Category: Business tips

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Business tips Tax

The benefits of Business Asset Disposal Relief for entrepreneurs 

The benefits of Business Asset Disposal Relief for entrepreneurs

When you dispose of a business, you want to do this in a way that maximises your return and keeps you as tax-efficient as possible. But what’s the best way to achieve this? 

The answer may well be to make use of the new Business Assets Disposal Relief (BADR). This was previously known as Entrepreneurs’ Relief, but was renamed and reworked as BADR in Finance Act 2020. If the gain you make when disposing of a business qualifies for BADR, the first £1M of your lifetime gains can be taxed at 10% instead of 20%. 

That’s a substantial tax benefit if your capital gain happens to be eligible. However, some of the rules are open to interpretation and good guidance will be needed to ensure your eligibility. 

Understanding the BADR rules 

If you can reduce the capital gains tax (CGT) due on your disposal down from 20% to 10%, that ends up saving you a considerable amount in lost cash. 

But understanding and adhering to the BADR rules can be tricky, especially if you don’t have the assistance of an experienced tax adviser to guide you. 

Key elements to factor in include: 

  • BADR applies to disposal of the assets of a business you own as a sole trader or partnership, but NOT on disposal of goodwill to a close company where you own 5% or more of the shares. 

  • The relief is NOT available on goodwill arising on incorporation of an unincorporated business. And it’s also NOT available on any investments held by the business. 

  • The relief can also be used in relation to assets that you own personally but that are used in the business or your personal company – and which are sold within three years of the business ceasing – or in association with the disposal of your interest in the business or sale of shares in your personal company. For example, you might personally own a workshop that’s used by the company for business purposes. 

  • When talking about shares in your ‘personal trading company’, the following is the definition of a personal company: it’s a company in which you own 5% or more of the ordinary shares, where you’re entitled to 5% or more of the profits available for distribution and of distributable assets in the event of a winding up. You must also be either an employee or officer of the company. 

  • There are no requirements in the BADR rules about hours or salary, but you must have some demonstrable evidence that you work in the company. 

  • A trading company is one which doesn’t have ‘substantial’ non-trading activities. Although not defined in legislation, HMRC considers ‘substantial’ to be 20% or more. This applies to asset values, sales, profits and management time. An overall view taking all factors into account needs to be established. 

  • As an example, if your company has surplus cash equal to over 20% of total assets, that may be considered to be a non-trading asset. HMRC’s default view is likely to be that it should have been extracted and taxed as dividends, which would taint the company’s trading status. It may however be possible to argue that the company needs to carry large cash balances for trading purposes. 

  • In the event of a company being wound up, BADR will be denied if the shareholder operates in a similar trade within the following two years. This is to prevent the owners taking advantage of the relief with no intention of permanently exiting the trade. 

Talk to us about your eligibility for BADR 

If you currently own shares in a company and are thinking of disposing of the business (whether by sale or winding up), we can guide you through the process and help you avoid the pitfalls. 

If your situation is complex – for example, you have multiple share classes and significant non-trading aspects to the business – there’s real value in getting expert advice. The rules in this area change and getting it wrong can be an expensive mistake! 

Get in touch to discuss your BADR eligibility. 

 

1. Book a call with me: https://debbiebaileymoney.co.uk//contact-us/ 

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Categories
Business tips Cash

5 signs you are undercharging

5 signs you are undercharging

Are you undercharging for your services? It can be hard to tell, particularly if you’re in a niche industry or you’re a contractor. Costs have been rising, so it may be time to rethink your own pricing. 

Here are five signs that you might be undercharging: 

  1. Nobody ever questions your quotes - Do all your new clients accept your quotes or charges without asking any questions, requesting a breakdown or wanting a discount? It’s possible they’re delighted to be getting such a great deal. 

  1. You run off your feet but you can’t afford to get help - When you’re working yourself to the bone, but there’s not enough money left over to employ someone to help you, your prices are too low – or something else needs to change. 

  1. Your prices have been the same for two years or more - In most industries, prices increase just slightly each year. Leave your prices flat for too long and you’re not keeping up with the market; make sure you review your fees annually. 

  1. You’re overbooked - When business is booming and there’s no room for new clients, it’s time to raise your prices. 

  1. Clients don’t treat you as well as they should - When clients think they’re paying peanuts, they’ll often take you for granted. They don’t see your time as valuable, so they feel free to mess you around. 

What should you be charging? 

Finding your pricing sweet spot could take a little time. You’ll need to do some research, maybe ask around a little, and find out where your competitors are pitching their rates. 

We can help too – if we have clients in similar industries we might be able to give you some indication of typical fees, so give us a call or drop us a note. We’d love to hear from you. 

