Blog

Tax evasion – it’s becoming increasingly common in the UK. From celebrities to big corporations, there have been multiple high-profile cases on the news of HMRC being short-changed. But how much have HMRC really lost to tax evasion? Read to find out more! First of all, what exactly is tax evasion? Tax evasion, tax avoidance, tax efficiency – it can all become a huge blur. But to keep it short and simple, tax evasion is purposely not paying or underpaying the tax you owe. This is illegal and most likely HMRC’s biggest “pet peeve”. What are some common instances of tax avoidance within the UK? Paying or not paying tax isn’t just about not bothering to report tax-deductible income to HMRC. There are a variety of ways in which individuals end up being in the tax department’s black book. This could be done by: Maintaining your business out of the financial books (so using cash) The ability to hide money shares, money or other assets in accounts at banks located offshore The writing off of personal expenses is a taxes-deductible expenses for business Utilizing the property of the company to use for personal purposes (yes it’s not legal) Even with all these examples of tax evasions, the most expensive and difficult problem for HMRC is in fact strategies to avoid tax. What is the purpose of tax-evasion schemes within the UK? Schemes to avoid tax are firms that have been designed to help taxpayers pay less than the fair amount of NICs and tax. A lot of these schemes take the form of umbrella companies that are not compliant that claim they can assist you in keeping more of you money through paying less taxes. They may offer your wages as an advance loan, salary or grant, or a set life-time amount of money. HMRC define tax avoidance to mean “bending tax laws in order to get an advantage in taxation that the Parliament never planned.’ They also declare that “most tax avoidance strategies simply don’t work and those who employ these strategies could end up having to pay a lot higher than what they were trying to avoid, which includes penalties.’ The shade. It is safe to affirm that HMRC isn’t in the business of tax avoidance schemes in any way despite the claims of many promoters that HMRC actually supports the tax-evasion schemes. What is the impact of tax avoidance (UK)? Tax evasion is an offense. And , as is the norm, crime results in consequences. Particularly when it comes to messing up with HMRC. For tax evasion, you can face anywhere between a few months to seven years in prison (depending on the severity of the situation).  Also, you can be penalized anywhere from £ 5,000 to an unlimitable amount. The consequences of participating in tax-evasion schemes can be quite severe, too. If you do fall victim to what seems like a harmless “want to reduce tax’ advertisement online and you’re required to pay any tax you owe, and could be subject to an extra charge. It’s like lots… Yup. That’s the reason HMRC have put forth a myriad of attempts to stop taxpayers using tax-evasion schemes. For instance the don’t be caught out campaign (and incessant pleas to the public to avoid using the schemes, regardless of the opinions of Jimmy Carr says). They’ve used their rights under the Finance Act 2022 to publish details about the tax-evasion schemes as well as their promotors. As per the law they also have the ability to directly seek information from promoters regarding their activities. HMRC vs UK tax avoidance schemes The outcome of HMRC’s work? It’s true that the tax-payer’s use of avoidance strategies has decreased since 2017/2018. In the past the number was at an all-time high. (And after that, naturally there was news in the press that Take That band member Gary Barlow was forced to pay £ 20 million in tax due to participating in a tax-evasion scheme that was in place for four years before (yikes!) In the year 2020/21, HMRC estimated that 31,000 taxpayers and 1,000 individuals employed tax avoidance schemes. This represented a massive drop in comparison to previous years.

‘New Year, New Me’ is something you hear a lot during December. As we over-indulge on festive food, drinks at the office Christmas party, treats with friends and family and maybe spend a little longer than usual down the pub, it’s no surprise that many of us vow to make a change as soon as January hits. New Year’s resolutions are notoriously hard to keep, but if realistic goals are set, you could find that making changes both in your personal and professional life are much easier to do than you might think. As a business owner, a new year is filled with new opportunities, whether that be the chance to take on new clients, learn new skills or expand on the foundations you built in 2022. It’s the perfect time to reflect on the year you’ve just had, plan activities and set goals that you’d like to achieve. Taking a step back and assessing your profits, growth and partnerships are a great foundation for a prosperous year to come. No matter what industry you work within, there are always things that you can change or develop to ensure you have a prosperous 2023. Read on to see what you should be doing, ready to hit the ground running this January. Review 2022’s past and make changes to what didn’t work. Resolving any issues that have arisen throughout the years is crucial in ensuring you don’t have any issues hindering your business’s growth in 2023. Fixing any issues with your process and making sure everything runs as smoothly as it can is something you should consider as a top priority when you begin the new year. Encourage your staff to recognize factors that could cause problems in their daily tasks. Finding out from people who work day in, day out, on the problems which needs to be addressed can give you a greater insight into how you can bring about a positive change. Improved control on company’s finances Financial management is crucial in predicting how your business will perform. With your accountant, review your incomings as well as expenditures, and ensure that your books are in order. The process of tracking your cashflow to ensure that expenses are paid for and your goals are attainable will ensure a profitable new year. When you have a plan set up, you are able to modify it monthly to ensure your company is thriving, even under difficult times. Make use of FreeAgent to keep track of your receipts and expenses We are accountants for contractors, Limited Companies and  collaborate and we use FreeAgent to ensure that, during tax time you don’t have to rummage through drawers filled with invoices and receipts in order to prepare your self-assessment tax return that you submit to HMRC. Making Tax Digital has been popular with so many simply because of this. It removes the risk