Planning to save tax may seem like a luxury buy in these days of rising prices and recovering from COVID fallout.

And yet tax planning is of real value in these uncertain times.

Whether your income and profits are increasing or reducing, there will be tax consequences. And unfortunately, to mitigate your tax footprint you will need to act in a timely manner. Wait too long and opportunities may be lost.

We are all entitled to use the present tax legislation to minimise our tax payments. What we are not entitled to do is evade tax by adopting strategies that stretch the credibility of laws set by parliament beyond those originally intended.

Penalties for engaging in tax schemes that would be challenged by HMRC as tax evasion can be punitive and in some cases are treated as fraud.

Tax planning achieves two major outcomes:

• It reveals one-off tax saving opportunities, but it also reveals ongoing tax savings; savings that you will reap for many years with no further investment in professional advice.
• Without straying into tax evasion, tax planning will also ensure you pay the minimum tax applicable to your circumstances, and no more…

HMRC are tax collectors. They are obliged to publish details of any tax savings options open to you, but under no obligation to tell you. A review of your personal and business circumstances is required to achieve this, and this is what tax planning advice will provide.

If you have concerns about your tax position in the coming tax year, 2022-23, pick up the phone. Let’s discuss your options in the round and see if an investment in tax planning would be of benefit.

We are all feeling the effects of inflation, increasing energy, fuel and the price of basic foodstuffs affect us all.

The Government Actuary’s Department has posted a blog article recently – Inflation, its personal – written by Christopher Ward, Actuary.

The article provides a useful update on the scope and cause of rising prices. It says:

“We are in a period of high inflation of prices for goods and services. The Office for National Statistics (ONS) shows one of the inflation indices has increased by 6.2% in the 12 months to March 2022.

“This is the highest that CPIH (Consumer Prices Index including owner occupiers' housing costs) has been since 1992. Among the main components of this increase are transport costs, such as petrol and diesel and the price of second-hand cars.

“During the pandemic prices for some goods and services fell, such as for eating out and holidays abroad. This reflected a rapid fall in demand which quickly shifted with demand gradually returning and supply then becoming challenging. Lockdown and workforce availability were key causes, but another factor was the reliance of so many products on semiconductors.”

This reference to the shortage of semiconductors is a real concern for manufacturers of consumer goods. The post continues:

“They [semiconductors] feature in ever more numbers of products such as computers, cars and even kettles. The demand for semiconductors has been outpacing supply.

“This has been compounded by other factors, such as the surge in early retirements during the pandemic and increasing energy prices due to the geopolitical situation.

“These factors and increasing semiconductor production can be managed with a view to bringing prices back down again. However, solutions such as building new semiconductor manufacturing facilities take time, so until then, prices will continue to increase.”

It is likely that inflationary pressures will continue to affect our personal financial position and our businesses for some time.

Readers who have concerns about the best way to manage these inflationary pressures are invited to call for an informal discussion.

When corporation tax increases from 1 April 2023, companies will need to consider three scenarios:

From 1 April 2023:

• The main corporation tax rate is increased to 25% where profits are over the upper profits limit, set at £250,000.
• A small profits rate will apply for companies whose profits are equal or below the lower profits limit, set at £50,000. The small profits rate is set at 19%.
• Companies with profits between the lower and upper limits (£50,000 and £250,000) will pay tax at the main rate of 25%, but this will be reduced by marginal relief. The effect of marginal relief is that the effective rate of corporation tax gradually increases from 19% where profits are £50,000 or less to 25% where profits are more than £250,000.

The limits are reduced if you have associated companies or if your accounting period is less than 12 months. This final comment is key.

A company with just one associated company – a company where there is common ownership – will see the upper and lower profits limits halved.

For example, if you have one associated company so that the limits are halved, from 1 April 2023, you will pay corporation tax at the small profits rate if your profits are £25,000 or less. If your profits fall between £25,000 and £125,000 you will pay tax at 25%, as reduced by marginal relief. If your profits are more than £125,000, you will pay corporation tax at the main rate of 25%.

Reviewing company structures

Business owners who control two or more companies could benefit from restructuring their business interests before 1 April 2023.

For example, if you have one company with taxable profits of £40,000 and one company with taxable profits of £5,000, the company with the taxable profits of £40,000 will not benefit from the small profits rate as the profits are above the lower limit of £25,000 that applies to a company with one associate. Merging the companies will mean that there is only one company and the combined profits of £45,000 will be charged at the small profits rate of 19%.

We can help

Restructuring, and considering your options in this way can take time. If you have an active share in more than one company the first job is to consider if your holdings constitute common ownership.

If they do, then consideration of the change in corporation tax rates will need to be undertaken to see if restructuring would be appropriate.

