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In the March 2021 Budget, the Chancellor made several announcements to encourage investment in business assets:

• Super deduction of 130% for brand new plant and machinery
• Super deduction of 50% for assets that qualify for the special rate pool, eg integral features
• Enhanced 100% capital allowances on plant and machinery used in freeports
• Enhanced 10% structure and buildings allowances (SBA) on buildings in freeports

Unfortunately, points 1 to 3 in this list are only available to companies. Businesses that operate as partnerships, LLPs, or sole traders can only get 100% deduction for investment if the asset qualifies for the annual investment allowance (AIA), or it qualifies for a different first year allowance, as say an electric car.

The AIA cap was due to reduce from £1 million to £200,000 on 1 January 2022. The Finance Bill has confirmed that the £1 million cap will remain in place until 1 April 2023, to match the period the super deductions are available for.

The second change in Finance Bill is to require amendments to the ‘allowance statement’ which is needed before a taxpayer can claim SBA for a commercial building.

This statement records the details of the qualifying expenditure on the building and when it was first brought into commercial use – and hence when the tax life of the building starts. If additions are made to the building later, the cost of the additions will have a different tax life for SBA purposes, and thus the allowance statement for the whole building needs to be amended.

Written by the Tax Advice Network

Welcome to this special newswire. In this edition we focus on the Chancellor’s Autumn Budget. Please contact us if you wish to discuss any matters in this newsletter in more detail.

BUDGET AND SPENDING REVIEW

On 27 October 2021, the Chancellor delivered his third Budget in conjunction with the Public Spending Review.

Many of the spending announcements had already been leaked to the Press prior to Budget Day and arguably a lot of it was not new money. The Chancellor did however manage to keep a few surprises back for Budget Day.

Low paid workers will welcome the increases in the National Living Wage (NLW) that take effect from April 2022 and the 8% reduction in the Universal Credit income taper. However, the increase in the NLW in conjunction with the 1.25% increase in National Insurance Contributions (NICs) will be additional costs for employers and are likely to add to inflation.

Rishi Sunak continues to have to tread a fine line between raising taxes to start paying down the massive Government borrowings but at the same time stimulate economic recovery and save jobs.

The changes to tonnage tax and air passenger duty appear to be inconsistent with the goal of reducing CO2 emissions.

NATIONAL LIVING WAGE INCREASED TO £9.50 AN HOUR

Among the announcements leaked before Budget Day was an increase in the hourly rate for the National Living Wage (NLW) which was greater than inflation for those aged 23 or over, to £9.50 an hour. For an employee working a 35-hour week that would mean £17,290 a year. With the 1.25% increase in employers NIC to 15.05% on earnings over £9,100 a year would mean £1,233 on top, the cost to the employer would be £18,523 a year before pension costs.

NO CHANGES TO INCOME TAX RATES AND PERSONAL ALLOWANCE FROZEN

The basic rate of income tax and higher rate remain at 20% and 40% respectively, and the 45% additional rate continues to apply to income over £150,000.

As previously announced in the March Budget, the personal allowance and higher rate threshold have been frozen at £12,570 and £50,270 until 2025/26.

As announced on 7 September, from 6 April 2022 dividend income will be taxed at 8.75%, 33.75% and then 39.35%, depending upon whether the dividends fall into the basic rate band, higher rate band or the additional rate band. The first £2,000 of dividend income continues to be tax-free. The summary of the economic impact published on Budget Day suggests that these rates will remain in place until 2025/26.

SOME NATIONAL INSURANCE THRESHOLDS ARE CHANGING

The 1.25% increase in the rate of National Insurance Contributions (NICs) paid by workers and employers announced on 7 September to provide extra funds for Health and Social care will go ahead from 6 April 2022.

This will become a new Health and Social Care Levy from 2023/24 onwards.

Although the income tax personal allowance and thresholds are frozen until 2025/26, certain NIC thresholds have been increased In line with inflation. For 2022/23, employees and the self-employed will start paying NICs at £9,880 and pay at 10.25% (self-employed) and 13.25% (employees) up to £50,270. Note that the Upper Limit is frozen in line with the income tax higher rate threshold and that the new 3.25% rate will apply to earnings or self-employed profits in excess of £50,270.

Employer contributions at 15.05% will apply to earnings in excess of £9,100 a year for 2022/23.

“TEMPORARY” £1 MILLION ANNUAL INVESTMENT ALLOWANCE EXTENDED

Businesses investing in plant and machinery will welcome yet another extension in the 100% Annual Investment Allowance (AIA) until 31 March 2023. The 100% relief was scheduled to revert to £200,000 on 1 January 2022. This deduction is available to unincorporated businesses as well as limited companies and the equipment does not have to be new.

