Get employment insurance

You need employers’ liability insurance as soon as you become an employer, which must cover you for at least £5 million and come from an authorised insurer.

Employers’ liability will help you pay compensation if an employee is injured or becomes ill because of the work they do for you. However, you may not need to take a policy out if you only employ a family member or someone who is based abroad.

You can be fined £2,500 each day that you are not properly insured, as well as £1,000 if you do not display your employers’ liability certificate or refuse to make this available to inspectors when they ask.

We recommend that you look into using an insurance broker to help you buy employers’ liability insurance.

 

5) Send details of the job to your employee

 Details of the job, including contract terms and conditions, must be sent in full to your new employee.

Terms can be in a written contract, verbally agreed, in an offer letter or in collective agreements between employers and trade unions or staff associations.

If you are hiring someone for more than one month, you must also send them a written statement of employment.

The written statement is made up of the ‘principal statement’, which includes everything from the employee’s name and probation period to holiday entitlement and job description.

There must also be a ‘wider written statement’, which must include information about pensions and pension schemes, collective agreements, and disciplinary and grievance procedures.

 

6) Tell HMRC by registering as an employer

You need to register as an employer with HMRC when you begin employing staff or using subcontractors for construction work. In fact, you have to register even if you’re only employing yourself, for example as the sole director of a limited company.

You must register with HMRC before the very first payday, so make sure you do it as early as possible – it doesn’t help that it can take up to five working days to get your employer PAYE reference number and 10 days to get an activation code for PAYE online.

If you want to run payroll yourself, you’ll need to get a login for PAYE online by registering with HMRC. After that, choose which payroll software you’re going to use to record employee details, calculate pay and deductions, and report to HMRC.

You then need to record pay, make deductions and report to HMRC on or before the first payday.

If you need to pay an employee before you get your employer PAYE reference number, you should run payroll, store your full payment submission and send a late full payment submission to HMRC.

 

7) Set up and manage a workplace pension scheme

Employers are required to provide a workplace pension scheme for eligible staff as soon as your first member of staff starts working for you. This is known as your ‘duties start date’.

You must enrol and make an employer’s contribution for all staff who:

• are aged between 22 and the State Pension age
• earn at least £10,000 a year
• normally work in the UK (this includes people who are based in the UK but travel abroad for work).

If staff later become eligible because of a change in their age or earnings, you must put them into your pension scheme and write to them within six weeks of the day they meet the criteria that you are doing so.

Get in touch for advice on employing staff.

The Government’s ‘help to grow: digital’ scheme has now expanded to include businesses with fewer than five employees.

Over a million more businesses will now be eligible for the scheme, which has also been expanded to include one-to-one advice and additional software.

Launched in January this year, the scheme was established to help small to medium-sized businesses purchase software and digital technologies to help them grow.

Eligible businesses can get up to 50% off approved technologies, worth up to £5,000 in related costs under the scheme.

Previously, only businesses with more than five employees were eligible, but businesses with 1 to 249 employees can now access the discounts.

The scheme now also covers eCommerce software for the first time.

Alan Mak, exchequer secretary to the Treasury, said:

“Extending our help to grow: digital scheme will enable thousands more SMEs to become more innovative, competitive, and profitable.”

The Federation of Small Businesses (FSB) said lowering the threshold will help SMEs grow and build the economy.

The national chair for the FSB, Martin McTague, said:

“Reducing the threshold to one employee makes a difference in this space.

“Together with ecommerce software and one-to-one advice for SMEs on technology adoption, this will enable more small businesses to fulfil their growth ambitions.”

Help to grow: digital includes advice on the latest digital technologies, how to use them and how to decide on which may best serve a business.

People who register also have access to case studies on businesses that have adopted new software and how it has worked for them.

Businesses that wish to apply for the help to grow scheme can do so via the Government website.

After a business decides on the software they wish to use, it will have 30 days to apply for a Government discount from the date of issue. Anything after 30 days requires re-registering.

 

Talk to us about your business.

