Business Matters – Issue 14

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Game plan:

What the Autumn Budget 2021 means for your business

Best before:

Get ahead of your key financial dates

Ahead of the game:

Don’t wait until spring to make the most of your tax allowances

Tax planning:

How it can save you money – and your sanity!

On the money:

How financially savvy are your employees?

Game plan: What the Autumn Budget 2021 means for your business

On 27th October, Chancellor Rishi Sunak unveiled the UK government’s Autumn Budget and Spending Review. What changes were announced, and what could they mean for your business?

It was third time lucky for Rishi Sunak – or, rather, ‘third time brighter’. Following his two previous Budgets being overshadowed by COVID-19, this one had a far more positive backdrop. Indeed, the Chancellor eagerly took advantage of better than OBR-projected economic performance (lifting its growth forecasts to reach 6.5%) both to spend more and to put some money aside.

Click here to read about the major changes to personal allowances and reliefs – and read on to discover the headline announcements for business owners and entrepreneurs.

Highlights for business owners

For businesses, there was welcome news with the freezing of the business rates multiplier for a further year, for a second year, from 1 April 2022 until 31 March 2023. What’s more, there’s a 50% business rates reduction for retail, hospitality and leisure sectors. Let’s dig into the detail…

Income tax

Income tax basis periods will be reformed so that a business’s profit or loss for a tax year will be the profit or loss arising in the tax year itself, regardless of its accounting date.

National insurance contributions (NICs)

The lower NIC thresholds and limits will rise by 3.1%, in line with CPI inflation to September 2021. The upper earnings limit, upper secondary thresholds and upper profits limit will remain aligned to the unchanged higher rate threshold at £50,270 for 2022/23, as previously announced.

NIC rates will rise by 1.25 percentage points in 2022/23, as announced in the NHS/social care package launched in September 2021. From 2023/24, NIC rates will revert to their previous levels and a new 1.25% Health and Social Care Levy will apply to employers, employees and the self-employed (including those above State pension age).

Top tip: With NICs increasing from 6 April 2022, salary sacrifice arrangements (for example, for employers rather than employees making pension contributions), will offer even greater savings in 2022/23.

Corporation tax and bank surcharge

The main rate of corporation tax will remain at 19% for the year beginning 1 April 2022 and will rise to 25% from April 2023 for businesses with profits of £250,000 and over. The rate for businesses with profits of £50,000 or less will remain at 19% and there will be a marginal taper for profits between £50,000 and £250,000 – all as announced in March 2021.

The bank surcharge rate will be set at 3% from April 2023, so banks will pay corporation tax at 28%. The annual allowance within the surcharge will be raised to £100 million.

Business rates

  • The business rates multipliers will be frozen for a second year, from 1 April 2022 until 31 March 2023, keeping the multipliers at 49.9p and 51.2p.
  • There will be a temporary business rates relief for eligible retail, hospitality and leisure properties for 2022/23. Eligible properties will receive 50% relief, up to a cap of £110,000 per business.
  • From 2023, a 100% improvement relief for business rates will provide 12 months’ relief from higher bills for occupiers where eligible improvements to an existing property increase the rateable value. The relief will be reviewed in 2028.
  • From 1 April 2023 to 31 March 2035 there will be targeted business rate exemptions for eligible plant and machinery used in on-site renewable energy generation and storage. There will also be a 100% relief for eligible heat networks to support the decarbonisation of non-domestic buildings.
  • Business rates revaluations will take place every three years instead of every five years, from 2023.
  • Transitional relief for small and medium-sized businesses and the supporting small business scheme will be extended for one year. This restricts increases in rates bills for properties with a rateable value of up to £100,000.

Online sales tax consultation

The government will publish a consultation about an online sales tax ‘shortly’. If it is introduced, the revenue from such a tax would be used to reduce business rates for retailers in England and increase the block grants of the devolved administrations.