1. Book a call with me: https://debbiebaileymoney.co.uk//contact-us/ 

2. Download my free guide on “7 mistakes to avoid – to stop your fitness business running out of cash” https://debbiebaileymoney.co.uk//fitness-ebook/ 

3. Connect with me on social media: 

 

Categories
Business tips Gym Tax

Tackling the cost-of-living crisis with Tax Advice & Reliefs

Tackling The Cost of Living Crisis with Tax Advice & Reliefs

As the cost-of-living continues to rise, small businesses are feeling the impact deeply, hitting both their personal and business budgets, as well as their employees.

 

With soaring energy prices, rising inflation, good shortages and supply chain issues businesses have been hit hard. And all this is coupled with the very real concern that trade could drop off if people are forced to cut back their spending.

Hunt's First Autumn Budget

Hunt’s first Autumn Budget

Over the last
few months, we have seen many tax changes announced and mostly all of them
repealed under the new PM’s leadership.

In the Autumn
Statement on 17th November 2022, we saw the government announce several
tax changes. Here’s a roundup of the latest changes:

Changes affecting business owner and employees:

·       Freezing of income tax and national insurance rates/ thresholds until April 2028.

·       Reducing the threshold for when you pay 45% tax (from £150,000 to £125,140) from April 2023.

·       Reduction in the tax-free dividend allowance from April 2023 (£2,000 to £1,000).

·       Reduction in NIC paid by 1.25% from 6th November 2022 – saving money on salary and
benefits.

·       Increase in SDLT thresholds for buyers and first-time buyers from 23rd September
2022. These rates will continue until 31st March 2025.

 

Changes affecting the business:

·        Reduction in tax relief for SME’s claiming for qualifying R&D projects – from 130% to 86% and reducing the loss surrenderable tax credit from 14.5% to 10%.

·        Reduction in staff costs by 1.25% (NIC) from 6 November 2022 – saving money on employing staff.

·        Increase in corporation tax from 19% to 25% in April 2023. Companies with profits between £50-250k will pay 19-25%, whist companies with profits over £250k will pay 25%.

·        Freeze on employer NIC rates and the employment allowance.

·        Confirmation that the Annual Investment Allowance for Capital Allowances will continue to remain at £1m post April 2023 when the 130% super deduction ends.

·        Increase in SEIS investor funding limits from April 2023 from £100k to £200k – allowing eligible businesses to raise more cash which gives investors favourable tax relief.

 

·        Increase in limit on Company Share Option Plans from £30k to £60k from April 2023.

 

 Only a small number of these measures guarantee lower tax costs for businesses compared what we originally expected when we had the Mini Budget in September.

But what else can businesses do?

Tax advice and tax reliefs is an area often overlooked when businesses are experiencing financial hardship. But tax is a very real cost to businesses and any opportunities to save it should be explored. Not to mention the many ways businesses can look to support employees’ tax efficiently without resorting to increasing wages.

There are many tax efficient ways business owners can look to get more cash back into their business and ease the cost-of-living burden personally and for their employees.

 

 

Innovation tax reliefs

 

Claim back up to £33 (up to £21.50 after April 2023) for every £100 spent via R&D Tax Relief / claim back up to £90 for every £100 spent via Creative Tax       Relief / save 10% in corporation tax on patent box relief claim.

Funding

 

Up to £50k back on SEIS funding for investors / up to £300k back on EIS funding for investors / receive up to £1k in interest on business owner loan without        paying income tax.

VAT

 

VAT registration – save 20% in VAT on purchases or VAT deregistration – save    your customers 20% on VAT on their purchases.

Investments

 

Receive an extra 30% for investments that are eligible under the capital           allowances super deduction until 31st March 2023.

Losses

 

Limited companies that have made trading losses­ can carry them back over the last three years and get a refund for 19% (or up to 25% for profits over £250k from April 2023) corporation tax already paid.

Pensions

 

Pension contributions are tax-deductible so result in a 19% (or up to 25% for profits over £250k from April 2023) corporation tax saving. Pay up to £40k per year into pension saving c.£16.8k for a 40% taxpayer.

Employee incentives & expenses

 

There are numerous tax efficient benefits and business expenses personally paid for to explore to help boost personal funds from trivial benefits to points          reward cards.

Employee loan

 

If a business has available cashflow, it can be a good way to incentivise the   business owner and employees by offering up to £10k loans, interest free.

If you are a business owner, valuable tax savings could help with the steep increase in costs your business is experiencing right now, along with many tax reliefs and incentives that could ease the cost-of-living burden for you and your employees.

Don’t ignore the opportunity
Work with us, or your Accountants and Advisers, but don’t ignore this opportunity. Take a good look at the visual to see if anything feels relevant to you.