The Bank of England (BoE) has increased interest rates to 1.75%, the first rise of half a per cent in over 20 years.

The latest increase is the fifth rise since December 2021, with the BoE arguing that rate rises are needed to tackle soaring inflation.

Inflation as measured by the consumer price index (CPI) is expected to rise more than previously predicted, from 9.4% in June to just over 13% in Q4 2022. The Bank still hopes CPI will fall to its 2% target in 2024.

The Bank’s monetary policy council (MPC) voted eight to one in favour of the rise. Andrew Bailey, governor of the BoE, said:

“The real risk we’re responding to is that inflation becomes embedded, and it doesn’t come down in the way that we would otherwise expect.

“We’ve had a domestic shock. We’ve had shrinkage in the labour force over the last two years or so.”

Chairman of the Federation of Small Businesses, Martin McTague, said:

“Many commercial, personal and professional loans that small businesses and sole traders hold are not protected by fixed rates and will move in line with the increase.”

The BoE’s deputy governor, Dave Ramsden, said the Bank will decide whether rates will be increased as the year progresses.

Get in touch to discuss your business.

The Government has announced plans to relax capital gains tax (CGT) rules in divorce settlements, giving spouses and civil partners more time to transfer assets without incurring CGT charges.

If the new rules are approved, they will come into effect from 6 April 2023.

Newly separated couples are currently given until the end of the tax year to transfer assets without incurring CGT, a period known as ‘no gains, no loss’.

However, if the transfer takes place in the tax year after their separation, but before they are legally divorced, the assets are transferred at deemed market value, and CGT could be due.

The main issue with CGT during divorce proceedings is that it incurs another charge when money is already being spent on the divorce itself, so cash may be low for each individual.

If approved, the changes will mean that separating spouses or civil partners will be given up to three years after the year they cease to live together to make a no gain, no loss transfer

Otherwise, they will have until the decree absolute is granted, provided the transfer is made in accordance with a formal divorce agreement or court order.

Any person who holds an interest in the former matrimonial home will be given a chance to claim private residence relief up to the point of sale. Even if this is many years into the future.

However, the property must be empty because of the divorce for this to apply.

This is also true where partners have transferred their interest in the former matrimonial home to their ex-spouse or partner but retain the right to a share of any future proceeds.

 

Any changes will not affect the CGT on sold assets as part of the divorce proceedings, and people will still have to pay CGT within 60 days of the sale if it relates to property which is not their primary residence.

Ask us about your CGT obligations.

Choosing the right scheme for you.

Just about everyone has heard of VAT (value-added tax). We’re used to paying it on many of the goods and services we purchase as we go about our everyday lives.

But when you have your own business, you’ll learn a whole new world of VAT exists as you work out how to apply it to your own trade. That’s because there are numerous VAT accounting schemes that HMRC offers, and which one is right for you will depend on the nature of your business.

To get you up to speed, we’ll take a look at each of the main VAT accounting schemes, explaining how they work and who they might suit.

 

How does VAT work?

Once you reach a turnover in excess of £85,000 over the last 12 months you must register for VAT. If you are below that threshold, you have a choice as to whether to do so.

By voluntarily registering for VAT while below the threshold, you can create a more professional image of your company with financial documents and reclaim VAT on qualifying expenditure.

You’ll probably end up having to raise your prices to reflect VAT, however (although any VAT-registered customers can normally reclaim this element), and have to file VAT returns.

Knowing whether you should voluntarily register for VAT is no simple matter and should only be done with the advice of an accountant or financial adviser.

VAT is chargeable at a rate of 20%, although select items have lower rates of 5% or 0%. Normally, you charge VAT on your goods and services and reclaim it on your expenses.

Whether you register for VAT voluntarily or are required to, you’ll have a suite of schemes to choose from.

 

The standard VAT accounting scheme

Most businesses opt for this scheme. Under it, you will be required to keep a thorough record of purchases and sales and submit a quarterly VAT return to HMRC, with the VAT due to be paid one month and seven days after the end of the quarter.

