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How should you structure your business?

Business structures are essential for tax purposes.

If you’re looking to join the 4.3 million people in the UK who made the jump into self-employment, you might be wondering how to start your new business.

Assuming you’ve weighed up the pros and cons involved and decided launching a startup is right for you, one of the first things to consider is how will you pay tax?

This requires you to choose a structure for your new business. The three most popular options are sole proprietorship, general partnership or limited company.

Last year, operating as a sole trader was the most common structure as around 3.2m sole traders accounted for 56% of the UK’s entire private-sector business population.

By comparison, there were 2m actively-trading companies and 384,000 general partnerships, making up 37% and 7% of the business population, respectively. You can also be a limited liability partnership.

The vast majority of those sole proprietors are genuine one-man bands; that’s to say they don’t have any employees (in an official capacity, at least).

There’s no rhyme or reason for going it alone and it’s worth being aware of the key options on the table when you start a business. You can also change your business’s structure whenever you like, although that can prove costly.

Sole proprietorships

Being a sole trader means there’s no legal distinction between your business and your own personal finances.

You will be solely responsible for any losses the business makes during the tax year, which currently runs from 6 April to 5 April the following year, as well as any of the business’s bills.

It will also be your responsibility to keep accurate records of any income and expenses from the tax year. This will be of paramount importance when Making Tax Digital for income tax comes in from April 2024.

In terms of your tax liabilities, your business profits will be assessed for income tax where not covered by the personal allowance (£12,570 in 2021/22). You currently need to file a self-assessment tax return relating to the previous tax year on or before midnight on 31 January.

Any amount of your business turnover, minus any expenses, that exceeds the personal allowance up to £50,270 will be charged income tax at the basic rate of 20%.

The slice of business profits worth £50,271 up to £150,000 will be taxed at 40%. Any excess profits above £150,000 will be taxed at the additional rate of 45%.

You will also need to pay National Insurance contributions (NICs) above certain thresholds. Class 2 NICs are currently fixed at £3.05 a week, unless the profits are less than £6,515. Class 4 NICs are charged at 9% of profits between £9,569 and £50,270 and 2% on profits above £50,270.

General partnerships

Ordinary business partnerships share many things in common with sole proprietorships. They’re both usually registered as self-employed and liable for income tax and NICs at the same rates and thresholds.

The key difference is that two or more people manage and operate the partnership, rather than the one individual in a sole proprietorship.

Partners split any profit in a pre-agreed ratio, and the same ratio determines responsibility for any losses the partnership makes.

Business partners’ tax reporting obligations are slightly different to sole traders, however. When you register as an ordinary partnership, you have to ‘nominate’ a partner to be responsible for submission of the partnership tax return.

This SA800 form simply asks for details of the partnership’s income in a tax year. That should include income from trades and professions, interest or alternative finance receipts from banks, building societies or deposit takers, all of which should all be reported on or before midnight on 31 January following the end of the tax year.

After the profits have been allocated, each partner needs to file their own personal tax return through self-assessment, reporting their profit share.

Limited liability partnerships

Limited liability partnerships (LLPs) are similar to ordinary partnerships from a tax perspective, but similar to companies from a legal perspective since the partners’ liability is limited to the amount of money they invest in the business.

You can incorporate an LLP to run a business with two or more members. A member can be an individual or a company; the latter’s known as a ‘corporate member’.

An LLP agreement will set out the members’ responsibilities and share of the profits. Exactly like ordinary partnerships, each member pays income tax and NICs on their share of the profits, but they are not personally liable for any debts the LLP incurs.

Like a limited company, an LLP must be registered at Companies House and with HMRC, while you will also have to arrange for the annual accounts to be prepared and filed.

Incorporations

If you choose to incorporate your business, you will probably go down the limited company route. Broadly speaking, this is a legal structure for a business in which the liability of each shareholder is limited to their own investment.

Limited companies are governed by rules and regulations in the Companies Act (2006), one of which means you must register with Companies House.