of confusion, which results in less stress and fewer mistakes which can lead to larger problems. FreeAgent bookkeeping software comes as standard when you are a client of Account-Ease. It will help you, as well as your accountant, keep track of everything you need concerning your financials. Many small-scale entrepreneurs, contractors,zzzz sole traders, and locums benefit from it, as it offers immediate access, which helps both you and your accountant make educated decisions while on the move because it is able to be accessed from any location, at any time. FreeAgent can be used to keep your receipts expenses, invoices and transactions easily accessible and organized making self-assessment or filing your corporate tax is simple. Check the technology you are using within your business. Alongside FreeAgent There are many other software for business that can assist in boosting your company’s performance. They can help your employees in terms of productivity, or assist staff to save time by making certain tasks automated instead of being done manually by your employees or you. The identification of areas that could be improved can assist you in deciding whether a particular software is required, and if it is economically feasible to invest in it. Schedule regular meetings with partners, including your accountant If your accounting professional understands your business and its needs more knowledgeable they’ll be able to assist you in the area of your financials. Making good connections with partners and suppliers all around is vital to the success of your business. They can assist in the development of concepts and help you navigate the right paths. Make sure to communicate frequently, whether on the phone or using Zoom even if you aren’t able to meet face-to-face is vital. Your accountant can assist you to get a handle on any aspect of your financials that are difficult to comprehend as well as provide advice and valuable information in times of need. This will help your business’s to grow and sustain itself. Accept, and sign more contracts Growing your portfolio through 2023 may be another option it is time to take either as an individual contractor or as an individual company. A new venture means that you will have several sources of income. This gives an extra level of protection in the event that a client decides to leave you. It allows you to increase your portfolio. Make sure you have the money to keep your commitments! However, how do you approach getting new customers, particularly when your industry is flooded with competition. This leads us to the next step… Be sure to have a solid brand and have a solid online presence It’s a lot much more complicated than it sounds particularly if your experience is limited in this field. It is becoming more essential to have a presence online that your customers and potential clients can connect with you. If you don’t have web presence, it may be time to consider investing in. Making sure that you’re prominent on the social networks is increasing important than ever before. If you are looking to acquire new clients, consider investing in online marketing assistance for those who really want to be more prominent online. They can guide you on the best steps to take for your business to focus

If you’re running a small business, or you’re self-employed, there are a number of things that you need to be aware of as we enter 2023. As a new year begins, there is so much to look forward to, with plans for the year fresh and at the forefront of your mind. You may have already kicked things off on a high, with business already booming, or you could be getting geared up for a busy Spring/Summer. Either way, keeping on top of your finances from the beginning of the year is incredibly important. Understanding just how much tax you will need to pay when it comes to your self-assessment will help you manage your cash flow throughout the year and keeping track of this through a Making Tax Digital compliant software, like FreeAgent, which comes as part of the package when you sign up to Account-Ease, will help you be more aware of your incomings and outgoings. You can access everything at the touch of a button, wherever you are. If you’re operating a smaller company, or are self-employed, here’s what you should be aware of in relation to your financials, as well as the dates that you should be aware of. 2022 was a memorable year in the world of politics that we’ll never forget in the near future. After witnessing a string of U-turns in the last year by previous chancellor Kwasi Kwarteng, Liz Truss and the present chancellor Jeremy Hunt, there are significant changes that are yet to be in effect starting with the tax year 2023/24, which will begin on the 6 April. Tax rates for income As confirmed in the budget of Jeremy Hunt in the October 2022 budget, the threshold at which people have to pay the higher rate of tax on income is set to be decreased from   £150,000 to £125140. Apart from that your personal allowance is expected to be set at £12,570 and the tax rate threshold for higher rates will be at £ 50,270 and will remain in place until April 28th at most. In the future, this will result in more people paying the highest tax rate on income, as wages rise this will force an increasing proportion of the earnings to the tax rate higher band. Reduction in dividends allowance Also , as announced in the budget was the dividend rate band will be reduced from £2,000 in the tax year 2022/23 to £1,000 by 2023/24’s tax year, and £500 for the tax year 2024/25. year. Anyone who wants to take advantage of these allowances, especially during the current tax year, must ensure that dividends are officially declared by 5 of April in 2023. The rate that dividends are taxed will remain the same as they are now. Basis price (income as high as £50,270) — 8.75 percent More expensive percentage (Income that exceeds £ 125,140) Higher rate (up to £125,140) 33.75 percent Additional rate (income higher than £125,141) + 39.35 percent Corporation tax In March 2021, the announcement was originally made by the chancellor Rishi Sunak, and later slated to continue according to the original plan, starting April 2023, the primary corporation tax rate increases from 19 percent to 25 percent. But, it will only be applicable to companies which earn a profit of more than £ 250,000. Profits of £ 50,000 or less will be required with corporation tax payments at 19%, which is referred to “the “Small Profits Rate”. Between the two levels of £50,000 and £250,000 the lower marginal tax rate of 26.5 percent will be in effect. The upper and lower limits will be reduced proportionally in the event of smaller accounting periods or associate companies to be