Under the standard scheme, the VAT liability is calculated based on the dates of your paperwork (invoices and receipts), rather than the actual dates of cash in and cash out. This may cause cashflow problems if you have tardy customers, which is where the VAT cash accounting scheme (see overleaf) may prove useful.

 

VAT annual accounting scheme

The annual VAT accounting scheme is good for businesses that prioritise keeping paperwork to a minimum. You’ll still have to maintain the same records but, as the name suggests, you only have to file a return once a year instead of quarterly.

You won’t get away with just making an annual payment, however. You must make monthly or quarterly interim payments based on an estimate of what you will owe. This is then corrected to an accurate figure with either a top-up payment or refund at the end of the year.

Only businesses with a turnover of less than £1.35 million are eligible for this annual scheme.

 

VAT cash accounting scheme

Another option available to businesses with a turnover of less than £1.35 million is the VAT cash accounting scheme.

As we suggested earlier, this can be useful if you have customers who take a long time to pay invoices. This is because instead of your VAT liability being calculated by the date of the invoices you issue, it is based on the date and value of payments received.

However, by the same measure, you can only reclaim VAT based on actual cash spent, not the paperwork associated with a purchase. So, if you use a lot of credit, this may be a cashflow disadvantage for you.

 

VAT flat rate scheme

The VAT flat rate scheme could be an excellent option for certain smaller businesses.

Instead of passing on the VAT you collect from your customers (less the VAT you are reclaiming yourself) to HMRC, you pay a fixed rate. This is determined by the industry you are in and typically ranges from between 14.5% for professions like accountancy and law to just 4% for food retailers. The trade-off is that you cannot reclaim VAT on your expenditure.

While there’s an underlying simplicity to the concept, there are a number of rules that add some complexity.

First, it is only available to businesses with a turnover of £150,000 or less, which will rule it out for a lot of VAT-registered businesses. There are other potential obstacles to joining too. For instance, if your business is “closely associated with another business” or you have committed a VAT offence in the last 12 months, you cannot join.

Second, if you are classed as a ‘limited cost’ business, the percentage you pay to HMRC rockets to 16.5%, which may prove poor value compared to some of the lower rates. A limited cost business is one whose goods cost less than either 2% of turnover or £1,000 a year (if your costs are more than 2%).

Unfortunately, many vatable costs that a small business might incur cannot be put towards the £1,000 threshold, including rent, phone bills and vehicle costs – it catches out more businesses than you might first imagine.

 

VAT retail schemes

If you are a retailer, there are three specialist schemes open to you that are designed to make it less burdensome to calculate your VAT liability. With all three, you calculate what you owe just once when completing the VAT return.

Depending on your retail activities, you can choose from the point of sale scheme, with which you identify and record the VAT when you make a sale; the apportionment scheme, which is best if you buy goods for resale; and the direct calculation scheme, which is appropriate when a few of your sales are made at one VAT rate and the remainder at another.

Each of these can be used in conjunction with the annual accounting scheme or cash accounting scheme – but not the flat rate scheme. If your turnover (excluding VAT) ever grows to £130 million whilst you are using a VAT retail scheme you will have to agree a bespoke retail scheme with HMRC.

 

VAT margin scheme

The VAT margin scheme can be chosen when you are trading items for which you did not pay VAT on the purchase. This could be second-hand goods, works of art, antiques and collectors’ items.

It allows you to calculate the VAT based upon the value you add between purchase and sale and prescribes a rate of 16.67% on this amount.

As well as items on which you were charged VAT being excluded, so also are precious metals, investment gold and precious stones.

 

Making tax digital (MTD)

It would be remiss not to mention that, as of April this year, all VAT returns must be filed in compliance with HMRC’s Making Tax Digital (MTD) initiative. The simplest way of doing this is by using accounting software like Xero or QuickBooks.

While the change to a new way of doing things digitally may seem daunting, it should actually make things simpler and more efficient for you in the long run.

 

Contact us to talk about VAT accounting schemes.