Private-sector companies are usually limited by shares which are distributed among its shareholders and are not traded on public stock markets.

Companies pay corporation tax, currently at 19%, on any taxable profit they make during their accounting period. Depending on how you decide to pay yourself, taxes on income, dividends and NICs can all come into play for you personally.

While the prospect of having limited liability will seem attractive, you will have more responsibilities than if you were to operate as a sole trader.

Umbrella companies

If you’re on a short-term contract or just trying out the world of freelancing, working through an umbrella company might be a suitable option.

An umbrella company sits between you (the contractor) and your end-clients, or agency if there’s one involved. The umbrella company will employ you and be responsible for handling all of your employment taxes.

If you’re a contractor or freelancer, this offers peace of mind as the umbrella company pays your taxes and chases late payments from clients. It can also offer valuable benefits like sick pay and annual leave.

You simply do the work, fill in a timesheet, your end-client authorises it and invoices the umbrella company, who then deducts your taxes and its fee before paying you.

What’s the best option for you?

Being a sole trader offers the most control over your business and is both easy and cost-effective to set up. You will, however, be liable for any debts it racks up.

What can be said about sole traders also applies to partnerships, although with more than one person calling the shots in a partnership comes the potential for disagreements.

LLPs exhibit elements of a being in a business partnership and running a limited company. If you go down this route, you must start trading within a year of registering your LLP or face being struck off.

Limited companies offer you less personal financial exposure with the protection of limited liability and the flexibility to remunerate yourself in tax efficient ways. However, there can be significant set-up costs and your annual accounts and financial reports will be in the public domain.

Umbrella companies suit freelancers and contractors, and can ensure you stay on the right side of the off-payroll working rules more commonly known as IR35.

Get in touch to discuss your options.

January 2022

How to extract profits out of a company

Tax-efficient advice for limited company directors.

Believe it or not, there are more than 4.7 million limited companies registered in the UK, including the 810,316 incorporations that signed up in 2020/21.

Only around 2m are actively trading, but the number of new companies formed during the previous tax year was a 22% year-on-year increase.

Unsurprisingly, that percentage represented the highest number of incorporations on record. Surprisingly, this record high was reached during COVID-19.

As well as starting a company in the middle of a pandemic, company directors also need to work out the most tax-efficient ways to pay themselves.

Once you’ve set up an incorporated business and become a director, you have to be smart about how you extract profit to avoid paying more tax than you need to.

There are three main routes for a director to extract profits from their own limited company – salary, dividends and pension contributions. Usually, combining these three methods is the most tax-efficient approach to minimise your tax bill.

With corporation tax applying (at 19% in 2021/22) on any of your company’s taxable profits from its accounting period, the money you take out of the profits to pay yourself can potentially reduce your company’s corporation tax liability.

Pay yourself a small salary

When running a limited company, it might be easy to overlook that your business’s money doesn’t go straight into your personal bank account.

So, to get it into your pockets, consider paying yourself a basic salary. This is usually set just below certain thresholds for National Insurance contributions (NICs) with the aim of enjoying the benefits of paying NIC without actually suffering any.

If, for example, you pay yourself more than the lower-earning limit (£6,240 in 2021/22), you will accrue qualifying years towards your state pension.

While that’s a positive, paying yourself more than the Class 1 NICs secondary threshold (£8,840) would be a negative.

Your company will become liable for employers’ NICs at a rate of 13.8% on any earnings above that. If you pay yourself a penny less than £8,840 in 2021/22, your company avoids paying this jobs tax altogether.

The next payroll consideration is the personal allowance (£12,570 in 2021/22). The basic rate of income tax doesn’t apply until you exceed this threshold.

One other pertinent point to consider is that any salary you pay yourself will be treated as a business expense, which means it will reduce your taxable profit and lower the amount of corporation tax your company has to pay.

Taking dividends 

Dividends are paid to an incorporated company’s shareholders out of post-corporation tax profits. Usually, a director will be one of those shareholders and quite often the sole shareholder.

