Blog

Have you heard of the term ‘fiscal drag’ but not been entirely sure what it means or how it impacts you? Sometimes it’s referred to as ‘stealth tax.’ Fiscal drag is where inflation pushes taxpayers into higher tax brackets, which results in paying more in tax. This is because wages rise with inflation but if tax brackets don’t rise at the same time, individuals move tax brackets and are taxed at a higher rate. This generates additional income for the government without nominal tax rates increasing. An additional 1.6m individuals have fallen into the 40% tax bracket since tax rate thresholds were last set.

When will tax rate thresholds next increase?

The tax thresholds were last set in April 2021 and are currently frozen until 2028. There’s nothing to suggest that rates will change before then although there will be a General Election at some point between now and the end of January 2025.

Moving tax brackets will also impact your personal savings allowance.

If fiscal drag has pushed you into the higher rate tax bracket then your personal savings allowance will reduce from £1,000 as a basic rate taxpayer, to £500. This means you would be liable to pay more tax on your savings than you had previously.

Annual exempt allowance (AEA) for Capital Gains Tax is also changing and individuals benefitted from significant gains will need to factor this change in. Currently the 2023/2024 tax year the AEA is £6,000 but in 2024/2025 this will reduce to £3,000.

How will the cut in National Insurance rates impact my income?

In January 2024, National Insurance rates for employees were cut by the Government however in real terms, the frozen tax thresholds mean personal tax payments will actually increase. There hasn’t been any reduction to employers National Insurance payments.

Tax planning will help you to limit the impact of fiscal drag.

Tax planning can help you to be as tax-efficient as possible by making use of tax allowances and exemptions that are available to you. As we always say, there is no one-size-fits-all advice when it comes to tax planning – the advice is personalised to your individual circumstances.

If you’re a company director or self-assessment individual, contact us today to discuss our tax planning services and how we can help you combat the impact of fiscal drag!

Call the Accounting Clarkes team on 01252 612484 or email gillian@accountingclarkes.co.uk.

If you’re not quite ready to reach out, follow Accounting Clarkes on Facebook or connect with Gillian on LinkedIn here.

Whether your business has started as a hobby or you’ve made the decision to take your skills and experience from an employed role to working for yourself, it’s important to have the right organisational structure in place. Why? Because it impacts everything from personal liability to taxation. The decision requires careful consideration of your specific circumstances, goals, and preferences.

One of the most common questions we’re asked as accountants is whether to incorporate into a limited company (or not). Without an understanding of your personal circumstances, we can’t answer that question specifically for you here in this blog.

There are, of course, lots of pros and cons for either side of the coin, but here are the general rules to consider:

Limited liability protection – becoming a limited company gives your business the advantage of protecting your personal assets. When you’re a sole trader or partnership, your personal assets are at risk if the business faces legal issues or debts.

Portraying a more professional image – A limited company can be perceived as being more credible and professional. Some larger organisations only work with limited companies so this organisational structure could open up the door to more work opportunities.

Tax benefits – there are different tax implications for limited companies and sole traders, so you need to understand which would be the most tax efficient for you. As a sole trader, the money in the business is yours to spend how you like – it’s your responsibility to pay tax when it’s due. For limited companies, the money belongs to the company, and what is spent must be accounted for. How you choose to spend that money on yourself i.e. through salary or dividend, will have an impact on the tax you pay.

Complexity and compliance – Incorporating a business involves more paperwork and ongoing compliance. This means there are higher upfront costs and ongoing admin expenses. There are more regulatory formalities to consider including the filing of annual confirmation statements with Companies House, keeping the statutory registers updated after any changes to directors or shareholdings along with the minutes of all board meetings. Failure to keep up with compliance can lead to penalties for both the company and the directors.

It’s important to remember that you should revisit your organisational structure as your business develops. There may be a point where being a limited company no longer offers the benefits it once did. Your business may function perfectly well and be tax efficient as a sole trader for its lifetime.

