23 September 2022

The new chancellor, Kwasi Kwarteng, has delivered a mini-Budget featuring a string of tax cuts. The stated aim is to ‘deliver growth for the economy’.

This mini-budget had been billed as new Prime Minister Liz Truss’ response to the ongoing cost of living crisis.

Reversing National Insurance increase

A 1.25 per cent cut to National Insurance was announced, effectively reversing the increase announced last year by Boris Johnson, designed to help fund the NHS and social care.

The ‘Health and Social Care Levy’ was due to come in in April 2023 at a rate of 1.25 per cent. Liz Truss has now scrapped this plan. The new National Insurance rate will come into force on 6 November 2022.

If you pay National Insurance through Self-Assessment, this reduction means you’ll retain more income. The Treasury says that the new approach will save taxpayers an average of £330 each a year.

Income tax cuts brought forward

The basic rate of income tax has been cut by 1p to the pound. Rishi Sunak had originally promised to deliver this by 2024, but today it was announced that this would take effect in April 2023.

People earning between £12,571 and £50,270 will now pay income tax at 19%. This is the first time that basic rate income tax has been reduced since 2008. Estimations are that this will mean £170 more per person, per year, for 31 million taxpayers.

The chancellor also announced that the 45% tax band for people earning more than £150,000 a year will be scrapped from April 2023. They will pay income tax at 40%, along with anyone else earning a salary of more than £50,271.

Energy support for businesses

Details of the Energy Bill Relief Scheme were announced on 21 September. The scheme sets discounted gas and electricity unit prices on non-domestic contracts for six months, starting on 1 October.

No increase to corporation tax

Previous plans to gradually raise corporation tax 25 per cent have also been scrapped. Corporation tax will remain at the rate of 19 per cent. It was originally scheduled to increase in April 2023.

Other announcements

Another key move in the mini-budget was a permanent cut to stamp duty.

Property buyers will now pay no stamp duty on the first £250,000 of a property purchase (up from £125,000), while first-time buyers will only pay stamp duty on properties over £425,000 (an increase from £300,000).

Other measures announced included the following:

• unlocking pension fund investments
• scrapping the bonus cap for city bankers
• introducing minimum service levels to reduce strike action in industries like the rail sector
• VAT-free shopping for overseas buyers
• the Bank of England to remain financially independent
• expansion of the Enterprise Investment Scheme

Will there be an autumn Budget later this year?

There is usually a Budget in October, and it is expected that this will still take place. Having said that, no date has been set at present.

Need a bit more clarity about what the Budget means for you or your business? As small business accountants in the Lune Valley, we provide tax advice, payroll services and much more. We’re here to help, so contact us today.

National Insurance increased in April – but in July the threshold changed. Could this mean you save money?

In April, new rates of National Insurance rates came into play, as part of the Government’s changes to Health & Social Care budgeting. We explored this change in this blog last year, which essentially increased most people’s National Insurance costs by 1.25%.

But on 6 July, the thresholds for paying National Insurance increased – which is a game changer for a lot of people.

How will the changes affect me?

It all depends on how much you earn. People on lower incomes – around 30 million of us – will benefit, gaining a little more in their pay packet. Meanwhile those in higher income brackets will pay more in National Insurance.

Plus, 2.2 million people will no longer have to pay NI, as their salary will come under the threshold.

What are the new NI rules?

On 6 July the NI threshold – the minimum amount you need to earn to make contributions, became the same as the income tax threshold.

Now, you no longer pay National Insurance or income tax if you earn under £12,570 a year. That’s a fairly big jump up from the previous NI threshold of £9,880 which applied from April 2022.

The change was announced in March 2022 by the Chancellor of the Exchequer, as a response to the rapidly rising cost of living.

What if I earn more than the NI threshold?

You will still feel the benefit as you will pay less National Insurance overall, because a smaller proportion of your salary is over the threshold. It means you will pay less than you did before 6 July.

Around 30 million people are set to pay less National Insurance, with an average benefit of £330 per year. This applies for anyone earning up to £40,000 a year.

Those on higher salaries will pay more, however. Around a third of the UK’s working population will still pay more NI now than they did in March.

The table below sums up how much people in different income brackets will pay.

Does this change again next year?

From April 2023, the 1.25% increase in NI will move into a new Health and Social Care Levy, at the same rate. It will be paid separately from National Insurance as a standalone tax.

As a result, NI rates will fall again – but you won’t see any difference in your pay because of the Levy.