Many directors pay themselves in a combination of salary and dividends. As dividends are drawn from profit, you need to show you have profit reserves available before issuing dividends.

If you cannot demonstrate that, HMRC could reclassify your dividends as salary and you would almost certainly need to pay income tax and NICs on that.

Dividends are a different form of taxable income, and they are treated slightly differently in comparison to salary. The same income tax bands apply, but different dividend tax rates are associated with them.

The best way to illustrate how dividends are taxed is through an example. Let’s say you’re the sole shareholder, your company has made post-tax profits of £29,570, and your accounting period runs parallel to the tax year.

You take £8,000 as salary in 2021/22 and £29,570 in dividends, £37,750 in total. The £2,000 dividend allowance makes £27,570 of your dividend potentially taxable, while what’s left (£35,570) will exceed the personal allowance (£12,570).

Once the personal allowance is deducted, £23,000 of your dividends will be taxable at 7.5%. You will fall into the basic-rate income tax band. This would leave you with a tax bill of £1,725, with the dividend being taxed as the top slice of income.

Pension contributions

The single most tax-efficient way to extract profits from your company, but not the most practical, is to make employer contributions towards your pension pot.

These will reduce the company’s liability to corporation tax and they are not subject to NICs, although this does involve taking money out of the company for future use.

You can potentially put up to £40,000 gross into your pension pot over the course of the tax year with no tax due. If you haven’t used any of your annual pension allowance over the last three tax years, you might be able to carry over any unused annual allowance from those years.

The total amount you can save without incurring charges into your pension pot is currently capped at £1,073,100, due to what’s known as the ‘lifetime limit’.

Assuming you stay under these thresholds, when the time comes to take your pension benefits – currently after the age of 55, but rising to 57 from April 2028 – 25% is normally tax-free.

The rest of your retirement income that exceeds the personal allowance will be taxed at your marginal rate of income tax under the existing rules.

However you go about extracting profits from your incorporated business, getting personal tax planning advice will always help you pay the least amount of tax legally possible.

Other tax-efficient tips

The main rate of UK corporation tax applies at 19% on your company’s profits, so the goal is to reduce those profits as much as you can before being assessed.

The easiest way to reduce your company’s corporation tax bill is to claim every business expense you’re entitled to. The general rule is these must be “wholly and exclusively” used for business purposes, though.

From stationery and phone bills to computer software and travel costs, there’s a long list of business expenses which you might be eligible for. You can claim for expenses with a dual purpose for business and personal use in certain circumstances as well.

The golden rule is to keep accurate records of these expenses if you want to claim tax relief on those costs to reduce your company’s year-end profits.

Taking advantage of the annual investment allowance is also a wise idea. This is currently set at £1m until 31 March 2023. This allowance lets your company deduct investments in plant and machinery – such as certain commercial vehicles, machinery and office equipment – from taxable profit in full.

For example, if your company has profits of £500,000 and you spent £250,000 on plant and machinery before 31 March 2023, the full amount can be deducted from your profits. This means only the £250,000 left would potentially be liable for corporation tax.

Finally, if you’re in a position to pay your corporation tax bill early without harming the company’s cashflow, HMRC will pay you interest.

You have nine months and one day after your company’s year-end to settle your corporation tax liability. But if you pay your tax six months and 13 days after the start of your accounting period, the tax authority will pay ‘credit interest’ back at 0.5% from the date you paid until it was due.

For example, your company’s accounting period runs alongside the tax year from 6 April 2021 to 5 April 2022. You can make an early payment any time between 19 October 2021 and 6 January 2023 and earn interest.

This interest would need to be included in your company accounts as it is taxable.

Bear in mind that the UK’s main rate of corporation tax will increase from 19% to 25% from 1 April 2023, so getting used to extracting profits now will be time well spent.

Speak to us for corporate tax planning advice.

January 2022

One in four buy-to-let landlords ‘plan to sell up in 2022’

Almost a quarter of landlords plan to sell up over the next 12 months as buy-to-let becomes increasingly difficult to navigate, a report has claimed.