If you’re unsure and would like our opinion, we’d gladly answer your questions. We’ve worked with companies of all shapes and sizes, over many decades, so we can offer our expert advice on this important decision. Call the Accounting Clarkes team on 01252 612484 or email gillian@accountingclarkes.co.uk.

If you’re not quite ready to reach out, follow Accounting Clarkes on Facebook or connect with Gillian on LinkedIn here.

Whether you are a sole trader or director of a limited company, it is most likely that the business began with an idea. That idea may have been to turn a hobby into a source of income or perhaps an identified gap in the market. At Accounting Clarkes, we work with a variety of industries and sectors, and businesses of all sizes. It certainly keeps our work interesting!

Answers to your questions

With every client, we guarantee that they have at least one question that is weighing on their mind – most likely it’s several questions! We love it when our clients ask us questions about their business, it shows that they want to get a better understanding of what’s going on.

There are some questions that crop up more times than others and we’ve decided to get the team together to answer them for you here.

1. Should I be a sole trader or form a limited company?

At the start of your business journey, you’ll need to consider the legal structure and which would be best for you. We can’t answer this question generically without understanding what your business offers and your longer-term aspirations, but here’s some high-level guidance to think about.

As a start-up business, setting up as a sole trader is easier than setting up as a limited company – there’s less admin and the accounting requirements are less complex. As the company grows, there comes a time when forming a limited company becomes more tax efficient. There may also be opportunity to work with larger organisations which choose to work solely with limited companies due to the limited liability status.

2. How can I save tax?

There are lots of ways to legitimately reduce the amount of tax you pay! There’s no one-size-fits-all when it comes to tax advice as tax planning considers both the individual and the corporate perspectives. The key here is planning. Understand what your liabilities are and then which reliefs or allowances might be available to you. We share our top tax savings tips in this blog.

3. How do I know when to pay tax?

This question possibly pains us the most. Why? Because if you fail to pay your tax on time, HMRC will apply a late penalty fee and you’ll be charged interest on the amount you owe. It is a waste of your money and a mistake which can easily be avoided.

As a general rule of thumb, if you pay your tax by self-assessment, you’ll have until 31^st January to submit your tax return and pay the tax you owe for the previous tax year. So, for the 2022-2023 tax year, the deadline is 31^st January 2024.

If you have a limited company, you’ll have to submit annual accounts and a company tax return. These must be delivered to HMRC no later than 12 months after the end of your company’s accounting period. The Corporation Tax bill must be paid no later than 9 months and one day after the end of the accounting period.

If you are VAT registered (for which the 2023/24 threshold is £85,000 in turnover) you’ll need to file a VAT return for each accounting period, which is dependent on which VAT scheme you have signed up to and the VAT period you chose on registration. VAT returns are either due monthly, quarterly or annually. If you are on a monthly or quarterly VAT payment scheme then you will have one calendar month plus 7 days to submit your VAT return after the end of an accounting period (the previous month or previous quarter). This is also the deadline for VAT return payments. Whether you have no VAT to pay or reclaim, you must submit a VAT return to HMRC on time.

If you have joined the annual accounting VAT scheme, the deadline for submitting your annual VAT return is two months after the end of your VAT period. You pay interim payments, either monthly or quarterly, the VAT your estimate you owe. Any final payments must be made no later than two months after the end of the VAT period.

Your online account with HMRC should confirm the key return dates for you, as well as your accountant. Our best advice is always: Know your tax deadlines. Have them clearly detailed in your diary. Plan in additional time for submitting reports and returns accordingly.

 

4. What’s the difference between a profit and loss and cashflow forecast?

This is a great question and it’s important that all business owners understand the difference between the two. Profit and cash are two distinct things.

Are you familiar with the term ‘cash is king’? Every business needs cash available to keep the business viable on a day-to-day basis. There will be bills and suppliers to pay even when customers aren’t paying you on time. A cashflow forecast measures the cash flowing in and out of the business, and shows you how much cash is available at a given point in time. These figures will need to include VAT.

