What does the budget mean for your business?

Posted on October 31, 2024 | by Katie Donno | Leave a Comment

After months of speculation, we finally have the details of the first budget from the new labour government. It appears most of the burden will be on business owners, ultra-high net worth individuals and investors, but thankfully not tiny business owners. Before discussing the changes and how they will affect you and your business affairs in detail, here are some thoughts.

It might feel unfair at the moment, and it might hurt financially, however it wasn’t as bad as the media said it was going to be. Over the past few years, you have gone through much tougher stuff with Covid and the cost-of-living crisis, and the resilience you built to help you through those will help you now.

If you are concerned, a good first step is to book a call with us to discuss the impact of this budget on your payroll, profitability, 2025 business plan and cash forecast and eventual exit plans for your business.

Let’s now go into details:

Your wage bill will go up:

On the 29th Oct the government announced the following changes to the National Minimum Wage which will apply from the 1st April 2025:

National Living Wage (21 and over): up by 77p to £12.21 per hour
18-20 Year Old Rate: up by £1.40 to £10.00 per hour
16-17 Year Old and Apprentice Rate: up by £1.15 to £7.55 per hour

This means if you employ someone to work 40 hours per week, on the National Living Wage their salary would be £25,396.80. Then you have National Insurance and pension costs on top of that. The increases are in line with the Low Pay Commission’s recommendations.

On top of the rise of the national minimum wage, the government announced changes to Employer National Insurance contributions. Not only are wages rising, but the amount of NI contributions employers pay is also increasing, and the point at which Employer Contributions are due has also decreased. Employer National Insurance Contributions now are set at 15% – up from 13.8%, with the threshold that businesses will now start paying for employees when their salary gets to £5,000 instead of the previous figure of £9,100.

However, the government has cushioned the impact of the increase in Employer National Insurance Contributions by increasing the Employment Allowance from £5,000 to £10,500. This means that most of the micro and small businesses could see a reduction in their Employee NI costs. For example, if your payroll monthly was £10,000 and every employee was above the salary threshold of £5000, then your NIC payments would reduce by over £3000 across the year. So, if you are one of these businesses, you could end up better off!

However, if you are a single director/shareholder company with no other employees, you are not eligible for Employment Allowance. This means that if you take a salary of £12,570 per month, your Employers’ NI contributions will go up in April from £39.90 to £94.63 per month.

Suggested Actions:

Review your wages: Figure out whose pay needs to go up in line with the national minimum wage and whose pay must also increase to remain fair, given the rise in the lowest-paid team members’ wage.
Review your costs and business model: Do you need to change how you resource your business? For example, is the balance of contractors vs permanent employees right? Would you be better off as a sole trader rather than trading via a limited company?
Review your operations to find efficiencies: How can your business use technology or slicker working practices to avoid hiring more permanent employees?
If in doubt, get in contact with us and we can help you to make a plan.

How will you pay yourself?

In years gone by, dividend tax credits made it far more efficient to pay directors a nominal amount via PAYE then the remainder via dividends. In this budget there was no announced change to basic, higher, or additional rates of income tax, employee NICs or dividend tax rates or credits for 25/26. Therefore basic rate income tax is still 20% vs dividend tax basic rate at 8.75%. Will paying yourself via PAYE or putting more aside into pensions be more tax-efficient in the short and long-term? With Capital Gains Tax rising, the tax you pay when selling your business has gone up which could mean less money in your bank account if or when or if you decide to sell your business.

Capital Gains Tax Increases with immediate effect:

It was predicted that Capital Gains Tax would go up in this budget, and while it did, it was not as much as feared.

Capital gains tax: lower rate increases from 10% to 18%
Capital gains tax: higher rate increases from 20 to 24%

Capital Gains Tax rates for Business Asset Disposal Relief (selling your business), and Investors’ Relief (investing in other businesses) will rise gradually to 14% from 6 April 2025 and match the main lower rate of 18% from 6 April 2026. This is to allow business owners time to adjust to the changes.

The lifetime limit for Investors’ Relief will be reduced to £1 million for all qualifying disposals made on or after 30 October 2024, matching the lifetime limit for Business Asset Disposal Relief. These new rates will match the residential property rates, which are not changing.

Going forward, this means that you are going to be more heavily taxed if you sell an asset or come into some money. Whether this means shares, business, property, inheritance, or something else. It also means that getting independent advice on your tax affairs is even more important now than ever. We can help you with this.