Research from the National Residential Landlords Association (NRLA) found that 23% of property investors intend to dispose of an additional residential property this year.

Buy-to-let landlords said tougher tax rules, extra costs to make green upgrades, and tighter restrictions on evicting problem tenants were their motives.

Nick Clay, research officer at the NRLA, said:

“Those planning to sell cited changes in tax and regulation, as well as increased costs as the key reasons for selling property.

“The fear of not being able to take back possession of property was the single most important regulatory reason why landlords were selling.

“On tax, the changes in mortgage tax relief continue to bite.”

Unincorporated landlords can no longer deduct any of their mortgage expenses from their rental income to reduce their income tax bills. Instead, they receive a basic-rate tax credit which is worth 20% of their mortgage interest payments.

The old system offered higher-rate and additional-rate taxpayers more generous 40% or 45% tax relief on mortgage payments.

Landlords who wish to sell additional residential property outside of their main residence have 60 days to report and pay any capital gains tax.

Speak to us before you dispose of an asset.

January 2022

More red tape for importers as new EU checks kick in

Most UK importers were unprepared for the recent introduction of import controls on EU goods, according to a report from the Federation of Small Businesses (FSB). 

Full customs declarations and controls took effect from 1 January 2022, although safety and security declarations are not required until 1 July 2022.

Before 1 January 2022, full customs declarations for EU goods could be deferred at the point of arrival.

Now, importers will have to submit paperwork which includes notice of food, drink, and products of animal origin imports in advance of arrival.

Research from the FSB discovered that only 25% of small importers knew of the changes and had prepared for them prior to this month.

One in eight (16%) importers polled said they were unable to prepare for the introduction of checks in the current climate, and 33% were unaware of the new rules prior to the study.

Mike Cherry, chairman at the FSB, said:

“A lot of small firms simply don’t have the cash or bandwidth to manage this new red tape.

“They should speak to suppliers to ensure they have all they need to make declarations, consider alternative providers if that looks like an efficient way forward, and think about different transportation routes.

“Stockpiling is naturally a temptation for those fortunate enough to have the funds for it, but there is already a squeeze on warehousing space – if everyone ramps up storage, that squeeze will only tighten.”

Importers have already had to contend with increased bureaucracy since the UK formally left the EU this time last year.

Complex VAT rules on imports changed at the same time, requiring UK businesses to account for import VAT on goods worth £135 or more.

Most firms impacted by this rule use the postponed VAT payment system, which allows them to account for VAT on imported goods on their next VAT return.

This means the goods can be released from customs without the need for immediate VAT payment.

Get in touch to discuss any aspect of VAT.

January 2022

Report sheds more light on changes to R&D regime

More details have emerged on upcoming changes to the UK’s research and development (R&D) regime, which will take effect from April 2023. 

The Treasury published a report on R&D following last year’s Autumn Budget, in which Chancellor Rishi Sunak announced several new measures.

“If we want greater private-sector innovation, we need to make our R&D tax reliefs fit for purpose,” said the Chancellor during his speech in October 2021.

The report centred on the R&D expenditure credit (RDEC) and the small and medium-sized enterprises (SME) R&D relief.

These schemes provide an injection of cash or a corporation tax reduction when evidence of qualifying R&D is submitted to, and approved by, HMRC.

The RDEC enables eligible companies to reclaim up to 11p, after the deduction of corporation tax, for every £1 spent on their qualifying R&D.

The R&D tax credit scheme for SMEs offers a benefit of up to 33% – the equivalent of up to 33p for every £1 spent on qualifying R&D.

Until 31 March 2023, there is no requirement that R&D activity must be undertaken in the UK for companies to be eligible for these R&D tax reliefs.

But from 1 April 2023, new restrictions will bid to ensure that reliefs focus on domestic R&D activity and incentivise greater investment in the UK.

The report also detailed how the scope of R&D will extend to include cloud computing and data costs to reflect how companies conduct research.

