2024 has seen the advent of continuing inflation, high energy costs, falling profits, and hard-pressed businesses across multiple sectors calling it a day. 

And later this year, we will have to deal with the consequences of a possible change in government.

Consequently, this is not the time to relax, and expect that the UK economy will do more than mark time or decline in the current fiscal year.

Challenges we can expect 2024/25

We are likely to encounter:

• Inflation, although the pundits are forecasting a reduction to 2%.
• No relaxation in bank rates.
• Increasing cost of labour as skilled staff are increasingly harder to find.
• Increasing taxation.
• Reduction in profit margins.
• Supply line uncertainties.
• Cash-flow issues.
• Solvency concerns.

Almost without exception, business owners tend to be sales-focused; as long as targets are met all will be well.

This is no longer the case. Offering extended credit terms to win market share may place unsustainable strain on cash resources, and it is imperative to keep an eye on rising costs. The ability to match these concerns with increases in your pricing will determine profit levels and the long-term survival of your business.

Maintaining business fitness 2024/25

There are very few businesses that have emerged unscathed from the disruption created by the recent pandemic and the measures – lockdowns – that the government was required to introduce.

Many businesses have abandoned planning and management of their businesses to cope with the challenging effects of lockdowns and the consequent reduced demand for their products and services. COVID concerns have been replaced with the consequences of rising costs.

What to do?

Key areas of concern

Financially, there are a vast number of issues that will need your attention in the coming months. They will range from recreating sales, establishing a supply chain for goods and services you will need, monitoring and controlling costs, and continuing to invest in services and equipment to drive the process forward.

You will need to manage:

• Cash flow.
• Servicing debt
• Maintain solvency, and
• Rebuild reserves. 

How best to monitor progress?

Progress has a variety of faces:

• Businesses that have fared badly will be happy to re-establish some semblance of financial security,
• Those that have marked time during recent times will want to plan to expand, and
• Those who have achieved growth against all odds will want to consolidate their gains.

To monitor progress there are certain building blocks it would be good to have in place. For example:

• Effective accounting systems that use responsive bookkeeping software.
• A comprehensive business plan that can be flexed as circumstances change.
• A set of key indicators.
• The ability to produce management reports that compare actual trading results with your budget. This will direct change to plug adverse variances before they become a big problem.

Last, but very definitely not least, you must set up a formal process to review the above.

Key benefits of a review 2024/25

There is a well-known parable – the tortoise and the hare – where the hare gets so far ahead in a race with his slower challenger that he decides to take a nap. The nap becomes a deep sleep, and the remorseless tortoise slowly ambles past and wins the race.

This tale still has relevance for UK businesses. We cannot afford to take our eye off the ball if we want to achieve our goals – win our race.

The best way to stay conscious of developments, changes, and challenges is to actively review progress regularly.

How frequently should we review progress? There are four basic options:

• After your year-end – the least attractive option. This will likely leave you – like the hare – waking at your year-end to find that you have lost out to your competitors. 

• Before your year-end – an improvement on the first option, but any trends that emerged during the pre-review period may escape much-needed remedial action.

• Quarterly – a realistic option for businesses that start 2024-25 on a reasonably sound footing.

• Monthly – the best option for businesses that need to be ultra-cautious, perhaps building from an exhausted financial base. A monthly review will also benefit firms that have set an aggressive agenda and are keen to invest in the review process to capitalise on any opportunities that open.

Reviews ensure you cover all bases. That you deal with challenges and take advantage of opportunities. Without reviews, you may, like the hare, suffer the inevitable consequences of unconsciousness…

We can help

There is no one-size-fits-all approach to staying ahead of business challenges.

The collection of financial data offers almost unlimited scope to present that data in formats that will be of value to your business. The real skill is not designing the required reports, it’s identifying the original problems and results you want to achieve.

We help many of our business clients by being an active partner in creating goals and reviewing progress regularly.