considered. Associate companies are companies that are under common control. Capital Gains Tax In April 2023, the tax-free capital gains allowance for tax-free capital gains will be reduced from £12,300 down to £ 6,000, and on April 24, it will decrease to £3,000. If you are married and live with each other, assets can be transferred between them with the condition of “no gain or loss’ that is something to think about. You can make use of the tax-free capital gains allowance for each individual when trying to sell assets, like shares that are not part within an ISA as well as property which can soften the blow of the decrease in tax-free allowance. MTD ITSA The Making Tax Digital (MTD) for Self-Assessment of Income Tax was initially set to start in April 2024. However, it has been delayed for another two years, and will come in April 2026. MTD “Making Tax Digital” is designed to move toward an increasingly digital tax system. After the rollout of VAT The next phase will apply to taxpayers who are required to file self-assessment tax returns for self-employment earnings, and rental revenue. Alongside this delay, the threshold of income for individuals who have to adhere to the rules has been raised between £10,00 and £50,000, and this will take effect from April 2026. Beginning in April 2027, all with a £30,000 income or more in self-employment earnings or rental income will be required to meet the requirements. While the extension and delay in the thresholds for minimum thresholds has been well-received from many people, when you think that you’ll have to follow the new changes in law starting in April 2026, it might be wise to take the step to a more electronic method of keeping your documents now. It is possible to do this using MTD compatible bookkeeping software like FreeAgent, sage and QuickBooks, as of April 2026, you will be in the best position to start making submissions. Important Dates in the Diary 1 January, 2023 The deadline for filing Self-Assessment tax returns on the internet for the 2021-2022 tax year. 31st January, 2023 First payment tax due for tax year 2022/23 due. 5 April , 2023 Tax year 2022/23 closes. 6 April , 2023 Tax year 2023/24 starts. 19 April 2023 Send your Employer’s Payment summary for the fiscal year that ended 5 April 2023.

The New Year is started, and as we’ve seen in previous years with the likes of IR35 and Making Tax Digital, new changes from HMRC affecting contractors are paramount to get on top to remain on the right side of the Revenue. All change from January for VAT penalties From January 2023, VAT requirements will see a new penalty regime being introduced for any registered business owners who miss the VAT submission deadline – and as with any update from HMRC, there is a wide range of factors to consider. Despite this new regime changing the ways in which VAT-registered businesses are charged late payment penalties, it’s important to remember that proactive tax planning and ensuring VAT returns are submitted and paid on time will avoid unnecessary penalty fees and mean that many business owners may never need to worry about the new penalty regime at all!. What do VAT penalties from HMRC look like currently?  Currently, VAT-registered businesses that do not submit their VAT return by the required deadline will be subject to the default surcharge regime. This means that a ‘default’ will be recorded against their account by HMRC. The amount of surcharge that is currently due depends on whether a business turns over more or less than £150,000 per year and will be based on a percentage of the amount of VAT owed. The more times VAT returns are submitted late within a 12-month period, the higher the default surcharge. However, it must be noted that under the current default scheme, there is no surcharge payable on a late VAT return if there is no liability to pay, or a refund is due. One-time offenders are also not required to pay the charge the first time, but if they miss the deadline and register another default within 12 months, they may be required to pay a penalty on top of the VAT they owe. The default surcharge is a penalty introduced by HMRC to encourage VAT registered to submit their VAT returns on time and avoid unnecessary penalties. Admittedly, the current system is a bit of a ‘one-size-fits-all’ approach, whereby VAT-registered businesses that seldom miss the deadline receive the same treatment and punishment as those who consistently submit late payments. How are VAT penalties from HMRC changing in the New Year? From January 2023, late submission penalties will work on a points-based system for late submissions and payments. For VAT returns periods that start on or following January 1st 2023, businesses will receive a penalty ‘point’ for each time a VAT return is submitted late. Depending on the frequency of VAT submissions (annual, quarterly, or monthly), different businesses will have a set number of points they can accrue before a penalty is charged by HMRC. Upon reaching this point threshold, VAT-registered businesses will be fined a £200 penalty fee, with an additional £200 being charged for any subsequent late submissions. Despite additional financial penalties for any additional late submissions, no further points will be added. At the first default, under the new regime, the business will enter a period of “compliance.” VAT-registered businesses can reset their penalty point threshold to return the total penalty points to zero, but HMRC must have received all VAT returns from the previous 24 months and must submit all future VAT returns on time, within their relevant period of compliance. The compliance period is a great way of helping to encourage businesses to adhere to their statutory filing and payment requirements and avoid future late penalties. The submission frequency, penalty thresholds and accompanying periods of compliance are: Submission frequency Penalty points threshold Period of compliance Annually 2 24 months Quarterly 4 12 months Monthly 5 6 months What penalties and interest will be charged for late payments moving forward?  For VAT return periods that start after the introduction of the new penalty regime on January 1st 2023, late payments will accrue both interest and penalties. Late payments will attract interest from the due date until full payment has been submitted. This is charged at the Bank of England base rate — (currently) + 2.5%, and will be charged even when a Time To Pay (TTP) arrangement has been arranged. For any repayments made within 14 days of the due date, the business will not receive a penalty. If no payment has been made by day 15, a penalty will be charged at the rate of 2% of the outstanding VAT owed to HMRC, with a further 2% added to the VAT still outstanding on day 30. From day 31, the VAT-registered business will incur a daily interest rate of 4% per annum until the VAT is repaid in full. What about businesses with a Time To Pay arrangement?  