 

If there is even the smallest chance something might be relevant, get in touch and let’s talk through how we could help.

Categories
Business tips Finance Function

6 reasons to look at your financial reports

6 reasons to look at your financial reports

Making time to look over your financial reports each month is an important task for any business owner. If you are not taking the time to do this, either because you’re too busy, or perhaps you don’t really understand what you’re looking at and it doesn’t make sense to you, then here are 6 reasons we recommend that you should start to. 

But before we get our 6 reasons, let’s talk very quickly about which reports to look at. At a bare minimum, and depending on the complexity of your business, you should be looking at the following: 

  • The Statement of Financial Performance – also known as the Profit and Loss report (P&L) or the Income Statement – tells you, as the name suggests, how your business is performing over a period of time, such as a month or a financial year. In broad terms it shows the revenue that your business has generated, less the expenses for that same period. In other words, it shows how profitable your business is. 

  • The Statement of Financial Position – also known as the Balance Sheet shows the value of the business’s Assets, Liabilities and Equity. 

  • Assets include things like money in bank accounts, Plant and Equipment, Accounts Receivable balances 

  • Liabilities include things like Bank loans and credit cards, Accounts Payable, and Hire Purchase balances 

  • Equity is the difference between your Assets and your Liabilities and includes Retained Earnings and Owner Funds Introduced 

  • Accounts Receivable Ageing report (Aged Receivables) – this shows how much money is still owed to the business as at a certain date in time, and is usually segmented as to how overdue they are, or sometimes by how far past the invoice date they are. Generally, you will have Current, 30, 60 and 90 days columns. 

  • Accounts Payable Ageing Report (Aged Payables) – this report shows who the business owes money to as at a certain date in time and, like the Accounts Receivable Ageing report, is usually segmented by overdue period. 

So why bother? 

  1. Understand your business better - by looking at your Profit and Loss report monthly you will get a good picture of how your business is performing month by month and it will give you a better understanding of what makes up your profit. It can be helpful to compare periods, or to look at a month by month P&L, so you can clearly see on one page the revenue and expenses month by month. This will help to identify trends in your data and many also help to highlight anomalies in coding/categorising. 

  1. Accurate information for lending purposes – If you are applying for a loan or an overdraft, the bank or financial institution will look closely at both your Profit and Loss report and the Balance Sheet as a lot can be learned about a business by looking at these reports together. If you are unsure what some of your balances are in your accounts, get in touch and we can explain them further. 

  1. Get paid quicker and reduce bad debts – by looking at your Accounts Receivable Aged Summary each month you can follow up with overdue accounts promptly which often results in getting paid quicker. The longer an overdue amount is left unpaid the higher the risk of it not being paid at all, so it is important to keep on top of this. 

  1. Better relationships with your suppliers – Assuming you are entering your supplier bills into your accounting software (recommended for most businesses to get an accurate profitability figure) your Aged Payables report will alert you to any unpaid or overdue amounts. Supplier relationships are an important aspect of your business and paying on time is crucial to maintaining those relationships. 

  1. Better cashflow – having an accurate understanding of how much money the business is owed, and how much money the business owes, can help with cashflow planning to ensure that there is enough money when needed. Additionally, understanding the trends of your business, its profitability drivers, its expenses, etc., can help to plan sales and marketing campaigns so that the revenue keeps coming in. 

  1. Better business decision making – Your financial reports tell the story of your business and it’s important that you understand the story that they are telling you. The better you understand what’s going on in your business the stronger position you will be in to make better business decisions that affect the profitability of your business and its financial viability. 

If you would like to know which reports are relevant to your business, and you want to better understand what’s going on in your business , then get in touch so we can make a time to go through them with you. 

Your business success is important to us and we are here to help you. 

1. Book a call with me: https://debbiebaileymoney.co.uk//contact-us/ 

2. Download my free guide on “7 mistakes to avoid – to stop your fitness business running out of cash” https://debbiebaileymoney.co.uk//fitness-ebook/ 

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Categories
Business tips Tax

Should you deduct tax from interest payments? 

Should you deduct tax from interest payments?

 

In the course of funding and growing your business, it’s likely that you’ll take out some form of loan – and will end up paying interest on loans from directors or other third-parties. However, many businesses fail to consider the taxation requirements on these interest payments. 

There are three different categories of lender to consider: 

  1. Interest paid to an individual – usually a director or shareholder 

  1. Interest paid to a UK limited company 

  1. Interest paid to a non-resident company 

Each of the categories has differing rules regarding how to deduct tax from interest payments. As such, it’s important to think about who you’re paying the interest to and how you should account for the requisite tax on these payments. 