Income tax basis period reform

Income tax basis periods will be reformed so that a business’s profit or loss for a tax year will be the profit or loss arising in the tax year itself, regardless of the business’s accounting date. This removes the basis period rules, which result in tax being charged on profits twice in some circumstances, as well as the need for overlap relief. The new rules will come into force from 6 April 2024 with a transition period in 2023/24.

Research and development (R&D) tax reliefs

Qualifying expenditure will be expanded to include data and cloud costs. Other changes will refocus support towards innovation in the UK rather than overseas, targeting abuse and improving compliance. The changes will take effect from April 2023.

Top tip: Your business might be entitled to a R&D tax credit – even if it doesn’t make a taxable profit. Check out the new position: you might be surprised what expenditure can now qualify and how much it could be worth to you.

Annual investment allowance (AIA)

The temporary £1 million level of the AIA will be extended to 31 March 2023.

Recovery loan scheme

The recovery loan scheme will be extended to 30 June 2022 to help small and medium-sized businesses to continue to recover from the pandemic, but the government guarantee will be reduced from 80% to 70%.

Cross-border group relief

Cross-border group relief and related loss reliefs are abolished from 27 October 2021.

Residential property developer tax

A new tax will be introduced on company profits derived from UK residential property development, to help pay for the removal of unsafe cladding and other building safety remediation, as announced in February 2021.

It will be charged on relevant profits arising after 31 March 2022, at 4% on profits exceeding an annual allowance of £25 million. It will be included in corporation tax returns.

Cultural reliefs

Museums and galleries exhibition tax relief (MGETR) will be extended until 31 March 2024. The headline rates of the tax reliefs for theatres, orchestras and MGETR are increased with immediate effect but will reduce on 1 April 2023 and again on 1 April 2024.

English freeports

The first English freeport sites – in Humber, Teesside and Thames – will be able to begin initial operations from November 2021.

Alcohol duty reform

The government intends to restructure alcohol duty so that all beverages will be taxed in direct proportion to their alcohol content. To simplify the regime, the government intends to reduce the number of main rates from 15 to 6, with common thresholds for each set of bands across product categories. The rates will be harmonised for drinks at 8.5% ABV or above and there will be reduced rates for products below 3.5% ABV. The government is publishing a consultation on the detail of these reforms, which will close on 30 January 2022.

Air passenger duty (APD)

A new domestic APD band will cover flights within the UK. The rate will be £6.50 for 2023/24. The existing short-haul economy rate will be frozen for 2023/24 at £13 and the long-haul economy rate will increase by £3 to £87. There will be a new ultra-long-haul band, covering destinations with capitals located more than 5,500 miles from London, with an economy rate of £91.

Tonnage tax reform

The government will introduce a package of measures to reform the UK’s tonnage tax regime for shipping businesses from April 2022. These reforms aim to see more firms basing their headquarters in the UK and flying the UK flag.

Asset holding companies (AHC) tax regime and real estate investment trusts (REITs)

A new framework will be introduced for the taxation of companies used by funds and institutional investors to make investments, while targeted changes will be made to the REIT tax rules, with effect from April 2022.

UK funds regime review

The government will publish in the coming months its response to the call for input on the broader elements of the UK funds regime review, as well as a consultation on options to simplify the VAT treatment of fund management fees.

Anti-money laundering levy

Businesses and other entities subject to the money laundering regulations will have to pay a new anti-money laundering levy starting with the year 1 April 2022 to 31 March 2023, as previously announced. The levy will be a fixed fee based on their ‘size’ band, as determined by their UK revenue for the relevant accounting period.

Medium entities (over £10.2 million up to £36 million) will be expected to pay a fee in the region of £5,000 to £15,000; large entities (more than £36 million up to £1 billion) will pay in the region of £30,000 to £50,000 and very large entities (more than £1 billion) will pay a fee in the region of £150,000 to £250,000. Small entities will be exempt. Payments will be due after the end of the relevant year. The levy is intended to raise about £100 million a year to help fund anti-money laundering and economic crime reforms.

