Every week we take a look at what is trending in the accountancy and tax press and share items that we think will interest you. However, these are only outlines and where they relate to tax planning should not be acted upon without looking into them more completely as everyone’s circumstances are particular to them. You need to take specific advice appropriate to your own circumstances.

While every effort is made to deliver accurate, informative and balanced articles this content is general in nature and should not be used as the sole basis for making decisions.

 

Women Directors

According to a recent government-backed review, 40% of directors of FTSE 350 companies are now female. This however included non-executive directors. The figure for executive directors is barely into double figures.

I wonder what the percentage is for smaller companies like us. In our case 50% of our directors are female, and always have been.

It is interesting to consider what these stats actually mean and does anyone actually pay any attention to them.

Everyone is different. You can generalise and try to identify typically female characteristics or typically male traits and I think there is some room for these generalisations but what, at the end of the day, makes the biggest difference, experience and technical ability or gender specific traits.

Our board of directors is split 50/50. However. I also sit on another board which is 100% male. Of the men on that board I don’t think any of us would bat an eyelid if it was joined by a woman, if she had the right skill set for that role. I don’t think that the fact that she was a woman would ever cross our minds, let alone be openly discussed.

So, do men really care about these statistics. There will be some who for whatever reason would find it hard to share the boardroom with a female director. Are they Neanderthals?  That’s for you to decide. Maybe you agree with them.

Should men exercise positive discrimination in favour of women in the transition. Personally, I do not approve of this approach, but attitudes need to change. Maybe we are already on that journey and this train is now unstoppable.

For a talented ambitious woman, it must be quite daunting to be entering the upper echelons of a preponderantly male-dominated business environment. But it has to be done and a man cannot do it.

Will aspiring young women be scared off by the prospect. Possibly, but if they are, nothing will change very quickly.

The elephant in the room is always going to be children, but it is not, and cannot be allowed to become a barrier to upward progression. Pregnancy potentially takes a woman out of the mainstream of management for enough time to make a difference to her career. Then there is the aspect of divided attention between the family and the business. How do we solve these issues?

Apparently accounting firms generally perform just as badly as larger corporates with only one in eight equity partners being female. Given that 48% of ACCA members and 59% of students are female, how can this be?

If approximately half of all accountants today are women, then there is no logical reason why something very close to that proportion should not be running these same practices, if not now, then in the coming years.

 

QuickBooks Getting on the Bandwagon

They are all doing it, QuickBooks, Xero and the rest. They all started with bookkeeping software but have now broadened their offering to try to capture more of the accounting market. This now includes practice management, payroll bureau, tax prep and accounts filing tools, as well as revenue recognition enhancements.

At a recent event in London, the team at QuickBooks outline a raft of measures that the software giant believes will help its accountant partners grow – starting with background changes to increase the speed of QuickBooks, faster CIS return submissions, easier bank account connections and a multi-currency feature for its GoCardless integration. In addition, there is a range of new products and innovations designed to give accountant partners more time and insights.

The “rabbit out of the hat” moment was the news that it is branching out into the world of practice management.

They have created an environment that helps firms coordinate and manage their workflows, set deadlines, integrate with their emails, and communicate with clients.

This is a crowded market and most accountants will already have their practice management software in place. We could not do what we do without it.

 

Remuneration planning

The tight labour market makes inflationary pressures on wages even greater. The Office for National Statistics (ONS) data indicates pay awards in the private sector are currently around 7%.

So, in the current economic environment, how much can a small to medium sized business owner expect to earn now? At the moment maximising the use of the basic rate band with a tax-efficient national insurance (NI) salary and dividend structure the owner might have taken home some £47,500 in the tax year to the end of March 2022. If you had two children and kept within the £50k level, you could have maximised the non-taxable child benefit to provide an all-in net cashflow of approximately £49,175.

But with inflation you would now need something like a net £57,460 to have the same purchasing power as you did in the 21/22 tax year, an increase of 17% to cover the cost-of-living crisis, inflation for last year and estimated for this year.

But in order to maintain the same level of purchasing power in the next 12 months you will have to forgo the tax-free child benefit as your gross income will need to be over £60k. Furthermore, you have the new 1.25% surcharge on dividends, the lower dividend allowance and a marginal corporation tax rate of 26.5% to contend with.

All up, it is estimated that the profit before tax that you would have to make to support the new level of earnings will, for many small businesses, have to be around 50% higher than in 21/22, especially with the Corporation Tax take increasing disproportionally, with the new marginal rate for most small businesses rising to 26.5% in a few weeks’ time.

Remember, this is all just to stand still.

We live in uncertain times. What will happen to interest rates, property valuations and inflation? They will all be relevant when looking at remuneration planning.

 

Dividend or bonus

Dividend versus bonus is an important tax planning exercise for the owner-managed company but for some time it’s been largely academic as the dividend has had the edge in most circumstances.

However, changes made in recent years have narrowed the gap between the dividend and bonus, and from April, when the main rate of corporation tax increases by six percentage points from 19% to 25%, the dividend’s advantage can no longer be taken for granted.