How to account for tax on loan payments 

So, how do you account for the tax on these loan payments? And how do the rules change depending on which category of lender you’re making the payments to? 

Let’s look at how this works for the three categories we’ve outlined: 

  • Payments to an individual – if the lender is an individual (e.g. a director or shareholder,) you should deduct tax from any interest paid at the basic income tax rate of 20%. This then needs to be remitted to HMRC on a quarterly basis, together with form CT61 – the corporation tax form re the return of income tax on company payments. Many companies are unaware of this requirement and are open to penalties and other compulsory payments. 

  • Payments to a UK limited company – interest paid to a UK limited company can be made without any deduction of tax, unless the company is a nominee for a person beneficially entitled to the interest. 

  • Payments to a non-resident company – interest paid to non-resident companies should by default have tax deducted at the same 20% rate. In many cases there may be a double-taxation agreement (DTA) in place which removes the need to deduct tax at source. If you rely on a DTA, an appropriate claim should be made – it’s not automatic. (Exception: If the non-resident company has a Double Taxation Treaty Passport then interest can be paid without deduction of tax.) 

Other considerations re interest on loan payments 

If you stick to the rules we’ve outlined for the three categories of loan, you can be confident that you’re applying the right tax to these payments. However, there are other considerations to think about re the tax and interest implications. 

  • Reclaiming deducted tax – any tax you’ve deducted from individuals can be reclaimed by the lender as part of their normal self-assessment tax return filing. If their total interest income is within the tax-free personal savings allowance, the company can claim the interest costs against its own profits, while the lender, in effect, receives it tax free. 

  • Annual interest – interest in this case refers to ‘annual interest’. In practice, this simply means that the loan was either expected to last for at least a year in whole or in part, or is capable of lasting for at least a year – for example, an ‘on demand’ loan with no fixed payment date. Interest on, say, a fixed-term six-months loan doesn’t fall under this. It’s also worth noting that where there are successive short-term loans, they could be considered as one continuous loan. 

  • Tax on interest paid – tax is deducted on interest paid. If the interest is added to the principal outstanding, and only payable at the end with the capital, then tax would only be deducted at the end, on the interest element. If the credit is to something like a director’s loan account (which could be withdrawn in whole or in part at any time), even if in practice it isn’t withdrawn, that still counts as ‘paid’ as it’s made available to the director. 

Talk to us about help with your CT61 forms 

If you’re unsure whether you’re accounting for tax on interest payments in the right way, please do come and talk to us. 

Where you’re paying interest on loan payments to a UK limited company, we can help you by preparing the CT61 forms on your behalf. 

1. Book a call with me: https://debbiebaileymoney.co.uk//contact-us/ 

2. Download my free guide on “7 mistakes to avoid – to stop your fitness business running out of cash” https://debbiebaileymoney.co.uk//fitness-ebook/ 

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Categories
Business tips Finance Function

Succession Planning for Small Businesses

Succession planning for small business

It takes guts to start a business. It also takes a strategic mindset to succeed. 

Business owners are no strangers to weighing risk and navigating uncertainty, but the current climate has dialled everything up. Many business owners face the uncomfortable position of having to remap carefully thought-out succession plans and exit strategies and to consider selling their business before they’re ready and, possibly, for less than it’s worth. 

Transition may be a better option 

Rob Young, Managing Director of Platform 1, works with business owners on ensuring they get the best possible return when selling their business. Rob’s advice is to start by thinking about what options you have first. 

There are five different ways to sell: 

  1. Close the business down and sell the assets 

  1. Sell to a family member 

  1. Sell to an employee 

  1. Just a straight sale to an outside party 

  1. Gradual buy-out – The Platform 1 model. 

The Platform 1 model is a gradual buy-out program. It involves finding a manager to take the reins early on. Gradual buy-out a process that involves: 

  • figuring out what kind of individual would be right to run the business; finding that person, and developing them. 

  • Creating a plan where the new manager buys in gradually over 3 to 6 years. The objective is to get the owner out of the business physically as quickly as possible by transferring relationships and processes to the incoming person, so the owner becomes more of an investor rather than a manager. 

Preparing for sale – what’s important 

  • Get your house in order - Ensure you have systems and processes in place so the business isn’t reliant on you, but can run as a standalone entity. 

  • Maximise your profit - Make sure that you are not taking decisions to minimise your tax liability – because what you’re trying to do is create a profitable business. 

Don’t put off your succession plan – even if you are not ready to sell 

It’s a good idea to think about this long before you need to sell so that you maximise the value of the business and achieve a better outcome. It’s also worth remembering that retirement doesn’t need to be doing nothing. If your business can run as an asset without your involvement, you don’t have to sell it completely, so not selling down 100% of the business is a viable option. 