Diverted profits tax (DPT)

HMRC will not be able to close corporation tax enquiries into profits subject to a DPT charge until after the DPT review period ends. This will apply to any application for a corporation tax closure notice made after 26 September 2021.

Under another measure, companies can still use certain relieving provisions to amend their company tax returns and bring taxable diverted profits into charge to corporation tax during the DPT review period.

New legislation will enable HMRC to implement tax treaty mutual agreement procedure decisions reached after 27 October 2021.

Making tax digital (MTD) for income tax self-assessment (ITSA)

As announced in September, sole traders and landlords, who have annual income over £10,000 will be given an extra year to prepare for MTD. MTD for ITSA will now be introduced from 6 April 2024. General partnerships will not be required to join MTD for ITSA until 6 April 2025.

As announced in September, the new regime of penalties for the late filing and late payment of tax for ITSA will now come into effect on 6 April 2024 for those taxpayers required to submit digital quarterly updates through MTD, and 6 April 2025 for all other ITSA taxpayers.

A further set of tax administration and maintenance announcements will be issued later in the autumn. This follows a similar set of announcements published in the Command Paper Tax policies and consultations (Spring 2021).

The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.

Looking ahead

Like many before it, this Budget highlights the need for accessible, professional financial advice in enabling you to reach your business goals and aspirations, while being in a trusted, safe pair of hands.

Please contact your Wellesley adviser if you would like further information or wish to review your financial arrangements in light of the announcements.

Best before: Get ahead of your key financial dates

Your company’s month-end and the tax-year-end are emblazoned on any business owner’s consciousness; however, there are lots of dates in the financial diary to be aware of. Download our handy calendar to stay ahead of the game!

After a turbulent 18 months for business owners, it’s easy to see how certain dates might fly under the radar. However, getting your affairs sorted ahead of time can help you make the most of your personal and business finances!

To help, we’ve created a handy calendar of the most important dates in the financial diary, from now until October 2022. Click the link below to download yours!

DOWNLOAD

The first date to be aware of is coming up on 30th December – don’t miss it! If you have a question about any of the dates, please contact us today.

Ahead of the game: Don’t wait until spring to make the most of your tax allowances

The tax-year-end deadline is there for the allowances to be used, but it’s just a deadline – you have a whole year to use them. Here’s how you can avoid unnecessary stress and financial cost by not leaving the review of your tax allowances until the last minute.

Every entrepreneur has been there – the feelings of anxiety and stress, followed by intense relief, after leaving it as late as possible to meet your deadline. While the worry before you (hopefully) complete your task on time isn’t fun, the adrenaline rush that follows explains why this is often a favoured approach to getting things done.

But while this can easily become a habit, it also comes at a cost – especially when it regards financial deadlines.

As the calendar in the previous article shows, there are deadlines for business and personal finances throughout the year, yet most of us tend to focus on 5th April as a deadline for sorting out finances and getting your taxes in order. However, this approach can lead to missed opportunities.

A different approach

As anyone who has left their deadline until the clock is ticking can attest, this method often results in a rushed job with opportunities that have been missed.

Obviously, the best way to beat this is to plan much further ahead, so you can take your time and assess the actions you need to take. Pick a date in advance of the deadline to check your tax allowances or do it regularly throughout the year – this not only ensures you beat the deadline, but also makes the best financial sense.

Tony Clark, Senior Propositions Manager at St. James’s Place, says:

“If you leave things too late, you run the risk of missing the deadline. You can do a proper review and assessment of the allowances you’ve used and, where possible, bring forward unused allowances from the previous year. If you don’t do that until the end of the year, you might miss that opportunity.”

Time allowances

If you’re doing investment-based tax planning, for example, thinking about your finances before the deadline allows you the opportunity to benefit fully from your money being invested tax-efficiently and using all your allowance.