There are also changes on the way for pensioners. People still working after the state pension age (currently age 66) don’t currently pay National Insurance. But from April 2023 the new levy will be deducted from the earnings of those still in employment.

What do the NI changes mean for my pension?

Your National Insurance record affects the level of state pension you are entitled to. But if you no longer earn enough to pay NI, you won’t necessarily miss out on state pension credits.

You will still gain qualifying years for the state scheme if your income is over the “lower earnings limit” with your employer, which is currently set at £123 a week or £6,396 a year.

If you’re self-employed, you will still gain National Insurance credits if your profits are above £6,725 for the 2022/23 tax year.

Need help with tax, pensions or other personal planning in the Lune Valley? Just get in touch, we will be pleased to help.

We’re often asked about the process of setting up a business and are always happy to help and advise. There are a number of important things to have in place to make sure your new company complies with UK law and is protected should anything go wrong.

In this month’s blog we take a look at the legal documents you should have a place when starting up a new business – specifically, a limited company.

Main steps to set up a company

There are a few steps to creating a business:

1. Get advice on whether a limited company is the right approach
2. Choose a company name, directors and a company secretary (they might all be you!)
3. Decide on shareholders – you need at least one
4. Prepare legal documents (as per below)
5. Register your company with Companies House

Legal documents you will need

• Memorandum of Association

This is a legal statement where you agree to form the company. It needs to be signed by all shareholders. BUT if you register your company online, the Memorandum of Association is created automatically as part of the process. If you register by post, you can use a government template for the Memorandum.

• Articles of Association

Every limited company that is set up must have Articles of Association. This sets out how the company is to be run and how decisions will be made by its directors. It includes rules about offering share options to staff and how you will run director meetings.

Again there is a template you can use when registering with Companies House, called the model articles. You can change your document over time as your company develops.

• Shareholders Agreement

While there isn’t a legal requirement to have a shareholders agreement, if you have more than one shareholder – including if this is your spouse – it’s a very good idea to get this document in place. Like most legal contracts, it’s there to prevent future conflicts and resolve disagreements.

The shareholders agreement sets out the rules to follow if a partner wants to sell their shares in the business or if they decide to leave.

Legal documents to consider

• Supply of Services Agreement

A Supply of Services Agreement is a contract setting out what your company will do for the customer or client.  These agreements are essential business tools for professional trading and business relationships. Without clearly defined and agreed contracts there’s a risk of misunderstanding because you and your client have different expectations. By setting our all the details clearly, you can protect both your own company and your customer.

• Statement of Work

If you work with your clients on a project basis, this is a useful document. It sets out the scope of the project, how long the project will take and the objectives to be met. It’ll also state how much the project will cost and what the client will receive at the end.   

• Non-disclosure Agreements

If you and your client will be sharing confidential information, a non-disclosure agreement is a document where you (or your client) confirm that they will not disclose the information to any third party. The agreement will define what is confidential and how long it is valid for.

• Directors’ Service Agreements

Directors have certain duties to a company that are not generally covered in a standard employment contract. This document will set out the director’s specific role and duties, their role in decision-making and the benefits they’re entitled to. There are commonly clauses preventing the director from setting up a company that competes with yours in the future.

There are many more legal agreements and guidelines to consider, depending on the focus of your new business – all of which are there to protect you in all kinds of scenario. There’s no substitute for qualified legal advice, and we will always point you in the direction of professional support as necessary. But for an initial conversation about setting up a business and what’s involved, we’re highly experienced and very happy to help.

As Lune Valley accountants we can help with drafting and submitting financial statements and many other services for small businesses. Contact us today.

One of the main reasons to set up your own company is to reduce your liability for tax. But how does this work and how much should you pay yourself?

There’s no standard amount to set as your salary, and it’s well worth seeking advice on what works best for you. But generally, most limited company directors choose to pay themselves a low salary topped up with dividends.

Your salary is an ‘allowable business expense’, which reduces how much Corporation Tax your company pays.

What to consider in setting your personal salary

1. State pension access
If you set a salary at above the Lower Earnings Limit you will continue to qualify for your state pension. The Lower Earnings Limit this tax year is £6,396.

2. Minimum wage

As a company director, you’re not subject to the National Minimum Wage unless you have a contract of employment in place.

3. Income Tax

Income up to the Personal Allowance is free from Income Tax. This threshold is currently £12,570.