Talk to us today about your succession plan 

If you don’t already have a succession plan in place, we can help so that you have options when you need them. 

 

1. Book a call with me: https://debbiebaileymoney.co.uk//contact-us/ 

2. Download my free guide on “7 mistakes to avoid – to stop your fitness business running out of cash” https://debbiebaileymoney.co.uk//fitness-ebook/ 

3. Connect with me on social media: 

 

Categories
Business tips R&D

4 Ways to bring forward your R&D Tax Credit  

bring R&D forward. lady bursting through

4 Ways tor bring forward your R&D tax credit

With the backlash of Covid-19 and the relentless lockdowns, businesses have been hit hard. It’s hardly surprising cashflow is on every business owners mind right now. This is just one of many reasons, you might be looking to fast forward your R&D tax claim. If successful, bringing forward your R&D tax refund could be a huge helping hand for your business.  

 

4 WAYS TO BRING FORWARD YOUR R&D TAX CREDIT  

So how can a company fast forward their R&D Tax Credit?  Well, there are four routes we’re going to share with you, that are realistic options and easy to implement. 

These are: 

  • Shortening your year-end  

  • Shortening your year-end…..again 

  • Applying for advance funding  

  • Getting your account filed on time 
      

Before we look at the first option, let’s start with a quick recap on the timeframes. The hard and fast deadline for making a claim is two years after the end of the accounting year in which you incurred the costs. If you don’t claim within that two year window, you have missed out and there is no way to claw it back. 

R&D tax claims are made via the company’s tax return which cover the same period as the company’s accounting year. You can only prepare and submit your accounts and tax return after the end of your accounting year. So in theory the earliest you can make your R&D Tax Credit claim is the day after the end of your accounting year. 

man with a clock head

  1. SHORTENING YOUR COMPANY YEAR END  

Companies House automatically sets your company year-end based on the last day of the month the business was incorporated. But you can change your accounting year–end. 

If you are experiencing cashflow issues, shortening your company year-end to bring the R&D Tax credit forward could be a way to get money back into your business faster. If money is tight, you should seriously consider shortening your current accounting period end, so you can make the claim as soon as feasibly possible. 
 
Here’s an example. 

A Software Company with a June year end has R&D costs of £100k and total losses of £100k up to 31 March 2021. However, they have forecasted their spend to be significantly less up to June. 

As a result they decide to shorten the year–end by nine months, bringing it forward to 31st March 2021. By doing this they can now submit an R&D Tax Credit claim of £33,350 to HMRC, three months earlier.  
 

  1. SHORTENING YOUR COMPANY YEAR END…..AGAIN 

There’s actually no limit on how often you can shorten your accounting period year end. If you are expecting a fairly sizable credit, you could bring your year–end – and claim – forward by 6 months, say from September 2021 to April 2021, getting the cash back into your business by the June. You could then bring it forward again to the September and get even more cash into your business. The only thing to be mindful of is the fees associated with shortening your accounting period but these are likely to be minimal in comparison to the benefit of the cash to your business. 
 

  1. THERE’S MORE….ADVANCE FUNDING 

There are lending companies that may lend you up to 50% of your tax credits up to six months before the end of your accounting year. The lender would need to perform a due diligence and eligibility assessment, to determine just how much they could lend you. If they agree to provide the funding the money is transferred to you, and when HMRC pays your R&D claim, you use the credit to repay the debt.  

Here’s an example: 

A Manufacturing company has been claiming R&D Tax Relief for three years and each year they get approximately £100k back from HMRC. 

They have a June year–end, but their accounts and tax usually take nine months to finalise. Advance funding is available in January 2021 for the June 2021 year–end, which would otherwise only have been received in around May 2022. This effectively brings the cashflow forward by 16 months, with only the financing cost to the client. 

 

lady smiling

 

  1. GET YOUR ACCOUNTS FILED PROMPTLY  

The earlier you get can get all the necessary company information to your accountant, the quicker they can process your R&D Tax Relief claim. You can’t do one without the other. We don’t want to be waiting to submit our clients R&D Tax Claims because we haven’t got expense receipts! It’s valuable funds waiting to come back into your business.  

NEED MONEY NOW? 
If you’d like to explore bringing forward your R&D tax claim, we can help you,please book a call here.  

 

Partners with Radish Tax 

We’ve partnered with Radish Tax by Diagnostax – a specialist R&D Tax Relief provider. Tim & the team at Radish Tax are friendly, easy to work with and make the process of claiming R&D Tax Relief painless.   

