Investing an unquoted trading company

If you are considering lending money to, or subscribing for shares in, an unquoted trading company then, like many investments, there is always a risk that you may lose your money.

However, there is potentially tax relief for the lender if the loan meets certain conditions, in particular the money lent is used by the borrower wholly for the purposes of its trade, and the trade does not consist of or include the lending of money.

The tax relief is by way of a capital loss that can be set against gains in the same or future tax years. In order to make a claim for capital loss relief, any outstanding amount of the principal of the loan must have become irrecoverable, the claimant must not have assigned their right to recover that amount, and the claimant and the borrower were not each other’s spouses or civil partners, or companies in the same group, when the loan was made or at any subsequent time.

Capital loss on shares in an unquoted trading company

Where an individual subscribes for a new issue of shares in an unquoted trading company, there is an even more generous form of loss relief where those shares are disposed of at a loss, including the situation where the shares have become worthless. In that situation, it is possible to make a negligible value claim which creates a deemed disposal and reacquisition of the shares at that low value, thereby creating a capital loss. A further claim can then be made to set that capital loss against the subscriber’s income in the year of the loss and/or the previous year. The attraction here is the income tax relief could save tax at 40% for higher rate taxpayers and 45% for additional rate taxpayers, as opposed to a capital gains tax saving at a maximum 24% (on residential property gains).

Converting loans into shares

As mentioned above, where a loss is made on a loan to an unquoted trading company, relief for that loss may claimed against capital gains, whereas the loss on subscriber shares can be set against income, saving tax at higher rates. It is possible for the lender to be issued with shares in the company in satisfaction of the loan, which potentially would allow the investor to claim relief for any subsequent loss against their income. Note that where the company is already insolvent at the time that the shares are issued, no capital loss will arise and HMRC are likely to challenge the loss claim, as they have done successfully in two recent tax cases.

We offer a wide range of services which are unique to your businesses who are just getting going! Our team of chartered accountants have a wealth of experience in a broad range of sectors, from construction and property to the charity sector. Our team work hard to ensure they create smart and effective tax-efficient solutions for start-ups to optimise growth and help them succeed. If you want to learn more about how the team can help or simply want some start-up advice from a trusted accountant do hesitate to contact us. For more information please do hesitate to contact us on 0161 962 1855. Alternatively you can email us using the form below and we will contact you as soon as possible.

Our fantastic team at A&C Chartered Accountants are here to help.

In recent years, many accountants have advised their director/shareholder clients that the most tax-efficient method of extracting profit from their family company was to pay themselves a low salary, at or around the £12,570 personal allowance, with the balance in dividends.

This strategy may need to be revisited with the introduction of higher corporation tax rates from 1 April 2023 as company profits above £50,000 are taxed at an effective 26.5% rate. Where company profits exceed £50,000 it may be more tax-efficient to increase the salary or put a bonus through the company accounts.

Other things to consider would be for the company to pay more into your pension or provide you with an electric company car, both of which can be tax efficient.

There are lots of factors to take into account, including the level of profit and how much you need to draw out of the company to live on. We would suggest that we set up a meeting with you a couple of months before the company year-end so that we can give you the best advice.

Do you need further guidance on salaries and dividends?

Our team work hard to ensure they create smart and effective tax-efficient solutions for individuals, start-ups, SMEs and beyond – helping them to grow and succeed.

If you want to learn more about how the team can help, contact us for a free consultation.

Employers investing in new vans will be rewarded for choosing zero-emission models. Not only will employees be able to use the vans privately without having to pay tax on the benefit, there will be no Class 1A National Insurance for the employer to pay either.  As an added bonus, because HMRC do not regard electricity as a ‘fuel’ for car and van benefit purposes, if the employer pays the cost of electricity for private mileage in a company van, there is no fuel charge to worry about either.

Please follow the link below for more information:

Tax on company benefits: Tax on company cars – GOV.UK (www.gov.uk)

Check or update your company car tax

Tell HM Revenue and Customs (HMRC) if your car or fuel details change. You can check or update your company car tax online, for example if:

• you get a company car or give one back
• your employer starts or stops paying for fuel for you to use personally

If a change affects the value of the car, HMRC will update your tax code so you pay the right tax.

