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Welcome to our monthly newswire. We hope you enjoy reading this newsletter and find it useful.

How to raise your prices without losing customers

The cost of running a business goes up every year, but when was the last time you increased your prices?

Many business owners and managers worry that if they were to increase prices, they would lose customers.  However, a customer will often be willing to pay a higher price if they feel they are getting value for their money.

A good way to increase your prices can be to bundle products or services together and offer the combined bundle at a price that offers value to the customer. For example, a phone contract might have a higher price but it may include a bundle such as unlimited calls and 20GB of data per month. The key is providing value to the customer.

Find a way to differentiate your offering. Perhaps you could offer new online services to your customers such as an online portal or an app. Maybe you could create faster, more efficient processes so that your customers get a faster, more efficient product or service from your firm, compared to the competition. If you offer something that is seen to be the best in its class, that offers a benefit to your customers, you may be able to increase your prices.

You can test a higher pricing strategy on new customers. Your existing customers might be resistant to a price increase but new clients will be unfamiliar with your pricing so they may accept the higher price if they feel that you offer more value to them than your competitors.

If you do increase prices for your existing customers, you need to communicate well and explain clearly why you had to make the decision to increase your prices. Do your market research to make sure that your pricing isn’t completely out of line with competitors. If your business is not significantly different to the nearest competition, you may run the risk of losing clients.

Large sudden jumps in your prices will not go down well. Instead, introduce gradual increases such as 5% or 10% per year, depending on the type of business that you run. Everyone knows that the cost of doing business goes up each year. If you communicate with your customers, they may be more receptive to small increases.

Managing difficult people

Managing difficult people can be time consuming and emotionally draining.

You can’t reason with an unreasonable person. However, there is usually some underlying reason that is motivating them to behave in a difficult manner.

Try to identify the person’s trigger. What is stopping them from co-operating with you? It may be helpful to set up a one-to-one meeting. This gives you the opportunity to ask them what their intentions are and why they tend to behave in a difficult manner. Sometimes people just need to feel like they are being listened to.

Perhaps you can agree what it is you can do to resolve the situation.  If this doesn’t work, it can be helpful to let the person know your intentions and what you are trying to achieve. Explain how your objectives and the objectives of the business align and how you need them to work with you in order to move forward – try to build rapport.

Sometimes we rely too heavily on email and instant messaging, we forget to have a conversation with people. Talking gives you and the individual the chance to build a connection, perhaps through discussing non work-related topics such as hobbies or family.

It can also be useful to get some perspective from others. If an individual is being difficult with you, they may also have been difficult with others. Perhaps your colleagues can help you to see things from a different angle and may even offer ideas in terms of a situation.

If the situation cannot be resolved, it is worth remembering that no one is indispensable. Regardless of how good they may be at their job, you need to look at what the overall cost is to your firm. If other staff are leaving because they are unhappy, perhaps it’s best to part ways with your difficult individual and replace them with someone who is easier to work with.

Understanding what your customers really value can help you to market your products and services more effectively.

 Customer value is the perception of what a product or service is worth to the customer.  Customers don’t buy features – they buy benefits. Your customers will buy your product or service because of the benefits that they get.  If you take the time to understand what your customers value and what they are willing to pay for, you will be able to market your business more effectively. You may also be able to win new customers from your competitors.

Most businesses make the mistake of thinking about value purely in terms of money. They create special offers to promote their products and services, but all they are doing is cutting their profit margin in a race to the bottom. Sure, there is a place in most markets for a lowest priced competitor but this doesn’t work for everyone. Take the airline industry – there isn’t room for more than a handful of low cost airlines and that is why many of them are in financial difficulty – their costs have gone up, but there is downward pressure on pricing.

Value is about much more than just money. Put yourself in your customer’s shoes – your customers think of value in terms of goals, benefits and results. They are seeking an outcome and this is what drives their purchasing decision. For example, an accountant might save a customer £6,000 on their tax bill and charges the customer £2,000 for doing the tax work. The monetary value to the customer is therefore £4,000. But what if this is only the beginning? What if the customer wants to grow their business over the next 5 years. The accountant could add value by providing advisory services to the customer over the next 5 years, to help them to achieve that goal. The customer would be willing to pay for that additional service because it helps them to achieve their goal.

The overall perception of value is, from a customer’s perspective, also influenced by experience. If the accountant in our example is difficult to deal with and the customer has to regularly drive to their offices to sign paperwork, have face to face meetings, etc. the customer will not think that the service is great and may question whether it is worth the money. Conversely, if the accountant offers meetings over Skype, at a time convenient for the customer and provides documents by email with e-signature capability, the customer may value the convenience and efficient service to the extent that they may even be willing to pay more for that service.