Categories
Business tips Tax

Reporting low emission vehicles – Changes from April 2020

women thinking

Reporting low emission vehicles – Changes from April 2020

From 6 April 2020, new appropriate percentage bands – and new lower charges for low emissions cars – will apply for company car tax purposes.

From the same date, the way in which carbon dioxide emissions are measured is also changing. This means that in order to find the correct appropriate percentage for working out the taxable benefit of a company car, you will need to know whether the car was registered on or after 6 April 2020 or before that date, as well as the level of the car’s CO2 emissions. As a transitional measure, with the exception of zero emission cars, the appropriate percentage for cars registered on or after 6 April 2020 is 2 percentage points lower than cars registered prior to that date for 2020/21 and one percentage point lower for 2021/22. The figures are aligned from 2022/23. For zero emission cars, the charge is 0% for 2020/21, 1% for 2021/22 and 2% from 2022/23, regardless of the date on which the car is registered. The maximum charge is capped at 37%, and the diesel supplement applies as now.

More information will be needed to work out the appropriate percentage where the car’s CO2 emissions (however measured) fall in the 1—50g/km band. From 6 April 2020, this band is sub-divided into five further bands, each with their own appropriate percentage. The band into which the car falls depends on its electric range (also known as its zero emission mileage). This is the maximum distance that the car can be driven in electric mode without having to recharge the battery. The relevant bands are as follows:

  • more than 150 miles
  • 70 to 129 miles
  • 40 to 69 miles
  • 30 to 39 miles
  • less than 30 miles

The greater the car’s zero emission mileage, the lower the appropriate percentage.

Splitting the 1—50g/km band introduces additional reporting requirements. The precise nature of those changes depends on whether car and fuel benefits are payrolled.

Payrolled benefits

Where car and fuel benefits are payrolled, information on cars provided to employees is submitted to HMRC on the Full Payment Submission (FPS), rather than on form P46(Car). From 6 April 2020, where an employee has a car with carbon dioxide emissions that fall within the 1—50g/km band, the car’s zero emission mileage must be reported to HMRC in the new field that will be available from that date.

P46(Car) changes

If car and fuel benefits are not payrolled, form P46(Car) provides the mechanism for letting HMRC know when an employee has been given a car for the first time or given an additional car. The form can be submitted in various ways – on paper, using the online service or PAYE online.

From 6 April 2020, the form will have an additional field for zero emission mileage which must be completed when providing an employee with a car with CO2 emissions in the 1—50g/km band. The deadlines for submitting the form are unchanged and are as shown in the table below.

 

Period in which change took place

Deadline for reporting it to HMRC

6 January to 5 April

5 April (where electronic form used)

3 May (where printed form used)

6 April to 5 July

2 August

6 July to 5 October

2 November

6 October to 5 January

2 February

1. Book a call with me: https://debbiebaileymoney.co.uk//contact-us/ 

2. Download my free guide on “7 mistakes to avoid – to stop your fitness business running out of cash” https://debbiebaileymoney.co.uk//fitness-ebook/ 

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Categories
Business tips Tax

Do you know your real-life number?

Do you know your real life number?

Do you know your real-life number?

What is your real-life number?


Every business owner has a real-life number. It is everything behind the scenes, that you are working towards in your real life, things like your next house, next big investment, or your pension pot. This real-life number can and should be linked with everything that the business is working towards. It is the key to achieving the life you really want, both now and in the future.


But many business owners can find themselves controlled by their business. They become wrapped up in running the business and unable to focus on improving their lifestyle.


You see, for many business owners there can become a disconnect between the work that is being done in the business and the impact it can have on their lives. But the only way to achieve your real life number, is by looking inside the business and getting serious. One of the ways you can do this is by understanding how tax advice and consultancy can help you achieve your real-life number tax efficiency.

This is where we come in.

To help you reap the rewards of you real-life number, we’ll work with you to:


Identify your real-life number

To start we’ll look at your current position and what your business can pay you right now. We’ll then look at what you need to achieve, to get you to the real life number that you want.

Impact of business performance

We’ll then review how your business performance is impacting your ability to achieve your real-life number.

Identify ways to make tax-efficiency savings

Using our expertise and knowledge, we will help identify tax saving opportunities, meaning you can take extra money out of the business for you and your family right now.

We’ll also make plans to take an extra sum out of the business during the next five to 10 years.

 

What information will we need to help you achieve your real life number?

If we’re to help you achieve your real-life number, we really to get know you. This means getting know things like…..


Family

Are you married? Do you have children; if so, how old are they? Are your parents still around; if so, how old are they? Who is bringing in income; what is their job and how much do they earn?


Big life investments

What big life investments do you have planned? For example, do you intend to buy a bigger house, new cars, holiday home etc. How much money will your planned investments cost?