Call us today 01473744700 so we can discuss your options. Pick up the phone; there is no charge for an initial discussion or if  you need any further help with your accounting issues.

You may find the following link helpful: https://www.gov.uk/write-business-plan

 

Recognising that business owners are under pressure during current economic uncertainties, the dates from which Making Tax Digital (MTD) will be implemented for income tax and corporation tax have been deferred.

 

MTD is the Government’s digital tax programme which requires taxpayers to maintain digital records and to send tax information to HMRC quarterly using approved software.

MTD for VAT

The MTD programme started with MTD for VAT and is the only tax regime that has been transferred to this new reporting platform. If you are a VAT-registered business, you will already be within MTD for VAT. From 1^st April 2022, MTD for VAT became compulsory for all VAT-registered companies.

Under MTD for VAT you must keep your VAT records digitally, using either a compatible software package or other software, such as spreadsheets that connect to HMRC’s systems. If you use more than one software package, or spreadsheets and software packages, you will need to link them electronically – you can’t simply input data manually from a spreadsheet into a software package.

You must also file digital VAT returns.

 

MTD for Income Tax Self-Assessment

MTD for Income Tax Self-Assessment (MTD for ITSA) is being introduced in stages. MTD for ITSA replaces the current requirement to file a self-assessment tax return with a requirement to make periodic digital submissions.

Under MTD for ITSA, instead of filing an annual self-assessment tax return, you will need to use MTD-compatible software to keep digital records and file:

• quarterly updates for business income and expenses.
• an end of period statement; and
• a final declaration.

The date by which you will need to comply with MTD for ITSA depends on your circumstances.

From April 2026, self-employed individuals and landlords with an income of more than £50,000 will be required to keep digital records and provide quarterly updates on their income and expenditure to HMRC through MTD-compatible software.

Those with an income of between £30,000 and £50,000 will need to do this from April 2027. Most affected taxpayers will be able to join voluntarily beforehand.

The government has also announced a review of smaller businesses, particularly those under the £30,000 income threshold mentioned above. The review will consider how MTD for ITSA can be shaped to meet the needs of these smaller businesses and the best way for them to fulfil their Income Tax obligations. It will also inform the approach for any further rollout MTD for ITSA after April 2027.

MTD for ITSA will not be extended to general partnerships in 2025 as previously announced. The government remains committed to introducing MTD for ITSA to partnerships at some future date.

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 for 5^th July, 5^th October, 5^th January, and 5^th April. However, you will be able to elect to use calendar quarters instead and submit information by the 30^th of June, 30^th of September, 31^st of December, and 31^st of March.

The quarterly updates will be used to send income and expenses data to HMRC. However, this will need to be adjusted for any accounting adjustments and to claim any reliefs. This is done by means of an end of period statement. This will also be used to confirm that the information that has been submitted is correct.

You will need to submit the end-of-period statement by 31^st January following the end of the tax year.

You will also need to submit a final declaration. This replaces the current self-assessment tax return. The final declaration must also be submitted by 31^st January after the end of the tax year, and any tax due must be paid by that date.

Under MTD for ITSA, HMRC will produce ongoing tax calculations based on information submitted on the quarterly returns. However, as these do not consider adjustments and reliefs, these should be seen as a guide only – the eventual liability may be very different.

Although the start date has been deferred (to 6^th April 2026) this is not that far ahead. It is important that you plan ahead and that you understand what MTD for ITSA will mean for you.

In particular, all businesses and landlords subject to income tax on business profits should be transferring their accounting records to an electronic format approved for MTD purposes. We can help you choose appropriate software and show you how to process your business transactions.

 

MTD for Corporation Tax

Corporation Tax will also be brought within MTD, but a start date has not yet been set.

As with MTD for VAT and MTD for ITSA, under MTD for corporation tax, companies will be required to maintain digital records and to send data digitally to HMRC.

HMRC has consulted on what MTD for corporation tax may look like. Watch this space as MTD in this area of tax compliance may be some years away.