Inheritance tax:

The current inheritance tax thresholds are due to be frozen until April 2028, and the government is extending these threshold freezes for a further two years to April 2030.

The government is also removing the opportunity for individuals to use pensions as a vehicle for inheritance tax planning by bringing unspent pots into the scope of inheritance tax from April 2027.

The government will reform agricultural property relief and business property relief from April 2026. In addition to existing nil-rate bands and exemptions, the 100% rate of relief will continue for the first £1million of combined agricultural and business assets to help protect family farms and businesses and will be 50% thereafter. The government will also reduce the rate of business property relief to 50% in all circumstances for shares designated as “not listed” on the markets of a recognised stock exchange, such as AIM.

Business rates:

There is further help for the retail, hospitality, and leisure sectors. Businesses in these sector will enjoy the small business multiplier, which is the amount used to work out your business rates bill, being frozen at 49.9p. Then when the current 75% reduction in rates ends at the end of this tax year, a 40% reduction in business rates up to a £110k cash cap.

Driving and fuel costs:

The 5p temporary cut to fuel duty is being extended into the 25/26 tax year.

Company car tax rates have now been set for until 29/30. It’s still going to be much more tax efficient to have an electric car, but not as much as before.

Fully electric cars BIK % rises to 7% in 28/29. However, the hybrid car BIK in 28/29 rises to 18% and in line with the new company car BIK tax rates for petrol and diesel cars.

Zero emission cars will pay the lowest first year rate at £10 until 2029-30

Immediate changes to stamp duty:

Stamp duty is going up from 3% to 5% for those buying second homes, buy-to-let residential properties and companies purchasing residential properties. However, if the property is worth over £500,000 and being bought by a company then stamp duty will rise to 17% from 15%.

Non-domicile tax regime is being scrapped:

The government is removing the non-dom tax regime from the tax system and replacing it with a new residence-based regime from 6 April 2025.

Individuals who opt-in to the new regime will not pay UK tax on foreign income and gains (FIG) for the first four years of tax residence. From 6 April 2025 the government will introduce a new residence-based system for Inheritance Tax (IHT), ending the use of offshore trusts to shelter assets from IHT, and scrapping the planned 50% reduction in foreign income subject to tax in the first year of the new regime.

Overseas Workday Relief will be retained and reformed, with the relief extended to a four-year period and the need to keep the income offshore removed.

The government is extending the Temporary Repatriation Facility to three years, expanding the scope to offshore structures, and simplifying the mixed fund rules to encourage individuals to spend and invest their FIG in the UK.

For Capital Gains Tax purposes, current and past remittance basis users will be able to rebase personally held foreign assets to 5 April 2017 on a disposal where certain conditions are met.

These changes mean that it pays to get advice on your tax affairs if your income and capital gains come from both inside and outside of the UK. If this is you, please get in touch with us for a conversation with our Tax Manager.

Closing the tax gap:

The government is recruiting an additional 5,000 compliance staff and providing funding for 1,800 debt management staff. This will ensure more of the tax that is owed is paid and that more taxpayers pay outstanding tax due.The government is also investing in modernising IT and data systems to improve HMRC’s productivity and improve taxpayers’ experience of dealing with the tax system, delivering the modern and digital service businesses and individuals expect.

The government is also committed to taking stronger action on tax fraud, including by expanding HMRC’s criminal investigation work and legislating to prevent abuse in non-compliant umbrella companies.

As always, if you have any questions about how this will affect yourself and your business, get in touch with us and we can arrange a meeting to help you plan. Email Katie on katie@1accounts.co.uk or call us on 01440 844986.

The Spring Budget – The Detail

Posted on March 7, 2024 | by Jade Donno

On March 6, 2024, Chancellor Jeremy Hunt delivered a spring budget aimed at boosting public morale and securing voter support, especially important as an election looms and the UK faces economic challenges. This budget focuses on easing financial strains by lowering National Insurance for everyone, tweaking VAT rules for small businesses, and adjusting child benefit charges to support families. Plus, there’s a small break on property sales taxes for some, but no changes to income or inheritance taxes. Let’s explore what these changes could mean for you.