Family investments

What do you want for your kids? Nothing? School funded? University funded? First home? What amounts do these come to?

Protection Investments

How are your protecting yourself now and into the future? Things like insurance policies such as Medical, Life, Critical Illness, Income Protection, Key Person Insurance, Death in Service Insurance and so on.

Pension Investments

What are your plans pension wise? Are you planning to use a company pension, standard pensions, SIPP or SSAS? Do you want to generate more in order to take out more and fund a pension? How much would you like to fund each year?

Lifetime Investments

Outside of pension investments do you have a set amount you want to create – a disposable income wise to invest each year? What is that amount?

Lifestyle expenditure

What is your lifestyle generally like? Are you spending all the money you extract via salaries and dividends from the company on life expenses?

It looks likes like a lot of information but if you’re serious about achieving your real-life number and taking more value out of your business, this is what it takes.

The Discovery

If you are serious about getting more value out of your business and achieving the things you want from life tax efficiently, you have to be ready to think hard and share information on the above seven areas of your life. Because your version of financial freedom is yours.

We’ve developed a Discovery process to capture all the information we need. If you want to explore this with us and take the next step, get in touch. It does require a certain level of detail, but we assure you it’s time well invested if you want to get the results.

We capture this information via a form away from us, as it’s not something to rush or be pushed on by us. You need time to think about it properly.

ARE YOU READY?

If you are ready to get a better understanding of the tax position of your business, calculate your real-life number, and put a tax efficient plan in place, we can help you get you there.

Get in touch and start your journey with us today.

1. Book a call with me: https://debbiebaileymoney.co.uk//contact-us/ 

2. Download my free guide on “7 mistakes to avoid – to stop your fitness business running out of cash” https://debbiebaileymoney.co.uk//fitness-ebook/ 

3. Connect with me on social media: 

 

Categories
Business tips Gym R&D

How to better forecast your R&D claim

Forecast R&D claim

How to better forecast your R&D tax claim

When R&D tax relief first fell onto your radar, you were no doubt blown away by the generous benefit, of up to £33 back for every £100 you invest in R&D. But the truth is – as you may have already experienced – for R&D projects, the amount you can claim ranges anywhere from 0 to 33%, depending on several factors.  

As a business that is investing in research and development activity, and making R&D tax relief claims, it’s important for you to have as much certainty over your R&D claim, as early as possible, even as early as the planning phase. But why? 

Well, an R&D claim only gets you money back for costs you have already incurred. This means you’re not going to get any benefit from the investment until at least a year or so down the line, or if you’ve really got your act together, several months.  

Getting a better understanding of what will qualify before the project, allows for a more accurate estimate of the true cost of the investment, at the outset. At the front of the project this enables more accurate budgeting for the time and resource invested. At the back of the project when the claim comes to realisation, this enables more accurate cashflow forecasting so you can plan for any potential future investment.  

 
SO, WHAT IS THE TRUE COST OF MY R&D? 
 
To get a better understanding of the true cost of your R&D investment, there are three big questions you need to be able to answer BEFORE you kickstart your next R&D project: 

  1. Is it even an R&D project? 

  1. What qualifying activity can I claim for? 

  1. What R&D rate should be applied to the qualifying activity? 

 

Let’s take a look at each of these questions in a little more detail…. 

 

girl karate

  1. 1. Is it even an R&D project? 

You’ve got to get past this hurdle first and believe us when we say, we still work with businesses that misidentify R&D projects all the time. To err on the side of caution it’s best to keep a record of all projects that you think will qualify and check it out with your R&D adviser if you are unsure.  

So, how do you know if your project is eligible? 
Well, to be eligible, an R&D Project must be: 
 
Making a considerable improvement to existing technology. This doesn’t always mean it needs to be ground-breaking work. If you are working to overcome technical uncertainties in order make your products, services or processes, faster, less expensive, or better in some way, the project may be eligible for R&D tax relief. 

AND 

 
Overcoming technological challenges, where the solution is not readily apparent to a qualified or experienced professional in their field of technology. 

If it’s an R&D project, then it goes on the list, and you need to determine what costs you’ll be able to claim

women thinking

 

  1. 2. What qualifying activity can I claim costs for? 

To qualify, R&D activity must fall into one of the below categories: 

 

  • Staff costs 
    You can include the salaries, pensions and NIC of staff who are directly involved in the R&D project. 
     

  • Reimbursed expenses paid to employees or directors on R&D travel 
    You can include reimbursed expenses claimed by employees or directors on travel related to the R&D project.  
     

  • Outsourced subcontractors or freelancers 
    You can include 65% of the costs paid for “unconnected” subcontractors (under the SME R&D scheme). 