A profit and loss account looks at the bigger picture – is the business making money or losing it? It measures how much money remains once all the expenses have been paid. Profits are important as they allow you to pay yourself a salary and reinvest back into the business to develop it further. The figures in your profit and loss forecast should not include VAT.

Having a clear perspective on profit and cash in the business with help you manage finances and make strategic decisions with more confidence.

 

5. What’s the best accounting software I should use?

The short answer is the one that best suits the needs of you and your business! There are many accounting software providers out in the market. The most common providers we work with are Xero, Quickbooks, Sage and FreeAgent. They all have their advantages and their quirks, and some are better suited to particular industries than others. It’s also worth considering the apps which integrate with them. These can often save you time with tasks such as logging mileage and expenses. If you really aren’t sure where to start, we’re happy for you to give us a call and we’ll offer our opinion.

 

Do you have more questions about your business numbers?

Questions are great at helping you to better understand how your business is performing. There’s no such thing as a silly question! If you have questions that you’ve been too shy to ask, we’d be happy to help. It’s important to us that our clients understand the numbers in their business, that they have meaning and they can use this insight to make decisions.

Speak with our friendly team by calling 01252 612484.

Last month we shared some top tax saving tips! Was there anything that surprised you? Did it prompt you to look a bit closer at your business finances?

Any potential savings in tax could be put towards a social event for you and your team. A Christmas party perhaps? If you are planning a Christmas party, or any staff social for that matter, here’s what you need to consider from a tax perspective.

Will our Christmas Party be exempt from tax?

The answer is it can be exempt from tax. As we’re sure you know, any tax exemption comes with a set of criteria defining what exactly will qualify. Here are the three golden rules which all must apply:

1. It’s an annual social event. Depending on the time of year that could be the Christmas party or a summer BBQ (it could be both).
2. The event must be open to all employees. If you have employees at several locations it must be all employees at one location.
3. The total cost of the event, from start to finish, must not exceed £150 per head, including VAT. This means if you’re paying for food, drink, entertainment and taxis home for staff, it mustn’t exceed the limit £150 per person. We also need to add that ‘per person’ encompasses any external guests attending the event, not just the employees. If partners or spouses are invited to the Christmas party, they should be included in the total number of attendees.

What are the tax implications if we’re holding a Christmas and Summer event?

Providing that the total cost of both events is no more than £150 per person, then the tax exemption can still apply.

Once you’ve reached the £150 inclusive of VAT per person limit, you’ll then be liable to pay tax on the full costs of the event (even if the events individually cost less than £150 per person). Don’t forget that the employee will also get taxed through the Benefit in Kind regime.

Always remember, this is a tax exemption, not a tax allowance, and it applies to the whole tax year. As soon as you go over the limit of £150 per person (even by just a penny) the full cost becomes taxable. This is why it’s important to keep track of all costs involved with any staff social events.

Not keen on a Christmas party?

A Christmas party isn’t everyone’s cup of tea. The time of year might be extremely busy and with everyone working so hard, they might prefer to give it a miss.

Remember that the tax exemption is relevant (as per the criteria above) to annual social events. If the team would prefer to get together in February or October, host a party then! It could boost morale and even alleviate stress levels in December.

If the cost is a concern for your business year, then why not consider giving staff time off for Christmas shopping, or attending school plays if they have young children. There’s no tax implications for either of those and your team members will probably be just as happy to have the time back as they would for the party.

The best advice is to find out what your staff would enjoy the most. And if you’re concerned about how that impacts your tax obligations, get in touch.

Tax is one of life’s certainties and it has a purpose: the money it raises is for the benefit of the economy and those who live in it. In today’s society, it contributes to our welfare and social services, the NHS, our defence services, education, infrastructure, industry… and that’s not an exhaustive list!

