Archive for the ‘Tax Issues’ Category

Advice for one in ten small businesses under HMRC investigation

Thursday, April 26th, 2018

According to a new statement from HMRC, 10 per cent of all small businesses in the UK are being investigated by the organisation. As a result of this realisation, the Institute of Chartered Accountants in England and Wales (ICAEW) has published some advice for businesses who find their financials are being scrutinised by the tax office.

Many of the investigations have been sparked by compliance tests being undertaken on VAT returns, self-assessment returns and corporation tax returns. If there is something that stands out as being unusual, HMRC will look further into the business.

The primary piece of advice is to ensure that your record-keeping is water-tight. Making sure that you keep receipts of all business sales and purchases will mean that you can provide this information to HMRC quickly if requested.

The ICAEW adds that businesses that are being investigated will usually receive a phone call lasting around 15 minutes during which HMRC will try to establish whether a business is keeping up with its legal obligations with regards to tax. HMRC will usually decide if further action needs to be taken following the call.

Clive Lewis, ICAEW Head of Enterprise, said: “Legally businesses have to keep records for income, VAT and employees. If HMRC announces that they are looking more closely at a company it can be both daunting and frightening for the business owner. If you are worried please contact an ICAEW Chartered Accountant for a free consultation using the Business Advice Service.”

The news that so many small businesses are under investigation at the moment has prompted some to criticise the current system. MP Stewart Hosie, for example, says that chasing small businesses for their invoices and receipts isn't a great use of HMRC time and that there should be more help for small businesses to get their tax filing correct.

“Wouldn’t it be so much easier if they [small businesses] could go to the local tax office with their accounts and have them checked before submitting,” he said.

Business rates reform leads to higher bills but greater opportunity

Thursday, October 26th, 2017

The government’s re-evaluation of the country’s business rates has driven up the tax bill for many of the UK’s smaller enterprises, but could provide an opportunity for those looking to buy a business.

Saatchi calls for abolition of corporation tax

Wednesday, June 18th, 2014

The Government ought to abolish corporation tax for all of the UK’s small businesses – so says Lord Maurice Saatchi.

Writing in The Telegraph, the former Tory chairman has called on the current party leaders to “challenge cartel capitalism”. Now the chairman of the Centre for Policy Studies (CPS) think tank, the Iraqi-British politician, who co-founded the Saatchi and Saatchi advertising firm with his brother Charles, believes the move would “benefit everyone”.

To quote the crux of his argument, he wrote: “The policy, as I call it, would abolish corporation tax for 90 per cent of UK companies, reduce the deficit faster than predicted by the Office for Budget Responsibility, expand employment faster than it predicts, increase competition, challenge cartel capitalism and let millions of people grow tall.

“The nation as a whole will benefit from a change in culture as big as Right to Buy in the 80s; there will be greater economic growth and lower unemployment than currently forecast by the OBR, more competitive market places, and more freedom and independence.”

At present, small businesses pay 20 per cent of profits in corporation tax, generating £8 billion annually for the Treasury. By alleviating the fast-growing smaller companies from this financial burden there would likely be a rise in activity within the mergers and acquisitions market – namely because it would free up substantial funds that companies could channel towards inorganic growth, loosening economic shackles allowing them to become far more aggressive in their expansion strategies.

A report by the CPS to mark the think tank’s 40th anniversary also said that capital gains tax should also be abolished for all investors in small companies. Again, these measures to encourage growth and investment among SMEs would prove a valuable step in enabling a greater number of business acquisitions.

Whether Cameron and Osborne listen to Lord Saatchi's suggestions is yet to be seen, but it is another clear indication that the UK's financial focus is very much on the growth of its smaller businesses.

BRC business rates reform to boost expansion plans

Friday, June 6th, 2014

In a week that has already been widely acknowledged as a positive one for the UK’s small businesses, further proposals have been put forward that could see SMEs celebrating sizeable tax cuts. In turn, it is a move that could have a substantial impact on acquisition opportunities for smaller companies.

Following the Queen's Speech on Wednesday (4 June), which we wrote about here, the British Retail Consortium (BRC) has now suggested to the Chancellor George Osborne that small businesses should be freed from paying business rates. If agreed, it could see 100,000 small British companies benefit from not having to pay the tax on non-domestic properties such as shops, offices, pubs and factories.