For businesses with a TTP, whereby a company is awarded extra time by HMRC to bring their tax arrears up-to-date, the TTP must have been applied for by day 15 to avoid a late payment penalty charge. HMRC does not need to have awarded the agreement, but the application must have been submitted by this point. This suspension will only remain in place if the VAT-registered business complies with the requirements outlined in the TTP arrangement. TTP agreements are an essential way of supporting VAT-registered businesses that have made genuine mistakes when it comes to organising their tax affairs. However, it must be stressed that adhering to the requirements of the TTP agreement and ensuring payments are made on time is crucial. Missing one agreed payment could result in full penalties being charged, even in instances where all previous repayments have been made on schedule. When do these VAT penalty changes from HMRC officially take effect? The new VAT penalty regime scheme comes into force from January 1st 2023. But in a welcome concession for contractors, no first late payment penalties will be charged in 2023 (provided businesses pay their VAT in full within 30 days of the due date), to offer VAT-registered businesses time to familiarise themselves with the changes. Our take? These

HMRC has strict rules called the Construction Industry Scheme (CIS), which affect the way that contractors in the construction industry handle paying their subcontractors in the UK. Why does it matter if I’m a subcontractor or contractor? It’s crucial that you know whether you’re considered a contractor or a subcontractor under the rules, so that you pay the right amount of tax and National Insurance. Under the Construction Industry Scheme contractors make deductions from their subcontractors’ invoices, and pay these on to HMRC via a CIS return. It’s similar to the way in which employers make deductions for their employees’ tax and National Insurance. These deductions are basically an advance payment towards the subcontractor’s tax bill for the year. How much are CIS deductions? This depends on whether or not the subcontractor is registered for the Construction Industry Scheme. Contractors must verify their new subcontractor with HMRC before any work starts, so they can confirm their registration and tax status. This CIS registration status is important, because it affects how much the contractor must deduct from the subcontractor’s invoice before they pay it. If a subcontractor is registered for CIS, the contractor must deduct 20% of the invoice’s value before paying them When a subcontractor isn’t registered for CIS, the contractor must deduct 30%. Ouch!   Learn more about a Important Questions About IR35: Forming a Consultancy With Other Contractors in our guide. How do I know if I’m a subcontractor under CIS? As far as the Construction Industry Scheme (CIS) is concerned, a subcontractor is a business or organisation which agrees to carry out construction work on behalf of a contractor. Even if you hire employees or other subcontractors to help you complete the work, you can still be considered a subcontractor for CIS. You might accept the contract as a self-employed sole trader or through your own limited company, or as some other type of business structure such as a partnership. Subcontractors can also be: An agency or organisation which carries out construction work for a contractor using its own workers, or which supplies them to a contractor. This is different to an agency which ‘introduces’ someone with the intention that the contractor becomes their employer. A local authority or some other type of public organisation A gang leader (sometimes known as a ganger) who is contracted to coordinate and supervise a team Is being a subcontractor the same as being an employee? No, being a subcontractor isn’t the same as being directly employed by a contractor. Rather than working for the contractor as a regular employee, the contractor is basically your client. That said, it’s the contractor’s responsibility to assess your employment status when you agree to carry out any work for them as a subcontractor. They should use HMRC’s Confirmation of Employment Status Tool (CEST) to do this – it’s not up to them to choose! What makes a contract exempt from CIS? Not every contract will come under CIS rules. For instance if the work is being paid for by a trust or a charity. There are also some circumstances when HMRC will exempt a contract from CIS. For example If a contractor pays a subcontractor to carry out work worth less than £1,000 on property which belongs to them (not including the cost of materials). Exemptions aren’t given automatically though. Does CIS only apply in the UK? Yes, the Construction Industry Scheme only applies to work taking place in the UK. A UK firm can have a contract to carry out work overseas and CIS won’t apply. On the other hand, an overseas firm doing construction work in the UK might be subject to CIS, so always check! What do I need to do if I’m a subcontractor? If you do fit the criteria of a subcontractor working in the construction industry. Then ideally you should register for CIS as soon as possible. Registering means that contractors will make deductions at the lower rate, and this can make it easier to manage your cash flow throughout the year. You’ll also need to give information to the contractor you’re carrying out work for. So that they can verify your CIS registration status. The information you provide depends on how you operate your business: Sole trader: Your Unique Taxpayer Reference (UTR) number and National Insurance number Limited company: Company name, registration number, and company UTR number Partnership: The name of the nominated partner, and the partnership’s trading name and UTR number Do I need to submit a CIS return? It’s the contractor’s responsibility to submit a CIS return each month. So as a subcontractor you won’t need to worry about that bit. You will still need to submit tax returns for your business as usual though. The good news is that if you overpay tax through CIS during the year. You’ll be able to claim a tax rebate once you submit your return. Yet another reason to get it in as early as possible! Learn more about our online accounting services for businesses like yours. Call the team on 0208 133 4599 or get an instant online quote