Amazon.com is a great example. The high street is struggling yet the world’s largest online retailer continues to grow. Why? Because its customers value the convenience, the vast range of product choices on offer and the ease of purchasing. Amazon has aligned its business model with the values of its customers and that is why it continues to succeed.

Effective multi-tasking

In today’s fast-paced business world, here are some tips to help you to be more effective at multi tasking.

Over the past 10 years or so businesses have become leaner by reducing employee numbers, focusing on efficiency and increasing the demands on their staff. An increased workload forces us to multitask, which may be effective for a short period of time, but over the long term, can cause stress.

Multitasking is not about “piling on the work” to the point of exhaustion. It’s about training the brain to channel energy in an efficient and effective manner so you can accomplish more in less time. One of the keys to learning how to multitask effectively is actually to slow down, in order to accomplish more.

Set Priorities

Try to think of your brain as a computer. If you are working within multiple programs and have numerous windows open so you can quickly jump from program to program, you may find that your computer crashes a lot, due to the strain. The same thing happens in your brain. When you’re performing multiple tasks that require your undivided attention, your brain gets overloaded, as it can only process information from one channel at a time. Therefore, do not multitask if the assignment requires your full attention.

Useful tools

Make lists and write things down. You can’t remember everything so having a central to-do list is helpful. If you have a list of items you need to refer to often (such as pricing schedules or keyboard shortcuts) position this next to your phone or computer for quick access. Diarise some “management time” in your calendar each day – this might be a 45 minute slot where you have no meetings and can take stock, look at your to-do list and work through anything that needs your immediate attention.

Shift multitasking to single tasking

Your brain cannot multi-task all the time. So, occasionally, stop multitasking and allow yourself to do just one thing for fifteen to twenty minutes. At the end of this “rest period”, you’ll feel refreshed, alert, and ready to tackle more tasks – and you’ll do so with fewer mistakes.

Take regular breaks

Make the most of your breaks – avoid working through lunch and make sure to take a short break in the morning and afternoon. Use your break to walk around the building, sit outside, or do whatever you like for a few minutes to clear your head and give your brain a rest. Taking this time out during the day can actually make you more productive.

Welcome to our latest monthly tax newswire. We hope you enjoy reading this newsletter and find it useful. Contact us if you wish to discuss any issues further.

EXTRACTING PROFIT FROM THE FAMILY COMPANY

The start of the new tax year means that shareholder/ directors may want to review the salary and dividend mix for 2019/20. The £3,000 employment allowance continues to be available to set against the employers national insurance contribution (NIC) liability which means that where the company has not used this allowance it may be set against the employers NIC on directors’ salaries.

Thus, where the only employees are husband and wife there would generally be no PAYE or employers NIC on a salary up to the £12,500 personal allowance.

There would however still be employees NIC at 12% on the excess over £8,632 (£166 per week) which would be £464 on a £12,500 salary, leaving £12,036 net.

Taxation of Dividend Payments in 2019/20

Traditional advice would then be to extract any additional profits from the company in the form of dividends. Where dividends fall within the basic rate band (now £37,500) the rate continues to be 7.5% after the £2,000 dividend allowance has been used. Thus, where husband and wife are 50:50 shareholders they would each pay £2,663 tax on dividends of £37,500 assuming they have no income other than a £12,500 salary, leaving £34,837 net of tax.

So, a combination of £12,500 salary and £37,500 in dividends would result in £46,873 (93.7%) net of income tax and NICs.

Ensure dividend payments are legal

The Companies Act requires that companies may only pay dividends out of distributable profits. This means that in the absence of brought forward reserves the company would need to provide for 19% corporation tax in order to pay the dividends and thus there would need to be profits of £92,593 in order to pay dividends of £75,000 (after providing corporation tax of £17,593).

Overall the combination of salary and dividends suggested above would result in net of tax take home cash of £93,746 for the couple out of profits before salaries and corporation tax of £117,593 (20.3% overall tax). This still compares very favorably with the amount of tax and NIC payable if the couple were trading as a partnership.

TAX PLANNING TO MINIMISE THE HIGH INCOME CHILD BENEFIT CHARGE

The substantial increase in the higher rate threshold to £50,000 is good news for many taxpayers. However, that same figure is the point at which child benefit starts being clawed back and there has been no increase in that threshold since the High Income Child Benefit Charge was introduced in 2013/14.