The proposal from the BRC would reportedly affect 1.14 million properties and could impact on the mergers and acquisitions market; if the financial burden attached to owning business premises is alleviated then there would be both more money and more incentive for small companies to expand onto new pastures. For example, retailers looking to open new shops or companies wanting a secondary office location could see barriers to expansion lowered if they are made exempt from the business rates tax.

The Telegraph reports: “Business rates will be worth an estimated £27 billion to the Treasury this year. Critics claim the tax has increased ahead of the economic recovery and is blocking businesses from investing in expansion plans.”

Specifically, the BRC wants businesses whose properties have a rateable value of less than £12,000 to be made exempt, something that would boost more than 100,000 small businesses. Moreover, there is a desire among British companies to see a fundamental reform of the system that would see business rates move in line with the state of the country’s economy.

Tough approach from HMRC signals insolvency risk

Monday, January 14th, 2013

The financial crisis has already pushed hundreds of companies into administration as intense pressure on cashflow highlighted any weaknesses within businesses. But as confidence gradually returns, it had been thought that the insolvency rate would continue to drop off, however, a new approach from HM Revenue & Customs (HMRC) could see things take another turn for the worse.

HMRC has announced an overhaul of its Real Time Information (RTI) approach to tax collection. The service is now asking employers to send in monthly details of how much each employee has been paid and how much tax has been deducted under the PAYE system, marking a change from the previous practice of sending information in once a year.

The problem with this approach is that it prevents companies from spreading out their payments, stopping them from balancing their cashflow. Keith Steven, of insolvency firm KSA Group, explained to the Telegraph: “We're aware of many companies that don't tell HMRC what their PAYE deductions are, or that falsify them. They say, 'OK, it's £50,000 this month, let's say it's £10,000'. They come clean at the end of the year and then ask for time to pay the tax. RTI could highlight a lot of cashflow issues.”

Julie Palmer, partner at insolvency experts Begbies Traynor, added that given the current economic climate, a lot of businesses are already feeling the strain. The potential for HMRC to issue quicker demands for additional tax payment could “potentially push them over the edge”.

As ever, people looking to buy distressed businesses could well find opportunity in the chaos if they are able to turnaround and consolidate any companies that find themselves struggling with cashflow issues when the taxman comes knocking.

Another tax on success for UK business owners

Sunday, March 11th, 2012

Winding up a solvent company just got a little more complicated. Before 1st March 2012, if a company wanted to wind up operations and distribute surplus funds to shareholders as capital payments, it was a simple case of writing to HMRC for a concession (ESC C16). Once all the assets are distributed (cash returned to the owners) then a letter can be sent to Companies House, requesting that the business be struck off the register.

Under the new legislation the maximum amount that can be treated as a pre-liquidation capital distribution is £25,000. If the amount goes over this figure, the entire amount (including the original capital) will be treated as income.

Of course there is a clear advantage in distributing surplus funds as capital payments rather than revenue is that they attract capital gains tax rather than income tax. In many circumstances Entrepreneurs’ Relief could be applied, with an effective tax liability of just 10 per cent over and above the free allowance of £10,600. Paying the funds as a dividend is not a problem for basic rate taxpayers (20 per cent) as there is no further tax to pay personally. But for those higher rate taxpayers (40 per cent or 50per cent), there will be additional personal tax liabilities of 25 per cent and 36.11 per cent respectively.

So unless capital reserves can be reduced to under £25,000, the only real option for business owners is to appoint a liquidator. The liquidation process will ensure that all distributions are treated as capital. But there is a considerable cost involved which can vary from around £5000 to £10,000. For many owners of small to medium companies, this is just another hefty outlay, and has been described by some as a ‘hidden cost of retirement’ and by others as a ‘tax on success’.

UK Business and Capital Gains Tax

Thursday, May 13th, 2010

With capital gains tax rates expected to be raised significantly within weeks, the question many business owners have is "what impact will this have on the selling of my business?"

The statements so far put out by the coalition government on the proposed rise in CGT have not been terribly clear, though it is safe to say we can expect that the rate for non-business assets will move towards an alignment with income tax rates.