Measures to combat fraud and abuse will require R&D claims to be made digitally, and to notify HMRC before submitting a claim for relief.

The report stated:

“In considering other reforms, the Government’s objectives remain to ensure the UK remains a competitive location for cutting-edge research, that the reliefs continue to be fit for purpose, and that taxpayers’ money is effectively targeted.”

Talk to us about R&D tax reliefs.

January 2022

Reforms to the ways in which unincorporated businesses pay income tax – known as basis periods – will go ahead, one year later than planned. 

Proposals and draft legislation were published in July 2021, suggesting the new rules would commence from 6 April 2023.

Instead, sole traders and most business partnerships will be subject to income tax on profits arising in a given tax year from 6 April 2024.

This will mean no change for self-employed businesses with an accounting year-end between 31 March and 5 April.

But for other businesses, this is likely to bring forward the date on which taxable income will need to be calculated and tax will need to be paid.

This new method of calculating taxable profit will apply from the 2024/25 tax year, rather than 2023/24 as previously planned.

The Government expects this will make it easier for the self-employed and small businesses to claim tax reliefs they are entitled to, but often do not take advantage of, due to confusing existing rules.

The Office for Budget Responsibility said the measure “generates the fiscal illusion of raising revenue when, in fact, it reduces it in the long-term” as it will have no effect on the amounts of profits taxed.

Special rules will apply to self-employed businesses that transition from the old to the new regime during a transitional 2023/24 tax year, during which time some businesses will experience double taxation.

Not only will they be taxed on 12 months of profits from the end of the basis period for 2022/23, there will also be transitional profit based on the period from the end of those 12 months to 5 April 2024.

On transition to the tax-year basis from 6 April 2023, all businesses’ basis periods will be aligned to the tax year and all outstanding overlap relief given.

Get in touch to discuss the basis-period reform.

December 2021

Delving into recent changes that affect the CIS.

The construction industry remains one of the UK’s key sectors, which also helps to underpin the UK economy, despite experiencing the effects of the COVID-19 pandemic.

In September 2021, construction output grew by 1.3% on the previous month – placing the sector just 1% below its pre-pandemic level – and it’s still worth a decent share of UK GDP.

Despite this monthly fluctuation, the Government remains committed to delivering up to 300,000 new homes a year by the mid-2020s.

Major infrastructure projects like the HS2 railway line and Hinkley Point nuclear power station in Somerset are also edging closer to completion.

It’s easy to see how the sector employs “more than 9% of the UK’s total workforce”, roughly equating to around 3.1 million people.

Many of these will be familiar with the complexities of the construction industry scheme (CIS), which sets out rules for how payments to subcontractors for construction work must be handled by contractors in the industry, taking into account the subcontractor’s tax status.

From a tax perspective, there have been recent changes announced in the last 12 months which affect both the CIS and UK VAT. Not that many would know, given the lack of publicity.

Who does the CIS affect?

Under the CIS, all payments made from contractors to subcontractors must take account of the subcontractor’s tax status as determined by HMRC.

This may require the contractor to make a deduction, which they then pay to HMRC, from that part of the payment that does not represent the cost of materials incurred by the subcontractor.

The CIS covers all construction work carried out in the UK, including site preparation, alterations, dismantling, construction, repairs, decorating, and demolition.

Any type of domestic or overseas construction business – companies, partnerships, and sole traders – working in the UK must register for the CIS, regardless of whether they’re a contractor or subcontractor.

Contractors & subcontractors

‘Contractors’ and ‘subcontractors’ have special meanings that cover more than is generally referred to as ‘construction’.

A contractor is a business or other concern that pays subcontractors for construction work. They might be construction companies or building firms, but may also be government departments, local authorities and many other businesses that are normally known in the industry as ‘clients’.

If a business or other concern spends more than £3 million on construction within the previous 12 months, they will be treated as a ‘deemed contractor’ and must monitor their construction spend regularly. Conversely, a subcontractor is simply a business that carries out construction work for a contractor.