How much tax we pay is directly related to our taxable profit (or income as an individual), so it’s important that it gets calculated correctly. Naturally, you don’t want to end up paying more tax than you need to. There are legitimate ways to reduce your profit (or income) and therefore the amount of tax you pay which is what we’ll cover in this blog.

 

The difference between tax relief and tax avoidance

Some people get nervous when the words ‘tax’ and ‘saving’ are coupled together. The correct terminology to use is tax relief.
Tax reliefs exist to benefit the taxpayer and the government actively encourages you to claim them. They are not tax avoidance schemes! Tax avoidance is against the law and carries very punitive penalties.

 

The importance of planning for the tax you’ll pay

The tax relief landscape has changed significantly over the years so tax planning has increased in importance for just about everybody. You need to understand what tax reliefs are open to you from a corporate and personal tax perspective or risk losing out. There’s no one-size-fits all when it comes to tax advice – what we’re offering here is some general guidance on the areas you should be looking into.

 

Legitimate ways to reduce the amount of tax you pay

1) Know (and diarise) your tax deadlines!

If you pay your tax on time, you’ll avoid the unnecessary cost of penalties and interest being applied to the amount you owe HMRC. Money spent on penalty fees and interest is simply a waste. All you need is a bit of forward planning and good record-keeping.

2) Utilise your tax-deductible expenses

Everyone has expenses associated with running their business and there are lots of expenses which you can claim tax relief against. These tax-deductible expenses all add up, so preferably use accounting software to keep accurate records of them.

3) Take money out of your business tax-efficiently

The amount of tax you are liable to pay is directly related to your taxable profit, so utilising methods to reduce your profit before tax is calculated will reduce the amount you pay. The legal ways of taking money out of the business are through salary, dividend, pension, and bonuses. The best advice here has changed a lot over the years but should always come back to what your personal and company financial goals are.

4) Tax reliefs can also be applied to the investment of capital items in your business

Bigger purchases, like computers or machinery, can also be treated as a deduction against tax to reduce your tax liability. Here you use capital allowances which allow you to deduct some or all of the value of an item from your profits before you pay tax. Some allowances, First Year Allowances even allow you to deduct the full cost from your profits before tax

5) Tax Reliefs for personal income

Everyone has a personal allowance, but this will be reduced if your total income goes over £100k. Allowances for Dividend and Interest on Savings are also available to reduce your personal tax liability. If you are an employee only of a business, you should consider pension payments to a pension fund to help reduce your tax exposure.

 

Personalised tax advice will save you the most

We’ve offered our best ‘general’ tax relief advice in this blog to help as a guide. The fact is, every business is individual and therefore different tax reliefs and allowances will apply. We’d love to be in a position to say to everyone reading “this advice definitely applies to your business” but unfortunately that’s not the case. There are lots of factors to consider which is why tax planning has become so important to business owners

Tax reliefs and allowances have changed a lot in the last few years and if you don’t keep a watchful eye on where they are, you could find yourself landing in a tax threshold you weren’t expecting.

The best port of call if you’re unsure is to ask your accountant. They can consider the tax perspective of both the business and you as an individual and advise accordingly.

Here’s how to make a start.

Without sounding political, we all need to do our bit to help reduce our impact on climate change. The world as we know it today won’t be there for generations to come if we continue as we are. Understandably, it is a daunting task to change daily habits and reduce the amount of carbon our lifestyle creates.

Before we jump into some friendly advice on how to go about making some changes, let’s explore the benefits of having a more sustainable business beyond having a positive impact on the environment.

Why should you make your small business more sustainable?

The ethos of sustainability is to reduce, reuse and recycle. By doing any one of those, you will be saving your business money. If you lower your costs, you can (in theory) increase your profit.

Having a more sustainable business can also win you new customers. A First Insight study back in 2022 found that 72% of consumers consider sustainability in purchasing decisions – what’s more they are happy to pay a higher price for sustainable products and services. Your sustainability efforts could see customers pick you over the competition.

