Lending for Small Businesses

The Government have introduced temporary measures to help banks lend to small businesses struggling in the wake of the Coronavirus Crisis.  The government will provide an 80% guarantee for lending to businesses hit by the crisis.  As this was only announced today it will take time for the banks to promote and explain how businesses can access this money, but this could be a potential lifeline for those hardest hit.

Entrepreneurs Relief

EFFECTIVE TODAY 11/03/2020

For many years business owners have been able to retire from their business selling their interest or liquidating the ownership as a capital gain taxed at 10%.  Recently there was a lifetime limit of £10million imposed meaning you could sell business interests and make gains of up to this amount and only pay 10% Capital Gains Tax (CGT). As of today, only the first £1million lifetime gains will be covered by the relief.  So, if you sell a business for £2million and have never claimed this relief before, half the gain (£1million) will be taxed at 10% and the remaining half (£1million) will be taxed at 20%. This would generate a capital gains tax bill of £300,000 whereas before today that would have been only £200,000.

There are transitional arrangements in place if you are already involved in a business sale negotiation.

Business Rates

A series of measures are being brought in to help support small businesses cope with the Coronavirus Crisis.

These include some cuts and reliefs for Business Rates:

  • For businesses with a rateable value below £150,000 the business rates will be abolished (we suspect that this is from April 2020 although the date was not published)
  • There are additional allowances for retail, leisure and hospitality businesses which will have business rates reduced to nil for a year via a temporary 100% discount.
  • Pubs with a rateable value below £100,000 will get a discount of up to £5,000.
  • Business that claim the Small Business Rate Relief are eligible for a £3,000 grant which appears to be in the form of a cash payment.  Information is yet to emerge as to how this will be administered:  Will it be automatic or will you have to apply for it?  When more information is available we will let you know.

Time to pay: HMRC Debts

It was announced that HMRC have increased capacity for calls to the payment support line.  They are also going to treat cases with greater leniency over the coming months in setting up payment plans for issues paying taxes.

Details of how to contact them can be found on the HMRC website.  You will need the unique tax payer reference (UTR) for you or the business you are calling about, as well as PAYE references if it is a payroll related debt.

Even with this increased leniency this is very much a last resort and you will need to demonstrate this to the person handling your case.  Although we can help you with these calls, we cannot usually make them on your behalf.

Items affecting employers

There are two significant changes affecting employers which should make the cost of employing a team cheaper:

Statutory Sick Pay

As a temporary measure to help small businesses cope with the Coronavirus Crisis, employers with less than 250 staff can access an additional relief.  Where staff claim statutory sick pay (SSP) due to COVID-19 / Coronavirus, the employer can claim this back from the government.  This covers 14 days sick pay for those that are self isolating and those that are caring for individuals who have to self-isolate.

No doctors fit note is required but employers will need to keep good records about absentees.

How do you claim it? The budget accepts that software providers will not be able to facilitate this at such short notice.  Therefore, it looks likely that HMRC will issue a separate claim form in order to recoup these SSP costs.  It appears that although given time the government will pay for it, it may not be immediate so there could still be a short term drain on cash flow while repayment is arranged.

Employers Allowance

From April 2020 the Employers Allowances will increase to £4,000 per year meaning employers don’t have to pay the first £4,000 of Employers National Insurance.  This is only allowed once per group of businesses, so if you have multiple businesses be careful that you are only claiming this once.

National Insurance

The point at which employees and the self employed pay National Insurance has increased to £9,500 per year (c. £791 per month) but the point at which Employers National Insurance starts is no longer the same.

Employers beware: Employers start paying National Insurance for employing someone when their income exceeds £8,784 per year (c. £732 per month) which is lower than the employees rate.  This means you could have an employee that doesn’t suffer a National Insurance deduction but you as an employer are paying Employers National Insurance.  This also has an impact on calculations for optimal directors’ salaries.

Income Tax Rates and Optimal Drawings for Limited Company Owner Managers

The personal allowance has remained frozen for the first time in a long while, remaining at £12,500.

Likewise, the higher rate threshold for Income Tax has also been frozen at an effective amount of £50,000 (when including the personal allowance) for most tax payers.

The basic, higher and additional rates of Income Tax will remain at 20%, 40% and 45% respectively, with the exception of dividends (remaining at 7.5%, 32.5% and 38.1% respectively).

For the majority of director/shareholders, the following table shows the expected optimal levels of drawings from 6 April 2020.

All £s  2020/21 Tax Year
Monthly Annually
Director’s Salary 730 8,760
Dividends 3,435 41,220
Total 4,165 49,980

This gives a practical monthly drawings amount and a £20 buffer to allow for incidental income from bank interest for example.  If you have other income such as rental income or income from other investments outside of your business, then these levels may not be the most appropriate.