In some cases, it’s possible for a business to be both contractor and subcontractor. This occurs when a business pays another firm for construction work, but also receives payment from another business.

When they’re working as a contractor, they must follow the CIS rules for contractors and when they’re working as a subcontractor, they must follow the rules for subcontractors.

How the CIS works

All contractors and subcontractors should register with HMRC for the CIS. Subcontractors will be subject to a higher-rate deduction if they have not registered.

Contractors deduct money from a subcontractor’s payments and pass it to HMRC. These deductions count as advance payments towards income tax and National Insurance, similar to PAYE.

A limited company will have deductions taken by the contractor from the income due to the company.

This deduction can then be offset against other company tax liabilities such as PAYE, VAT, corporation tax or can be refunded to the company after the end of the tax year.

Sole traders and partnerships will also have deductions made from the income they receive.

They are then required to report their gross income on their self-assessment tax returns, with contractor deductions also reported on the tax return and subsequently deducted from any income tax liability which is calculated as being due.

Contractors need to verify a subcontractor’s status with HMRC before payment is made to establish whether they are registered and the correct amount of tax to withhold. Tax can be deducted at source at 0%, 20% or 30%.

Contractors must report all of the payments they have made under the CIS to the tax authority, or report they have made no payments in the tax month, by the 19th of each month.

Penalties apply if the monthly return deadline is missed.

Recent changes to the CIS

Four new measures affecting the CIS came in for 2021/22, which aim to crack down on tackling labour fraud. An obvious example is where a contractor pays casual workers cash-in-hand.

First, HMRC can amend the CIS deductions suffered and reclaimed on real-time information via the employment payment summary to an amount matching any evidence it holds.

If there is no evidence, or a construction firm is not entitled to set-off in this way, HMRC can remove the claim completely and prevent you from submitting another set-off claim for the rest of a tax year.

Being on the wrong side of this change could cause significant cashflow disruption and detailed records should be kept to support any set-off claims.

The second change is aimed at subcontractors who claim the cost of materials on a project, and avoid a CIS deduction on this amount as a result.

It is only where a subcontractor directly incurs the cost of materials bought to fulfil a particular building contract that the cost in question is not subject to a CIS deduction.

Under CIS rules, contractors must ascertain both how much was spent and that it represents the direct cost to that subcontractor for the contract.

The third change updates the rules for operating CIS as a deemed contractor.

Businesses operating outside the construction sector need to apply the CIS when their total spending on construction operations exceeds £3 million over the past 12 rolling months.

Previously, a business only had to operate under the CIS if its average expenditure on construction operations exceeded £1m over the last three tax years.

Last but not least, HMRC has expanded the scope for imposing a penalty for supplying false information on payment applications under deduction or gross payment status.

The person or business to whom the registration applied could be penalised before last month, but now this also applies to anyone who exercises influence or control over a person registering for the CIS and either encourages that person to make a false statement or does so themselves.

The effects of reverse charge VAT

The VAT domestic reverse charge for building and construction services finally took effect on 1 March 2021.

It affects VAT-registered businesses, typically those who either take on contracts or subcontract others within a supply chain, that operate under the CIS.

Companies in the construction supply chain no longer receive their 20% VAT payment when they submit bills. Instead, the VAT is paid directly to HMRC by the ‘customer’ receiving the service.

The change is causing cashflow shortages for VAT-registered contractors, some of whom are owed repayments from HMRC at the end of each quarter dating as far back as last spring.

The tax authority said verification checks are slowing up the process, with some cases taking 30 days or longer while it waits for customers to supply the information required to verify the VAT return.

We can advise on the CIS.

December 2021

Salary-sacrifice arrangements could help employees negate the National Insurance contributions (NICs) rise during 2022/23. 

NICs will rise by 1.25% for employees, employers and the self-employed from April 2022 to fund the Government’s                 new health and social care levy.

In some scenarios, employees and employers can get around this by striking a salary sacrifice deal to reduce an employee’s gross pay in return for certain non-cash benefits, such as pension contributions.