A dividend is paid out of the company’s post-tax profits. This means that it is not deducted in calculating the company’s profits subject to corporation tax, and so paying a dividend does not reduce the company’s corporation tax bill.

For the individual, the dividend is taxed at the dividend rates of income tax, and these apply across the UK. There is a tax-free dividend allowance and for 2023-24 this is £1,000, down from £2,000. The basic rate of tax is 8.75% rising to the higher rate of 33.75% and beyond. The tax due is paid through self assessment by you and me and not by the company.

For the individual, income tax and National Insurance contributions (NICs) are payable on a bonus. The rates of income tax depend on where in the UK you are resident as different rates apply in Scotland compared to England, Wales and Northern Ireland.

The rates of NICs are 12% for earnings above £12,570 and up to £50,270, and 2% above £50,270.

NICs are also payable by the company, at 13.8% on earnings above £9,100.

Income tax and NICs are paid through the PAYE system.

The company is entitled to corporation tax relief for the bonus and the NICs it has paid, meaning that it can deduct both in arriving at its profits subject to corporation tax.

So, which is most tax and NIC efficient, That all depends on your own personal numbers and circumstances. In a recent calculation for a client, the savings in NIC made a dividend clearly better value. But in other circumstances, it can be a much closer result.

 

NIC Deadline Extended

You will now have an extra four months until the end of July to make additional payments to your National Insurance contributions to increase your state pension entitlements

The government has extended the voluntary National Insurance deadline by four months to 31 July 2023 to give you more time to fill gaps in your National Insurance record and help increase the amount you receive in state pension. You will also be able to top up Your account at the lower 2022-23 tax year rates.

Apparently there has been a strong demand for the top-up service and HMRC and DWP have experienced a surge in customer contact. To ensure customers do not miss out, the government intends to extend the 5 April deadline to pay voluntary NICs to 31 July this year.

This applies to years that would otherwise have been out of time to pay after 5 April, up to and including the 2016/17 tax year. All voluntary NICs payments will be accepted at the existing 2022/23 rates until the 31 July.

 

Auto enrolment extended to under 22s?

The Department for Work and Pensions (DWP) is supporting proposals to expand automatic pension enrolment to under 22s and low earners

A private members bill has called for two extensions to automatic enrolment, abolishing the lower earnings limit for contributions and reducing the age for automatic enrolment from 22 to 18 years old.

Those with low earnings would start paying into their pension as soon as they start earning.

Under the current rules, employers have to pay pensions contributions once an employee has earned over £6,240 and up to £50,270 in a financial year. Anyone who does not want to join a pension scheme can opt out.

 

EIS tax relief for start-ups

Sunset clauses relating to EIS are fast approaching and if nothing is done, the relief will be curtailed.

None of the necessary legislation has yet been passed.

The three schemes are set to close in April 2025, unless the rules are changed, with Finance Act 2015 setting out a limit on the lifetime of the schemes.

For start-ups seeking their first investment, SEIS allows investors to claim 50% of their initial investment against their income tax and capital gains tax bills, and exempts the investment from capital gains tax on exit. Start-ups can receive the relief on a maximum of £150,000 in investment through the scheme, while individual investors can invest up to £100,000 through the scheme each year. The plan is to raise the investment relief to £200,000 for companies up to three years old from the current two-year limit.

 

Nearly Half of Calls to HMRC Not Answered.

Only 60% of calls were dealt with in January, compared to 68.6% in December and 78.4% in November. Despite the decline in service, overall customer satisfaction was virtually unchanged at 79.9% compared with 80.2% the previous month.

There was a substantial increase in call numbers in January with 31 million calls received.

The average speed of answer declined to 15 minutes, 26 seconds. I wish we could get through that quickly! It’s been more like 40 minutes.

40% of people had to abandon their calls as HMRC call centre advisers did not pick up the phone.

HMRC has cut nearly a quarter of customer service staff since 2019, which has been a factor in the decline in service standards.

 

Corporation tax for associated companies

From April 2023, companies will pay tax at either the small companies’ rate (19%), the main rate (25%), or a hybrid rate (26.5%) where the taxable profits fall between the two limits.

Where two or more companies are ‘associated’ with each other, these limits are divided by the number of companies concerned.

Companies are associated if they are under common control, or where one has control of the other.

In considering control by shareholders, you are required to attribute the rights of ‘associates’, a definition which includes spouses and civil partners.

Provisions within the legislation permit a disregard of companies under the control of associates, provided that there is no ‘substantial commercial interdependence’ between the companies concerned.

Substantial commercial interdependence means:

• financial interdependence – direct or indirect financial support between the companies;
• economic interdependence – companies would be ‘economically interdependent’ if they seek to realise the same economic objective, the activities of one benefit the other, or they have common customers; and
• organisational interdependence – this will be the case where the businesses of the companies have common management/employees, common premises, or common equipment.

Remember that the test is whether there is an associated company at any time in the accounting period and so this must be constantly reviewed.

 

Questions?

If you have any questions about any of these, you know where to find us. If you prefer, just give me a ring on 07770 738770 or email me at alan.long@thelongpartnership.co.uk.