This tax allowance is not as generous as the 130% super-deduction announced in the March 2021 Budget which is available when new plant and machinery is acquired by limited companies between 1 April 2021 and 31 March 2023.

BUSINESS RATES TO BE MADE “FAIRER” AND 50% DISCOUNT FOR THE RETAIL AND HOSPITALITY SECTOR

The Government continue to promise a fairer system of Business Rates and will provide new reliefs for investment and improvements to business premises. In order to support businesses and jobs in the retail, hospitality and leisure sectors, the chancellor announced a 50% discount in business rates up to £110,000.

High Street businesses still operate at a significant disadvantage to online retailers who generally pay lower Business Rates, and some pay a lot less corporation tax. The Government will consult shortly on an Online Sales Tax which may help level the playing field.

CHANGES TO R&D TAX RELIEF

As announced in the Budget R&D, tax relief will be reformed from April 2023 to support modern research methods by expanding qualifying expenditure to include data and cloud costs, and to focus tax relief on innovation carried out in the UK. HMRC will continue to target abuse of this generous tax relief and improve compliance.

GROUP RELIEF FOR EUROPEAN COMPANY LOSSES TO END

With effect from 27 October 2021, group relief for losses of 75% subsidiary companies resident in the European Economic Area and companies trading in the UK through permanent establishments will end.

CULTURAL TAX RELIEFS DOUBLED

Eligible companies engaged in the production of qualifying theatrical productions, orchestral concerts, and museum and gallery exhibitions are currently able to claim an additional deduction in arriving at their profits. Where that additional deduction results in a loss, the company may surrender those losses for a payable tax credit similar to R&D tax relief.
The doubling of the relief is available for the costs of the production/performance incurred between 27 October 2021 and 31 March 2023.

NEW RESIDENTIAL DEVELOPER TAX

From 1 April 2022 the Government will introduce a new tax on company profits derived from larger UK residential property developers. The tax will be charged at 4% on profits exceeding an annual allowance of £25 million and will be included in the corporation tax returns of those companies liable to the new tax.

MORE TIME TO REPORT AND PAY CGT ON RESIDENTIAL PROPERTY DISPOSAL

Many were expecting big changes to capital gains tax in the Autumn Budget, particularly as the Office of Tax Simplification (OTS) had suggested that CGT rates should be aligned with income tax rates.
The Government have however taken on board the OTS recommendation that the 30 day reporting and payment deadline should be increased to 60 days. This will be a welcome change for property owners and their tax agents and will affect residential property disposals that complete on or after 27 October 2021.

Entrepreneurs will be relieved that CGT Business Asset Disposal Relief continues resulting in a 10% CGT rate on the first £1 million of lifetime gains.

PENSION TAX RELIEF UNCHANGED

There was much speculation that the Chancellor would restrict the tax relief for saving into a pension to basic rate only. Thankfully that has not happened (yet) and the key limits are unchanged. The annual pension input limit for most taxpayers remains at £40,000 which covers both individual and employer contributions. The lifetime pension allowance which dictates the size of the individual’s fund has been frozen at £1,073,100.

INDIVIDUAL SAVINGS ACCOUNT LIMITS FROZEN AGAIN

The adult ISA annual subscription limit for 2022/23 will remain unchanged at £20,000 and the Junior ISA limit remains at £9,000 a year.

DIARY OF MAIN TAX EVENTS NOVEMBER / DECEMBER 2021

Date	What’s Due
01/11/21	Corporation tax for year to 31/01/2021 unless quarterly instalments apply
19/11/21	PAYE & NIC deductions, and CIS return and tax, for month to 5/11/21 (due 22/11 if you pay electronically)
1/12/21	Corporation tax for year to 28/02/2021 unless quarterly instalments apply
19/12/21	PAYE & NIC deductions, and CIS return and tax, for month to 5/12/21 (due 22/12 if you pay electronically)
30/12/21	Deadline for filing 2020/21 tax return online in order to request that HMRC collect outstanding tax via the 2021/22 PAYE code

On 22 July 2021 we explained that the tax year basis would be introduced from 6 April 2023 to coincide with the commencement of MTD ITSA. As MTD ITSA has been pushed back a year following pressure from the professional bodies, so has the introduction of the tax year basis.

The Basis Period reform policy paper released with the Budget confirmed that the tax year basis will be compulsory for reporting all self-employed profits/ losses, including from partnerships, with effect from 6 April 2024. This is apparently a hard start date although partnerships are not due to join MTD ITSA until April 2025, and complex partnerships from a later date.

The switch from the current year basis to tax year basis will only affect unincorporated businesses who do not currently draw-up their accounts to 31 March, 5 April, or a date in between. However, those businesses will find their taxable income is accelerated, and they may have a particularly difficult transitional year in 2023/24.