Due to the ever-changing tax legislation and commercial factors affecting your company, it is advisable to carry out an annual review of your company’s tax position. Pre-year-end tax planning is important as the current year’s results can normally be predicted with some accuracy and there is still enough time to carry out any appropriate action. We outline below some areas where advance planning may produce tax savings. Corporation tax Advancing expenditure Expenditure incurred before the company’s accounts year-end may reduce the current year’s tax liability. In situations where expenditure is planned for early in the next accounting year, the decision to bring forward this expenditure by just a few weeks can advance the related tax relief by a full 12 months. Examples of the type of expenditure to consider bringing forward include: building repairs and redecorating advertising and marketing campaigns redundancy and closure costs Note that payments into company pension schemes are only allowable for tax purposes when they are actually made as opposed to when they are charged in the company’s accounts. Capital allowances Consideration should also be given to the timing of capital expenditure on which capital allowances are available to obtain the optimum reliefs. Single companies irrespective of size can claim an Annual Investment Allowance (AIA) which provides 100% relief on expenditure on plant and machinery (excluding cars). The amount of AIA is currently set at £1,000,000. Groups of companies have to share the allowance. Expenditure on qualifying plant and machinery more than the AIA is eligible for writing down allowance (WDA) of 18%. Where the capital expenditure is incurred on integral features the WDA is 6%. 100% allowances on designated energy saving technologies continue to be available in addition to the AIA. A ‘Super Deduction’ tax relief temporarily increases relief for expenditure on certain items of qualifying plant and machinery incurred from 1st April 2021 up to 31st March 2023. Companies can claim a Super Deduction providing allowances of 130% on most new (unused/not second hand) plant and machinery investments that would ordinarily qualify for 18% main rate writing down allowances. They can also claim for a first-year allowance of 50% on most new plant and machinery investments that would ordinarily qualify for 6% special rate writing down allowances (items such as integral assets like hot and cold-water systems). Although the Super Deduction can lead to tax savings, it’s also worth noting there are a few items which may mean the Super Deduction is less attractive than anticipated. In addition, exceptions apply, most notably cars are excluded from qualifying for this relief. Any decisions about expenditure need to be based on your company’s circumstances and it is worth running some projections prior to making any significant capital expenditure. Limited capital allowances are also available for investments in certain types of structures and buildings. Trading losses Companies incurring trading losses have three main options to consider in utilising these losses: they can be set against total profits of the same accounting period they can be carried back against total profits of the previous 12 months they can be carried forward against future trade profits only (if incurred before 1st April 2017) and against total profits (if incurred after 1st April 2017) However, there is a restriction on the use of carry forward losses where a company’s or group’s profits are above £5 million. Any profits over £5 million arising on or after 1st April 2017 cannot be reduced by more than 50% by brought forward losses. Losses that have arisen at any time are subject to these restrictions. A temporary extension to the rules for trade loss relief was announced by the Government in its Budget on 3rd March 2021. The temporary extension allows companies with accounting periods ending between 1st April 2020 and 31st March 2022 to carry back trading losses to an extended period of the previous three years, offsetting against profits in the most recent year first. Extracting profits Directors/shareholders of family companies may wish to consider extracting profits in the form of dividends rather than as increased salaries or bonus payments. This can lead to substantial savings in national insurance contributions (NICs). It is important to note that company profits extracted as a dividend remain chargeable to corporation tax at a rate of 19%. Dividends From the company’s point of view, timing of payment is not critical, but from the individual shareholder’s perspective, timing can be an important issue. A dividend payment in excess of the Dividend Allowance, which is delayed until after the tax year ending on 5th April, may give the shareholder an extra year to pay any further tax due. The Dividend Allowance is £2,000 from 2018/19 (£5,000 2017/18). The deferral of tax liabilities on the shareholder will be dependent on a number of factors. Please contact us for detailed advice. Share transfers There are many good reasons why a married couple or civil partners should consider equalising their income, where this is possible and practical. For married couples and civil partners, it is sensible to consider sharing income by gifting some or all of any income producing assets, such as shares you own, to your spouse to save tax. Before doing this, there are a number of legal and practical considerations which need to be taken into account. You should also be aware that for this to work, several conditions need to be satisfied. Generally, your gift must be to your spouse or civil partner from whom you have not separated and be an unconditional gift. Professional advice should always be taken so your individual circumstances can be reviewed. Loans to directors and shareholders If a ‘close’ company (broadly, one controlled by its directors or by five or fewer shareholders) makes a loan to a shareholder, this can give rise to a tax liability for the company. If the loan is not settled within nine months of the end of the accounting period, the company is required to make a payment, known as a ‘S455’ charge. This ‘S455’ charge