4. National Insurance

If your salary is above the National Insurance (NI) ‘Lower Earnings Limit’ (£6,396) but below the NI ‘Primary Threshold’ (£9,880 per year), you won’t pay NI contributions as an employee, but you do retain your State Pension contribution record.

If you take a salary of more than £9,100 (the NI ‘Secondary Threshold’), your limited company will have to pay National Insurance contributions.

What’s the general approach to setting a salary?

Many company Directors choose a salary that is above the Lower Earnings Limit – so they qualify for the state pension – but below the level where they need to pay either employee or employer’s NI. Currently, that means a salary of £9,100.

Topping up your income with dividends

Once you have set your salary at a certain level, you can add to this by taking dividends – a share of the company’s profits.

You can take all your annual profits as dividends, just a proportion, or none of them. Your company can retain profits over the years and distribute them as and when you (and any other shareholders) wish.

There are three main benefits of taking dividends:

1. They attract lower rates of income tax than salary
2. National Insurance Contributions are not payable on dividends (neither employer’s nor employee’s)
3. There is a tax-free dividend allowance on top of your personal allowance. In 2022/23 this is £2,000 – so you can earn up to £12,570 without paying tax.

An important thing to be aware of is that you can only take dividends when the company has turned a profit. If you take dividends over the level of your profit, the difference is seen as a Directors Loan.

Income tax vs Corporation Tax

A limited company is a very tax efficient businesses structure because limited companies pay corporation tax on their profits of a flat rate of 19%. Meanwhile a sole trader will have to pay Income Tax on all taxable earnings, at a rate of 20% if they are a lower rate taxpayer, or 45% if they are charged at the higher rate.

Sole traders cannot minimise their tax or National Insurance liabilities, or defer tax by leaving profits in the business to withdraw later.

Example

The following example is based on a company making a profit of £40,000 in the tax year. The Limited Company Director takes a salary of £9,100 and tops their earnings up via dividends.

Generally, a Limited Company Director is slightly better off from a tax position than a sole trader. Also, a limited company enjoys more business expenses that can be deducted from profits before tax.

On the other hand, there are various responsibilities that Limited Companies must meet, such as filing statements, creating formal accounts and managing other paperwork. Most limited companies choose to appoint an accountant to manage this for them.

We work with limited companies and sole traders to provide tax advice, company accounting and payroll services. Get in touch with us today

It’s no secret that costs are rising rapidly in the UK and the wider world, not least with the pressure of soaring oil prices, energy bills, increasing wages and the cost of materials.

Research by The British Chambers of Commerce found earlier this year that 73% of UK firms are planning to raise prices.  62% said rocketing energy bills are a driving factor behind the need to increase costs, and this figure rises to 75% for manufacturers.

Small business owners are feeling the pain of these rising costs, compounded by rate rises that are mean debt repayments are also increasing. But what can you do to mitigate the impact of this worrying trend?

1.    Increase your prices

If you haven’t already responded with a price rise, it’s likely to be the most effective solution. As we’ve seen above, almost three quarters of UK businesses are planning to put prices up.

Some estimates anticipate that inflation will hit 8% this year. Restaurants and hotel prices rose steeply in March and are expected to increase again now that the hospitality VAT cut has now expired as we recover from the pandemic.

All businesses are understandably nervous about putting prices up, but your profit margin is crucial to success.

2.    Introduce new price-efficient products and services

If you’re in a particularly price-sensitive market, a further solution is to introduce keenly priced offers for your customers. The aim is to offer customers a less-expensive way to retain your services that preserves your profit margin. Think of a supermarket own brand – it provides the same product but saves on brand reputation, packaging and marketing costs.

You might achieve this be sourcing cheaper resources, transport options or by scaling back what you offer.

3.    Review your spending

To reduce the impact of costs, you need to be clear about how much you’re spending and on what. Reviewing your monthly and annual outgoings often highlights that you are paying for services and products that are not essential. Now is the ideal time to cut back on unnecessary payments.

An important part of this is reviewing and benchmarking your suppliers – whether that be your energy provider, IT service or cleaning services. It’s likely these costs will increase too in the coming months, so shop around to make sure you’re getting the most effective deal.

4.    Look for efficiencies

There will always be ways that your business can operate more efficiently. With fuel costs at a premium, can you reduce your transport costs? Replace face to face meetings with online appointments; make fewer trips to your supplier; group your deliveries by location.

There may be an option to downsize your premises or sublet your space for an extra income. Look too at reducing your energy consumption. Turn equipment off overnight, lower the thermostat, even sell business equipment that is rarely used.