In 2023/24 the business will report its profits for the accounting period ending in that year, as usual, plus profits for the period that runs from the end of its reported accounts to 5 April 2024. For a business with 30 September year end, this will be 18 months worth of profits. Any overlap relief available can be set-off in 2023/24 and the excess profits after over-lap relief has been deducted, may be spread over the five years to 2028/29.

In the longer term if such businesses do not change their accounting date, (and there may be strong commercial reasons for not doing so), they will have to apportion profits from two accounting periods to complete their finalisation statement (replacement for SA tax return) under MTD ITSA. This may involve estimating profits from one of those periods, and later amending the finalisation statement to provide the accurate figures.

Written by the Tax Advice Network

On 22 July 2021 we explained that the tax year basis would be introduced from 6 April 2023 to coincide with the commencement of MTD ITSA. As MTD ITSA has been pushed back a year following pressure from the professional bodies, so has the introduction of the tax year basis.

The Basis Period reform policy paper released with the Budget confirmed that the tax year basis will be compulsory for reporting all self-employed profits/ losses, including from partnerships, with effect from 6 April 2024. This is apparently a hard start date although partnerships are not due to join MTD ITSA until April 2025, and complex partnerships from a later date.

The switch from the current year basis to tax year basis will only affect unincorporated businesses who do not currently draw-up their accounts to 31 March, 5 April, or a date in between. However, those businesses will find their taxable income is accelerated, and they may have a particularly difficult transitional year in 2023/24.

In 2023/24 the business will report its profits for the accounting period ending in that year, as usual, plus profits for the period that runs from the end of its reported accounts to 5 April 2024. For a business with 30 September year end, this will be 18 months worth of profits. Any overlap relief available can be set-off in 2023/24 and the excess profits after over-lap relief has been deducted, may be spread over the five years to 2028/29.

In the longer term if such businesses do not change their accounting date, (and there may be strong commercial reasons for not doing so), they will have to apportion profits from two accounting periods to complete their finalisation statement (replacement for SA tax return) under MTD ITSA. This may involve estimating profits from one of those periods, and later amending the finalisation statement to provide the accurate figures.

Written by the Tax Advice Network

Where a UK resident disposes of a UK residential property, and there is capital gains tax to pay, the taxpayer must report the gain and pay the tax, generally within 30 days of the completion date of the deal. Non-residents need to report and pay the CGT due on all types of UK property within 30 days.

This report needs to be made using online UK Property Reporting Service. In previous newsletters we have highlighted the many problems with this service (see for example: 5 November 2020 and 20 May 2021). For some clients, it is impossible to get the online account set up and authorised, before the 30-day deadline comes round. Fortunately, paper returns are permitted and in those cases an extension to the deadline is possible (see newsletter: 23 September 2021)

The OTS recommended that the 30-day deadline should be extended to 60 days, and the Government has listened. For deals completed on and after 27 October 2021 the gain must be reported and the CGT paid within 60 days of the completion date. Property deals completed before that date still need to be reported within 30 days, if CGT is payable.

In another simplification, the reporting of gains from mixed-use property has been amended. ‘Mixed use’ means a building that has both residential and non-residential parts, eg shop with a flat above. For completions on and after 27 October, only the residential part of the gain has to be reported on the UK property account of a person who is UK tax resident.

Written by the Tax Advice Network

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

Budgeting for an uncertain year ahead

As we come to the end of 2021, its time to start thinking about the budget for next year. One thing is certain - uncertainty.

Business planning and budgeting have become increasingly complex in today’s uncertain and volatile environment. Firms have had to adapt and become more agile in order to react quickly to changing market conditions and budgets should be created with this in mind.

Start with your fixed costs – the things that you can be certain of such as premises, staff costs, raw materials, light, heat, electricity, IT, etc. Next, turn your focus to the longer term aspects of your budget with an analysis of existing strategic or capital spending plans.

Stress test the assumptions, scenarios and decisions that have gone into your draft budget. What if your sales don’t grow next year? What if your annuity income falls because 10% of your customers leave and go to another provider? How does this affect the profitability of the firm?

In uncertain times, it is important to be pragmatic. Create 3 scenarios for your budget – high, medium and low. Start with the medium scenario – the “expected” outcome and from there you can derive variations on whether things turn out better (high) or worse (low).

Scenario-based budgeting is not intended to predict exact outcomes.
Instead it is intended to help the business to understand the likely variances and prepare accordingly.

Hold back some spending centrally as a contingency. This builds some flexibility into the budget so that the business can react to changing circumstances as the year progresses.

Calculate your budget using new data, not historical projections. Budgets may have been squeezed in the past 18 months and may not reflect the current or predicted market trends.