Now that Making Tax Digital (MTD) for VAT is in full effect for VAT registered business, HMRC are planning to introduce changes to the VAT penalty system. The new rules will bring the VAT penalties for late submission and late payment in line with income tax and Corporation Tax. The new MTD for VAT penalty system will apply from January 2023, but there is an existing penalty scheme in place. To make sure you don’t get caught out by the new rules (or forget about the current ones!), we’ll go through both. Brand new to VAT? What is the current penalty for late VAT submissions and payments? Until the new rules kick in from January 2023, HMRC will record a ‘default’ if you don’t submit your VAT return or pay your VAT bill on time before the deadline passes. The penalty (known as a surcharge) that you pay is a percentage of how much VAT you owe for that VAT period. The surcharge penalty must be paid in addition to the VAT that you owe. You won’t receive a penalty if it’s the first time that you default, but you may enter a 12-month surcharge period. This is a bit like being on probation, and defaulting again during the surcharge period will increase the rate of the penalty each time you default. Each default also extends the 12-month surcharge period by a further 12 months. The amount depends on your annual turnover, and how many times you default. How many times you default within 12 months Surcharge rate if your annual turnover is less than £150,000 Surcharge rate if annual turnover is £150,000 or more 1st No surcharge No surcharge 2nd No surcharge 2% (but no surcharge if this is less than £400) 3rd 2% (but no surcharge if this is less than £400) 5% (no surcharge if this is less than £400) 4th 5% (no surcharge if this is less than £400) 10% or £30 (whichever is more) 5th 10% or £30 (whichever is more) 15% or £30 (whichever is more) 6th 15% or £30 (whichever is more) 15% or £30 (whichever is more) You can receive a VAT penalty for other reasons too: 100% of under-stated or over-claimed tax if you send a VAT return with careless or deliberate errors. 30% if HMRC send a VAT assessment which is too low, and you don’t tell them it’s wrong within 30 days £400 if you submit a paper VAT return without HMRC’s permission to be exempt from doing so The VAT penalty points system from 1st January 2023 The current process will be replaced by a new points-based penalty system for VAT. It will apply to MTD VAT submissions for periods starting on or after 1st January 2023. Late VAT submissions will accrue one penalty point each. If you receive enough points to reach the penalty threshold, you’ll be charged a £200 penalty.   VAT penalty points will have a 2-year lifetime before they expire. The points threshold depends on how often you’re required to make submissions (which can depend on which VAT accounting scheme you are on). How often do you make a VAT submission? How many points you will receive before reaching the penalty threshold Annually 2 points Quarterly 4 points Monthly 5 points Will I be fined if I’m late paying my MTD VAT bill? The short answer is yes, from January 2023 HMRC will continue to fine taxpayers who don’t pay their VAT bill on time, as well as issuing penalties for not meeting the submission deadline. The penalty amount that you’ll be charged depends on how many days overdue you are paying the bill.   How many days after the due date you pay your VAT bill The penalty charge 0-15 days You will not receive a penalty 16-29 days 2% of the amount outstanding 30 days 2% of the tax outstanding at day 15, plus 2% of the tax outstanding at day 30 31 days or more 4 % of the amount owed, calculated daily until you pay the amount you owe What if I can’t pay my VAT bill on time? Whilst you won’t receive a penalty for the first 15 days after the payment deadline, it’s never a good idea to have a history of late payments on your account. Rather than risking non-compliance, contact HMRC’s Payment Support Service to make a ‘Time to Pay’ arrangement. The Time to Pay scheme allows you to agree an instalment plan with HMRC, taking into account other bills and spending you need to consider each month. Learn more about our online accounting services for VAT, contact the team for a chat on 0208 133 4599, or get an instant online quote.

Talk to any business owner and it is very likely that they will have been afftected from the late payment of an invoice at some point. Research by the Federation of Small Businesses shows that a third of payments to small businesses are late with £6,142 the average value of those overdue bills. If small companies were paid on time, the economy could be boosted by around £2.5 billion annually and 50,000 more businesses could be kept open. Unpaid invoices can have a significant negative impact on a business’ cash flow, so what can a business do to reduce the chances of late payment? Research your customers If your customers are other businesses, checking a potential client’s credit history to find out whether they have a record of late or missed payments can give you the heads up on any potential problems. You need to convert leads to sustain and grow your operations. But that doesn’t necessarily mean you should agree to do business with anyone who comes through the door. Untrustworthy customers can quickly start costing your business dearly. State your terms from the start Agreeing payment terms with your client before you start delivering work means you can prepare for the impact on your cash flow. When it’s time to issue the invoice, make your payment terms very clear so there is no confusion. Outline how much the client needs to pay and by when. Issue prompt and accurate invoices Send your invoices as soon as work is delivered (or sooner if part of the agreement) and make sure they are accurate and contain all the necessary information. Make a mistake or leave off important details and it could delay the payment, particularly if a busy accounts department doesn’t let you know about an error. For business-to-business arrangements, the Government website says invoices should include: a unique identification number your company name, address and contact information the company name and address of the customer you’re invoicing a clear description of what you’re charging for the date the goods or service were provided (supply date) the date of the invoice the amount(s) being charged VAT details if applicable (the amount of VAT charged, your business’ VAT number and a breakdown of the amount of VAT charged for each item on the invoice) the total amount owed If your client requires you to include a purchase number, make sure you get the number in advance and include it on the invoice. Using invoicing tools provided by online accounting software companies like Xero and QuickBooks can help to ensure accuracy of invoices and speed up the payment process. Make it easy to pay You should make it as easy as possible for your clients to pay so they don’t have the excuse of not knowing how to do it. Make sure your full bank details are included on all invoices or offer more immediate options such as online payment services like PayPal. If you are collecting regular payments from customers, using Direct Debits is a good solution. You can allow your customers to spread the cost of your product or service across the year. This should encourage them to pay on time, allow more customers to spend money with you and increase