5.    Seek advice

Don’t suffer in silence. If you’re unsure of the right course for your business in the current economic environment, seek help. Talk to other business owners, contact the government’s business support helpline or talk to your accountant.

Accountants like us can be a big help in helping you prioritise what’s important, seeking out possible options for funding, find ways to reduce your tax and suggest other ideas that you may not have considered. We work with many small businesses and have a great deal of experience to draw upon.

Find out how we can help as accountants in the Lune Valley. We provide everything from bookkeeping services and payroll to tax returns. Get in touch.

UPDATE: MTD deadlines have now changed. See this blog for the latest information

From April 2024, sole traders and landlords will need to join the Making Tax Digital programme. The deadline has been moved back from 2023 due to the pandemic.

This government programme is designed to move the UK towards a fully digital tax system. The aim is to reduce errors and give HM Revenue & Customs (HMRC) more information and visibility.

The benefit to businesses and landlords is that they will have easy access to digital records and be able report their tax liabilities and make payments in real time.

Limited companies began moving to Making Tax Digital from 2019, and the government has reported that 69% of them have found at least one benefit to the new system.

What will I need to do?

Individuals with business income over £10,000 per annum will need to make quarterly reports under Making Tax Digital for income tax. This will include many sole traders and landlords, but partnerships aren’t required to adopt it until 2025.

You will need to keep your accounting records electronically (either on a spreadsheet or with suitable accounting software). You will file quarterly returns to HMRC with details of income and expenditure. You will also need to submit a final end-of-period statement after the tax year ends.

While reporting frequency will change, tax payment timing will not. The current system of payments on account, and balancing payment by 31 January following the end of the tax year, is staying in place for the foreseeable future.

Deadlines for the quarterly payments will be:

Can I sign up early?

You can sign up voluntarily now and start using the service if you’re:

• a UK resident
• registered for Self Assessment with returns and payments that are up to date
• a sole trader with income from one business, or a landlord who rents out UK property

What’s in it for me?

While it’s never fun to be set a deadline to adopt something new, Making Tax Digital has the potential to make your life easier.

Moving to a cloud accounting system is a fairly straightforward way give you the necessary digital records for tax purposes. It could also make your accounting simpler and less time-consuming.

Various accounting tools allow you to match up payments going in and out of your bank account, scanning and uploading business receipts and give you sight of unpaid invoices, making it easier to chase them up. You can also gain useful analysis and projections.

Need some help exploring the options? We can help you find an appropriate accounting package and prepare for the MTD changes.

Are there any exemptions?

As per the exemptions for MTD on VAT, individuals won’t have to adopt MTD for Income Tax if:

• It’s not reasonably practical to use digital tools due to age, disability, remoteness of location or any other reason (often referred to as ‘digital exclusion’).
• You are subject to an insolvency procedure.
• The business is run entirely by practising members of a religious society or order whose beliefs are incompatible with using electronic tools.

If any of the above apply, you must apply to HMRC to claim an exemption. If you have already qualified for an exemption from MTD for VAT, you will also be exempt from MTD for ITSA.

The following are also exempt from MTD for ITSA: Non-resident companies; Trustees, executors and administrators; Foreign businesses of non-UK domiciled individuals.

Want to explore Making Tax Digital and what’s involved in more detail? Just get in touch. As accountants for Sole Traders and landlords in Lancashire we’re here to help. We also manage payroll services and corporate accounts. Contact us

Most British taxpayers will see their tax bills rise in the coming tax year, as measures announced in the 2021 autumn budget come into play.

Here’s a quick rundown of the changes that could affect you.

1. National Insurance rates

On April 6 2022, National Insurance rates will rise by 1.25% points under the government’s new health and social care levy. The stated aim for this rise is to improve social care nationwide.

This April, the additional rate will be taken as part of your National Insurance payment, but from April 2023 it will be charged as a separate levy.

Minimum earnings limits will go up by 3.1% in line with inflation, while the higher rate threshold remains £50,270.