But what will be interesting is how the forthcoming legislation will define 'business assets'.

We have also heard utterances that entrepreneurial business activities will be offered 'generous exemptions'. What does that mean exactly?

Does it mean that the current Entrepreneur's Relief – a lifetime allowance of £2m at 10% – will stay as it is? Given that small to medium sized business owners are already feeling heavily taxed we suspect that this will be largely preserved. However, there may be less generous allowances for quick capital gains. So perhaps we'll see a return to the pre-2008 taper relief system?

We'll keep you posted as the news breaks.

Entrepreneur’s relief increased to £2m

Wednesday, March 24th, 2010

The Chancellor has given some tax concessions to business in the form of business rates, increased investment reliefs for plant and machinery, and entrepreneur’s relief. Entrepreneur’s relief is the crucial one for people looking to sell their business. At present, if someone sells their business for up to £1m then, subject to certain criteria, they will only pay 10% capital gains tax (CGT) on the proceeds. This is a one-off relief, mainly aimed at long serving business owners who sell in order to fund their retirement. Given that the marginal rate of capital gains tax is 18%, this is a valuable relief.

In the budget today, Alistair Darling announced that entrepreneurial relief will be increased to £2m. This is welcome news for anyone who is looking to sell their business, especially if it is valued in the £1m-£2m range. However, given the pre-budget rumours surrounding the possible rise in the standard CGT rate and the perception that capital gains tax is really only paid by the wealthy CGT will be no doubt be looked at closely after the election. Of course, with the labour government’s love of stealth taxes we suspect that the devil will be in the detail of the legislation. It should be noted that the CGT allowance has been frozen at £10,100. The tax take from CGT is perhaps higher than was expected as asset prices have risen quite significantly in the last year.

It is completely free for owners of businesses to list their businesses for sale on our site. For more details on the conditions that need to be met in order to claim entrepreneur’s relief as well as a huge range of resources and advice on how to sell a business please subscribe to our monthly publication and daily updated website.

Football clubs have wind-up orders adjourned

Wednesday, February 10th, 2010

There's plenty of talk about Portsmouth today after the High Court adjourned its winding-up order for seven days.

Her Majesty's Revenue and Customs (HMRC) revealed the club owes £11.5 million and declared it "insolvent", but Portsmouth's representatives claimed they have two firm offers of fresh investment and convinced the court they deserve more time to complete a business sale.

In Wales, meanwhile, all eyes have been on yet another football club facing the threat of administration after a winding-up petition was issued by HMRC. Cardiff City, like Portsmouth, appeared in court today for the application.

The 2008 FA Cup finalists were given another 28 days to settle their tax bill after presenting a payment of £1 million this week, made as a result of land sales around their Cardiff City Stadium ground.

Another winding-up order will be issued if a further £1.6 million isn't produced by 10 March, though the club's most recent accounts suggest it had debts totalling nearly £33 million as of May 2008.

Cardiff City originally received a winding-up order last November, when the club was ordered to settle its debts within 70 days. It then defaulted on the arrangement, prompting HMRC to issue another petition.

No increase announced in UK capital gains tax

Wednesday, December 9th, 2009

Entrepreneurs considering selling their businesses over the next year are breathing a sigh of relief today as the chancellor, Alistair Darling, held back from lifting capital gains tax rates in today’s Pre-Budget Report.

Expectations in many quarters were that the chancellor would raise the capital gains tax rate to between 20 – 30 per cent, in a bid to shore up public finances and align the CGT rate more closely with the new 50% upper level of income tax.

In our view, the decision to keep the CGT rate at 18% was certainly the right decision, as a rise in the rate would have a very negative effect on investment in general in this country, affecting the risk sentiment of that very important sector of our economy – entrepreneurs. The 10% Entrepreneurs’ Relief also remains in place.

The government announced its intention to extend the Enterprise Finance Guarantee scheme, which has helped around 6000 businesses receive commercial loan funding so far. The extension should guarantee another half a billion pounds of loans to be granted to small UK companies.

It is also encouraging to see that empty property relief has been extended, which should help many smaller businesses escape business rates on their empty properties where the rateable value is below £18,000.