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.
Have you planned your exit from business?
If you fail to secure a sale of your business, you are giving that value away for nothing.
It is estimated that 32% of business owners are already at, or approaching retirement age within the decade, representing potentially thousands of businesses that have the potential to be sold.
Then there are the people seeking early retirement, which according to a labour report by The Lords, has seen an additional 550,000 exit the workforce early, in search of a different lifestyle since the start of the Covid-19 pandemic.
It has further been estimated that of those businesses available for sale, just 30% successfully sell each year. Is your business your pension?
For a business to be saleable, it needs to be able to operate without you, and in the majority of cases, it cannot. People buy people, and a significant proportion of businesses struggle to then transition clients away from their original contact, leaving the business with unrealised potential at the point of sale.
Around 70% of owners each year are forced to close the business and strip the assets without ever finding a buyer.
What can you do?
Planning is the single biggest factor for whether a business is saleable. Only around 10% of businesses have a formalised exit strategy that is ready to execute. Of the remaining 90%, 30% have a semblance of a plan, and the remaining 60% have no strategy at all.
What should be part of your plan:
- Planning and documenting systems and practices
- Adopting best operating practices
- Maximising the value of the business
- Thinking about the type of buyer you need
There are three core options for business exit:
- succession to an employee or family member.
- sale to another provider.
- business closure and break up.
Decide what route you want to take and plan accordingly. Come and speak to us and start the process sooner rather than later.
HMRC Hungry for Information
HMRC has confirmed that employers and business owners will be required to provide data relating to:
- The exact hours worked by each employee.
- Who operates through their own company, and what dividends do they receive from that company.
- When self-employed traders start and finish their businesses.
The disclosures will affect personal tax returns, trustee’s return and RTI returns. This will take effect for periods beginning in 2025/26 or later.
The employee working hours data will be reported by employers for each pay period on RTI returns. The proposal is for employers to provide details of the contractual hours worked, where those hours are relatively stable (which is not defined), such as for salaried employees. Where the worker is paid by the hour, or has irregular hours, the actual hours worked will have to be reported.
There is already provision for entering start and end dates of self-employment on self-assessment tax returns. However, in future completion of these boxes will be mandatory. If you do not provide this data HMRC will be able to impose a flat £60 penalty.
The request for shareholdings and dividends may be to target personal service companies not currently applying the IR35 rules correctly. HMRC has confirmed that only directors of close companies will be required to provide this information.
Interest rates have not been a big concern for a number of years but that is changing. Similarly, HMRC have been charging interest at very low rates on late paid tax.
HMRC interest is now linked to the Bank of England base rate.
- late payment interest is set at base rate plus 2.5%
- repayment interest is set at base rate minus 1%, with a lower limit of 0.5% (known as the ‘minimum floor’)
According to government guidance the late payment interest rate encourages prompt payment. It ensures fairness for those who pay their tax on time. The repayment interest rate compensates taxpayers fairly, when they overpay, for loss of use of their money.”
So, HMRC rates have become material but are still far less than credit cards and other forms of finance.
So, if finances are tight, paying HMRC interest by deferring payment of taxes, could be quite attractive. Obviously, if the deferral is likely to be significant you are better to get in touch with HMRC to arrange a time to pay arrangement. But such a “loan” has very attractive interest rates.
Also, given that interest on overpaid tax is linked to the base rate, could this be a way of earning interest from the HMRC Bank.
In addition, bank deposits come with a small element of risk, since they are only protected to the tune of £85,000. This will not be an issue for most of us, but there will be some that could be affected. All the “deposit” with HMRC is guaranteed.
So, is it about time that HMRC started offering other financial products?
Company voluntary arrangements (CVAs) is an arrangement between the retailer and its unsecured creditors that reduces liabilities while providing the facility to discard unprofitable parts of the business such as underperforming stores and reduce rents. CVAs are conducted out of court (save for any creditor challenges) and outside of an insolvency process, relatively quickly and relatively cheaply, with control of the business remaining with existing management. The CVA binds all unsecured creditors of the company if approved by the applicable thresholds.
Restructuring plans were introduced during the early days of the pandemic. They provide the UK with a court based, flexible restructuring tool that enables the compromise of claims of all types of creditors (including secured creditors and preferred creditors, such as HMRC)
A standalone moratorium, might be used by a retailer to give a breathing space before implementing a wider restructuring. It has a short duration (initially 20 business days, although it may be extended). The moratorium can only be used where it is likely to result in the rescue of the company as a going concern.
Administration is the next step, where administrators take control of the company. It is common for a ‘pre-pack’ sale to be negotiated before appointment of the administrator, and then executed immediately after appointment. While this often offers the best outcome for the business and employees (enabling stores to keep trading under the new ownership), suppliers and unsecured creditors will find themselves significantly out of pocket.
Pre-packs can be controversial and damaging to a brand. Purchasers can cherry-pick the assets which they take on and shed the liabilities of the insolvent entity. A pre-pack sale will only be possible where there is both some value left in the business and a buyer with the appetite to take on the business and inject further funding to turn it around.