customer loyalty. Build good relationships Developing strong and friendly relationships with clients can help to minimise late payments. For businesses providing products or services to other businesses, invoicing is often an anonymous process with email generic accounts@ addresses. Try to get the name of an actual person who you can speak to if there are any problems or delays. If you’ve built a good relationship with an individual, they can put a face or voice to the name, It will make it harder for them to let you down and pay late. Being a small business can be used to your advantage too. Larger companies may not realise the impact on smaller companies of paying a bill late. If you develop a good personal relationship with your client and they know you are running a small business, they might prioritise your payment. If you have consumer customers, you should also maintain a good relationship through regular communication. As well as being clear about how much you charge and when you expect payment. Send regular reminders Regular reminders will help to ensure you are paid on time. Payment deadlines being missed can sometimes be due to a technical error or because the invoice has been genuinely missed. In those cases, a quick call to chase might solve the issue. When chasing a payment, be polite but get straight to the point. Give them all the information they need such as the invoice number, the date the invoice was sent and when the payment was due. Speaking on the telephone rather than sending an email can be beneficial as you’ll know for sure that the customer is aware that your payment is late. You can also automate the reminder process by using online accounting software. Monitor persistent late payers Staying on top of those customers who often pay late is an important part of managing your cash flow. Understanding customers who regularly miss invoice deadlines will help to ensure you identify any potential cash. flow gaps. Take steps to find other business opportunities to deal with it before it becomes a serious problem. By using online accounting software and working with Account-Ease. You can use aged debtor reports to identify which customers owe you money and how much they owe. Late payments have a negative impact on cash flow. If you need help with managing your cash flow, call us on 0208 133 4599 or use our askus@account-ease.co.uk

A week ago, the new chancellor Jeremy Hunt delivered the news that the IR35 repeal has now been scrapped. Alongside this, the chancellor is reversing almost all tax measures from the Mini-Budget in September that have not started parliamentary legislation. Roughly £45bn of unfunded tax cuts has in just 3 weeks and 3 days seen a £32bn reversal. What stays? Cuts to stamp duty The cuts to National Insurance What goes? Dividend tax cut – No longer proceeding with the cuts to dividend tax rates. Dividend tax rates will remain with the 1.25% increase applied (8.75%, 33.75%, 39.35%) IR35 rule changes – No longer reversing off-payroll working reforms No longer proceeding with the new VAT-free shopping scheme for non-UK visitors No longer freezing alcohol duty rates Planned 1p cut in Basic rate of income tax. This will remain at 20p indefinitely. The chancellor said it was not right to borrow to fund this tax cut and will remain at 20p to the pound (not 19p as previously announced), until economic circumstances allow it to be cut Energy price guarantee will no longer last 2 years – A Treasury-led review will take place to look at how households and businesses are helped with energy bills from April new year. Support being provided from now until then will not change, but beyond that date there will be changes. This is to design a new approach to save taxpayers money while targeting support to those most in need. Business support will go to those most affected and will incentivise energy efficiency. Corporation tax will increase to 25% as originally planned How the market has responded to the Hunt statement In short, positively. After the new chancellor’s statement, the pound rose and government borrowing costs fell as investors welcomed the news that almost all tax measures set out in the mini-budget were to be reversed. Sterling extended early morning gains against the dollar – that is now trading at around $1.13. The news has also seen the interest rate (or yield) on UK government bonds fall. The yield on bonds, which is due to be repaid in 30 years, dropped when markets opened this morning, then fell further after Jeremy Hunt’s statement to 4.35%. The yield on bonds due to be repaid 5 years’ time, which underpins the cost of new five-year fixed rate mortgages has fallen to 3.86%. The drops suggest the financial market is welcoming the changes. IR35 – What this means for contractors and businesses IR35 rules will remain as they currently are, with no changes from 2023. In positive news, this means that contractors will be able to continue working as they have done since April 2021, with the duty to determine IR35 status remaining with the corporate end user. The reforms were introduced in 2021 to the private sector, with the responsibility for assessing whether a contractor is self-employed or employed now being with the end client rather than the contractor themselves. The liability was transferred to the party paying the wages. The changes were unpopular and confusing for many. The controversy surrounding the changes prompted Sajid Javid to pledge a review of IR35. This was part of the Conservative party’s manifesto in the lead up to the general election. From there, the former chancellor (as of last week) Kwasi Kwarteng pledged to repeal the reforms. However, they will not remain as there were. Those who are genuinely self-employed and operate outside IR35 have nothing to worry about and continue to work as they are used to now. Why did we get a new chancellor? On Friday, Jeremy Hunt was confirmed as the new chancellor of the exchequer. This was after Kwasi Kwarteng was sacked on the same day, after 38 days in the job. The Prime Minister, Liz Truss, replaces him after weeks of financial market turmoil in reaction to the “Mini-Budget”, which was announced in September. Within the mini-budget, £43bn in unfunded tax cuts were announced and the markets quickly reacted, with the sell off of bonds causing a sharp rise in gilt yields. This caused havoc for mortgage holders and lenders, and the pound dropped to historic lows, before the IMF warned the UK to scrap tax cuts. What next? For now, we have the clarity needed on what the landscape looks like until the next Budget, but we will be keeping a close eye on any further changes that clients of Gorilla will need to be aware of and that will affect them.