We offer a wide range of services which are unique to your businesses who are just getting going! Our team of chartered accountants have a wealth of experience in a broad range of sectors, from construction and property to the charity sector. Our team work hard to ensure they create smart and effective tax-efficient solutions for start-ups to optimise growth and help them succeed. If you want to learn more about how the team can help or simply want some start-up advice from a trusted accountant do hesitate to contact us. For more information please do hesitate to contact us on 0161 962 1855. Alternatively you can email us using the form below and we will contact you as soon as possible.

Our fantastic team at A&C Chartered Accountants are here to help.

In order that we can help predict your taxable profits and tax liabilities we need up to date profit figures and projections. One of the advantages of keeping your business accounts in a computerised form, ideally on the Cloud, is that we can review your latest financial position and help you prepare more reliable profit forecasts to estimate your tax bills.

Unincorporated Businesses

Reliable profit forecasts are particularly important at the moment, with the changes to the taxation of sole traders and partnerships from 2024/25, and the complicated transitional rules that apply in 2023/24. The transitional rules may result in higher tax bills if your business does not have a 31 March or 5 April year end. If we have reliable profit forecasts for your business we can determine whether or not changing your business year end would be beneficial, and also determine the timing of that change.

Limited Companies

From 1 April 2023 the rate of corporation tax that a company pays depends on the level of the company’s profits and the number of “associated companies”. “Associated companies” are those under common control, which may include companies controlled by close relatives under certain circumstances.

Assuming a company has no “associated companies” then the 19% corporation tax rate continues to apply where profits are no more than £50,000 and the 25% corporation tax rate applies where profits exceed £250,000 a year. The £50,000 and £250,000 limits are divided by the number of “associated companies”.

In between the limits there is marginal relief to achieve the transition between 19% and 25%. The marginal tax rate between £50,000 and £250,000 is 26.5% and thus tax planning can be particularly effective.

For example buying new equipment or paying additional pension contributions on behalf of the directors would potentially save 26.5% corporation tax. Timing of expenditure is critical here, as the expenses would need to be incurred before the year end. We would recommend a review at least 2 months before the company’s year-end, with reliable profit forecasts available to allow time for pre-year-end planning.

WHEN ARE COMPANIES ASSOCIATED?

“Associated companies” for corporation tax purposes are those under common control. The most obvious situation is where one of the companies has control of the other, or both of the companies are under the control of the same person or persons. In determining control, the rights and powers of an individual’s associates, broadly close relatives, may be taken into consideration, but only where there is substantial commercial interdependence between the two companies.  This could be financial, economic, or organisational interdependence and will depend on the facts of each case. An example would be where a brother and sister each have their own limited companies and there is a large loan or significant trading between them, such that one is dependent upon the other.

This is not a straightforward matter and we can of course advise you on whether or not it impacts your company.

LARGER COMPANIES ARE REQUIRED TO PAY TAX QUARTERLY

Although not a new measure, where a company has profits in excess of £1,500,000 a year it is required to estimate and pay corporation tax quarterly during the year, rather than 9 months after the end of its annual accounting period. What has changed since 1 April 2023 is that the £1,500,000 threshold is divided by the number of “associated companies” in the accounting period, as defined above.  Thus, if a company has two associated companies, if any of them has profits over £500,000, quarterly instalments of corporation tax will be required. If that company has a 31 March 2024 year-end, it needs to pay its estimated corporation tax liability according to the following schedule:

• 25% of its estimated liability by 14 October 2023
• 50% of its estimated liability by 14 January 2024
• 75% of its estimated liability by 14 April 2024
• 100% of its corporation tax liability by 14 July 2024

As mentioned above, accurate profit forecasts are required in order to compute the quarterly payments.

Note that this is a significant acceleration of tax payments compared to the normal 9-month payment interval. Consequently, there is a one-year “grace period” that applies for the first year the threshold is breached. You might also wish to consider minimizing the number of associated companies to avoid this cash flow disadvantage.