National Insurance Contributions are going down

The first budget announcement was that National Insurance Contributions are again being cut. The government is cutting the main rate of employee National Insurance by 2% from 10% to 8% from 6 April 2024. Combined with the 2% cut announced at Autumn Statement 2023, this will save the average worker on £35,400 over £900 a year.

The government is also cutting a further 2% from the main rate of self-employed National Insurance on top of the 1% cut announced at Autumn Statement 2023. This means that from 6 April 2024 the main rate of Class 4 NICs for the self-employed will now be reduced from 9% to 6%. Combined with the abolition of the requirement to pay Class 2, this will save an average self-employed person on £28,000, around £650 a year.

Following these changes, assessing both salary and dividend options for their tax advantages is advisable. This strategy could optimise your tax position.

The threshold for registering for VAT is going up

The Chancellor raised the VAT registration threshold to £90,000 to alleviate the administrative burden on small businesses and encourage their growth. This change means that smaller businesses can generate more revenue before needing to charge VAT, potentially increasing their competitive edge and allowing them to reinvest savings into their operations. However, businesses approaching this new threshold must plan strategically to manage their growth and VAT responsibilities effectively.

Inflation has rapidly fallen and the economy is picking up

They announced in the budget that Inflation has significantly decreased from 11.1% to 4%, and is expected to reach the 2% target by the second quarter of 2024, according to the OBR. This reduction, occurring faster than previously predicted, indicates a stabilising economy. Last year, the UK experienced minimal growth, indicative of a recession. However, projections show an improvement from early 2024, with the UK predicted to be among the top three fastest-growing G7 economies between 2024-2028. For business owners, this could mean more stable costs, improved consumer spending, and better conditions for growth and investment.

The post-pandemic recovery loan scheme is being extended

The British government has recently updated the Recovery Loan Scheme with an additional funding provision of £200 million, aiming to support the growth and investment plans of small-scale enterprises. To be eligible for this loan, a business must generate no more than £45 million annually, maintain a sustainable model, and be free from immediate financial distress. The Recovery Loan Scheme is also being renamed The Growth Guarantee Fund as announced in the budget.

Full expensing for leased assets is coming

Capital allowances offer businesses an effective strategy to decrease their taxable income. This is achieved by allowing companies to deduct the cost of qualifying purchases such as equipment, machinery, and certain types of business vehicles from their profits, leading to tax savings. This approach not only reduces tax liabilities but also encourages reinvestment in the business. The concept of full expensing enables businesses to apply these capital allowances in the same fiscal year the investment is made. The Chancellor recently hinted that full expensing for leased assets would be implemented when it is financially feasible.

Changes to the Child Benefit Charge

At the moment, there is a situation where a household with 2 parents, each earning £49,000 a year, still gets the full Child Benefit, but those with one parent earning over £50,000 will see some or all of the benefit withdrawn. From 6th April 2024 the point at which child benefit will start to be withdrawn will now be at a higher level of earnings i.e. £60,000 not £50,000. Instead of starting to lose child benefit once at least one parent earns over £50,000 a year, it will be £60,000. It will be taken away entirely from £80,000 a year, rather than £60,000. But more importantly, the government is consulting on moving the system from being based on an individual’s salary to a system based on household income. This new system will come in by April 2026. So watch this space!

Capital Gains Tax on residential properties is being reduced

To address the housing shortage, the government plans to decrease the higher rate of capital gains tax on non-primary residences from 28% to 24% in April. This change aims to encourage more property sales by reducing the tax burden on sellers of investment properties or second homes.

Fuel duty remains the same

The ‘temporary’ 5p cut in fuel duty is being extended for another 12 months.

Alcohol duty remains the same

The alcohol duty freeze is being extended from 1st August to 1st February.

UK ISA

There is a new ISA in town! This ISA gives savers another £5k tax-free allowance, on top of the current £20k that can be subscribed into an ISA. The only restriction is this new UK ISA needs to be invested in British businesses.

A boost for the creative industries

The government is also announcing over £1 billion of new tax reliefs for the UK’s creative industries. This includes introducing a 40% relief from business rates for eligible film studios in England for the next 10 years; introducing a new UK Independent Film Tax Credit; and increasing the rate of tax credit by 5% and removing the 80% cap for visual effects costs in the Audio-Visual Expenditure Credit. A permanent extension will be made to tax relief for theatres, orchestras, museums and galleries.