Hotter Shoes – The Pre Pack
Interpath Advisory were appointed administrators of Beaconsfield Footwear Limited, which traded as Hotter Shoes, on 18 July.
The company is a retailer of footwear. It has 27 stores across the UK and 421 staff.
The owners failed to raise £2m in finance to ensure the future of the company and was planning to appoint administrators.
The joint administrators concluded a sale of the business and certain assets to an entity controlled by Woolovers Group Limited. As part of the sale, all 421 employees and 27 stores and concessions have transferred across to the purchaser.
Payment on Account Due 31 July
The payments on account deadline is 31 July.
If you are self-employed, you must make advance payments for your tax bill in two instalments during the year including Class 4 National Insurance.
These payments are calculated from the tax of your previous tax year. The first payment is due on 31 January and is followed by the second on 31 July.
The deadline applies to all those who are self-employed unless:
- you owe £1,000 or less as this can be made in a single payment on the first return; and
- more than 80% of your income is taxed at source.
You can reduce your payments on account.
We can do this for you or alternatively you can submit SA303 form by post to the tax office. You can also use the ‘reduce payments on account’ section online in your personal tax account.
Late payment interest rose to 7.5% this month, making it even more important for individuals to file their return on time.
If this deadline applies to you, two weeks is still plenty of time to arrange your second payment, and if you don’t think you can make this payment, make sure to get in touch with HMRC to try to set up a Time to Pay arrangement.
Fraud and R&D tax relief claims
The level of fraudulent claims for research and development (R&D) tax relief has soared in the last 12 months with £1.13bn identified compared to £336M in the previous year. This is nearly one in five of all claims.
HMRC has frozen thousands of claims from smaller businesses as it tries to stamp out the high levels of fraud.
To tackle this problem, a range of additional changes have been introduced, ranging from requiring additional information from the claimant and requiring claims to be made digitally, to reducing the amount of payable relief in the SME scheme. Some of these changes are already in place and others come into effect from August 2023.
From 1 August 2023 onwards, claimants will have to submit an Additional Information Form which will give HMRC the initial information to assess the validity of any claim.
Small R&D claims are seen as less likely to be compliant with 78% of claims less than £10,000 suspected to be non-compliant.
It is reported that HMRC has long believed that unless you are spending serious money on an R&D project, it is highly unlikely that you are doing qualifying R&D.
40% of Calls to HMRC Unanswered
A recent report identified that HMRC service levels continue to decline. Successful connections have reduced and waiting times are still getting longer. In addition, it is taking longer to deal with mail.
It seems that without an increase in funding and resources, HMRC will be unable to improve their service and support to taxpayers to acceptable levels.’
HMRC Reducing Phone Support
HMRC chief executive Jim Harra said: ‘We want to reduce the volume of contact through phone and post by 30% by 2025 compared with 2021 to 2022, enabling many more customers to resolve their issues quickly and easily online, and freeing us up to help those who need extra support.’
HMRC is already being criticised for its lack of support for tax payers and their advisers. I normally expect to hold on the phone for between 30 minutes and an hour before getting answered. Sometimes you hold for 20+ minutes and then you get “all of our advisers are busy, goodbye” and you are cut off. So, if they remove yet more resources from the telephone help lines, just how bad is it going to be.
They are underfunded and have lost many good, experienced staff. It’s not going to get better any time soon and it looks like it is going to be getting a whole lot worse.
The latest HMRC annual report showed that ongoing cuts to budgets was putting immense pressure on service delivery, leading HMRC to take increasingly radical steps to improve performance and push more taxpayers towards using online web services, while the impact of the fiscal drag meant more people were being pushed into higher rate tax, which was resulting in more demand for experienced advisers to handle increasingly complex queries.
Meantime, HMRC is under pressure to reduce the 4.8% tax gap equivalent to over £36bn in lost taxes a year.
Something does not make sense here.
Charities: Managing Fraud Risk
According to Action Fraud there was a 44% increase in the value of frauds between January and November 2022 compared with the same period in the previous year.
The economic downturn and the cost of living crisis account for much of this, but some element has arisen from hybrid working, perhaps due to the lack of supervision.
There is also the growing reliance on technology with organisations reducing costs by cutting staff numbers meaning there can be less time to oversee people and processes.
What can you do?
- Accept that fraud exists!
- Understand vulnerable areas. Start by considering:
- payroll and expenses;
- payment and procurement processes;
- fundraising activities;
- grant making; and
- cyber risks.
- Build awareness and the right culture – develop a culture where people are willing to challenge non-compliance.
- Review and assess your controls
- Report and take action.
Most frauds are identified by having good internal controls so making sure these are robust and fit for purpose is the first arm of defence. Whistleblowing is the next way fraud is uncovered but charities must make sure they have a process for collating and dealing with these allegations.
Taking time to understand the organisation’s vulnerabilities, will help safeguard the charity as far as possible from fraud.
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 firstname.lastname@example.org.