This is a tax-efficient way to pay or boost pension contributions up to a limit, as the amount of salary exchanged is not liable for income tax or class 1 NICs.

Effectively, the non-cash benefit could become an employer pension contribution while reducing an employee’s NICs liability and also the employer’s NIC liability.

However, going down this route might lead to a reduction in some state benefits and could affect mortgage applications and employee benefits.

Kate Smith, head of pensions at Aegon, said:

“The 1.25% increase in NICs from next April increases employers’ payroll costs and will reduce employees’ take-home pay, making salary sacrifice even more attractive to dampen the increased costs.

“One way to offset the increased cost and to maintain current take-home pay, or increase pension contributions, is to use salary-sacrifice arrangements, although it may not be possible from April 2023.”

Talk to us about managing costs. 

November 2021

The temporary increase to the annual investment allowance has been extended by 15 months, just eight weeks before it was due to expire. 

The allowance offers 100% tax relief on qualifying plant and machinery up to a specified annual limit.

In 2019, the allowance was increased from £200,000 to £1 million – a rise that was scheduled to come to an end on 31 December 2021.

Chancellor Rishi Sunak has now extended the higher rate until 31 March 2023, when the UK’s main rate of corporation tax increases from 19% to 25%.

Speaking in his Autumn Budget 2021, Sunak said:

“Now is not the time to remove tax breaks on investment.

“So I can confirm that the £1m annual investment allowance will not end in December [2021] as planned, it will be extended all the way to [31] March 2023.”

The extension marks victory for the Association of Tax Technicians (ATT), which had previously campaigned for an extension to the allowance.

The ATT successfully lobbied for an extension last year, citing many firms had not been in a position to utilise the allowance in a way they otherwise might have done due to the pandemic.

The group said the latest extension “is good news for businesses whose annual capital spending exceeds £200,000, particularly if their profits are charged to income tax rather than corporation tax”.

But it wants the Treasury to resolve transitional provisions in order to help small businesses.

Jon Stride, co-chair of ATT’s technical steering group, said:

“More than 95% of UK businesses incur qualifying capital expenditure of less than £200,000 each year.

“The temporary limit of £1m could never benefit these businesses – but the transition back from £1m to £200,000 in 2023 could actively disadvantage them.

“We hope that the Government will take the opportunity in the forthcoming Finance Bill to introduce a simplification measure.”

Contact us about the annual investment allowance.

November 2021

Thousands of retail, hospitality and leisure firms in England will receive a short-term business rates reprieve in 2022/23, following Autumn Budget 2021.

Chancellor Rishi Sunak announced a temporary 50% cut in their business rates, up to a maximum of £110,000 per business.

Up to 400,000 businesses in these sectors – including pubs, music venues, cinemas, restaurants, hotels, theatres, and gyms – stand to benefit next year.

The Chancellor has also abandoned 2022’s planned annual increase in business rates for all firms in England for the second consecutive year.

The business rates multiplier usually determines this yearly rise and is tied to September’s inflation rate, as measured by the Consumer Prices Index.

But that would have resulted in a 3.1% increase for 2022/23, hammering many of these COVID-hit businesses that are still reeling from the effects of the pandemic.

In conjunction with the existing small business rates relief, Sunak said the move meant more than 90% of all retail, hospitality and leisure businesses in England would see a discount of at least half.

Business rates in these sectors have already been reduced during the 2021/22 tax year, following the rates holiday announced during the pandemic.

From April 2023, all businesses – not just in retail and hospitality – will be able to make improvements to their premises without having to pay extra business rates for 12 months.

The reforms also include a new relief for businesses that invest in green technologies, such as solar panels and heat pumps.

The British Chambers of Commerce (BCC) said Sunak’s five-point plan was “good news for many firms”.

Shevaun Haviland, director-general at the BCC, said:

“These changes will provide much-needed relief for businesses across the country, giving many firms renewed confidence to invest and grow.

“However, these changes must be the start, rather than the end point of the reforms to this broken system.”

Get in touch to discuss managing costs. 

November 2021