Changes to the property tax system

The government plans to phase out the Furnished Holiday Lettings tax benefits starting April 6, 2025, and the relief on stamp duty for multiple dwellings beginning June 1, 2024. Properties under contracts exchanged before March 6, 2024—the day before the budget announcement—will still qualify for the multiple dwelling stamp duty relief, regardless of their actual completion date. Additionally, any transactions completing before June 1, 2024, will be eligible for this relief.

Changes to the non-dom tax regime

The tax breaks for non-domiciled residents, people who live in the UK, but not domiciled here for tax purposes have been abolished. Currently, foreign nationals who live here, but are taxed in another country, do not have to pay tax on their foreign income for up to 15 years. From April 2025 this is changing.

For new arrivals, who have a period of 10 years consecutive non-residence, there will be full tax relief for a 4-year period of subsequent UK tax residence on foreign income and gains arising during this 4-year period, during which time this money can be brought to the UK without an additional tax charge.

Existing tax residents, who have been tax residents for fewer than 4 tax years and are eligible for the scheme, will also benefit from the relief until the end of their 4th year of tax residence.

There are transitional arrangements being put in place for existing non-doms.

Smokers and vapers

In Oct 2026 vapers will be taxed more and the tax on cigarettes and tobacco products will go up.

The government is beefing up it’s HMRC team to get more tax in

At first glance, it appears the government isn’t directly investing in increasing HMRC’s frontline workforce. However, it’s channeling an additional £140 million to enhance HMRC’s capacity to handle tax debts. Essentially, this can be seen as an allocation aimed at boosting the identification and collection of outstanding taxes. Now might be a prudent time to consider tax investigation insurance, especially if you haven’t already done so. For those who are clients of 1 Accounts, you’ll be pleased to know this service is already included in our offering!

The recent budget may not have met the expectations of many small businesses, as it offered limited new measures for support. However, as a business owner, there are essential steps to take. Ensure your payroll systems are updated to accommodate the new National Insurance contributions starting April 6, 2024. It’s advisable to start planning now—reach out to us to strategise effectively, particularly regarding the upcoming minimum wage adjustments. Now is also a crucial time for personal tax planning, especially considering the changes to child benefit. Review your pension contributions and, for those operating limited companies, reassess your cash flow in light of these changes and keep your forecasts current. Anticipate additional updates from a potential budget announcement later this year, which could bring more changes.

2024 Spring Budget – The Highlights

Posted on March 7, 2024 | by Jade Donno

Attention Business Owners,

We’ve got the latest scoop on the recent Spring Budget announcement by the chancellor. Buckle up because there’s a lot to unravel, but we’ve got you covered with the need-to-knows.

Let’s dive into the highlights:

National Insurance Contributions Relief

Good news! National Insurance Contributions are getting slashed again. This means more money in your pocket. For employees, the main rate of employee National Insurance is dropping from 10% to 8%, saving the average worker over £900 a year. Self-employed folks are also in luck with a reduction from 9% to 6%.

VAT Threshold

The threshold for VAT registration is climbing up to £90,000. While some debate its impact, it’s aimed at supporting small business growth.

Economic Boost

Inflation is down, and the economy is revving up. With forecasts showing growth on the horizon, it’s a positive sign for businesses.

Recovery Loan Scheme Extension

The post-pandemic recovery loan scheme is extending its support to small businesses with an additional £200 million in funding.

Leased Assets

The chancellor hinted that full expensing for leased assets will come soon, but it’s not clear when, likely when it’s affordable.

Child Benefit

The threshold for the high-income child benefit charge is going up from £50,000 to £60,000. The upper limit for which the benefit is fully removed is also increasing from £60,000 to £80,000. There are also plans in the future to switch this approach from an individual income basis to a household income basis. However, no date has been put on this further change.

Housing and Savings Incentives

Property owners will see a reduction in Capital Gains Tax on residential properties, and there’s a new UK ISA allowing for tax-free investments in British businesses.

Creative Industries Boost

Over £1 billion in tax reliefs are being introduced for the UK’s creative industries, offering support for film studios, independent films, and more.

Now, for the not-so-great news:

Property Tax Changes

The Furnished Holiday Lettings tax regime and multiple dwelling stamp duty relief are on the chopping block.

Non-Dom Tax Regime

Tax breaks for non-domiciled residents are being phased out starting April 2025.