Many business owners feel qualified to act on their subjective conclusions. Where these conclusions are key to the continuing success of the business this internal process opens up the possibility of failure – what if you have failed to consider all the possible risks?

As individuals, we can only grapple with our internal thought processes, we are doomed to be subjective. However qualified we may feel to make decisions, we should always be open to discovering what it is that we do not know, that we do not know…

And the best way to do this is to have trusted advisers or mentors, who can flag-up those ‘do not knows’ and in such a way that we avoid mistakes and enhance successes.

Setting boundaries

The best way to avoid making costly mistakes is to set up boundaries, what level of cost or investment or major change in your business activities should flag up the need to consult with third parties before ploughing ahead?

Having set these limits, for example, considering a financial investment above a certain amount, you would then approach your adviser with your ideas and ask for their opinion.

The choice to ignore their opinions is still yours to make, but this process should inject much needed objectivity into your decision-making processes.

Choosing advisers

Aside from your professional advisers, we all know respected individuals – for example, retired, successful businesspeople – who can open for debate issues that you may not have considered.

This would need to be a brief list. Otherwise, there is the risk that decisions will never be made, and opportunities will be missed.

Often, opening out the debate will enhance the outcomes rather than close down changes.

We can help

You will appreciate that we have acted for numerous businesses over a number of years and have witnessed a multitude of situations that have contributed to the success or failure of these businesses.

Hopefully, this places us in a unique position to be a useful sounding-board when you are faced with making critical decisions.

Do not hesitate. If you are about to make changes of whatever nature in your business in the near future, pick up the phone. We would be delighted to discuss your options.

Whether you are self-employed or run your business through a company, the profits you produce are subject to tax less any reliefs for past losses or investments in assets that qualify for tax relief.

As most accounts software packages do not allow for these tax liabilities on a month-by-month basis, there is a tendency to see any cash balances as available for spending, when in reality, part of those cash resources will be needed to fund future tax payments.

How to make a realistic reserve

If you produce monthly or quarterly management accounts, it is possible to estimate corporation tax or income tax liabilities for the current accounting year or tax year.

You could then make a mental note to keep current year and any unpaid past-year tax liabilities in reserve or transfer sufficient funds to a separate deposit account.

In this way when you look at the balance on your core business account it should represent funds that are available to invest in your business or monies you could withdraw – subject to solvency restrictions.

We can help

Having access to up-to-date management accounts is an invaluable resource in these uncertain times.

Monitoring your trading results in real time will allow you to base business decisions on your current trading rather than past results.

Factoring-in reserves for taxation is the icing on the cake.

If you would like to discuss your options to produce regular management accounts and/or make realistic reserves for corporation tax or income tax, please call.

How do we plan for the unpredictability that is a recurring feature of our business lives?

Brexit, COVID-19, and now the war in Ukraine, all conspire to create trading conditions that can best be described as chaotic.

Present challenges include increasing energy and commodity prices, both of which are forcing up the cost of living and inflation.

It used to be the case that we could create a business plan for the coming year and still be using the same numbers at the end of our trading year. Prices were stable, there were no disruptive supply-line issues and no coronavirus, at least, not the variety labelled COVID-19.

But times have changed and to survive and flourish in these new trading conditions we too will need to be adaptable.

Flexible planning

One way to cope with unpredictability is to adopt a flexible planning approach. Instead of setting your budgets once a year, review them monthly or quarterly. In this way you can constantly see how changing the forecast numbers – to reflect new trading conditions – will affect your business in the coming year.

For example, if rising commodity prices increase your cost of production, you can consider your options to increase your prices before these changes start to exert downward pressure on your profits.

Flexing your budgets for changing costs will also provide you with the data to project forward the effects on cash flow and solvency.

Be prepared

We must all learn from the rising unpredictability of the past two and half years. The days of ‘steady as you go’ may be consigned to history. The new mantra will be to invest in planning for the unexpected.

If you would like to discuss the issues raised in this article and to see how flexible forecasting could empower your business in the coming year, please call.

Landlords are described by HMRC as a property business and yet their income, rents received, is treated as an exempt transaction for VAT purposes, i.e., landlords do not need to register for VAT and submit quarterly returns.

The only exception is if a let commercial property has been opted-in to VAT.

This means that the majority of landlords taxed under self-assessment have escaped the initial impact of HMRC’s drive to digitise reporting as determined by their Making Tax Digital (MTD) program – presently, all VAT registered businesses are required to submit their returns using software that can link with HMRC’s MTD servers.

However, from April 2024, MTD is being extended to cover income tax for self-assessment (MTD for ITSA). MTD for ITSA will apply initially to self-employed individuals and landlords who have business and/or property income of more than £10,000. If you have both property and business income, MTD applies if the total is over £10,000. Individuals to whom this applies will need to comply with MTD for ITSA from the start of the 2024/25 tax year (i.e., from 6 April 2024).