Do you need further guidance?

Our team of corporate tax accountants have a wealth of experience in a broad range of sectors. We work hard to create smart and effective tax-efficient solutions for start-ups, SMEs and beyond.

If you want to learn more about how the team can help, please fill in a contact form or call 0161 962 1855.

New Year’s resolutions to save tax

At this time of year we think about New Year’s resolutions. It is also a good time to start planning your tax affairs before the end of the tax year on 5^th April.

An obvious tax planning point would be to maximise your ISA allowances for the 2022/23 tax year (currently £20,000 each).

You might also want to consider increasing your pension savings before 5 April 2023 as the unused annual pension allowance from 2019/20 lapses after three years.

Many of us get together with the family at Christmas and that prompts us to think about making or updating our Will.

Pension planning

For most taxpayers the maximum pension contribution is £40,000 each tax year, although this depends on their earnings. This limit covers both contributions by the individual and by their employer.

Under the current rules, the government adds to your pension contributions at the 20% basic rate. For instance, if you save £4,000 in a personal pension the government tops this up to £5,000. If you are a higher rate taxpayer there is a further £1,000 tax relief when your tax liability is calculated, reducing the net cost to £3,000. This can be even more effective if your income is between £100,000 and £125,140 where the effective tax rate is 60%. Remember that pension fund investments can go down as well as up.

Time to review your will?

Top of the New Year to do list for many individuals is to make or update their Will. Many think this is something to leave until later in life but it is important to get things in place once property is acquired or when children come along.

In the absence of a will there are statutory rules which dictate how your assets are distributed on death. Those statutory intestacy rules may not be tax efficient and you might to want to make specific provision in your Will for your unmarried partner or for the guardianship of your children.

Passing on the family home

When considering the wording of your Will you should note that the inheritance tax (IHT) nil rate band continues to be frozen at £325,000 until 2028. There is an additional nil rate band of up to £175,000 for passing on the family home to direct descendants on death. We can work with your solicitor to make sure your Will is tax efficient.

Where the nil bands are unused on the death of the first spouse the balance is available on the death of the surviving spouse, potentially allowing a married couple (or civil partners) to pass on assets of up to £1 million without paying IHT.

The residence nil band is even available when you downsize to a cheaper property. For example if a married couple currently live In a large house worth £500,000 and downsize to a flat worth £300,000 they could give away some of the proceeds during their lifetime and yet still benefit from inheritance tax relief based on the higher valued property.  They could even sell the house and move into a rental property or a care home and still benefit from this additional relief. In these circumstances, certain conditions must be met, so please speak to us if you think it may affect you.

Do you have any New Year’s resolutions to save tax?

We offer a wide range of services which are unique to your businesses who are just getting going! Our team of chartered accountants have a wealth of experience in a broad range of sectors, from construction and property to the charity sector. Our team work hard to ensure they create smart and effective tax-efficient solutions for start-ups to optimise growth and help them succeed. If you want to learn more about how the team can help or simply want some start-up advice from a trusted accountant do hesitate to contact us. For more information please do hesitate to contact us on 0161 962 1855. Alternatively you can email us using the form below and we will contact you as soon as possible.

Our fantastic team at A&C Chartered Accountants are here to help.

Self-employed – plan for big tax bills in 2023/24

The changes to the basis of assessment of self-employed profits are scheduled to change from 6 April 2024. The new rules mean that profits (and losses) will be assessed based on the amounts arising between 6 April and 5 April instead of the profit/loss of an accounting period ending in the tax year. This means that where the business accounts do not coincide with tax year the profits or losses will need to be apportioned. This is intended to coincide with the start of Making Tax Digital for income tax.

Transitional rules proposed for the previous 2023/24 tax year could result in large tax bills for some sole traders and partners, particularly those with an existing 30 April year end. The profits of year ended 30 April 2022 would be taxed in 2022/23 under the current rules with 2024/25 taxing profits arising between 6 April 2024 and 5 April 2025 under the new rules. But what about 2023/24?