There is scope for some businesses, where they already have employees who have PAYE and National Insurance paid to HMRC monthly, to increase the director’s salary to £790. However, if you have no other employees this is not recommended as this will cause you to start having to pay National Insurance monthly where you currently have nothing to pay. Increasing the monthly salary would mean monthly dividends would be reduced to £3,375 per month in order to remain a basic rate tax payer.

These drawings levels are also stated on the basis that your business has sustainable profits, after accounting for tax, in order to pay these dividends.  If you are unsure about the current year profitability of your business, we recommend you talk to your client manager to conduct a quick review of your management figures to calculate your tailored drawings plan. Getting this wrong could cost an additional 32.5% tax charge!

The drawings stated above would generate an annual tax bill of £2,661 payable through Self-Assessment.  Drawings above this level will result in tax liabilities of at least 32.5% of the additional amount drawn.  Owner-managers who have significant levels of income from other sources, should contact their Principal Adviser for further advice on their optimal drawings strategies from April 2020.

Corporation Tax

It had already been announced that corporation tax would no longer reduce as planned and will now stay as 19% for limited companies. This looks likely to remain the case for a while.

Research & Development Relief

For UK limited companies the relief remains fully supported by the Treasury.  There was an added incentive that the government want Research and Development (R&D) to support development of greener technologies and ways of working.

It is vital that an R&D claim is made by someone trustworthy as rules were also announced about clamping down on small and medium companies that are using the relief in situations that it was not necessarily designed for.  To date, A4G has a 100% success rate in all its R&D claims so if you want to know more please let us know and our R&D team can review if you have a potential claim.

You can click here to read more about how we can help our clients with R&D claims and book in your free R&D discovery session.

Benefit in Kind: Company Cars

As planned changes are coming into place from April 2020 where fully electric cars will incur a Benefit in Kind charge of 0% – meaning that they are a very tax efficient purchase for now.  The fact that this percentage has changed over the last few years means that it could go up again, but this is an attractive option for company cars at present.

Low emission cars (such as plug in hybrids) will face a charge of 2% benefit in kind charge.

Benefits in Kind can be a minefield as it is all dependent on the model and specifics as to how HMRC have assessed that car, so be sure to get the details and then check in with your Client Manager to confirm what rates apply.

One other thing to beware of is that there is a reduced Benefit in Kind charge for vehicles which are registered and sold as new after 6 April 2020, but where registered before that date and then sold, even if they are new to you, you will incur higher Benefit in Kind charges.  This is the legacy of the “defeat software” scandal.  It is always worth checking the details with us before you sign the agreement to purchase a company car.

VAT

Domestic Reverse Charge VAT Rules – VAT Changes confirmed for businesses in the construction industry

In 2019 at the final hour the government postponed rule changes that would affect the way the construction industry reports, charges and pays VAT. Although not in the Chancellors announcement, the Budget Report confirmed that this is due to come into force on 1 October 2020. For more information on what the Domestic Reverse Charge is we have a brief article you can read.

This means that on top of other current cash flow concerns the construction industry should focus heavily on cashflow this summer.  Plans to cope with the change in how VAT is collected should be considered now so you are not caught out.

VAT

From April 2020 there will be no VAT charged on online publications.  So, if you publish material online that you charge buyers for you will no longer need to charge them VAT.

The VAT registration limit remains unchanged at £85,000 in any rolling twelve-month period.  If you are currently not VAT registered but have any concerns about if you should be, we recommend that you get in contact with your Client Manager to check your circumstances.

We also have an article on whether you should be VAT registered here.

Off-Payrolling and IR35

No announcement was made in the speech, but it has been confirmed that the IR35 / off payrolling rules are coming into force for the private sector from April 2020 as expected.

This has effectively driven down the appetite for medium and large businesses to engage self-employed contractors and means that the days of the IT contractor using their own company are ending.  If you are providing services through a limited company and think that these rule changes might affect you then you would benefit from discussing your specific circumstances with Janice Offer our Tax Manager.

Making Tax Digital – Extending reporting to businesses below the VAT Registration Limit – affects all UK businesses

In 2019 the struggle with Brexit negotiations was blamed for the delay in rolling out the Making Tax Digital filing requirements to non-VAT registered business and broadening the information needed for those already using the MTD filing system.

The 2020 Budget clarified nothing.  This means that this legislation is still due to come into force in April 2021.  The filing requirements of this call for all businesses to issue to HMRC every three months digital copies of profit and loss accounts, balances sheets and possibly summary underlying data. Will this face further delays? It is very difficult to tell at this time.

However, the rules continue as currently set for VAT reporting and are due to collect additional data from April 2020, although those submitting the data wouldn’t be aware the HMRC are collecting this from the press of the submit button.

There will likely be more we will update you with in the coming weeks, which we will keep you up to date with.

If you would like any advice or further information on the above, please get in contact with one of our team by calling 01474 853 856 or emailing enquiries@a4g-llp.co.uk.

Contact me today!

Josh Curties

BA (Hons) ACA

Partner & Principal Adviser

01474 853856

Send me a message