 

Planning for this change

Without a doubt, MTD for all taxes will mean a significant change as we move reporting to HMRC from annual to quarterly returns.

The days of manual record keeping are ending, and we recommend that all taxpayers who are required to submit a self-assessment tax return make a change to digital, cloud-based software sooner rather than later.

Aside from the benefits of having real-time data at your fingertips, you will be ready to link your software to HMRC’s servers and comply with all the MTD requirements as and when they are mandated.

We can help you understand your obligations under MTD and what you need to do to prepare.

We can also help you find appropriate MTD software for your business and assist you in keeping your records digitally.

 

You may find the following link helpful: https://www.gov.uk/guidance/sign-up-your-business-for-making-tax-digital-for-income-tax

Please see another Accounting Gem blog: https://www.aag-accountants.co.uk/why-tax-planning-is-a-worthwhile-investment-2024-25/

Pass on the news!

If you know anyone who may be interested in this update, please let them know or ask them to call 01473 744700, we would be delighted to help them with their accounting issues.

The recent changes to the compulsory turnover registration limits offer opportunities for small traders to either register or deregister according to their individual circumstances.

Business owners with turnover up to £90,000 may like to reconsider their options. ​​​​​​​

What are the changes from 1st April 2024?

The 12-month taxable turnover threshold determining whether a business must be registered for VAT will increase from £85,000 to £90,000.

The 12-month taxable turnover threshold determining whether a business may apply for deregistration will increase from £83,000 to £88,000.

For Northern Ireland, the registration and deregistration thresholds for acquisitions will increase from £85,000 to £90,000.

Should you register or stay registered for VAT?

If your turnover was above £85,000, in which case you would have been required to register for VAT before April 2024, but is currently below £88,000, you have an opportunity to either stay registered or deregister.

Much will depend on the nature of your customer base; can they or can they not reclaim the VAT added to your taxable supplies?

If yes (your customers are mostly registered VAT traders who can recover the VAT you charge) then it is likely that staying registered may be your best option, as in this way you can recover VAT paid on purchases and overheads.

If no (your customers are mostly consumers who cannot reclaim the VAT you presently charge) then deregistering will enable you to maintain your prices and increase your profits, or you could reduce your prices to eliminate the 20% VAT element and use this reduction to increase sales. But, beware, if your turnover creeps back up and trips the new £90,000 registration limit you will be obliged to re-register for VAT.

Voluntary VAT registration

One of the peculiarities of the present VAT system is that you don’t have to wait until your turnover breaches the present £90,000 registration threshold to register for VAT.

You can register voluntarily with turnover below this threshold.

As indicated in the previous section of this update, if you purchase material or pay costs that include VAT, and if you are selling goods or services to predominantly VAT-registered businesses, then registering for VAT will be beneficial; you can recover VAT added to your costs and your customers can recover the VAT that you add to your sales.

In this case, even if your turnover is below £90,000, voluntary registration may be beneficial.

What about the hassle factor?

If you are currently not registered for VAT and can see that there might be benefits of registering voluntarily, what about the hassle factor, having to keep records in a certain way and file quarterly VAT returns?

This is a valid consideration, but most online bookkeeping software can take the stress out of the recording and filing processes.

You may find the following link helpful: https://www.gov.uk/government/publications/vat-increasing-the-registration-and-deregistration-thresholds/increasing-the-vat-registration-threshold

Please see another Accounting Gem blog: https://www.aag-accountants.co.uk/why-tax-planning-is-a-worthwhile-investment-2024-25/

Please call us today on 01473 744700 or if  you need any further help with your accounting issues.

If you are choosing, or required to work from home, you may be able to benefit from several tax breaks. The nature of the available tax breaks varies depending on whether you are an employee, self-employed, or operate your own limited company.

Separate considerations also arise if you have a home office.