And if you’re self-employed and planning for retirement, too, it’s easy to run out of time to put a lump sum into your pension before the end of the tax year with everything else that needs taking care of.

If you’re able to pay in more than the current annual pension allowance (frozen at £40,000 in recent years), for example, you can carry forward any unused allowance from the previous three years – an important detail not to be overlooked.

Getting ahead can be especially beneficial to business owners, according to Clark:

“There’s a whole raft of allowances to consider, and you’ve got two lots of tax planning to think about: your personal allowances, as well as those that apply to your business, and it can be a lot to go through if you’re short on time.”

Face value

Rumours around tax allowance changes, especially when it comes to pensions, are commonplace. There aren’t any clear indications of changes that might be introduced with the next tax year.

Acting before anything is officially announced is to be cautioned against, though. Clark said:

“The best thing you can do is base your tax planning on the existing rules and do it regularly. Regular contact with your adviser is the key, even if the right course is to change nothing. As soon as you become aware of any potential changes, speak to your adviser to work out any actions you might need to take.”

Rules and allowances for the 2021/22 tax year

Income tax

  • The first £12,570 of your earnings are tax-free.
  • You pay 20% tax on everything between that and the higher-rate threshold of £50,270.
  • Everything between £50,271 and £150,000 is taxed at the higher rate, which is 40%.
  • Everything above £150,000 is taxed at the additional rate of 45%.

Individual Savings Account (ISAs)

  • Your annual ISA allowance is £20,000. You can save up to this amount in either a Stocks & Shares ISA or a Cash ISA (or a combination of the two) during this tax year, without paying any tax on the interest or profits.
  • The limit is per person, so you and your spouse or partner can have one each.
  • If there are any children in your life, you can also save up to £9,000 per year in a Junior ISA on their behalf.

Personal Savings Allowance

  • You can earn interest of up to £1,000 this tax year if you pay Income Tax at the basic rate.
  • If you pay higher-rate Income Tax, the limit is £500. There’s no allowance for additional-rate Income Taxpayers.

Dividends

  • The first £2,000 you earn in dividends is tax-free.
  • You then pay 7.5% on anything above that if you pay Income Tax at the basic rate or no Income Tax at all.
  • If you pay Income Tax at the higher rate, it’s 32.5%, while at the additional rate it’s 30.1%.
  • If your stocks and shares are held in an ISA or pension, any dividends you earn from them are tax-free.

Capital Gains Tax (CGT)

  • The first £12,300 of any capital gains you make is tax-free.
  • Basic-rate Income Taxpayers are liable to pay 10% on anything above that threshold, while if you pay the higher rate Income Tax, it’s 20%.
  • Profits from property (if it’s not your main residence) are charged at 18% (basic rate) and 28% (higher rate).

Corporation Tax

  • Corporation Tax is currently charged at 19% on profits for all businesses.
  • In April 2023, this will rise to 23% for businesses with profits of £250,000 and above.
  • For businesses with profits of £50,000 and less, the rate will remain unchanged at 19%.
  • For those in between, the tax rate will be tapered.

Inheritance Tax

  • Anything you pass on to your spouse or civil partner when you die is usually tax-free.
  • The first £325,000 of your estate is tax-free, but anything above is charged at 40%.
  • If your home is included in your estate, the tax-free threshold increases up to £500,000 (if you’re passing the home to a child or grandchild and your total estate is worth less than £2 million).
  • Your tax-free allowance can be passed to a spouse or civil partner – so when they die, the allowances can be combined.

If you’d like to find out more, get in touch with a Wellesley adviser today!

The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.

An investment into a Stocks and Shares ISA will not provide the same security of capital as associated with a Cash ISA.

The levels and bases of taxation, and reliefs from taxation, can change at any time and are generally dependent on individual circumstances.

Please note that St. James’s Place do not offer Cash ISAs.

Tax planning: How it can save you money – and your sanity!

Dealing with tax can feel like a chore but is worth the effort – with the help of a financial adviser, you can take full advantage of allowances, avoid unexpected bills and, importantly, save money.