 

  • Materials for prototype builds 
    You can include the cost of the materials required for designing and constructing a prototype which will not be sold. 

 

  • Ancillaries – utilities, software licences 
    You can include an appropriate proportion of utilities and software costs used in your R&D projects.  

 
Unfortunately it’s not always black and white, and knowing whether the activity ACTUALLY fits into a qualifying category can throw up some tricky red herrings.  

red herring

Here’s a couple to keep an eye out for: 
 
Software and Hosting….  

Now this one’s a little cheeky. Although software licences can be claimed, hosting costs on their own do not fit into a qualifying category of R&D. This can be frustrating as businesses often incur large hosting costs used purely for R&D, so feel they should be included…but currently they aren’t.  

Having said that, hosting can often include a lot of services, and depending on how the company uses them, there is the possibility they could be eligible under the software licence header. As you can see, this area is complex and your R&D provider would need to look into this for you, to help apportion the amount linked to a qualifying category. 

Storage, telecom and data costs are just out of the game, they do not qualify. 

 
Staff time…  
 
Time allocation for employees involved in R&D projects will often be one of your biggest costs, and so it is vital to apportion everyone’s time as accurately as possible to get better certainty over your R&D claim. Record time spent by those directors, employees, qualified staff working on the R&D project. 
 
It’s also important to make sure you are including staff costs for all indirect qualifying activity. This includes roles of support staff where they are engaged in activities such as finance and HR, that indirectly support an R&D project. 

 

  1. What R&D rate should be applied to the qualifying activity? 

So now we know the project is eligible, and the different qualifying categories the activity must slot into (including the nuances), we want to know the R&D rate that can be applied to the activities. 

There are three main factors that could impact the amount of the costs incurred that you can actually claim back: 
 

R&D SME Scheme vs. RDEC Scheme  

Depending on which scheme you are claiming under, this can significantly impact the rate you can claim. 

  • RDEC SCHEME: Following the 2021 Budget, RDEC increased to a 13% tax credit for expenditure incurred on or after 1 April 2020. As RDEC is subject to corporation tax, the net of cash benefit is currently 10.53% 
     

  • SME SCHEME: The SME R&D Scheme is currently an additional 130% tax deduction for qualifying expenditure. So this equates to a 24.7% cash benefit for profitable companies, and up to 33.35% cash benefit for loss making companies that can claim the SME “tax credit”. Also note that following the 2021 Budget, SME tax credit claims are now subject to an annual cap of £20k plus 300% of the company’s PAYE and National Insurance Contributions liability. 

The other major difference with the RDEC scheme is that you cannot claim for costs paid to limited company subcontractors. 

 

Subcontracting vs. Inhouse 

If your business sub-contracts R&D work to a third party subcontractor (unconnected to your company) – you will still be able to claim for some qualifying costs but the relief may only be 65% of those costs.  

NOTE. If you have taken on subcontracted R&D work to your business, you might not be able to claim R&D tax relief at all, or the only route available to you is under the RDEC scheme – reducing your claim to 10.53% of the qualifying expenditure. 

 

Profit Position vs. Loss Position  
 
The upfront cashflow benefit is actually greater for loss-making SMEs. Here’s a look at the how this affects the rates: 

Loss: If you’re going to be in a loss position, then HMRC will make a cash payment to you of up to 33.35p for every £1 spent on R&D activities. 

Profit: If you’re going to be in a profit position then HMRC will make a cash payment to you (or offset against your corporation bill) of up to 24.7p for every £1 spent on R&D activities. 
 
Then timings come into play…. 
 
Loss: If your company is going to make a loss, you can make the claim as soon as your accounts are prepared and ready for filing. 
 

Profit: If your company is likely to be profitable, it’s a little different. The biggest benefit will come by reducing the tax bill which is due nine months after your year end. 

 

pregnant lady

R&D for Financial Forecasting 

As you can see there’s actually a lot to consider when it comes to forecasting your R&D claim. Any steps taken towards getting a more accurate idea of your R&D claim in advance of the project are worthwhile.  

If you are a business that is already claiming R&D tax relief, you should be able to retrospectively use the information from your previous claims to help you navigate some of the more challenging nuances of R&D tax relief. 

 

THINK YOU MIGHT BE ELIGIBLE TO CLAIM? 
If you think you might be eligible to claim R&D Tax Relief, or you’d like to discuss your R&D claim with us, please book a call here.  


Partners with Radish Tax 

We’ve partnered with Radish Tax by Diagnostax – a specialist R&D Tax Relief provider. Tim & the team at Radish Tax are friendly, easy to work with and make the process of claiming R&D Tax Relief painless.