The profits taxed in 2023/24 would be those for year ended 30 April 2023 plus the period 1 May 2023 to 5 April 2024 – in total 23 months profits!

The good news is that there would be a deduction for “overlap relief” (as much as11 months) which typically arose when profits were taxed twice at the start of the business – but those will often be much lower than the extra 11 months being taxed in 2023/24.

The transitional provisions provide for the “excess” profits to be spread over the next 5 tax years to smooth out the excessive tax bill.

Are you self-employed? We offer a wide range of services which are unique to your businesses and our team of chartered accountants have a wealth of experience in a broad range of sectors. Our team work hard to ensure they create smart and effective tax-efficient solutions for start-ups to optimise growth and help them succeed. If you want to learn more about how the team can help or simply want some start-up advice from a trusted accountant do hesitate to contact us. For more information please do hesitate to contact us on 0161 962 1855. Alternatively you can email us using the form below and we will contact you as soon as possible.

Our fantastic team at A&C Chartered Accountants are here to help.

Protecting pregnant workers and new mothers

The Health and Safety Executive (HSE) advice has recently changed, and employers must now carry out an individual risk assessment for pregnant workers and new mothers.

There will be little practical change as you must already consider risks to women of childbearing age in any general health and safety risk assessment.

The difference is that you must also carry out an individual risk assessment that covers a worker’s specific needs when they inform you in writing that they:

• are pregnant;
• have given birth in the last 6 months; or
• are breastfeeding.

See: Protecting pregnant workers and new mothers – Overview – HSE

Do you need further guidance on this for your own workforce? We offer a wide range of services which are unique to your business. Our team of chartered accountants have a wealth of experience in a broad range of sectors, from construction and property to the charity sector. Our team work hard to ensure they create smart and effective tax-efficient solutions for start-ups to optimise growth and help them succeed. If you want to learn more about how the team can help or simply want some start-up advice from a trusted accountant do hesitate to contact us. For more information please do hesitate to contact us on 0161 962 1855. Alternatively you can email us using the form below and we will contact you as soon as possible.

Our fantastic team at A&C Chartered Accountants are here to help.

Business cash flow in tough times:

With ever-increasing supplier prices, a rise in interest rates and a looming recession, managing your business’s cash and understanding the flow are now vital tools in maintaining resilience and being able to adopt flexible strategies for success.

Cash flows are a reflection of all the cash that is flowing in and out of a business. Owners can look at the direction of the cash flows for insights into the health of specific products or services and overall market patterns.

Some types of businesses are more likely to run into cash flow problems, while other types appear to be more resilient. If you are a business owner, you might be wondering which category your business falls into. No matter how inventive or straightforward your business model is, you can still have problems with cash flow. Here are our thoughts on managing the flow of cash in your business:

The first stage of understanding and predicting how funds flow is to perform a health check on your accounts. Look at your latest profit and loss statement and check that your income is sufficient to cover your expenses. If your profit is falling behind your expenses and cash flow is slowing down, you might need to take action. Prepare a funds flow statement so you know where the money goes.

Next, create a yearly budget and look where cash could become tight and months where you can save to cover the quieter times. Look at those quieter months and think about flexible work scheduling, new products or services or other activities to tide you over.

Finally, make sure you collect your money from those who owe you quickly. Reward customer loyalty by offering early bird discounts, and set credit limits and payment terms to ensure customers follow the rules. If you take on new customers, make credit checks. Penalise late payers and request upfront deposits or payments.

Talk to us about preparing a funds flow statement and annual budget so that you can work on your business for maximum success!

Does your business need help with cash flow? We offer a wide range of services which are unique to your business & our team of chartered accountants have a wealth of experience in a broad range of sectors, from construction and property to the charity sector. Our team work hard to ensure they create smart and effective tax-efficient solutions for start-ups to optimise growth and help them succeed. If you want to learn more about how the team can help or simply want some start-up advice from a trusted accountant do hesitate to contact us. For more information please do hesitate to contact us on 0161 962 1855. Alternatively you can email us using the form below and we will contact you as soon as possible.

Our fantastic team at A&C Chartered Accountants are here to help.