What this means in practice is:

• Employees earning less than £9,880 will not pay NIC.
• Employees earning £9,880 to £50,270 will pay Class 1 rates at 13.25%
• Employees earning more than £50,270 will pay class 1 rates at 3.25%

If you’re self-employed, you may pay Class 2 and 4 contributions depending on your earnings. From April these rates will be:

• Zero if you earn less than £6,725
• £3.15 per week if you earn between £6,725 and £9,880
• 10.25% plus £3.15 per week if you earn between £9,880 and £50,270
• 3.25% plus £3.15 per week if you earn more than £50,270

2. Higher dividend tax

If you earn money via dividends, you will be charged 1.25% more on this income from April. The rate you will pay depends on your income tax band. Basic rate taxpayers will be taxed on dividends at 8.75%; higher rate taxpayers at 33.75% and additional rate taxpayers at 39.35%.

There is a minimum threshold for this tax of £2,000. You won’t pay dividend tax on investments held in a stocks and shares ISA.

3. Car tax increases

Car tax (vehicle excise duty) will also increase from April 1 2022. The amount you will pay depends on the emission levels of your car.

If you have a zero-emission vehicle such as an electric car, the tax remains zero. Generally, other car owners will see their tax increase by up to £10 per year.

4. Fiscal Freeze

The 2021 budget placed a freeze on a number of rates and reliefs including personal tax thresholds, pensions allowances and the exemption for Capital Gains Tax. These rates are expected to remain static until 2026.

There is some concern that the current rapid rate of inflation could have significantly effects as a result, potentially pushing people into higher tax brackets and increasing the amount they need to pay to the government.

5. Capital Gains Tax extension

New rules also affect anyone who makes a capital gain after selling a property. There was previously a window of just 30 days for taxpayers to report the sale and pay the tax owed. At the Budget on 27 October 2021 this was immediately increased to 60 days.

This means anyone who makes a capital gain after selling a second home or buy-to-let property has 60 days to submit a residential property return to HMRC and pay the estimated tax owed.

We’re here to help both businesses and individuals navigate their tax responsibilities. Contact us to discuss what the NIC increase will mean for you personally and for your company. As Business Accountants we offer payroll services, personal and business tax planning in the Lune Valley and Lancashire – we would be pleased to advise you.

No penalties for late filing or payment, says HMRC

HMRC has announced that it will waive its usual penalties for late Self Assessment filing and payments for a month. This gives taxpayers extra time to complete their 2020 to 2021 tax returns and pay any tax due. The move is a response to the latest COVID-19 wave, which has impacted both businesses and accountants.

Despite this, more than 50% of taxpayers have already submitted their tax returns, ahead of the official deadline of 31 January 2022.

When do you need to file and pay by?

While the deadline to file and pay is still 31 January 2022, the penalty waivers mean that:

• You won’t receive a late filing penalty as long as you file online by 28 February
• You won’t receive a late payment penalty as long as you pay in full or set up a Time to Pay arrangement by 1 April – but you will start paying interest at a rate of 2.75% from 1 February.

A 5% late payment penalty will be charged if tax remains outstanding by midnight on 1 April 2022.

How does a Time to Pay arrangement work?

The Time to Pay service lets individuals or businesses spread tax payments over time. If you have under £30,000 of tax debt you can set this up online after filing your return.  

Since 5 April 2021, more than 30,000 taxpayers have used the Time to Pay service, managing tax totalling around £75 million.

Don’t forget to declare COVID-19 support

You must declare any grants or payments you have received from COVID-19 support schemes up to 5 April 2021 on your Self-Assessment, as these are taxable.

These include:

• Self-Employment Income Support Scheme
• Coronavirus Job Retention Scheme
• Eat Out to Help Out scheme

Other COVID-19 grants and support payments such as self-isolation payments and local authority grants.

Points to note

You can reduce your Payment on Account if you know your bill is going to be lower than the previous tax year – perhaps due to loss of earnings caused by COVID-19. Find out more about Reducing Payments on Account.

Self-employed taxpayers should ensure their annual Class 2 National Insurance contributions (NICs) are paid on time to make sure their claims are unaffected. Class 2 NICs are included in the 2020 to 2021 Balancing Payment due to be paid by 31 January 2022.  Your benefit entitlements may be affected if you:

• can’t pay your Balancing Payment by 31 January 2022
• have set up a Time to Pay arrangement to pay off the Balancing Payment in instalments

Filing facts

33,467 tax returns were filed on New Year’s Eve, and 14,231 on New Year’s Day.

12.2 million tax returns are due by the 2022 deadline. Of these, 6.5 million have already been filed.

Help with your tax returns

We help lots of small businesses by managing their tax returns for them. As small business accountants in the Lune Valley, we’re here to take the stress out of Self-Assessment, tax returns, accounting payroll services and much more. Contact us to find out how we can help.