Tobacco and Vaping Tax

Brace yourselves, smokers and vapers, as taxes on these products are set to rise in the coming years.

HMRC and Tax Enforcement

The government is beefing up HMRC’s capabilities to collect more tax, so it’s wise to stay on top of your tax affairs.

In conclusion, while there are some wins and losses in the budget, it’s essential to stay informed and adapt your business strategy accordingly. We’re here to help navigate these changes and ensure your business thrives.

Our Spring Budget Predictions

Posted on March 4, 2024 | by Jade Donno

Simplified Guide for Business Owners: Understanding the Spring Budget Predictions

Attention all business owners! The Spring Budget is set to be announced on March 6th, and it will be aired live on BBC1 at 12pm. This is a crucial event, especially with the general election on the horizon. We anticipate significant announcements that could impact your business, particularly in terms of tax changes and economic growth initiatives. Here’s what you need to know in simple terms.

What is the Budget?

The Budget is a financial statement made by the government every year which outlines its plans for tax changes, spending, and economic strategies. For UK businesses, this means changes in taxes you pay or incentives you might receive.

Predictions for the Upcoming Budget:

1. Inheritance Tax (IHT):

This is the tax paid on an estate (property, money, and possessions) of someone who has passed away. Currently, there are talks that the government might remove this tax entirely, which could be good news for individuals and families.

2. Income Tax Thresholds:

These are limits up to which you don’t have to pay income tax. Since April 2022, there haven’t been changes, but there are whispers that these thresholds might increase. This means you might start paying less tax on your earnings, leaving more money in your pocket.

3. Income Tax Rates:

Following a recent cut in National Insurance, we might also see a reduction in income tax rates. This could further reduce the amount of tax you owe from your earnings, enhancing your take-home pay.

4. Making Tax Digital for Income Tax:

This is a government initiative aimed at making it easier for businesses and individuals to manage their taxes online. Although its launch has been delayed, there might be news on when this will finally kick in.

5. Raising the VAT Threshold:

Currently, businesses with a turnover below £85,000 are exempt from registering for VAT. There’s a possibility this threshold could increase, which could mean fewer tax burdens for small businesses and possibly more room for growth.

Our Hopes for Small Businesses:

We are hoping the Spring Budget will bring good news in the form of tax savings for small businesses. These could come through reductions in various taxes or by raising thresholds that relieve smaller businesses from the complex web of tax obligations. This would not only help businesses grow but also stimulate overall economic growth.

Stay tuned for the budget announcement, and consider how these changes could impact your business.

jumper, hot chocolate and book for autumn

Simplifying the Autumn Statement

Posted on November 24, 2023 | by Jade Donno

Hello, business owners! Let’s talk about what the UK Autumn Statement means for you in plain English, with all the important bits you need to know:

Our director Paul breaks down the Autumn budget with a quick synopsis

Cash Cushion for Growth

The government has a safety net of funds aimed at supporting businesses making sure they can grow. They’ve introduced 110 measures to help businesses with things like productivity and taxes. This is collated in a 120 document you can click h ere to read.

Drinks on Hold

If you’re in the business of selling drinks, there’s good news – no tax hike on alcohol until August 2024. Cigarette sellers, however, will see a 10% tax increase on hand-rolling tobacco.

Friendly Rates for Small Businesses

If your business is on the smaller side, you’ll be glad to hear that your business rates won’t go up this year. And if you’re in retail, hospitality, or leisure, you’ll continue to enjoy a significant reduction in business rates.

Full Speed on Spending

When you buy equipment for your business, you can now get a tax break for the full price from now on. This should make investing in your business a bit more attractive.

Simpler Tax Breaks for Innovation

If your business invests in research and development, things are getting simpler. The government is merging two tax relief schemes into one, making it easier to understand and claim your benefits.

Cheer for Creative Types

For the creatives making films, TV shows, or games, there’s a new tax credit system starting in 2024 that may put some extra cashback in your pocket. We are awaiting the details on this one!

National Insurance Cuts

Big news for both employees and the self-employed: National Insurance is getting cheaper. Employees will see a 2% cut from their National Insurance rates, and for the self-employed, Class 4 NI goes down by 1% to 8%. Plus, a certain type of National Insurance payment, known as Class 2, will be abolished, making tax a bit simpler for the self-employed.

More Money in Your Pocket

With all these changes, if you’re earning an average salary, your taxes will be lower in the UK than in many other major economies. This means more take-home pay for millions of workers.