As we discussed in the previous article, looking at your taxes is possibly one of the most-avoided jobs on anyone’s to-do list. But, in the long-term, considering taxes when doing your financial planning will help to improve your well-being and even make you financially better off.

Unlike other things on your to-do list, tax is one area where you’re best off getting professional help – the UK tax system is extremely complex, with more than 1,000 different rules and regulations, and applying them properly requires expert knowledge.

Tax advice will likely pay for itself quickly – once you’re made aware of all the allowances and reliefs you can take advantage of.

Unravelling the rules

Don’t mistake tax allowances for tax loopholes – they’ve been put in place for you to make use of as you save and plan for your future, so there’s no need to feel guilty about using them. Tax planning is relevant to all your financial goals, whether it’s short- and medium-term savings, retirement savings with pensions, or estate planning to ensure you’re able to pass on as much as you can to your loved ones.

While it’s likely you know that putting your money into a Cash or Stocks & Shares ISA means you won’t have to pay tax when you take it out at the other end, you may not be aware of the tax rules around pension saving. Alongside tax relief boosting your contributions, your money will also be sheltered from major UK taxes as it grows.

Taking your money out of pensions is where the rules become more complicated, with plenty of pitfalls since the introduction of the pension freedoms in 2015. Between getting stung by emergency tax and triggering the money-purchase annual allowance and reducing the amount you can pay into your pension if you make a withdrawal, it’s no surprise that so many get caught out.

A Wellesley adviser can provide important help when you’re approaching retirement. Their expertise will be able to navigate the tax minefield and help you structure your retirement income to manage the amount of tax you pay – using your pensions, ISAs and any other assets.

Getting older is also likely to trigger thoughts of how to pass on your wealth when you die. Like pensions, Inheritance Tax rules are complex, and your adviser will be able to go through all your options, such as gifting allowances and the use of certain trusts.

Age is not the only trigger to tax planning, however; career progression and increases in earnings, or even bigger bonuses or share options, are all events that can make getting tax advice worthwhile. And if you own your own small business, you may particularly benefit from advice. What, for example, is the best way to extract value from your company? How can you pay yourself in the most tax-effective way?

If you’re self-employed, you may have an uneven income pattern that makes pension saving trickier – but when some months or years are better than others, you may be able to take advantage of carry-forward rules and give your pension a good boost.

Keep the conversation going

While there are certain life events or stages that may act as a prompt to seek tax advice for the first time, it’s important not to regard it as a one-off transaction. Instead, it should be the start of a conversation that you regularly engage in with your adviser to be sure you’re continuing to run your finances in the most tax-efficient way.

Everyone can benefit from tax planning, but the benefits will be different depending on the complexity of your needs or situation. Employing an expert instead of taking the DIY approach means you can be confident that you haven’t underpaid and don’t need to worry about an unexpected bill.

Any job ticked off your to-do list always provides great satisfaction, but the relief that comes with having sorted out your tax is especially good. Sensible tax planning not only saves you money and even grows your wealth in the long-term, but it also provides a priceless sense of well-being that comes with not having to worry about your finances.

If you’d like to tick your taxes off your list, get in touch with a Wellesley adviser today.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.

An investment into a Stocks and Shares ISA will not provide the same security of capital as associated with a Cash ISA.

The levels and bases of taxation and reliefs from taxation can change at any time and are generally dependent on individual circumstances.

Trusts are not regulated by the Financial Conduct Authority.

Please note that St. James’s Place do not offer Cash ISAs.

On the money: How financially savvy are your employees?

Having previously written about the link between finances and employees’ mental health, this article is now a follow-up on why financial education programmes in the workplace might prove valuable, as more people return to the office.

Money talks

Who’s responsible for people’s financial education? Whose duty is it to ensure that people have the necessary skills to manage their money in such a way that they don’t need to unduly worry about their finances?