For a lot of small business owners, bookkeeping is one of those boring chores you’ll do anything to put off until tomorrow. Of course, tomorrow never comes and the task becomes even more unappealing as the days go by. With the introduction of Making Tax Digital (the government’s scheme to move tax filing online, starting with VAT reporting), now is the perfect time to consider other ways technology and modern accounting and bookkeeping software can help improve the management of your business finances. If you’re still on the fence, let’s take a look at some of the ways complete accounting software or simple bookkeeping software can make your life easier. How does bookkeeping differ from accounting? Bookkeeping is the vital first step to ensuring your business meets its accounting and statutory filing responsibilities. This means recording the money coming into and out of your business, including your sales or invoices, and your expenses. Once you have this information, you organise it to help you make decisions about your business to help it grow or become more efficient. This part is called accounting. Accounting is also about ensuring you meet your responsibilities to report your financial performance to shareholders, Companies House (if you run a limited company) and HMRC as required by law. We may not be able to make bookkeeping fun, but we can definitely make it easier. At Account-Ease, we have a range of solutions to help you whatever stage you’re at with your business. Clarity and ease The greatest advantage when it comes to online bookkeeping or accountancy software is how easy it is to enter and access information about how your business is performing. Of course, your software won’t be able to do it all by itself – you’ll need to keep things up to date, and you may need the help of an accountant to make sense of the data, make well-informed financial decisions and keep on top of your financial reporting and statutory filing obligations. Thankfully, this usually only requires small, regular input from you. As with anything, you’ll get out what you put in – for those dedicated to keeping everything updated, you’ll be rewarded with simple, clear and accurate information about your business finances and tax obligations. Bookkeeping software is designed to make the process simpler, after all. Our free bookkeeping software lets you easily send invoices and record all your expenses to see how your business is performing. When you need more information, or if you need to start preparing statutory accounts and reports for your business, it’s really easy to upgrade to one of our complete accountancy packages for limited companies or sole traders. Helping you with VAT records and filing Speaking of which, bookkeeping software can help you better understand when you need to start thinking about registering for VAT – and help you decide what VAT scheme is best for your business. Legally, you must register for VAT when your business’s VAT-taxable turnover exceeds the current threshold of £85,000 over a 12-month rolling period. Similarly, if you expect the threshold to be exceeded in the next 30 days, you need to register. Without a reliable way of tracking your turnover, you might end up on the wrong side of HMRC – and you definitely don’t want to end up there! If you’re registered for VAT, you need to make sure that your accounting software is compatible with the requirements of the government’s Making Tax Digital regime. This means that your VAT records are stored digitally and are sent to HMRC automatically each quarter. A clear understanding of your tax liabilities With your business information stored neatly and accurately online, you’ll be able to quickly work out exactly what your tax liabilities are and how much you need to set aside to pay HMRC. This is an invaluable asset for a lot of small business owners who operate a limited company – with a clear idea of how much you’ll be expected to pay in Corporation Tax and VAT for your business, you’ll be able to budget with absolute confidence. It’ll also make things a lot easier when the time comes to get the information you need about the salary and dividends your company paid you in the tax year to include in your annual Self Assessment. Our unique services also enable sole traders to prepare their annual Self Assessment tax return with real-time information about their income from self-employment. Know what dividends you can take from your limited company Of course, the other great part of knowing how much you need to pay in company taxes is knowing how much you can put in your pocket. We use bookkeeping software’s which will let you see your income and expenditure, but you’ll need the complete online accountancy software that comes with limited company packages to give you a clear idea of your company profits, what tax you need to pay, and the amount of dividends you can take from your company. It’s worth remembering that it’s illegal to pay a dividend if your company doesn’t have sufficient profit after tax to cover the dividend amount. Accountancy software helps eliminate that risk, so there’ll be no difficult conversations with the taxman. Easy bank reconciliation Bank reconciliation is an important part of life as a small business owner. It’s a small, simple job that can have a big impact on your records and tax liabilities. To reconcile your bank statements, you need to get all your bank transactions and match them against your recorded expenses and sales invoices. This can be frustrating work, especially since even a single missing penny can cause disarray. With online bookkeeping software, the job becomes far, far simpler. At Account-Ease, we have secure links with a number of banks, so you can have all your business banking transaction data imported straight to your accountancy software, which then intuitively suggests a match in the expenses you’ve recorded or highlights any discrepancies. There’s no need to pore over paper records and drawers of receipts – you can just rattle through your bank reconciliation in a few mouse clicks, safe in the knowledge that