Minimum Wage Jump

Last but certainly not least, if you’re paying your staff minimum wage, note that it’s going up to £11.44 from April 2024. This is a significant raise, which means those earning the minimum will take home more money but it also could be a huge change for your business. Making it more important than ever to plan!

Listen to Paul talking about the impact on small businesses by watching this video.

Remember, all these changes are about making sure that work pays off more and that your business can thrive. It’s always a good idea to chat with an accountant to see exactly how these changes affect your specific business. Stay informed and keep growing!

Please check out our social media for more videos breaking down the budget!

Understanding the Autumn Statement and Its Impact on Your Business

Posted on November 21, 2023 | by Jade Donno

The Autumn Statement is more than just a financial forecast; it’s a roadmap that can influence your business decisions for the upcoming year. At 1 Accounts Online Ltd, we understand its significance and are here to simplify what it means for you.

What is the Autumn Statement?

This annual announcement by the Chancellor of the Exchequer outlines the government’s economic plans and budget priorities, giving us insight into the fiscal direction of the country.

The Importance of Staying Informed:

Business Forecasting: Economic indicators from the Statement guide us in helping you plan your next business move.
Policy Updates: It’s essential to know about changes in taxation or spending that may affect your business’s bottom line.
Strategic Advantage: With our expert analysis, you can turn the information from the Statement into a competitive edge.

Impact on Your Business:

Corporate Tax Rates: Any changes here could be critical to your financial strategy, and we’re on hand to navigate through them.
Regulatory Adjustments: We’ll decode complex legislative updates, such as IR35 changes, so you can focus on running your business.
Fiscal Signals: Tax cuts or adjustments in government spending signal economic trends that could impact your growth plans.

The Autumn Statement is a vital indicator for strategic business planning, and we at 1 Accounts Online Ltd are dedicated to providing you with clear, actionable advice. As we approach the release of this year’s Statement, let’s work together to align your business with the upcoming economic landscape.

What are capital allowances?

Posted on March 29, 2023 | by Jade Donno | Leave a Comment

Are you ready for some capital allowances fun? 🙌 🥳

Yeah, we know it’s not the most exciting topic, but stick with us because it’s important. Capital allowances are like the superhero of the UK tax system, providing businesses with tax relief on certain types of capital expenditure. However from April 2023, they’re changing!

Super Deduction

First up, we have the Super-Deduction. This is a type of capital allowance that provides businesses with a 130% tax deduction on qualifying investment in new plant and machinery. That’s right, you heard us, 130%! It’s like getting an extra boost of power to your capital expenditure. This is designed to help businesses invest in new equipment and machinery, and has been a game-changer.

But you better act fast because the Super-Deduction is only available for investments made between 1 April 2021 and 31 March 2023. So, if you’re planning to upgrade your plant and machinery, make sure to take advantage of this superpower before it’s too late.

Special Rate Pool

Next up, we have the Special Rate Pool, which is used for assets that are eligible for a lower rate of capital allowances. While it’s not as exciting as the Super-Deduction, it’s still an essential part of the capital allowances world. From April 2023, the rate for the Special Rate Pool will be reduced from 6% to 3%. It’s not ideal, but hey, we can’t win them all.

Annual Investment Allowance

Moving on to the Annual Investment Allowance (AIA), which provides businesses with 100% tax relief on qualifying investment in plant and machinery, up to a certain limit. The good news is that the AIA limit is staying the same at £1million of capital expenditure.

General Pool Allowances

Last but not least, we have General Pool Allowances. This allows businesses to claim tax relief on assets that don’t qualify for the AIA or exceed the AIA limit. From April 2023, the WDA rate will be reduced from 18% to 16%. It’s not a significant reduction but still something worth being aware of.

In conclusion, the world of capital allowances is evolving from April 2023. But, as with any superhero story, there are some ups and downs. The Special Rate Pool and General Pool Allowance are getting a little weaker, while the super deduction is leaving us. So, make sure to plan your capital expenditure carefully and consult with a tax professional to ensure that your business is making the most of the available allowances.

The March 2023 Budget Explained

Posted on March 15, 2023 | by Jade Donno | Leave a Comment

The Chancellor announced his March budget today.