Finally and most importantly, build realistic income models. Ensure you provide for bad debts and write offs in each of your high, medium and low scenarios. Cash is king and in uncertain times every business must focus on getting cash in on a monthly or even weekly basis. Billing cycles and cash collection management should be at the top of the agenda for the management team and offering extended payment terms to customers should be avoided as much as possible. Build these principles into your budget and ensure you keep adequate reserves in case you encounter headwinds during the year ahead.

Social Commerce

Harnessing the power of social media to sell your products or services online.

Social Commerce involves using platforms such as Twitter, Instagram or Facebook as vehicles to sell products and services.
Social Commerce embraces digital marketing to the extent that the entire shopping experience, from product discovery and research through to the buying and checkout process all takes place via a social media platform.

Social Commerce differs from E-commerce in that the customer makes their purchase within the social media platform whereas E-Commerce refers to a shopping experience via a dedicated website or app (such as the Samsung online store or Amazon, etc.).

Shopping on social media makes the experience more interactive in that consumers can like, share, comment and so forth. It also speeds up the buying process as users can literally see something, click it and buy it in a matter of seconds.

As consumer tastes have evolved and the buying power has shifted to Millennials and Generation Z, Social Commerce has come to the fore as these shoppers are digital natives who use social media more than any generation before them.

From a business perspective there are some significant advantages to adopting a Social Commerce strategy. You don’t need to have lots of physical shops, the potential target market is much bigger and your audience is global. Buyers are also online 24/7.

There is also a vast amount of customer data available such as Social Media usage statistics, demographic or segmentation data and so forth. This makes it much easier for businesses to target the right customers at the right time.

In order to develop and implement a Social Commerce strategy successfully, you will need to do your research and be prepared to experiment with different platforms.

You will need to understand who your target audience are, what they like and dislike, how they tend to buy products and services (online versus in person) and which social media platforms they tend to use. The good news is that there is plenty of data available from the leading social media platforms such as Facebook, Instagram, Pinterest, etc. There is also a lot of material available online to guide you through setting up a Social Commerce platform.

What makes a good business leader

There is no recipe for good leadership so how do you go about becoming a really great business leader?

The best leaders in business are those that have attributes including vision, courage, integrity and focus combined with the ability to develop and implement an effective strategy for the business. In today’s complex trading environment, indecisiveness and procrastination can prove costly. Good leadership is all about informed decision-making. Good business leaders commit to decisions and see things through.

If you want to be a successful leader in your business, you need to set the right example and be a role model for your team. Good business leaders practice what they preach and remain positive, which in turn can have a beneficial impact on the culture of the firm.

Good business leaders have high emotional intelligence. They are passionate about their work and their vision of success for the firm. In addition to this, they take time to understand the views of others. As with any senior role in business, communication is key.

The best business leaders listen more than they speak. They try to understand the points of view of others and encourage people to share ideas or feedback.

A good business leader is someone who is willing to praise others. They give credit where it is due but they also take responsibility for their actions when things go wrong. After all, the success of any business depends on the collective efforts to the whole team.

Increasing Prices

How can you raise your prices without losing too many customers?

The current business environment is incredibly competitive but as we emerge from the pandemic, consumer demand is increasing and many sectors have seen labour and material costs rise. As demand increases and levels of supply fall, businesses have an opportunity to increase their prices.

Study the competition
Have your key competitors increased their prices recently? If so, your customers will be more amenable to the change. However if you are the only firm pushing your prices up, you will need to offer something unique in order to justify it.

Be open about your price increase
Tell your customers what you are doing. Avoid language like “updated price” or “adjustments to our pricing model.” Just be honest and authentic – after all, customers want to buy products and services from businesses that are open and honest.

Explain the reasons for the increase
You don’t have to go into detail about profit margins or unit costs. Simply share the basic information. For example, “We are now going to deliver your product / service directly to your front door, and as a result, we will be raising our prices from next quarter.”

Don’t apologise for increasing your prices - this will just invite your customers to negotiate. Focus on the benefits that the customer gets from buying your product or service. Maybe you offer something faster, better or with unique features?

You win some, you lose some
Some price-sensitive customers may choose to go to another supplier but any new customers will be more profitable as those new customers may be willing and able to pay a higher price for a better quality product or service.

Two-tiered pricing
If you receive feedback that some customers are now looking around for a cheaper alternative, maybe you could introduce a new lower tier of product or service, which has less features but at a more competitive price. For example, your top tier customers might get a dedicated account manager, 24/7 service and support, etc.

The lower priced product may cut out the account manager and support may be available only 5 days per week but the price could be 25% lower. That way you end up making more money from your premium customers but you don’t lose your more budget conscious clients to your competitors.