Employees working from home

The tax breaks available to employees working from home fall into two camps:

1. tax-free benefits and expenses provided by their employer and
2. they can claim deductions for expenses they incur because of working from home.

 

1. Tax-free benefits and expenses

Employers can provide the equipment and supplies that the employee needs to work from home, such as office furniture, stationery, or a computer without a taxable benefit arising. This applies as long as ownership of the equipment remains with the employer and private use is not significant.

Employers can also pay employees a tax-free allowance of £6 per week (£26 per month) to cover the cost of additional household expenses incurred because of working from home.

2. Tax relief for expenses

Generally, employees are only able to claim tax relief for expenses incurred wholly, exclusively, and necessarily in the performance of the duties of their employment. This is a hard test to meet, and where expenses tick this box, a deduction is allowed.

Self-employed and working from home

If you are self-employed and working from home, expenses are deductible if they are wholly and exclusively incurred for the business. This will apply to costs incurred in running a home office, such as cleaning, heat and light, Wi-Fi costs, etc. Where there is both business and private use, a deduction is allowed for the business element, if this can be separated out.

Keeping track of actual expenses can be time-consuming. To save time, if you are self-employed you can opt to use simplified expenses and claim a flat rate deduction for the expenses of working from home, based on the total number of hours worked in the home in the month by anyone who works in the business. The following table shows the monthly flat rate deduction that can be claimed.

Hours of business use per month	Flat rate per month
25 to 50 hours	£10
51 to 100 hours	£18
More than 100 hours	£26

The flat rate expenses do not include telephone and internet expenses and a separate deduction can be claimed for these.

Running a personal or family company from home

Where your company is based at home, the company can deduct expenses wholly and exclusively incurred for the business. If the company meets household costs these can be deducted, but any private expenses met by the company will trigger a benefit-in-kind charge on the director. If the director pays the household expenses, the proportion relating to the business can be recharged to the company.

The company can also rent a home office from the director, paying rent at a commercial rate. This may be a useful way of extracting funds from the company and has the advantage that no National Insurance is payable. The company can deduct the rent paid when working out their profits chargeable to corporation tax.

On the other side of the equation, the rent is taxable in the hands of the director.

Building a home office

Having a separate office in the garden, or converting the garage, can be attractive. The extent to which any tax relief is available will depend on who meets the costs.

If you operate through a limited company, the company can meet the cost of building a home office. As this is capital expenditure, the building costs cannot be deducted, although capital allowances may be claimed for items such as office furniture. If the company is VAT-registered and not using the flat rate scheme, the VAT on the building costs can be reclaimed. The rules are more complicated where the flat rate scheme is used.

If you are a director or your family uses the home office for personal use, a benefit-in-kind charge will arise.

A benefit-in-kind charge will also arise if an employer meets the costs of converting an employee’s loft or garage to an office, and the room is also available for private use.

Capital gains tax implications

If part of a home is used exclusively for business, that part will not benefit from the main residence exemption for capital gains tax.

Thus, when selling the property, it is necessary to apportion the gain to ascertain that part attributable to the home office.

However, in most cases, any gain pertaining to a home office will be covered by the annual exempt amount (currently, this exempt amount is £3,000.

Retaining some private use of the room – for example, using it for business in the day and homework in the evening, alleviates the potential capital gains problem and preserves the main residence relief.

Where a separate home office in the garden is owned by a limited company, any gain on sale would be chargeable to corporation tax.

We can help

If you are considering or have been obliged to work from home, we can help you consider your options.

For example, you may have been involved in:

• Setting up a home office.
• Claiming for additional costs if you work from home.
• Clarifying capital gains tax risks.
• Will working from home affect your rates?

You may find the following link helpful: https://www.gov.uk/tax-relief-for-employees

Please see another An Accounting Gem blog: https://www.aag-accountants.co.uk/national-minimum-and-living-wage-changes/

Please call us today on 01473 744700 or if  you need any further help with your accounting issues.