Similar to the budgets, autumn statements and ‘non-budget’ statements of the last few years we knew most of the details in advance. What we did find out yesterday is that UK PLC is in a better position than feared. It is believed that inflation will fall to 2.9% by the end of 2023.

However, finding staff is a problem faced by most small businesses. This budget was the Chancellor’s way of helping alleviate this shortage. He has done this by:

Providing more funded childcare. 30 hours a week of free childcare is being extended to working parents of 1 and 2-year-olds.
Increasing the pensions lifetime allowance from £1.07m to £2m
Increasing the amount people can pay into a pension tax free, i.e. from £40k per year to £60k per year.
Providing more money to schools to help with wrap-around care

Whilst these will help, the question is whether they are going to provide the much-needed increase in people going back to work?

What was hoped was that the chancellor was going to stop the planned corporation tax rise from 19% to 25% for businesses earning between £50k and £250k in profits. Sadly, this tax rise and all its complications still take effect. These will prove very punitive if you run multiple businesses.

What there was in the budget were the following announcements which will help businesses:

The 5p reduction in fuel duty is being extended for another year.
The energy price cap freeze at £2500 for consumers will be extended for another 3 months. I.e. until the end of June 2023
The Energy Bills Discount Scheme is being maintained until 31st March 2024 for all eligible businesses.
The 130% super deduction tax for investments in plant and machinery which stopped at the end of march is being retained but at the 100% level but with full expensing.
12 investment zones which will attract tax reliefs and grant funding
Small companies who spend over 40% of their costs on R&D will receive £27 from HMRC for every £100 of R&D investment.

What is full expensing?

In 2021, the government introduced the super-deduction to go further to encourage companies to invest. This was due to end on 31 March 2023. The government is now introducing full expensing, a 100% First Year Allowance, from 1 April 2023 until 31 March 2026.

For investments in qualifying plant and machinery such as IT equipment the cost of these are normally taken over a period of years. I.e. If a laptop cost £1000 and was seen to last 10 years, its cost would be taken over a 10 year period. I.e. £100 per year. Whereas with full expensing, the £1000 cost can be taken in the year it was incurred.

What do you need to do now?

Given the extra costs the government has now imposed on your small business AND the rising cost of energy bills AND the minimum wage increases AND the 10% inflation rate across 2023, you have work to do. Namely:

If you haven’t already put together your business plan for 2023 and model the impact of rising costs. Do you need to:
1. Increase your prices?
2. Reduce your overheads?
3. Increase your wages?
Carefully look at your personal and business tax situation. For example:
1. Would you be personally better off if you paid yourself more via PAYE or made more pension contributions? (particularly now you can add £60k into your pension pot each year tax free)
2. Would closing your limited company and trading as a sole trader now make more sense?
Who in your staff needs a pay rise to avoid falling foul of the rise in the National Minimum Wage?

Of course, give us a call if you need help with any of these next steps. We are here to help.

Mini Budget 2022

Posted on September 27, 2022 | by Jade Donno | Leave a Comment

Last week, as part of the mini-budget, the government began announcing help for small businesses. This blog gives you the details of what matters and how this could impact your business.

At a top level, the mini-budget, the government’s Growth Plan and announcements on energy caps are very good news for small businesses. Excuse the pun, but in many ways, the government has put its hand into its pocket to keep the lights on for small businesses this winter. It’s also changed decades of fiscal discipline and if you believe the media and political pundits it is a very risky move. After all, the government still needs to pay back what it borrowed to support individuals and businesses during the worst of Covid-19.

At a glance, these are the changes that impact you and your small business:

Income tax: Not including Scotland

The basic rate has been cut by 1p to 19p from April 2023.
From April 2023, the higher rate of Income Tax, 45%, has been scrapped.

Corporation tax:

The planned increase in corporation tax from 19% to 25% has been scrapped.
This means that from April 2023, the rate will remain at 19% for all firms.

National Insurance:

The 1.25% increase in National Insurance introduced in April 2022 has now been scrapped. I.e. from November 6th 2022.
The Health and Social Care Levy due to be introduced in April 2023 has been scrapped.
No change to the threshold that individuals pay National Insurance, i.e. £12,570
Eligible businesses still get up to £5000 in employment allowance to reduce their annual National Insurance Liability.

Dividend tax: The 1.25% increase to rates introduced in April 2022 has been reversed from April 2023

Annual investment allowance: The temporary increase from £200k to £1m has been made a permanent increase. This gives 100% tax relief to businesses on their plant and machinery investments up to £1m.