The charge applies if you have adjusted net income over £50,000 and either:

• you or your partner get Child Benefit
• someone else gets Child Benefit for a child living with you and they contribute at least an equal amount towards the child’s upkeep

It does not matter if the child living with you is not your own child. Adjusted net income is your total taxable income before any personal allowances and less things like Gift Aid and pension contributions.

The charge is 1% for every £100 that adjusted net income exceeds £50,000 multiplied by the child benefit claimed in respect of the children. Child benefit continues to be paid at the rate of £20.70 a week for the eldest child and £13.70 for each additional child.

Example

A couple with 2 children would receive £1,789 a year in child benefit. If the husband, a sole trader, made a profit of £55,000 (also his adjusted net income) after paying his wife a salary of £12,000 he would have to pay the high income child benefit charge of £894 (for 2018/19) in addition to his normal income tax and NIC bill.

If he brought his wife into partnership and they shared profits equally their income would be £32,500 each and there would be no high income child benefit charge. Similarly, if the business was a limited company they would be able to equalize their income so that the charge would not be payable.

“RENT A ROOM” RELIEF TO CONTINUE FOR AIR BNB LANDLORDS

Last year HMRC carried out a review of rent a room relief and it was proposed that the availability of this generous relief would be restricted to situations where the taxpayer was resident for at least part of the time when the “lodger” was paying rent. The scheme currently exempts from tax gross rents up to £7,500 where rooms within the taxpayers’ main residence are rented out.

HMRC were concerned that the relief was being “abused” by letting out the entire property using websites such as Airbnb and living elsewhere temporarily whilst the tenants were in the property. An example would be renting out a house in south London during Wimbledon fortnight and potentially receiving up to £7,500 tax free.

Note that the Autumn Budget announced that the proposed restriction was not now being introduced.

BUT POSSIBLE CHANGES TO CGT PRIVATE RESIDENCE RELIEF

The government is currently consulting on important changes to private residence relief that are likely to be introduced from 6 April 2020.

The two possible changes, announced in the Autumn 2018 Budget are:

Firstly to limit to just 9 months the period prior to disposal that counts as a period of deemed occupation

The second is to limit “letting relief” to periods where the taxpayer is in shared occupation with the tenant.

Final period exemption to be reduced

The final period exemption was for many years three years and was always intended cover situations where the taxpayer was “bridging” and waiting to sell their previous residence. However, 36 months was felt to be too generous and was allegedly being abused by a strategy known as “second home flipping”. As a result the final period relief was restricted to the current 18 month period of deemed occupation a couple of years ago. The latest proposal is to restrict still further to 9 months although it will remain at 36 months for those with a disability, and those in or moving into care.

Possible Lettings Relief Changes

Lettings relief currently provides a further exemption for capital gains of up to £40,000 per property owner. The additional relief was introduced in 1980 to ensure people could let out spare rooms within their property on a casual basis without losing the benefit of PRR, for example where there are a number of lodgers sharing the property with the owner.

In practice lettings relief extends much further than the original policy intention and also benefits those who let out a whole dwelling that has at some stage been their main residence. It is those situations that the government appear to be attacking under the proposed changes.

Note that those who are renting their property temporarily whilst working elsewhere in the UK or working abroad are unlikely to be affected by this change as there are alternative reliefs available under those circumstances.

Please check with us if you are likely to be affected by the proposed changes as it may be worth considering disposing of the property before the new rules are introduced from 6 April 2020.

DIARY OF MAIN TAX EVENTS

MAY/JUNE 2019

Date	What’s Due
01/05	Corporation tax payment for year to 31/07/18 (unless quarterly instalments apply)
19/05	PAYE & NIC deductions, and CIS return and tax, for month to 5/05/19 (due 22/05 if you pay electronically)
01/06	Corporation tax payment for year to 31/08/18 (unless quarterly instalments apply)
19/06	PAYE & NIC deductions, and CIS return and tax, for month to 5/06/19 (due 22/06 if you pay electronically)

 

If our corporate clients own residential properties which are each worth over £500,000, we will check whether the company has completed an ATED return, or made an ATED relief declaration for 2019/20. This is due by 30 April 2019. If full relief is not claimed for the year an ATED charge may also be payable by 30 April 2019.

There are three things to check before completing the ATED return:

1. Property valuation – for the years 2018/19 to 2023/24 the ATED charge is based on the open market value of the property at 1 April 2017, or as at the purchase date if that is later.
2. Banding – the ATED charge is levied according to the valuation band the property falls into. We can ask HMRC to complete a pre-return banding check for a property if we believe its value lies within 10% of an ATED band threshold, but it will take HMRC some time to respond to this request.
3. Correct year – the tax is payable by 30 April within the chargeable year, so make sure the right amount is paid for the right year. The 2019/20 charge ranges from £3,650 to £232,350.