All other individuals within Income Tax Self-Assessment will be required to comply with MTD for ITSA from the start of the 2025/26 tax year (i.e., from 6 April 2025).

Quarterly updates are required for each business and each property business. This may mean that you need to make multiple submissions. Quarter end dates are set at 5 July, 5 October, 5 January, and 5 April. However, you will be able to elect to use calendar quarters instead and submit information to 30 June, 30 September, 31 December and 31 March.

If affected, landlords will need use software to record their property business transactions that is compliant with HMRC MTD for ITSA directives.

Aside from meeting HMRC’s requirements, to digitise your property business for MTD purposes, you will find that the reports you can extract from a digital accounts system will more than repay your investment in the conversion process.

Whilst 2024 may seem to be in the far distant future, we recommend that landlords who will be drawn into the MTD for ITSA net from April 2024 consider their options now. We can help you choose cost-effective accounting software and train you to use the software before the 2024 deadline.

PLANNING NOTE: If you have incorporated your property business, MTD for corporation tax purposes is planned to commence no earlier than April 2026.

Like so many of the regulations that govern our lives, the legislative processes underpinning these rules are anachronisms – things that belong to the past.

For example, the present tax year ends on 5th April 2022. The reason that our tax year ends on this obscure date started in 1582 when Pope Gregory ordered a change of calendar from the version named after Julius Caesar – the Julian calendar.

The British did not make this change in 1582, which the rest of Europe had adopted, and which meant that by 1752 GB was out of sync with Europe by 11 days.

Until 1752, the tax year in GB started on 25th March. To protect its revenue when the change to align with Europe was made, the Treasury extended the tax year to 4th April, the following tax year starting on the 5th April.

This was the position until a mis-match in leap years occurred in 1800 when the Treasury moved the tax year one more day to end 5th April, the current tax year end date.

Apart from these quirks, the UK tax code is also one of the largest and complex in global terms.

HMRC do offer copious notes on the GOV.UK website that explain the numerous reliefs and allowances that you may be able to claim in order to legitimately reduce your tax footprint. However, this would involve a degree of dedicated research the equivalent of a full-time job.

Which is why, if you answer yes to any of the following criteria, we should have a conversation about tax planning opportunities for 2022-23.

Are you:

• Setting up, running or selling a business?
• Have significant earnings?
• Have personal wealth/assets in excess of £325,000?
• Have assets you are about to sell that would be considered a chargeable gain?
• Required to submit a self-assessment tax return?

Every tax-payers’ personal financial arrangements are to some extent unique, which is why there is no one-fit solution. If you have concerns about your tax position for 2022-23, pick up the phone, we would be delighted to run through your options to save tax in the coming year.

1 April 2022 – Due date for Corporation Tax due for the year ended 30 June 2021.

19 April 2022 – PAYE and NIC deductions due for month ended 5 April 2022. (If you pay your tax electronically the due date is 22 April 2022).

19 April 2022 – Filing deadline for the CIS300 monthly return for the month ended 5 April 2022.

19 April 2022 – CIS tax deducted for the month ended 5 April 2022 is payable by today.

30 April 2022 – 2020-21 tax returns filed after this date will be subject to an additional £10 per day late filing penalty for a maximum of 90 days.

1 May 2022 – Due date for corporation tax due for the year ended 30 July 2021.

19 May 2022 – PAYE and NIC deductions due for month ended 5 May 2022. (If you pay your tax electronically the due date is 22 May 2022).

19 May 2022 – Filing deadline for the CIS300 monthly return for the month ended 5 May 2022.

19 May 2022 – CIS tax deducted for the month ended 5 May 2022 is payable by today.

31 May 2022 – Ensure all employees have been given their P60s for the 2021/22 tax year.

HMRC issued the following press release 8 March 2022:

“HMRC is warning customers not to share sensitive personal information online to avoid their identities being used to commit tax fraud.

“HMRC is aware that criminals are attempting to obtain customers’ Government Gateway logins and other personal details, enabling them to register for Income Tax Self-Assessment and submit bogus tax refund claims before pocketing the repayment.

“Individuals, ranging from teenagers to pensioners, are being targeted on social media platforms by fraudsters seeking to ‘borrow’ their identities. In return, the individual is promised a cut of the tax refund ‘risk-free’.

“Handing over sensitive personal information to criminals like this, even inadvertently, risks individuals involving themselves in tax fraud, and having to pay back the full value of the fraudulent claim.

“Customers should therefore only deal with HMRC directly or through their tax advisor in relation to their Self-Assessment tax refunds.”