You may even come across suppliers enquiring about your sustainability credentials or practices for the same reason, using it as criteria to select who they work with. It’s worth noting any sustainability efforts you are making and adding this detail into relevant proposal or quotation documents.

Make a start with making your business more sustainable

If you feel overwhelmed by the thought of making major changes to your business, it’s OK to start small. Don’t underestimate the impact that lots of small changes can create. Take that first step and start with committing to a single change.

1. Review and reduce your energy consumption. What equipment might be left on or in standby mode when not in use? Lights, computers, other machines? Make sure they are turned off properly when not in use. Save the planet and reduce your energy bills.

An area which uses a lot of energy is your website (well, the data centre which hosts it). A single data centre can produce as much carbon as a town with 50,000 residents! There are data centres which run entirely on renewable energy, so it’s worth having a chat with your website design or hosting provider if that’s something you’d like to explore.

If you’re able to, switch to greener energy like solar panels.

2. Reduce, reuse, recycle – identify items you use in a typical business day which can either be reduced (buy less of), switch to a reuseable alternative, or with a bit of careful through can be recycled. If you are making changes, make sure all your employees know what you are trying to achieve and give them the tools to support this change.
3. Challenge travel plans and deliveries – holding meetings online rather than in person can save you time, money and carbon emissions. That doesn’t mean you shouldn’t travel at all but consider the impact of that travel plan and if it’s worth it. The same goes for deliveries – a bit of planning can help you reduce the number of deliveries it takes to fulfil your orders (and some courier companies reward this behaviour too!)
4. Go paperless – we decided to do this ourselves during the pandemic. It did take time – firstly scanning and digitally filing every piece of paper we had, and secondly getting used to our new paperless processes, but it was worth it. Typically, paper is tied to transactional processes. There are lots of cloud-based apps and software which can manage the contractual elements of the transaction, it’s about finding the right one for your business. If you use accounting software, quotations and invoices can be sent digitally anyway.
5. Offset your emissions – there are lots of schemes available where you can support projects which help to offset the carbon emissions you produce. Organisations such as Mossy Earth and Ecologi will plant trees to naturally absorb carbon help clean the air. You can sign up to contribute to their projects as a one-off or regularly. Some businesses promote the fact they make donations when they win new customers, so the customer feels they’ve contributed as well.

These points have hopefully given you some ideas to investigate within your own business and reassured you that sustainability changes don’t need to be huge transformations. Simple changes that you stick with are far better.

If you’re yet to make the switch to cloud-based accounting software, or you don’t feel you are using your current software to its full advantage, the team at Accounting Clarkes can help you. Book in a discovery call today by calling 01252 612484.

The school summer holidays acts as a natural break in the year. Even if you don’t have school aged children, September brings with it a renewed sense of focus and energy. It’s the dawn of a new term and people want to get off to a good start. It’s also approaching the last quarter of the calendar year, and just over the horizon are the twinkling lights of Christmas. A sustained focus for 3 months doesn’t feel too much, it feels achievable.

Another year end

Some of you reading this may have just had year end pass, or perhaps it’s approaching. Those filing deadlines will be with you before you know it. In our experience, it’s best not to procrastinate too much. All too often we see business owners fall into planning for next year or managing the day-to-day tasks. Filing deadlines which they had ‘plenty of time for’ are fast approaching and understandably panic (and stress) sets in.

It doesn’t have to be like that. You can absorb the focus and energy at the start of the new term and use it to your advantage. We’ve pulled together our best advice to help you refocus on your business after the summer break and to make your year end accounts a positive experience!

Five steps to help you refocus on your business after a break

1. Realise those deadlines

Whenever your year end is, make sure you are crystal clear on the deadline to file your year end accounts (9 months after your company’s financial year ends). Those of you with 30th June year ends, you’ve only got 6 months left until your accounts are due. It is easy to fall into the trap of believing you have plenty of time, but unexpected issues crop up in business, at home, on holiday. Getting it done and out the way means you won’t be rushing to file at the eleventh hour. Mark your filing deadline clearly so all those involved in pulling information together know what they need to deliver and when.