Some might say that it’s down to the government, and indeed, campaigners have been rallying for a long time for personal finance to feature on the school curriculum. On the other hand, some believe the onus is on the individual to take responsibility, while some may think that it’s the responsibility of employers. Whether you’re a benevolent employer or not, there’s certainly something to be said for businesses investing in the financial well-being of their workforce.

Money can be a trigger for many mental health problems – according to the Centre for Economics and Business Research (CEBR), around 4.2 million worker days are lost each year due to a lack of financial well-being, which is equivalent to £626 million in lost output.1

Not only that, but the Close Brothers Financial Wellbeing Index 2019 reported that 94% of 35 to 54-year-old employees have money worries – of which more than three-quarters say it affects them at work.2 That could include employees having to spend working hours dealing with their problems – making phone calls to the bank, for instance – or simply that their mind is on other things, that they’re demotivated and struggle to focus on the work you’re paying them to do.

Such issues aren’t exclusive to the lowest-paid workers. The Employer’s Guide to Financial Wellbeing 2020-21 discovered that a third of C-Suite executives and three in 10 managers have money concerns. Furthermore, it states that those earning £70,000 to £89,999 are likely to communicate the same level of financial stress as lower-paid workers earning between £10,000 and £29,999.3

Is help at hand?

According to Aegon’s Financial Wellbeing in the Workplace study, 71% of employers identify that their workers would be more content without money worries, but as they aren’t financial experts, they’re unsure as to how to support them. Just half of the companies surveyed said that they could offer information on managing debts, and 38% said they didn’t understand what financial resources to provide.4

So, as an employer, what can you do to improve financial well-being and help your staff feel on top form?

Employees often don’t know where to turn to when they’re feeling stressed. The CEBR study discovered that only 7% of employers offered face-to-face counselling or access to advice from specialised staff or external consultants. However, employers are often a trusted source of guidance, and you can use that to your advantage.

Working with a Wellesley financial adviser means that you can help build your employees’ financial well-being. Together, we can heighten their mindfulness around any issues and challenges – for example, paying off debts, buying a house or saving for retirement – thereby empowering them to apply their financial literacy to take action and achieve their goals.

The key is to give your staff confidence and support them to feel in control of their money.

Step by step

The first step is for your Wellesley adviser to assess your employee demographics. After all, there’s little point delivering a pensions planning workshop to a young team whose main aim is to get on the property ladder.

Once their needs and priorities have been ascertained, we can action a plan specific to your teams –  this can range from virtual and in-person workshops to access to one-to-one guidance sessions and follow-ups. What’s more, relevant content for your company intranet can be provided.

The timing of your message is crucial, as much as ensuring the right content is being delivered to the right people. The onboarding process is an ideal opportunity to talk with new team members – helping them to understand and make the most of any employee benefits you offer, as well as making them aware of the support in the workplace. Other key times of the year are January, the end of the tax year and the period in the run-up to any windows for making changes to benefits, such as pensions and private medical insurance.

Now that life is returning to some semblance of normal after the pandemic and workers start to go back to the office, many companies will be looking to invest in programmes and initiatives to support that evolution.

Rightly so, there’s currently a huge focus on mental health and emotional well-being – yet financial well-being is often forgotten. By providing financial education within the workplace, you’ll be enhancing initiatives you may already have in place for physical and mental health, while offering more extensive support to staff.

Sources:

1 Financial wellbeing and productivity: a study into the financial wellbeing of UK employees and its impact on productivity, Centre for Economics and Business Research, October 2018
2 Financial wellbeing index 2019, Close Brothers, March 2019 (Based on surveys conducted among 1,003 employers with 200 or more employees, and 5,003 employees from companies with 200 or more employees)
3 The Employer’s Guide to Financial Wellbeing 2020-21, Salary Finance, November 2020
4 Financial wellbeing in the workplace, Aegon, 2018 (Based on a survey sample size of 500 HR decision-makers from a representative sample of British businesses)