IR35 rules changed: The 2017 and 2021 changes to off-payroll working are to be repealed from April 2023. This means workers providing their services via an intermediary will once again be responsible for determining their employment status and paying the appropriate amount of tax and National Insurance contributions.

Company Share Option Plan: From April 2023 companies can now grant up to £60k (up from £30k) of share options to each eligible employee.

Seed enterprise investment scheme (SEIS):

The amount a company can raise under SEIS has been raised from £150k to £250k
The amount an individual can invest in SEIS shares has been doubled from £100k to £200k
The scheme has been extended to companies with gross assets under £350k

Energy price guarantee and Energy Bill Relief Scheme:

Businesses will pay no more than £211 per megawatt hour for electricity and £75 per megawatt hour for gas. This applies to all energy supply contracts entered into after 1st April. The energy companies will apply the discount. The energy bill relief scheme will operate until March 31st 2023 and potentially be extended after this date for businesses in certain sectors.

Under the energy price guarantee, the highest amount domestic households will have to pay is 34p per kWh of electricity and 10.3p per kWh of gas. The standing charge – the fee customers pay for being connected to the energy grid – will be 46p per day for electricity and 28p per day for gas. This energy price guarantee will last 2 years. A typical household can expect to pay about £2500 a year for their energy.

Investment zones: These new investment zones will benefit from tax incentives, planning liberalisation and wider support for the local economy.

VAT-free digital shopping scheme for visitors to the UK: Visitors to the UK will be able to claim back VAT on goods bought in the high street, airports and other departure points and exported from the UK in their personal baggage. The date for this scheme to go live is currently unknown.

What you need to do now?

Payroll

If you run your own payroll, then you will need to check that your payroll software provider will be implementing the changes to National Insurance in time for November. If we run your payroll, we will ensure that the changes happen seamlessly.

Personal tax return

The changes to income tax rates and national insurance take effect for the 2022/2023 tax year. They will not impact your personal tax bill for the 2021/2022 tax year. With 2 rates of National Insurance, this will make your 2022/2023 personal tax return more complicated than normal. Please contact us if you would like us to do your personal tax return for the 2022/2023 tax year.

Do a new budget and reforecast your cashflow

The energy price guarantee and changes to employers’ national insurance rates mean that your business’s costs have materially changed for the year. Please contact us if you want help to see how this changes your business’s cost structure going forward.

Revisit your personal and business tax planning strategy

This was anything but a mini-budget. It is a massive change in fiscal policy and direction. This means you may need to rethink your personal and business tax planning strategy going forward. Changes, in particular to the SEIS scheme, may mean there are more tax planning options now open to you and your business. Once again get in touch with us if you have any questions or need help.

Spring Statement 2022

Posted on March 24, 2022 | by Jade Donno

The Chancellor recently unveiled his Spring Statement. With a background of increasing wage, fuel and raw material costs and rising inflation, it was hoped the Chancellor would bring some respite for small businesses and sole traders.

Thankfully there is some small respite coming for small business owners and sole traders. Before you get too excited, the 1.25% National Insurance increase and the new Health and Social Care Levy still kick in from April 2022.

However, the Chancellor announced 3 measures that will directly help small businesses and your lower-paid employees right now:

Employment allowance will increase by £1000 to £5000 per year from April 2022. For businesses with employees, this will help to offset some of the extra Employer NI costs coming in from April 2022.
From July 2022 the National Insurance Primary Threshold will increase to be in line with the income tax personal allowance, i.e. from £9880 to £12570. This means anyone earning less than about £35,000 will pay less National Insurance during the year.
A 5p per litre cut in fuel duty for 12 months starting 6 pm 23rd March. This is a saving of approx £100 per year for the average car driver, £200 for the average van driver and £1500 for the average haulier.

Other announcements of merit included:

A planned reduction in the lower rate of income tax to 19% from April 2024. However, 2 years is a long time in politics!
VAT on the installation of energy-saving materials, e.g. solar panels, to be cut from 5% to 0% (not applicable to Northern Ireland).
The qualifying expenditure for R&D tax credits will now include data, pure maths and cloud computing costs.

The Chancellor hinted that we can expect more tax simplification and reform, particularly to tax reliefs and allowances in the Autumn Budget. .