2. Revisit your goals

When you’ve had time away from work, take a fresh look at your goals. Are they still relevant? Are they working towards what you plan for your business in the next 5-10 years, and beyond? Taking stock of where you are today and revisiting your goals is good thing to do at this time of year. With that ‘new term’ energy, you can achieve great things – just make sure your goals are SMART (specific, measurable, attainable, relevant, and time sensitive).

3. Identify the priorities

Understanding what your priorities are (or should be) is much easier once you’re goals are defined, but business owners can get caught up in the day-to-day running of the company, getting side tracked from what’s important. Get clear on exactly what YOUR priorities are to move the business forward and achieve those goals. Then look at the work you’re doing each day and see if those actions are aligned to the list of priorities. If not, maybe you need the next step.

4. What can you offload?

If your time is being sent on tasks which are not on your list of priorities, then either:

a) You’re procrastinating and avoiding the work you should be doing, or

b) You’re responsible for too many areas and this needs to be addressed.

The tasks you are doing which are not a priority will fall into one of two categories – they still add value to the business and need to be done, or they don’t. It’s quite simple. If these tasks do not add any value or take the business closer to achieving its goals, then they should be stopped immediately.

If they are of value or a task which needs to be completed, then you need to work out who else in the business can take responsibility (without taking time away from their priorities) or outsource to a suitable third party. Outsourcing will be a cost to the business but if you find the right partner, they will be adding value too.

5. Measure and reward

If you’ve written SMART goals then you will have this covered, but you need to measure the work you are doing and adequately reward yourself! The goal maybe a financial goal for the business and naturally tied to its own reward, but if it isn’t a financial goal, make sure you have a suitable reward lined up. You’re working hard for your business, and you deserve to have that recognised.

Great advice, any time of year

These steps aren’t solely for the purpose of returning to work after the school summer holidays. Use them after any break away from work where you feel you have switched off and you’re returning with a fresh perspective (and hopefully a burst of energy)

If you want to get ahead on completing your year end accounts, we’d love to hear about your business. Call us on 01252 612484.

When you take on your first employee, there’s a whole world of employment law to navigate. One of the key responsibilities you do not want to get wrong is paying them correctly. Of course, they need to be remunerated for the work you have employed them for but paying them correctly refers to holiday pay as well!

Calculating holiday pay is straight forward, isn’t it?

If you have employees on fixed hours and fixed pay, then yes, calculating holiday pay is straight forward: a week’s holiday pay is calculated as a workers pay for a week.
When you have employees with no fixed hours (casual work or zero-hours contracts for example) then you need to calculate a week’s holiday pay based on the average pay from the previous 52 weeks where they were paid (or how many weeks they’ve worked if less than a year).

But there’s another element of pay to factor in… bonuses and overtime.

How does overtime factor into holiday pay?

If you have employees who regularly work overtime or regularly receive bonuses or commission on top of their standard rate of pay, then this additional income will need to be factored into their rate of holiday pay. Any employee should receive the same pay when they’re on holiday as when they’re at work.
If the overtime or bonus varies from week-to-week or month-to-month, then you’ll need to calculate the average across the previous 52 weeks (or however many weeks they have been employed). A week’s holiday pay would be paid as a week’s basic pay plus a week’s average overtime/bonus pay.

Is overtime factored into all statutory annual leave?

Statutory annual leave is 5.6 weeks’ paid holiday however overtime, commission and bonus income are based on the EU Working Time Directive. This means that an employer must include overtime or bonus payments in a least 4 weeks of paid holiday.

Need a helping hand with payroll?

Lots of clients chose to outsource their payroll needs to our experienced team. It’s a very important part of running a successful business and as a business grows and employs more people, it can become more time consuming (and stressful).

If there’s one thing we want to achieve for our clients its less stress when it comes to their business finances. Call us today on 01252 612484 for an initial consultation free of charge.