ATED returns are generally submitted online through the government gateway. We can submit ATED returns online for our clients, but we must first register as an agent with the online ATED service. Once registered we can add our clients to our ATED account, but each client must then appoint us as their agent when they receive a unique authorisation number.

Written by the Tax Advice Network

Clients who work in the public sector may have been caught by the off-payroll working rules which came into effect from 6 April 2017, and as a result had tax and NI deducted from their invoices. The problem for us is how to deal with these deductions in the accounts of the intermediary personal service company, and in our client’s personal tax return.

HMRC has provided guidance on how to report the income for the individual worker on their SA tax return for 2017/18 and later years. If we didn’t get this quite right for the individual’s 2017/18 tax return there is still time to amend that tax return online.

The personal service company can account for the amount received from their customer either on a net or gross basis:

1. Net – the amount received after deductions for income tax and NIC is included as turnover for corporation tax purposes.
2. Gross – the total invoice value before tax and NIC is deducted is accounted for as turnover for corporation tax. The company will show that tax and NIC as a debtor which it will never receive. It will have to write-off that amount representing the tax and NI deducted from its invoices.

HMRC accept that either the net or gross basis can be used, but the net basis is probably easier for our clients to understand.

Where the worker takes a salary from his PSC, the amount of tax already deducted from its invoices can be set as a tax credit against that salary. The PSC should not have to pay any further tax and NIC if the salary paid to the worker does not exceed the net fees received by the company. Note that the example in section 17 of the HMRC guidance is misleading.

Written by the Tax Advice Network

Thirty days is not very long for a taxpayer to realise they need to make a report to HMRC and to pay the tax due, but this is the deadline imposed on non-residents who dispose of any UK land or property on or after 6 April 2019. Sellers (excluding companies) who completed their purchase on Saturday 6 April 2019 will have to make an “on account” payment of CGT by Sunday 5 May 2019.

A 30-day reporting deadline has applied in respect of disposals of UK residential property by non-residents since 6 April 2015, but the tax payment date has been inconsistent. Those already within self-assessment could pay the non-resident CGT (NRCGT) due with their SA tax by the normal payment date of 31 January following the tax year end, but others had to pay the tax within 30 days of the conveyance.

This lack of clarity over NRCGT procedures led to HMRC giving incorrect advice to some taxpayers.

The NRCGT charge was announced in the 2013 Autumn Statement, and non-resident taxpayers: Mr and Mrs Kirsopp rang HMRC in March 2014 to ask when they needed to report and pay the tax on the sale of the former UK home. HMRC said they should declare the disposal on their SA tax return. The Kirsopps sold their UK property in July 2015 and they sent their accountant the details in August 2016 along with other papers to complete their 2015/16 return.

HMRC did not inform the Kirsopps they had to submit a NRCGT return by 23 August 2015, either in the original telephone call, or at any later point when they were dealing with HMRC’s non-resident landlord unit. However, HMRC were quick to issue penalties for late submission of the NRCGT form. The tax tribunal threw out those penalties on the basis that the taxpayers had a reasonable excuse for not knowing they had to submit a NRCGT form in addition to the SA return.

The Kirsopps case may prove useful in the future if you fail to pay the CGT due within 30 days, as the article in Agent Update about the extension of NRCGT to all UK property fails to mention the requirement to pay tax within 30 days of the conveyance of the property.

Written by the Tax Advice Network

Real time information (RTI) reporting has been mandatory for all employers for five years now, but some employers still misunderstand the need to report on or before the relevant pay day and to pay over the PAYE on time. These are two different deadlines which must both be met in order to avoid penalties.

The Red Lion Trading partnership got this wrong. They claimed, in their appeal against penalties for late filed RTI returns, that as they had paid the PAYE on time the penalties should be removed. The tribunal agreed with HMRC that the late filing penalties had to stand. The judge was clearly exasperated with the employer’s inability to read HMRC’s guidance, as he commented in his judgment:

“The Education letter spelt out the position in words of one syllable: PAYE information must be reported to us on or before a payment is made to an employee or we may charge you a penalty.”

HMRC will do everything it can to educate employers about the correct time to make an RTI report, and we can help our clients to understand that the reporting date is on or before the employees’ contractual payment date.

Where the normal payment date falls over the Easter weekend, the actual payment to employees may be brought forward, or pushed back, because of the four consecutive non-banking days. HMRC has addressed this issue in the latest edition of the Employer Bulletin.

Written by the Tax Advice Network